RNS Number:8862B
European Goldfields Ltd
12 August 2004
Immediate Release 11 August 2004
European Goldfields Limited
Interim Results
For the three-month and six-month periods ended June 30, 2004 and 2003
(Unaudited - Prepared by Management)
(Expressed in Canadian dollars)
Introduction
The following discussion and analysis should be read in conjunction with the
consolidated financial statements of European Goldfields Limited (the "Company")
for the three-month and six-month periods ended June 30, 2004 and 2003 (the
"Consolidated Financial Statements"). Except as otherwise noted, all dollar
amounts in the following discussion and analysis and the Consolidated Financial
Statements are stated in Canadian dollars.
The Company is engaged in the acquisition, exploration and development of
precious and base metals mineral resource properties primarily in Romania and
Greece. The Company's primary focus is the continued development of its joint
venture projects in Romania and Greece.
The Company is in the process of exploring several mineral properties in Romania
and Greece and has not yet determined whether those properties contain economic
reserves. The underlying value of the mineral properties and deferred
exploration costs is dependent upon the existence and economic recovery of such
reserves, confirmation of the Company's interest in the underlying mineral
claims, the ability to raise long-term financing to complete the development of
the properties and upon future profitable production or, alternatively upon the
Company's ability to dispose of its interest on an advantageous basis, all of
which are uncertain.
Results of Operations
The Company's results of operations for the three-month and six-month periods
ended June 30, 2004 were comprised primarily of activities related to the
Company's regional exploration programs in Romania.
The breakdown of deferred exploration expenditures per exploration concessions
for the six-month period ended June 30, 2004, which totaled $2,790,825 is as
follows: $2,345,967 (84%) was incurred on the Certej Belt, $315,327 (13%) on the
Zlatna Belt and $97,028 (4%) on the Voia concession.
The Company continues to incur losses and until commercial production commences
and revenues are generated, it will continue to do so.
The results of operations for the eight most recently completed quarters are
summarised in the following tables:
--------- --------- --------- ---------
2004 2004 2003 2003
2nd Quarter 1st Quarter 4th Quarter 3rd Quarter
$ $ $ $
--------- --------- --------- ---------
Income Statement
Loss 4,751,176 7,007,542 2,157,954 409,177
Loss per share 0.12 0.24 0.11 0.01
Balance Sheet
Working capital 41,709,176 18,880,139 6,544,948 7,334,737
Total assets 111,945,025 88,914,819 59,485,286 40,404,466
Statement of Cash
Flows
Deferred exploration 1,193,690 1,597,135 1,324,522 1,345,316
expenditures --------- --------- --------- ---------
2003 2003 2002 2002
$ 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter
--------- --------- --------- ---------
Income Statement
Loss 491,208 373,044 881,293 315,306
7,007,542
Loss per share 0.02 0.02 0.04 0.01
Balance Sheet
Working capital 9,095,416 11,262,891 12,918,205 16,877,306
Total assets 40,378,492 40,900,628 41,798,205 42,806,265
Statement of Cash
Flows
Deferred exploration 1,646,105 1,214,354 1,075,639 4,205,775
expenditures
The Company incurred a loss for the six-month period ended June 30, 2004 of
$11,758,718 or $0.31 per share, compared to a loss of $864,252 or $0.04 per
share, for the same period of 2003. The Company incurred a loss for the
three-month period ended June 30, 2004 of $4,751,176 or $0.12 per share,
compared to a loss of $491,208 or $0.02 per share, for the same period of 2003.
This variation in loss can be explained by the following factors:
* The Company recorded a non-cash flow stock-based
compensation expense of $1,269,057 for the three-month period ended June 30,
2004, and of $3,846,009 for the six-month period ended June 30, 2004, as
compared to $Nil and $Nil respectively for the same periods of 2003.
During the year ended December 31, 2003, the Company chose to adopt the
accounting standard of the Canadian Institute of Chartered Accountants with
respect to the accounting for stock-based compensation for employees. The new
recommendations were applied prospectively and are detailed in the notes to the
consolidated financial statements of the Company for the year ended December 31,
2003. As a result of the adoption of the new policy, the Company now expenses
the fair value of all options granted to employees and non-employees over the
vesting period of the option. The increase in stock-based compensation in the
six-month period ended June 30, 2004 as compared with the corresponding periods
of 2003 is consistent with the increase in the number of options granted during
these periods.
* In March 2004, pursuant to the Company's Milestone Share
Compensation Plan, the Company issued 600,000 common shares to executive
directors. As a result, the Company recorded an additional non-cash flow
stock-based compensation expense of $Nil for the three-month period ended June
30, 2004, and of $1,626,000 for the six-month period ended June 30, 2004, as
compared to $Nil for the same periods of 2003.
* The Company recorded a deemed expense for financing costs
of $Nil for the three-month period ended June 30, 2004, and of $1,488,825 for
the six-month period ended June 30, 2004, as compared to $Nil and $Nil
respectively for the same periods of 2003.
