EGU.L Regulatory News (EGU)

RNS Number : 8259L

European Goldfields Ltd

13 May 2010

 

European Goldfields Limited

 

Consolidated Financial Statements

(Unaudited)

 

First Quarter 2010

 

 

 

 

 

 

 

 

 

 

 

 

Disclosure of auditor review of interim consolidated financial statements

 

The interim consolidated financial statements of the Company for the three-month periods ended

31 March 2010 and 31 December 2009 have not been reviewed by the auditors of the Company.

 

 

 

European Goldfields Limited Consolidated Balance Sheets As at 31 March 2010 and 31 December 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	Note	31 March 2010 $		31 December 2009 $
Assets		Unaudited		Audited
Current assets
Cash and cash equivalents	13	101,836		113,642
Accounts receivable	13	28,277		26,813
Derivative financial asset	13	209		-
Current taxes receivable		3,700		3,954
Future tax assets		92		119
Prepaid expenses		1,451		13,794
Inventory	3	6,952		4,993
		142,517		163,315
Non-current assets
Property, plant and equipment	4	108,876		96,100
Deferred exploration and development costs	5
Greek production stage mineral properties		23,359		24,051
Greek development stage mineral properties		405,717		405,146
		429,076		429,197
Romanian development stage mineral properties		52,092		50,173
Turkish exploration stage mineral properties		1,868		1,625
		483,036		480,995
Investment in associates	6	711		711
Investment other	7	1,246		1,490
Future tax assets		1,485		1,489
		737,871		744,100
Liabilities
Current liabilities
Accounts payable and accrued liabilities	13	9,415		12,684
Derivative financial liability	13	-		1,064
Deferred revenue	10	3,867		4,549
Future tax liabilities	8	-		-
		13,282		18,297
Non-current liabilities
Future tax liabilities	8	90,211		90,083
Asset retirement obligation	9	7,101		7,068
Deferred revenue	10	48,208		48,412
		145,520		145,563
Non-controlling interest		3,008		2,930
Shareholders' equity
Capital stock	11	549,734		545,180
Contributed surplus	11	9,548		10,047
Accumulated other comprehensive income	11	36,946		35,911
Deficit		(20,167)		(13,828)
		576,061		577,310
		737,871		744,100

The accompanying notes are an integral part of these consolidated financial statements.

 

Approved by the Board of Directors

(s) Timothy Morgan-Wynne (s) Bruce Burrows

Timothy Morgan-Wynne, Director Bruce Burrows, Director

European Goldfields Limited Consolidated Statements of Profit and Loss For the three-month periods ended 31 March 2010 and 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)		Three months ended
			31 March		31 March
			2010		2009
	Note		$		$
Income
Sales			10,435		10,742
Cost of sales	3		(8,116)		(9,611)
Depreciation and depletion			(1,640)		(1,473)
Gross profit/(loss)			679		(342)
Other income
Hedge contract profit			-		2,417
Interest income			62		508
Foreign exchange gain/(loss)			1,563		(2,882)
Loss in dilution of interest in associates	6		-		86
Share of loss of associate	6		-		(26)
			1,625		103
Expenses
Corporate administrative and overhead expenses			1,993		1,000
Equity-based compensation expense			3,635		428
Hellas Gold administrative and overhead expenses			1,270		1,148
Hellas Gold water treatment expenses (non-operating mines)			891		955
Accretion of asset retirement obligation	9		33		30
Depreciation			306		179
			8,128		3,740
Loss for the period before income taxes			(5,824)		(3,979)
Income taxes
Current taxes			11		-
Future taxes			427		(540)
			438		(540)
Loss for the period after income taxes			(6,262)		(3,439)
Non-controlling interest			(77)		183
Loss for the period			(6,339)		(3,256)
Loss per share	20
Basic			(0.03)		(0.02)
Diluted			(0.03)		(0.02)
Weighted average number of shares (in thousands)
Basic			181,769		179,884
Diluted			181,769		179,884

 

The accompanying notes are an integral part of these consolidated financial statements.

