10 Nov 2009 07:00
EUROPEAN GOLDFIELDS LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE- AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2009
The following discussion and analysis, prepared as at 10 November 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"). The following discussion and analysis should be read in conjunction with the Company's unaudited consolidated financial statements for the three- and nine-month periods ended 30 September 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.
Cautionary statement on forward-looking information
Certain statements and information contained in this document, including any information as to the Company's future financial or operating performance and other statements that express management's expectations or estimates of future performance, constitute forward-looking information under provisions of Canadian provincial securities laws. When used in this document, the words "anticipate", "expect", "will", "intend", "estimate", "forecast", "planned" and similar expressions are intended to identify forward-looking statements or information. Forward-looking statements include, but are not limited to, the estimation of mineral reserves and mineral resources, the timing and amount of estimated future production, costs and timing of development of new deposits, permitting time lines and expectations regarding metal recovery rates. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The Company cautions the reader that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual financial results, performance or achievements of the Company to be materially different from its estimated future results, performance or achievements expressed or implied by those forward-looking statements and the forward-looking statements are not guarantees of future performance. These risks, uncertainties and other factors include, but are not limited to: changes in the price of gold, base metals or certain other commodities (such as fuel and electricity) and currencies; uncertainty of mineral reserves, mineral resources, grades and recovery estimates; uncertainty of future production, capital expenditures and other costs; currency fluctuations; financing and additional capital requirements; the successful and timely permitting of the Company's Skouries, Olympias and Certej projects; legislative, political, social or economic developments in the jurisdictions in which the Company carries on business; operating or technical difficulties in connection with mining or development activities; the speculative nature of gold and base metals exploration and development, including the risks of diminishing quantities or grades of mineral reserves; the risks normally involved in the exploration, development and mining business; and risks associated with internal control over financial reporting. For a more detailed discussion of such risks and material factors or assumptions underlying these forward-looking statements, see information under the heading "Risk Factors". The Company does not intend, and does not assume any obligation, to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.
RESULTS OF OPERATIONS
The Company's results of operations for the three-and nine-month periods ended 30 September 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 programmes in Romania and Turkey.
Corporate Activity
Board and Management Changes
On October 9th 2009 the Company announced that, Mr. Martyn Konig has been appointed as Executive Chairman and President of the Company.
At the same time Mr. Dimitrios Koutras stepped down as Chairman of the Company but remains both a Non-Executive Director and Executive Chairman of our 95%-owned subsidiary Hellas Gold. The Company also announced the appointment of Mr. Bruce James Burrows as a Non-Executive Director of the Company.
Following the watershed event of PEIS approval in Greece (see "Permitting Process - Greece" below) the Company is confident that it has the right set of skills and experience required to address the next phase of its development. Mr. Konig has initiated a review of its management, business and affairs that inter alia will set a revised set of targets for 2010 and the crucial forthcoming period of project development.
Directors Dealings
Effective upon his appointment as Executive Chairman and President of the Company, Martyn Konig was granted 600,000 Restricted Share Units ("RSUs"), and 1,300,000 options, having a five year term and an exercise price of C$6.00 each. The 600,000 RSU's vest in three equal tranches if certain performance criteria are met and 1,000,000 of the options are also subject to various performance vesting criteria, with the balance being vested immediately. Mr. Konig has elected to receive up to half of his total annual remuneration of £342,000 in RSUs, issued on a quarterly basis, and to convert 145,907 deferred phantom units, which he was awarded in his previous capacity as an independent non-executive director, into a like number of RSU's which are currently vested.
New appointments
The Company is pleased to announce the appointment of three new Vice Presidents.
Patrick Forward has been promoted to Vice President Projects and Exploration. Pat graduated in Mining Geology from the Royal School of Mines in 1989. Before joining European Goldfields as General Manager, Exploration in October 2004, he had worked for A.C.A. Howe International Limited. Between 1990 and 1995, he managed exploration projects in Europe, Ghana and Venezuela. For the following five years, he spent most of his time in Burkina Faso managing exploration programmes culminating in the discovery of the Nyafé deposit in Semafo Inc's Mana concession. On returning to the UK in 1999, Pat specialised in exploration management, geological due diligence, resource estimation, the application of GIS systems to exploration projects and deposit evaluation. As General Manager, Exploration he was responsible for European Goldfields exploration programmes and also involved with feasibility studies and development of European Goldfields major assets.
Dimitris Dimitriadis has been promoted to Vice President Project Development. Dimitris graduated in Mining and Metallurgical Engineering from the National Technical University of Athens and has more than 30 years experience in mining and metallurgy, as well as exposure to both the construction and financial sectors. Before joining European Goldfields as Business Development Manager in July 2006 he had worked for Hellas Gold S.A. as Business Development Manager principally in the restructuring of the Kassandra Mines and the introduction of new technology to the process plants, definition of new projects and the successful opening of new markets for its concentrate production. Before joining Hellas Gold S.A. he was General Manager and Member of the Board of ELMIN S.A. a bauxite producing company. His career first started at METBA S.A initially as a Process Engineer and then as a Project Engineer. Among other highlights during 1995 to 2002 Dimitris worked with TVX Hellas initially as Senior Metallurgist and then as Business Development Manager.
Sally Schofield has been hired as Vice President Investor Relations. Sally's career has seen her work in commercial, technical and operational capacities in geographically and politically diverse regions including Kazakhstan, Albania, Central America, Brazil and Chile. She gained early exposure to the technical, corporate and investor relations functions of the mining business before crossing sectors to work with RMC, now part of CEMEX, the global building materials giant. Sally returned to mining in 2003 and became a Director of AIM-listed Latitude Resources plc, a company with copper/gold assets in Chile. As Chief Operating Officer of the company she relocated to Santiago, Chile in 2006, with direct responsibility for an exploration program that developed a portfolio of exploration projects into a saleable asset. She then worked for a natural resource focused fund identifying potential assets. Sally graduated from the Camborne School of Mines with a First Class B. Eng (hons) Industrial Geology in 1995, is a Fellow of the Geological Society (FGS) and a professional member of IOM3 (MIMMM). In connection with Sally's appointment the Company intends to grant her 50,000 share options and 50,000 RSUs in the near future.
Permitting Process - Greece
In late September the then Ministry of Environment, Physical Planning and Public Works, completed the Preliminary Environmental Assessment and Evaluation based on the Preliminary Environmental Impact Study ("PEIS") submitted by the Company's 95%-owned subsidiary Hellas Gold SA, and issued a pre-approval of the construction and operation of the Project ("the Pre-Approval") in the province of Halkidiki, in North-Eastern Greece.
The "Project", consists of:
The development of mining and processing at the Skouries project.
The next stages of the Olympias project, namely the mining and processing of ore and metallurgical treatment of the concentrate, in accordance with the business plan as originally submitted.
Continuation of operations at the Mavres Petres deposit of the Stratoni Mine.
The port facilities at Stratoni in service of the above projects' operations.
This Pre-Approval of the Project, successfully concludes the major stage of assessment by the authorities and will lead to the preparation and submission of the Environmental Impact Study ("EIS") and supporting studies required by Greek and European Legislation. The EIS will be based on terms of reference as now defined by the Pre-Approval. The EIS will be submitted to the relevant authorities for review and the normal European Union public consultation requirements in the near future. The Company is confident that the extensive detail of the successful Pre-Approval process will in turn now optimise approval of the EIS.
Skouries Project (Greece)
Highlights
Outotec equipment contract complete
Basic Engineering package delivered to schedule
Outotec continues to advance their Detailed Engineering package
Outotec equipment contract complete
During the quarter, the final payments were made to Outotec in respect of the technology package for the Skouries project, which consists of the SAG and ball mills, motors and thickeners. All fabrication of this equipment is therefore complete, which represents the bulk of the process plant for the project. Process equipment deliveries to Greece continue and equipment is held at a storage facility in Thessaloniki which has been approved by Outotec.
Basic Engineering package delivered to schedule
The Greek engineering group ENOIA has issued the Basic Engineering package including an initial draft of an updated budget cost estimate for the process plant and associated infrastructure to Hellas Gold. The Basic Engineering package comprises plant design by ENOIA and Outotec; the mine and roads design by Geotechnical Consultants Omicron Kappa; architectural design by KION and the civil structures and works by MHXME. Basic and Detailed level Engineering studies are currently underway for the tailings facility, infrastructure and dump design and once completed then revised project capital and operating costs will be published.
A hydrogeological study by IGME, the Greek geological survey, has been also been completed and detailed design of the tailings management facility ("TMF") is currently being undertaken by Omikron Kappa.
Outotec continues to advance their Detailed Engineering package
Outotec continues to advance their Detailed Engineering of instrumentation and control systems for the Concentrator plant. ENOIA are coordinating the overall control package including equipment outside of Outotec's supply to provide a fully integrated system.