* In February 2004, the Company acquired a 30 per cent
interest (on a fully-diluted basis) in Hellas Gold S.A., a joint venture company
established for the purposes of acquiring the Stratoni, Olympias and Skouries
mines, in Chalkidiki, Greece from the Greek government. The Company's share of
the loss in Hellas Gold S.A. was $1,017,308 for the three-month period ended
June 30, 2004, and $1,355,692 for the six-month period ended June 30, 2004, as
compared to $Nil for the same periods of 2003.
* In March 2004, the Company completed the listing of its
common shares on the AIM Market of the London Stock Exchange for which the
Company recorded an expense of $266,723 for the three-month period ended June
30, 2004, and of $737,432 for the six-month period ended June 30, 2004, as
compared to $Nil for the same periods of 2003.
* The Company recorded an expense of $577,811 for the
three-month period ended June 30, 2004, and of $577,811 for the six-month period
ended June 30, 2004, as compared to $Nil for the same periods of 2003, with
respect to the assessment of new project undertaken by the Company.
* The Company's administration and overhead expenses have
increased to $1,067,289 for the three-month period ended June 30, 2004, and to
$1,710,639 for the six-month period ended June 30, 2004, as compared to $274,034
and $451,443 respectively for the same periods of 2003, reflecting an increase
in the Company's exploration, financing and investment activities.
Liquidity and Capital Resources
As at June 30, 2004, the Company had cash and cash equivalents of $41,511,526,
compared to $19,409,354 at December 31, 2003, and working capital of
$41,709,176, compared to $6,544,948 at December 31, 2003.
The increase in cash and cash equivalents and working capital as at June 30,
2004, compared to the balances as at December 31, 2003, resulted from two
private placements described below and the exercise of warrants and options
during the six-month period ended June 30, 2004, partly offset by the
acquisition of investments, operating losses and exploration expenditures
discussed herein.
In February 2004, the Company raised $23.6 million by way of a non-brokered
private placing of 9,458,750 special warrants at a price of $2.50 per warrant.
The warrants were exercised, effective as of February 12, 2004, into a total of
9,458,750 common shares.
In May 2004, the Company completed a non-brokered private placing with
Commerzbank AG of 5,882,000 common shares at a price of $4.18 per shares for
total subscription proceeds of $24,6 million.
During the six-month period ended June 30, 2004, the Company received total
proceeds of $9,797,425 through the exercise of 3,918,970 share warrants at a
price of $2.50 per share. For the three-month period ended June 30, 2004,
807,500 of such share warrants were exercised for total proceeds of $2,018,750.
The Company has spending commitments totaling US$1,628,270 over the remaining
term of its Voia exploration license which expires in March 2007.
The Company has spending commitments of #97,440 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 on June 30, 2004. The first rent payment is due
on December 31, 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.
The Company believes it has adequate funds available to meet its corporate and
administrative obligations and its planned expenditures on its mineral
properties for the coming year.
New Accounting Policies
The Company adopted the following new accounting policies during the six-month
period ended June 30, 2004:
* Investments in companies and partnerships in which the
Company does not have joint control, but does have significant influence on
them, are accounted for using the equity method. The Company's share of the loss
in the equity investment of $1,017,308 for the three-month period ended June 30,
2004 and $1,355,692 for the six-month period ended June 30, 2004 has been
included in the consolidated statement of loss and deficit.
* Goodwill represents the difference between the price the
Company paid for the business, using the purchase method of accounting, and the
fair value of the net tangible assets and identifiable intangible assets
acquired. The Company will test goodwill annually for impairment, rather than
amortize goodwill over a specific period.
Acquisition of Investments
In February 2004, the Company acquired a 30 per cent interest (on a
fully-diluted basis) in Hellas Gold S.A., a joint venture company established
for the purposes of acquiring the Stratoni, Olympias and Skouries mines, in
Chalkidiki, Greece from the Greek government. Hellas Gold S.A. completed the
acquisition of these interests on January 28, 2004.
Risks and Uncertainties
Foreign Country and Political Risk. All of the property interests of the Company
and its subsidiaries (the "Group") are located in Romania and Greece and,
consequently, the Group is subject to certain risks, including currency
fluctuations and possible political or economic instability in those countries
or in the region which may result in the impairment or loss of mineral
concessions or other mineral rights, and mineral exploration and mining
activities may be affected in varying degrees by political stability and
government regulations relating to the mining industry. Any changes in
regulations or shifts in political attitudes are beyond the control of the Group
and may adversely affect its business. Exploration may be affected in varying
degrees by government regulations with respect to restrictions on future
exploitation and production, price controls, export controls, foreign exchange
controls, income taxes, expropriation of property, environmental legislation and
mine and/or site safety.
Exploration and Mining Risks. The business of exploring for minerals and mining
involves a high degree of risk. Only a small proportion of the properties that
are explored are ultimately developed into producing mines. At present, none of
the Group's properties in Romania have proven or probable reserves and the
resource estimates relating to the Greek Assets are historic: the proposed
programs are an exploratory search for proven or probable reserves. The mining
areas presently being assessed by the Group may not contain economically
recoverable volumes of minerals or metals. The operations of the Group may be
disrupted by a variety of risks and hazards which are beyond the control of the
Company, including fires, power outages, labour disruptions, flooding,
explosions, cave-ins, land slides and the inability to obtain suitable or
adequate machinery, equipment or labour and other risks involved in the
operation of mines and the conduct of exploration programs. The Group has relied
and may continue to rely, upon consultants and others for operating expertise.