European Goldfields Limited Consolidated Statements of Shareholders' Equity As at 31 March 2010 and 31 December 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	Capital Stock $		Contributed Surplus $		Accumulated Other Comprehensive Income $		Deficit $		Total $
Balance - 31 December 2008	538,316		7,788		43,676		(2,045)		587,735
Equity-based compensation expense	-		611		-		-		611
Share issue costs	(10)		-		-		-		(10)
Restricted share units vested	630		(630)		-		-		-
Share options exercised or exchanged	950		(392)		-		-		558
Change in fair value of cash flow hedge	-		-		(2,418)		-		(2,418)
Movement in cumulative translation adjustment	-		-		(128)		-		(128)
Loss for the period	-		-		-		(3,256)		(3,256)
	1,570		(411)		(2,546)		(3,256)		(4,643)
Balance - 31 March 2009	539,886		7,377		41,130		(5,301)		583,092
Equity-based compensation expense	-		6,209		-		-		6,209
Share issue costs	(19)		-		-		-		(19)
Restricted share units vested	2,687		(2,687)		-		-		-
Share options exercised or exchanged	2,626		(852)		-		-		1,774
Change in fair value of cash flow hedge	-		-		(5,432)		-		(5,432)
Revaluation of available-for-sale asset	-		-		157		-		157
Movement in cumulative translation adjustment	-		-		56		-		56
Loss for the period	-		-		-		(8,527)		(8,527)
	5,294		2,670		(5,219)		(8,527)		(5,782)
Balance - 31 December 2009	545,180		10,047		35,911		(13,828)		577,310
Equity-based compensation expense	-		4,055		-		-		4,055
Share issue costs	-		-		-		-		-
Restricted share units vested	4,554		(4,554)		-		-		-
Share options exercised or exchanged	-		-		-		-		-
Change in fair value of cash flow hedge	-		-		1,272		-		1,272
Revaluation of available-for-sale asset	-		-		(244)		-		(244)
Movement in cumulative translation adjustment	-		-		7		-		7
Loss for the period	-		-		-		(6,339)		(6,339)
	4,554		(499)		1,035		(6,339)		(1,249)
Balance - 31 March 2010	549,734		9,548		36,946		(20,167)		576,061

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

European Goldfields Limited Consolidated Statements of Cash Flows For the three-month periods ended 31 March 2010 and 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	Three months ended
		31 March		31 March
		2010		2009
	Note	$		$
Cash flows from operating activities
Loss for the period		(6,339)		(3,256)
Foreign exchange loss		3,018		3,146
Share of loss in equity investment		-		26
Gain on change of interest in associates		-		(86)
Depreciation		1,584		1,062
Equity based compensation expense		3,635		428
Accretion of asset retirement obligation	9	33		30
Current taxation		11		-
Future tax asset recognised		427		(540)
Non-controlling interest		77		(183)
Deferred revenue recognised	10	(887)		(718)
Depletion of mineral properties		737		786
		2,296		695
Net changes in non-cash working capital	15	(6,571)		(3,618)
		(4,275)		(2,923)
Cash flows from investing activities
Deferred exploration and development costs - Romania		(1,272)		(885)
Property, plant and equipment - Greece		(1,782)		(8,953)
Deferred development costs - Greece		(284)		(519)
Deferred exploration costs - Turkey		(182)		(77)
Purchase of equipment		(731)		(97)
Investment in associates		-		(143)
		(4,251)		(10,674)
Cash flows from financing activities
Proceeds from exercise of share options		-		558
		-		558
Effect of foreign currency translation on cash		(3,280)		(3,262)
Decrease in cash and cash equivalents		(11,806)		(16,301)
Cash and cash equivalents - Beginning of period		113,642		170,296
Cash and cash equivalents - End of period		101,836		153,995

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

European Goldfields Limited Consolidated Statements of Other Comprehensive Income and loss For the three-month periods ended 31 March 2010 and 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	Three months ended
		31 March		31 March
		2010		2009
		$		$
Loss for the period		(6,339)		(3,256)
Other comprehensive income/(loss) in the period
Currency translation adjustment		7		(128)
Gains and losses on derivative designated as cash flow hedges		1,272		-
Gains and losses on derivative designated as cash flow hedges in prior periods transferred to profit in the current period		-		(2,418)
Unrealised gain on available-for-sale financial asset		(244)		-
Comprehensive loss		(5,304)		(5,802)

 

 

   

The accompanying notes are not part of these consolidated financial statements

 

 

 

 

 

European Goldfields

Limited

Notes to Consolidated Financial Statements

For the periods ended 31 March 2010 and 2009

(Unaudited - Prepared by Management)

(in thousands of US Dollars, except per share amounts)

 

 

 

 

 

.

