EGU.L Regulatory News (EGU)

RNS Number : 7995Q

European Goldfields Ltd

10 August 2010

 

 

 

 

 

European Goldfields Limited

 

Consolidated Financial Statements

(Unaudited)

 

For the Three- and Six- Month Periods Ended

30 June 2010 and 2009

 

 

 

 

 

 

 

 

 

 

 

 

Disclosure of auditor review of interim consolidated financial statements

 

The interim consolidated financial statements of the Company for the six and three-month periods ended 30 June 2010 and 2009 have not been reviewed by the auditors of the Company.

 

 

 

Consolidated Balance Sheets As at 30 June 2010 and 31 December 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	Note	30 June 2010 $		31 December 2009 $
Assets		Unaudited		Audited
Current assets
Cash and cash equivalents	13	84,978		113,642
Accounts receivable	13	21,914		26,813
Derivative financial asset	13	2,499		-
Current taxes receivable		3,368		3,954
Future tax assets		792		119
Prepaid expenses		2,178		13,794
Inventory	3	7,001		4,993
		122,730		163,315
Non-current assets
Property, plant and equipment	4	112,451		96,100
Deferred exploration and development costs	5
Greek production stage mineral properties		22,737		24,051
Greek development stage mineral properties		406,751		405,146
		429,488		429,197
Romanian development stage mineral properties		54,003		50,173
Turkish exploration stage mineral properties		2,127		1,625
		485,618		480,995
Investment in associates	6	577		711
Investment other	7	1,108		1,490
Future tax assets		2,097		1,489
		724,581		744,100
Liabilities
Current liabilities
Accounts payable and accrued liabilities	13	12,275		12,684
Derivative financial liability	13	-		1,064
Deferred revenue	10	3,867		4,549
Future tax liabilities	8	-		-
		16,142		18,297
Non-current liabilities
Future tax liabilities	8	89,371		90,083
Asset retirement obligation	9	7,131		7,068
Deferred revenue	10	47,469		48,412
		143,971		145,563
Non-controlling interest		2,666		2,930
Shareholders' equity
Capital stock	11	553,193		545,180
Other reserves	11	(3,301)		-
Contributed surplus	11	11,422		10,047
Accumulated other comprehensive income	11	38,928		35,911
Deficit		(38,440)		(13,828)
		561,802		577,310
		724,581		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

		3 months ended 30 June						6 months ended 30 June
Consolidated Statements of Profit and Loss For the six-month periods ended 30 June 2010 and 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	Note	2010 $		2009 $			2010 $			2009 $
Income
Sales		11,969		16,204			22,404			26,946
Cost of sales	3	(9,727)		(10,968)			(17,843)			(20,579)
Depreciation and depletion		(1,970)		(2,050)			(3,610)			(3,523)
Gross profit		272		3,186			951			2,844
Other income
Hedge contract profit		394		1,801			394			4,218
Interest income		35		133			97			641
Foreign exchange gain/(loss)		(10,354)		1,719			(8,791)			(1,163)
Gain on dilution of interest in associate		-		13			-			99
Share of profit in equity investment		39		5			39			(21)
		(9,886)		3,671			(8,261)			3,774
Expenses
Corporate administrative and overhead expenses		4,235		1,069			6,228			2,069
Equity-based compensation expense		1,128		533			4,763			961
Hellas Gold administrative and overhead expenses		4,114		1,617			5,384			2,765
Hellas Gold water treatment expenses (non-operating mines)		1,140		813			2,031			1,768
Accretion of asset retirement obligation	9	30		32			63			62
Depreciation		294		140			600			319
		10,941		4,204			19,069			7,944
Profit/(Loss) for the period before income tax		(20,555)		2,653			(26,379)			(1,326)
Income taxes
Current taxes		(11)		94			-			94
Future taxes		(1,930)		984			(1,503)			444
		(1,941)		1,078			(1,503)			538
Profit/(Loss) for the period after income tax		(18,614)		1,575			(24,876)			(1,864)
Non-controlling interest		341		(136)			264			47
Profit/(Loss) for the period		(18,273)		1,439			(24,612)			(1,817)
Deficit - Beginning of period		(20,167)		(5,301)			(13,828)			(2,045)
Deficit - End of period		(38,440)		(3,862)			(38,440)			(3,862)
Earnings/(loss) per share	20
Basic		(0.10)		0.01			(0.13)			(0.01)
Diluted		(0.10)		0.01			(0.13)			(0.01)
Weighted average number of shares (in thousands)
Basic		182,849		180,142			182,312			180,042
Diluted		182,849		180,762			182,312			180,658

