13th May 2005 07:00
European Goldfields Ltd13 May 2005 PART 2 Suite 200, Financial Plaza 204 Lambert Street Whitehorse, Yukon Canada Y1A 3T2 European Goldfields Limited Interim Consolidated Financial Statements (Unaudited) First Quarter 2005 Disclosure of auditor review of interim consolidated financial statements The interim consolidated financial statements of the Company for the three-monthperiods ended 31 March 2005 and 2004 have not been reviewed by the auditors ofthe Company. European Goldfields Limited Consolidated Balance SheetsAs at 31 March 2005 and 31 December 2004(Unaudited - Prepared by Management)(In thousands of US Dollars, except per share amounts) 31 March 31 December 2005 2004 $ $ Note Unaudited AuditedAssets Current assetsCash and cash equivalents 58,124 65,253Accounts receivable, prepaid expenses and supplies 2,173 2,047 60,297 67,300Non current assets Plant and equipment 5 15,012 13,687 Mineral properties and deferred exploration and development costsRomanian mineral properties 6 27,229 26,332Greek mineral properties 6 195,807 195,807 223,036 222,139 Future tax asset 2,344 1,632 300,689 304,758 Liabilities Current liabilitiesAccounts payable and accrued liabilities 3,012 3,820 3,012 3,820Non current liabilitiesAsset retirement obligation 10 5,811 5,811Future tax liability 47,473 47,473Non-controlling interest 17,895 18,036 71,179 71,320Shareholders' equityCapital stock 7 239,418 238,420Contributed surplus 7 4,873 5,589Cumulative translation adjustment 8,214 8,964Deficit (26,007) (23,355) 226,498 229,618 300,689 304,758 The accompanying notes are an integral part of these interim consolidated financial statements. Approved by the Board of Directors (s) David Grannell (s) Glenn FeatherbyDavid Grannell Glenn FeatherbyDirector Director European Goldfields Limited Consolidated Statements of Loss and DeficitFor the three-month periods ended 31 March 2005 and 2004(Unaudited - Prepared by Management)(In thousands of US Dollars, except per share amounts) Three months ended 31 March 31 March 2005 2004 $ $ Other incomeInterest income (326) (18) ExpensesCorporate administrative and overhead expenses 885 1,225Hellas Gold operating, administrative and overhead expenses 1,562 -Foreign exchange loss/(gain) 999 (473)Amortisation 259 2Capital raising costs - Convertible loan notes - 1,122Share option and milestone share compensation expense 126 3,166 3,505 5,024 Share of loss in equity investment - 255 Loss for the year before income tax 3,505 5,279 Income taxes (712) - Loss for the year after income tax 2,793 5,279 Non-controlling interest (141) - Loss for the period 2,652 5,279 Deficit - Beginning of period 23,355 4,172 Deficit - End of period 26,007 9,451 Loss per share 0.02 0.18 Weighted average number of shares 111,861,990 28,715,758 The accompanying notes are an integral part of these interim consolidated financial statements. European Goldfields LimitedConsolidated Statements of EquityAs at 31 March 2005 and 2004(Unaudited - Prepared by Management)(In thousands of US Dollars, except per share amounts) Cumulative Capital Contributed Translation Stock Surplus Reserve Deficit Total $ $ $ $ $ Balance - 31 December 2003 27,302 2,374 5,404 (4,172) 30,908 Shares issued on conversion of conv. loan 14,920 (673) - - 14,247Shares issued from non-brokered privateplacements 18,080 - - - 18,080Share options exercised 257 (4) - - 253Warrants exercised 5,891 - - - 5,891Milestone shares issued as compensation 1,244 - - - 1,244Share issue costs (315) - - - (315)Share option compensation expense - 1,922 - - 1,922Loss for the period - - - (5,279) (5,279) 40,077 1,245 - (5,279) 36,043 Balance - 31 March 2004 67,379 3,619 5,404 (9,451) 66,951 Shares issued from non-brokered privateplacements 17,766 - - - 17,766Shares issued from brokered privateplacements 75,728 - - - 75,728Share options exercised 2,331 (649) - - 1,682Warrants exercised 1,537 (78) - - 1,459Shares issued as consideration for sharesin Hellas Gold S.A. 77,426 - - - 77,426Milestone shares issued as compensation 558 725 - - 1,283Share issue costs (4,305) - - - (4,305)Share option compensation expense 1,972 - - 1,972Movement in cumulative translation reserve - - 3,560 - 3,560Loss for the period - - - (13,904) (13,904) 171,041 1,970 3,560 (13,904) 162,667 Balance - 31 December 2004 238,420 5,589 8,964 (23,355) 229,618 Share options exercised 287 (117) - - 170Milestone shares issued as compensation 725 (725) - - -Share issue costs (14) - - - (14)Share option compensation expense - 126 - - 126Movement in cumulative translation reserve - - (750) - (750)Loss for the period - - - (2,652) (2,652) 998 (716) (750) (2,652) (3,120) Balance - 31 March 2005 239,418 4,873 8,214 (26,007) 226,498 The accompanying notes are an integral part