1. Nature of operations

 

European Goldfields Limited (the "Company"), a company incorporated under the Yukon Business Corporations Act, is a resource company involved in the acquisition, exploration and development of mineral properties in Greece, Romania and South-East Europe.

 

The Company's common shares are listed on the AIM Market of the London Stock Exchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU".

 

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. 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. Significant accounting policies

 

These interim consolidated financial statements have been prepared on the going concern basis in accordance with accounting principles generally accepted in Canada ("Canadian GAAP") using the same accounting policies as those disclosed in Note 2 to the Company's audited consolidated financial statements for the years ended 31 December 2009 and 2008.

 

These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the years ended 31 December 2009 and 2008.

 

 

3. Inventory

 

This balance comprises the following:

 

	31 March 2010		31 December 2009
	$		$
Ore mined	1,833		102
Metal concentrates	2,413		2,195
Material and supplies	2,706		2,696
	6,952		4,993

 

The components of cost of sales were as follows:

 

	31 March 2010		31 March 2009
	$		$
Mining cost	6,352		5,639
Direct labour	737		1,075
Indirect labour	243		204
Other overhead costs	1,319		1,510
Increase in gross inventories	(1,539)		(1,450)
Freight charges	1,004		2,423
Write-down of inventory to net realisable value	-		210
	8,116		9,611

 

As at 31 March 2010, the value of total inventory carried at net ealizable value amounted to $Nil (2009 - $Nil), which includes a write-down of $Nil (2009 - $314).

 4. Property, plant and equipment

 

	Plant and equipment $		Vehicles $		Mine development land and buildings $		Total $
Cost - 2010
At 31 December 2009	64,240		2,107		43,464		109,811
Additions	14,068		34		292		14,394
Transfers	(11,917)		-		11,917		-
Disposals	-		-		-		-
At 31 March 2010	66,391		2,141		55,673		124,205
Accumulated depreciation - 2010
At 31 December 2009	6,269		1,390		6,052		13,711
Provision for the period	527		38		1,053		1,618
Disposals	-		-		-		-
At 31 March 2010	6,796		1,428		7,105		15,329
Net book value at 31 March 2010	59,595		713		48,568		108,876

 

 

During 2010, the total depreciation charge amounted to $1,602 (2009 - $4,056) and the net book value amount of property, plant and equipment not amortised amounted to $67,426 (2009 - $75,499).

5. Deferred exploration and development costs

 

Greek mineral properties:

 

	Stratoni $		Olympias $		Skouries $		Other exploration $		Total $
Balance - 31 December 2009	24,051		237,311		167,549		286		429,197
Acquisition of mineral properties	-				-		-		-
Deferred development costs	86		313		247		11		657
Depletion of mineral properties	(778)		-		-		-		(778)
	(692)		313		247		11		(121)
Balance - 31 March 2010	23,359		237,624		167,796		297		429,076

 

The Stratoni, Skouries and Olympias properties are held by the Company's 95% owned subsidiary, Hellas Gold. In September 2005, the Stratoni property commenced production.

