12th Aug 2005 07:00
European Goldfields Ltd12 August 2005 Suite 200, Financial Plaza 204 Lambert Street Whitehorse, Yukon Canada Y1A 3T2 For Immediate Release 12 August 2005 European Goldfields Limited Interim Financial Statements (Unaudited) For the Three- and Six-month Periods ended 30 June 2005 and 2004 Disclosure of auditor review of interim consolidated financial statements The interim consolidated financial statements of the Company for the three- andsix-month periods ended 30 June 2005 and 2004 have not been reviewed by theauditors of the Company. European Goldfields Limited Consolidated Balance Sheets As at 30 June 2005 and 31 December 2004 (Unaudited - Prepared by Management) (In thousands of US Dollars, except per share amounts) 30 June 31 December 2005 2004 $ $ Note Unaudited Audited Assets Current assets Cash and cash equivalents 49,980 65,253 Accounts receivable, prepaid expenses and supplies 3,316 2,047 53,296 67,300 Non current assets Plant and equipment 5 17,397 13,687 Mineral properties and deferred exploration and development costs Romanian mineral properties 6 28,155 26,332 Greek mineral properties 6 196,698 195,807 224,853 222,139 Future tax asset 3,402 1,632 298,948 304,758 Liabilities Current liabilities Accounts payable and accrued liabilities 3,752 3,820 3,752 3,820 Non current liabilities Asset retirement obligation 10 5,811 5,811 Future tax liability 47,473 47,473 Non-controlling interest 17,772 18,036 71,056 71,320 Shareholders' equity Capital stock 7 239,418 238,420 Contributed surplus 7 5,069 5,589 Cumulative translation adjustment 6,383 8,964 Deficit (26,730) (23,355) 224,140 229,618 298,948 304,758 The accompanying notes are an integral part of these interim consolidated financial statements. Approved by the Board of Directors(s) David Grannell (s) Glenn FeatherbyDavid Grannell Glenn FeatherbyDirector Director European Goldfields Limited Consolidated Statements of Loss and Deficit For the three- and six-month periods ended 30 June 2005 and 2004 (Unaudited - Prepared by Management) (In thousands of US Dollars, except per share amounts) 3 months ended 30 June 6 months ended 30 June 2005 2004 2005 2004 $ $ $ $ Income Sales 57 - 57 - Other income Interest income 326 60 652 78 Expenses Corporate administrative and overhead 697 1,957 1,582 3,182 expenses Hellas Gold operating, admin. and overhead 1,390 - 2,952 - expenses Foreign exchange loss/(gain) (71) (69) 928 (542) Amortisation 75 4 334 6 Capital raising costs - Convertible loan - - - 1,122 notes Share option and milestone share comp. 196 956 322 4,122 expense 1,904 2,788 5,409 7,812 Share of loss in equity investment - 767 - 1,022 Loss for the period before income tax 1,904 3,555 5,409 8,834 Income taxes (1,058) 25 (1,770) 25 Loss for the period after income tax 846 3,580 3,639 8,859 Non-controlling interest (123) - (264) - Loss for the period 723 3,580 3,375 8,859 Deficit - Beginning of period 26,007 9,451 23,355 4,172 Deficit - End of period 26,730 13,031 26,730 13,031 Loss per share 0.01 0.09 0.03 0.23 Weighted average number of shares 112,174 38,284 112,109 38,284 The accompanying notes are an integral part of these interim consolidated financial statements. European Goldfields Limited Consolidated Statements of Equity As at 30 June 2005 and 2004 (Unaudited - Prepared by Management) (In thousands of US Dollars, except per share amounts) Cumulative Capital Contributed Translation Stock Surplus Reserve Deficit Total $ $ $ $ $ Balance - 31 December 2003 27,302 2,374 5,404 (4,172) 30,908 Shares issued on conversion of conv. loan 14,920 (673) - - 14,247 Shares issued from non-brokered private placements 35,846 - - - 35,846 Share options exercised 798 (4) - - 794 Warrants exercised 7,428 (78) - - 7,350 Milestone shares issued as compensation 1,497 - - - 1,497 Share issue costs (226) - - - (226) Share option compensation expense - 2,897 - - 2,897 Loss for the period - - - (8,859) (8,859) 60,263 2,142 - (8,859) 53,546 Balance - 30 June 2004 87,565 4,516 5,404 (13,031) 84,454 Shares issued from brokered private placements 75,729 - - - 75,729 Share options exercised 1,790 (649) - - 1,141 Shares issued as consideration for shares in Hellas Gold S.A. 77,426 - - - 77,426 Milestone shares issued as compensation 305 725 - - 1,030 Share issue costs (4,395) - - - (4,395) Share option compensation expense - 997 - - 997 Movement in cumulative translation reserve - - 3,560 - 3,560 Loss for the period - - - (10,324) (10,324) 150,855 1,073 3,560 (10,324) 145,164 Balance - 31 December 2004 238,420 5,589 8,964 (23,355) 229,618 Share options exercised 287 (117) - - 170 Milestone shares issued as compensation 725 (725) - - - Share issue costs (14) - - - (14) Share option compensation expense - 322 - - 322 Movement in cumulative translation reserve - - (2,581) - (2,581) Loss for the period - - - (3,375) (3,375) 998 (520) (2,581) (3,375) (5,478) Balance - 30 June 2005 239,418 5,069 6,383 (26,730) 224,140 The accompanying notes are an integral part of these interim consolidated financial statements. European Goldfields Limited Consolidated Statements of Cash Flows For the three- and six-month periods ended 30 June 2005 and 2004 (Unaudited - Prepared by Management) (In thousands of US Dollars, except per share amounts) 3 months ended 30 June 6 months ended 30 June 2005 2004 2005 2004 $ $ $ $ Note Cash flows from operating activities Loss for the period after tax (846) (3,580) (3,639) (8,859) Foreign exchange loss (71) - 928 - Amortisation 75 4 334 6 Capital raising costs - Convertible loan - - - 1,122 notes Share option and milestone share comp. 196 956 322 4,122 expense Future tax asset recognised (1,058) - (1,770) - Share of loss in equity investment - 767 - 1,022 Profit on disposal of equipment - - - 2 (1,704) (1,853) (3,825) (2,585) Net changes in non-cash working 11 (404) (489) (1,337) (340) capital (2,108) (2,342) (5,162) (2,925) Cash flows from investing activities Deferred exploration and develop. costs - (893) (943) (1,752) (2,337) Romania Plant and equipment - Greece (2,453) - (4,035) - Deferred development costs - Greece (891) - (891) - Acquisition of equity investment - (346) - (24,412) Short term investment - 1,330 - 3,014 Proceeds from disposal of equipment 18 - 18 22 Purchase of equipment (57) (74) (98) (118) (4,276) (33) (6,758) (23,831) Cash flows from financing activities Proceeds from exercise of warrants - 1,537 - 7,428 Proceeds from non-brokered private - 16,767 - 34,846 placement Proceeds from exercise of share options - 541 170 798 Capital raising costs - 58 (14) (257) - 18,903 156 42,815 Effect of foreign currency translation on (1,760) 923 (3,509) (172) cash (Decrease)/Increase in cash and cash (8,144) 17,451 (15,273) 15,887 equivalents Cash and cash equivalents - Beginning of 58,124 13,434 65,253 14,998 period Cash and cash equivalents - End of period 49,980 30,885 49,980 30,885 The accompanying notes are an integral part of these interim consolidatedfinancial statements. European Goldfields Limited Notes to Consolidated Financial Statements For the three- and six-month periods ended 30 June 2005 and 2004 (Unaudited - Prepared by Management) (In thousands of US Dollars, except per share amounts) 1. Nature of operations European Goldfields Limited (the "Company"), a company incorporated in the Yukon, Canada, is a resource company involved in the acquisition, exploration and development of mineral properties in Greece, Romania and the Balkans. The Company's common shares are listed on the AIM Market of the London Stock Exchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece -The Company holds a 65% interest in Hellas Gold S.A ("Hellas Gold"). Hellas Gold owns assets in Northern Greece which include 70-year mining concessions over a total area of 317 km2 and three polymetallic near-production deposits, known as Olympias, Stratoni and Skouries, which contain proven and probable reserves. The Stratoni and Olympias deposits were previously in production and benefit from significant infrastructure which includes underground mining development, two plants and a ship loading facility on the Aegean Sea. Hellas Gold's assets also include potential revenue generating stockpiles and tailings located on the surface. Romania - In Romania, the Company holds a 80% interest in Deva Gold S.A. ("Deva Gold") and a 100% interest in European Goldfields (Romania) SRL ("EG Romania"), which are