19th Mar 2008 07:05
European Goldfields Ltd19 March 2008 Immediate Release 19 March 2008 European Goldfields Limited Consolidated Financial Statements (Audited) 31 December 2007 and 2006 Management's Responsibility for Consolidated Financial Statements The accompanying consolidated financial statements of European GoldfieldsLimited are the responsibility of management and have been approved by the Boardof Directors of the Company. The consolidated financial statements include someamounts that are based on management's best estimate using reasonable judgment. The consolidated financial statements have been prepared by management inaccordance with Canadian generally accepted accounting principles. Management maintains an appropriate system of internal controls to providereasonable assurance that transactions are authorised, assets safeguarded andproper records are maintained. The Audit Committee of the Board of Directors has met with the Company'sexternal auditors to review the scope and results of the annual audit and toreview the consolidated financial statements and related financial reportingmatters prior to submitting the consolidated financial statements to the Boardof Directors for approval. The consolidated financial statements have been audited by BDO Dunwoody LLP,Chartered Accountants, and their report follows. (s) David Reading (s) Timothy Morgan-Wynne David Reading Timothy Morgan-Wynne Chief Executive Officer Chief Financial Officer Auditors' Report to the Shareholders of European Goldfields Limited We have audited the consolidated balance sheets of European Goldfields Limitedas at 31 December 2007 and 2006 and the consolidated statements of profit andloss, other comprehensive income, equity and cash flows for the years thenended. These consolidated financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditingstandards. Those standards require that we plan and perform an audit to obtainreasonable assurance whether these consolidated financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in these consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. In our opinion, these consolidated financial statements present fairly, in allmaterial respects, the financial position of the Company as at 31 December 2007and 2006 and the results of its operations and its cash flows for the years thenended in accordance with Canadian generally accepted accounting principles. (s) BDO Dunwoody LLP Chartered Accountants, Licensed Public AccountantsToronto, Canada18 March 2008 European Goldfields Limited 2007 2006Consolidated Balance SheetsAs at 31 December 2007 and 2006(in thousands of US Dollars, except per shareamounts) Note $ $Assets Current assetsCash and cash equivalents 218,839 34,587Accounts receivable 6 20,408 14,945Prepaid expenses 7,769 1,270Inventory 7 2,110 854 --------- ---------- 249,126 51,656 --------- ----------Non current assetsPlant and equipment 8 48,776 27,007Deferred exploration and development costs 9Greek production stage mineral properties 29,525 14,677Greek exploration stage mineral properties 401,829 182,157 --------- ---------- 431,354 196,834Romanian exploration stage mineral properties 38,285 31,782 --------- ---------- 469,639 228,616 --------- ---------- Restricted cash 10 4,900 3,926 Other financial assets 17 882 - Future tax assets 11 8,808 738 --------- ---------- 782,131 311,943 --------- ----------Liabilities Current liabilitiesAccounts payable and accrued liabilities 12 9,977 9,802Income taxes payable 12,718 - --------- ---------- 22,695 9,802 --------- ----------Non current liabilitiesFuture tax liability 11 109,943 48,150Non-controlling interest 3,341 20,422Asset retirement obligation 13 6,805 6,031Deferred revenue 14 65,344 - --------- ---------- 185,433 74,603 --------- ---------- Shareholders' equityCapital stock 15 537,275 246,890Contributed surplus 15 5,997 7,135Accumulated other comprehensive income 38,295 4,276Deficit (7,564) (30,763) --------- ---------- 574,003 227,538 --------- ---------- --------- ---------- 782,131 311,943 --------- ---------- The accompanying notes are an integral part of these consolidated financial statements. Approved by the Board of Directors (s) Timothy Morgan-Wynne (s) Jeffrey O'Leary Timothy Morgan-Wynne, Director Dr Jeffrey O'Leary, Director European Goldfields Limited 2007 2006Consolidated Statements of Profit and LossFor the years ended 31 December 2007 and 2006(in thousands of US Dollars, except per shareamounts) Note $ $IncomeSales 86,405 52,438Cost of sales (37,546) (21,961)Depreciation and depletion (5,072) (3,225) --------- ---------Gross profit 43,787 27,252 --------- --------- Other incomeInterest income 6,588 1,445Foreign exchange gain/(loss) 3,904 (752) --------- --------- 10,492 693 --------- ---------ExpensesCorporate administrative and overhead expenses 4,296 2,534Equity based compensation expense 1,798 2,810Hellas Gold administrative and overhead expenses 9,827 5,504Hellas Gold water treatment expenses (non-operatingmines) 4,315 2,698Hellas Gold non-recurring rehabilitation cost(Stratoni - 1,630mine)Accretion of asset retirement obligation 13 124 111Amortisation 484 650 --------- --------- 20,844 15,937 --------- --------- --------- ---------Profit for the year before income tax 33,435 12,008 --------- --------- Income taxes 11Current taxes 7,712 -Future taxes (2,495) 4,824 --------- --------- 5,217 4,824 --------- --------- --------- ---------Profit for the year before non-controlling interest 28,218 7,184 Non-controlling interest (5,019) (4,182) --------- ---------Profit for the year 23,199 3,002 Deficit - Beginning of year (30,763) (33,765) --------- --------- Deficit - End of year (7,564) (30,763) --------- --------- Earnings per share 23 0.16 0.03Basic 0.15 0.03Diluted Weighted average number of shares (in thousands)Basic 148,245 114,852Diluted 150,100 115,719 The accompanying notes are an integral part of these consolidated financial statements. European Goldfields Capital Contributed Accumulated Deficit TotalLimited Stock Surplus OtherConsolidated Comprehensive Statements of Equity IncomeAs at 31 December 2007 and 2006(in thousands of US Dollars, except pershare amounts) $ $ $ $ $ -------- -------- ----------- -------- --------Balance - 31December 2005 240,234 6,197 (12,843) (33,765) 199,823 -------- -------- ----------- -------- -------- Equity-basedcompensationexpense - 5,099 - - 5,099 Restricted shareunits vested 2,071 (2,071) - - - Share optionsexercised orexchanged 4,585 (2,090) - - 2,495 Movement incumulativetranslationadjustment - - 17,119 - 17,119 Profit for theyear - - - 3,002 3,002 -------- -------- ----------- -------- -------- 6,656 938 17,119 3,002 27,715 -------- -------- ----------- -------- -------- -------- -------- ----------- -------- --------Balance - 31December 2006 246,890 7,135 4,276 (30,763) 227,538 -------- -------- ----------- -------- -------- Equity-basedcompensationexpense - 2,488 - - 2,488 Shares issuedfor equityfinancing 130,059 - - - 130,059 Shares issued asconsiderationfor acquisition 161,425 - - - 161,425 Share issuecosts (4,777) - - - (4,777) Restricted shareunits vested 2,646 (2,646) - - - Share optionsexercised orexchanged 1,032 (980) - - 52 Movement incumulativetranslationadjustment - - 33,137 - 33,137 Change in fairvalue of cashflow hedge - - 882 - 882 Profit for theyear - - - 23,199 23,199 -------- -------- ----------- -------- -------- 290,385 (1,138) 34,019 23,199 346,465 -------- -------- ----------- -------- -------- -------- -------- ----------- -------- --------Balance - 31December 2007 537,275 5,997 38,295 (7,564) 574,003 -------- -------- ----------- -------- -------- The accompanying notes are an integral