Equipment orders which fall outside the scope of Outotec's supply contract such as the open pit cone crusher, pebble crushers, pumps and flotation cells are also well advanced.
Olympias project (Greece)
Sale of gold concentrates up by 71% over Q3 2008
The Olympias project benefits from an existing stockpile of gold-bearing pyrite concentrates which represented, at 1 January 2009, a reserve of approximately 101,000 tonnes grading 23.5 g/t gold (containing approximately 75,000 oz of gold). Excavation of the concentrate for shipment has indicated that the depth of stockpile base was underestimated in several areas by historical surveys and therefore additional concentrate tonnage exists compared to the declared reserve. In addition there are 2.4Mt of tailings containing 238,000 oz of gold and substantial underground reserves of gold, lead, zinc and silver.
Hellas Gold completed 16 shipments of Olympias concentrates in Q3 2009 (Q3 2008 - 8). This translates into 21,734 tonnes of pyrite concentrates sold.
Sales of pyrite concentrates were as follows:
| Sale of Gold-Bearing Concentrates from Existing Stockpile | ||||||||
| 2009 Q3 | 2009 Q2 | 2009 Q1 | 2008 Q4 | 2008 Q3 | 2008 Q2 | 2008 Q1 | 2007 Q4 | |
| Sales | ||||||||
| Gold concentrate (dmt) | 21,734 | 32,134 | 26,832 | 18,566 | 12,710 | 22,479 | 9,778 | 21,385 |
Re-processing of the existing tailings will yield further high-grade gold concentrates of approximately 350,000 tonnes.
Plant and Underground Rehabilitation at Olympias
The engineering study for the Olympias Mill rehabilitation has been awarded to the Greek engineering company "Renewables".
A study to outline the rehabilitation works and associated costs for the underground infrastructure is being completed by Scott Wilson Mining. Refurbishing of the mine offices and the construction of a shotcrete plant on site are already underway.
Stratoni operations (Greece)
Production
Hellas Gold completed six shipments in Q3 2009 (Q3 2008 - 8), and 19 shipments for the year to end Q3 2009 (to end Q3 2008 - 20). Hellas Gold's results from its operations at Stratoni for the eight most recently completed quarters are summarised in the following table:
| Operational results | ||||||||
| 2009 Q3 | 2009 Q2 | 2009 Q1 | 2008 Q4 | 2008 Q3 | 2008 Q2 | 2008 Q1 | 2007 Q4 | |
| Inventory (start of period) | ||||||||
| Ore mined (wet tonnes) | 2,293 | 4,010 | 1,778 | 6,489 | 1,003 | 2,816 | - | 4,868 |
| Zinc concentrate (tonnes) | - | 602 | 2,975 | 2,078 | 5,660 | 2,745 | 1,689 | 2,797 |
| Lead/silver concentrate (tonnes) | 2,106 | 1,393 | 488 | 1,294 | 1,238 | 2,213 | 49 | 2,042 |
| Production | ||||||||
| Ore mined (wet tonnes) | 57,235 | 60,023 | 56,892 | 70,468 | 69,847 | 73,137 | 58,208 | 50,643 |
| Ore milled (tonnes) | 50,167 | 60,287 | 52,984 | 73,320 | 63,040 | 73,280 | 53,675 | 53,813 |
| - Average grade: Zinc (%) | 9.10 | 8.87 | 7.85 | 8.80 | 8.82 | 10.37 | 9.37 | 9.00 |
| Lead (%) | 5.18 | 5.56 | 6.42 | 6.54 | 6.40 | 6.21 | 5.35 | 8.12 |
| Silver (g/t) | 133 | 141 | 166 | 167 | 160 | 155 | 134 | 206 |
| Zinc concentrate (tonnes) | 8,544 | 9,989 | 7,932 | 12,106 | 10,451 | 14,139 | 9,427 | 9,082 |
| - Containing: Zinc (tonnes) | 4,248 | 4,971 | 3,827 | 5,914 | 5,132 | 7,004 | 4,644 | 4,425 |
| Lead concentrate (tonnes) | 3,531 | 4,484 | 4,667 | 6,750 | 5,531 | 6,443 | 4,035 | 6,012 |
| - Containing: Lead (tonnes) | 2,376 | 3,060 | 3,129 | 4,434 | 3,726 | 4,201 | 2,653 | 4,021 |
| Silver (oz) | 177,650 | 230,106 | 240,366 | 336,336 | 280,305 | 316,354 | 207,215 | 316,837 |
| Sales | ||||||||
| Zinc concentrate (tonnes) | 7,937 | 10,646 | 10,306 | 11,210 | 14,033 | 11,224 | 8,371 | 10,191 |
| - Containing payable: Zinc (tonnes)* | 3,325 | 4,427 | 4,152 | 4,591 | 5,818 | 4,633 | 3,454 | 4,209 |
| Lead concentrate (tonnes) | 4,736 | 3,771 | 3,762 | 7,556 | 5,475 | 7,418 | 1,872 | 8,004 |
| - Containing payable: Lead (tonnes)* | 3,042 | 2,448 | 2,347 | 4,775 | 3,495 | 4,628 | 1,188 | 5,082 |
| Silver (oz)* | 228,574 | 183,452 | 183,504 | 363,205 | 263,464 | 355,298 | 95,582 | 399,272 |
| Cash operating cost per tonne milled ($) | 165 | 144 | 156 | 145 | 164 | 161 | 164 | 175 |
| Cash operating cost per tonne milled (€) | 116 | 106 | 119 | 109 | 109 | 103 | 110 | 121 |
| Inventory (end of period) | ||||||||
| Ore mined (wet tonnes) | 8,097 | 2,293 | 4,010 | 1,778 | 6,489 | 1,003 | 2,816 | - |
| Zinc concentrate (tonnes) | 607 | - | 602 | 2,975 | 2,078 | 5,660 | 2,745 | 1,689 |
| Lead/silver concentrate (tonnes) | 901 | 2,106 | 1,393 | 488 | 1,294 | 1,238 | 2,213 | 49 |
* Net of smelter payable deductions
The completion of a new upper adit marks the finalisation of major mine infrastructure which has been ongoing over the last four years and includes a new lower decline, new surface workshops, new backfill plants, two filter presses and a new water treatment plant. Internal development, including ramp extensions and access drives, is essentially complete for the year.
Production was under budget for the quarter due to the continuation of the poor geotechnical conditions which compounded mining cycle conflicts. The mine has experienced an improvement in the geotechnical conditions as mining has moved away from the Stratoni Fault and the mining cycle issues have eased as new levels entered into production late in the quarter.
Process plant performance
Zinc and lead metal recoveries are being maintained on budget at a consistent 92% and silver at 87%. A circuit to improve the quality of the lead concentrate is in the final design stage and installation is planned for early 2010. Working conditions in the plant were improved by capturing gases from reagent tanks and filtering impurities.
Fatality in the mine
On the 14th of October 2009 the death of a miner occurred due to an underground accident at Stratoni's Mavres Petres mine. The Company reported on 15th October that a rockfall occurred during roof maintenance 162 metres underground, killing one worker and injuring a second. The rockfall actually occurred at mine level 162 which is in fact more than 300 metres below surface. The Company reiterates its condolences to the family, friends, and colleagues of the deceased. Production at the mine resumed after a short closure period of two working days, in line with the Company's previous announcement. The Health Safety and Environment Committee of the Board immediately requested a review of procedure and practices and is considering the resultant recommendations made by Hellas Gold management.
Exploration in Greece
An airborne electromagnetic (EM) survey has proved highly effective in confirming an anomaly extending eight km of strike at the Piavitsa massive sulphide target. Two km of this strike length have historic massive sulphide drill intercepts which correspond exactly with the EM anomaly. The footprint of the target is larger than that of the Company's Olympias project.
In addition, the magnetic component of the airborne survey has already identified a 17 km by six km belt of porphyry ntrusive over which a three-dimensional inversion model has been completed defining two other major targets. Follow-up reconnaissance mapping has confirmed the presence of porphyry style mineralisation on all targets outlined by the magnetic survey.
An EIS is now being considered by the local authorities to allow access to drill sites on both the massive sulphides and porphyry targets in the near future.
Certej Project (Romania)
Basic engineering completed
The Basic Engineering ("BE") contract for the Certej project process plant and associated infrastructure awarded to Aker Solutions Engineering & Construction was completed in September 2009. The BE covers the entire process plant engineering and Xstrata Technology, who are owners of the Albion Process were part of the engineering team. Basic and Detailed level Engineering studies are currently underway for the tailings facilities, infrastructure and mine and dump design and once completed then revised project capital and operating costs will be published.
The Romanian contractor Cepromin has been appointed to prepare the Technical Project Report which involves advancing the BE level studies. They have started the work to generate the Technical Project Report, which together with the environmental permits will be required for issuing the Construction Permit. The Technical Project Report is due for completion in H1 2010.