in the process of exploring their mineral properties in Romania and have not yet determined whether those properties contain economic reserves. Balkans - The Company is currently entertaining certain investments for exploration and development of mineral properties in the Balkans. The underlying value of the mineral properties and deferred exploration and development costs is dependent upon the existence and economic recovery of reserves in the future, and the ability to raise long-term financing to complete the development of the properties. For the coming year, the Company believes it has adequate funds available to meet its corporate and administrative obligations and its planned expenditures on its mineral properties. These interim consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realise assets and discharge liabilities in the normal course of business for the foreseeable future. These interim consolidated financial statements do not include the adjustments that would be necessary should the Company be unable to continue as a going concern. 2. Change in functional and reporting currency Effective 1 October 2004, the Company changed its functional currency from the Canadian dollar to the United States dollar. In general, this change resulted from a combination of a gradual increase in the operational exposure to the United States dollar and predominantly United States dollar based asset and investment base of the Company and from a gradual increase in the overall proportion of business activities conducted in United States dollars. Concurrent with this change in functional currency, the Company adopted the United States dollar as its reporting currency. In accordance with accounting principles generally accepted in Canada ("Canadian GAAP"), the change was effected by translating all assets and liabilities, at the end of the prior reporting periods, at the existing United States/Canadian dollar foreign exchange spot rate, while income for those periods were translated at the average rate for each period. Equity transactions have been translated at the historical rates, with opening equity on 30 June 2000, restated at the rate of exchange on that date. The resulting net translation adjustment has been credited to the cumulative translation adjustment account in the equity section of the balance sheet. 3. Business combination - Acquisition of a controlling interest in Hellas Gold In February 2004, the Company acquired an initial 37.97% interest (30% on a fully-diluted basis) in Hellas Gold for a total subscription price of €18 million ($24.06 million) in cash. In November 2004, the Company completed the acquisition of additional shares in Hellas Gold (the "Purchased Shares"), increasing its total interest from 37.97% to 55.70%, and assumed an obligation to subscribe to additional shares in Hellas Gold for a subscription price of $23.48 million (the "Subscription Obligation"), resulting in an interest of 65% on a fully-diluted basis (the "Acquisition"). The total price paid by the Company for the Purchased Shares and for the assumption of the Subscription Obligation was $125.35 million, satisfied as follows: (a) $77.43 million by the issue in November 2004 of 30,423,280 common shares to the vendors at a deemed issue price of £1.75 (C$3.98) per share. This was accounted for at a price per share of £1.38 (C$3.14), representing the then fair market value of such shares; and (b) $47.92 million paid in cash to the vendors in December 2004. Transaction costs of $3.99 million were also accounted for as part of the Acquisition. In January 2005, the Company satisfied the Subscription Obligation for a subscription price of $23.48 million. The Acquisition was accounted for as a purchase and the results of operations of Hellas Gold were included in the consolidated statements of loss and deficit from 30 November 2004, the effective date of the Acquisition. From 9 February 2004 to 30 November 2004, the Company's initial 37.97% interest (30% on a fully-diluted basis) in Hellas Gold was accounted for as an equity investment and the Company's share of loss in Hellas Gold was included in the consolidated statements of loss and deficit. 