Romanian mineral properties:

 

	Certej $		Other exploration $		Total $
Balance - 31 December 2009	44,270		5,903		50,173
Project development and exploration	822		70		892
Permit acquisition	(19)		-		(19)
Project overhead	993		34		1,027
Depreciation	16		3		19
	1,812		107		1,919
Balance - 31 March 2010	46,082		6,010		52,092

 

The Certej exploitation licence and the Baita-Craciunesti exploration licence are held by the Company's 80%-owned subsidiary, Deva Gold. Minvest S.A. (a Romanian state owned mining company), together with three private Romanian companies, hold the remaining 20% interest in Deva Gold. The Company is required to fund 100% of all costs related to the exploration and development of these properties. As a result, the Company is entitled to the refund of such costs (plus interest) out of future cash flows generated by Deva Gold, prior to any dividends being distributed to shareholders. The Voia and Cainel exploration licences are held by the Company's wholly-owned subsidiary, European Goldfields Deva SRL.

 

As at the 31 March 2010, the following cost had been incurred on the remaining Romanian mineral properties:

 

	31 March 2010 $		31 December 2009 $
Baita-Craciunesti	3,336		3,334
Voia	1,845		1,847
Magura Tebii	189		181
Exploration projects	640		541
	6,010		5,903

 

Turkish Mineral Properties:

 

	Ardala $		Other exploration $		Total $
Balance - 31 December 2009	1,468		157		1,625

 

Exploration	-		23		23
Project overhead	155		56		211
Permit acquisition	5		4		9
Depreciation	-		-		-
	160		83		243
Balance - 31 March 2010	1,628		240		1,868

 

In April 2008, the Company entered into a Joint Venture ("JV") with Ariana Resources plc ("Ariana") which became effective in May 2008 after the transfer of Ariana's properties was confirmed by the General Directorate of Mining Affairs in Turkey. The JV involves the development of Ariana's current properties in an Area of Intent ("AOI") in the Greater Pontides region of north-eastern Turkey, which include the Ardala copper-gold porphyry and fifteen otherlicencescovering a total area of 229km², and a Strategic Partnership within the AOI to define new opportunities for the JV.

 

The Turkish licences are held by the JV through a Turkish Company, Pontid Madencilik. Currently the Company has a 51% interest in all the properties within the JV and the Company will fund 100% of all costs related to the development of these properties. Ownership of the Ardala property may be increased to 80% by funding to completion of a Bankable Feasibility Study. All other concessions within the JV funded to a Bankable Feasibility Study will be 90% owned by the Company. The owner of the remaining 49% of the properties is Ariana Resources plc.

6. Investment in associates

 

	31 March 2010		31 December 2009
	$		$
Balance - Beginning of period	711		2,075
Shares acquired	-		141
Share of loss of associate	-		(76)
Cumulative translation adjustment	-		(32)
Share issue cost	-		(28)
Loss in dilution of interest in associates	-		(36)
Reclassification as investment available-for-sale	-		(1,333)
Balance - End of period	711		711

 

In January 2008, Hellas Gold acquired a 50% share of Greek Nurseries SA for a consideration of $834 (€530), 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 (£929) 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 represents additional fair value assigned to mineral properties of Ariana and will 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, Ariana carried out a further share placement in which the Company did not subscribe and as at 31 December 2009, the Company held 16.58% of the issued share capital. Since October 2009, the Company has not had a representative on the board of Ariana and therefore no longer has significant influence. As a result, the Company has accounted for its investment in Ariana as an investment available-for-sale.

 

 

7. Investment other

 

	31 March 2010		31 December 2009
	$		$
Balance - Beginning of period	1,490		-
Reclassification from investment in associate	-		1,333
Fair value adjustment	(244)		157
Balance - End of period	1,246		1,490

 

The above investment is accounted for as an available-for-sale asset.

 

8. Future tax liability

 

The following table reflects future income tax liabilities:

 

	31 March 2010		31 December 2009
	$		$
Mineral properties	84,448		84,491
Plant and equipment	1,425		1,329
Exploration and development expenditure	3,022		3,187
Accrued expenses & other	621		286
Inventory	-		10
Retirement obligation	695		780
	90,211		90,083
Less: Current portion	-		-
Future income tax liabilities recognised	90,211		90,083

 

 

9. 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 periods ended 31 March 2010 and 31 December 2009:

 

	31 March 2010		31 December 2009
	$		$
Asset retirement obligation - Beginning of period	7,068		6,937
Accretion expense	33		131
Asset retirement obligation - End of period	7,101		7,068

 

As at 31 March 2010, the undiscounted amount of estimated cash flows required to settle the obligation is $7,206 (31 December 2009 - $7,805). The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04% (31 December 2009 - 5.04%). The expected period until settlement is five years.

