TIDMEGU
RNS Number : 0706S
European Goldfields Ltd
12 May 2009
European Goldfields Limited
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2009
The following discussion and analysis, prepared as at 12 May 2009, is intended
to assist in the understanding and assessment of the trends and significant
changes in the results of operations and financial conditions of European
Goldfields Limited (the "Company"). Historical results may not indicate future
performance. Forward-looking statements are subject to a variety of factors that
could cause actual results to differ materially from those contemplated by these
statements. The following discussion and analysis should be read in conjunction
with the Company's unaudited consolidated financial statements for the
three-month periods ended 31 March 2009 and 2008 and accompanying notes (the
"Consolidated Financial Statements").
Additional information relating to the Company, including the Company's Annual
Information Form, is available on the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com.
Except as otherwise noted,
all dollar amounts in the following discussion and analysis and the Consolidated
Financial Statements are stated in United States dollars.
Overview
The Company, a company incorporated under the Yukon Business Corporations Act,
is a resource company involved in the acquisition, exploration and development
of mineral properties in Greece, Romania and South-East Europe.
The Company's Common Shares are listed on the AIM Market of London Stock
Exchange plc and on the Toronto Stock Exchange (TSX) under the symbol "EGU".
Greece - European Goldfields holds a 95% interest in Hellas Gold S.A. Hellas
Gold owns three major gold and base metal deposits in Northern Greece. The
deposits are the polymetallic operation at Stratoni, the Olympias project which
contains gold, zinc, lead and silver, and the Skouries copper/gold porphyry
project. Hellas Gold commenced production at Stratoni in September 2005 and
commenced selling an existing stockpile of gold concentrates from Olympias in
July 2006. Hellas Gold is applying for permits to develop the Skouries and
Olympias projects.
Romania - European Goldfields owns 80% of the Certej gold/silver project in
Romania. In July 2008, the National Agency of Mineral Resources approved the
technical feasibility study in support of its permit application and issued a
new mining permit for the Certej project.
Results of operations
The Company's results of operations for the three-month period ended 31
March 2009 were comprised primarily of activities related to the results of
operations of the Company's 95%-owned subsidiary Hellas Gold in Greece and the
Company's exploration and development program in Romania. Hellas Gold's
operational results for the eight most recently completed quarters are
summarised in the following tables:
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Stratoni Mine (Greece) |
+----------------------------------------------------------------------------------------------------------+
| | 2009 | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 |
| | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Inventory (start of | | | | | | | | |
| period) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Ore mined (wet tonnes) | 1,778 | 6,489 | 1,003 | 2,816 | - | 4,868 | 4,603 | 843 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Zinc concentrate | 2,975 | 2,078 | 5,660 | 2,745 | 1,689 | 2,797 | 2 | 3,524 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead/silver concentrate | 488 | 1,294 | 1,238 | 2,213 | 49 | 2,042 | 2,150 | 1,846 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Production | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Ore mined (wet tonnes) | 56,892 | 70,468 | 69,847 | 73,137 | 58,208 | 50,643 | 56,075 | 53,088 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Ore milled (tonnes) | 52,984 | 73,320 | 63,040 | 73,280 | 53,675 | 53,813 | 54,499 | 48,179 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Average grade: Zinc | 7.85 | 8.80 | 8.82 | 10.37 | 9.37 | 9.00 | 8.42 | 11.57 |