 

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

Consolidated Statements of Shareholders' Equity As at 30 June 2010 and 31 December 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	Capital Stock $		Contributed Surplus $		Other Reserves $		Accumulated Other Comprehensive Income $		Deficit $		Total $
Balance - 31 December 2008	538,316		7,788		-		43,676		(2,045)		587,735
Equity-based compensation expense	-		1,238		-		-		-		1,238
Share issue costs	(10)		-		-		-		-		(10)
Restricted share units vested	801		(801)		-		-		-		-
Share options exercised or exchanged	1,115		(476)		-		-		-		639
Change in fair value of cash flow hedge	-		-		-		(4,821)		-		(4,821)
Movement in cumulative translation adjustment	-		-		-		(65)		-		(65)
Loss for the period	-		-		-		-		(1,817)		(1,817)
	1,906		(39)		-		(4,886)		(1,817)		(4,836)
Balance - 30 June 2009	540,222		7,749		-		38,790		(3,862)		582,899
Equity-based compensation expense	-		5,582		-		-		-		5,582
Share issue costs	(19)		-		-		-		-		(19)
Restricted share units vested	2,516		(2,516)		-		-		-		-
Share options exercised or exchanged	2,461		(768)		-		-		-		1,693
Change in fair value of cash flow hedge	-		-		-		(3,029)		-		(3,029)
Revaluation of available-for-sale asset	-		-		-		157		-		157
Movement in cumulative translation adjustment	-		-		-		(7)		-		(7)
Loss for the period	-		-		-		-		(9,966)		(9,966)
	4,958		2,298		-		(2,879)		(9,966)		(5,589)
Balance - 31 December 2009	545,180		10,047		-		35,911		(13,828)		577,310
Equity-based compensation expense	-		5,974		-		-		-		5,974
Share issue costs	-		-		-		-		-		-
Own shares issue under joint ownership equity plan	3,301		-		(3,301)		-		-		-
Restricted share units vested	4,555		(4,555)		-		-		-		-
Share options exercised or exchanged	157		(44)		-		-		-		113
Change in fair value of cash flow hedge	-		-		-		3,562		-		3,562
Revaluation of available-for-sale asset	-		-		-		(383)		-		(383)
Movement in cumulative translation adjustment	-		-		-		(162)		-		(162)
Loss for the period	-		-		-		-		(24,612)		(24,612)
	8,013		1,375		(3,301)		3,017		(24,612)		(15,508)
Balance - 31 June 2010	553,193		11,422		(3,301)		38,928		(38,440)		561,802

 

 

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

 