 

 

10. Deferred revenue

 

In April 2007, Hellas Gold agreed to sell to Silver Wheaton (Caymans) Ltd. ("Silver Wheaton") all of the silver metal to be produced from ore extracted during the mine-life within an area of some 7 km² around its zinc-lead-silver Stratoni mine in northern Greece (the "Silver Wheaton Transaction"). The sale was made in consideration of a prepayment to Hellas Gold of $57.5 million in cash, plus a fee per ounce of payable silver to be delivered to Silver Wheaton of the lesser of $3.90 (subject to an inflationary adjustment beginning after year three) and the prevailing market price per ounce. During the period ended 31 March 2010, Hellas Gold delivered concentrate containing ounces 165,781 (31 December 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 ("Celtic") Plc for the sale of 50,000 wet metric tonnes of gold bearing pyrite concentrate, for which Hellas Gold received a prepayment of $4.71 million in cash. During the period a total of Nil wmt (31 December 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:

 

	31 March 2010		31 December 2009
	$		$
Deferred revenue - Beginning of period	52,961		58,496
Additions	-		-
Revenue recognised	(886)		(5,535)
	52,075		52,961
Less: Current portion	(3,867)		(4,549)
Deferred revenue - End of period	48,208		48,412

 

 

11. Capital stock

 

Authorised:

- Unlimited number of common shares, without par value

- Unlimited number of preferred shares, issuable in series, without par value

 

Issued and outstanding (common shares - all fully paid)

 

	Number of Shares		Amount $
Balance - 31 December 2009	181,339,813		545,180
Restricted share units vested	991,233		4,554
Share options exercised or exchanged	-		-
Share issue costs, net of tax	-		-
	991,233		4,554
Balance - 31 March 2010	182,331,046		549,734

 

Contributed surplus

	31 March 2010		31 December 2009
	$		$
Equity-based compensation expense	8,970		9,469
Broker warrants	578		578
	9,548		10,047

 

 

Accumulated other comprehensive income

 

The components of accumulated other comprehensive income were as follows:

 

	31 March 2010		31 December 2009
	$		$
Cumulative translation adjustment	36,825		36,818
Fair value of cash flow hedge (net of tax)	209		(1,064)
Available-for-sale asset	(88)		157
	36,946		35,911

 

 

12. Share options, restricted share units and deferred phantom units

 

Share Option Plan

 

The Company operates a Share Option Plan (together with its predecessor, the "Share Option Plan") authorising the directors to grant options with a maximum term of 5 years, to acquire common shares of the Company to the directors, officers, employees and consultants of the Company and its subsidiaries, on terms that the Board of Directors may determine, within the limitations of the Share Option Plan. The maximum number of common shares of the Company which may be reserved for issuance for all purposes under the Share Option Plan shall not exceed 15% of the common shares issued and outstanding from time to time (27,349,657 shares as at 31 March 2010).

 

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 Settlement Common Shares

=

Number of Optioned Shares issuable on exercise of the Exchanged Rights

X

(Current Price - Exercise Price) Current Price

 

 

As at 31 March 2010, the following share options were outstanding:

 

Expiry date	Number of Options		Exercise price C$
2010	60,000		2.00
2011	66,666		3.25
2011	600,000		3.85
2011	50,000		4.10
2012	250,000		5.66
2012	150,000		5.71
2012	256,666		5.87
2013	50,000		1.99
2013	360,000		3.54
2013	135,000		5.07
2013	78,333		6.80
2014	1,300,000		6.00
2014	50,000		7.00
2014	1,600,000		6.03
2015	62,500		6.06
	5,069,165		5.40

 

 During the period ended 31 March 2010 and 2009, share options were granted, exercised, exchanged and forfeited as follows:

 

	Number of Options		Weighted average exercise price C$
Balance - 31 December 2009	3,406,665		5.10
Options granted	1,662,500		6.03
Options exercised	-		-
Options exchanged for shares	-		-
Options forfeited	-		-
Balance - 31 March 2010	5,069,165		5.40

 

Of the 5,069,165 (2009 - 3,241,665) share options outstanding as at 31 March 2010, 2,002,221 (2009 - 2,310,001) were fully vested and had a weighted average exercise price of C$4.68 (2009 - C$3.24) per share. The share options outstanding as at 31 March 2010, had a weighted average remaining contractual life of years 3.66 (2009 - 2.44 years).