Should economically recoverable volumes of minerals or metal be found,
substantial expenditures are required to establish reserves through drilling, to
develop metallurgical processes, to develop the mining and processing facilities
and infrastructure at any site chosen for mining. Although substantial benefits
may be derived from the discovery of a major mineralised deposit, no assurance
can be given that minerals will be discovered in sufficient quantities or having
sufficient grade to justify commercial operations or that funds required for
development can be obtained on a timely basis. The economics of developing gold
and other mineral properties is affected by many factors including the cost of
operations, variations of the grade of ore mined, fluctuations in the price of
gold or other minerals produced, costs of processing equipment and such other
factors as government regulations, including regulations relating to royalties,
allowable production, importing and exporting of minerals and environmental
protection. In addition, the grade of mineralisation ultimately mined may differ
from that indicated by drilling results and such differences could be material.
Short term factors, such as the need for the orderly development of ore bodies
or the processing of new or different grades, may have an adverse effect on
mining operations and on the results of operations. There can be no assurance
that minerals recovered in small scale laboratory tests will be duplicated in
large scale tests under on-site conditions or in production scale operations.
Material changes in geological resources, grades, stripping ratios or recovery
rates may affect the economic viability of projects. Depending on the price of
gold or other minerals produced, which have fluctuated widely in the past, the
Group may determine that it is impractical to commence or continue commercial
production.
Financing Risks. The Existing Directors and the Proposed Directors are of the
opinion having made due and careful enquiry that, the working capital available
to the Company and the Group will be sufficient for its present requirements,
that is for at least the next 12 months. Thereafter, further exploration and
development of one or more of the Group's properties will be dependent upon the
Group's ability to obtain financing through joint ventures, equity or debt
financing or other means, and although the Group has been successful in the past
in obtaining financing through the sale of equity securities, there can be no
assurance that the Group will be able to obtain adequate financing in the future
or that the terms of such financing will be favourable. Failure to obtain such
additional financing could result in delay or indefinite postponement of further
exploration and development of its projects with the possible loss of such
properties.
No Experience of Development-Stage Mining Operations. The Group has no previous
experience in placing resource properties into production and its ability to do
so will be dependent upon using the services of appropriately experienced
personnel or entering into agreements with other major resource companies that
can provide such expertise. There can be no assurance that the Group will have
available to it the necessary expertise when and if it places its resource
properties into production.
Estimates of Mineral Resources and Production Risks. Mineral resource estimates
are estimates only and no assurance can be given that any proven or probable
reserves will be discovered or that any particular level of recovery of minerals
will in fact be realised or that an identified reserve or resource will ever
qualify as a commercially mineable (or viable) deposit which can be legally and
economically exploited. In addition, the grade of mineralisation which may
ultimately be mined may differ from that indicated by drilling results and such
differences could be material. Production can be affected by such factors as
permitting regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological formations
and work interruptions. Estimated resources should not be interpreted as
assurances of commercial viability, potential or profitability of any future
operations.
Mineral Prices. The mineral exploration and development industry in general is
intensely competitive and there is no assurance that, even if commercial
quantities of proven and probable reserves are discovered, a profitable market
may exist for the sale of the same. Factors beyond the control of the Group may
affect the marketability of any substances discovered. Mineral prices have
fluctuated widely, particularly in recent years. The marketability of minerals
is also affected by numerous other factors beyond the control of the Group,
including government regulations relating to price, royalties, allowable
production and importing and exporting of minerals, the effect of which cannot
accurately be predicted.
Uninsured Risks. In the course of exploration, development and production of
mineral properties, certain risks, and in particular, unexpected or unusual
geological operating conditions including rock bursts, cave-ins, fire, flooding
and earthquakes may occur. It is not always possible to fully insure against
such risks as a result of high premiums or other reasons. Should such
liabilities arise, they could reduce or eliminate any future profitability and
result in increased costs, have a material adverse effect on the Group's results
and a decline in the value of the securities of the Company.
Competition. The Group will compete with many companies and individuals that
have substantially greater financial and technical resources than the Group for
the acquisition of mineral concessions as well as for the recruitment and
retention of qualified employees.
Environmental and other Regulatory Requirements. The activities of the Group are
subject to environmental regulations promulgated by government agencies from
time to time. Environmental legislation generally provides for restrictions and
prohibitions on spills, releases or emissions of various substances produced in
association with certain mining industry operations, such as seepage from
tailings disposal areas, which would result in environmental pollution. A breach
of such legislation may result in imposition of fines and penalties. In
addition, certain types of operations require the submission and approval of
environmental impact assessments. Environmental legislation is evolving in a
manner which means stricter standards, and enforcement, fines and penalties for
non-compliance are more stringent. Environmental assessments of proposed
projects carry a heightened degree of responsibility for companies and their
directors, officers and employees. The cost of compliance with changes in
governmental regulations has a potential to reduce the profitability of
operations.