part of these consolidated financial statements. European Goldfields Limited 2007 2006Consolidated Statements of Cash FlowsFor the years ended 31 December 2007 and 2006(in thousands of US Dollars, except per shareamounts) Note $ $Cash flows from operating activitiesProfit for the year 23,199 3,002Foreign exchange loss 6,391 568Amortisation 2,482 2,189Equity based compensation expense 1,798 2,810Accretion of asset retirement obligation 13 124 111Current taxation 7,712 -Future tax recognised (2,495) 4,823Non-controlling interest 5,019 4,182Deferred revenue recognised (3,738) -Depletion of mineral properties 9 3,075 1,685 --------- --------- 43,567 19,370 Net changes in non-cash working capital 18 (8,247) (3,995) --------- --------- 35,320 15,375 --------- --------- Cash flows from investing activitiesDeferred exploration and development costs - Romania (5,735) (3,294)Plant and equipment - Greece (21,606) (7,579)Deferred development costs - Greece (2,347) (4,032)Purchase of equipment (127) (166)Further acquisition in Hellas Gold (9,972) -Restricted cash (557) 23 --------- --------- (40,344) (15,048) --------- --------- Cash flows from financing activitiesProceeds from equity financing 130,059 -Deferred revenue 64,389 -Proceeds from exercise of share options 52 2,495Share issue costs (7,153) - --------- --------- 187,347 2,495 --------- --------- Effect of foreign currency translation on cash 1,929 1,229 --------- --------- Increase in cash and cash equivalents 184,252 4,051 Cash and cash equivalents - Beginning of year 34,587 30,536 --------- ---------Cash and cash equivalents - End of year 218,839 34,587 --------- --------- The accompanying notes are an integral part of these consolidated financial statements. 2007 2006 $ $ Profit for the year 23,199 3,002 Other comprehensive income in the yearCurrency translation adjustment 33,137 17,119Cash flow hedge adjustment 882 - ---------- ---------Comprehensive income 57,218 20,121 ---------- --------- European Goldfields Limited Notes to Consolidated Financial Statements For the years ended 31 December 2007 and 2006 (in thousands of US Dollars, except per share amounts) 1. Nature of operations European Goldfields Limited (the "Company"), a company incorporated under theYukon Business Corporations Act, is a resource company involved in theacquisition, exploration and development of mineral properties in Greece,Romania and South-East Europe. The Company's common shares are listed on the AIM Market of the London StockExchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece - The Company holds a 95% (2006-65%) interest in Hellas Gold S.A ("HellasGold"). Hellas Gold owns three major gold and base metal deposits in NorthernGreece. The deposits are the polymetallic operation at Stratoni, the Olympiasproject which contain gold, zinc, lead and silver, and the Skouries copper/goldporphyry project. Hellas Gold commenced production at Stratoni in September 2005and commenced selling an existing stockpile of gold concentrates from Olympiasin July 2006. Hellas Gold is applying for permits to develop the Skouries andOlympias projects. Romania - The Company owns 80% of the Certej gold/silver project in Romania. TheCompany submitted in March 2007 a technical feasibility study to the Romaniangovernment, in support of a permit application to develop the project. The underlying value of the deferred exploration and development costs formineral properties 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. 2. Basis of Presentation These consolidated financial statements have been prepared on a going concernbasis in accordance with accounting principles generally accepted in Canada("Canadian GAAP"), which assumes the Company will be able to realise assets anddischarge liabilities in the normal course of business for the foreseeablefuture. These consolidated financial statements do not include the adjustmentsthat would be necessary should the Company be unable to continue as a goingconcern. 3. Significant accounting policies These consolidated financial statements reflect the following significantaccounting policies. Basis of consolidation - Business acquisitions are accounted for under thepurchase method and the results of operations of these businesses are includedin these consolidated financial statements from the acquisition date.Investments in affiliated companies over which the Company has significantinfluence are accounted for using the equity method. These consolidated financial statements include the accounts of the Company andthe following subsidiaries: Company Country of Ownership incorporation European Goldfields (Services) Limited England 100% ownedDeva Gold (Barbados) Ltd Barbados 100% ownedDeva Gold S.A. Romania 80% ownedEuropean Goldfields Deva SRL Romania 100% ownedEuropean Goldfields Mining (Netherlands) B.V. Netherlands 100% ownedEuropean Goldfields (Greece) B.V. Netherlands 100% ownedHellas Gold S.A. Greece 95% owned The 20% minority interest held in the Company's 80% owned subsidiary, Deva GoldS.A. ("Deva Gold"), is accounted for in these consolidated financial statements.The Company is required to fund 100% of all costs related to the exploration anddevelopment of the mineral properties held by Deva Gold. As a result, theCompany is entitled to the refund of such costs (plus interest) out of futurecash flows generated by Deva Gold, prior to any dividends being distributed toshareholders. Inventory - Inventories of ore mined and metal concentrates are valued at thelower of combined production cost and net realisable value. Production costsinclude the costs directly related to bringing the inventory to its currentcondition and location, such as materials, labour, mine site overheads, relateddepreciation of mining and processing facilities and related depletion ofmineral properties and deferred exploration and development costs. Explorationmaterials and supplies are valued at the lower of cost and net realisable valueand on a weighted average basis. Plant and equipment - Plant and equipment are recorded at cost less accumulatedamortisation. Amortisation is calculated on a straight-line basis based on auseful life of three years for office equipment, six years for vehicles, tenyears for leasehold improvements, at rates varying between three and five yearsfor exploration equipment and at rates varying between four and 20 years forbuildings. Amortisation for equipment used for exploration and development arecapitalised to mineral properties. Deferred exploration and development costs - Acquisition costs of resourceproperties, together with direct exploration and development costs incurredthereon, are deferred and capitalised. Upon reaching commercial production,these capitalised costs are transferred from exploration properties to producingproperties on the consolidated balance sheets and are amortised into operationsusing the unit-of-production method over the estimated useful life of theestimated related ore reserves. Based on annual impairment reviews made by management, in the event that thelong-term expectation is that the net carrying amount of these capitalisedexploration and development costs will not be recovered such as would beindicated where: - Producing properties: • the carrying amounts of the capitalised costs exceed the related undiscounted net cash flows of reserves; - Exploration properties: • exploration activities have ceased; • exploration results are not promising such that exploration will not be planned for the foreseeable future; • lease ownership rights expire; or • insufficient funding is available to complete the exploration program; then the carrying amount is written down to