Consolidated Statements of Cash Flows For the six-month periods ended 30 June 2010 and 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	3 months ended 30 June				6 months ended 30 June
Note	2010 $		2009 $		2010 $		2009 $
Cash flows from operating activities
(Loss)/Profit for the period	(18,273)		1,439		(24,612)		(1,817)
Foreign exchange loss	4,696		(2,413)		7,714		733
Share of loss in equity investment	(39)		(5)		(39)		21
Gain on change of interest in associate	-		(13)		-		(99)
Amortisation	1,402		1,078		2,986		2,140
Equity-based compensation expense	1,128		533		4,763		961
Accretion of asset retirement obligation	30		32		63		62
Current taxation	(11)		94		-		94
Future tax asset recognised	(1,930)		984		(1,503)		444
Non-controlling interest	(341)		136		(264)		(47)
Deferred revenue recognised	(738)		(711)		(1,625)		(1,429)
Depletion of mineral properties	767		1,004		1,504		1,790
	(13,309)		2,158		(11,013)		2,853
Net changes in non-cash working capital 15	8,989		(9,891)		2,418		(13,509)
	(4,320)		(7,733)		(8,595)		(10,656)
Cash flows from investing activities
Deferred exploration and development costs - Romania	(1,559)		(1,631)		(2,831)		(2,516)
Property, plant and equipment - Greece	(4,931)		(3,450)		(6,713)		(12,403)
Deferred development costs - Greece	(929)		(703)		(1,213)		(1,222)
Deferred exploration costs -Turkey	(253)		(266)		(435)		(343)
Purchase of land	-		(88)		-		(88)
Purchase of equipment	(65)		(29)		(796)		(126)
Investment in associate	-		-		-		(143)
	(7,737)		(6,167)		(11,988)		(16,841)
Cash flows from financing activities
Proceeds from exercise of share options	113		80		113		638
Share issue costs	-		-		-		-
	113		80		113		638
Effect of foreign currency translation on cash	(4,914)		2,553		(8,194)		(709)
Increase in cash and cash equivalents	(16,858)		(11,267)		(28,664)		(27,568)
Cash and cash equivalents - Beginning of period	101,836		153,995		113,642		170,296
Cash and cash equivalents - End of period	84,978		142,728		84,978		142,728

 

 

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

 

Consolidated Statements of Other Comprehensive Income and loss For the six-month periods ended 30 June 2010 and 2009 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	3 months ended 30 June				6 months ended 30 June
	2010 $		2009 $		2010 $		2009 $
Profit/(Loss) for the period	(18,273)		1,439		(24,612)		(1,817)
Other comprehensive income/(loss) in the period
Currency translation adjustment	(170)		64		(162)		(65)
Gains and losses on derivative designated as cash flow hedges	(1,896)		(603)		3,956		(603)
Gains and losses on derivative designated as cash flow hedges in prior periods transferred to profit in current period	(394)		(1,801)		(394)		(4,218)
Unrealised gain/(loss) on available-for-sale financial asset	(170)		-		(383)		-
Comprehensive income/(loss)	(20,903)		(901)		(21,595)		(6,703)

 

 

 

  

 

 

 

 

 

The accompanying notes are not part of these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

For the periods ended 30 June 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:

 

	30 June 2010		31 December 2009
	$		$
Ore mined	2,173		102
Metal concentrates	2,223		2,195
Material and supplies	2,605		2,696
	7,001		4,993

 

The components of cost of sales were as follows:

 

	3 months ended 30 June				6 months ended 30 June
	2010 $		2009 $		2010 $		2009 $
Mining cost	6,390		6,196		12,742		11,684
Direct labour	787		1,121		1,524		2,196
Indirect labour	260		35		503		239
Other overhead costs	1,197		1,335		2,516		2,845
Change in gross inventories	(18)		(175)		(1,557)		(1,475)
Freight charges	1,111		2,666		2,115		5,090
Write down of inventory to net realisable value	-		(210)		-		-
	9,727		10,968		17,843		20,579

 

As at 30 June 2010, the value of total inventory carried at net realisable value amounted to $Nil (2009 - $Nil), which includes a write-down of $Nil (2009 - Nil).

 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	18,906		331		324		19,561
Transfers	(11,917)		-		11,917		-
Disposals	-		-		-		-
At 30 June 2010	71,229		2,438		55,705		129,372
Accumulated depreciation - 2010
At 31 December 2009	6,269		1,390		6,052		13,711
Provision for the period	1,001		157		2,052		3,210
Disposals	-		-		-		-
At 30 June 2010	7,270		1,547		8,104		16,921
Net book value at 30 June 2010	63,959		891		47,601		112,451

 

 

During 2010, the total depreciation charge amounted to $3,023 (2009 - $1,602) and the net book value amount of property, plant and equipment not amortised amounted to $75,466 (2009 - $54,615).

