27th Jul 2010 07:00
AFRICAN BARRICK GOLD LSE: ABG
Half Year Report for the six months ended 30 June 2010 (Unaudited)
27 July 2010
Based on IFRS and expressed in US Dollars
African Barrick Gold plc ("ABG'') reports half year results
â†' Net income up 217% year-on-year to $99 million
Operational Highlights
* Attributable production of 356,208 ounces, up 23% year-on-year
* Bulyanhulu and North Mara continued to deliver stable production in line
with expectations
* Buzwagi continued to mine transition ore during H1, with production ramp-up
of primary sulphide ore expected during H2
* Tulawaka production lower than expected due to equipment shortages, which
have now been addressed * Stable cash costs of $529 per ounce, with a focus on controllable cost containment initiatives * Growth projects on track and increased commitment to exploration: + Encouraging progress at all four organic growth projects + Acquisition of Tusker Gold completed for approximately $74 million + Ramp-up in exploration programme to identify further growth options
* Transition to a publicly listed company with a successful IPO and FTSE 100
inclusion Financial Highlights
* Revenue of $424 million, up 64% year-on-year principally due to a 23%
increase in production and a 28% increase in average realised gold prices
to $1,155 per ounce * EBITDA of $196 million, up 120% year-on-year * Operational cash flow of $158 million, an increase of $142 million year-on-year
* Net income of $99 million, with an EPS of 24.2 cents, up 217% year-on-year
and greater than the full year 2009 result * Net cash position of $334 million * Interim dividend of 1.6 cents per share African Barrick Three months ended Six months ended Gold 30 June 30 June 30 June 30 June % change 2010 2009 2010 2009 Y-o-Y Gold production 179,113 163,263 356,208 290,127 23%(ounces) Gold sales (ounces) 173,374 144,909 358,098 273,708 31% Cash costs ($/ 543 520 529 527 0%ounce)1 (in $ `000) Revenue 213,175 139,108 423,835 258,803 64% EBITDA2 96,399 48,043 196,254 89,025 120% Net profit 46,177 19,662 99,231 31,294 217%attributable to owners Basic earnings per 11.3 4.8 24.2 7.6 217%share ($ cents)
1 Cash costs per ounce is a non-IFRS financial performance measure with no standard meaning under IFRS.
2 EBITDA is a non-IFRS financial performance measure with no standard meaning under IFRS.
Commenting on the results, CEO Greg Hawkins said: "Following our successful IPOon the London Stock Exchange in March, I am delighted to announce the firsthalf year results for African Barrick Gold. I am pleased to mark this milestonewith an excellent set of results which clearly demonstrate the excitingpotential of the business. Production, revenue and cash flow generation are allshowing strong momentum, while costs have been held stable against a backdropof renewed cost pressures in the industry. We are also announcing an interimdividend of 1.6 cents per share. Given the delay in accessing the higher gradeprimary ore at Buzwagi, we are revising our full year production guidance to750,000 - 800,000 ounces at a cash cost of $500 - 550. We expect to be at ourbudgeted production run rate by the end of the year and as a result have notchanged our expectations for production in future years. As such, and togetherwith the progress on our portfolio of growth projects, I am confident that weare well positioned to continue to create value for our shareholders."
Interim Results Overview
Current Operations
The first half of the year has seen an unprecedented level of activity withinthe business with the culmination of the IPO preparations and execution and thestart of ABG's life as a publicly listed company. All four mines have beenoperating throughout the period and have delivered positive results overall,not only operationally but also financially. Our focus on operationalexcellence in order to deliver stable and profitable production levels, whichwas one of the key commitments we made at the time of the IPO, has beenunwavering.Progress has been made at all four of our operating mines in the first half ofthe year. Bulyanhulu has delivered consistent production, while costcontainment has been impressive with a 13% decline in cash costs year-on-year.This was achieved despite the tragic accident suffered as a result of a rockfall in March. North Mara has built on the stability demonstrated throughout2009 and has delivered additional production at a slightly higher cash cost,with our recent investment in the power line and the fleet overhaul evident inthe performance. Both of these operations are now delivering on the potentialthat they have in their high quality, long life resource bases. Tulawaka hassuccessfully transitioned to an underground operation while also focussing onexpanding its resource base and extending its life of mine. The equipmentshortages experienced in the first half of the year have now been addressed andproduction levels should show a corresponding increase.There were a number of challenges in the first half of the year at Buzwagi. Inaddition to continuing to work through the transition ore for longer than weexpected, there were a series of unscheduled power outages and severalincidents of equipment failure that negatively impacted the process plant andproduction. In response, we have brought in additional expertise and resourcesin the process operations, as well as investing in additional equipment. Thishas resulted in improved plant availability and throughput. We also increasedthe mine equipment fleet in order to accelerate Stage II mining activities andfocus on increased grade of ore to the process plant. During the second half ofthe year, we expect higher grade primary sulphide ore to be increasingly minedand we believe that Buzwagi is now positioned for a ramp-up in production, thespeed of which should become apparent in the near term.
Financial Results
Our revenue for the period was up 64% at $424 million, reflecting a 23%increase in production and a 28% increase in average realised gold price to$1,155 per ounce over the prior year period. This represents an impressiverevenue figure for the business over the H1 period and underlines the potentialof the current operations to deliver a powerful platform for the business. Withthe expected ramp-up in production from Buzwagi during the second half of theyear and with current gold prices of around $1,200 per ounce, we believe thatwe are well positioned to deliver further revenue momentum.As we stated at the time of the IPO, our belief was that by establishing ABGwith a highly focussed management team we would be able to identify and delivercost efficiencies despite an industry backdrop of renewed cost pressures. Thishas proven to be the case and, notwithstanding the additional cost ofaddressing the challenges at Buzwagi, we have held cash costs stable comparedto the prior year period, and we believe we are well placed to continue thisdiscipline. As a result, our margin per ounce of gold sold (being the averagerealised price per ounce less average cash cost per ounce sold) has increasedsignificantly from $376 to $626, and we have reported EBITDA of $196 million.Our resulting net income for the period of $99 million was 217% higher than theprior year period and was also greater than the full year result for 2009. Thisrepresented an EPS for ABG of 24.2 cents.With cash flow generated from operations of $158 million, we ended the periodwith $334 million of cash on the balance sheet taking into account theacquisition of Tusker Gold Limited ("Tusker Gold"). Currently, we have noexternal debt and we are in the process of arranging a credit facility with asyndicate of banks to replace the $100 million facility put in place withBarrick Gold at the time of the IPO. Accordingly, we believe we havesignificant financial flexibility to pursue our strategic ambitions ofachieving growth from our existing asset base while assessing potentialacquisition targets throughout Africa.
Indirect Taxes Resolution
During the period ABG has been actively involved in discussions with theTanzanian Government and the Tanzanian Revenue Authority to resolve the statusof fuel excise levies and VAT refunds for its operations. These issues havebeen outstanding for some time and were further complicated by amendments madeto certain tax laws which were passed in 2009. The amendments conflicted withcertain provisions contained in our existing Mineral Development Agreements("MDAs") which guarantee the fiscal stability of our operations. We are pleasedto report that the Government has recently adopted legislation to reverse theamendments, which should allow for the fiscal and tax terms of our MDAs to behonoured. This represents a significant step in supporting the stability of thelegal framework for the mining industry in Tanzania. As at 30 June, theundiscounted outstanding amounts due to us were approximately $130 million, andwe are now in discussions with the authorities to agree terms for the repaymentof these amounts. This is likely to be by way of both cash repayments and taxoffsets.
Exploration and Growth Projects
With our target of achieving 1 million ounces of production by 2014, growth inmineral resources and production from our existing assets is a key focus formanagement and has been actively progressed during the period.At Tulawaka, the focus has been on both the underground drill programme atTulawaka East, with the aim of identifying sufficient resources to extend thelife of the mine, as well as identifying additional open pit resources in orderto maximise throughput at the processing facilities. Good progress has beenmade in both areas as described in more detail in the "Exploration" sectionbelow. Infill resource drilling and metallurgical test work has continued atthe Golden Ridge advanced exploration project, which is 50km to the north ofBuzwagi, and if results progress as expected we are targeting defining aresource on the property before the end of the year. At North Mara, drillinghas identified further extensions to the Gokona-Nyabigena systems and afeasibility study is being prepared on the underground potential. AtBulyanhulu, the feasibility study for the Upper East Zone will shortly beawarded, and we would expect to have the results in early 2011 with a view totaking a production decision in 2011.Beyond the organic growth projects, we also completed the acquisition of TuskerGold in May for a consideration of approximately $74.2 million. This now givesus 100% control of the Nyanzaga project, which includes the Tusker deposit. Weare currently undertaking an initial six month reverse circulation and diamondcore drill programme of approximately 43,000 metres, with a view to furtherdelineating and expanding the current resource model.
New Mining Law
The new Mining Law in Tanzania, which was passed by Parliament on 23 April2010, has now received Presidential assent. As previously communicated, thisLaw will increase the rate of royalties on new projects not covered by ourexisting MDAs from 3% net smelter to 4% of gross revenue. However, it shouldnot impact our existing mines. Among the other key changes, there is a proposedlimit on total exploration ground to be held by one company of 2,000 km2 and apotential Government holding in new projects. We will conduct a furtherassessment of the practical effects of these measures when the Governmentprovides more detail on the regulations that it intends to use to implementthem. For the time being, we are using appropriate channels to remain active indialogue on this issue in order to examine how the measures could impact ABG.
Interim Dividend
The board of directors of ABG (the "Board") has approved an interim dividend of1.6 cents per share for 2010 to be paid on 27 September 2010 to shareholders onthe register on 3 September 2010. The ex-dividend date for the interim dividendwill be 1 September 2010. The deadline for the return of currency electionforms will be 8 September 2010.ABG will declare the interim dividend in US dollars. Unless a shareholderelects to receive dividends in US dollars, they will be paid in pounds sterlingwith the US dollar interim dividend being converted into pounds sterling atexchange rates prevailing at the relevant time. The exchange rate conversionfor the interim dividend will be made on or around 8 September 2010.Subject to the growth needs, the capital requirements and cash flows of ABG,and provided that there are distributable reserves available to ABG for thepurpose, the Board expects to pay an annual dividend based on ABG'sprofitability. This expectation is also made on the assumption that ABG'sperformance continues in line with the Board's expectations and in the absenceof any unforeseen circumstances.
Outlook
Against a backdrop of continuing uncertainty in the overall economy, which hasbeen evidenced in the market performance so far this year, we remain positiveon the outlook for gold. We believe that the fundamental attraction of gold asa store of value has been borne out by the global credit crisis and this augurswell for the future supply / demand balance.
Our focus remains on achieving a stable production level from our existing asset base while implementing further operational efficiencies in order to achieve our targeted cost levels. At the same time, we are advancing our portfolio of near term growth opportunities so that they start to produce on schedule and on budget. We are also actively monitoring other opportunities which arise elsewhere in Africa, and we believe we have the financial flexibility to act quickly should circumstances warrant it.
So far in 2010, we have been encouraged by the consistency of the performanceof our two longest established assets at Bulyanhulu and North Mara. At Buzwagi,we continued to work through the transition ore, which is taking longer than weexpected, as well as dealing with the other challenges that affected theprocess plant and production. During the second half of the year, we expecthigher grade primary sulphide ore to be increasingly mined and production toramp-up at Buzwagi. Accordingly, we now expect full year production to be inthe range of 750,000 - 800,000 ounces at a cash cost of $500 - 550 per ounce.We also expect to be at our budgeted production run rate by the end of theyear, and as a result our production expectations for future years have notchanged.For further information, please visit our website: www.africanbarrickgold.comor contact:African Barrick Gold plcGreg Hawkins, CEO +44 (0)207 655 5580 Kevin Jennings, CFO +44 (0)207 655 5581
Andrew Wray, Head of Investor Relations +44 (0)207 655 5588
& Corporate Dev't.
Finsbury (Financial public relations +44 (0)20 7251 3801
firm) Andrew Mitchell Charles Chichester About ABGABG is headquartered in London and is listed on the Main Market of the LondonStock Exchange under the symbol ABG. ABG is the largest gold producer inTanzania and the fifth largest in Africa, growing from no production in 2000 toapproximately 716,000 attributable ounces in 2009, with 16.8 million ounces ofreserves. It has four producing mines, all located in northwest Tanzania, andseven principal exploration projects.ABG has substantial gold mining experience and expertise, from exploration anddevelopment to mine construction and operation. It has modern, well investedoperations that have benefited from the experience, technology and highstandards of its majority shareholder, Barrick Gold Corporation ("BGC").ABG's four mines are:Bulyanhulu: an underground gold mine, which began production in April 2001; Buzwagi: an open pit gold mine, which began production in May 2009; North Mara: an open pit gold mine consisting of three open pit deposits, which began production in April 2002; and Tulawaka: an open pit gold mine that has transitioned to an underground operation, which began production in June 2005. ABG's recent exploration focus has been on advancing the explorationopportunities around its existing operating mines in order to increase ABG'sreserves and resources. Historically, and prior to ABG's listing on the LondonStock Exchange, the operations of ABG comprised the Tanzanian gold miningbusiness of Barrick Gold Corporation.BGC reports under US GAAP. Due to differences in the basis of accounting, thereare significant differences in the operating results and balance sheet reportedby ABG compared to the corresponding amounts included in the consolidatedoperating results and balance sheet of BGC.