The current exploration activities of the Group require permits from various
governmental authorities and such operations are and will be governed by laws
and regulations governing prospecting, labour standards, occupational health,
waste disposal, toxic substances, land use, environmental protection, safety and
other matters. Companies engaged in exploration activities generally experience
increased costs and delays as a result of the need to comply with applicable
laws, regulations and permits. There can be no assurance that all permits which
the Group may require for exploration will be obtainable on reasonable terms or
on a timely basis, or that such laws and regulations would not have an adverse
effect on any project that the Group may undertake. The Group believes it is in
substantial compliance with all material laws and regulations which currently
apply to its activities. However, there may be unforeseen environmental
liabilities resulting from exploration and/or mining activities and these may be
costly to remedy.
Failure to comply with applicable laws, regulations, and permitting requirements
may result in enforcement actions there under, including orders issued by
regulatory or judicial authorities causing operations to cease or to be
curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment, or remedial actions. Parties engaged in
exploration operations may be required to compensate those suffering loss or
damage by reason of the exploration activities and may have civil or criminal
fines or penalties imposed for violations of applicable laws or regulations and,
in particular, environmental laws.
Amendments to current laws, regulations and permits governing operations and
activities of exploration companies, or more stringent implementation thereof,
could have a material adverse impact on the Group and cause increases in
expenditures and costs, or require abandonment, or cause delays in developing
new mining properties.
Exploration, Mining and Other Licenses. The Group's exploration and mining
activities are dependent upon the grant of appropriate licenses, concessions,
leases, permits and regulatory consents ("Authorisations") which may not be
granted or may be withdrawn or made subject to limitations. There can be no
assurance that such Authorisations will be renewed following expiry or granted
(as the case may be) or as to the terms of such grants or renewals.
Title Matters. The acquisition of title to mineral concessions in Romania and
Greece is a detailed and time consuming process. Title to and the area of mining
concessions may be disputed. While the Group has diligently investigated title
to all mineral concessions and, to the best of its knowledge, title to all of
its properties is in good standing; this should not be construed as a guarantee
of title. Title to the properties may be affected by undisclosed and undetected
defects.
Conflicts of Interest. The directors and officers of the Company may serve as
directors or officers of other companies or have significant shareholdings in
other resource companies and, to the extent that such other companies may
participate in ventures in which the Group may participate, the directors of the
Company may have a conflict of interest in negotiating and concluding terms
respecting the extent of such participation. In the event that such a conflict
of interest arises at a meeting of the directors of the Company, a director who
has such a conflict will abstain from voting for or against the approval of such
a participation or such terms. From time to time several companies may
participate in the acquisition, exploration and development of natural resource
properties thereby allowing for their participation in larger programs,
permitting involvement in a greater number of programs and reducing financial
exposure in respect of any one program. It may also occur that a particular
company will assign all or a portion of its interest in a particular program to
another of these companies due to the financial position of the company making
the assignment. In accordance with the laws of the Yukon Territory, the
directors of the Company are required to act honestly, in good faith and in the
best interests of the Company. In determining whether or not the Company will
participate in a particular program and the interest therein to be acquired by
it, the directors will primarily consider the degree of risk to which the
Company may be exposed and its financial position at that time.
Repatriation of Earnings. Currently there are no restrictions on the
repatriation from Romania and Greece of earnings to foreign entities. However,
there can be no assurance that restrictions on repatriation of earnings from
Romania and Greece will not be imposed in the future.
Dependence on Management. The Group's development to date has largely depended
and in the future will continue to depend on the efforts of key management. Loss
of any of these people could have a material adverse effect on the Group and its
business. The Company has not taken out and does not intend to take out key man
insurance in respect of any Existing Directors, Proposed Director or other
employees.
Joint Ventures. Members of the Group hold, and expect to hold in the future,
interests in joint ventures. Joint ventures may involve special risks associated
with the possibility that the joint venture partners may (i) have economic or
business interests or targets that are inconsistent with those of the Group;
(ii) take action contrary to the Group's policies or objectives with respect to
their investments, for instance by veto of proposals in respect of joint venture
operations; (iii) be unable or unwilling to fulfill their obligations under the
joint venture or other agreements; or (iv) experience financial or other
difficulties. Any of the foregoing may have a material adverse effect on the
results of operations or financial condition of the Group. In addition, the
termination of certain of these joint venture agreements, if not replaced on
similar terms, could have a material adverse effect on the results of operations
or financial condition of the Group.
Share Price Fluctuations. In recent years, the securities markets have
experienced a high level of price and volume volatility, and the market price of
securities of many companies, particularly those considered to be development
stage companies, have experienced wide fluctuations in price which have not
necessarily been related to the operating performance, underlying asset values
or prospects of such companies.
General Economic Conditions. Changes in the general economic climate in which
the Group operates may adversely affect the financial performance of the Group.
Factors which may contribute to that general economic climate include the level
of direct and indirect competition against the Group, industrial disruption, the
rate of growth of gross domestic product, interest rates and the rate of
inflation for each country in which the Group operates.
AIM. The common shares trade on AIM rather than the Official List of the UK
Listing Authority. An investment in shares traded on AIM may carry a higher risk
than an investment in shares quoted on the Official List. Investors should be
aware that the value of the common shares may be volatile and may go down as
well as up and investors may therefore not recover their original investment,
especially as the market in the common shares on AIM may have limited liquidity.