Golder Associates UK completed the DFS of the TMF designs in Q1 2009 and has now commenced to assist Cepromin with the Technical Project Report.
Permitting process continues to advance
The Certej project had already received all the technical mining approvals by September 2008, when the Romanian National Agency for Mineral Resources ("NAMR") approved the Technical Feasibility Study ("TFS") for the project, as required under Romanian legislation, including the approval and state registration of the project's resources and reserves. This completed all the mining approvals required for the project from NAMR and was a very significant step forward in the development of the project.
A public consultation process in respect of the environmental permit for the Zonal Urbanisation Plan ("PUZ") has also been successfully concluded: the public consultation involved four public hearings in the communities most directly affected by the Certej project. No adverse comments were raised during the public notice period, during the meetings themselves or subsequently to the authorities. The PUZ process is almost complete with 16 of the 17 constituent permits required being obtained, including that relating to water. A positive final-outcome of the process is expected in the near future.
In anticipation of the approval of the PUZ, the Ministry of the Environment has invited the Company to file its EIS application, which will also then be subject to the last requirement for public consultation prior to the issuance of the environmental permit. These, together with the construction permit, are the final approvals required for the construction and operation of the plant, the tailings design and other related infrastructure.
Certej financing progresses
As part of the project financing process, an internationally recognised engineering group has been appointed as Independent Technical Consultant for the Certej Project. A site visit has already been conducted and a review of the Certej Definitive Feasibility study and all its supporting documents is nearing completion. The shortlisted group of financing institutions have been sent a draft term sheet and detailed banking model with a target of agreeing commercial terms and securing lending commitments over the coming months, subject to final documentation. The Company aims to have completed the project finance process in the first part of 2010. As part of the proposed structure, the Company has stated its intention not to hedge any upside participation in the gold price.
Exploration in Romania
In early 2009 the Company acquired two new prospecting licences for 454 square kilometres of prospective terrain, covering the westward extension to the area hosting the Company's Certej deposit and the area containing the Deva Porphyry deposit. These areas are prospective for disseminated gold, porphyry mineralisation as well as the more prolific and higher-grade epithermal deposits.
Work in the quarter has been focused on the Deva Porphyry area, which hosts a volcanic complex, including the historically mined Deva Porphyry pipe, which produced some 20Mt at 0.8% Cu with the gold grade unrecorded. The Company has completed a ground magnetic survey and soil surveys both of which have highlighted a series of porphyry targets which were not previously recognised.
In addition soil grids, mapping and re-interpretation of existing data have outlined several epithermal gold targets proximal to the historic Brad mines and within the same volcanic belt as the Certej deposit.
These targets will be tested with more detailed exploration work and drilling in 2010.
Exploration in Turkey
In April 2008 the Company entered into a joint venture with Ariana Resources plc ("Ariana") with respect to mineral properties in the Eastern Pontide area of northeast Turkey.
Mapping and sampling has confirmed that porphyry mineralisation continues to the south of the previously recognised outcrops, and this additional extension increases the size potential of the porphyry system. A high-grade gold zone has also been identified at Salinbas, some three km to the southwest of the Ardala porphyry. Trenching at Salinbas has returned the following bedrock intercepts over a 360m strike length with mineralisation open to the south and at depth:
Trench 1, 26 m @ 5.4 g/t Au,
Trench 2, 6 m @ 2.8 g/t Au
Trench 3, 46 m @ 8.3 g/t Au
Trench 4, 6 m @ 2.8 g/t Au
Trench 5, 14 m @ 7.3 g/t Au and 33 m 9.62 g/t Au
Trench 6, 9 m @ 4.3 g/t Au
Note: These intercepts are calculated at a 0.5g/t Au cut-off, no upper-cut .
Drilling and further trenching are planned at both Ardala and Salinbas for the near future.
The Company continues to consolidate ground to the south of the Ardala licence and finalise paper work in the next few days with Aldridge Minerals Inc ("Aldridge") for the joint development of Aldridge's Derinkoy properties, which covers an area of 40 square km adjacent to the Company's Ardala Licences. The properties lie within the area of interest of the Company's joint venture with Ariana (the "Pontid JV") and as such will be developed within the Pontid JV vehicle. Mapping and soil sampling over the property will be completed by the end of the year.
SUMMARY OF FINANCIAL RESULTS
Stratoni mine
Base metal prices continued their recovery in Q3 2009 compared to Q2 2009, and this trend has continued after the quarter end. The increased base metal revenues in the Q3 2009 allowed the Stratoni operation to generate higher earnings before interest, taxes, depreciation and amortisation ("EBITDA") to contribute towards capital expenditure and other operating costs. The Stratoni mine's financial results for the eight most recently completed quarters are summarised in the following table:
| Financial performance | ||||||||
| (in thousands of US dollars) | 2009 Q3 | 2009 Q2 | 2009 Q1 | 2008 Q4 | 2008 Q3 | 2008 Q2 | 2008 Q1 | 2007 Q4 |
| Sales | 11,500 | 9,472 | 4,935 | 8,465 | 13,250 | 13,000 | 10,097 | 18,483 |
| EBITDA | 1,315 | 305 | (3,025) | (5,233) | 1,742 | 1,017 | 4,057 | 8,147 |
| Gross profit | (449) | (1,561) | (4,345) | (7,060) | 171 | (198) | 3,060 | 6,147 |
| Capital expenditure | 596 | 2,793 | 4,214 | 3,543 | 2,496 | 2,086 | 3,111 | 3,779 |
| Amortisation and depletion | 1,764 | 1,866 | 1,320 | 1,827 | 1,571 | 1,215 | 997 | 2,000 |
Total revenues from concentrate sales fell year on year as a result of lower quantities sold (primarily in zinc) despite higher prices being realised. Payable zinc in concentrate sales declined 43%, as a result of lower mine production in Q3 2009. In addition, payable lead and silver in concentrate sales both fell by 13% compared to the prior year quarter, reflecting the combination of lower tonnage mined and lower processed lead and silver grades. Realised prices for zinc were $1,795 per tonne, 2% up on Q3 2008, and $2,106 per tonne for lead, an increase of 11% compared to Q3 2008. Overall lower sales volumes outweighed marginally higher realised prices compared to the prior year quarter leading to a fall of 25% in payable metal revenues.
| Reconciliation of Stratoni revenues - Q3 2009 | ||||||||||||
| (in thousands of US dollars unless stated otherwise) | Zinc | Lead | Silver | Total | ||||||||
| Payable metal | 3,325t | 3,042t | 228,574oz | n/a | ||||||||
| Realised price | $1,795/t | $2,106/t | $8.12/oz | n/a | ||||||||
| Payable metal revenue | 5,968 | 6,406 | 1,855 | 14,229 | ||||||||
| TC/RCs | (2,147) | (703) | (192) | (3,042) | ||||||||
| Transport recoveries/(charges) | 14 | - | - | 14 | ||||||||
| Net revenue | 3,835 | 5,703 | 1,663 | 11,201 | ||||||||
| Prior quarter adjustments | (41) | 354 | (14) | 299 | ||||||||
| Total revenue | 3,794 | 6,057 | 1,649 | 11,500 | ||||||||
| Reconciliation of Stratoni revenues - Q3 2008 | ||||||||||||||||
| (in thousands of US dollars unless stated otherwise) | Zinc | Lead | Silver | Total | ||||||||||||
| Payable metal | 5,818t | 3,495t | 263,464oz | n/a | ||||||||||||
| Realised price | $1,758/t | $ 1,904t | $7.93/oz | n/a | ||||||||||||
| Payable metal revenue | 10,228 | 6,656 | 2,090 | 18,974 | ||||||||||||
| TC/RCs | (3,726) | (2,148) | (123) | (5,997) | ||||||||||||
| Transport recoveries/(charges) | - | 266 | - | 266 | ||||||||||||
| Net revenue | 6,502 | 4,774 | 1,967 | 13,243 | ||||||||||||
| Prior quarter adjustments | (253) | 255 | 5 | 7 | ||||||||||||
| Total revenue | 6,249 | 5,029 | 1,972 | 13,250 | ||||||||||||
Year on year the Company benefitted from improved terms of the 2009 offtake agreements, particularly in lead, which resulted in a year on year fall in treatment charges on a gross and proportional basis. As base metal prices trended upwards, prior quarter revenue adjustments yielded a net benefit for the current quarter. Therefore, despite lower quantities sold, net revenues only fell 13%.