Presentation and conference call
A presentation will be held for analysts and investors on 27 July 2010 at 9.00 am London time. A dial in facility will be available as follows:
Participant dial in: +44 (0) 203 003 2666
Password: African Barrick Gold or ABG
There will be a replay facility available until 3 August 2010. Access details are as follows:
Replay number: +44 (0) 208 196 1998
Replay PIN: 4931507#
FORWARD LOOKING STATEMENT
This report includes "forward-looking statements" that express or imply expectations of future events or results. Forward-looking statements are statements that are not historical facts. These statements include, without limitation, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future production, operations, costs, products and services, and statements regarding future performance. Forward-looking statements are generally identified by the words "plans," "expect," "anticipates," "believes," "intends," "estimates" and other similar expressions.
All forward-looking statements involve a number of risks, uncertainties andother factors. Although ABG's management believes that the expectationsreflected in such forward-looking statements are reasonable, investors arecautioned that forward-looking information and statements are subject tovarious risks and uncertainties, many of which are difficult to predict andgenerally beyond the control of ABG, that could cause actual results anddevelopments to differ materially from those expressed in, or implied orprojected by, the forward-looking information and statements contained in thisreport. Factors that could cause or contribute to differences between theactual results, performance and achievements of ABG include, but are notlimited to, political, economic and business conditions, industry trends,competition, commodity prices, changes in regulation, currency fluctuations(including the US dollar; South African rand and Tanzanian shilling exchangerates), ABG's ability to recover its reserves or develop new reserves,including its ability to convert its resources into reserves and its mineralpotential into resources or reserves, and to timely and successfully processits mineral reserves, changes in its business strategy, as well as risks andhazards associated with the business of mineral exploration, development,mining and production. Accordingly, Investors should not place reliance onforward looking statements contained in this report.The forward looking statements in this report reflect information available atthe time of preparing this report. Subject to the requirements of theDisclosure and Transparency Rules and the Listing Rules or applicable law, ABGexplicitly disclaims any obligation or undertaking publicly to release theresult of any revisions to any forward- looking statements in this report thatmay occur due to any change in ABG's expectations or to reflect events orcircumstances after the date of this report. No statements made in this reportregarding expectations of future profits are profit forecasts or estimates, andno statements made in this report should be interpreted to mean that ABG'sprofits or earnings per share for any future period will necessarily match orexceed the historical published profits or earnings per share of ABG or any
other level. african barrick gold LSE: ABG TABLE OF ContENT Page Key statistics 6 Market overview 7 Operating update 8
Health, safety and environmental and community relations update
11
Exploration and corporate development update
12 Financial update 16 Non-IFRS measures 19 Risks and uncertainties 20 Directors 21
Statement of directors' responsibility
21 Auditors review report 22
Group income statement and statement of comprehensive income
23 Group balance sheet 24
Group statement of changes in equity
25
Group statement of cash flows
26
Notes to the half year financial statements
27Key statisticsAfrican Barrick Gold Three months ended Six months ended 30 June 30 June 2010 2009 2010 2009 Operating results Tonnes mined (thousands of tonnes) 10,278 8,944
19,616 16,852
Ore tonnes processed (thousands of 1,939 1,513 3,790 2,470tonnes) Recovery rate (percent) 86.5% 87.7% 85.7% 87.4% Average grade (grams per tonne) 3.3 3.8 3.4 4.2 Attributable gold production 179 163 356 290(thousands of ounces) 1 Attributable gold sold (thousands of 173 145 358 274ounces) 1 Copper production (thousands of 2,225 1,564 3,938 3,097pounds) Cash cost per tonne milled 49 50 50 58 Per ounce data Average spot gold price2 1,197 922 1,152 915 Average realised gold price3 1,205 918 1,155 903 Total cash costs per ounce sold4 543 520
529 527
Amortisation and other per ounce 144 95 142 112sold5 Total production costs per ounce 687 615 671 639sold6 Financial results (in $ `000) Revenue 213,175 139,108 423,835 258,803 Cost of sales (122,502) (92,795) (248,014) (182,610) Gross profit 90,673 46,313 175,821 76,193 Corporate (9,140) (9,511) (16,757) (19,634) administration Exploration (762) (1,288) (2,590) (2,764) and evaluation Other charges (9,965) (2,293) (13,224) 2,146 Profit before 70,806 33,221 143,250 55,941 net finance costs Finance income 558 22 710 45 Finance (236) (2,853) (723) (5,578) expense Net profit 71,128 30,390 143,237 50,408 before taxation Taxation (23,980) (8,906) (43,035) (15,181) expense Net profit 47,148 21,484 100,202 35,227 Non- controlling interests (971) (1,822) (971) (3,933) Net profit attributable to 46,177 19,662 99,231 31,294 owners
Other financial information summary
African Barrick Gold Three months ended Six months ended 30 June 30 June (in $ `000 except per 2010 2009 2010 2009ounce and per share figures) Cash and cash equivalents 334,429 28,939 334,429 28,939 Cash generated from operating 90,341 18,526 157,665 15,640activities Capital expenditure7 48,851 78,437 86,495 126,140 EBITDA 96,399 48,043 196,254 89,025 Basic earnings per share ($ cents) 11.3 4.8 24.2 7.6 Long term debt (Borrowings) - 1,394,823 - 1,394,823 Equity 2,423,724 624,979 2,423,724 624,979
1 Production and sold ounces reflect equity ounces which exclude 30% of Tulawaka's production base.
2 Reflects the PM fix price.
3 Average realised price is a non-IFRS financial performance measure with no standard meaning under IFRS.
4 Total cash costs is a non-IFRS financial performance measure with no standard meaning under IFRS.
5 Represents equity amortisation expenses, inventory purchase accounting adjustments at ABG's producing mines divided by equity ounces of gold sold.
6 Total production costs is a non-IFRS financial performance measure with no standard meaning under IFRS.
7 Excludes acquisition of Tusker Gold.
Market overview
Gold and Copper Prices
Gold prices have a significant impact on ABG's operating earnings and itsability to generate cash flows. During the first six months of 2010, the priceof gold reached an all-time high, trading within a range of $1,045 to $1,265per ounce and closing at $1,244 per ounce. Gold prices averaged $1,152 perounce, a new six month average record and a $237 per ounce improvement on the$915 per ounce average in the prior year period. Gold continued to beinfluenced by low US dollar interest rates, volatility in the credit andfinancial markets (particularly as regards sovereign credit concerns), the paceof global economic recovery and the monetary policies put in place by theworld's most prominent central banks. The increased risk of sovereign debtdefaults, highlighted by the current situation in Europe, as well as the riskof higher US inflation and US dollar depreciation resulting from large USGovernment deficits could be positive for the price of gold.Gold prices also continue to be influenced by negative long-term trends inglobal gold mine production, the impact of central bank gold purchases andinvestor interest in owning gold. In the first half of 2010, gold sales bycentral banks have not been significant, while investor interest led holdingsby major global ETFs to increase by 7 million ounces in the year to total 65million ounces at the end of the period. Historically, gold has been viewed asa reliable store of value in times of financial uncertainty and inflation andas a de facto global currency. Investor interest in gold as an asset class hasincreased greatly as a result of this.ABG also produces copper as a by-product that is credited against cost ofsales. Copper prices were volatile in the first six months of 2010, trading ina range of $2.74 to $3.65 per pound. The average price in the half year was$3.23 per pound and the closing price was $2.96 per pound. Copper's volatilityduring the period occurred mainly as a result of uncertainty regarding the paceof the global economic recovery, amid a slower than expected return to stronggrowth in OECD countries and economic policy tightening in China. Copper pricesshould continue to be positively influenced by demand from Asia, a return toglobal economic growth and the availability of scrap metal and productionlevels of mines and smelters in the future.
Currency Exchange Rates
The South African rand and the Tanzanian shilling depreciated against the USdollar during the first six months of the year as investors moved to morestable currencies of OECD countries such as Australian and Canadian dollars.The rand traded within a range of 7.23 to 7.96 and closed down 4% for theperiod at 7.67. The Tanzanian shilling traded within a range of 1,333 to 1,521and closed down 10% at 1,470.
Fuel Prices
The price of crude oil traded within a range of $66 to $87 per barrel, closingat $76 per barrel and averaging $78 per barrel during the period, compared toan average of $52 per barrel in the prior year period.We directly consume about 0.3 million barrels of diesel fuel annually acrossall our mines. Diesel fuel is refined from crude oil and is therefore subjectto the similar volatility affecting crude oil prices. Volatility in crude oilprices has a significant direct and indirect impact on our production costs.
Operating update
Gold production was 356,208 ounces for the six months ended 30 June 2010. Thiswas 23% higher than the prior year period which totalled 290,127 ounces. Theincrease in production was primarily driven by the contribution of Buzwagiwhich started commercial operations in May 2009. Bulyanhulu productionincreased 12% compared to the prior year period, North Mara performed in linewith the prior year period, while Tulawaka's production was negatively impactedby equipment shortages.Cash costs were $529 per ounce sold for the six months ended 30 June 2010, inline with the prior year period ($527 per ounce sold). This primarily reflectsthe 13% decrease in cash costs at Bulyanhulu offset by the higher cash costs atBuzwagi and Tulawaka primarily due to lower than expected production.
Cash cost per tonne milled decreased from $58/t in H1 2009 to $50/t in the current year period.
Gold ounces sold totalled 358,098 ounces for the six months ended 30 June 2010.This was higher than the ounces produced for the period. This was primarilydriven by Buzwagi concentrate ounces sold during H1 2010 which were on hand atthe beginning of the year as the mine was ramping-up production, the results ofwhich were partially offset by a delay in Bulyanhulu concentrate shipments.Tonnes mined equalled 19.6 million for the six months ended 30 June 2010. Thiswas 17% higher than the prior year period which totalled 16.9 million. Theincrease was driven by North Mara and Buzwagi as a result of the Gokona wastestripping focus and the additional excavator availability, respectively.Tonnes processed equalled 3.8 million for the six months ended 30 June 2010.This was 53% higher than the prior year period which totalled 2.8 million. Onlytwo months of production are reflected for Buzwagi in H1 2009, in line with thecommencement of its commercial production. All four mines saw an increase inthe H1 2009 period.A grade of 3.4 grams per tonne was achieved for the six months ended 30 June2010. This was 18% lower than the prior year period (4.2 grams per tonne). Thedecrease was primarily due to the low grade transitional ore that was processedat Buzwagi as well as lower grade associated with stockpiles processed atTulawaka for H1 2010.Copper production totalled 3.9 million pounds for the six months ended 30 June2010. This was 27% higher than the prior year period which totalled 3.1 millionpounds. This increase was primarily due to additional copper production fromBuzwagi associated with concentrate.The average realised gold price was $1,155 per ounce for the six month periodended 30 June 2010. This was marginally above the average spot price of $ 1,152per ounce. The difference relates to timing differences associated with thepricing of concentrate sales and those of dore.Mine site summaryBulyanhulu Three months ended Six months ended 30 June 30 June 2010 2009 2010 2009 Underground ore tonnes Kt 225 234 470 443hoisted Ore milled Kt 246 233 477 442 Head grade g/t 9.6 8.6 9.3 9.0 Mill recovery % 92.2% 91.4% 92.0% 92.3% Ounces produced Koz 70 59 132 118 Ounces sold Koz 55 66 122 128 Cash costs per ounces $/oz 575 656 540 621sold Cash cost per tonne $/t 128 186 138 179milled Capital expenditure $(000) 19,434 11,831 32,789 20,291Gold production at Bulyanhulu was 131,857 ounces for the six months ended 30June 2010. This was 12% higher than the prior year period which totalled117,866 ounces. The increase in production was predominantly driven byincreased grade and throughput as a result of an increase in ore tonnesavailable for processing. H1 2009 was marked by paste line blockages whichnegatively impacted the mining area resulting in limited ore tonnes hoisted.The production for H1 2010 was also negatively impacted by the tragic rock fallincident in March.Cash costs equalled $540 per ounce sold for the six months ended 30 June 2010.This was 13% lower than the prior year period ($621 per ounce sold). Thedecrease was primarily driven by increased by-product revenue as a result ofhigher volume and copper prices and lower direct mining costs. The lower directmining costs were primarily attributable to improved cost management in respectof maintenance and consumable spending and a reduction in contracted servicescosts. The reduction was achieved as the site transitioned from contractorservices to own employee mining in respect of Alimak stoping activities. Thebenefit from the reduction in contract service charges was partially offset byincreased labour costs due to an increase in headcount.
Gold ounces sold amounted to 121,985 ounces for the six months ended 30 June 2010. This was less than the 131,857 ounces produced over the period as a result of shipping delays in the sale of concentrate over the period end. A large shipment of concentrate was made in July.
Capital expenditure amounted to $32.8 million for the six month period ended 30June 2010. This was 62% higher than the prior year period ($20.3 million) andwas mainly due to higher underground development expenditure and investment inthe refrigeration plant.North Mara Three months ended Six months ended 30 June 30 June 2010 2009 2010 2009 Tonnes mined Kt 5,1331 4,022 9,6441 7,916 Ore tonnes mined Kt 764 1,559 1,447 2,738 Ore milled Kt 691 651 1,338 1,328 Head grade g/t 2.8 3.0 3.0 3.1 Mill recovery % 84.5% 80.6% 82.8% 80.1% Ounces produced Koz 52 51 106 105 Ounces sold Koz 54 52 108 105 Cash costs per ounces $/oz 513 390 479 459sold Cash cost per tonne $/t 40 31 39 36milled Capital expenditure $(000) 20,552 4,339 36,682 13,272
1 Includes tonnes mined that relate to waste tonnes due to stripping activities. These tonnes were excluded for Q1 reporting purposes.
If they were to be included, Q1 reported tonnes mined would have increased to 4,510 Kt.