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	258		561		1,013		31		1,863
Depletion of mineral properties	(1,572)		-		-		-		(1,572)
	(1,314)		561		1,013		31		291
Balance - 30 June 2010	22,737		237,872		168,562		317		429,488

 

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	1,737		373		2,110
Permit acquisition	36		-		36
Project overhead	1,489		155		1,644
Depreciation	33		7		40
	3,295		535		3,830
Balance - 30 June 2010	47,565		6,438		54,003

 

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 30 June 2010, the following cost had been incurred on the remaining Romanian mineral properties:

 

	30 June 2010 $		31 December 2009 $
Baita-Craciunesti	3,324		3,334
Voia	2,112		1,847
Magura Tebii	202		181
Exploration projects	800		541
	6,438		5,903

 

Turkish Mineral Properties:

 

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

 

Exploration	8		16		24
Project overhead	261		206		467
Permit acquisition	5		6		11
Depreciation	-		-		-
	274		228		502
Balance - 30 June 2010	1,742		385		2,127

 

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 fourteen otherlicencescovering a total area of 211km², 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

 

	30 June 2010		31 December 2009
	$		$
Balance - Beginning of period	711		2,075
Shares acquired	-		141
Share of loss of associate	39		(76)
Cumulative translation adjustment	(173)		(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	577		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 undertook a share issue in which the Company subscribed which 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

 

	30 June 2010		31 December 2009
	$		$
Balance - Beginning of period	1,490		-
Reclassification from investment in associate	-		1,333
Fair value adjustment	(382)		157
Balance - End of period	1,108		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:

 

	30 June 2010		31 December 2009
	$		$
Mineral properties	84,326		84,491
Plant and equipment	1,528		1,329
Exploration and development expenditure	2,917		3,187
Accrued expenses & other	-		286
Inventory	-		10
Retirement obligation	600		780
	89,371		90,083
Less: Current portion	-		-
Future income tax liabilities recognised	89,371		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 30 June 2010 and 31 December 2009:

 

	30 June 2010		31 December 2009
	$		$
Asset retirement obligation - Beginning of period	7,068		6,937
Accretion expense	63		131
Asset retirement obligation - End of period	7,131		7,068

 

As at 30 June 2010, the undiscounted amount of estimated cash flows required to settle the obligation is $6,560 (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 4.5 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 effective from June 2010, lesser of $3.94) and the prevailing market price per ounce. During the six-month period ended 30 June 2010, Hellas Gold delivered concentrate containing ounces 376,018 (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:

 

	30 June 2010		31 December 2009
	$		$
Deferred revenue - Beginning of period	52,961		58,496
Additions	-		-
Revenue recognised	(1,625)		(5,535)
	51,336		52,961
Less: Current portion	(3,867)		(4,549)
Deferred revenue - End of period	47,469		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		4,555
Share options exercised or exchanged	60,000		157
Shares issued under jointly owned equity scheme	500,000		3,301
Share issue costs, net of tax	-		-
	1,551,233		8,013
Balance - 30 June 2010	182,891,046		553,193

 

Contributed surplus

	30 June 2010		31 December 2009
	$		$
Equity-based compensation expense	10,844		9,469
Broker warrants	578		578
	11,422		10,047

 

Accumulated other comprehensive income

 

The components of accumulated other comprehensive income were as follows:

 

	30 June 2010		31 December 2009
	$		$
Cumulative translation adjustment	36,655		36,818
Fair value of cash flow hedge (net of tax)	2,499		(1,064)
Available-for-sale asset	(226)		157
	38,928		35,911

 

Other reserves

	30 June 2010		31 December 2009
	$		$
Own shares issued under joint ownership equity place	(3,301)		-
	(3,301)		-

 

 

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 (27,433,657 shares as at 30 June 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 30 June 2010, the following share options were outstanding:

 

Expiry date	Number of Options		Exercise price C$
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
	5,009,165		5.45

 

 During the period ended 30 June 2010, 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	(60,000)		2.00
Options exchanged for shares	-		-
Options forfeited	-		-
Balance - 30 June 2010	5,009,165		5.45

 

Of the 5,009,165 (2009 - 2,891,665) share options outstanding as at 30 June 2010, 2,003,888 (2009 - 2,021,667) were fully vested and had a weighted average exercise price of C$4.75 (2009 - C$3.75) per share. The share options outstanding as at 30 June 2010, had a weighted average remaining contractual life of years 3.45 (2009 - 2.40 years).