The market price of the common shares may not reflect the underlying value of
the Company's net assets.
The price at which investors may dispose of their shares in the Company may be
influenced by a number of factors, some of which may pertain to the Company, and
others of which are extraneous. Investors may realise less than the original
amount invested.
Legislative Changes. Changes in governmental regulations and policies may
adversely affect the financial performance of the Group. Future Romanian and
Greek legislation and regulations relating to labour may further increase the
Group's costs or otherwise alter the Group's relationship with its employees.
Tax Risk on Migration. The Company is currently resident for fiscal purposes in
Canada. Any subsequent relocation of the Company (by reference to the location
of its management or otherwise) may give rise to a significant tax charge.
Enforcement of Civil Liabilities. As substantially all of the assets of the
Company and its subsidiaries are located outside of Canada and the UK, and
certain of the directors and officers of the Company are resident outside of
Canada and the UK, it may be difficult or impossible to enforce judgments
granted by a court in Canada or the UK against the assets of the Company and its
subsidiaries or the directors and officers of the Company residing outside of
Canada or the UK.
Currency Fluctuations. The Group's operations in Romania and Greece make it
subject to foreign currency fluctuations and such fluctuations may materially
affect the Group's financial position and results.
Outlook
The Company intends to continue to grow its portfolio of assets by investigating
projects of interests within its area of strategic focus of operations. As well,
the Company will define work programs for its Greek assets in partnership with
its local partner and continue its exploration programme for its mineral
properties in Romania.
Outstanding Share Data
As at the date of this document, the Company's outstanding voting or equity
securities and other securities convertible into such voting or equity
securities, are as follows:
Preferred shares: Nil
Common shares: 50,840,803
Common share options 4,200,000
Common share broker warrants: 415,498
Other Information
Additional information relating to the Company is available on the Canadian
System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.
Forward-looking Statements
This document contains certain forward-looking statements concerning the
Company's future operations, economic performances, financial conditions and
financing plans. These statements are based on certain assumptions and analyses
made by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors the Company believes are appropriate in the circumstances. However,
whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks, uncertainties and
assumptions. Consequently, all of the forward-looking statements made in this
document are qualified by these cautionary statements, and there can be no
assurance that the results or developments anticipated by the Company will be
realised or, even if substantially realised, that they will have the expected
consequences to or effects on the Company and its subsidiaries or their
businesses or operations. The Company undertakes no obligation and does not
intend to update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise, except as may be required under
applicable law.
Date
The date of this document is August 11, 2004.
Disclosure of auditor review of interim consolidated financial statements
The interim consolidated financial statements of the Company for the three-month
and six-month periods ended June 30, 2004 and 2003 have not been reviewed by the
auditors of the Company.
Consolidated Blanance Sheets
As at June 30, 2004 and December 31, 2003
(Unaudited - prepared by Management)
(Canadian Dollars)
June 30, December 31,
2004 2003
$ $
(Unaudited) (Audited)
Assets
Note
Current assets
Cash and cash equivalents 41,511,526 19,409,354
Short-term investments - 4,000,000
Accounts receivable, prepaid expenses and 1,379,712 2,591,094
supplies ----------- ----------
42,891,238 26,000,448
Non current assets
Equity investment 5 32,661,235 -
Plant and equipment 3 635,662 629,790
Mineral properties and deferred exploration 4 35,756,890 32,855,048
costs ----------- ----------
111,945,025 59,485,286
----------- ----------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 1,182,062 918,668
Convertible loan notes - 18,536,832
----------- ----------
1,182,062 19,455,500
Shareholders' equity
Capital stock and warrants 6 122,518,927 42,840,058
Contributed surplus 6 5,982,944 3,169,918
Deficit (17,738,908) (5,980,190)
----------- ----------
110,762,963 40,029,786
----------- ----------
111,945,025 59,485,286
----------- ----------
Approved by the Board of Directors
David Grannell Glenn Featherby
Director Director
Consolidated Statement of Loss and Deficit
For the three month and sixth month periods ended June 30, 2004 and 2003
(Unaudited - prepared by Management)
(Canadian Dollars)
3 months ended June 30, 6 months ended June 30,
2004 2003 2004 2003
$ $ $ $
Note
General and administrative
expenses
Administrative and 1,067,289 274,034 1,710,639 451,443
overhead costs
Audit, accounting, legal 685,465 310,563 1,198,099 583,840
and other professional
fees
Aim Listing expense 266,723 - 737,432 -
Capital raising costs - - - 1,488,825 -
Convertible loan notes
Share option compensation 1,269,057 - 3,846,009 -
expense
Milestone share - - 1,626,000 -