Gold production at North Mara was 105,531 ounces for the six months ended 30June 2010. This was in line with that of the prior year period which totalled105,117 ounces. The site continued its focus on waste stripping within theGokona pit as reflected by the decrease in ore tonnes mined and increased stripratio. Ore was mined from the Nyabigena and Nyabirama pits. This deliveredlower grades than the prior year period which had focused on higher grade areaswithin the Nyabigena pit. Significant progress was made during H1 2010 with thewaste stripping of the Gokona phase 2 pit.Cash costs were $479 per ounce sold for the six months ended 30 June 2010. Thiswas slightly higher than the prior year period ($459 per ounce sold). Costshave remained fairly flat year-on-year. Increases in consumable spending andcontracted services were offset by lower energy and maintenance costs, whilesales related costs increased due to increased revenue and timing differenceson the payment of royalties.
Gold ounces sold amounted to 108,056 ounces for the six months ended 30 June 2010. This was higher than the 105,531 ounces produced over the period as a result of sales of the gold in circuit on hand at the beginning of the year.
Capital expenditure totalled $36.7 million for the six month period ended 30June 2010. This was 176% higher than the prior year period ($13.3 million). Theincrease was predominantly driven by the deferred stripping cost capitalised inH1 2010 of $26.7 million.Buzwagi Three months ended Six months ended 30 June 30 June 2010 2009 2010 2009 Tonnes mined Kt 4,904 4,668 9,466 8,448 Ore tonnes mined Kt 1,101 1,099 2,273 2,056 Ore milled Kt 916 554 1,807 554 Head grade g/t 2.0 2.2 2.1 2.2 Mill recovery % 80.3% 89.8% 80.3% 89.8% Ounces produced Koz 48 36 100 36 Ounces sold Koz 57 11 108 11 Cash costs per ounces $/oz 510 503 545 503sold Cash cost per tonne $/t 32 10 33 10milled Capital expenditure $(000) 3,931 33,257 8,014 91,205Gold production at Buzwagi was 99,558 ounces for the six months ended 30 June2010 compared to the prior year period total of 35,606 ounces. Buzwagi begancommercial production in the second quarter of 2009, with only two months ofproduction reflected in the H1 2009 results. Buzwagi mainly processedtransition ore during the first six months of 2010. However, this ore hasdemonstrated a higher grind index than expected which has led to lowerthroughput and recoveries. In addition, there were a series of unscheduledpower outages and several incidents of equipment failure that negativelyimpacted the process plant. This resulted in lower plant availability andproduction than expected as well as higher costs related to equipmentreplacement and maintenance. In response to this we have brought in additionalexpertise and resources in the process operations as well as investing inadditional equipment, including increasing the mine equipment fleet. This hasresulted in improved plant availability and throughput. During the second halfof the year, we expect higher grade primary sulphide ore to be increasinglymined, and we believe Buzwagi is now positioned for a ramp-up in production,the speed of which should become apparent in the near term.
Cash costs were $545 per ounce sold for the six months ended 30 June 2010. This was 8% higher than the prior year period ($503 per ounce sold). The main elements impacting cash costs in H1 2010 were the lower than expected production and increased maintenance and contracted services costs due to equipment failures at the process plant.
It is expected that cash costs will improve in the second half of the year inline with the expected increase in production, improved plant availability andadditional copper by-product.Gold ounces sold totalled 107,723 ounces for the six months ended 30 June 2010.This was higher than the 99,558 ounces produced over the period. The primaryreason for this was concentrate ounces sold in H1 2010 which were still inprocess and on hand at the end of 2009.
Capital expenditure equalled $8.0 million for the six month period ended 30 June 2010. This was 91% lower than the prior year period ($91.2 million, of which $90.3 million related to construction costs). The H1 2010 capital investment was primarily focussed on mining equipment.
Tulawaka (reflected as Three months ended Six months ended 70%) 30 June 30 June 2010 2009 2010 2009 Underground ore tonnes Kt 17 20 36 45hoisted Ore milled Kt 86 76 169 147 Head grade g/t 3.5 7.5 3.8 7.1 Mill recovery % 92.9% 94.5% 93.3% 93.9% Ounces produced Koz 9 17 19 32 Ounces sold Koz 8 15 20 30 Cash costs per ounces $/oz 759 387 641 377sold Cash cost per tonne $/t 74 79 77 78milled Capital expenditure $(000) 5,450 445 5,450 1,372Attributable gold production at Tulawaka was 19,262 for the six months ended 30June 2010. This was 39% lower than the prior year period which totalled 31,538ounces. The decrease in production was due to equipment shortages which in turnresulted in lower underground tonnes hoisted. Lower grade stockpiles were alsoprocessed, so that total processed grade was less than planned. This waspartially offset by increased throughput. The mine equipment shortages have nowbeen addressed, with haulage truck capacity restored and an additional loadertransferred from Bulyanhulu. Production levels should show a correspondingincrease in H2.
Cash costs amounted to $641 per ounce sold for the six months ended 30 June 2010. This was 70% higher than the prior year period ($377 per ounce sold). This was driven by the combination of lower production and increased direct mining costs associated with energy, labour, maintenance and administration costs, coupled with the high fixed cost element at the operation.
Gold ounces sold for the six months ended 30 June 2010 were in line with ounces produced for the period.
Capital expenditure equalled $5.5 million for the six month period ended 30June 2010. This was 297% higher than the prior year period ($1.4 million). Theincrease relates to the implementation of an aggressive exploration drillingprogramme for both the underground and open pit resources in order to extendTulawaka's mine life beyond 2011.
Health, safety and environmental and community relations update
We remain firmly committed to carrying out our business in a safe and responsible manner, with a positive impact on the environment and communities in which we operate.
We have carried out a thorough investigation into the causes of the tragic rockfall at our Bulyanhulu operation in March, which resulted in the deaths ofthree of our colleagues. We are in the process of implementing the findings ofthis investigation within our operations. During the second quarter there wereno lost time injury ("LTI") incidents across our operations. Our LTI frequencyrate for the first six months of 2010 was 0.14. A number of traininginitiatives and programmes are ongoing in this respect.ABG promotes and supports a range of health initiatives throughout Tanzania.Key health initiatives include the Lake Zone Health Initiative and our role inthe Global Business Coalition on HIV/AIDS, Tuberculosis and Malaria. We havealso recently carried out scoping studies to prepare for the conduct of HealthImpact Assessments at all our operations.From an environmental perspective, the focus of the first half of the year hasbeen the implementation of the Barrick Environmental Management System. Thishas entailed the establishment of a solid foundation of compliance managementand the maintenance of Environmental Obligations Registers. We expect tocomplete the implementation by year end.Although we continue to operate in a challenging environment, our communityrelations initiatives have led to improved relations between our fouroperations and their local stakeholders over the first half of the year. Ourcommunity engagement tools comprise a number of innovative measures, whichinclude procedures for local stakeholders to raise formal grievances whichallows us to investigate and resolve complaints raised against our mines Inaddition, we employ village liaison officers from the local communities atBulyanhulu and North Mara who help to provide an additional conduit ofcommunication. We continue to work with host communities to tackle poverty andillegal activities. We have also increased focus on local hiring andprocurement through programmes such as our Local Supplier DevelopmentProgramme.
Exploration and corporate development update
Exploration and development during the first half of 2010 continued to focus onABG's strategy of organic growth through near-mine exploration, resourceexpansion, optimisation of existing assets through identification anddelineation of higher grade satellite deposits, regional exploration for newdiscoveries and evaluation of acquisition opportunities throughout Africa. TheExploration and Technical Services teams were principally focused on advancingthe organic growth projects around each of the current Tanzanian operations aswell as completing the acquisition of Tusker Gold. Significant progress hasbeen made on all projects.
* At Tulawaka East Zone Underground, exploration drilling continued to extend
the known high-grade mineralised shoots below the previously defined Level
7 resource, indicating potential to extend mine life beyond 2011. At the
same time, surface exploration drilling on Main West Zone and Mojamoja
prospects continued to extend the potential near-surface open-pit resources
within trucking distance to the Tulawaka plant.
* The Golden Ridge Project feasibility study, assessing the potential of ore
to be trucked to Buzwagi, continued during the first half of 2010 with
metallurgical drilling and infill resource drilling being fast-tracked and
completed. A revised resource model incorporating the infill drilling and
results of the metallurgical test-work is expected to be announced during
the next six months, and the feasibility study is planned for completion in
early 2011.
* At North Mara, significant progress was made on several drill programmes
targeting extensions to open-pit and underground resources at Gokona and
Nyabigena. A scoping study was also completed, which showed positive
returns on mining underground at Gokona and Nyabigena. A feasibility study
on these underground deposits is expected to commence at the end of July
2010 with completion targeted for early 2011.
* Significant progress has already been made at Bulyanhulu on dewatering and
support of a decline into the Bulyanhulu Upper East Zone ore body. The
first 500m of the 1,800m ramp is expected to be dewatered and supported by
November 2010. This will allow access for additional infill drilling to
update the resource model and add confidence to the feasibility study.
* The acquisition of Tusker Gold was completed during the first half of 2010
and exploration and infill resource drilling programmes on the Nyanzaga
property commenced in late June. The planned programme for the second half
of 2010 includes approximately 43,000m of reverse circulation ("RC") and
diamond core drilling and 5,000m of RAB drilling targeting extensions to
known mineralisation at the Tusker and Kilimani prospects, as well as, for
additional satellite resources across the Nyanzaga property.
The table below sets out the current estimated timeline for the different stages of each of these projects:
For table see www.africanbarrickgold.com
ORGANIC GROWTH PROJECTS
TULAWAKA
East Zone Underground Extensions
A total of 79 diamond core holes for 8,473m have been drilled to test theTulawaka East Zone underground extensions below Level 7. Drilling to date showsthe mineralised quartz veins extend at least down to Level 10 (45m below Level7), and has intersected visible gold within quartz veining in several drillholes. The intersections confirm the projections made for the Zone 150 shoot,for which it is estimated that the entire block would add approximately 60Kounces to the reserve base if fully drilled out by year-end. A selection of thebetter intersections returned to date from the 79-hole underground explorationdrill programme include:
- TUDG00021: 2.25 m @ 2.36g/t Au
- TUDG00163: 8.66 m @ 6.66g/t Au (including 1.01m @ 40g/t Au),
- TUGD00164: 2.29 m @ 48.2g/t Au,
- TUDG00175: 10.3 m @ 16.51g/t Au (including 2.35m @ 63.8g/t Au),
- TUDG00215: 4.00 m @ 55.9g/t Au (including 0.7m @ 287g/t Au),
Diamond drilling continues to test depth, plunge and strike extensions to the mineralised lodes throughout the East Zone and is currently focused on increasing reserves and resources for the year end update.
The Tulawaka Underground Project approval in April 2007 was based on an orereserve of 99,870 ounces. As at June 2010, a total of 94,304 ounces had beenmined out from the East Zone underground. It is projected that the mine wouldachieve a milestone of mining total start up reserves by Q3 2010. Additionaldrilling from 2008 has proved successful in extending the reserve base,enabling us to continue mining underground. The current indications from theresults of the drill programmes to date are that the Tulawaka mine life couldbe extended beyond 2011, based on underground and surface resources.
Main West Zone Extensions & Mojamoja Prospect
At Tulawaka, reverse circulation drilling at the Mojamoja target, approximately4km northwest of the Tulawaka plant, continued to expand the new zone of goldmineralisation identified in early 2010. A total of 102 RC holes and eightdiamond holes have been completed for 9,345.8m year to date at the Mojamojaprospect, and a further 77 RC holes and three diamond holes completed for6,256m at the Main West Zone prospect. "Tulawaka-style" quartz veining has beenencountered throughout the drilling programme, with visible gold observed in RCchips associated with higher grade gold assays. Better drill intersections fromMain West Zone and Mojamoja include: * TRC100000043: 1 m @ 67.3g/t Au - Mojamoja * TRC100000055: 5 m @ 36.4g/t Au - Mojamoja * TRC100000059: 5 m @ 23.7g/t Au - Mojamoja * TRC100000080: 4 m @ 43.7g/t Au - Mojamoja * TRC100000092: 4 m @ 77.8g/t Au - Main West Zone * TRC100000102: 5 m @ 33.0g/t Au - Main West Zone
Results to date indicate potential to identify additional near surface satellite open pit resources to Tulawaka, and preliminary scoping studies are underway.
BUZWAGIGolden RidgeFollowing the positive scoping study completed in 2009, which investigated thepotential of trucking Golden Ridge ore 50km to our Buzwagi operation, we areprogressing with a feasibility study on the Golden Ridge Project that isscheduled for completion in early 2011. We expect to be in a position torelease an updated resource for Golden Ridge within the next six months. TheExploration group completed infill RC drilling and metallurgical test-workdrilling and sample collection during the first half of 2010 with a total of 38RC and diamond core holes drilled for 3,948m. Assay results were being compiledas at the end of June.
The 3D-geological model for Golden Ridge has been updated and the resource model will be updated once all assay results are received. Geotechnical drilling and studies have now been completed, and environmental and social impact studies are currently underway and due for completion in early 2011.
For picture see www.africanbarrickgold.com
Golden Ridge Long Section showing potential pit outline and areas of infill drilling 2010
Jomu
As part of ABG's strategy of maximising the value of its existing operations,the Exploration team is currently assessing several targets around the GoldenRidge deposit that may represent opportunities to develop additional highergrade satellite deposits that could also be trucked to the Buzwagi operation.The Jomu Prospect lies approximately 15km southwest of Golden Ridge andrepresents ABG's most advanced project other than Golden Ridge in the region.During the first half of 2010 the focus on the Jomu prospect has been onupdating the 3D-geological and structural models with the objective ofidentifying further drill targets, and to provide the basis for completing aninitial resource model. The modelling work to date has already tied down thegeometry of the main steep-plunging, high-grade shoot, which in former drillinghas returned intersections of 31m @ 39.7g/t Au, 70m @ 8.40g/t Au and 14m @12.0g/t Au, and which remains open at depth below 300m. The focus at Jomu forthe second half of 2010 will be to complete the initial resource model andidentify additional target areas to grow the resource.