of these interim consolidated financial statements. European Goldfields LimitedConsolidated Statements of Cash FlowsFor the three-month periods ended 31 March 2005 and 2004(Unaudited - Prepared by Management)(In thousands of US Dollars, except per share amounts) Three months ended 31 March 31 March 2005 2004 $ $ Cash flows from operating activitiesLoss for the year after tax (2,793) (5,279)Foreign exchange loss 999 -Amortisation 259 2Capital raising costs - Convertible loan notes - 1,122Share option and milestone compensation expense 126 3,166Future tax asset recognised (712) -Share of loss in equity investment - 255Profit on disposal of equipment - 2 (2,121) (732) Net changes in non-cash working capital 11 (933) 149 (3,054) (583) Cash flows from investing activitiesDeferred exploration and development costs - Romania (860) (1,394)Plant and equipment - Greece (1,582) -Acquisition of equity investment - (24,066)Short term investment - 1,684Proceeds from disposal of equipment - 20Purchase of equipment (40) (44) (2,482) (23,800) Cash flows from financing activitiesProceeds from exercise of warrants - 5,891Proceeds from non-brokered private placement - 18,080Proceeds from exercise of share options 170 257Capital raising costs (14) (315) 156 23,913 Effect of foreign currency translation on cash (1,749) (1,094) Decrease in cash and cash equivalents (7,129) (1,564) Cash and cash equivalents - Beginning of period 65,253 14,998 Cash and cash equivalents - End of period 58,124 13,434 The accompanying notes are an integral part of these interim consolidated financial statements. European Goldfields LimitedNotes to Consolidated Financial StatementsFor the three-month periods ended 31 March 2005 and 2004(Unaudited - Prepared by Management)(In thousands of US Dollars, except per share amounts) 1. Nature of operations European Goldfields Limited (the "Company"), a company incorporated in theYukon, Canada, is a resource company involved in the acquisition, explorationand development of mineral properties in Greece, Romania and the Balkans. The Company's common shares are listed on the AIM Market of the London StockExchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece -The Company holds a 65% interest in Hellas Gold S.A ("Hellas Gold").Hellas Gold owns assets in Northern Greece which include 70-year miningconcessions over a total area of 317 km2 and three polymetallic near-productiondeposits, known as Olympias, Stratoni and Skouries, which contain proven andprobable reserves. The Stratoni and Olympias deposits were previously inproduction and benefit from significant infrastructure which includesunderground mining development, two plants and a ship loading facility on theAegean Sea. Hellas Gold's assets also include potential revenue generatingstockpiles and tailings located on the surface. Romania - In Romania, the Company holds a 80% interest in Deva Gold S.A. ("DevaGold") and a 100% interest in European Goldfields (Romania) SRL ("EG Romania"),which are in the process of exploring their mineral properties in Romania andhave not yet determined whether those properties contain economic reserves. Balkans - The Company is currently entertaining certain investments forexploration and development of mineral properties in the Balkans. The underlying value of the mineral properties and deferred exploration anddevelopment costs is dependent upon the existence and economic recovery ofreserves in the future, and the ability to raise long-term financing to completethe development of the properties. For the coming year, the Company believes it has adequate funds available tomeet its corporate and administrative obligations and its planned expenditureson its mineral properties. These interim consolidated financial statements have been prepared on a goingconcern basis, which assumes the Company will be able to realise assets anddischarge liabilities in the normal course of business for the foreseeablefuture. These interim consolidated financial statements do not include theadjustments that would be necessary should the Company be unable to continue asa going concern. 2. Change in functional and reporting currency Effective 1 October 2004, the Company changed its functional currency from theCanadian dollar to the United States dollar. In general, this change resultedfrom a combination of a gradual increase in the operational exposure to theUnited States dollar and predominantly United States dollar based asset andinvestment base of the Company and from a gradual increase in the overallproportion of business activities conducted in United States dollars. Concurrentwith this change in functional currency, the Company adopted the United Statesdollar as its reporting currency. In accordance with accounting principlesgenerally accepted in Canada ("Canadian GAAP"), the change was effected bytranslating all assets and liabilities, at the end of the prior reportingperiods, at the existing United States/Canadian dollar foreign exchange spotrate, while income for those periods were translated at the average rate foreach period. Equity transactions have been translated at the historical rates,with opening equity on 30 June 2000, restated at the rate of exchange on thatdate. The resulting net translation adjustment has been credited to thecumulative translation adjustment account in the equity section of the balancesheet. 