Olympias
Hellas Gold completed 16 shipments of Olympias concentrates in Q3 2009 representing 21,734 tonnes of pyrite concentrates sold, an increase of 71% over the prior year period (12,710 tonnes - Q3 2008). Realised gold prices were higher than the prior year, so that in dollar terms, revenues from sales of gold concentrates totalled $5.5 million in Q3 2009, an increase of 94% over the same period in 2008 ($2.9 million).
| Financial performance | ||||||||
| (in thousands of US dollars) | 2009 Q3 | 2009 Q2 | 2009 Q1 | 2008 Q4 | 2008 Q3 | 2008 Q2 | 2008 Q1 | 2007 Q4 |
| Sales | 5,537 | 6,732 | 5,807 | 4,309 | 2,851 | 5,461 | 2,611 | 4,232 |
| Gross profit | 4,012 | 4,747 | 4,003 | 2,995 | 1,222 | 3,668 | 1,789 | 1,279 |
| Amortisation and depletion | 124 | 184 | 153 | 106 | 72 | 129 | 56 | (134) |
Consolidated results
Revenues showed increased 5% in the three month period ending 30 September 2009 compared to the three-month period ending 30 June 2009 as a result of higher base metal prices; however foreign exchange losses, lower hedge income and higher equity-based compensation expenses and income taxes meant that the Company recorded a loss for the period of $3.2 million compared to a profit of $1.5 million in Q2 2009. For the three-month period ending 30 September 2009 compared to the prior year, the trend of improved metal prices improved gross profit performance. For the nine-month period ending 30 September 2009, gross and net profit performance underperformed the same period in 2008 because of stronger base metal prices in the first half of 2008 and lower hedge and interest income in 2009. Stratoni production continued to be constrained by challenging operating conditions, but Olympias gold concentrate sales continued to perform very robustly. The Company's lead hedging programme will expire at the end of the current financial year and generated income of $1.0 million for the quarter. Working capital declined as the Company continued its capital expenditure programmes at its operating mine and development projects, but the Company's balance sheet remains strong.
The Company's statement of profit and loss for the eight most recently completed quarters are summarised in the following table:
| Financial performance | |||||||||
| (in thousands of US dollars, except per share amounts) | 2009 Q3 $ | 2009 Q2 $ | 2009 Q1 $ | 2008 Q4 $ | 2008 Q3 $ | 2008 Q2 $ | 2008 Q1 $ | 2007 Q4 $ | |
| Statement of profit and loss | |||||||||
| Sales | 17,037 | 16,204 | 10,742 | 12,774 | 16,101 | 18,461 | 12,708 | 22,715 | |
| Cost of sales | 13,474 | 13,018 | 11,084 | 16,839 | 14,708 | 14,991 | 7,859 | 15,289 | |
| Gross profit | 3,563 | 3,186 | (342) | (4,065) | 1,393 | 3,470 | 4,849 | 7,426 | |
| Interest income | 147 | 133 | 508 | 1,164 | 1,306 | 1,502 | 1,757 | 2,699 | |
| Foreign exchange gain/(loss) | (501) | 1,719 | (2,882) | (6,253) | (2,800) | (27) | 2,674 | (2,173) | |
| Hedge contract profit | 1,030 | 1,801 | 2,417 | 3,165 | 1,362 | 391 | - | - | |
| Share of profit/(loss) in equity investment | (187) | 18 | (26) | (3) | (66) | (36) | - | - | |
| Expenses | 5,384 | 4,204 | 3,740 | 5,253 | 6,054 | 5,058 | 5,017 | 6,385 | |
| Profit/(loss) before income taxes | (1,332) | 2,653 | (3,979) | (11,245) | (4,859) | 242 | 4,263 | 1,567 | |
| Income taxes | (1,847) | (1,078) | 540 | 17,067 | (451) | 644 | (621) | 2,062 | |
| Profit/(loss) after income taxes | (3,179) | 1,575 | (3,439) | 5,822 | (5,310) | 886 | 3,642 | 3,629 | |
| Non-controlling interest | 56 | (136) | 183 | 519 | 267 | (74) | (233) | (29) | |
| Profit/(loss) for the period | (3,123) | 1,439 | (3,256) | 6,341 | (5,043) | 812 | 3,409 | 3,600 | |
| Earnings/(loss) per share | (0.02) | 0.01 | (0.02) | 0.04 | (0.03) | 0.00 | 0.02 | 0.02 | |
The Company recorded a loss before taxes of $2.66 million for the nine-month period ended 30 September 2009, compared to a loss before taxes of $0.35 million for the same period of 2008. The Company recorded a net loss (after taxes and non-controlling interest) of $4.94 million ($0.03 loss per share) for the nine-month period ended 30 September 2009, compared to a net loss of $0.82 million ($0.00 loss per share) for the same period of 2008. This nine month performance was impacted by lower base metal prices on average, lower than planned operating performance at Stratoni, lower interest rates and foreign exchange movements offset by higher hedge income and lower other operating costs, as described below.
The Company recorded a loss before taxes of $1.33 million for the three-month period ended 30 September 2009, compared to a loss before taxes of $4.86 million for the same period of 2008. The Company recorded a net loss (after tax and non-controlling interest) of $3.12 million ($0.02 loss per share) for the three-month period ended 30 September 2009, compared to a net loss of $5.04 million ($0.03 loss per share) for the same period of 2008. For the three month performance, improving base metal and gold prices, lower other expenses and foreign exchange losses more than offset lower production from Stratoni and lower hedging and interest income, resulting in higher levels of operating and lower pre- and post-tax losses.
In more detail, the following factors have contributed to the above:
, Average base metal prices in the first nine months of 2009 were significantly lower (due to weaker prices in the earlier part of the year) than the same period in 2008: the price of zinc, the Stratoni mine's primary sales product, averaged approximately $1,502 per tonne, 30% lower than in 2008 which averaged $2,131 per tonne; the lead price averaged $1,549 per tonne for the same period in 2009, a 35% reduction compared to $2,374 per tonne in 2008. In addition, the Stratoni mine was operating at lower production levels in the first nine months of 2009 than in the same period of 2008, with mine and mill production falling 16% and 14% respectively. Lower metal grades meant that zinc metal in concentrate production fell 22%, and lead in concentrate production fell 19%. Payable metal sales in the nine months ended 30 September 2009 were in line with the overall declining trend in production, with payable zinc sales of 11,904 tonnes, a 14% decrease over the same period in 2008, and payable lead sales down by 16% to 7,837 tonnes.
There is a more positive metal price trend when looking at the three-month periods ended 30 September: for that period in 2008, base metal prices had fallen dramatically and continued to do so for the rest of the calendar year, troughing in Q1 2009; subsequently, lead and zinc rallied strongly for the whole of calendar year 2009. Thus in the three months ended 30 September 2009, zinc averaged almost $1,800 per tonne and lead $1,940 per tonne compared to $1,800 per tonne and $1,915 per tonne respectively for the same period in 2008. Sales of payable zinc in Q3 2009 fell 43% compared to Q3 2008, whereas sales of payable lead fell 13% over the same period.
The trend in the Company's gold concentrate sales has remained extremely encouraging: in the first nine months of 2009, Hellas Gold sold a total of 80,700 tonnes of gold bearing pyrite concentrates from Olympias, compared to 44,967 in the same period of 2008. Gold prices have broadly traded in a range between $850 and $950 per ounce for the majority of the period since the beginning of 2008, but at the end of the current quarter, the gold price made a major break towards the psychological $1,000 per ounce barrier, which was broken immediately after the current quarter end and the gold price has subsequently maintained a comfortable margin above this level. Therefore the gold price averaged $931 per ounce in the first nine months of 2009 compared to $897 per ounce in the same period in 2008, and $961 per ounce in the quarter ended September 2009 compared to $870 per ounce for the corresponding period in 2008.
Cost of sales was $37.58 million in the first nine months of 2009 and $13.47 million in Q3 2009, compared to $37.56 million and $14.71 million, respectively, for the same periods of 2008, and included $5.41 million in depreciation and depletion expenses in the first nine months of 2009, compared to $4.04 million for the same period of 2008. In the first nine months of 2009, lower production and US dollar unit operating costs reduced Stratoni costs of production by $5.75 million, but these reductions were more than offset by other cost increases: transport costs were $3.31 million higher, resulting primarily from significantly higher gold concentrate sales; amortisation and depreciation were $1.37 million higher mainly because 2008 had benefited from a one off life of mine catch up reduction; and $1.10 million lower transfer of costs to inventory resulting from build of concentrate stockpiles. For the quarter ended 30 September 2009 compared to the same period in 2008, the trends were the same: there was $2.06 million reduction from lower production levels and US dollar unit operating costs offset by $0.65 million higher transport costs, $0.25 million higher amortisation and depreciation, and a drawdown of inventory of $0.10 million.