NORTH MARA
At North Mara the focus year-to-date has been on delineating and extendingnear-surface open pit resources east of the Nyabigena open pit, drill testingfor extensions of higher-grade lodes at depth beneath the Gokona and Nyabigenaopen pits, and a scoping study on the underground potential at Gokona andNyabigena. Significant progress was made on the Nyabigena East and theNyabigena underground extension drilling programmes, and the Gokona-Nyabigenaunderground scoping study proved positive and is moving toward feasibility. Theaim of all these programmes is to look at delineating, and ultimatelyproducing, higher-grade resources that could add high margin, incrementalounces to the North Mara production profile from 2013 and at the same timeextend the life of mine.
Nyabigena East Extensions
The Nyabigena East Extension area lies approximately 100m east of the Nyabigenaopen pit. The RC and diamond core drilling programme completed to date hasintersected the uppermost extent of the Nyabigena East `Main Lode' down to adepth of approximately 100m with widths of up to 35m (down-hole intersection).Better intersections from the current phase of drilling include 20m @ 2.45g/tAu from 58m in NGR445B, 17m @ 4.38g/t Au from 7m in NGR456, 21m @ 2.46g/t Aufrom 75m in NGR458, 44m @ 4.15g/t Au from 136m in NGR462, and 15m @ 5.9g/t Aufrom 110m in NGR459. The `Main Lode' is now defined over a strike length of100-150m, and drilling in the second half of 2010 plans to test a further 200mstrike extent of the system. Additional definition drilling north of the `MainLode' will be completed in order to increase the total resource and improve thestrip ratio and economics of the Nyabigena East optimised pit. A regionalexploration drill programme, totalling approximately 3,000 metres, is alsoplanned to commence in Q3 2010 targeting significant extensions to theNyabigena East mineralised system.
Gokona-Nyabigena Underground
Consultants completed a scoping study in May 2010, which showed positive returns on mining underground at Gokona and Nyabigena. As a result, a feasibility study award is expected around the end of July 2010 with completion expected in early 2011.
Gokona-Nyabigena Underground Extensions
In conjunction with the underground feasibility study, exploration drilling atNorth Mara is currently targeting further extensions to high-grade lodesamenable to underground mining below the planned Nyabigena and Gokonafinal-stage open pits. A total of ten pre-collars for 1,000 metres and fourdiamond core tails for 1,886.4 metres have been either commenced or completedto date below the Nyabigena open pit, with assay results awaited. A seconddiamond core rig, capable of deep-hole drilling, has been mobilised to the siteto commence an initial 23-hole programme, below the planned final Gokona openpit, targeting extensions to the Gokona Deeps mineralised system identified inprevious drilling (diagram below).
For picture see www.africanbarrickgold.com
Gokona Deeps underground extension drill target area
BULYANHULU
Bulyanhulu Upper East Zone
A desktop study of the Bulyanhulu Upper East Zone completed during the periodhas shown potential for increased ounces to the Bulyanhulu mill by contractmining of the Upper East Zone earlier than scheduled in the current LOM. Thedesk top study identified certain areas of potential risk that requireaddressing, and a feasibility study to address these issues should be awardedby the end of July 2010, with targeted completion in early 2011.There is an existing decline accessing the Bulyanhulu Upper East Zone area anddewatering and support of this decline has already commenced with the first500m of the 1800m ramp expected to be dewatered and supported by November 2010.This will allow access for additional infill drilling to update the resourcemodel and add confidence to the feasibility study.
GREENFIELD PROJECTS
Nyanzaga Project
Following completion of the acquisition of 100% of Tusker Gold in May 2010,ABG's interest in the Nyanzaga Project is now 100%. The Nyanzaga Project liesapproximately 35km northeast of ABG's Bulyanhulu operation, covers more than350 square kilometres in the Lake Victoria Goldfields and hosts the Tusker golddeposit for which a total indicated and inferred resource of approximately 4.2million ounces was reported in June 2009 by Tusker Gold.In late June, the Exploration team commenced an initial six-month phase ofdrilling across the Nyanzaga property consisting of 43,000 metres of RC anddiamond core drilling and a further 5,000m of RAB drilling. The current phaseof exploration is focused on step-out and infill RC and diamond core drillingat the Tusker and Kilimani resource areas aimed at expanding the currentresource base, improving the economic parameters (grade & strip ratio), andincreasing the confidence of the indicated and inferred resources. Inconjunction with the resource drilling a regional programme of geochemicalsampling and drilling will be undertaken to test several higher prioritytargets defined by previous geochemical and geophysical surveys.It is anticipated that resource definition drilling will continue at Tusker andKilimani throughout the first half of 2011, and that a feasibility study couldcommence in the second half of 2011 depending on results of the next twelvemonths' exploration programmes.The Tusker Gold acquisition has also resulted in an additional three projects,the Nyakafuru JV, Kahama JV and Kahama projects, being added to the ABGportfolio in Tanzania. The potential of these projects will be assessed duringthe second half of 2010 and exploration programmes to test any targets will beprioritised with current work programmes.
North Mara Regional
As part of regional exploration programmes in 2009 and early 2010, severaltargets within the North Mara properties have been identified for first-passevaluation during the current field season. The North Mara team has beenworking on gaining land access to advance these programmes, and in June severalmemoranda of understanding ("MoUs") were signed to allow these programmes toadvance. It is anticipated that two to three regional drill programmes willcommence around Gokona and Nyabigena as well as in the western areas of theNorth Mara tenement package in the second half of 2010.
Financial update
Revenue
Revenue for the six month period ended 30 June 2010 of $423.8 million was 64%higher than the prior year period which totalled $258.8 million. This increasewas primarily the result of increased production due to Buzwagi coming intoproduction in May 2009 and the increase in the average realised gold salesprice resulting from global economic factors which drove record market goldprices. Production increased by 66,081 ounces while sales ounces increased by84,390 ounces. The average realised gold sales price was $1,155 ounces in 2010compared to $903 ounces in H1 2009.
Cost of sales
Cost of sales were $248.0 million for the six month period ended 30 June 2010representing an increase of 36% from the prior year period ($182.6 million).The Buzwagi mine reached commercial completion in May 2009 adding $59.5 millionin direct mining costs to ABG's combined results over H1 2009. Revenue relatedcosts (royalties and smelting/refining charges) increased by $10.5 milliondriven by the increase in revenue generated in H1 2010. Higher production andcapital investment increased depreciation over the prior year period by $20.0million. The table below shows a breakdown of ABG's cost of sales for theperiods indicated in 2010 and 2009.African Barrick Gold Three months ended Six months ended ($ `000) 30 June 30 June 2010 2009 2010 2009 Cost of sales: Direct mining costs 93,332 74,098 191,498 142,043 Third party smelting and refining 6,513 3,384 9,994 6,559fees Royalty expense 8,161 4,681 15,573 8,551 By-product revenue (11,097) (4,190) (22,055) (7,627) Depreciation and amortisation 25,593 14,822 53,004 33,084 Total 122,502 92,795 248,014 182,610 Deduct: depreciation and (25,593) (14,822) (53,004) (33,084)amortisation Cash costs 96,909 77,973 195,010 149,526
Direct mining costs totalled $191.5 million for the six month period ended 30June 2010. This represents an increase of 35% from the prior year period($142.0 million). In addition to the impact of Buzwagi, Bulyanhulu showed a 6%improvement in costs driven by improved cost management measures and lowercontracted services costs, which were partially offset by increased labourcosts due to increased head count. Direct mining costs at North Mara remainedflat where increases in consumables and contracted services were largely offsetby lower maintenance and energy expenses. Tulawaka costs increased by $3.3million as labour, energy, maintenance and administration costs increased.These increases were primarily driven by an increased headcount, increased fuelusage, equipment breakdown and increased freight and stock related costs.Third party smelting and refining fees for the six month period ended 30 June2010 of $10.0 million increased 52% from the prior year period ($6.6 million).The increase was driven by increased revenue and added costs associated withBuzwagi concentrate ounces sold.
Royalty expense totalled $15.6 million for the six month period ended 30 June 2010. This represents an increase of 82% from the prior year period ($8.6 million). The increase was driven by increased revenue.
By-product revenue totalled $22.1 million for the six month period ended 30June 2010. This represents an increase of 189% from the prior year period ($7.6million). The increase was driven by the additional copper pounds soldassociated with Buzwagi concentrate sold as from H1 2010 and increased copperprices compared to the prior year period. The H1 realised price amounted to$3.30 per pound compared to the prior period realised price of $1.75 per pound.Depreciation and amortisation were equal to $53.0 million for the six monthperiod ended 30 June 2010. This represents an increase of 60% from the prioryear period ($33.1 million). The increase was due to the additional Buzwagidepreciation contribution, increased production base and the impact of priorand current year capital expenditure.
Corporate administration costs
Corporate administration expenses totalled $16.8 million for the six monthperiod ended 30 June 2010. This shows a decrease of 15% from the prior yearperiod ($19.6 million). Corporate administration consists of the costsassociated with maintaining the Dar es Salaam, Tanzania, and Johannesburg,South Africa, offices and the London office. Costs include salaries, officerent, bank charges, audit fees and public relations expenses. The decrease waspredominantly driven by a saving in corporate labour costs due to thereorganisation exercise completed in H2 2009 with the transition from Dar esSalaam to Johannesburg. We expect corporate office costs to increase for thesecond half of 2010 on the basis that it will reflect a full six month periodof the new structure for the publicly listed company.
Exploration and evaluation costs
Exploration and evaluation costs relate predominantly to greenfieldexpenditure. At $2.6 million for the six month period ended 30 June 2010, costswere slightly lower than the $2.8 million incurred in the same period in 2009.The current focus remains on growth projects around existing sites which aremostly close to the feasibility stage and where it is probable that resourceswill be converted into reserves within a three year period and expenditure istherefore capitalised. Details of these are included in the Exploration andCorporate Development Update.
Other charges
Other charges amounted to $13.2 million for the six month period ended 30 June2010, compared to the prior year period where income of $2.1 million wasrecorded. Other charges comprise one-off costs, foreign exchange gains andlosses, gains and losses on disposals, social development costs, IPO listingcosts, asset write downs and provision movements. The increase was primarilydriven by foreign exchange losses for H1 2010 amounting to $8.8 millionrelating to the revaluation of indirect tax receivable balances denominated inTanzanian shillings which weakened against the dollar and the Tuskeracquisition as well as IPO listing costs which were not regarded as directlyattributable to the capital raised in the IPO.
Finance expense and income
The finance expense decreased to $0.7 million for the six month period ended 30June 2010 from the prior year period ($5.6 million). This was primarily drivenby the fact that the external debt facility at North Mara was repaid in fulltowards the end of H1 2009. Currently, ABG has no external debt.
Finance income relates predominantly to interest charged on non-current receivables and interest received on cash balances.
Taxation expense
The taxation expense increased to $43.0 million for the six month period ended30 June 2010 from the prior year period ($15.2 million). The taxation expensepredominantly consists of deferred tax and the increase relates to theincreased taxable income generated for H1 2010.
Net profit for the period
As a result of the factors discussed above, net profit for the six month periodended 30 June 2010 equalled $100.2 million. This represents an increase of 184%from the prior year period ($35.2 million). The key drivers were increasedrevenue as a result of a continued positive gold price environment combinedwith higher production, partially offset by increased costs of sales which wereprimarily due to the additional cost base from a full period of production atBuzwagi, as well as the increased taxation expense.
Net profit attributable to non-controlling interest
The net profit attributable to the non-controlling interest the six months ended 30 June 2010 was $1.0 million. This represents a decrease of 75% from the prior year period ($3.9 million), due to lower production and increased exploration activity at the Tulawaka operation.
EBITDA
EBITDA for the six months ended 30 June 2010 increased by 120% to $196.3 million compared to the prior year period ($89.0 million) as a result of improved gold prices along with increased ounces sold supported further by record by-product revenue. This was partly offset by an increase in direct mining cost base predominantly driven by Buzwagi as it only reflected two months direct mining costs in the prior year period, as well as increased revenue related costs such as royalties, smelting, refining and transport costs.
Earnings per share
Earnings per share for the six month period ended 30 June 2010 was an amount of24.2 cents showing an increase of 217% from the prior year period (7.6 cents).The increase was driven by net profit for the period.Cash flow review Three months ended Six months ended ($ `000) 30 June 30 June 2010 2009 2010 2009 Cash flow from operating 90,341 18,526 157,665 15,640activities Cash used in investing activities (123,175) (67,188) (161,629) (120,676) Cash provided by financing 47,197 37,917 268,869 80,804activities Increase(decrease) in cash 14,363 (10,745) 264,905 (24,232) Foreign exchange difference on (66) - (202) (136)cash Opening cash balance 320,132 39,684 69,726 53,307 Closing cash balance 334,429 28,939 334,429 28,939Cash flow from operating activities was $157.7 million for the six month periodended 30 June 2010, increased by $142.0 million from the prior year period($15.6 million). The increase primarily related to increased EBITDA which waspartially offset by working capital movements. EBITDA has predominantly beendriven by increased revenue due to both price and volume increases. Workingcapital was adversely impacted by the outflow associated with indirect taxesand inventories which was in part offset by inflow of gold sales receivable dueto the introduction of quarterly counterparty advance settlement.Cash flow used in investing activities equalled $161.6 million for the sixmonth period ended 30 June 2010. This represents an increase of 34% from theprior year period ($120.7 million). The increase includes the net cash used of$63.1 million on the acquisition of Tusker Gold, taking into account the cashin that business on the purchase date. Sustaining capital for the year of $46.4million increased from the prior year figure of $27.8 million and key projectsinclude the Bulyanhulu underground development, Buzwagi mining equipment andadditional North Mara processing and mining projects. The $98.3 million H1 2009development capital spent was dominated by $90.3 million spent on theconstruction of Buzwagi. In H1 2010, $40.1 million was spent, primarilyrelating to North Mara deferred stripping costs as well as capitalisedexploration associated with feasibility projects.Cash provided by financing activities for the six month period ended 30 June2010 of $268.9 million increased 233% from the prior year period of $80.8million. The increase primarily related to ABG's IPO and was further supportedby the partial exercise of the overallotment option. In total the IPO and theoverallotment option proceeds resulted in $865 million after deduction oftransaction costs. This was in part offset by the payment of a special dividendand the repayment of intergroup loans to other members of BGC's group as partof the pre-IPO reorganisation. The inflow in H1 2009 was predominantly fundedby BGC to support the construction costs associated with Buzwagi and repaymentof external debt at North Mara.