4. Significant accounting policies These interim consolidated financial statements have been prepared on the going concern basis in accordance with Canadian GAAP using the same accounting policies as those disclosed in Note 4 to the Company's audited consolidated financial statements for the year ended 31 December 2004. These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended 31 December 2004. 5. Plant and equipment Exploration / office Land and Leasehold equipment Vehicles buildings Improvements Total $ $ $ $ $ Cost - 2004 At 31 December 2003 352 433 - - 785 Additions 1,275 782 11,379 219 13,655 Disposals (27) - - - (27) Currency translation adjustment 11 9 - - 20 Transfer to mineral property (222) (103) - - (325) At 31 December 2004 1,389 1,121 11,379 219 14,108 Accumulated amortisation - 2004 At 31 December 2003 171 128 - - 299 Provision for the year 137 85 16 11 249 Disposals (3) - - - (3) Currency translation adjustment 4 3 - - 7 Transfer to mineral property (177) 46 - - (131) At 31 December 2004 132 262 16 11 421 Net book value at 31 December 2004 1,257 859 11,363 208 13,687 Cost - 2005 At 31 December 2004 1,389 1,121 11,379 219 14,108 Additions 228 29 3,876 - 4,133 Disposals - (18) - - (18) At 30 June 2005 1,617 1,132 15,255 219 18,223 Accumulated amortisation - 2005 At 31 December 2004 132 262 16 11 421 Provision for the year 133 103 158 11 405 Disposals - - - - - At 30 June 2005 265 365 174 22 826 Net book value at 30 June 2005 1,352 767 15,081 197 17,397 6. Mineral properties and deferred exploration and development costs Romanian mineral properties: Baita- Certej Cainel Bolcana Craciunesti Voia Total $ $ $ $ $ $ Balance - 31 December 2004 21,031 - 2,279 2,567 455 26,332 Drilling and assaying 154 39 - - - 193 Geosciences and tech. consulting 240 74 12 27 11 364 Samplers, miners and surveying 44 104 - 5 - 153 Project management 140 74 - - 13 227 Project overhead 702 52 16 42 3 815 Amortisation 56 1 7 7 - 71 1,336 344 35 81 27 1,823 Balance - 30 June 2005 22,367 344 2,314 2,648 482 28,155 The Company's 80%-owned subsidiary, Deva Gold, holds three mineral resource properties in Romania. Exploitation licences have been issued to Deva Gold as titleholder for the Certej and Bolcana projects. An exploration licence has been issued to Deva Gold as titleholder for the Baita-Craciunesti project. Minvest S.A. (a Romanian state owned mining company), together with three private Romanian companies, holds a 20% interest in Deva Gold and the Company holds the pre-emptive right to acquire such 20% interest. The Company's wholly-owned subsidiary, European Goldfields (Romania) SRL, holds the Cainel and Voia exploration licences. The Company is required to fund 100% of all costs related to the exploration and development of these properties. As a result, the Company is entitled to the refund of such costs (plus interest) out of future cash flows generated by Deva Gold, prior to any dividends being distributed to shareholders. Individual property spending commitments for each of the Company's Romanian licences have been met as at 30 June 2005. Greek mineral properties: Stratoni Skouries Olympias Total $ $ $ $ Balance - 31 December 2004 11,376 73,517 110,914 195,807 Movement for the period 256 402 233 891 256 402 233 891 Balance - 30 June 2005 11,632 73,919 111,147 196,698 The Company holds a 65% interest in Hellas Gold. Hellas Gold owns assets in Northern Greece which include 70-year mining concessions over a total area of 317 km2 and three polymetallic near-production deposits, known as Olympias, Stratoni and Skouries, which contain proven and probable reserves. The Stratoni and Olympias deposits were previously in production and benefit from significant infrastructure which includes underground mining development, two plants and a ship loading facility on the Aegean Sea. Hellas Gold's assets also include potential revenue generating stockpiles and tailings located on the surface. 