| (%) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead (%) | 6.42 | 6.54 | 6.40 | 6.21 | 5.35 | 8.12 | 7.55 | 9.14 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Silver (g/t) | 166 | 167 | 160 | 155 | 134 | 206 | 186 | 232 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Zinc concentrate | 7,932 | 12,106 | 10,451 | 14,139 | 9,427 | 9,082 | 8,506 | 10,485 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Containing: Zinc | 3,827 | 5,914 | 5,132 | 7,004 | 4,644 | 4,425 | 4,194 | 5,170 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead concentrate | 4,667 | 6,750 | 5,531 | 6,443 | 4,035 | 6,012 | 5,586 | 5,955 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Containing: Lead | 3,129 | 4,434 | 3,726 | 4,201 | 2,653 | 4,021 | 3,781 | 4,109 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Silver (oz) | 240,366 | 336,336 | 280,305 | 316,354 | 207,215 | 316,837 | 297,059 | 328,879 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Sales | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Zinc concentrate | 10,306 | 11,210 | 14,033 | 11,224 | 8,371 | 10,191 | 5,710 | 14,007 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Containing payable: | 4,152 | 4,591 | 5,818 | 4,633 | 3,454 | 4,209 | 2,364 | 5,855 |
| Zinc (tonnes)* | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead concentrate | 3,762 | 7,556 | 5,475 | 7,418 | 1,872 | 8,004 | 5,694 | 5,651 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Containing payable: | 2,347 | 4,775 | 3,495 | 4,628 | 1,188 | 5,082 | 3,759 | 3,636 |
| Lead (tonnes)* | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Silver (oz)* | 183,504 | 363,205 | 263,464 | 355,298 | 95,582 | 399,272 | 297,321 | 285,349 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Cash operating cost per | 156 | 145 | 164 | 161 | 164 | 175 | 144 | 135 |
| tonne milled ($) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Cash operating cost per | 119 | 109 | 109 | 103 | 110 | 121 | 105 | 100 |
| tonne milled (EUR) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Inventory (end of | | | | | | | | |
| period) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Ore mined (wet tonnes) | 4,010 | 1,778 | 6,489 | 1,003 | 2,816 | - | 4,868 | 4,603 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Zinc concentrate | 602 | 2,975 | 2,078 | 5,660 | 2,745 | 1,689 | 2,797 | 2 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead/silver concentrate | 1,393 | 488 | 1,294 | 1,238 | 2,213 | 49 | 2,042 | 2,150 |
| (tonnes) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Financial information | | | | | | | | |
| (in thousands of US | | | | | | | | |
| dollars) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Sales ($) | 4,935 | 8,465 | 13,250 | 13,000 | 10,097 | 18,483 | 16,634 | 22,866 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Gross profit ($) | (4,345) | (7,060) | 171 | (198) | 3,060 | 6,147 | 8,425 | 13,991 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Capital expenditure ($) | 4,214 | 3,543 | 2,496 | 2,086 | 3,111 | 3,779 | 12,142 | 4,673 |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Amortisation and | 1,320 | 1,827 | 1,571 | 1,215 | 997 | 2,000 | 1,256 | 837 |
| depletion ($) | | | | | | | | |
+--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
*Net of smelter payable deductions
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
| Sale of Gold-Bearing Concentrates from Existing Stockpile at Olympias (Greece) |
+--------------------------------------------------------------------------------------------------+
| | 2009 | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 |
| | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 |
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
| Sales | | | | | | | | |
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
| Gold concentrate (dmt) | 26,832 | 18,566 | 12,710 | 22,479 | 9,778 | 21,385 | 28,393 | 12,686 |
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
| | | | | | | | | |
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
| Financial information | | | | | | | | |
| (in thousands of US | | | | | | | | |
| dollars) | | | | | | | | |
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
| Sales ($) | 5,807 | 4,309 | 2,851 | 5,461 | 2,611 | 4,232 | 5,029 | 2,078 |
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
| Gross profit ($) | 4,003 | 2,995 | 1,222 | 3,668 | 1,789 | 1,279 | 2,848 | 958 |
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
| Amortisation and | 153 | 106 | 72 | 129 | 56 | (134) | 265 | 76 |
| depletion ($) | | | | | | | | |
+--------------------------+--------+--------+--------+--------+-------+---------+--------+--------+
Realised lead and zinc prices for the quarter remained low, and lower tonnages
of higher value lead concentrate were sold resulting in lower base metal
revenues for Q1 2009 compared to Q4 2008. However, sales of Olympias gold
concentrates were up 45% resulting in a revenue increase of 35%.