At 30 June 2010 ABG had cash and cash equivalents of $334 million.
ABG's reserves are 100% unhedged and it is ABG's intention to provideshareholders with full exposure to changes in the gold price. ABG will manageits balance sheet conservatively and, together with strong cash flow generationat current gold prices, has appropriate financial flexibility to invest in thesustainability of the current operations, fund organic growth projects as wellas take advantage of external growth opportunities that may arise.ABG incurred capital expenditure of $86.5 million during H1 2010 compared to$126.1 million for the prior year period. Of this amount in H1 2010, $40.1million was spent on expansion related projects, with the deferred stripping atNorth Mara and underground and exploration development at Tulawaka. Theremaining portion was spent at Bulyanhulu on ongoing underground development,the refrigeration plant, and other mining equipment projects; at Buzwagi onmining equipment; and at North Mara on other smaller mining and processingprojects.Debt as at 30 June 2010 was zero and decreased substantially from $1.4 billionfor the prior year period which all related to intergroup borrowings. A portionof the debt was repaid through proceeds generated from the IPO while a largeportion was converted into equity through the pre-IPO reorganisation. ABG iscurrently in the process of arranging a credit facility with a syndicate ofbanks to replace the $100 million facility put in place with BGC at the time ofthe IPO. We expect to close this by the end of the year.
Non-IFRS measures
ABG has identified certain measures that are not measures defined under IFRS.Non-IFRS financial measures disclosed by management are provided as additionalinformation to investors in order to provide them with an alternative methodfor assessing ABG's financial condition and operating results. These measuresare not in accordance with, or a substitute for, IFRS, and may be differentfrom or inconsistent with non-IFRS financial measures used by other companies.These measures are explained further below.Cash costs per ounce sold is a non-IFRS financial measure. Cash costs includeall costs absorbed into inventory, as well as royalties, by-product credits andproduction taxes, and exclude capitalised production stripping costs, inventorypurchase accounting adjustments, unrealised gains/losses from non hedgecurrency and commodity contracts, depreciation and amortisation. Thepresentation of these statistics in this manner allows ABG to monitor andmanage those factors that impact production costs on a monthly basis. ABGcalculates cash costs based on its equity interest in production from itsmines. Cash costs per ounce sold are calculated by dividing the aggregate ofthese costs by gold ounces sold. Cash costs and cash costs per ounce sold arecalculated on a consistent basis for the periods presented.
EBITDA is a non-IFRS financial measure. ABG calculates EBITDA as net profit or loss for the period excluding:
- Income tax expense;- Finance expense;- Finance income;
- Depreciation and amortisation; and
- Impairment charges.
EBITDA is intended to provide additional information to investors and analysts.It does not have any standardised meaning prescribed by IFRS and should not beconsidered in isolation or as a substitute for measures of performance preparedin accordance with IFRS. EBITDA excludes the impact of cash costs of financingactivities and taxes, and the effects of changes in operating working capitalbalances, and therefore is not necessarily indicative of operating profit orcash flow from operations as determined under IFRS. Other companies maycalculate EBITDA differently.EBITDA($000) For the three months For the six months ended ended 30 June 30 June 2010 2009 2010 2009 Net Profit 47,148 21,484 100,202 35,227 Plus income tax expense 23,980 8,906 43,035 15,181 Plus depreciation and amortisation 25,593 14,822 53,004 33,084 Plus finance expense 236 2,853 723 5,578 Less finance income (558) (22) (710) (45) EBITDA (refer note 4) 96,399 48,043 196,254 89,025
Mining statistical information
The following describes certain line items used in ABG's discussion of key performance indicators:
* Open pit material mined - measures in tonnes the total amount of open pit
ore and waste mined. * Underground ore tonnes hoisted - measures in tonnes the total amount of underground ore mined and hoisted.
* Total tonnes mined include open pit material plus underground ore tonnes
hoisted.
* Strip ratio - measures the ratio waste-to-ore for open pit material mined.
* Ore milled - measures in tonnes the amount of ore material processed through the mill.
* Head grade - measures the metal content of mined ore going into a mill for
processing.
* Milled recovery - measures the proportion of valuable metal physically
recovered in the processing of ore. It is generally stated as a percentage
of the metal recovered compared to the total metal originally present.
Risks and Uncertainties
ABG could be affected by risks relating to the gold mining industry generallyand the risks and hazards involved in the business of mining metals, which arelargely outside of its control. ABG's Prospectus issued on 19 March 2010 (the"Prospectus") in connection with the IPO identified a variety of material riskfactors that could have an impact on ABG, including risks relating tooperations, countries in which ABG operates, the structure of its group andrisks relating to ABG's shares. In particular:
* As ABG's revenue is currently derived from the production at its four
facilities in Tanzania, its business operations and financial condition may
be adversely affected by legal and regulatory changes and developments in
Tanzania as well as local economic and political conditions in Tanzania.
ABG's operations and financial condition will also be adversely affected if
existing mineral development agreements are not honoured, or if mining
rights are suspended, cancelled, amended or not renewed by the Tanzanian
Government.
* Production and cost estimates may not be achieved and ABG's mineral
reserves and resources are only estimates based on a range of assumptions
that cannot guarantee the output of anticipated tonnages or grades.
* If ABG fails to acquire, find or develop additional reserves, its reserves
and production will decline materially from their current levels over time.
* Power stoppages, fluctuations and disruptions in electrical power supply
could adversely affect ABG's results of operations and its financial condition. In addition, an increase in power costs will make production more costly and alternative power sources may not be available. * ABG faces certain risks in dealing with trespass, theft, corruption and
vandalism at its mines and unauthorised small-scale mining in proximity to
and on specific areas covered by ABG's exploration and mining licences.
* BGC, as majority shareholder, exercises significant control over ABG and,
as a result, investors may not be able to influence the outcome of
important decisions.
The above risk factors (and the additional risk factors identified in theProspectus) could materially affect ABG's business and financial results. Inaddition, there may be additional risks unknown to ABG and other risks,currently believed to be immaterial which could turn out to be material. Theserisks, whether they materialise individually or simultaneously, couldsignificantly affect the ABG's business and financial results.
Directors
The directors serving on the Board during and since the end of the half yearare listed in the Prospectus. No directors were appointed between 30 June 2010and the date of this report. A list of current directors is maintained on ABG'swebsite: www.africanbarrickgold.com.
Statement of Directors' Responsibility
The directors confirm that, to the best of their knowledge, the condensedconsolidated interim financial information has been prepared in accordance withIAS 34 "Interim Financial Reporting" as adopted by the European Union, and thatthis half year report includes a fair review of the information required byDisclosure and Transparency Rule 4.2.7R and Disclosure and Transparency Rule4.2.8R, namely:
* an indication of important events that have occurred during the first six
months of the financial year and their impact on the
condensed consolidated interim financial information, and a description of theprincipal risks and uncertainties for the remaining six months of the financialyear; and
* material related-party transactions in the first six months of the
financial year and that have materially affected the financial position or
performance of ABG during that period.
For and on behalf of the Board
Greg HawkinsChief Executive Officer27 July 2010Kevin JenningsChief Financial Officer27 July 2010Auditors' review report Independent review report to African Barrick Gold plc
Introduction
We have been engaged by the Company to review the condensed consolidatedinterim financial information in the half-yearly financial report for the sixmonths ended 30 June 2010, which comprises the Group Income Statement, GroupStatement of Comprehensive Income, Group Balance Sheet, Group Statement ofChanges in Equity, Group Statement of Cash Flows and associated notes. We haveread the other information contained in the half-yearly financial report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed consolidated interim
financial information.Directors' responsibilities
The half-yearly report is the responsibility of, and has been approved by, thedirectors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules ofthe United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial information included in the half-yearly report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibilityOur responsibility is to express to the company a conclusion on the condensedconsolidated interim financial information in the half-yearly financial reportbased on our review. This report, including the conclusion, has been preparedfor and only for the company for the purpose of the Disclosure and TransparencyRules of the Financial Services Authority and for no other purpose. We do not,in producing this report, accept or assume responsibility for any other purposeor to any other person to whom this report is shown or into whose hands it maycome save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, `Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the condensed consolidated interim financial information in thehalf-yearly report for the six months ended 30 June 2010 is not prepared, inall material respects, in accordance with International Accounting Standard 34as adopted by the European Union and the Disclosure and Transparency Rules ofthe United Kingdom's Financial Services Authority.PricewaterhouseCoopers LLPChartered AccountantsLondon27 July 2010Notes:
* The maintenance and integrity of the African Barrick Gold website is the
responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the website.
* Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions. FINANCIAL INFORMATIONGroup Income Statement
Income tax charge (note 6)(43,035)
(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Revenue 423,835 258,803 693,412 Cost of sales (248,014) (182,610) (469,257) Gross profit 175,821 76,193 224,155 Corporate administration (16,757) (19,634) (48,464) Exploration and evaluation costs (2,590) (2,764)
(8,871)
Other (charges)/ income (note 5) (13,224) 2,146
(10,714)
Profit before net finance expense and 143,250 55,941 156,106taxation Finance income 710 45 361 Finance expense (723) (5,578) (6,062) (13) (5,533) (5,701) Profit before taxation 143,237 50,408 150,405Income tax charge (note 6) (43,035) (15,181) (84,388) Net profit for the period 100,202 35,227 66,017 Net profit attributable to non- controlling 971 3,933 7,440interests Net profit attributable to owners (net 99,231 31,294 58,577earnings) Earnings per share - Basic Earnings per share (in cents) (note 24.2 7.6 14.37) - Diluted Earnings per share (in cents) 24.2 7.6 14.3(note 7)
Group Statement of Comprehensive Income
(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Profit for the period 100,202 35,227 66,017
Total comprehensive income attributed to:
Equity Owners 99,231 31,294 58,577 Non-controlling interest 971 3,933 7,440The notes on pages 27 to 44 form an integral part of this financialinformation.Group Balance sheet (in $000) For the six months ended For the year ended 30 June 31 December (Reviewed) (Unaudited) (Audited) 2010 2009 2009 ASSETS Non Current assets Intangible assets 257,538 156,397 156,397 Property, plant and equipment 1,535,693 1,466,284 1,498,072 Deferred tax assets 151,030 225,484 181,188 Other non- current assets (note 8) 97,333 30,808 61,286 2,041,594 1,878,973 1,896,943 Current assets Inventories 296,087 265,542 278,650 Trade receivables (note 8) 32,528 66,077 61,598 Other current assets (note 8) 60,972 62,293 58,311 Cash and cash equivalents 334,429 28,939 69,726 724,016 422,851 468,285 Total assets 2,765,610 2,301,824 2,365,228 EQUITY AND LIABILITIES
Share capital and share premium 929,199 -
-(note 10) Reserves 1,471,691 607,993 636,922 Equity attributable to the owners 2,400,890 607,993 636,922 Non- controlling interests 22,834 16,986 20,493 Total equity 2,423,724 624,979 657,415 Non-current liabilities Deferred tax liabilities 122,078 62,990 87,893 Provisions 85,026 81,235 83,565 Other non-current liabilities 11,099 3,597 4,748 218,203 147,822 176,206 Current liabilities Trade and other payables 123,683 134,200 148,192 Current portion of borrowings from - 1,394,823 1,383,415related parties 123,683 1,529,023 1,531,607 182,075 848,322 1,531,607 Total liabilities 341,886 1,676,045 1,707,813 Total equity and liabilities 2,765,610 2,301,824
2,365,228
The notes on pages 27 to 44 form an integral part of this financial information.