fair value accordingly and thewrite-down amount charged to operations. Impairment of long-lived assets - All long-lived assets and intangibles held andused by the Company are reviewed for possible impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. If changes in circumstances indicate that the carrying amount ofan asset that an entity expects to hold and use may not be recoverable, futurecash flows expected to result from the use of the asset and its disposition mustbe estimated. If the undiscounted value of the future cash flows is less thanthe carrying amount of the asset, impairment is recognised based on the fairvalue of the assets. Asset retirement obligation - The fair value of the liability of an assetretirement obligation is recorded when it is legally incurred and thecorresponding increase to the mineral property is depreciated over the life ofthe mineral property. The liability is increased over time to reflect anaccretion element considered in the initial measurement at fair value. As at 31December 2007 and 2006, the Company had an asset retirement obligation relatingto its Stratoni property in Greece. Deferred revenue - The Company received a prepayment from Silver Wheaton(Caymans) Ltd. for the sale of all of the silver metal to be produced from oreextracted during the mine-life within an area of some 7 km(2) around itszinc-lead-silver Stratoni mine in northern Greece. The prepayment, which isaccounted for as deferred revenue, is recognised as sales revenue on the basisof proportion of settlements during the period to expected total settlements. Revenue recognition - Revenues from the sale of concentrates are recognised andare measured at market prices when the rights and obligations of ownership passto the customer. A number of the Company's concentrate products are sold underpricing arrangements where final prices are determined by quoted market pricesin a period subsequent to the date of sale. These concentrates are provisionallypriced at the time of sale based on forward prices for the expected date of thefinal settlement. The terms of the contracts result in non-hedge derivativesthat do not qualify for hedge accounting treatment, because of the differencebetween the provisional price and the final settlement price. These embeddedderivatives are adjusted to fair value through revenue each period until thedate of final price determination. Subsequent variations in the price arerecognised as revenue adjustments as they occur until the price is finalised. Income taxes - Income taxes are calculated using the asset and liability methodof tax accounting. Under this method, current income taxes are recognised forthe estimated income taxes payable for the current period. Future income taxassets and liabilities are determined based on differences between the financialreporting and tax bases of assets and liabilities, and are measured using thesubstantially enacted tax rates and laws that will be in effect when thedifferences are expected to reverse. The benefit of the temporary differences isnot recognised to the extent the recoverability of future income tax assets isnot considered more likely than not. Equity-based compensation - The Company operates a share option plan and arestricted share unit plan. The Company accounts for equity-based compensationgranted under such plans using the fair value method of accounting. Under suchmethod, the cost of equity-based compensation is estimated at fair value and isrecognised in the profit and loss statement as an expense, or capitalised todeferred exploration and development costs when the compensation can beattributed to mineral properties. This cost is amortised over the relevantvesting period for grants to directors, officers and employees, and measured infull at the earlier of performance completed or vesting for grants tonon-employees. Any consideration received by the Company on exercise of shareoptions is credited to share capital. Earnings per share ("EPS") - EPS is calculated based on the weighted averagenumber of common shares issued and outstanding during 2007 being 148,245,297(2006 - 114,851,482). Diluted per share amounts are calculated using thetreasury stock method whereby proceeds deemed to be received on the exercise orexchange of share options and warrants and on the granting of restricted shareunits in the per share calculation are applied to reacquire common shares at theaverage market price during the period. Foreign currency translation - The Company's functional currency is the UnitedStates dollar. Monetary assets and liabilities denominated in foreign currenciesare translated at the exchange rate in effect at the balance sheet date.Non-monetary assets and liabilities and revenue and expenses arising fromforeign currency transactions are translated at the exchange rate in effect atthe date of the transaction. Exchange gains or losses arising from thetranslation are included in operations. Integrated foreign subsidiaries are accounted for under the temporal method.Under this method, monetary assets and liabilities are translated at theexchange rate in effect at the balance sheet date. Non-monetary assets andliabilities are translated at historical rates. Revenue and expenses aretranslated at actual or average rates for the period. Exchange gains or lossesarising from the translation are included in operations except for those relatedto mineral properties which are capitalised. The Company accounts for allsubsidiaries except Hellas Gold as integrated foreign subsidiaries. Self-sustaining foreign subsidiaries are accounted for under the current ratemethod. Under this method, all assets and liabilities are translated at theexchange rate in effect at the balance sheet date. Revenue and expenses aretranslated at actual or average rates for the period. Exchange gains or lossesarising from the translation are recorded in equity in the cumulativetranslation adjustment component of other comprehensive income. The Companyaccounts for Hellas Gold as a self-sustaining foreign subsidiary. Estimates, risks and uncertainties - The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amount of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amount of revenues and expenses duringthe period. Significant estimates and assumptions include those related to therecoverability of deferred exploration, development costs for mineralproperties, asset retirement obligations and equity based compensation. Whilemanagement believes that these estimates and assumptions are reasonable, actualresults could vary significantly. 