compensation expense
Foreign exchange gain (91,729) - (719,727) -
Interest income (80,090) (95,649) (104,087) (175,552)
Business development - New 577,811 - 577,811 -
project evaluation
Amortization 5,931 2,260 8,614 4,521
Share of loss in 5 1,017,308 - 1,355,692 -
equity investment -------- -------- -------- --------
Loss for the period before 4,717,765 491,208 11,725,307 864,252
income tax
Income taxes 33,411 - 33,411 -
-------- -------- -------- --------
Loss for the period 4,751,176 491,208 11,758,718 864,252
Deficit - Beginning of 12,987,732 2,921,851 5,980,190 2,548,807
period -------- -------- -------- --------
Deficit - End of period 17,738,908 3,413,059 17,738,908 3,413,059
-------- -------- -------- --------
Loss per share 9 0.12 0.02 0.31 0.04
-------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Changes in Equity
As at June 30, 2004 and December 31, 2003
(Unaudited - prepared by Management)
(Canadian Dollars)
Capital Contributed Deficit Total
Stock Surplus $ $
$ $
Balance - December 31, 42,833,058 467,557 (2,548,807) 40,751,808
2002
Loss for the period - - (864,252) (864,252)
--------- --------- --------- ---------
Balance - June 30, 42,833,058 467,557 (3,413,059) 39,887,556
2003
Share options 7,000 - - 7,000
exercised
Share option - 1,395,272 - 1,395,272
compensation expense
Equity component of - 991,568 - 991,568
convertible loan
notes
Capital raising costs - - (92,913) - (92,913)
convertible loan
notes
Broker warrants - 408,434 - 408,434
expense
Loss for the period - - (2,567,131) (2,567,131)
--------- --------- --------- ---------
Balance - December 31, 42,840,058 3,169,918 (5,980,190) 40,029,786
2003
Shares issued on 19,528,400 - - 19,528,400
conversion of
convertible loan
Shares issued from non 47,951,413 - - 47,951,413
brokered private
placements
Share options 1,075,000 - - 1,075,000
exercised
Warrants exercised 9,797,425 - - 9,797,425
Milestone shares issued 1,626,000 - - 1,626,000
as compensation
Share issue costs (299,369) - - (299,369)
Transfer of broker
warrant related expense
to share issue cost
- (105,142) - (105,142)
Transfer of equity
component of
convertible loan note
to capital stock
- (991,568) - (991,568)
Transfer of capital
raising costs on
convertible loan
notes
- 92,913 - 92,913
Share option - 3,846,009 - 3,846,009
compensation expense
Transfer of share
option compensation
upon exercise of
options
- (29,186) - (29,186)
Loss for period - - (11,758,718) (11,758,718)
--------- --------- --------- ---------
Balance - June 30, 122,518,927 5,982,944 (17,738,908) 110,762,963
2004 --------- --------- --------- ---------
Consolidated Statements of Cash Flows
For the three month and sixth month periods ended June 30, 2004 and 2003
(Unaudited - prepared by Management )
(Canadian Dollars)
3 months ended June 30, 6 months ended June 30,
2004 2003 2004 2003
$ $ $ $
Note
Cash flows from operating
activities
Loss for the period (4,751,176) (491,208) (11,758,718) (864,252)
Amortization 5,931 2,260 8,614 4,521
Capital raising costs - - - 1,488,825 -
Convertible loan notes
Share option compensation 1,269,057 - 3,846,009 -
expense
Milestone share compensation - - 1,626,000 -
expense
Loss on disposal of - - 3,041 -
equipment
Share of loss in equity 5 1,017,308 - 1,355,692 -
investment
Net changes in non-cash (647,732) (91,974) (450,510) (369,656)
working capital --------- --------- --------- ---------
(3,106,612) (580,922) (3,881,047) (1,229,387)
--------- --------- --------- ---------
Cash flows from investing
activities
Exploration expenditures (1,193,690) (1,646,105) (2,790,827) (2,860,459)
Short term investment 1,765,000 - 4,000,000 -
Acquisition of investment (464,458) - (33,580,462) -
Proceeds from disposal of - - 29,187 -
capital assets
Purchase of equipment (100,147) (32,423) (157,730) (103,157)
--------- --------- --------- ---------
6,705 (1,678,528) (32,499,832) (2,963,616)
--------- --------- --------- ---------
Cash flows from financing
activities
Proceeds from exercise of 2,018,750 - 9,797,425 -
share purchase warrants
Proceeds from non brokered 24,304,538 - 47,951,413 -
private placement
Capital raising costs - Non
brokered private placement
(9,578) - (340,787) -
Proceeds from exercise of 732,500 - 1,075,000 -
share options --------- --------- --------- ---------
27,046,210 - 58,483,051 -
--------- --------- --------- ---------
Decrease in cash and cash 23,946,303 (2,259,450) 22,102,172 (4,193,003)
equivalents
Cash and cash equivalents - 17,565,223 11,285,036 19,409,354 13,218,589
Beginning of period --------- --------- --------- ---------
Cash and cash equivalents - 41,511,526 9,025,586 41,511,526 9,025,586
End of period --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to Consolidated Financial Statements
For the three month and sixth month periods ended June 30, 2004 and 2003
(Unaudited - prepared by Management )
(Canadian Dollars)
1. Nature of operations
European Goldfields Limited (the "Company") is in the process of exploring its
mineral properties in Romania and has not yet determined whether those
properties contain economic reserves. The underlying value of the mineral
properties and deferred exploration costs is dependent upon the existence and
economic recovery of such reserves in the future, and the ability to raise
long-term financing to complete the development of the properties.
The Company believes it has adequate funds available to meet its corporate and
administrative obligations for the coming year and its planned expenditures on
its mineral properties.