3. Business combination - Acquisition of a controlling interest in Hellas Gold In February 2004, the Company acquired an initial 37.97% interest (30% on afully-diluted basis) in Hellas Gold for a total subscription price of €18million ($24.06 million) in cash. In November 2004, the Company completed the acquisition of additional shares inHellas Gold (the "Purchased Shares"), increasing its total interest from 37.97%to 55.70%, and assumed an obligation to subscribe to additional shares in HellasGold for a subscription price of $23.48 million (the "Subscription Obligation"),resulting in an interest of 65% on a fully-diluted basis (the "Acquisition").The total price paid by the Company for the Purchased Shares and for theassumption of the Subscription Obligation was $125.35 million, satisfied asfollows: (a) $77.43 million by the issue in November 2004 of 30,423,280 common sharesto the vendors at a deemed issue price of £1.75 (C$3.98) per share. This wasaccounted for at a price per share of £1.38 (C$3.14), representing the then fairmarket value of such shares; and (b) $47.92 million paid in cash to the vendors in December 2004. Transaction costs of $3.99 million were also accounted for as part of theAcquisition. In January 2005, the Company satisfied the Subscription Obligation for asubscription price of $23.48 million. The Acquisition was accounted for as a purchase and the results of operations ofHellas Gold were included in the consolidated statements of loss and deficitfrom 30 November 2004, the effective date of the Acquisition. From 9 February2004 to 30 November 2004, the Company's initial 37.97% interest (30% on afully-diluted basis) in Hellas Gold was accounted for as an equity investmentand the Company's share of loss in Hellas Gold was included in the consolidatedstatements of loss and deficit. 4. Significant accounting policies These interim consolidated financial statements have been prepared on the goingconcern basis in accordance with Canadian GAAP using the same accountingpolicies as those disclosed in Note 4 to the Company's audited consolidatedfinancial statements for the year ended 31 December 2004. These interim consolidated financial statements should be read in conjunctionwith the Company's audited consolidated financial statements for the year ended31 December 2004. 5. Plant and equipment Exploration / office Land and Leasehold equipment Vehicles buildings Improvements Total $ $ $ $ $Cost - 2004 At 31 December 2003 352 433 - - 785 Additions 1,275 782 11,379 219 13,655Disposals (27) - - - (27)Currency translation adjustment 11 9 - - 20Transfer to mineral property (222) (103) - - (325) At 31 December 2004 1,389 1,121 11,379 219 14,108 Accumulated amortisation - 2004 At 31 December 2003 171 128 - - 299 Provision for the year 137 85 16 11 249Disposals (3) - - - (3)Currency translation adjustment 4 3 - - 7Transfer to mineral property (177) 46 - - (131) At 31 December 2004 132 262 16 11 421 Net book value at 31 December 2004 1,257 859 11,363 208 13,687 Cost - 2005 At 31 December 2004 1,389 1,121 11,379 219 14,108 Additions 2 38 1,582 - 1,622Disposals - - - - - At 31 March 2005 1,391 1,159 12,961 219 15,730 Accumulated amortisation - 2005 At 31 December 2004 132 262 16 11 421 Provision for the year 92 76 124 5 297Disposals - - - - - At 31 March 2005 224 338 140 16 718 Net book value at 31 March 2005 1,167 821 12,821 203 15,012 6. Mineral properties and deferred exploration and development costs Romanian mineral properties: Baita- Certej Cainel Bolcana Craciunesti Voia Total $ $ $ $ $ $ Balance - 31 December 2004 21,031 - 2,279 2,567 455 26,332 Drilling and assaying 91 1 - - - 92Geosciences and tech. 138 35 8 13 7 201consultingSamplers, miners and surveying 34 14 - 5 - 53Project management 77 27 - - 6 110Project overhead 345 25 8 22 4 404Amortisation 29 - 4 4 - 37 714 102 20 44 17 897Balance - 31 March 2005 21,745 102 2,299 2,611 472 27,229 The Company's 80%-owned subsidiary, Deva Gold, holds three mineral resourceproperties in Romania. Exploitation licences have been issued to Deva Gold astitleholder for the Certej and Bolcana projects. An