4. Significant changes in accounting policies Effective 1 January 2007, the Company adopted the revised CICA Section 1506"Accounting Changes", which requires that: a voluntary change in accountingprinciples can be made if, and only if, the changes result in more reliable andrelevant information, changes in accounting policies are accompanied withdisclosures of prior period amounts and justification for the change, and forchanges in estimates, the nature and amount of the change should be disclosed.The Company has not made any voluntary change in accounting principles since theadoption of the revised standard. This standard also requires disclosure ofissued but not yet effective standards. Financial Instruments - Recognition and Measurement, Section 3855 - Thisstandard prescribes when a financial asset, financial liability, ornon-financial derivative is to be recognised on the balance sheet and whetherfair value or cost-based methods are used to measure the recognised amounts. Italso specifies how financial instrument gains and losses are to be recognised. Effective 1 January 2007, the Company's cash and cash equivalents, temporaryinvestments and investments in marketable securities have been classified asavailable-for-sale and are recorded at fair value on the balance sheet. Fairvalues are determined directly by reference to published price quotations in anactive market. Changes in the fair value of these instruments are reflected inother comprehensive income and included in shareholders' equity on the balancesheet. All derivatives are to be recorded on the balance sheet at fair value.Mark-to-market adjustments on these instruments will be included in net profit,unless the instruments are designated as part of a cash flow hedge relationship.In accordance with the standard's transitional provisions, the Company realisedas separate assets and liabilities only embedded derivatives acquired orsubstantively modified on or after 1 January 2003. All other financial instruments will be recorded at cost or amortised cost,subject to impairment reviews. The criteria for assessing other than temporaryimpairment remain unchanged. Transaction costs incurred to acquire financialinstruments are included in the underlying balance. The Company has determinedthat the adoption of Section 3855 had no material effect on these financialstatements. Cash and cash equivalents - Cash and cash equivalents include cash and depositswith original maturities of three months or less. Hedges, Section 3865 - This standard is applicable when a company chooses todesignate a hedging relationship for accounting purposes. It builds on theprevious AcG-13 "Hedging Relationships" and Section 1650 "Foreign CurrencyTranslation", by specifying how hedge accounting is applied and what disclosuresare necessary when it is applied. The Company uses derivative and non-derivativefinancial instruments to manage changes in commodity prices. Hedge accounting isoptional and it requires the Company to document the hedging relationship andtest the hedging item's effectiveness in offsetting changes in fair values orcash flows of the underlying hedged item on an ongoing basis. The Company uses cash flow hedges to manage base metal commodity prices. Theeffective portion of the change in fair value of a cash flow hedging instrumentis recorded in other comprehensive income and is reclassified to earnings whenthe hedge item impacts profit. Any ineffectiveness is recorded in net profit. If a derivative instrument designated as a cash flow hedge ceases to beeffective or is terminated, hedge accounting is discontinued and the gain orloss at that date is deferred in other comprehensive income and recognisedconcurrently with the settlement of the related transaction. If a hedgedanticipated transaction is no longer probable, the gain or loss is recognisedimmediately in profit. Subsequent gains and losses from ineffective derivativeinstruments are recognised in profit in the period they occur. Comprehensive Income, Section 1530 & 3251 - Effective 1 January 2007, theCompany adopted sections 1530 and 3251. These standards require the presentationof a statement of comprehensive income and its components. Comprehensive incomeincludes both net profit and other comprehensive income. Other comprehensiveincome includes holding gains and losses on available-for-sale investments,gains and losses on certain derivative instruments and foreign currency gainsand losses relating to self-sustaining foreign operations, all of which are notincluded in the calculation of net earnings until realised. Foreign currency translation, Section 1651 - Effective 1 January 2007, theCompany adopted section 1651 this had no effect on the financial statements. 5. Business combination - Acquisition of an additional 30% interest in HellasGold In June 2007, the Company completed the acquisition of additional shares inHellas Gold, increasing its total interest from 65% to 95%. The totalconsideration paid by the Company for the purchased shares was satisfied asfollows: (a) The issue of 35,447,246 common shares of the Company (currently held inEscrow); and (b) $8.42 million paid in cash to the vendor. Transaction costs of $1.55 million were also accounted for as part of theacquisition. A summary of the accounting treatment of fair value of net assets acquired andconsideration paid is as follows: $ -----------Current assets 31,272Property, plant and equipment 12,220Other assets 6,536Current liabilities (7,050)Other liabilities (20,470)Mineral properties 198,518Future tax liabilities (49,630) ----------- 171,396 ----------- Purchase consideration: $ ----------- ----------- Cash paid 8,418 Shares issued (35,447,246 common shares) 161,424Transaction costs 1,554 -----------Purchase price 171,396 ----------- For accounting purposes, the Company has used an average share price based upon5 days prior and post the announcement of the transaction, to value the shareelement of the purchase consideration. 6. Accounts receivable, prepaid expenses and supplies This balance comprises the following: 2007 2006 $ $ --------- ---------Value added taxes recoverable 17,996 8,079Accounts receivable 2,412 6,866 --------- --------- 20,408 14,945 --------- --------- 7. Inventory This balance comprises the following: 2007 2006 $ $ --------- ---------Ore mined - 225Metal concentrates 865 154Material and supplies 1,245 475 --------- --------- 2,110 854 --------- --------- 8. Plant and equipment -------- -------- ---------- ---------- ------- Plant and Vehicles Mine Leasehold Total equipment development, improvements land and buildings $ $ $ $ $ -------- -------- ---------- ---------- -------Cost - 2006 At 31 December2005 5,559 1,134 13,402 223 20,318 Additions 7,059 - 653 33 7,745Disposals (2) - - - (2)Currencytranslationadjustment 604 102 1,554 - 2,260 -------- -------- ---------- ---------- -------At 31 December2006 13,220 1,236 15,609 256 30,321 -------- -------- ---------- ---------- ------- Accumulatedamortisation - 2006 At 31 December2005 420 372 119 33 944 Provision forthe year 1,170 265 699 26 2,160Disposals (1) - - - (1)Currencytranslationadjustment 92 52 67 - 211 -------- -------- ---------- ---------- -------At 31 December2006 1,681 689 885 59 3,314 -------- -------- ---------- ---------- ------- -------- -------- ---------- ---------- -------Net book valueat 31 December2006 11,539 547 14,724 197 27,007 -------- -------- ---------- ---------- ------- Cost - 2007 At 31 December 2006 13,220 1,236 15,608 256 30,320 Additions 17,154 599 3,926 55 21,734Disposals (34) (8) - - (42)Currency translation 1,361 105 1,678 - 3,144adjustment -------- -------- ---------- ---------- -------At 31 December 2007 31,701 1,932 21,212 311 55,156 -------- -------- ---------- ---------- ------- Accumulated amortisation -2007 At 31 December 2006 1,681 685 888 58 3,312 Provision for the year 1,261 318 1,000 27 2,606Disposals (24) (8) - - (32)Currency translation 233 81 180 - 494adjustment -------- -------- ---------- ---------- -------At 31 December 2007 3,151 1,076 2,068 85 6,380 -------- -------- ---------- ---------- ------- -------- -------- ---------- ---------- -------Net book value at 31 28,550 856 19,144 226 48,776December 2007 -------- -------- ---------- ---------- ------- 9. Deferred exploration and development costs Greek mineral properties: Stratoni Olympias Skouries Total $ $ $ $ ---------- ---------- ----------- ---------Balance - 31 December 2005 14,861 95,382 62,624 172,867 ---------- ---------- ----------- --------- Deferred development costs 167 1,531 4,069 5,767Depletion of mineral properties (1,527) (81) - (1,608)Currency translation adjustment 1,176 11,246 7,386 19,808 ---------- ---------- ----------- --------- (184) 12,696 11,455 23,967 ---------- ---------- ----------- ---------Balance - 31 December 2006 14,677 108,078 74,079 196,834 ---------- ---------- ----------- --------- Acquisition of mineral 14,239 109,037 75,242 198,518propertiesDeferred development costs 1,095 183 1,277 2,555Depletion of mineral properties (2,749) (334) - (3,083)Currency translation adjustment 2,263 20,320 13,947 36,530 ---------- ---------- ----------- --------- 14,848 129,206 90,466 234,520 ---------- ---------- ----------- ---------Balance - 31 December 2007 29,525 237,284 164,545 431,354 ---------- ---------- ----------- --------- The Stratoni, Skouries and Olympias properties are held by the Company's 95% -owned (2006 - 65%) subsidiary, Hellas Gold. In September 2005, the Stratoniproperty commenced production. Romanian mineral properties: Certej Baita- Voia Cainel Total Craciunesti $ $ $ $ $ -------- -------- --------- --------- ---------Balance - 31 December2005 23,400 2,948 513 982 27,843 -------- -------- --------- --------- --------- Drilling and assaying 802 9 109 2 922Geosciences and tech.consulting 685 38 70 7 800Samplers, miners andsurveying 55 5 5 - 65Project management 266 6 28 - 300Project overhead 1,581 50 118 11 1,760Amortisation 73 8 1 10 92 -------- -------- --------- --------- --------- 3,462 116 331 30 3,939 -------- -------- --------- --------- ---------Balance - 31 December2006 26,862 3,064 844 1,012 31,782 -------- -------- --------- --------- --------- Drilling and assaying 878 2 65 6 951Geosciences and tech. 2,065 49 57 - 2,171consultingSamplers, miners and 67 5 - - 72surveyingProject management 1,682 13 28 1 1,724Project overhead 1,300 26 172 7 1,505Amortisation 61 7 1 11 80 -------- -------- --------- --------- --------- 6,053 102 323 25 6,503 -------- -------- --------- --------- ---------Balance - 31 December 2007 32,915 3,166 1,167 1,037 38,285 -------- -------- --------- --------- --------- The Certej exploitation licence and the Baita-Craciunesti exploration licenceare held by the Company's 80%-owned subsidiary, Deva Gold. Minvest S.A. (aRomanian state owned mining company), together with three private Romaniancompanies, hold the remaining 20% interest in Deva Gold. The Company is requiredto fund 100% of all costs related to the exploration and development of theseproperties. As a result, the Company is entitled to the refund of such costs(plus interest) out of future cash flows generated by Deva Gold, prior to anydividends being distributed to shareholders. The Voia and Cainel explorationlicences are held by the Company's wholly-owned subsidiary, European GoldfieldsDeva SRL. Individual property spending commitments for each of the Company's Romanianlicences have been met as at 31 December 2007. 10. Restricted cash The balance consists of an amount of $4,900 (€3,365 million) pledged by HellasGold to the National Bank of Greece as collateral for a letter of guaranteeissued by the National Bank of Greece to the Greek Ministry of Development toguarantee Hellas Gold's environmental commitments under its mining permit atStratoni. The letter of guarantee expires on 31 December 2010. The cash bears arate of interest of Euribor plus 0.8% per annum. 11. Income taxes The following table reconciles the expected income tax recovery at the Canadianstatutory income tax rate to the amounts recognised in the consolidatedstatements of profit and loss: 2007 2006 $ $ --------- ----------Income tax rate 37.12% 37.12%Income taxes at statutory rates 12,411 4,457Tax rate difference from foreign jurisdictions (2,573) (1,399)Permanent differences (3,031) 1,004Change in tax rate (258) 603Change in valuation allowance (1,332) 159 --------- ---------- 5,217 4,824 --------- ---------- The following table reflects future income tax assets: 2007 2006 $ $ --------- ---------Loss carry forwards 7,426 6,620Intangibles 10 -Plant and equipment - 17Retirement obligation 1,700 251Inventory 1,265 -Personal indemnities 37 26Accruals 1,241 444Capital raising costs 2,376 -Valuation allowance (5,247) (6,620) --------- ---------Future income tax recognised 8,808 738 --------- --------- The following table reflects future income tax liabilities: 2007 2006 $ $ --------- ---------Mineral properties 104,752 45,674Plant and equipment 701 244Exploration and development expenditure 3,003 2,232Accrued expenses & other 1,487 - --------- --------- 109,943 48,150 --------- --------- The tax liability arises as a result of the increase in value placed on themineral properties held by Hellas Gold on acquisition by the Company. Thisfuture tax liability will reverse as the corresponding mineral properties areamortised. As at 31 December 2007, the Company has available tax losses for income taxpurposes of approximately $30,461 (2006 - $14,545) which may be carried forwardto reduce taxable income derived in future years. The non-capital losses expireas follows: 2007 $ ---------2015 1,8282016 4,486Non expiring losses 24,147 --------- 30,461 In addition, the Company incurred share issue costs and other deductibletemporary differences, which have not yet been claimed for income tax purposes,totaling approximately $3,112 as at 31 December 2007 (2006 - $3,117). Subject tocertain restrictions, exploration and development expenditures available toreduce taxable income in Romania was $33,629 as at 31 December 2007 (2006 -$27,343). A valuation allowance has been provided as a portion of the potential income taxbenefits of these carry-forward non-capital losses and deductible temporarydifferences and the realisation thereof is not considered more likely than not. 12. Accounts payable and accrued liabilities The balance principally comprises amounts outstanding for normal operations andongoing costs. The average credit period taken during the financial year ended31 December 2007 was 30 days(2006 - 30 days). 13. Asset retirement obligation Management has estimated the total future asset retirement obligation based onthe Company's ownership interest in the Stratoni mines and facilities. Thisincludes all estimated costs to dismantle, remove, reclaim and abandon thefacilities at the Stratoni property, and the estimated time period during whichthese costs will be incurred in the future. The following table reconciles theasset retirement obligation for the financial years ended 31 December 2007 and2006: 2007 2006 $ $ ---------- ----------Asset retirement obligation - Beginning of year 6,031 5,307Currency translation adjustment 650 613Accretion expense 124 111 ---------- ----------Asset retirement obligation - End of year 6,805 6,031 ---------- ---------- As at 31 December 2007, the undiscounted amount of estimated cash flows requiredto settle the obligation is $7,421 (2006 - $6,639). The estimated cash flow hasbeen discounted using a credit adjusted risk free rate of 5.04% (2006 - 5.04%).The expected period until settlement is six years. 