These consolidated financial statements have been prepared on a going concern
basis, which assumes the Company will be able to realize assets and discharge
liabilities in the normal course of business for the foreseeable future. These
consolidated financial statements do not include the adjustments that would be
necessary should the Company be unable to continue as a going concern.
2. Significant accounting policies
The interim consolidated financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in Canada using the
same accounting policies as those disclosed in note 2 to the Company's audited
consolidated financial statements for the year ended December 31, 2003. The
directors consider that there are no material differences between amounts
reported under Canadian GAAP and those that would result from the application of
International Accounting Standards (IAS).
The Company adopted the following accounting policies during the year:
Basis of consolidation
Investments in companies and partnerships in which the Company does not have
joint control, but does have significant influence on them, are accounted for
using the equity method.
Goodwill represents the difference between the price the Company paid for the
business, using the purchase method of accounting, and the fair value of the net
tangible assets and identifiable intangible assets acquired. The Company will
test goodwill annually for impairment, rather than amortize goodwill over a
specific period.
These interim consolidated financial statements should be read in conjunction
with the Company's audited annual consolidated financial statements for the year
2003.
3. Plant and equipment
June 30, June 30,
2004 2003
$ $
Vehicles 575,297 560,417
Field/Office equipment 560,417 437,046
---------- ---------
1,135,714 997,463
Less: Accumulated amortization 500,052 297,139
---------- ---------
635,662 700,324
---------- ---------
4. Mineral properties and deferred exploration costs
Baita-
Certej Zlatna Bolcana Craciunest Voia Total
$ $ $ $ $ $
Balance - 21,587,477 5,556,601 2,730,276 2,629,781 350,913 32,855,048
December 31,
2003
Drilling and 823,503 190,818 1,774 28,841 1,797 1,046,733
assaying
Geosciences 379,105 37,564 - 2,882 26,928 446,479
and technical
consulting
Samplers, 27,670 3,139 148 120 4,290 35,367
miners and
surveying
Project 609,715 (6,881) (1,482) (9,127) 150 592,375
management
Project 505,975 90,687 178 9,170 63,864 669,874
overhead
Amortization 77,711 11,101 11,101 11,101 - 111,014
-------- -------- -------- -------- -------- --------
2,423,679 326,428 11,719 42,987 97,029 2,901,842
-------- -------- -------- -------- -------- --------
Balance - June 24,011,156 5,883,029 2,741,995 2,672,768 447,942 35,756,890
30, 2004 -------- -------- -------- -------- -------- --------
Romanian mineral properties
The Company's 80% owned subsidiary, Deva Gold S.A. ("Deva Gold"), holds a 100%
interests in four mineral resource properties in Romania. Exploitation licenses
have been issued to Deva Gold as titleholder for the Certej, Zlatna and Bolcana
projects. An exploration license has been issued to Deva Gold as titleholder for
the Baita-Craciunesti project. Minvest S.A., together with three private
Romanian companies, holds a 20% interest in Deva Gold and the Company holds the
pre-emptive right to acquire such 20% interest. The Company's 100% owned
subsidiary, European Goldfields (Romania) SRL, holds a 100% interest in the Voia
exploration license.
The Company is required to fund 100% of all expenditure related to the
exploration and development of these properties. The Company holds a
preferential right to recover all funding plus interest from future cash flows
prior to the shareholders receiving dividends.
Individual property spending commitments for the Certej, Zlatna, Bolcana and
Baita-Craciunesti licenses have been met as at December 31, 2003.
5. Equity investment
June 30, June 30,
2004 2003
$ $
Cost 30,177,000 -
Additions to investment 3,839,927 -
--------- ---------
34,016,927 -
Loss (1,355,692) -
--------- ---------
Balance at 30 June, 2004 32,661,235 -
========= =========
A 37.98% (30% on a fully diluted basis) indirect investment in Hellas Gold S.A.
Hellas Gold owns assets in Greece which include mining concessions over a total
area of 314 square kilometres including two deposits known as the Olympias and
Skouries deposits, together with two existing producing mines, known as the
Stratoni Mine, base metal mining facilities and a ship loading facility on the
Aegean Sea
The difference between the carrying value of the investment and the Company's
37.98% share of the net assets of Hellas Gold S.A. $ 19,177,129 is represented
by goodwill. The goodwill will be tested for impairment on an annual basis.
Summary financial information of the equity investment converted at the quarter
end exchange rate is as follows:
June 30,
2004
$
Current assets 18,141,744
Non current assets 18,128,016
Current liabilities (766,585)
---------
Net equity 35,503,175
=========
Sales 119,436
Interest income 139,258
Operating costs (3,828,183)
---------
Net loss (3,569,489)
=========
6. Capital stock
Authorized:
Unlimited number of non par value common shares
Unlimited number of non par value preferred shares, issuable in series
Issued and outstanding:
Number of Amount
shares $
Common shares
Balance - December 31, 2003 22,021,126 42,840,058
Shares issued on conversion of convertible loan 8,309,957 19,528,400
Shares issued from non brokered private placement 9,458,750 23,646,875
(a)
Shares issued from non brokered private placement 5,882,000 24,304,538
(b)
Share options exercised 650,000 1,075,000
Warrants exercised 3,918,970 9,797,425
Milestone shares issued as compensation 600,000 1,626,000
Share issue costs - (299,369)
--------- ---------
Balance - June 30, 2004 50,840,803 122,518,927
--------- ---------
a) In February 2004, the Company raised $23.6 million by way of non-brokered
private placement of 9,458,750 special warrants at a price of $2.50 per warrant.