exploration licence has beenissued to Deva Gold as titleholder for the Baita-Craciunesti project. MinvestS.A. (a Romanian state owned mining company), together with three privateRomanian companies, holds a 20% interest in Deva Gold and the Company holds thepre-emptive right to acquire such 20% interest. The Company's wholly-ownedsubsidiary, European Goldfields (Romania) SRL, holds the Cainel and Voiaexploration licences. The Company is required to fund 100% of all costs related to the exploration anddevelopment of these properties. As a result, the Company is entitled to therefund of such costs (plus interest) out of future cash flows generated by DevaGold, prior to any dividends being distributed to shareholders. Individual property spending commitments for each of the Company's Romanianlicences have been met as at 31 March 2005. Greek mineral properties: Stratoni Skouries Olympias Total $ $ $ $ Balance - 31 December 2004 11,376 73,517 110,914 195,807 Movement for the period - - - - - - - -Balance - 31 March 2005 11,376 73,517 110,914 195,807 The Company holds a 65% interest in Hellas Gold. Hellas Gold owns assets inNorthern Greece which include 70-year mining concessions over a total area of317 km2 and three polymetallic near-production deposits, known as Olympias,Stratoni and Skouries, which contain proven and probable reserves. The Stratoniand Olympias deposits were previously in production and benefit from significantinfrastructure which includes underground mining development, two plants and aship loading facility on the Aegean Sea. Hellas Gold's assets also includepotential revenue generating stockpiles and tailings located on the surface. 7. Capital stock Authorised: - Unlimited number of common shares, without par value - Unlimited number of preferred shares, issuable in series, without parvalue Issued and outstanding (common shares - all fully paid): Number of Amount Shares $ Balance - 31 December 2004 111,748,708 238,420 Milestone shares issued as compensation 350,000 725Share options exercised 75,000 287Share issue costs (14) 425,000 998 Balance - 31 March 2005 112,173,708 239,418 As at 31 March 2005, the Company had 35,038,764 common shares held in escrow orin respect of which trading restrictions applied. Contributed surplus: 31 March 31 December 2005 2004 $ $Share option compensation expense 4,295 5,011Broker warrants 578 578 4,873 5,589 8. Share options and milestone shares Share Option Plan The Company operates a Share Option Plan (together with its predecessor, the "Share Option Plan") authorising the directors to grant options to acquire commonshares of the Company to the directors, officers, employees and consultants ofthe Company and its subsidiaries, on terms that the Board of Directors maydetermine, within the limitations of the Share Option Plan. As at 31 March 2005, the following share options were outstanding: Number of Exercise priceExpiry date options C$ 2005 15,000 1.402005 500,000 2.802006 211,000 1.402006 64,000 2.502007 300,000 2.502008 175,000 2.202009 930,000 2.802009 265,000 3.202009 275,000 4.202009 625,000 3.072009 360,000 3.15 3,720,000 2.87 During the three-month period ended 31 March 2005, share options were granted,exercised and cancelled as follows: Weighted average exercise Number of price options C$Balance - 31 December 2004 4,015,000 2.85 Options granted - 2005 - -Options exercised - 2005 (75,000) 2.80Options cancelled - 2005 (220,000) 2.53 Balance - 31 March 2005 3,720,000 2.87 Of the 3,720,000 share options outstanding as at the 31 March 2005, 3,107,500were fully vested and had a weighted average exercise price of C$2.82 per share. Milestone Share Compensation Plan The Company operates a Milestone Share Compensation Plan (the "Milestone ShareCompensation Plan") authorising the directors, based on recommendations receivedfrom the Compensation Committee, to issue common shares of the Company toexecutive officers of the Company and its subsidiaries to recognise out of theout of the ordinary performance in achieving corporate milestones set by theBoard of Directors. The maximum number of common shares of the Company that maybe reserved for issuance under the Milestone Share Compensation Plan shall notexceed 1,108,970 common shares. As at 31 March 2005, a total 1,105,000 commonshares had been issued to executive officers of the Company under the MilestoneShare Compensation Plan, at a weighted average deemed issue price of C$2.90 pershare. 