14. Deferred revenue In April 2007, Hellas Gold agreed to sell to Silver Wheaton (Caymans) Ltd. ("Silver Wheaton") all of the silver metal to be produced from ore extractedduring the mine-life within an area of some 7 km(2) around its zinc-lead-silverStratoni mine in northern Greece (the "Silver Wheaton Transaction"). The salewas made in consideration of a prepayment to Hellas Gold of $57.5 million incash, plus a fee per ounce of payable silver to be delivered to Silver Wheatonof the lesser of $3.90 (subject to an inflationary adjustment beginning afteryear three) and the prevailing market price per ounce. The current Stratoniproven and probable silver reserve contains approximately 12 million ounces ofsilver. In April 2007, Hellas Gold entered in an agreement with MRI Trading AG for thesale of 25,000 wet metric tones of gold bearing pyrite concentrate. Hellas Goldreceived a prepayment of $2.18 million in cash. In September 2007, Hellas Goldentered into an agreement with a subsidiary of Celtic Resources Holdings Plc forthe sale of 50,000 wet metric tonnes of gold bearing pyrite concentrate, forwhich Hellas Gold received a prepayment of $4.71 million in cash. The following table reconciles movements on deferred revenue associated with theMRI and Celtic Resources prepayments, and the Silver Wheaton Transaction: 2007 2006 $ $ ---------- ----------Deferred revenue - Beginning of period - -Additions 64,389 -Revenue recognised (3,738) -Foreign currency translation adjustment 4,693 - ---------- ----------Deferred revenue - End of period 65,344 - ---------- ---------- During the year ended 31 December 2007, Hellas Gold delivered concentratecontaining 952,729 ounces (2006 - Nil) of silver for credit to Silver Wheaton. 15. Capital stock Authorised: - Unlimited number of common shares, without par value - Unlimited number of preferred shares, issuable in series, without par value Issued and outstanding (common shares - all fully paid): Number of Amount Shares $ --------- ---------Balance - 31 December 2005 112,598,708 240,234 --------- --------- Restricted share units vested 830,000 2,071Share options exercised or exchanged 1,373,140 4,585Share issue costs - - --------- --------- 2,203,140 6,656 --------- --------- --------- ---------Balance - 31 December 2006 114,801,848 246,890 --------- --------- Restricted share units vested 840,000 2,646Share options exercised or exchanged 473,287 1,032Shares issued for equity financing 27,600,000 130,059Shares issued as consideration for acquisition 35,447,246 161,425Share issue costs, net of tax - (4,777) --------- --------- 64,360,533 290,385 --------- --------- --------- ---------Balance - 31 December 2007 179,162,381 537,275 --------- --------- As at 31 December 2007, the Company had 35,447,246 common shares held in escrowor in respect of which trading restrictions applied. Contributed surplus: 2007 2006 $ $ --------- ---------Equity based compensation expense 5,419 6,557Broker warrants 578 578 --------- --------- 5,997 7,135 --------- --------- 16. Share options and restricted share units Share Option Plan The Company operates a Share Option Plan (together with its predecessor, the"Share Option Plan") authorising the directors to grant options with a maximumterm of 5 years, to acquire common shares of the Company to the directors,officers, employees and consultants of the Company and its subsidiaries, onterms that the Board of Directors may determine, within the limitations of theShare Option Plan. The maximum number of common shares of the Company which maybe reserved for issuance for all purposes under the Share Option Plan shall notexceed 15% of the common shares issued and outstanding from time to time(26,874,357 shares as at 31 December 2007). An optionee under the Share Option Plan may elect to dispose of its rights underall or part of its options(the "Exchanged Rights") in exchange for the following number of common sharesof the Company (or at the Company's option for cash) in settlement thereof (the"Settlement Common Shares"): Number of = Number of Optioned Shares issuable on X (Current Price -Settlement Common exercise of the Exchanged Rights Exercise Price)Shares Current Price As at 31 December 2007, the following share options were outstanding: --------- ---------Expiry date Number of Exercise Options price C$ --------- ---------2009 250,000 2.802009 250,000 4.202009 360,000 3.072009 75,000 3.152010 359,999 2.002010 25,000 2.112010 150,000 2.402011 200,000 4.102011 600,000 3.852011 66,666 3.252012 250,000 5.662012 150,000 5.712012 270,000 5.87 --------- --------- 3,006,665 3.80 --------- --------- During the years ended 31 December 2007 and 2006, share options were granted,exercised, exchanged and cancelled as follows: Number of Weighted Options average exercise price C$ --------- ---------Balance - 31 December 2005 4,684,333 2.58 --------- --------- Options granted 900,000 3.84Options exercised (1,109,168) 2.53Options exchanged for shares (592,334) 2.56Options forfeited (129,166) 2.15Options expired (540,000) 2.43 --------- ---------Balance - 31 December 2006 3,213,665 3.06 --------- --------- Options granted 745,000 5.73Options exercised (25,000) 2.11Options exchanged for shares (802,000) 2.61Option forfeited (75,000) 5.47Options expired (50,000) 2.50 --------- ---------Balance - 31 December 2007 3,006,665 3.80 --------- --------- Of the 3,006,665 (2006 - 3,213,665) share options outstanding as at 31 December2007, 2,269,999 (2006 - 2,346,999) were fully vested and had a weighted averageexercise price of C$3.24 (2006 - C$2.90) per share. The share optionsoutstanding as at 31 December 2007, had a weighted average remaining contractuallife of 2.97 years (2006 - 3.41 years). The weighted average grant date fair value cost of the 745,000 share optionsgranted during the financial year ended 31 December 2007 (2006 - 900,000) was$2,088 (2006 - $1,597). For outstanding share options which were not fullyvested during the year ended 31 December 2007, the Company incurred a totalequity-based compensation cost of $1,209 (2006 - $1,538) of which $1,057 (2006 -$1,156) has been recognised as an expense in the statement of profit and lossand $151 (2006 - $382) has been capitalised to deferred exploration anddevelopment costs. The fair value of the share options granted has been estimated at the date ofgrant using a Black-Scholes option pricing model with the following assumptions:weighted average risk free interest rate of 3.23%(2006 - 2.75%); volatility factor of the expected market price of the Company'sshares of 58% to 59%(2006 - 52% to 59%); a weighted average expected life of the share options of 5years(2006 - 5 years), maximum term of 5 years and a dividend yield of Nil (2006 -Nil). Restricted Share Unit Plan The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorisingthe directors, based on recommendations received from the CompensationCommittee, to grant Restricted Share Units ("RSUs") to designated directors,officers, employees and consultants. The RSUs are "phantom" shares that rise andfall in value based on the value of the Company's common shares and are redeemedfor actual common shares on the vesting dates determined by the Board ofDirectors when the RSUs are granted. The RSUs vest on the dates below howeverupon a change of control of the Company they would typically become 100% vested.The maximum number of common shares of the Company which may be reserved forissuance for all purposes under the RSU Plan shall not exceed 2.5% of the commonshares issued and outstanding from time to time (4,479,059 shares as at 31December 2007). As at 31 December 2007, the following RSUs were outstanding: --------- ---------Vesting date Number of Grant date RSUs fair value of Underlying shares C$ --------- ---------31 May 2008 75,000 3.2430 June 2008 30,000 5.7431 December 2008 * 50,000 6.2230 June 2009 30,000 5.74 --------- --------- 185,000 4.86 --------- --------- * Or earlier if certain operational milestones are achieved. Vestingconditional upon such milestones being achieved by 31 December 2008. During the years ended 31 December 2007 and 2006, RSUs were granted, vested andcancelled as follows: --------- --------- Number of Weighted RSUs average grant date fair value of underlying shares C$ --------- ---------Balance - 31 December 2005 750,000 2.19 RSUs granted 1,335,000 3.75RSUs vested (830,000) 2.94RSUs forfeited (150,000) 4.04 --------- ---------Balance - 31 December 2006 1,105,000 3.26 --------- --------- RSUs granted 390,000 5.69RSUs vested (840,000) 3.47RSUs forfeited (470,000) 4.26 --------- ---------Balance - 31 December 2007 185,000 4.86 --------- --------- The weighted average grant date fair value cost of underlying shares of the390,000 RSUs granted during the financial year ended 31 December 2007 (2006 -1,335,000) was $2,065 (2006 - $4,412). For outstanding RSUs which were not fullyvested during the year ended 31 December 2007, the Company incurred a totalequity-based compensation cost of $1,279 (2006 - $3,561) of which $741 (2006 -$1,654) has been recognised as an expense in the statement of profit and lossand $538 (2006 - $1,907) has been capitalised to deferred exploration anddevelopment costs. 