7. Capital stock Authorised: - Unlimited number of common shares, without par value - Unlimited number of preferred shares, issuable in series, without par value Issued and outstanding (common shares - all fully paid): Number of Amount Shares $ Balance - 31 December 2004 111,748,708 238,420 Milestone shares issued as compensation 350,000 725 Share options exercised 75,000 287 Share issue costs - (14) 425,000 998 Balance - 30 June 2005 112,173,708 239,418 As at 30 June 2005, the Company had 35,412,864 common shares held in escrow or in respect of which trading restrictions applied. Contributed surplus: 30 June 31 December 2005 2004 $ $ Share option compensation expense 4,491 5,011 Broker warrants 578 578 5,069 5,589 8. Share options and milestone shares Share Option Plan The Company operates a Share Option Plan (together with its predecessor, the "Share Option Plan") authorising the directors to grant options to acquire common shares of the Company to the directors, officers, employees and consultants of the Company and its subsidiaries, on terms that the Board of Directors may determine, within the limitations of the Share Option Plan. As at 30 June 2005, the following share options were outstanding: Exercise Number of price Expiry date Options C$ 2005 15,000 1.40 2006 211,000 1.40 2006 64,000 2.50 2007 300,000 2.50 2008 175,000 2.20 2009 910,000 2.80 2009 265,000 3.20 2009 275,000 4.20 2009 625,000 3.07 2009 360,000 3.15 3,200,000 2.88 During the six-month period ended 30 June 2005, share options were granted, exercised and cancelled as follows: Weighted average exercise Number of price options C$ Balance - 31 December 2004 4,015,000 2.85 Options granted - 2005 - - Options exercised - 2005 (75,000) 2.80 Options cancelled - 2005 (740,000) 2.72 Balance - 30 June 2005 3,200,000 2.88 Of the 3,200,000 share options outstanding as at the 30 June 2005, 2,597,500 were fully vested and had a weighted average exercise price of C$2.83 per share. Restricted Share Unit Plan The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorising the directors, based on recommendations received from the Compensation Committee, to grant Restricted Share Units ("RSUs") to designated directors, officers, employees and consultants. The RSUs are "phantom" shares that rise and fall in value based on the value of the Company's common shares and are redeemed for actual common shares on the vesting dates determined by the Board of Directors when the RSUs are granted. The RSUs would typically become 100% vested upon a change of control of the Company. The maximum number of common shares of the Company which may be reserved for issuance for all purposes under the RSU Plan shall not exceed 2.5% of the common shares issued and outstanding from time to time. As at 30 June 2005, no RSU had been issued under the RSU Plan. Milestone Share Compensation Plan The Company operates a Milestone Share Compensation Plan (the "Milestone Share Compensation Plan") authorising the directors, based on recommendations received from the Compensation Committee, to issue common shares of the Company to executive officers of the Company and its subsidiaries to recognise out of the ordinary performance in achieving corporate milestones set by the Board of Directors. The maximum number of common shares of the Company that may be reserved for issuance under the Milestone Share Compensation Plan shall not exceed 1,108,970 common shares. As at 30 June 2005, a total 1,105,000 common shares had been issued under the Milestone Share Compensation Plan, at a weighted average deemed issue price of C$2.90 per share. Following the adoption of the RSU Plan in June 2005, the Company does not intend to issue additional common shares under the Milestone Share Compensation Plan. 9. Warrants During the six-month period ended 30 June 2005, warrants were granted, exercised and expired as follows: Weighted average exercise Number of price warrants C$ Balance - 31 December 2004 415,498 2.35 Warrants granted - 2005 - - Warrants exercised - 2005 - - Warrants expired - 2005 415,498 2.35 Balance - 30 June 2005 - - 10. Asset retirement obligation Management has estimated the total future asset retirement obligation based on the Company's net ownership interest in the Olympias, Skouries and Stratoni mines and facilities. This includes all estimated costs to dismantle, remove, reclaim and abandon the facilities and the estimated time period during which these costs will be incurred in the future. The following table reconciles the asset retirement obligations as at 30 June 2005 and 31 December 2004: 30 June 31 December 2005 2004 $ $ Asset retirement obligation - Beginning of period 5,811 - Obligation acquired - 5,787 Accretion expense - 24 Asset retirement obligation - End of period 5,811 5,811 The undiscounted amount of estimated cash flows required to settle the obligation is $16,850. The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04%. The expected period until settlement is 22 years. 