 

The weighted average grant date fair value cost of the 1,662,500 share options granted during the period ended 30 June 2010 was C$4,178. No share options were granted in the period ending 30 June 2009. For outstanding share options, including options granted during the three-month period and those which were not fully vested during the six-month period ended 30 June 2010, the Company incurred a total equity-based compensation cost of $1,034 (2009 - $703) of which $778 (2009 - $303) has been recognised as an expense in the statement of profit and loss and $256 (2009 - $400) 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%; volatility factor of the expected market price of the Company's shares of 68.40%; a weighted average expected life of the share options of 5 years, maximum term of 5 years and a dividend yield of 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 (4,572,276 shares as at 30 June 2010).

 

As at 30 June 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 six-month period ended 30 June 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 - 30 June 2010	882,602		6.16

The weighted average grant date fair value cost of underlying shares of the 612,500, RSUs granted during the six-month period ended 30 June 2010 (2009 - 1,072,839) was C$6.20 (2009 - C$2.99). For outstanding RSUs which were not fully vested, including RSU's granted during the six-month period ended 30 June 2010, the Company incurred a total equity-based compensation cost of $3,907 (2009 - $535) of which $2,814 (2009 - $118) has been recognised as an expense in the statement of profit and loss and $1,093 (2009 - $200) has been capitalised to deferred exploration and development costs.

 

Jointly Owned Equity Plan

 

On 31 March 2010, the Company executed a trust deed constituting the European Goldfields Employee Share Trust (the "Trust") which is operated by an independent trustee (the "Trustee"). The establishment of the Trust enables the Trustee to acquire shares in the Company and to make available interests in those shares as jointly owned equity ("JOE") for the benefit of current and future employees under the Company's Share Option Plan and Restricted Share Unit ("RSU") Plan (the "Plans").

 

The Company has amended its Plans to enable the grant of share options and RSUs in the form of JOE awards, with the shares underlying such awards being jointly owned by the Trust and employees. The amendments to facilitate the JOE structure in each of the Plans do not alter the commercial or economic terms of the Plans or the benefits to the employees. The Company obtained approval from its shareholders at its annual general meeting on 12 May 2010, and as such , the Company accounts for the Trust under this "extension of parent" method.

On 1 April, 2010, the Trustee subscribed for 500,000 shares of the Company at a price per share of C$6.7093 under the JOE structure, which relate to the RSUs granted in March 2010. Neither the Trustee nor any employee is entitled to vote or receive dividends in respect of these shares. None of these shares will vest until after the achievement of certain performance targets. To the extent that the relevant approvals are not obtained, the JOE awards will be cancelled.

 

 

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 30 June 2010 has been included in current liabilities.

 

As at 30 June 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
18 May 2010	3,441
	250,486

 

 

During the period ended 30 June 2010, DPUs were granted and forfeited as follows:

 

	Number of DPUs
Balance - 31 December 2009	351,410
DPUs granted	46,515
DPUs exchanged	(147,439)
Balance - 30 June 2010	250,486

 

Of the 46,515 (2009 - 20,844) DPU's granted during the period, 19,805 (2009 - 20,844) were fully vested.

 

The fair value cost of the 250,486 (2009 - 427,344) DPUs as at the 30 June 2010, based on the period end share price of C$6.04 (2009 - C$3.38), amounted to C$1,513 (2009 - C$1,444).

 

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 30 June 2010 and 31 December 2009 are as follows:

 

	Carrying amount				Fair value
	30 June 2010		31 December 2009		30 June 2010		31 December 2009
Financial assets
Cash and cash equivalents	84,978		113,642		84,978		113,642
Accounts receivable	21,914		26,813		21,914		26,813
Derivative financial asset	-		-		2,499		-
Available-for-sale asset	1,108		1,490		1,108		1,490
Financial liabilities
Accounts payable and accrued liabilities	12,275		12,684		12,275		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)
	30 June 2010		31 December 2009		30 June 2010		31 December 2009
Financial assets
Available-for-sale asset	1,108		1,490		-		-
Derivative financial asset	-		-		2,499		-
Financial liabilities
Derivative financial liability	-		-		-		1,064