As a result, the Company recorded a gross profit of $6.41 million in the first nine months of 2009 and $3.56 million in Q3 2009, on revenues of $43.98 million and $17.04 million, respectively, compared to a gross profit of $9.71 million in the first nine months of 2008 and $1.39 million in Q3 2008, on revenues of $47.27 million and $16.10 million, respectively. The Company's corporate administrative and overhead expenses have decreased from $3.92 million in the first nine months of 2008 and $1.35 million in Q3 2008, to $3.20 million and $1.14 million, respectively, for the same periods of 2009. This represents the continuation of cost control initiatives reported on last quarter.
The Company recorded a non-cash equity-based compensation expense of $2.33 million in the first nine months of 2009 and $1.37 million in Q3 2009, compared to $1.55 million and $0.54 million, respectively, for the same periods of 2008. Equity-based compensation in 2009 relates primarily to restricted share units ("RSUs") and deferred phantom units ("DPUs"), as the Company in recent years has favoured the issuance of RSUs and DPUs over share options. Both RSUs and DPUs are valued by direct reference to the Company's share price, without the need for estimates to calculate the fair value of these instruments. RSUs are valued using the share price upon issuance, whilst DPUs are revalued to the Company's closing share price at the end of each reporting period. 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 $1.66 million in the first nine months of 2009 and a foreign exchange loss of $0.50 million in Q3 2009. In comparison, the Company incurred a foreign exchange loss of $0.15 million in the first nine months of 2008, and a loss of $2.80 million in Q3 2008. These exchange differences arise as a result of changes in the US dollar values of Hellas Gold's net current assets or liabilities.
Hellas Gold's administrative and overhead expenses amounted to $4.67 million in the first nine months of 2009 and $1.90 million in Q3 2009, compared to $6.20 million and $2.19 million, respectively, for the same periods of 2008. Hellas Gold's administrative and overhead expenses include the costs of the Athens based office, environmental and water treatment expenses not directly attributable to the Stratoni operation. The principal change was a fall in the total amount spent on local community projects.
Hellas Gold incurred an expense of $2.55 million in the first nine months of 2009 and $0.78 million in Q3 2009, compared to $3.86 million and $1.76 million, respectively, for the same periods 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. Lower costs were incurred in line with the continued strategy of limiting all non essential spend where possible at the operations and in other areas of the business.
The Company recorded a charge for income taxes of $2.39 million in the first nine months of 2009 and $1.85 million in Q3 2009, compared to charges of $0.43 million and $0.45 million, respectively, for the same periods of 2008. This reflects an increase relating the finalisation of three years of tax accounts at Hellas Gold.
The Company recorded a credit of $0.10 million in the first nine months of 2009 and a credit of $0.06 million in Q3 2009 relating to the non-controlling shareholder's interest in Hellas Gold's profit (after tax), compared to a charge of $0.04 million and a credit of $0.27 million, respectively, for the same periods of 2008.
Financial instruments
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. As with cash deposits, the Company deals with highly rated banks and in addition, those institutions who have demonstrated long term commitment to the mining sector. The Company has one counterparty relating to the remaining lead hedge contracts. If this counterparty were unable to honour its obligations under the hedge contracts, the Company would be exposed up to the entire value of the hedge stated in the accounts and would be exposed to the difference between the hedge and the then current market price at the date of the settlement of the hedged item. The hedges below are treated as cash flow hedges in accordance with CICA 3865: Hedges.
As at 30 September 2009, the Company had entered into forward hedging arrangements over tonnes of lead, using options to provide a minimum: maximum price exposure. The hedging contracts are put/call option collar contracts with maturity dates between 02 January 2009 and 05 January 2010 where the fair value amounted to $545 (31 December 2008 - $10,282), established by reference to market prices for lead.
| 30 September 2009 | |
| Lead tonnes | 1,800 |
| US dollar price ($/tonne) - Put | 2,500 |
| US dollar contract amount ($'000) - Put | 4,500 |
| US dollar price ($/tonne) - Call | 3,500 |
| US dollar contract amount ($'000) - Call | 6,300 |
During the nine and three month periods ended 30 September 2009, the Company recorded income relating to its lead hedging activities of $5,248 (2008: $1,753) and $1,030 (2008: $1,362) respectively.
Related parties
During the nine and three month periods ended 30 September 2009, Hellas Gold incurred costs of $24,768 (2008 - $28,651) and $6,945 (2008 - $10,393) respectively for management, technical and engineering services received from a related party, Aktor S.A., a 5% shareholder in Hellas Gold. As at 30 September 2009, Hellas Gold had accounts payable of $8,673 (2008 - $4,216) to Aktor S.A. These expenses were contracted in the normal course of operations and are recorded at the exchange amount agreed by the parties.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet and cash flows for the eight most recently completed quarters are summarised in the following table:
| (in thousands of US dollars, except per share amounts) | 2009 Q3 $ | 2009 Q2 $ | 2009 Q1 $ | 2008 Q4 $ | 2008 Q3 $ | 2008 Q2 $ | 2008 Q1 $ | 2007 Q4 $ | ||||||||||
| Balance sheet (end of period) | ||||||||||||||||||
| Cash | 124,112 | 142,728 | 153,995 | 170,296 | 192,456 | 205,908 | 215,582 | 223,739 | ||||||||||
| Working capital | 146,158 | 171,185 | 176,319 | 192,675 | 208,609 | 216,822 | 225,673 | 226,431 | ||||||||||
| Total assets | 749,870 | 753,196 | 757,206 | 766,095 | 775,369 | 796,537 | 794,911 | 782,131 | ||||||||||
| Non current liabilities | 153,882 | 153,544 | 154,882 | 155,727 | 183,881 | 185,897 | 184,635 | 182,092 | ||||||||||
| Statement of cash flows | ||||||||||||||||||
| Cash flows from operating activities | 2,865 | (7,733) | (2,923) | 883 | (6,421) | (609) | (3,832) | 18,976 | ||||||||||
| Investing activities | (22,793) | (6,167) | (10,674) | (11,672) | (5,030) | (9,271) | (9,909) | (8,447) | ||||||||||
| Plant and equipment | (20,649) | (3,450) | (8,953) | (12,998) | (2,971) | (3,065) | (7,147) | (3,779) | ||||||||||
| Deferred development costs | (2,137) | (2,600) | (1,481) | (2,837) | (2,007) | (1,798) | (2,372) | (3,048) | ||||||||||
| Other | (7) | (117) | (240) | 4,163 | (52) | (4,407) | (390) | (1,620) | ||||||||||
| Financing activities | - | 80 | 558 | (10) | - | 54 | 3,563 | 4,608 | ||||||||||
| Effect of foreign exchange on cash | 1,312 | 2,553 | (3,262) | (6,229) | (2,001) | 152 | 2,021 | (7,869) | ||||||||||
| Total movement in cash | (18,616) | (11,267) | (16,301) | (17,028) | (13,452) | (9,674) | (8,157) | 7,268 | ||||||||||
As at 30 September 2009, the Company had cash and cash equivalents of $124.11 million, compared to $170.30 million as at 31 December 2008, and working capital of $146.16 million, compared to $192.68 million as at 31 December 2008. The Company has sufficient capital for its needs until all the permits to construct its new mines are received, at which point additional capital will be required. The Company is confident that the bank debt and capital markets have sufficient liquidity to provide any additional capital it may require to bring its project portfolio into production.
The decrease in cash and cash equivalents as at 30 September 2009, compared to the balances as at 31 December 2008, resulted primarily from capital expenditure in Greece ($33.05 million), changes in working capital balances ($11.00 million), deferred exploration and development costs in Romania ($4.17 million), investment in an associate ($0.14 million), deferred development costs in Greece ($1.35 million), deferred exploration costs in Turkey ($0.70 million), offset by operating cash flow ($3.21 million) ,the effect of foreign currency translation on cash ($0.60 million) and proceeds from exercise of share options ($0.64 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 obligations | Total | Less than 1 year | 2 - 3 years | 4 - 5 years | After 5 years |
| Operating lease (London office) | 706 | 157 | 314 | 235 | - |
| Operating lease (Athens office) | 1,102 | 152 | 304 | 304 | 342 |
| Outotec OT - Processing Plant | 3,654 | 3,654 | - | - | - |
| Total contractual obligations | 5,462 | 3,963 | 618 | 539 | 342 |
The Company's contractual obligation with Outotec relates to the contract to supply the large technology services for its Skouries project.
In 2009, the Company expects to spend a total of $49 million in capital expenditures to fund the development of its project portfolio. This amount comprises $8 million at its existing operation at Stratoni to complete the expansion of the internal underground infrastructure at Mavres Petres and upgrade the mill, $5 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 $2 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.
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:
Common shares: 180,742,775
Common share options: 3,531,665
Restricted share units: 1,523,352
Common shares (fully-diluted): 185,797,792
Preferred shares: Nil
NON GAAP PERFORMANCE MEASURES
The Company uses certain performance measures in its analysis. Some of these performance measures have no meaning within Canadian GAAP and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP.