Group Statement of Changes in Equity
(in $000) Share Share Stock Other Retained Total Non- Total Capital Premium Option reserves* earnings controlling reserve Owners interests Equity equity Balance at 31 - - - 633,749 (55,407) 578,342 25,257 603,599 December 2008 Profit for - - - - 31,294 31,294 3,933 35,227 the period Contributed - - (1,643) - (1,643) - (1,643) surplus decrease Distributions - - - - - - (12,204) (12,204) paid to non- controlling interests Balance at 30 - - - 632,106 (24,113) 607,993 16,986 624,979 June 2009 Profit for - - - 27,283 27,283 3,507 30,790 the period Contributed - - 1,646 - 1,646 - 1,646 surplus increase Balance at 31 - - - 633,752 3,170 636,922 20,493 657,415 December 2009 Profit for - - - - 99,231 99,231 971 100,202 the period Issuance of 1,991 1,989,138 - (1,991,129) - - - - shares to BGC Capital - (1,989,138) - 1,989,138 - - - - reduction Bonus issue 43,805 - - (43,805) - - - - to BGC Special - - - (258,680) - (258,680) (258,680) dividends Conversion to - - - 1,039,808 - 1,039,808 - 1,039,808 contributed surplus Share 16,301 921,035 - - - 937,336 - 937,336 issuance Transaction - (53,933) - - - (53,933) - (53,933) costs Distributions - - - - - - 1,370 1,370 to be recovered from non- controlling interests Stock option - - 206 - - 206 - 206 grants Balance at 30 62,097 867,102 206 1,369,084 102,401 2,400,890 22,834 2,423,724 June 2010
*At 31 December 2008, 30 June 2009 and 31 December 2009, other reserves represent invested capital (see note 3d)
The notes on pages 27 to 44 form an integral part of this financialinformation.Group Statement of Cash Flows(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009
Cash flows from operating activities
Net profit for the year 100,202 35,227 66,017 Adjustments for: Taxation 43,035 15,181 84,388 Depreciation and amortisation 49,404 42,971 106,969 Finance items 13 5,533 5,701 (Gain)loss on disposal of property, plant (3) (8) 1,204and equipment Working capital movements (19,846) (83,175) (70,522) Other (15,855) 4,736 4,736 Cash generated from operations before 156,950 20,465 198,493interest and tax Finance income 710 45 361 Finance expenses (4) (4,878) (4,893) Income tax paid 9 8 -
Net cash generated by operating activities 157,665 15,640 193,961
Cash flows from continuing investing
activities Purchase of property, plant and equipment (86,495) (126,140) (223,268) Investments in other assets (2,332) (5,029) (8,994)
Acquisition of subsidiary, net of cash (63,109) -
-acquired Other investing activities (9,693) 10,493 (16,186) Net cash used in continuing investing (248,448)activities (161,629) (120,676)
Cash flows from continuing financing
activities Repayment of external debt and finance lease - (112,500) (112,500)liabilities
Related party debt funding cash movements (575,100) 207,151 195,743
Share issuance (net of transaction cost) 865,366 - -
-
Increase/(decrease) in invested capital 231,584 (1,643)
3 Special dividend paid (252,981) - -
Distributions to non- controlling interests - (12,204) (12,204)
Net cash provided by continuing financing 268,869 80,804 71,042activities Net increase/ (decrease) in cash and 264,905 (24,232) 16,555equivalents Exchange rate effects (202) (136) (136)
Cash and cash equivalents, at 1 January 69,726 53,307 53,307
Cash and cash equivalents at end of period 334,429 28,939 69,726
The notes on pages 27 to 44 form an integral part of this financial information.
Notes to the half year financial statements
1 GENERAL INFORMATION
African Barrick Gold plc (the "Company") was incorporated on 12 January 2010 and re-registered as a public limited company on 12 March 2010 under the Companies Act 2006. It is registered in England and Wales with registered number 7123187.
On 24 March 2010 the Company's shares were admitted to the Official List of theUnited Kingdom Listing Authority ("UKLA") and to trading on the main market ofthe London Stock Exchange, hereafter referred to as the Initial Public Offering("IPO").
Barrick Gold Corporation (``BGC'') currently owns approximately 73.9% percent of the shares of the Company and is the ultimate controlling party of the Group.
In preparation for the IPO, BGC conducted a reorganisation, which was completedon the 22nd of February 2010, whereby the companies comprising the AfricanRegional Business Unit of BGC were reorganised under the Company (The "Pre-IPOReorganisation"). As such, prior to 22 February 2010, the Company did notcontrol all of the entities (collectively the "Group") it acquired pursuant tothe Pre-IPO Reorganisation.
The condensed consolidated interim financial information for the six months ended 30 June 2010 was approved for issue by the Board of Directors of the Company on 26 July 2010. The condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The condensed consolidated interim financial information has been reviewed, not audited.
The Group's primary business is the mining, processing and sale of gold. The Group has four operating mines located in Tanzania. The Group also has a portfolio of exploration projects located across Africa.
2 BASIS OF PREPARATION OF HALF-YEAR REPORT
The Company became the holding company for the Group pursuant to the Pre-IPOReorganisation completed on 22 February 2010, as detailed in Note 1. As thiswas a reorganisation of businesses under common control, the condensedconsolidated interim financial information for the six months ended 30 June2009 and 30 June 2010 and the year ended 31 December 2009 has been prepared ona basis that combines the results and assets and liabilities of each of thecompanies constituting the Group (the pooling of interest method ofaccounting).For the periods prior to the Pre-IPO Reorganisation, consolidated financialstatements were not prepared for the Group. The accompanying interim condensedconsolidated financial information present the results of the Company and itssubsidiaries as if the Group has been in existence throughout the periodpresented and as if the Pre-IPO Reorganisation had occurred as at 1 January2009.The condensed consolidated interim financial information for the six monthsended 30 June 2010 has been prepared in accordance with the Disclosure andTransparency Rules of the Financial Services Authority and with IAS 34,`Interim Financial Reporting' as adopted by the European Union. They do notinclude all the information required for the full annual financial statementsfor the Group, which are prepared in accordance with International FinancialReporting Standards ("IFRS") as adopted by the European Union.The condensed consolidated interim financial information has been prepared on ahistorical cost basis. The financial statements are presented in US dollars ($)and all monetary results are rounded to the nearest ($'000) except whenotherwise indicated.
The impact of seasonality on operations is not considered as significant on the interim condensed financial information.
3. ACCOUNTING POLICIES
The accounting policies set out below are consistent with those used in the African Barrick Gold plc Prospectus except for:
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
a) New and amended standards adopted by the Group
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010.
IFRS 3 (revised), `Business combinations', and consequential amendments to IAS27, `Consolidated and separate financial statements', IAS 28, `Investments inassociates', and IAS 31, `Interests in joint ventures', are effectiveprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after1 July 2009.The revised standard requires the application of the acquisition method ofaccounting for business combinations. For example, all payments to purchase abusiness are recorded at fair value at the acquisition date, with contingentpayments classified as debt subsequently re-measured through the incomestatement. There is a choice on an acquisition-by-acquisition basis to measurethe non-controlling interest in the acquiree either at fair value or at thenon-controlling interest's proportionate share of the acquiree's net assets.All acquisition-related costs are expensed.As the Group has adopted IFRS 3 (revised), it is required to adopt IAS 27(revised), `Consolidated and separate financial statements', at the same time.IAS 27 (revised) requires the effects of all transactions with non-controllinginterests to be recorded in equity if there is no change in control and thesetransactions will no longer result in goodwill or gains and losses. Thestandard also specifies the accounting when control is lost. Any remaininginterest in the entity is re-measured to fair value, and a gain or loss isrecognised in profit or loss. There has been no impact of IAS 27 (revised) onthe current period, as none of the non-controlling interests have a deficitbalance. There have been no transactions whereby an interest in an entity isretained after the loss of control of that entity.
b) Standards, amendments and interpretations to existing standards effective in 2010 but not relevant to the Group
* IFRIC 17, `Distributions of non-cash assets to owners', effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions.
* IFRIC 18, `Transfers of assets from customers', effective for transfer of
assets received on or after 31 October 2009. This is not relevant to the
Group, as it has not received any assets from customers.
* `Additional exemptions for first-time adopters' (Amendment to IFRS 1) was
issued in July 2009. The amendments are required to be applied for annual
periods beginning on or after 1 January 2010. This is not relevant to the
Group, as it is an existing IFRS preparer.
* Improvements to International Financial Reporting Standards 2009 were
issued in April 2009. The effective dates vary standard by standard but
most are effective 1 January 2010.
c. The following new standards, new interpretations and amendments to
standards and interpretations have been issued but are not effective for
the financial year beginning 1 January 2010 and have not been adopted
early:
* IFRS 9, `Financial instruments', issued in December 2009, but has not yet
been endorsed. This addresses the classification and measurement of
financial assets and is likely to affect the Group's accounting for its
financial assets. The standard is not applicable until 1 January 2013 but
is available for early adoption. The Group has not yet decided when to
adopt IFRS 9.
3. ACCOUNTING POLICIES (CONTINUED)
c. The following new standards, new interpretations and amendments to
standards and interpretations have been issued but are not effective for
the financial year beginning 1 January 2010 and have not been adopted early
(CONTINUED):
* Revised IAS 24, `Related party disclosures', issued in November 2009, and
endorsed by the EU on 19 July 2010. It supersedes IAS 24, `Related party
disclosures', issued in 2003. The revised IAS 24 is required to be applied
from 1 January 2011. Earlier application, in whole or in part, is
permitted.
* `Classification of rights issues' (Amendment to IAS 32), issued in October
2009. For rights issues offered for a fixed amount of foreign currency,
current practice appears to require such issues to be accounted for as
derivative liabilities. The amendment states that if such rights are issued
pro rata to all the entity's existing shareholders in the same class for a
fixed amount of currency, they should be classified as equity regardless of
the currency in which the exercise price is denominated. The amendment
should be applied for annual periods beginning on or after 1 February 2010.
Earlier application is permitted.
* `Prepayments of a minimum funding requirement' (Amendments to IFRIC 14),
issued in November 2009. The amendments correct an unintended consequence
of IFRIC 14, `IAS 19 - The limit on a defined benefit asset, minimum
funding requirements and their interaction'. Without the amendments,
entities are not permitted to recognise as an asset some voluntary
prepayments for minimum funding contributions. This was not intended when
IFRIC 14 was issued, and the amendments correct the problem. The amendments
are effective for annual periods beginning 1 January 2011. Earlier
application is permitted. The amendments should be applied retrospectively
to the earliest comparative period presented.
* IFRIC 19, `Extinguishing financial liabilities with equity instruments'.
This clarifies the requirements of IFRSs when an entity renegotiates the
terms of a financial liability with its creditor and the creditor agrees to
accept the entity's shares or other equity instruments to settle the
financial liability fully or partially. The interpretation is effective for
annual periods beginning on or after 1 July 2010. Earlier application is
permitted. d. Invested capital The Company did not exist until 12 January 2010, and did not become the parentcompany for the Group until 22 February 2010 when the transfer of the membersof the Group pursuant to the Pre -IPO Reorganisation was completed. Investedcapital represents the difference between the cumulative investment in theentities and businesses which form part of the combined African Barrick Goldplc Group and minority interests.
e. Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.
f. Revenue recognition
Revenue is recognised when persuasive evidence exists that all of the following criteria are met:
* The significant risks and rewards of ownership of the product have been
transferred to the buyer;
* Neither continuing managerial involvement to the degree usually associated
with ownership, nor effective control over the goods sold, has been retained; * The amount of revenue can be measured reliably; * It is probable that the economic benefits associated with the sale will flow to the Group; and
* The costs incurred or to be incurred in respect of the sale can be measured
reliably. Gold dore salesThe Group produces gold in dore form. Historically all dore sales were made toBarrick International (Barbados) Corporation ("BIBC"), a related party. FromMay 2010 onwards gold dore is sold directly to third parties. Revenue from golddore sales is recognised either at the time of sale to a third party or, inrelation to quarter end settlements, at the time of shipment should the Grouphave received confirmation of sale to the third party. The sales price is basedon the gold spot price at the time of sales. Incidental revenue from the saleof by-products such as silver and copper are classified within cost of sales.
Concentrate sales
Under the terms of concentrate sales contracts with independent smelting companies, gold in concentrate is sold at trailing monthly average spot prices based on contractually obliged quotational periods.
Revenue is recorded, net of selling costs, at the time of shipment, which isalso when risk passes to the independent smelting companies, using the contractprices on the expected date that final sales prices will be fixed. Variationsbetween the price recorded at the shipment date and the actual final price setunder the smelting contracts are caused by changes in market prices, and resultin an embedded derivative in accounts receivable. The embedded derivative isrecorded at fair value each period until final settlement occurs, with changesin fair value classified as provisional price adjustments and included as acomponent of revenue. Incidental revenue from the sale of by-products, such assilver and copper, contained in the concentrate are classified within cost
ofsales. g. Employee benefits The Group operates an equity-settled, share based compensation plan (the "StockOption Plan"), a long term incentive plan (the "LTIP") and a legacy restrictedshare unit plan (the "RSU Plan").
Share based payments
Issue of Stock Options
Stock options can be granted either under the Company LTIP or the Stock OptionPlan. The Company receives services from employees as consideration for equityinstruments (options) of the Group. The fair value of the employee servicesreceived in exchange for the grant of the options is recognised as an expense.The total amount to be expensed is determined by reference to the fair value ofthe options granted:
o including any market performance conditions;
o excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and
o excluding the impact of any non-vesting conditions (for example, the requirement for employees to save).
Non-market vesting conditions are included in assumptions about the number ofoptions that are expected to vest. The total expense is recognised over thevesting period, which is the period over which all of the specified vestingconditions are to be satisfied. At the end of each reporting period, theCompany revises its estimates of the number of options that are expected tovest based on the non-market vesting conditions. It recognises the impact ofthe revision to original estimates, if any, in the income statement, with acorresponding adjustment to equity.When the options are exercised, the Company may issue new shares or procure thetransfer of existing shares to satisfy the exercise. Where shares are issued,the proceeds received net of any directly attributable transaction costs arecredited to share capital (nominal value) and share premium when the optionsare exercised. The grant by the Company of options over its equity instrumentsto the employees of subsidiary undertakings in the group is treated as acapital contribution. The fair value of employee services received, measured byreference to the grant date fair value, is recognised over the vesting periodas an increase to investment in subsidiary undertakings, with a correspondingcredit to equity.Company RSU
The Company has a cash-settled, Restricted Share Unit (RSU) plan for selectemployees. Under the terms of the RSU plan, selected employees are granted RSUswhere each RSU has a value equal to 1 common share of the Company. RSUs vestover a two and a half or three year period and are settled in cash on the thirdanniversary of the grant date. Additional RSUs are credited to reflectdividends paid on common shares of the Company during the vesting period. Aliability for RSUs is measured at fair value on the grant date and isrecognised on a straight-line basis over the vesting period, with acorresponding charge to the compensation expense. Changes in the fair value ofthe RSU liability, due to changes in the price of common shares of the Company,are recorded each period, with a corresponding charge to the compensationexpense. Compensation expenses recognised for RSUs incorporate an estimate forexpected forfeiture rates. The expected forfeiture is estimated based onhistorical forfeiture rates and expectations of future forfeiture rates.Adjustments to compensation expense are recognised in periods where the actualforfeiture rate differs from the expected rate.