11. Supplementary cash flow information 30 June 30 June 2005 2004 $ $ Changes in non-cash operating accounts: Accounts receivable, prepaid expenses and supplies (1,270) (537) Accounts payable (67) 197 (1,337) (340) Supplemental disclosure of non-cash transactions: Options issued for non-cash consideration - 2,897 Exercise of options - Transfer from contributed surplus to share capital (117) (4) 12. Segmented information The Company has one operating segment: the acquisition, exploration and development of precious and base metal mineral resources properties located in Greece and Romania. Geographic segmentation of plant and equipment and deferred exploration and development costs and operating liabilities is as follows: 30 June 31 December 2005 2004 $ $ Plant and equipment and deferred exploration and development costs Greece 213,562 208,873 Romania 28,305 26,544 United Kingdom 383 409 242,250 235,826 Operating liabilities Canada 221 387 Greece 3,010 1,953 Romania 313 286 United Kingdom 208 1,194 3,752 3,820 13. Reconciliation to International Accounting Standards ("IAS") These financial statements have been prepared in accordance with Canadian GAAP. The effect of the differences between Canadian GAAP and IAS on the Company's consolidated balance sheets and statements of equity is summarised as follows: 30 June 31 December 2005 2004 $ $ Non current liabilities Non current liabilities under Canadian GAAP 71,056 71,320 Adjustment for non-controlling interest (17,772) (18,036) Non current liabilities under IAS 53,284 53,284 This would result in the following disclosure under IAS: Shareholders' equity 224,140 229,618 Non-controlling interest 17,772 18,036 241,912 247,654 During the financial year ended 31 December 2004, the Company changed its reporting currency from the Canadian dollar to the United States dollar. In accordance with Canadian GAAP, the change was effected retrospectively, with assets and liabilities translated at the end of the prior reporting periods (see Note 2). Under IAS, a change in reporting currency is treated prospectively with assets and liabilities translated at the rate prevailing at the date of change in the functional currency. The impact of this difference on the balance sheets of the prior periods has not been reported. Other than the differences noted above, management considers that there are no material differences between amounts reported under Canadian GAAP and those that would result from the application of IAS. 14. Related party transactions During the period ended 30 June 2005, Hellas Gold recorded expenses of $4,307 (2004 - Nil) for management, technical and engineering services received from a related party, Aktor S.A. As at 30 June 2005, Hellas Gold had accounts payable of $1,985 (2004 - Nil) to Aktor S.A. These expenses were contracted in normal course of operations and are recorded at the exchange amount agreed by the parties. 15. Reclassification of comparative figures Certain comparative figures have been reclassified to conform to the current period's presentation. 16. Commitments As at 30 June 2005, the Company had remaining spending commitments of $1,490 (2004 - $1,629) over the remaining term of its Voia exploration licence in Romania which expires in March 2007. The Company has spending commitments of $187 per year (plus service charges and value added tax) for a term of ten years under the lease for its office in London, England, which commenced on 20 April 2004. The rent will be reviewed on the fifth anniversary of the commencement of the term to reflect any increase in rents in the market. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
EGU.L