Q1 2009 unit operating costs were impacted by reduced levels of throughput at
the mill, increasing to EUR119 per tonne from EUR109 per tonne in Q4 2008. Cost
savings of EUR4 per wet metric tonne were achieved in the new mining contract
cost, but higher levels of operating development and the impact of lower
throughput more than offset this.
Summary of quarterly results
The Company's financial results for the eight most recently completed quarters
are summarised in the following table:
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| (in thousands of US | 2009 | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 |
| dollars, | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 |
| except per share | $ | $ | $ | $ | $ | $ | $ | $ |
| amounts) | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Statement of profit and | | | | | | | | |
| loss | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Sales | 10,742 | 12,774 | 16,101 | 18,461 | 12,708 | 22,715 | 21,663 | 24,944 |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Cost of sales | 11,084 | 16,839 | 14,708 | 14,991 | 7,859 | 15,289 | 10,390 | 9,995 |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Gross profit | (342) | (4,065) | 1,393 | 3,470 | 4,849 | 7,426 | 11,273 | 14,949 |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Interest income | 508 | 1,164 | 1,306 | 1,502 | 1,757 | 2,699 | 2,320 | 1,116 |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Foreign | (2,882) | (6,253) | (2,800) | (27) | 2,674 | (2,173) | 6,494 | (265) |
| exchange | | | | | | | | |
| gain/(loss) | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Hedge | 2,417 | 3,165 | 1,362 | 391 | - | - | - | - |
| contract | | | | | | | | |
| profit | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Share of | (26) | (3) | (66) | (36) | - | - | - | - |
| loss in | | | | | | | | |
| equity | | | | | | | | |
| investment | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Expenses | 3,740 | 5,253 | 6,054 | 5,058 | 5,017 | 6,385 | 4,819 | 4,875 |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Profit/(loss) | (3,979) | (11,245) | (4,859) | 242 | 4,263 | 1,567 | 15,268 | 10,925 |
| before income | | | | | | | | |
| tax | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Income | 540 | 17,067 | (451) | 644 | (621) | 2,062 | (2,764) | (2,796) |
| taxes | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Profit/(loss) | (3,439) | 5,822 | (5,310) | 886 | 3,642 | 3,629 | 12,504 | 8,129 |
| after income | | | | | | | | |
| tax | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Non-controlling | 183 | 519 | 267 | (74) | (233) | (29) | (348) | (2,794) |
| interest | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Profit/(loss) for the | (3,256) | 6,341 | (5,043) | 812 | 3,409 | 3,600 | 12,156 | 5,335 |
| period | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Earnings/(loss) per | (0.02) | 0.04 | (0.03) | 0.00 | 0.02 | 0.02 | 0.07 | 0.04 |
| share | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Balance sheet (end of | | | | | | | | |
| period) | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Working capital | 176,319 | 192,675 | 208,609 | 216,822 | 225,673 | 226,431 | 224,289 | 211,637 |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Total assets | 757,206 | 766,095 | 775,369 | 796,537 | 794,911 | 782,131 | 744,998 | 729,774 |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Non current liabilities | 154,882 | 155,727 | 183,881 | 185,897 | 184,635 | 182,092 | 168,170 | 165,125 |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Statement of cash flows | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Deferred exploration and | 885 | 1,981 | 1,420 | 1,092 | 1,603 | 2,133 | 1,658 | 1,248 |
| development costs - | | | | | | | | |
| Romania | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Plant and equipment - | 8,953 | 12,998 | 2,971 | 3,065 | 7,147 | 3,779 | 12,142 | 4,673 |
| Greece | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
| Deferred development | 519 | 545 | 519 | 656 | 769 | 915 | 491 | 520 |
| costs - Greece | | | | | | | | |
+-------------------------------+---------+----------+---------+---------+---------+---------+---------+---------+
The breakdown of deferred exploration and development costs per mineral property
for the three-month periods ended 31 March 2009 and 2008 is as follows:
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| | | |Three-month periods ended |
| | | | 31 March |
| | | | |
+------------------------+--------------------------+------------+---------------------------+