Legacy RSU Plan
Historically, the Barrick Group maintained a cash-settled, RSU plan for selectemployees who now work for the Company. This plan operates in the identicalmanner as the Company RSU plan. These existing legacy restricted share unitswill continue to be administered and accounted for based on the movement of thefair value of the Barrick common share for recording liabilities andcompensation expense.
h. Exploration and evaluation expenditures
Exploration and evaluation expenditures
Exploration expenditures relate to the initial search for mineral deposits with economic potential as well as expenditures incurred for the purposes of obtaining more information about existing mineral deposits. Exploration expenditures typically comprise costs that are directly attributable to:
* researching and analysing existing exploration data; * conducting geological studies; * exploratory drilling and sampling for the purposes of obtaining core samples and the related metallurgical assay of these cores; and
* drilling to determine the volume and grade of deposits in an area known to
contain mineral resources or for the purposes of converting mineral
resources into proven and probable reserves.
Evaluation expenditures arise from a detailed assessment of deposits or otherprojects that have been identified as having economic potential in order todetermine their technical feasibility and commercial viability. They typicallyinclude costs directly attributable to:
* detailed engineering studies;
* examination and testing of extraction methods and metallurgical/treatment
processes; * surveying transportation and infrastructure requirements; and * detailed economic evaluations to determine whether development of the reserves is commercially viable.
Generally, exploration and evaluation expenditures incurred at greenfield sites (sites where the Group does not have any mineral deposits that are already being mined or developed) are expensed as incurred. Although rare, drilling costs can be capitalised in this stage when it is probable (>50%) that the Resource will be converted to a Proven and Probable ("2P") Reserve within 3 years.
Exploration expenditures incurred at brownfield sites (sites that are adjacentto a mineral deposit that is classified within proven and probable reserves andare already being mined or developed) are capitalised if the following criteriaare met:
* The drilling is being done in an inferred or Measured & Inferred Resource;
AND
* There is an existing 2P Reserve that is contiguous or adjacent to where the
drilling is being done; AND
* It is probable that the Resource will be converted to a 2P Reserve within
three years;
The assessment of probability is based on the following factors: results fromprevious drill programmes; results from a geological study; results from a minescoping study confirming economic viability of the resource; and preliminaryestimates of the volume, and grade of the deposit, and the net cash flowsexpected to be generated from its development. Costs incurred at brownfieldsites that meet the above criteria are capitalised as a component of property,plant and equipment ("mine development costs") pursuant to IAS 16, `Property,Plant and Equipment'. All other drilling and related exploration costs incurredat these sites are expensed as mine site exploration. Exploration expendituresincurred for the purposes of determining additional information on a mineraldeposit that is classified within proven and probable reserves or for thepurposes of extending an existing mineral deposit that is classified withinproven and probable reserves and is already being mined or developed are alsocapitalised as mine development costs.
Acquired exploration and evaluation properties
Exploration and evaluation stage properties acquired either as an acquisitionof individual assets or as part of a business combination are capitalised as anintangible asset, `Acquired exploration and evaluation properties'. Explorationand evaluation stage properties represent interests in properties that do nothave mineralised material classified within proven and probable reserves. Thevalue of such properties is primarily driven by the nature and amount ofmineralised material contained in such properties, including value attributableto the rights to explore or develop: (i) a property containing mineralisedmaterial classified as a measured, indicated or inferred resource; or (ii) aprospective greenfield property with significant exploration potential.Exploration and evaluation expenditures incurred on such properties subsequentto their acquisition are expensed as incurred until the technical andcommercial viability of developing the property has been demonstrated, which isgenerally when proven and probable reserves have been established.
i) Comparative figures
Where a change in the presentational format of the condensed consolidated interim financial information has been made during the period, comparative figures have been restated accordingly.
4. Segment Reporting
The Group has only one primary product produced in a single geographiclocation, being gold produced in Tanzania. Reportable operating segments arebased on the internal reports provided to the Chief Operating Decision Maker("CODM") to evaluate segment performance, decide how to allocate resources andmake other operating decisions. After applying the aggregation criteria andquantitative thresholds contained in IFRS 8, the Group's reportable operatingsegments were determined to be: North Mara gold mine; Tulawaka gold mine;Bulyanhulu gold mine; Buzwagi gold mine; and a separate Corporate andExploration segment, which primarily consists of costs related to corporateadministration and exploration and evaluation activities ("Other").Segment results and assets include items directly attributable to the segmentas well as those that can be allocated on a reasonable basis. Capitalexpenditures comprise additions to property, plant and equipment. Segmentliabilities are not reported since they are not considered by the CODM.Unallocated items comprise mainly of finance income, finance expense, taxationand financial assets.Segment information for the reportable operating segments of the Group for thesix months ended 30 June 2010 and 30 June 2009, and year ended 31 December
2009is set out below.(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Revenue North Mara 124,729 95,854 204,760 Tulawaka 33,009 39,642 90,446 Bulyanhulu 141,237 113,105 244,513 Buzwagi 124,860 10,202 153,693 Other - - - Total segment revenue 423,835 258,803 693,412(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009
Operating costs and other charges
North Mara 58,594 48,707 115,932 Tulawaka 19,606 15,303 40,585 Bulyanhulu 69,825 80,211 185,972 Buzwagi 60,702 5,763 67,473 Other 18,854 19,794 33,994 Total segment operating costs 227,581 169,778
443,956
The CODM reviews direct mining costs for the four operating mine sites separately from corporate administration costs and exploration costs. Consequently, the Group has reported these costs in this manner.
1. Segment Reporting (continued)
(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009
Earnings before interest, taxation, depreciation and amortisation (EBITDA)
North Mara 66,135 47,147 88,828 Tulawaka 13,403 24,339 49,861 Bulyanhulu 71,412 32,894 58,541 Buzwagi 64,158 4,439 86,220 Other (18,854) (19,794) (33,994) Total segment EBITDA 196,254 89,025 249,456
Reconciliation of EBITDA and Net profit
Total segment EBITDA 196,254 89,025
249,456
Less depreciation and amortisation (53,004) (33,084) (93,350) Less finance expense (723) (5,578) (6,062) Plus finance income 710 45 361 Less income tax expense (43,035) (15,181) (84,388) Net profit 100,202 35,227 66,017Capital Expenditure Sustaining: North Mara 6,154 7,200 28,238 Tulawaka - 340 4,229 Bulyanhulu 32,742 19,403 57,297 Buzwagi 7,231 882 8,059 Other 245 - 389 Total sustaining 46,372 27,825 98,212 Expansionary: North Mara 30,528 6,072 17,876 Tulawaka 5,450 1,032 3,655 Bulyanhulu 47 888 2,286 Buzwagi 783 90,323 101,239 Other 3,315 - - Total expansionary 40,123 98,315 125,056 Total capital expenditure: North Mara 36,682 13,272 46,114 Tulawaka 5,450 1,372 7,884 Bulyanhulu 32,789 20,291 59,583 Buzwagi 8,014 91,205 109,298 Other1 3,560 - 389 Total segment capital expenditure 86,495 126,140
223,268
1 Capital expenditure excludes the Tusker business combination
5. Other charges
Profit for the half-year includes the following other charges:
(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Other Expense Corporate social responsibility investment 726 728 1,026costs
Write down of non current assets - 95
143
(Gain)/ loss on disposal of property, (3) (8) 1,204plant and equipment Environmental clean up - - 878 Severance payment - 969 969
Foreign exchange gains and losses 8,772 (1,251)
-1
Transaction costs associated with listing 2,575 -
-
Fair value adjustment on indirect tax - - 6,903receivable Other 1,154 - 861 Total 13,224 533 11,984 Other Income Other - (2,679) (1,270) Total - (2,679) (1,270) Total other charges 13,224 (2,146) 10,714
1Foreign exchange gains and losses were included in corporate administration costs per the Company's Prospectus.
6. TAX ON PROFIT ON ORDINARY ACTIVITIES
a) Analysis of charge for the period
(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Current tax: -
Current tax on UK profits for the year at 569 -
-28%
Current tax on foreign profits for the 155
year
Adjustments in respect of prior years - 18
- Total current tax expense 724 18 - Deferred tax : Origination and reversal of temporary 42,311 15,163 84,388differences Total deferred tax expense 42,311 15,163 84,388 Income tax expense 43,035 15,181 84,388
Tax periods remain open to review by the Tanzania Revenue Authority ("TRA") inrespect of income taxes for 5 years following the date of the filing of thecorporate tax return, during which time the authorities have the right to raiseadditional tax assessments including penalties and interest. Under certaincircumstances the reviews may cover longer periods. Because a number of taxperiods remain open to review by tax authorities, there is a risk thattransactions that have not been challenged in the past by the authorities maybe challenged by them in the future, and this may result in the raising ofadditional tax assessments plus penalties and interest. The Group haspreviously accounted for an adjustment to unrecognised tax benefits in respectof tax losses to reflect uncertainty regarding recoverability of certain taxlosses. The Group has made no further provision in respect of such taxassessments.
The current income tax charge is in respect of taxable profits arising in the UK and foreign countries.
b) Factors affecting tax charge for the period
The effective forecast tax rate for the period of 30% (six months ended 30 June2009: 31%; year ended 31 December 2009: 56.1%) is in line with the applicablestandard tax rate of corporation tax in Tanzania (30%).The reconciling items are:(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Tax on profit on ordinary activities 43,744 14,683
45,130
calculated at the Tanzanian tax rate of
30% Tax effects of:
Items not taxable/ deductible for tax
purposes Adjustment to unrecognised tax benefits - - 36,892 Prior year adjustments - - 1,681 Other non-deductible expenses 773 - 3,995 Tax rate differences (1,820) - - Tax losses for which no deferred tax asset 338 258 (2,883)is recognised Other adjustments - 240 (427) Income tax expense 43,035 15,181 84,3887. Earnings per share
Earnings per share ("EPS") is calculated by dividing profit for the period attributable to owners of the Company by the weighted average number of ordinary shares in issue during the period.
For the purpose of calculating EPS, the share capital for the Company in theperiod prior to the Pre-IPO Reorganisation on 22 February 2010 is calculated asif this reorganisation was completed as at 1 January 2009.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has dilutive potential ordinary shares in the form of share options. The weighted average number of shares are adjusted for the number of shares granted assuming the exercise of share options.
At 30 June 2010 and 30 June 2009, earnings per share have been calculated asfollows: For the six months For the year ended ended 30 June 31 December (Reviewed) (Unaudited) (Audited) 2010 2009 2009 Profit from continuing operations 99,231 31,294
58,577
attributable to equity holders of the
Company (in $000) Weighted average number of ordinary shares 410,085,499 410,085,499 410,085,499in issue*
Dilutive potential ordinary shares
-Share options 600,000 - -
Basic earnings/(loss) per share from 24.2 7.6
14.3continuing operations (cents)
Dilutive earning/(loss) per share from 24.2 7.6
14.3
continuing operations (cents)
*For 2010 and 2009 the EPS calculation has assumed that the ordinary shares issued at the IPO dated 24 March 2010 have been in issue throughout the periods.
8. Trade receivables AND OTHER ASSETS
(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009
Trade and other current assets
Trade receivables Amounts due from concentrate and gold dore 15,957 12,215 16,219sales Other receivables 9,564 10,848 9,662 Due from Barrick Group (see note 13) 8,370 44,154
37,518
Less: Provision for impairment on trade (1,363) (1,140) (1,801)receivables 32,528 66,077 61,598 Other current assets Current portion of indirect tax 54,992 58,032 51,339receivables Other debtors and advance payments 5,150 4,261 6,142 Insurance receivable 830 - 830 60,972 62,293 58,311 Other non current assets Amounts due from Government1 22,991 19,608
23,098
Operating lease prepayments - TANESCO 4,205 3,876 3,876power lines Prepayments - Acquisition of rights over 7,709 6,457 6,933leasehold land2 Non current portion of indirect tax 61,367 - 26,489receivables Village housing 539 595 600 Other3 522 272 290 97,333 30,808 61,286 Total receivables and other assets 190,833 159,178
181,195
1 Included in this amount are amounts receivable from the Tanzanian Social Security Fund for $5.4 million(2009: $ 5.4 million) as well as amounts due from TANESCO for $17.6 million (2009: $ 14.2 million).
2 Prepayment made to the villagers in respect of acquisition of the rights over the use of leasehold land.
3 In the Company's Prospectus the asset and liability recognised for RestrictedShare Units were shown on a gross basis. In this set of condensed consolidatedinterim financial information they have been presented on a net basis in eachperiod.Trade receivables are non-interest bearing and are generally on 30-90 dayterms. Trade receivables are amounts due from customers in the ordinary courseof business. If collection is expected in one year or less (or in the normaloperating cycle of the business if longer), they are classified as currentassets. If not, they are presented as non-current assets.Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of the receivables.
Village housing is initially recorded at the cost to construct the housing. Subsequently, all village housing is sold to employees at a reduced price. The Group accounts for the impairment (difference between construction cost and sales price of village housing) through profit and loss.
Recoverable indirect tax due from the Tanzanian Government amounts to $130million at 30 June 2010 ($100million at 31 December 2009) before any discounting or provisions. The amounts outstanding have been discounted to their present value at a rate of 7.19%. The current and non current classification relating to indirect tax receivables reflects management's best judgement based on current available information.