17. Financial instruments and financial risk management The Company's financial instruments consist of cash and cash equivalents,accounts receivable, restricted cash accounts payable, accrued liabilities andhedge contracts. Short-term financial assets are amounts that are expected to be settled withinone year. The carrying amounts in the consolidated balance sheets approximatefair value because of the short term nature of these instruments. As disclosed in Note 3, the embedded derivatives are classified as a short termfinancial asset. Credit risk - Financial instruments that potentially subject the Company toconcentration of credit risk consist of cash and cash equivalents, accountsreceivable and hedging contracts. The cash equivalents consist mainly ofshort-term investments, such as money market deposits. The Company has depositedthe cash equivalents only with the largest banks within a particular region orwith top rated institutions, from which management believes the risk of loss tobe remote. The Company has accounts receivable from trading counterparties towhom concentrate products are sold. Where traders are chosen as counterparties,only the larger and most financially secure metal trading groups are dealt with.The Company may also transact agreements with trading groups who have directinterests in smelting capacity, or direct to the smelters themselves. For theyear ended 31 December 2007, two base metal concentrate customers represented79% of total sales. Of the total accounts receivable as at 31 December 2007,two customers represented 86% of the total. The Company does not anticipate anyloss for non-performance. There are a number of financial institutions whichoffer metal hedging services. As with cash deposits, the Company deals withhighly rated banks and in addition, those institutions who have demonstratedlong term commitment to the mining sector. Interest rate risk - The Company is exposed to interest rate risk arising fromfluctuations in interest rates on its cash equivalents. The Company seeks tomaximise returns on cash equivalents, without risking capital values. Currency risk - The Company is exposed to currency risk on sales, purchases andcash holdings that are denominated in a currency other than the functionalcurrencies of the individual entities in the group. As at the 31 December 2007,the Company held the equivalent of $36,107 (2006- $4,664) in foreign currencies.These balances are primarily made up of Euro. The Company publishes its consolidated financial statements in US dollars and asa result, it is also subject to foreign exchange translation risk in respect ofresults and underlying net assets of its foreign operations. Hedging and specific commitments - The Company enters into financialtransactions in the normal course of business and in line with Board guidelinesfor the purpose of hedging and managing its expected exposure to commodityprices. The hedges below are treated as cash flow hedges in accordance with CICA3865: Hedges. Lead hedging contracts - As at 31 December 2007, the Company had entered intoforward hedging arrangements over 6,600 tonnes of lead, using options to providea minimum : maximum price exposure. The hedging contracts are put/call optioncollar contracts with maturity dates between 4 March 2008 and 5 January 2009 andstrike prices as shown in the table below. The fair value of these contracts asat 31 December 2007 amounted to $882 (2006 - Nil) established by reference tomarket prices for lead. 2008 TotalLead tonnes 6,600 6,600 US dollar price ($/tonne) - Put 2,375 2,375US dollar contract amount ($'000) - Put 15,675 15,675 US dollar price ($/tonne) - Call 3,275 3,275US dollar contract amount ($'000) - Call 21,615 21,615 18. Supplementary cash flow information 2007 2006 $ $ --------- ---------Changes in non-cash working capital:Accounts receivable and prepaid expenses (11,962) (10,863)Inventory (1,164) 1,055Accounts payable and accrued liabilities 4,879 5,813 --------- --------- (8,247) (3,995) --------- --------- Supplemental disclosure of non-cash transactions: Share capital issued for business combination 161,424 -Share options and restricted share units issued fornon-cash consideration 2,488 5,099Exercise or exchange of share options - Transfer fromcontributed surplus (980) (2,090)to share capitalVesting of restricted share units (2,646) (2,071) 19. Commitments As at 31 December 2007, the Company had remaining spending commitments of $806(2006 - $1,129) over the remaining term of its Voia exploration licence inRomania which expires in March 2010. The Company has spending commitments of $193 per year (plus service charges andvalue added tax) for a term of ten years under the lease for its office inLondon, England, which commenced in April 2004. The rent will be reviewed on thefifth anniversary of the commencement of the term to reflect any increase inrents in the market. As at 31 December 2007, Hellas Gold had entered into off-take agreementspursuant to which Hellas Gold agreed to sell 40,199 dmt of zinc concentrates,34,012 dmt of lead/silver concentrates and 200,382 dmt of gold concentratesuntil the financial year's ending 2011. During the year, the Company entered into purchase agreements with OutotecMinerals OY for long-lead -time equipment for the Skouries project with a costof $52,645 (€36,057) of which is to be paid over three years beginning 2007. Asat 31 December 2007, $9,119 (€6,245) of the commitment had been paid. HellasGold has pledged $25,722 (€17,617) in support of a letter of credit issued onbehalf of Outotec Minerals OY through Nordea Bank of Finland. 20. Transactions with related parties During the year ended 31 December 2007, Hellas Gold incurred costs of $27,885(2006 - $18,045) for management, technical and engineering services receivedfrom a related party, Aktor S.A.,a 5% shareholder in Hellas Gold. As at 31 December 2007, Hellas Gold hadaccounts payable of $2,125 (2006 - $4,181) to Aktor S.A. These expenses werecontracted in the normal course of operations and are recorded at the exchangeamount agreed by the parties. 21. 