The warrants were exercised, effective as of February 12, 2004, into a total of
9,458,750 common shares.
b) In May 2004, the Company completed a non-brokered private placing with
Commerzbank AG of 5,882,000 common shares at a price of $4.18 per shares for
total subscription proceeds of $24,6 million.
Contributed surplus
2004 2003
$ $
Share option compensation expense 5,212,095 1,395,272
Equity component of convertible loan notes - 991,568
Capital raising costs - Convertible loan notes - (92,913)
Brokers warrants 770,849 875,991
--------- ---------
5,982,944 3,169,918
--------- ---------
7. Share options
The Company operates a Share Option Plan authorising the directors to grant
options to acquire common shares to the directors, officers, employees and
consultants of the Company. The exercise price of the options equals the closing
price on the day prior to the option grant.
As at June 30, 2004, outstanding share options were as follows:
Number of Exercise price
options
$
Expiry date
2004 300,000 1.40
2004 50,000 2.04
2004 500,000 2.05
2004 75,000 2.20
2004 150,000 2.50
2005 15,000 1.40
2005 200,000 2.50
2005 500,000 2.80
2006 211,000 1.40
2006 64,000 2.50
2007 300,000 2.50
2008 175,000 2.20
2009 1,120,000 2.80
2009 265,000 3.80
2009 275,000 4.20
--------- ---------
4,200,000 2.59
========= =========
During the period ended June 30, 2004, share options were issued, exercised and
expired as follows:
Weighted
average
exercise price
$
Number of
options
Balance - December 31, 2003 2,690,000 1.96
Options granted - 2004 2,275,000 3.10
Options exercised - 2004 (650,000) 1.57
Options cancelled - 2004 (115,000) 3.10
--------- ---------
Balance - June 30, 2004 4,200,000 2.59
--------- ---------
As at the 30th June 2004, 3,755,000 share options were fully exercisable at a
weighted average price of $2.53.
On 9th March 2004, the company granted 1,225,000 fully vested share options to
directors and 485,000 share options (of which 50% vest in November 2004 and 50%
in August 2005) to employees and consultants; all are exercisable at $2.80 per
common share and expire five years from the date granted.
On 5th May 2004, the company granted 250,000 fully vested share options to
directors and 50,000 share options (of which 50% vest in February 2005 and 50%
in November 2005) to employees; all are exercisable at $4.20 per common share
and expire five years from date granted.
On the 16th June 2004, the company granted 240,000 fully vested share options
and 25,000 options (50% of which vest in March 2005 and 50% in December 2005) to
employees; all are exercisable at $3.20 per common share and expire five years
from the date granted.
The weighted average grant-date fair value of 2,275,000 share options granted
during the period ended June 30, 2004 was $3,846,009. A compensation cost has
been recognised in the income statement for theses share options.
The fair value of the 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 4.0% (2003 - 4.3%); volatility
factor of the expected market price of the Company's shares of 66.3% (2003 -
93.4%); and a weighted average expected life of the options of 4 to 5 years
(2003 - 5 years).
8. Warrants
As at June 30, 2004, the following common share purchase warrants were
outstanding:
Numbers of Exercise price
Expiry date warrants $
----------- ------------ ------------
Broker warrants June 12, 2005 415,498 2.35
----------- ------------ ------------
415,498 2.35
----------- ------------ ------------
During the period ended June 30, 2004, warrants were issued, exercised and
expired as follows:
Weighted
Average
Exercise Price
$
Number of
Warrants
Balance - December 31, 2003 4,655,498 2.49
Warrants granted - 2004 9,458,750 2.50
Warrants exercised - 2004 (13,377,720) 2.50
Warrants expired - 2004 (321,030) 2.50
--------- ---------
Balance - June 30, 2004 415,498 2.35
--------- ---------
9. Loss per share (LPS)
LPS is calculated based on the weighted average number of common shares issued
and outstanding during the year being 38,283,702 (March 2004 - 28,715,758).
Diluted per share amounts are calculated using the treasury stock method whereby
proceeds deemed to be received on the exercise of options and warrants in the
per share calculation are applied to reacquire common shares. The effect of
potential issuances of shares under options and warrants would be anti-dilutive,
and accordingly basic and diluted loss per share are the same.
10. Segmented information
The Company has one operating segment: the acquisition, exploration and
development of precious and base metal mineral resources properties located
principally in Romania.
Geographic segmentation of plant and equipment and deferred exploration
costs is as follows:
June 30, June 30,
2004 2003
$ $
Romania 36,267,989 30,768,749
Canada 124,563 23,392
--------- ---------
36,392,552 30,792,141
--------- ---------
11. Commitments
The Company has spending commitments totalling US$1,628,270 over the remaining
term of its Voia exploration licence which expires in March 2007.
The Company has spending commitments of #97,440 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 on June 30, 2004. The first rent payment is due
on December 31, 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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