9. Warrants As at 31 March 2005, the following common share purchase warrants wereoutstanding: Exercise Numbers price Expiry date of warrants C$ Broker warrants 12 June 2005 415,498 2.35 During the three-month period ended 31 March 2005, warrants were granted,exercised and expired as follows: Weighted average exercise Number of price warrants C$ Balance - 31 December 2004 415,498 2.35 Warrants granted - 2005 - -Warrants exercised - 2005 - -Warrants expired - 2005 - - Balance - 31 March 2005 415,498 2.35 10. Asset retirement obligation Management has estimated the total future asset retirement obligation based onthe Company's net ownership interest in the Olympias, Skouries and Stratonimines and facilities. This includes all estimated costs to dismantle, remove,reclaim and abandon the facilities and the estimated time period during whichthese costs will be incurred in the future. The following table reconciles theasset retirement obligations as at 31 March 2005 and 31 December 2004: 31 March 31 December 2005 2004 $ $Asset retirement obligation - Beginning of period 5,811 -Obligation acquired - 5,787Accretion expense - 24Asset retirement obligation - End of period 5,811 5,811 The undiscounted amount of estimated cash flows required to settle theobligation is $16.85 million. The estimated cash flow has been discounted usinga credit adjusted risk free rate of 5.04%. The expected period until settlementis 22 years. 11. Supplementary cash flow information 31 March 31 March 2005 2004 $ $Changes in non-cash operating accounts:Accounts receivable, prepaid expenses and supplies (126) (452)Accounts payable (807) 601 (933) 149 Supplemental disclosure of non-cash transactions:Options issued for non-cash consideration - 1,922Exercise of options - Transfer from contributed surplus to share capital (117) (4) 12. Segmented information The Company has one operating segment: the acquisition, exploration anddevelopment of precious and base metal mineral resources properties located inGreece and Romania. Geographic segmentation of plant and equipment and deferred exploration anddevelopment costs and operating liabilities is as follows: 31 March 31 December 2005 2004 $ $Plant and equipment and deferred exploration and development costs Greece 210,272 208,873Romania 27,377 26,544United Kingdom 399 409 238,048 235,826 Operating liabilitiesCanada 166 387Greece 1,305 1,953Romania 1,384 286United Kingdom 157 1,194 3,012 3,820 13. Reconciliation to International Accounting Standards ("IAS") These financial statements have been prepared in accordance with Canadian GAAP.The effect of the differences between Canadian GAAP and IAS on the Company'sconsolidated balance sheets and statements of equity is summarised as follows: 31 March 31 December 2005 2004 $ $Non current liabilitiesNon current liabilities under Canadian GAAP 71,179 71,320Adjustment for non-controlling interest (17,895) (18,036)Non current liabilities under IAS 53,284 53,284 This would result in the following disclosure under IAS: Shareholders' equity 226,498 229,618Non-controlling interest 17,895 18,036 244,393 247,654 During the financial year ended 31 December 2004, the Company changed itsreporting currency from the Canadian dollar to the United States dollar. Inaccordance with Canadian GAAP, the change was effected retrospectively, withassets and liabilities translated at the end of the prior reporting periods (seeNote 2). Under IAS, a change in reporting currency is treated prospectively withassets and liabilities translated at the rate prevailing at the date of changein the functional currency. The impact of this difference on the balance sheetsof the prior periods has not been reported. Other than the differences noted above, management considers that there are nomaterial differences between amounts reported under Canadian GAAP and those thatwould result from the application of IAS. 14. Related party transactions During the period ended 31 March 2005, Hellas Gold recorded expenses of $ 1,749(2004 - Nil) for management, technical and engineering services received from arelated party, Aktor S.A. As at 31 March 2005, Hellas Gold had accounts payableof $ 883 (2004 - Nil) to Aktor S.A. These expenses were contracted in normalcourse of operations and are recorded at the exchange amount agreed by theparties. 15. Reclassification of comparative figures Certain comparative figures have been reclassified to conform to the currentperiod's presentation. 16. Commitments As at 31 March 2005, the Company had remaining spending commitments of $1,500(2004 - $1,649) over the remaining term of its Voia exploration licence inRomania which expires in March 2007. The Company has spending commitments of $187 per year (plus service charges andvalue added tax) for a term of ten years under the lease for its office inLondon, England, which commenced on 20 April 2004. The rent will be reviewed onthe fifth anniversary of the commencement of the term to reflect any increase inrents in the market. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
EGU.L