Cash operating cost per tonne milled is a Non-GAAP measure which the Company uses as a key performance indicator, which reflects the fact that it is a key performance measure that Stratoni mine management uses to monitor operating performance. The Stratoni ore body produces three saleable products, being zinc lead and silver. Using a measure which focuses on actual cost of the production process rather than a measurement of cost per product eliminates distortions resulting from grade mined or realised metal prices, and provides a real indication of cost management compared to tonnage processed. Management uses these statistics to assess how well the Company's producing mine is performing compared to plan and to assess overall efficiency and effectiveness of the mining operation.
The Company provides this cash cost information as it is a key performance indicator required by users of the Company's financial information in order to assess the Company's profit potential and performance relative to its peers. The cash cost figure represents the total of all cash costs directly attributable to the related mining and processing operations without the deduction of any credits in respect of by-product sales. Cash cost is not a GAAP measure and, although it is calculated according to accepted industry practice, the Company's disclosed cash costs may not be directly comparable to other base metal producers. Cash operating cost per tonne milled is a measure denominated in Euros, and therefore, when stated in US dollars, will be affected by changes in the Euro - US dollar exchange rate.
The following table reconciles cash operating cost per tonne to cost of sales as disclosed in our income statement for the most recent 8 quarters:
| (in thousands of US dollars) | 2009 Q3 $ | 2009 Q2 $ | 2009 Q1 $ | 2008 Q4 $ | 2008 Q3 $ | 2008 Q2 $ | 2008 Q1 $ | 2007 Q4 $ |
| Milled production (dmt) | 50,167 | 60,287 | 52,984 | 73,320 | 63,040 | 73,280 | 53,675 | 53,813 |
| Cash operating cost per tonne milled (€) | 116 | 106 | 119 | 109 | 109 | 103 | 110 | 121 |
| Cash operating cost per tonne milled ($) | 165 | 144 | 156 | 145 | 164 | 161 | 164 | 175 |
| Cash cost of production | 8,288 | 8,687 | 8,278 | 10,609 | 10,346 | 11,831 | 8,823 | 9,427 |
| Movement in concentrate inventory | 1,080 | (175) | (1,300) | 368 | 893 | 423 | (2,782) | 1,827 |
| Cash cost of sales - Stratoni | 9,368 | 8,512 | 6,978 | 10,977 | 11,239 | 12,254 | 6,041 | 11,254 |
| Amortisation and depletion | 1,888 | 2,050 | 1,473 | 1,933 | 1,643 | 1,344 | 1,053 | 1,866 |
| Concentrate transport costs | 2,218 | 2,666 | 2,423 | 2,977 | 1,565 | 1,664 | 765 | 2,169 |
| Inventory write-down/adjustments | - | (210) | 210 | 952 | 261 | (271) | - | - |
| Cost of sales | 13,474 | 13,018 | 11,084 | 16,839 | 14,708 | 14,991 | 7,859 | 15,289 |
Earnings before interest, tax, depreciation and amortization ("EBITDA") is a Non-GAAP measure which the Company uses as an indicator of the cash generation. For each operation, it is calculated as gross profit adjusted for all depreciation, depletion and amortisation charges as presented under Canadian GAAP.
CRITICAL ACCOUNTING ESTIMATES
The consolidated financial statements have been prepared on a going concern basis in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"), which assumes the Company will be able to realise assets and discharge liabilities in the normal course of business for the foreseeable future. The consolidated financial statements do not include the adjustments that would be necessary should the Company be unable to continue as a going concern and reflect the following critical accounting estimates.
Deferred exploration and development costs - Acquisition costs of resource properties, together with direct exploration and development costs incurred thereon, are deferred and capitalised. Upon reaching commercial production, these capitalised costs are transferred from exploration properties to producing properties on the consolidated balance sheets and are amortised into operations using the unit-of-production method over the estimated useful life of the estimated related ore reserves.
The proven and probable reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involved the study geological, geophysical and economic data and the reliance on a number of financial and technical assumptions. The estimates of the reserves may be subject to change based on new information gained subsequent to the initial assessment. This may include additional information available from continuing exploration, results from the reconciliation of actual mining and plant production data against the original reserve estimates, or the impact of economic factors such as changes in metal prices, exchange rates or the cost of components of production. A total of $763 for Q3 2009 (2008: $854) and $2,431 for the year to 30 September 2009 (2008: $2,008) was charged to the income statement in relation to depletion of mineral properties, which were subject to these estimates. If actual reserves prove to be significantly different from current estimates, a material change to amounts charged to earnings could occur. A total of $480,401 of mineral properties was stated on the balance sheet that are subject to these estimates now and in the future.
Long-lived assets - All long-lived assets and intangibles held and used by the Company are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, impairment is recognised based on the fair value of the assets. Under Canadian GAAP, a fall in metal prices is the key determining factor in whether long-lived assets are subject to impairment. In such circumstances, management would prepare future cash flow forecasts to establish whether any actual impairment had occurred. These estimates are based on future expectations, and a number of assumptions and judgments made by management, the same as those required for the estimation of reserves. Current metal prices do not suggest there has been any impairment on any of the Company's long-lived assets. If such an impairment were to occur, this could result in a material charge to earnings. A total of $480,401 of mineral properties was stated on the balance sheet that are subject to this estimation process.
Long lived assets are depreciated against operations using the unit-of-production method over the estimated useful life of the estimated related ore reserves. As stated above, the determination of reserves is dependent upon the reliance on a number of financial and technical assumptions, which may be subject to change. If actual reserves prove to be significantly different from current estimates, a material change to amounts charged to earnings could occur.
Asset retirement obligation - The fair value of the liability of an asset retirement obligation is recorded when it is legally incurred and the corresponding increase to the mineral property is depreciated over the life of the mineral property. The future costs of retirement obligations are estimated by management based upon knowledge of the cost of these activities and a number of assumptions and judgments are made by management in their determination. These estimates are regularly reviewed for reasonableness and any changes to the original cost estimate reflected in the asset retirement obligation liability. The liability is adjusted over time to reflect an accretion element considered in the initial measurement at fair value and revisions to the timing or amount of original estimates and drawdowns as asset retirement expenditures are incurred. As at 30 September 2009, the Company had an asset retirement obligation relating to its Stratoni property in Greece amounting to $7,033 (2008: $6,937) subject to these estimates. A total of $129 for Q3 2009 (2008: $174) and $365 for the year to 30 September 2009 (2008: $308) was charged to the income statement in relation to asset retirement obligation, which were subject to these estimates. A significant change to either the estimated future costs or to reserves could result in a material change to amounts charged to earnings.
Equity-based compensation - The Company operates a share option plan, an RSU plan and a DPU plan. The Company accounts for equity-based compensation granted under such plans using the fair value method of accounting. Under such method, the cost of equity-based compensation is estimated at fair value and is recognised in the profit and loss statement as an expense, or capitalised to deferred exploration and development costs when the compensation can be attributed to mineral properties. The Company uses the Black-Scholes option pricing model to estimate fair values of share options granted, and uses the market price of common shares to determine fair value of RSUs granted and DPUs issued. This cost is recognised over the relevant vesting period for grants to directors, officers and employees, and measured in full at the earlier of performance completed or vesting for grants to non-employees. Any consideration received by the Company on exercise of share options is credited to share capital. In relation to DPUs, the trend of cost charged or credited to income statement relates directly to the fluctuation in the Company's share price. A total of $1,371 for Q3 2009 (2008: $544) and $2,332 for the year to 30 September 2009 (2008: $1,547) was charged to the income statement in relation to equity base compensation, which were subject to these estimates.
Future taxes - The Company uses the asset and liability method of accounting for future income taxes. Under this method, current income taxes are recognised for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognised for temporary differences between the tax and accounting bases of assets and liabilities, calculated using the currently enacted or substantively enacted tax rates anticipated to apply in the period that the temporary differences are expected to reverse. Future income tax inflows and outflows are subject to estimation in terms of both timing and amount of future taxable earnings, which are subject to assumptions on the future tax rates and recoverability of any tax losses. Should these estimates change, the carrying value of income tax assets or liabilities may change, and consequently the charge or credit to the income statement. A total of $1,110 for Q3 2009 (2008: $2,090) and $1,554 for the year to 30 September 2009 (2008: $1,626) was charged to the income statement in relation to future income taxes, which were subject to these estimates.
SIGNIFICANT CHANGES IN ACCOUNTING POLICIES
International Financial Reporting Standards ("IFRS") -
In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that IFRS will replace Canadian GAAP for publicly listed companies, for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011,including comparative figures for the prior years. 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 intends to transition to IFRS on 1 January 2011, and will file its first interim financials under IFRS for the quarter ended 31 March 2011. The IFRS compliant financial statements will include reconciliations for the quarter as well as well reconciliations as at the 1 January 2010 transition date. The Company has identified four phases to its conversion process: design and planning, detailed assessment and quantification of differences under IFRS, implementation and post implementation.