| | | | | 2009 | 2008 |
+------------------------+-------------+------------+------------+-------------+-------------+
| (in thousands of US | | | | | | $ | % | $ | % |
| dollars) | | | | | | | | | |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Romanian mineral | | | | | | | | | |
| properties | | | | | | | | | |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Certej | | | | | | 791 | 89 | 1,806 | 91 |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Other | | | | | | 94 | 11 | 175 | 9 |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| | | | | | | 885 | 100 | 1,981 | 100 |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Greek mineral | | | | | | | | | |
| properties | | | | | | | | | |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Stratoni | | | | | | 101 | 19 | (22) | (4) |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Skouries | | | | | | 351 | 68 | 396 | 73 |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Olympias | | | | | | 61 | 12 | 77 | 14 |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Other | | | | | | 6 | 1 | 94 | 17 |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| | | | | | | 519 | 100 | 545 | 100 |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| Total | | | | | | 1,404 | | 2,526 | |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
| | | | | | | | | | |
+------------------------+-------+-----+------+-----+------------+-------+-----+-------+-----+
The Certej exploitation licence and the Baita-Craciunesti exploration licence
are held by the Company's
80%-owned subsidiary, Deva Gold S.A. ("Deva
Gold"). Minvest S.A. (a Romanian state owned mining company), together with
three private Romanian companies, hold the remaining 20% interest in Deva Gold.
The Company is required to fund 100% of all costs related to the exploration and
development of these properties. As a result, the Company is entitled to the
refund of such costs (plus interest) out of future cash flows generated by Deva
Gold, prior to any dividends being distributed to shareholders. The Voia and
Cainel exploration licences are held by the Company's wholly-owned subsidiary,
European Goldfields Deva SRL.
The Company recorded a loss (before tax) of $3.98 million for the three-month
period ended 31 March 2009, compared to a profit (before tax) of $4.26 million
for the same period of 2008. The Company recorded a net loss (after tax and
non-controlling interest) of $3.26 million ($0.02 per share) for the three-month
period ended 31 March 2009, compared to a net profit of $3.41 million ($0.02 per
share) for the same period of 2008.
The following factors have contributed to the above:
* The key revenue drivers have been base metal commodity prices and sale of gold
concentrate. During the quarter ended 31 March 2009, the zinc price averaged
$1,208 per tonne, a 51% fall compared to the zinc price of $2,460 for the
comparable period in 2008. The lead price suffered a more extreme fall of 60%:
the lead price averaged approximately $1,172 per tonne in Q1 2009 compared to
$2,900 per tonne in Q1 2008. Volatility of metal prices against Q4 2008 was
much less severe, so that there were no material price adjustments to prior
quarter sales in Q1 2009.As a result, base metal concentrate revenues for Q1
2009 fell by 51% compared to Q1 2008. Whilst euro denominated unit operating
costs were marginally higher in Q1 2009 compared to Q1 2008, a weaker euro
resulted in lower US dollar unit operating costs.There was significant
improvement in gold concentrate sales: in Q1 2009, Hellas Gold sold 26,832
tonnes of gold bearing pyrite concentrates from Olympias, an increase of 175%
compared to the same period of 2008, and in a similar gold price environment,
yielding higher revenues and profits. In total, however, lower base metal
prices dominated any benefits from the higher gold concentrate revenues, with
the result that revenues and profitability declined in Q1 2009 compared to the
same period of 2008.
* As a result, the Company recorded a gross loss of $0.34 million on revenues of
$10.74 million in Q1 2009, compared to a gross profit of $4.85 million on
revenues of $12.71 million for the same period of 2008. Cost of sales of
$11.08 million compared to $7.86 million for the same period of 2008, reflect
the fact that although direct mining costs fell, this was offset by a smaller
credit movement in stockpile values and higher freight charges (as more material
has been shipped in containers from Thessaloniki rather than fob Stratoni).