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: 2007 2006 $ $ --------- ---------SalesCanada - -Greece 86,405 52,438Romania - -United Kingdom - - --------- --------- 86,405 52,438 --------- --------- Plant and equipment and deferred exploration anddevelopment costsCanada - -Greece 479,656 223,286Romania 38,418 32,010United Kingdom 341 327 --------- --------- 518,415 255,623 --------- --------- Operating liabilitiesCanada 832 226Greece 20,037 7,625Romania 659 304United Kingdom 1,167 1,647 --------- --------- 22,695 9,802 --------- --------- 22. Pension plans and other post-retirement benefits The Company's subsidiary, European Goldfields (Services) Limited, maintains adefined contribution pension plan for its employees. The defined contributionpension plan provides pension benefits based on accumulated employee and Companycontributions. Company contributions to these plans are a set percentage ofemployees' annual income and may be subject to certain vesting requirements. Thecost of defined contribution benefits is expensed as earned by employees. As at 31 December 2007, the Company recognised the following costs: 2007 2006 $ $ --------- ---------Defined contribution plans 227 174 23. Earnings per share The calculation of the basic and diluted earnings per share attributable toholders of the Company's common shares is based as follows: 2007 2006 $ $ --------- ---------Profit for the year 23,199 3,002Effect of dilutive potential common shares - - --------- ---------Diluted earnings 23,199 3,002 --------- --------- Weighted average number of common shares for the purposeof basic earnings per share 148,245 114,852Incremental shares - Share options 1,855 867 --------- ---------Weighted average number of common shares for the purposeof diluted earnings per share 150,100 115,719 --------- --------- 24. Reclassification of comparative figures Certain comparative figures have been reclassified to conform to the currentyear's presentation. 25. Legal proceedings In June 2005, certain residents of Stratoniki village submitted a request forthe annulment of the Greek government's joint ministerial decision approving theenvironmental impact study for the Stratoni mine (the "JMD Approval"). InNovember 2005, the same petitioners submitted a request for the annulment of thedecision of the Minister of Development approving the Technical Study for theexploitation of the Mavres Petres mine that forms part of the Stratoni complex(the "MOD Approval"). The JMD Approval and the MOD Approval are necessary forthe continued operation of the Stratoni mine. In both cases the petitionersalleged a lack of legal basis for the approvals and potential harm to theenvironment and their properties. The Greek government, supported by theCompany, the Association of Extractive Companies, and two workers' unions, hastaken a position that the approvals are valid. In December 2005 thepetitioners requested an injunction to stop work on the Stratoni project pendingthe hearing of the requests for annulment, but the court rejected the request.A hearing on both requests for annulment will be held shortly. The managementof the Company believes that both requests for annulment are unfounded andunlikely to succeed. 26. Post balance sheet event Since 31 December 2007, the Company granted 150,000 restricted share units underthe Company's Restricted Share Unit Plan. Since 31 December 2007, the Company granted 165,000 share options under theCompany's Share Option Plan. In February 2008, the Company signed a Heads of Agreement with Ariana Resourcesplc ("Ariana"), for the joint development of Ariana's properties inNorth-eastern Turkey, which includes the Ardala copper-gold porphyry and elevenother licences covering a total area of 168km2. Under the agreement, the Company will initially own 51% of the propertiestransferred by Ariana into the joint venture. The Company will then fund alldevelopment costs of these initial properties and any future properties locatedwithin a defined area in North-eastern Turkey until completion of a BankableFeasibility Study, at which time the Company's interest in each relevant projectwill increase to between 80% and 90%, respectively. In addition, the Company has agreed to subscribe for new shares in Ariana at 5pence per share in a private placement, resulting in the Company owning 20% ofthe outstanding shares in Ariana following the placement, for a totalconsideration of approximately £890,000. In February 2008, the Company entered into additional forward hedgingarrangements over 1,800 and 7,200 tonnes of lead, representing 300 tonnes permonth from July to December 2008 and 600 tonnes per month in 2009, respectively.The hedging contracts are put/call option collar contracts, with a put price of$2,500 and a call price of $3,500. 27. Recently issued accounting standards Capital Disclosures - In 2008, the Company will be required to adopt the "CICA"Handbook Section - 1535 - Capital disclosures. Under the requirements of newstandard, the Company will disclose information about its objectives policiesand processes for managing capital, quantitative information about what theCompany regards as capital and information regarding its compliance with anyexternally imposed capital requirements and the consequences of anynon-compliance. The Company anticipates that the main impact to its financialstatements will be additional disclosures. Financial Instruments Presentation and Disclosures - In 2008, the Company willbe required to adopt the CICA Handbook Sections 3862 - Financial instruments -disclosures, and 3863 - Financial instruments - Presentation. These new Sectionsare a replacement of and represent a revision and enhancement to Section 3861 -Financial instruments - Presentation and disclosure, adopted by the Company inthe current year. Under the requirements of the new standards, the Company willdisclose information about the significance of financial instruments for itsfinancial position and performance and qualitative and quantitative informationabout its exposure to risks arising from financial instruments and management'sobjectives, policies and processes for managing such risks. The Companyanticipates that the main impact to its financial statements will be additionaldisclosures. Going Concern - In 2008, the Company will be required to adopt the additionalrequirements of the CICA Handbook Section 1400 - General Standards of FinancialStatements. The additional requirement requires management to make an assessmentof the Company's ability to continue as a going concern and to disclose anymaterial uncertainties related to events or conditions that may cast significantdoubt upon the entity's ability to continue as a going concern. The Company doesnot anticipate any impact to its financial statements arising from theaccounting pronouncement. Inventories - On 1 January 2008, the Company adopted the CICA Handbook Section3031 - Inventories. The new Section is a replacement of the CICA HandbookSection 3030. Under the requirements of the new standard, inventories will bemeasured at the lower of cost and net realizable value, cost of inventories thatare not ordinarily interchangeable and goods or services produced and segregatedfor specific projects will be assigned by using a specific identification oftheir individual costs, consistent use of either first-in, first out or weightedaverage cost is prescribed for other inventories and the reversal of previouswrite-downs to net realizable value when there is a subsequent increase in thevalue of the inventories. The Company does not anticipate any material impact toits financial statements arising from the accounting pronouncement. Goodwill and intangible assets - In February 2008, the Canadian Institute ofChartered Accountants ("CICA") issued Section 3064 Goodwill and intangibleassets, replacing Section 3062, Goodwill and other intangible assets. The newSection will be applicable to financial statements relating to fiscal yearsbeginning on or after October 1,2008. Accordingly, the Company will adopt thenew standards for its fiscal year beginning 1 January 2009. It establishesstandards for the recognition, measurement, presentation and disclosure ofgoodwill subsequent to its initial recognition and of intangible assets byprofit-oriented enterprises. Standards concerning goodwill are unchanged fromthe standards included in the previous Section 3062. The Company is currentlyevaluating the impact of the adoption of this new Section on its consolidatedfinancial statements. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
EGU.L