 

The weighted average grant date fair value cost of the 1,662,500 share options granted during the period ended 31 March 2010 (2009 - Nil) was C$4,178 (2009 - C$ Nil). For outstanding share options, including options granted during the three-month period and those which were not fully vested during the three-month period ended 31 March 2010, the Company incurred a total equity-based compensation cost of $1,034 (2009 - $294) of which $778 (2009 - $221) has been recognised as an expense in the statement of profit and loss and $256 (2009 - $73) has been capitalised to deferred exploration and development costs.

 

The fair value of the share options granted has been estimated at the date of grant using a Black-Scholes and Parisian option pricing model with the following assumptions: weighted average risk free interest rate of  0.05% (2009 - Nil); volatility factor of the expected market price of the Company's shares of 68.40% (2009 - Nil); a weighted average expected life of the share options of 5 years (2009 - Nil), 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 (4,558,276 shares as at 31 March 2010).

 

As at 31 March 2010, the following RSUs were outstanding:

 

Vesting date	Number of RSUs		Grant date fair value of underlying shares C$
08 December 2010	70,102		6.18
31 December 2010	283,332		6.19
31 December 2011	200,000		6.02
31 December 2011	133,332		6.19
25 January 2012	31,250		6.32
25 January 2012	31,250		6.32
31 December 2012	133,336		6.19
	882,602		6.16

 

During the three-month period ended 31 March 2010 and 2009, RSUs were granted, vested and forfeited as follows:

 

	Number of RSUs		Weighted average grant date fair value of underlying shares  C$
Balance - 31 December 2009	1,261,334		5.09
RSUs granted	612,500		6.20
RSUs vested	(991,232)		4.82
RSUs forfeited	-		-
Balance - 31 March 2010	882,602		6.16

 

The weighted average grant date fair value cost of underlying shares of the 612,500, RSUs granted during the period ended 31 March 2010 (2009 - 584,779) was C$6.20 (2009 - C$2.67). For outstanding RSUs which were not fully vested, including RSU's granted during the period ended 31 March 2010, the Company incurred a total equity-based compensation cost of $3,021 (2009 - $318) of which $2,213 (2009 - $118) has been recognised as an expense in the statement of profit and loss and $808 (2009 - $200) has been capitalised to deferred exploration and development costs.

 

Deferred Phantom Unit Plan

 

The company operates a Deferred Phantom Unit plan (the "DPU Plan") authorising the directors based on recommendation by the Human Capital Management Committee to grant Deferred Phantom Units ("DPUs") to independent eligible directors. The DPU are units which give rise to a right to receive a cash payment the value of which, on a particular date should be the market value of the equivalent number of shares at that date. The market value at 31 March 2010 has been included in current liabilities.

 

As at 31 March 2010, the following DPUs were outstanding:

 

Grant date	Number of DPUs
05 December 2008	135,500
23 March 2009	3,092
15 May 2009	3,856
18 August 2009	3,459
07 October 2009	55,000
15 November 2009	3,064
19 February 2010	40,065
22 March 2010	3,009
	247,045

 

During the three-month period ended 31 March 2010 and 2009, DPUs were granted and forfeited as follows:

 

	Number of DPUs
Balance - 31 December 2009	351,410
DPUs granted and vested	43,074
DPUs exchanged	(147,439)
Balance - 31 March 2010	247,045

 

Of the 43,074 (2009 - 9,276) DPU's granted during the period, 16,364 (2009 - 9,276) were fully vested.