During the design and planning phase, the Company focused on ensuring that the correct skills were available and on the longer term planning to ensure the smooth transition to IFRS. This commenced in Q2 2008, when the Company established a project management team which included members of the finance function at the subsidiary level, who were already experienced in the preparation of IFRS accounts. Other team members were provided with IFRS training. In addition, the Company's finance function already had some IFRS experience from the preparation of a detailed reporting pack under IFRS on a quarterly basis for its major shareholders. This IFRS pack includes accounting adjustments for all material differences between IFRS and Canadian GAAP, with the exception of IFRS 1. During 2008, the Company also undertook an IFRS diagnostic report which included an initial assessment of key accounting areas where IFRS differs to Canadian GAAP and which may have a significant impact on the financial statements. The report also outlined the key systems and processes which would be affected by the conversion process. Concluding the planning and design phase, the Company also established a timeline for key milestones and deliverables to be reported to the audit committee on an ongoing basis.
At the end of 2008, the Company moved to the next phase of its IFRS conversion process, by initiating a detailed review and assessment of the all accounting differences under IFRS standards, with particular focus on IFRS 1. This included a detailed assessment of all fixed assets throughout the Group to identify assets where a different treatment is required under IFRS. This assessment also identified the following areas where there are potential differences between IFRS and Canadian GAAP:
Business combinations
Exploration for and evaluation of mineral resources
Property, plant and equipment
Foreign currency
Impairment of assets
Rehabilitation provisions
This took place in the first half of 2009 along with further in-depth training to members of the project management team as well as attendance of seminars relating to IFRS changeover.
In Q3 2009, the project team commenced the identification and assessment of the various elections the Company is required to make with regards to IFRS 1. This will lead to the quantification of the differences under IFRS.
For the remainder of 2009, the Company intends on continuing with the detailed assessment which will include a full assessment of IT and systems in the subsidiaries to affect the changeover. In addition the Company will continue to quantify the potential impacts and begin to focus on the additional disclosures for the financial statements. This will be reported to the audit committee on a timely basis.
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.
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities (EIC 173) - In January 2009, the CICA issued EIC 173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". The EIC requires the Company to take into account the Company's own credit risk and the credit risk of the counterparty in determining the fair value of financial assets and financial liabilities, including derivative instruments. This EIC applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after 01 January 2009. The adoption of this new accounting policy did not have any impact on the Company's consolidated financial statements.
Mining Exploration Costs (EIC 174) - In March 2009, the CICA issued EIC Abstract 174, "Mining Exploration Costs". The EIC provides guidance on the accounting and the impairment review of exploration costs. This EIC applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after 01 January 2009. The adoption of this new accounting policy did not have any material impact on the Company's consolidated financial statements.
RISKS AND UNCERTAINTIES
Current Global Conditions - Current global financial conditions have been subject to increased volatility and numerous financial institutions have either gone into bankruptcy or have had to be rescued by governmental authorities. Access to public financing has been negatively impacted by both sub-prime mortgages and the liquidity crisis affecting the asset-backed commercial paper market. These factors may impact the ability of the Company to obtain equity or debt financing in the future and, if obtained, on terms favourable to the Company. If these increased levels of volatility and market turmoil continue, the Company's operations could be adversely impacted and the value and the price of the Company's Common Shares could continue to be adversely affected.
Market price volatility - The trading price of the Common Shares may be subject to large fluctuations. The trading price of the Common Shares may increase or decrease in response to a number of events and factors, some of which are directly related to the Company's success and some of which are not directly related to the Company's success and are therefore not within the Company's control. Such events and factors include: the price of gold and other metals, the Company's operating performance and the performance of competitors and other similar companies, the public's reaction to the Company's press releases, other public announcements and the Company's filings with the various securities regulatory authorities, changes in earnings estimates or recommendations by research analysts who track the Common Shares or the shares of other companies in the mineral resource sector, changes in general economic conditions, the number of the Common Shares to be publicly traded after an offering, the breadth of the public market for the Common Shares, the arrival or departure of key personnel, acquisitions, strategic alliances or joint ventures involving the Company or its competitors, developments that affect the market for all mineral resource sector shares, and the attractiveness of alternative investments.
The effect of these and other factors on the market price of the Common Shares on the exchanges in which the Company trades has historically made the Company's share price volatile and suggests that the Company's share price will continue to be volatile in the future. A decline in the market prices of the Company's securities could also impair the Company's ability to raise additional capital.
In the past, following periods of volatility in the market price of a company's securities, shareholders have often instituted class action securities litigation against those companies. Such litigation, if instituted against the Company, could result in substantial costs and diversion of management attention and resources, which could significantly harm the Company's profitability and reputation.
Dilution - The Company may require additional funds to fund exploration and development programs and potential acquisitions. The Company cannot predict the size of future issuances of Common Shares or the issuance of debt instruments or other securities convertible into shares or the effect, if any, that future issuances and sales of the Company's securities will have on the market price of the Common Shares. If it raises additional funding by issuing additional equity securities, such financing may substantially dilute the interests of existing shareholders. Sales of substantial amounts of Common Shares, or the availability of such Common Shares for sale, could adversely affect the prevailing market prices for the Company's securities.
No dividends - The Company has never paid cash dividends on the Common Shares. It currently intends to retain future earnings, if any, to fund the development and growth of its business, and may not pay any cash dividends on the Common Shares for the foreseeable future. Furthermore, the Company may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. As a result, investors will have to rely on capital appreciation, if any, to earn a return on their investment in Common Shares in the foreseeable future. The payment of future dividends, if any, will be reviewed periodically by the Company's board of directors and will depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and conditions and other factors.
Foreign country risk - Any changes in regulations in Greece, Romania or Turkey, or shifts in political attitudes are beyond the Company's control and may adversely affect its business. Exploration and development of any one or more of the Company's mineral properties may be affected in varying degrees by government regulations or policies with respect to restrictions on future exploitation and production, labour, environmental protection, price controls, royalties, export controls, foreign exchange controls, income taxes, expropriation of property, environmental legislation and mine and/or site safety.
Currently there are no restrictions on the repatriation from Greece, Romania or Turkey of earnings to foreign entities. However, there can be no assurance that restrictions on repatriation of earnings from Romania, Greece or Turkey will not be imposed in the future.
Exploration and mining risks - The business of exploring for minerals and mining involves a high degree of risk. Only a small proportion of the properties that are explored are ultimately developed into producing mines. Although substantial benefits may be derived from the discovery of a major mineralised deposit, no assurance can be given that minerals will be discovered in sufficient quantities or having sufficient grade to justify commercial operations. The economics of developing gold and other mineral properties is affected by many factors including the cost of operations, variations of the grade of ore mined, fluctuations in the price of gold or other minerals produced, costs of processing equipment and such other factors as government regulations.
Unless otherwise indicated, mineral resource and mineral reserve figures presented herein are based upon estimates made by company personnel and independent geologists. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be inaccurate. There can be no assurance that: these estimates will be accurate, mineral reserves, mineral resources or other mineralisation figures will be accurate, or this mineralisation could be mined or processed profitably.
Mineralisation estimates for the Company's properties may require adjustments or downward revisions based upon further exploration or development work or actual production experience. In addition, the grade of ore ultimately mined, if any, may differ from that indicated by drilling results. There can be no assurance that minerals recovered in small scale tests will be duplicated in large scale tests under on-site conditions or in production scale.
The mineral reserve and mineral resource estimates contained herein have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate. Extended declines in market prices for gold and silver may render portions of the Company's mineralisation uneconomic and result in reduced reported mineralisation. Any material reductions in estimates of mineralisation, or of the Company's ability to extract this mineralisation, could have a material adverse effect on the Company's results of operations or financial condition.
The grade of mineralisation ultimately mined may differ from that indicated by drilling results and such differences could be material. There can be no assurance that minerals recovered in small scale laboratory tests will be duplicated in large scale tests under on-site conditions or in production scale operations. Material changes in geological mineral resources, grades, stripping ratios or recovery rates may affect the economic viability of projects.
Mining involves various types of risks and hazards, including: environmental hazards, industrial accidents, metallurgical and other processing problems, unusual or unexpected rock formations, structural cave-ins or slides, seismic activity, flooding, fires, periodic interruptions due to inclement or hazardous weather conditions, variations in grade, deposit size, density and other geological problems, mechanical equipment performance problems, unavailability of materials and equipment including fuel, labour force disruptions, unanticipated or significant changes in the costs of supplies including, but not limited to, petroleum, and unanticipated transportation costs.
These risks could result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury or death, loss of key employees, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability.