Cost of sales in Q1 2009 also included higher levels of depreciation and
depletion of $1.47 million in amortisation and depletion expenses, compared to
$1.05 million for the same period of 2008.
* The Company's corporate administrative and overhead expenses have decreased from
$1.26 million in Q1 2008, to $1.00 million for the same period of 2009. This
reflects the results of cost control initiatives put in place in Q4 2008.
* The Company recorded a non-cash equity-based compensation expense of
$0.43 million in Q1 2009, compared to $0.47 million for the same period of
2008. In Q1 2009, the Company continued a practice of recharging some of its
equity-based compensation expense to its operating subsidiaries, a portion of
which is capitalised by such subsidiaries.
* The Company recorded a foreign exchange loss of $2.88 million in Q1 2009. The
Q1 loss resulted primarily from the translation of Euro working capital balances
held by Hellas Gold into a US dollar functional currency, as the Euro further
weakened against the US dollar across Q1 2009. In contrast, the Company realised
a foreign exchange gain of $2.67 million in Q1 2008.
* In Q1 2009, Hellas Gold's administrative and overhead expenses amounted to $1.15
million, compared to $2.06 million for the same period of 2008. Hellas Gold's
administrative and overhead expenses include the costs of the Athens based
office, environmental, water treatment and other expenses not directly
attributable to the Stratoni operation. The change in these costs relates
primarily to a lower US$/Euro exchange rate and a reduction in cost of various
projects in communities around the mine.
* In Q1 2009, Hellas Gold incurred an expense of $0.96 million, compared to
$1.04 million for the same period of 2008, for ongoing water pumping and
treatment at its non-operating mines of Olympias and Stratoni (Madem Lakkos), in
compliance with Hellas Gold's commitment to the environment under its contract
with the Greek State.
* The Company recorded a credit for income taxes of $0.54 million in Q1 2009,
compared to a charge of $0.62 million for the same period of 2008 reflecting the
shift from generating operational profits to losses between the two periods.
* The Company recorded a credit of $0.18 million in Q1 2009 relating to the
non-controlling shareholder's interest in Hellas Gold's profit (after tax) for
this period, compared to a charge of $0.23 million for the same period of 2008
for the same reason.
Liquidity and capital resources
As at 31 March 2009, the Company had cash and cash equivalents of
$154.00 million, compared to
$170.30 million as at 31 December 2008, and
working capital of $176.32 million, compared to $192.68 million as at 31
December 2008.
The decrease in cash and cash equivalents as at 31 March 2009, compared to the
balances as at
31 December 2008, resulted primarily from capital expenditure
in Greece ($8.95 million), changes in working capital balances ($3.62 million),
the effect of foreign currency translation on cash ($3.26 million), deferred
exploration and development costs in Romania ($0.89 million) and deferred
development costs in Greece ($0.52 million), offset by operating cash flow
($0.70 million) and proceeds from exercise of share options ($0.56 million).