9. business combinations
On 27 April 2010, the Company, through BUK Holdco Limited, one of its immediatesubsidiaries, purchased 100% of the issued share capital of Tusker Gold Limited("Tusker") by way of a takeover offer for an aggregate net consideration ofapproximately $74 million. Tusker is an Australian based exploration companywith a focus on gold. Tusker was listed on the Australian Stock Exchange butwas delisted from the Exchange as part of the acquisition. All of Tusker'sassets are located in Tanzania and consist of a significant gold resource baseand additional exploration ground.Details of the purchase consideration, the net assets acquired and goodwill areas follows:(in $000) 2010 - Purchase consideration 74,232 - Foreign gain on cash settlement (3,109)recognised in other charges Net purchase consideration paid in cash
71,123
The assets and liabilities as of 27 April 2010 recognised as a result of theacquisition are as follows:(in $000) Fair Acquiree's value carrying Cash and cash equivalents amount 8,014 8,014
Property, plant and equipment 115
115
Exploration and evaluation asset 79,533 5,740 Receivables 314 314 Deferred taxation liability (22,023) - Payables (4,048) (884) Share options (9,696) (9,696) Fair value of net assets 52,209 3,603 Goodwill 22,023 - Total purchase consideration 74,232 Purchase consideration 74,232 Foreign gain on cash settlement (3,109)recognised in other charges Cash and cash equivalents in subsidiary (8,014)acquired Net cash outflow on acquisition
63,109
The goodwill is attributable to deferred taxation liability generated due tothe difference between the fair value of the exploration and evaluation assetand the book value thereof for taxation purposes. None of the goodwill isexpected to be deductible for tax purposes. The fair value of the acquiredidentifiable intangible assets, goodwill and deferred tax liability areprovisional pending receipt of the final valuations for those assets.
Acquisition costs incurred relating to the Tusker acquisition amounted to $ 302,562 which was all expensed as incurred.
9. business combinations (continued)
a) Cancellation of Options
A total of 12,450,000 share options were held by Tusker directors and employeesat the time of the acquisition. The holders of all options irrevocably agreedto cancel their options in exchange for a consideration of $8.1 million.On 31 December 2009 Tusker announced that it had appointed Argonaut SecuritiesLimited to provide assistance with any future capital raisings. Based on theterms of the arrangement, Argonaut will be remunerated for its services byTusker agreeing to issue Argonaut with 2 million options with an exercise priceof 30c, 2 million options with an exercise price of 50c and a further 4 millionoptions with an exercise price of 80c. The Argonaut agreement was cancelled inexchange for payment of an amount of $1.6 million.
b) Expenses
The acquired business contributed expenses of $189,000 to the Group for theperiod from 30 April 2010 to 30 June 2010. If the acquisition had occurred on 1January 2010, consolidated profit for the half-year ended 30 June 2010 wouldhave been $2.1 million. These amounts have been calculated using the Group'saccounting policies.10. Share capital Share Capital Share Premium Number £'000 $'000 $'000
Allotted and called up share
capital
Issuance of ordinary shares of 10p 303,246,950 30,325 45,796
-each Issuance of shares on IPO 101,082,317 10,108 15,415 870,950 Issuance of over-allotment shares 5,756,232 576 886 50,085 Transaction costs - - - (53,933) At 30 June 2010 410,085,499 41,009 62,097 867,102
Creation of Company and Pre- IPO Reorganisation
The Company was incorporated and registered in England and Wales on 12 January2010 as a private limited company with a share capital of one ordinary share of£1.On 19 February 2010 the Company entered into a share exchange agreementpursuant to which it acquired the entire issued share capital of BUK HoldcoLimited, an intermediate holding company of members of the Group, from membersof BGC's group in return for issuing 943,464 ordinary shares of £1 each at apremium of £999 per share.On 22 February 2010 the Company entered into a share exchange agreementpursuant to which it acquired the entire issued share capital of 1816962Ontario Inc from BGC, an intermediate holding company of members of the Group,in return for issuing 375,000 ordinary shares of £1 each at a premium of £999per share.The Company subsequently entered into a reduction of capital, eliminating sharepremium of $1,989,138 to create distributable reserves, and restructured itsshare capital so as to reduce the nominal value of each of its ordinary sharesto 10 pence each. Following the share capital restructuring the Company made abonus issue of shares to its then existing shareholders in preparation for theIPO, resulting in a total of 303,246,950 ordinary shares being in issue priorto the IPO.
Re-registration of the company as a public company
On 12 March 2010, the Company re-registered as a public limited company.
Issuance of shares on IPO
On 24 March 2010 the Company successfully completed its IPO. A total number of101,082,317 shares with a par value of 10 pence each were issued at a price of575 pence per share for a total of £581,223,322 ($886,365,567) net ofunderwriter fees. On 15 April 2010 the Company issued a further 5,756,232ordinary shares for a total of £33,098,334 ($52,275,508) pursuant to theexercise of the over-allotment option granted in connection with the IPO. Totalcosts related to the issuance of new shares taken against share premiumamounted to $53.9 million.
11. Share options
The group operates the Stock Option Plan and the LTIP.
Summary of the plans
The Company's commitment to issue new shares to satisfy options or awards underall of its share incentive plans cannot exceed 10% of the Company's issuedshare capital in any 10 year rolling period. In addition, commitments to issuenew shares under discretionary executive plans cannot exceed 5% of its issuedshare capital in any 10 year period.
The LTIP
The LTIP provides for the grant of Performance Awards. These include, "Conditional Awards", options and RSUs. RSUs consist of a right to a cash payment on vesting. Awards will be determined by the Remuneration Committee annually.
The maximum total market value of awards which may be granted under the LTIP toany one participant during any calendar year can not exceed 200 per cent. ofhis annual salary. The Remuneration Committee may in exceptional circumstancesexceed this limit if it sees fit, for example, facilitating the recruitment ofa prospective eligible employee.
The Remuneration Committee will determine at the date of grant when awards under the LTIP will vest. Ordinarily, awards will vest at the end of a period of three years and may be subject to the satisfaction of performance conditions.
It is intended that the vesting of awards for executive directors and seniormanagers will normally be subject to performance conditions which willdetermine the extent to which an award will vest at the end of the performanceperiod. Performance conditions will be determined by the RemunerationCommittee, in its absolute discretion. Awards to executive directors and seniormanagers will be subject to a performance condition relating to the Company'srelative total shareholder return ("TSR") versus a group of internationalpeers. Where awards are made to other employees (i.e. those who are notexecutive directors or senior managers), the Remuneration Committee may in itsabsolute discretion decide not to impose a performance condition.
The Stock Option Plan
The Stock Option Plan provides for the grant of stock options to executive directors and to selected employees.
The maximum total market value of shares over which options may be grantedunder the Stock Option Plan to any one participant during any calendar yearcannot exceed 200 per cent. of his annual salary. The Remuneration Committeemay in exceptional circumstances exceed this limit if it sees fit, for example,facilitating the recruitment of a prospective eligible employee.
Options under the Stock Option Plan may be granted on terms that their exercise will be subject to the satisfaction of objective performance conditions, determined at the discretion of the Remuneration Committee.
Stock options granted
On 27 April 2010, 600,000 stock options were granted to executive directors and employees with an exercise price set at 568 pence ($8.67) per share. All options outstanding at the end of the year have an expiry date of 27 April 2017. None of the options granted were exercisable at 30 June 2010.
Movements in the number of options outstanding and their related weighted average exercise prices are as follows:
For the six months ended 30 June 2010 2009
Average Options Average Options exercise (thousands) exercise (thousands) price in price in C per C per share share At 1 January - - - - Granted 8.67 600,000 - - At 30 June 8.67 600,000 - -The weighted average fair value of options granted during the period determinedusing the Lattice valuation approach was $3.31 (£2.17) per option. Thesignificant inputs into the model were weighted average share price of $8.67 (£5.68) at the grant date, exercise price shown above, volatility range of 45% to50%, dividend yield of 0%, an expected option life of seven years, annualrisk-free interest rate of 3.46% and an suboptimal exercise multiple of 1.5x.
12. Commitments and Contingencies
The Group is subject to various laws and regulations which, if not observed,could give rise to penalties. Commitments and contingencies were disclosed inthe Company's Prospectus and remain unchanged unless described below.
a) Legal liabilities
At 30 June 2010, the Group was a defendant in approximately 220 lawsuits. Theplaintiffs are claiming damages and interest thereon for the loss caused by theGroup due to one or more of the following: unlawful eviction, termination ofservices, wrongful termination of contracts of service, non payment forservices, defamation, negligence act or omission in failing to provide safeworking environment, unpaid overtime and public holidays compensation.The total amounts claimed from lawsuits in which specific monetary damages aresought amounted to approximately $52 million. The Group's Legal Counsel isdefending its current position, and the outcome of the lawsuits can notpresently be determined. However in the opinion of the Directors and Group'sLegal Counsel, no material liabilities are expected to crystallise from theselawsuits. Consequently no provision has been set aside against the claims inthe books of account.b) Tax related liabilities
There is no change to be reported relating to the tax related liabilities reflected in the Company's Prospectus.
c) Insurance
The following table sets out the effect of the insurance claims for the sixmonths ended 30 June:(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Cost of sales 2,100¹ - - Total 2,100 - -
¹ During March 2010 the Group received $2.1 million relating to a business interruption claim at North Mara mine as a result of an excavator burn out, in the form of an excavator which it sold to Buzwagi Mine.
13. Related Party Balances and Transactions
The Group had the following related party balances and transactions as at 30June 2010. Related parties are those entities owned or controlled by BGC, whichis the ultimate controlling party of the Group.
Transactions with related parties are as follows:
a. Transactions (in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Sale of goods BIBC - Gold Sale (Dore) 176,052 188,303 540,617 Sales of services 772 224 497 Purchase of goods and services (5,451) (4,109) (9,132) Total 171,373 184,418 531,982
Sale and purchases of goods and services to/ from related parties are arms length on normal commercial terms and conditions.
Sale of services relates to cost incurred by the Group and recharged to related parties with no mark- up. Purchase of goods and services relates to cost incurred by related parties and recharged to the Group with no mark- up. Services purchased relate mainly to insurance and software licenses. Goods purchased relate mainly to consumables and capital equipment.
b. Balances due from Barrick Group
(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 BIBC (Gold sales receivable) 6,012 13,741
26,218
Barrick PD Australia Limited - 25,527
- Barrick Platinum (Pty) Ltd 748 - 5,474 Pangea Fenn Gibb - 4,500 4,999 Other 1,610 386 827 Total Related Party receivables 8,370 44,154
37,518
13. Related Party Balances and Transactions (continued)
The receivables from Barrick arise mainly from sale transactions. The gold receivable relates to sales of dore to BIBC, and is payable within one week after sale to BIBC. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from Barrick.
a. Balances due to Barrick Group
(in $000) For the six months For the year ended ended 30 June 31 December (Reviewed)(Unaudited) (Audited) 2010 2009 2009 Barrick Gold Corporation 1,926 21,585 12,465 Other 447 6,012 4,857 Total Related Party payables 2,373 27,597 17,322 Related Party borrowings - 1,394,823 1,383,415 Total Related Party debt 2,373 1,422,420 1,400,737
The payables to Barrick arise mainly from purchase transactions and are due 30days after the date of purchase. The payables bear no interest. For the yearending 31 December 2009, corporate overheads including, but not limited to,software licences and treasury management costs, have not been allocated to theGroup. Following the IPO reorganisation, these charges apply.
Related party borrowings relate to amounts due to Barrick International Bank Corporation and PDG bank. These amounts were interest free and had no fixed repayment terms.
d. Other transactions
A special dividend of $252,981,000 was paid to BGC and its subsidiaries following completion of the IPO Reorganisation.
14. financial risk management
Exposure to commercial and financial operating risks was disclosed in the Company's Prospectus and remains unchanged unless described below.
a) Credit risk
Credit risk arises from cash and cash equivalents, and deposits with banks, as well as trade and other receivables.
With respect to trade receivables, the risk is limited due to the fact that the Group has insurance for product in transit. All dore sales are made to the refinery or international banks with a minimum credit rating of BBB+, while concentrate sales are made to different customers in order to diversify the credit risk.
To mitigate the credit risk relating to counterparties and location, cash andinvestments are held at different banks with the majority of funds invested inthe United Kingdom, United States or Barbados.Group policies are aimed at minimising losses as a result of a counter party'sfailure to honour its obligations. Individual exposures are monitored withcustomers subject to credit limits to ensure that the Group's exposure to baddebts is not significant. The Group's exposure to credit risk is influencedmainly by the individual characteristics of each counterparty. The Group doesnot hold collateral as security for any trade receivables.
b) Foreign currency risk
The Group's transactions are denominated in a number of different currenciesand primarily US dollars, Tanzanian shillings and South African rand. The vastmajority of all direct mining costs are denominated and settled in US dollars.The Group does have significant financial assets denominated in Tanzanianshillings including the indirect tax receivables.
15. subsequent events
Interim Dividend
The Board of the Company has approved an interim dividend of 1.6 cents per share for this financial year to be paid on 27 September 2010 to shareholders on the register on 3 September 2010. The ex-dividend date for the interim dividend will be 1 September 2010. The deadline for the return of currency election forms will be 8 September 2010.
The Company will declare the interim dividend in US dollars. Unless a shareholder elects to receive dividends in US dollars, they will be paid in pounds sterling with the US dollar dividend being converted into pounds sterling at exchange rates prevailing at the relevant time. The exchange rate conversion for the interim dividend will be made on or around 8 September 2010.
vendorRelated Shares:
ACA.L