Where considered practical to do so, the Company maintains insurance against risks in the operation of its business in amounts which it believes to be reasonable. Such insurance, however, contains exclusions and limitations on coverage. There can be no assurance that such insurance will continue to be available, will be available at economically acceptable premiums or will be adequate to cover any resulting liability. Insurance against certain environmental risks, including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from production, is not generally available to the Company or to other companies within the mining industry. The Company may suffer a material adverse effect on its business if it incurs losses related to any significant events that are not covered by its insurance policies. Payment of such liabilities would reduce funds available for acquisition of mineral prospects or exploration and development and would have a material adverse affect on the financial position of the Company.
Financing risks - Exploration and development of one or more of the Company's properties will be dependent upon the Company's ability to obtain financing through joint ventures, equity or debt financing or other means, and although the Company has been successful in the past in obtaining financing through the sale of equity securities, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of the Company's projects with the possible loss of such properties.
Mineral prices - The mineral exploration and development industry in general is intensely competitive and there is no assurance that, even if commercial quantities of proven and probable mineral reserves are discovered, a profitable market may exist for the sale of the same. The Company's profitability and long-term viability depend, in large part, upon the market price of gold and other metals and minerals produced from the Company's properties. The market price of gold and other metals is volatile and is impacted by numerous factors beyond the Company's control, including: expectations with respect to the rate of inflation, the relative strength of the U.S. dollar and certain other currencies, interest rates, global or regional political or economic conditions, supply and demand for jewellery and industrial products containing metals, costs of substitutes, changes in global or regional investment or consumption patterns, and sales by central banks and other holders, speculators and producers of gold and other metals in response to any of the above factors.
There can be no assurance that the market price of gold and other metals will remain at current levels or that such prices will improve. A decrease in the market price of gold, silver and other metals could adversely affect the profitability of the Company's existing mines, which would have a material adverse effect on the Company's financial condition and results of operations. A decline in the market price of gold, silver, or other metals, may also require the Company to write-down its mineral reserves which would have a material and adverse affect on its earnings and profitability.
Exploration, development, mining and other licences - The Company's current operations, including further exploration, development and mining activities, require certain licenses, concessions, leases, permits and regulatory consents (the "Authorisations") from various levels of governmental authorities. The Company may also be required to obtain certain property rights to access, or use, certain of its properties in order to proceed to development. There can be no assurance that all Authorisations which the Company requires for the conduct of mining operations will be obtainable on reasonable terms or in a timely manner, or at all, that such terms may not be adversely changed, that required extension will be granted, or that the issuance of such Authorisations will not be challenged by third parties. Delays in obtaining or a failure to obtain such Authorisations or extension thereto, challenges to the issuance of such Authorisations, whether successful or unsuccessful, changes to the terms of such Authorisations, or a failure to comply with the terms of any such Authorisations that the Company has obtained, could have a material adverse impact on the Company.
Title matters - While the Company has diligently investigated title to all mineral concessions and, to the best of the Company's knowledge, title to all of its properties are in good standing, this should not be construed as a guarantee of title. Title to the properties may be affected by undisclosed and undetected defects.
Environmental and other regulatory requirements - The Company's activities are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation generally provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. A breach of such legislation may result in imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards, and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and their directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.
The Company's current exploration and development activities require permits from various governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, safety and other matters. Companies engaged in exploration and development activities generally experience increased costs and delays as a result of the need to comply with applicable laws, regulations and permits. There can be no assurance that all permits which the Company may require for exploration and development will be obtainable on reasonable terms or on a timely basis, or that such laws and regulations would not have an adverse effect on any project that the Company may undertake. The Company believes it is in substantial compliance with all material laws and regulations which currently apply to the Company's activities. However, there may be unforeseen environmental liabilities resulting from exploration, development and/or mining activities and these may be costly to remedy.
Amendments to current laws, regulations and permits governing operations and activities of exploration and development companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in expenditures and costs, or require abandonment, or cause delays in developing new mining properties.
Tax matters - The Company believes that it is, and intends to take all necessary steps to remain, resident solely in Canada for income tax purposes. The Company's tax residency is, however, affected by a number of factors, some of which are outside of its control, including the application and interpretation of the relevant tax laws and treaties. If ever the Company were to cease to be tax resident in Canada, it would be liable to pay additional Canadian taxes, including, but not limited to, capital gains tax based on the difference between the fair market value and tax cost of its assets at the relevant time. If such taxes were to become payable, this could have a material adverse effect on the Company's business, financial condition and results of operations. Further, the income tax consequences to holders of Common Shares would be different from those applicable if the Company were resident in Canada.
Dependence on management - The Company's development to date has largely depended and in the future will continue to depend on the efforts of key management. Loss of any of these people could have a material adverse effect on the Company and its business. The Company has not taken out and does not intend to take out key man insurance in respect of any directors, officer or other employees.
Joint ventures - The Company holds (and expects to hold in the future) interests in joint ventures. Joint ventures may involve special risks associated with the possibility that the joint venture partners may (i) have economic or business interests or targets that are inconsistent with ours; (ii) take action contrary to the Company's policies or objectives with respect to their investments, for instance by veto of proposals in respect of joint venture operations; (iii) be unable or unwilling to fulfil their obligations under the joint venture or other agreements; or (iv) experience financial or other difficulties. Any of the foregoing may have a material adverse effect on the Company's results of operations or financial condition. In addition, the termination of certain of these joint venture agreements, if not replaced on similar terms, could have a material adverse effect on the Company's results of operations or financial condition.
Competition - The international mining industry is highly competitive. The Company's ability to acquire properties and add mineral reserves in the future will depend not only on its ability to develop its present properties, but also on its ability to select and acquire suitable producing properties or prospects for mineral exploration. The Company may be at a competitive disadvantage in acquiring additional mining properties because it must compete with other individuals and companies, many of which have greater financial resources, operational experience and technical capabilities than the Company. The Company may also encounter competition from other mining companies in its efforts to hire experienced mining professionals. Competition could adversely affect the Company's ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future. Competition for services and equipment could cause project costs to increase materially, resulting in delays if services or equipment cannot be obtained in a timely manner due to inadequate availability, and increase potential scheduling difficulties and cost increases due to the need to coordinate the availability of services or equipment, any of which could materially increase project exploration, development or construction costs, result in project delays or both.
Currency fluctuations - Gold and other metals are sold throughout the world principally in United States dollars. The Company's operating costs for its European projects are incurred principally in Euros. As a result, any significant and sustained appreciation of the Euro against the U.S. dollar may materially increase the Company's costs and reduce revenues. The Company does not currently use any derivative products to manage or mitigate any foreign exchange exposure.
Conflicts of Interest - Certain directors of the Company are, and may continue to be, involved in the mining and mineral exploration industry through their direct and indirect participation in corporations, partnership or joint ventures which are potential competitors of the Company. Situations may arise in connection with potential acquisitions in investments where the other interests of these directors may conflict with the interests of the Company. Directors of the Company with conflicts of interest will be subject to and will follow the procedures set out in applicable corporate and securities legislation, regulations, rules and policies.
Legal Proceedings - the Company is a party to the legal proceedings described under the heading "Legal Proceedings". If decided adversely to the Company, these legal proceedings, or others that could be brought against the Company in the future which are not now known, for example, litigation based on its business activities, environmental laws, volatility in its stock price or failure to comply with its disclosure obligations, could have a material adverse effect on the Company's financial condition or operations.
DISCLOSURE CONTROLS & PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
The Executive Chairman and the Chief Financial Officer of the Company (the "Certifying Officers") have established and maintained in the period ended 30 September 2009 disclosure controls and procedures ("DC&P") and internal control over financial reporting ("IFCR") for the Company.
The Certifying Officers have caused DC&P, as defined in National Instrument 52-109 ("NI 52-109"), to be designed under their supervision, to provide reasonable assurance that material information relating to the Company and its subsidiaries is made known to the Certifying Officers by others within those entities, as appropriate, to allow decisions regarding required disclosure within the time periods specified by legislation, particularly during the period in which interim and annual filings are being prepared.
The Certifying Officers have evaluated the effectiveness of the Company's DC&P as at 30 September 2009. Based upon that evaluation, the Certifying Officers have concluded that the DC&P are adequate and effective for the period ended 30 September 2009.
The Certifying Officers have caused internal control over financial reporting, as defined in NI 52-109, to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.
As of 30 September 2009 the Certifying Officers assessed the effectiveness of the Company's internal control over financial reporting. Based upon that evaluation, the Certifying Officers concluded that the internal controls and procedures are adequate and effective for the period ended 30 September 2009.
During the period ended 30 September 2009, there has been no change in the Company's internal control over financial reporting that have materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
The Certifying Officers believe that disclosure controls and procedures and internal control systems can only provide reasonable assurance, and not absolute assurance, that such objectives are met.