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
+----------------------------+-----------+-------------+------------+------------+------------+
| Payments due by period |
+--------------------------------------------------------------------------------+
| (in thousands of US dollars) |
+--------------------------------------------------------------------------------+
| Contractual | Total | Less than 1 | 2 - 3 | 4 - 5 | After 5 |
| obligations | | year | years | years | years |
| | | | | | |
+----------------------------+-----------+-------------+------------+------------+------------+
| Operating lease | 698 | 140 | 279 | 279 | - |
| (London office) | | | | | |
+----------------------------+-----------+-------------+------------+------------+------------+
| Operating | 1,038 | 138 | 277 | 277 | 346 |
| lease | | | | | |
| (Athens | | | | | |
| office) | | | | | |
+----------------------------+-----------+-------------+------------+------------+------------+
| Outotec | 21,996 | 21,996 | - | - | - |
| OT - | | | | | |
| Processing | | | | | |
| Plant | | | | | |
+----------------------------+-----------+-------------+------------+------------+------------+
| Total contractual | 23,732 | 22,274 | 556 | 556 | 346 |
| obligations | | | | | |
+----------------------------+-----------+-------------+------------+------------+------------+
In 2009, the Company expects to spend a total of $51 million in capital
expenditures to fund the development of its project portfolio. This amount
comprises $5 million at its existing operation at Stratoni to complete the
expansion of the internal underground infrastructure at Mavres Petres and
upgrade the mill, $10 million at Olympias as part of the refurbishment of the
mine and process plant, and $30 million at Skouries as the Company expects to
continue to spend on long lead time equipment and engineering studies. At
Certej, the Company expects to spend $6 million as it progresses through the
final stages of environmental permitting, advances through the basic and
detailed engineering phases and continues exploration around Certej. In addition
to its capital expenditure programme, the Company expects to spend $3 million in
exploration over the wider licence area in Greece and Turkey, $9 million on
Hellas Gold administrative and overhead and water treatment expenses, and $5
million on corporate administrative and overhead expenses. The Company expects
to fund all such costs from existing cash balances and operating cash flow
generated from its Hellas Gold operations
Significant changes in accounting policies
International Financial Reporting Standards ("IFRS") - In 2006, the Canadian
Accounting Standards Board ("AcSB") published a new strategic plan that will
significantly affect financial reporting requirements for Canadian companies.
The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over
an expected five year transitional period. In February 2008, the AcSB confirmed
that publicly listed companies will be required to adopt IFRS for interim and
annual financial statements relating to fiscal years beginning on or after
January 1, 2011, and in April 2008, the AcSB issued for comment its Omnibus
Exposure Draft, Adopting IFRS in Canada. Early adoption may be permitted,
however it will require exemptive relief on a case by case basis from the
Canadian Securities Administrators.
The Company has begun assessing the adoption of IFRS and is in the process of
completing its overall conversion plan. The plan assesses the possible benefits
of early adoption, the key differences between IFRS and Canadian GAAP including
disclosures as well as a timeline for implementation.
As part of the plan, the Company has appointed a team within the group finance
function to assess and implement the conversion process, and key personnel have
received IFRS training. The Company benefits from having members of the finance
function at the subsidiary level who are already experienced in the preparation
of IFRS accounts. The team has already identified the material differences
between IFRS and Canadian GAAP, and the process of identifying other areas of
potential differences is near completion. The Company has already been
preparing a detailed reporting pack under IFRS on a quarterly basis. This IFRS
pack includes accounting adjustments for all material differences between IFRS
and Canadian GAAP, with the exception of IFRS 1. During 2009, the team will
focus on preparation for the implementation of IFRS 1, and the increased level
of IFRS disclosure compared to Canadian GAAP.
Goodwill and intangible assets - In February 2008, the Canadian Institute of
Chartered Accountants ("CICA") issued Section 3064 Goodwill and intangible
assets, replacing Section 3062, Goodwill and other intangible assets. It
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill subsequent to its initial recognition and of intangible
assets by profit-oriented enterprises. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062. The Company
adopted the new standards on 01 January 2009. The adoption of this new Section
had no impact on the consolidated financial statements.
Outstanding share data
The following represents all equity shares outstanding and the numbers of common
shares into which all securities are convertible, exercisable or exchangeable as
at 12 May 2009:
Common shares: 179,857,381
Common share options: 3,191,665
Restricted share units:614,779
Common shares (fully-diluted):183,663,825
Preferred shares: Nil
Outlook
Reference is made to the Company's news release dated 12 May 2009 which
accompanies this Management's Discussion and Analysis.
Risks and uncertainties
The risks and uncertainties affecting the Company, its subsidiaries and their
business are discussed in the Company's Annual Information Form for the year
ended 31 December 2008, filed on SEDAR at www.sedar.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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