 

The fair value cost of the 247,045 (2009 - 415,776) DPUs as at the 31 March 2010, based on the period end share price of C$6.04 (2009 - C$3.35), amounted to C$1,493 (2009 - C$1,393).

13. 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 to the Group Risk Management Policy.

 

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities 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 March 2010 and 31 December 2009 are as follows:

 

	Carrying amount				Fair value
	31 March 2010		31 December 2009		31 March 2010		31 December 2009
Financial assets
Cash and cash equivalents	101,836		113,642		101,836		113,642
Accounts receivable	28,277		26,813		28,277		26,813
Derivative financial asset	209		-		209		-
Available-for-sale asset	1,246		1,490		1,246		1,490
Financial liabilities
Accounts payable and accrued liabilities	9,415		12,684		9,415		12,684
Derivative financial liability	-		1,064		-		1,064

 

 

 

	Fair value quoted market price (Level 1)				Fair value valuation technique market observation inputs (Level 2)
	31 March 2010		31 December 2009		31 March 2010		31 December 2009
Financial assets
Available-for-sale asset	1,246		1,490		-		-
Derivative financial asset	-		-		209		-
Financial liabilities
Derivative financial liability	-		-		-		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 and the counterparty were unable to honour its obligations under the hedge contract, the Company would be exposed to the value of the hedge being 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 March 2010, the Company had entered into hedging arrangementsas 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 April 2010 until 31 December 2010 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 March 2010, these contracts had a fair value of $209 (2009 - $(1,064)), determined by a third 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 April 2010 - December 2010			Lead		Zinc
Total Volume	(tonne)		4,500		5,850
Monthly Volume	(tonne)		500		650
Floor Price	($/tonne)		2,000		2,000
Cap Price	($/tonne)		2,900		2,925

 

During the three-month period ended 31 March 2010, the Company recorded income relating to its hedging program of $Nil (2009 - $2,417).

 

Given the current maturity profile of the hedge, market expectations and parameters, we expect that the fair value of the existing hedge contracts $209 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 March 2010, the Company held the equivalent of $62,997 (31 December 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 three-month period ended 31 March 2010 the Company recorded a foreign exchange gain of $1,563 (2009 - a loss of $2,882), 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 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 March 2010, the Company's trade payables and accrued liabilities amounted to $9,415 (2009 - $12,684), all of which fall due for payment within 12 months of the balance sheet date. The average credit period achieved during the period ended 31 March 2010 was 30 days (2009 - 30 days).

 

As at 31 March 2010, cash and cash equivalents comprises the following:

 

 

	31 March 2010 $		31 December 2009 $
Interest bearing bank accounts	101,036		102,686
Short-term deposits	800		10,956
	101,836		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 March 2010, 6 (2009 - 4) customers represented 93% (2009 - 84%) of the total. The Company does not anticipate any loss for non-performance.

 

As at 31 March 2010, the accounts receivable comprises the following:

 

	31 March 2010 $		31 December 2009 $
Trade receivables	4,792		6,712
Valued added taxes recoverable	18,068		18,360
Other accounts receivable	5,417		1,741
	28,277		26,813

 

As at 31 March 2010, the Company considers its accounts receivable excluding Value Added Taxes recoverable and other accounts receivable to be aged as follows:

 

Ageing	31 March 2010 $		31 December 2009 $
Current	3,180		4,139
Past due (1-30 days)	1,883		2,283
Past due (31-60 days)	176		233
Past due (more than 60 days)	(447)		57
	4,792		6,712

 

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 three-month period ended 31 March 2010 the company earned interest income of $62 (2009 - $508) on cash and cash equivalents, based on rates of returns up to 3.5% (2009 - up to 2.50%).

 

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. The 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 $17,642 relating to value added taxes recoverable which is subject to Greek government credit risk.

 

 

Impact on Net (Loss)/Profit (+/-)	31 March 2010 $		31 March 2009 $
Change of - 5 % US$: € foreign exchange rate	(261)		988
Change of + 5 % US$: € foreign exchange rate	258		(893)
Change of +/- 1% in interest rates	179		691
Change of +/- 10% in commodities prices	241		830