EX-15.1 27 y68795exv15w1.txt CONSOLIDATED FINANCIAL STATEMENT EXHIBIT 15.1 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2004 AND 2003 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED We have audited the accompanying consolidated balance sheets of Crown Gold Recoveries (Proprietary) Limited and its subsidiaries as of June 30, 2004 and 2003, and the related consolidated income statements, statements of changes in equity and cash flow statements for each of the years in the two-year period ended June 30, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Crown Gold Recoveries (Proprietary) Limited and its subsidiaries at June 30, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2004, in conformity with South African Statements of Generally Accepted Accounting Practice. The accompanying financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in Note 19 to the financial statements, the Group has suffered recurring losses from operations and has a net capital deficiency and its current liabilities exceed its current assets. These matters raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 19. The financial statements do not include any adjustments that might result from the outcome of this uncertainty KPMG INC Registered Accountants and Auditors Chartered Accountants (SA) /s/ W van der Merwe ---------------------------- W van der Merwe Director Johannesburg, Republic of South Africa November 26, 2004 1 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED CONSOLIDATED INCOME STATEMENTS for the years ended June 30
Notes 2004 2003 R'000 R'000 REVENUE 2 643,610 571,894 COST OF SALES (646,760) (582,808) -------- -------- Operating costs (599,338) (522,231) Depreciation 5 (19,637) (45,266) Retrenchment costs (56) - Movement in provision for environmental rehabilitation 12 (28,094) (15,958) Movement in gold-in-process 365 647 -------- -------- GROSS LOSS (3,150) (10,914) Administration expenses (29,372) (27,149) Impairment of mining assets (44,964) (204,987) -------- -------- NET OPERATING LOSS 3 (77,486) (243,050) Other income 9,212 15,728 Interest received 1,124 1,619 Interest paid (53,368) (50,769) -------- -------- LOSS BEFORE TAXATION (120,518) (276,472) Taxation 4 (166) (586) -------- -------- NET LOSS FOR THE YEAR (120,684) (277,058) ======== ========
2 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED CONSOLIDATED BALANCE SHEETS at June 30
ASSETS Notes 2004 2003 R'000 R'000 NON-CURRENT ASSETS 108,575 93,615 -------- -------- Mining assets 5 100,638 86,175 Investments 6 7,937 7,440 -------- -------- CURRENT ASSETS 54,843 81,086 -------- -------- Inventories 7 18,536 19,362 Accounts receivable 15,330 20,747 Taxation 128 - Cash and cash equivalents 20,849 40,977 -------- -------- TOTAL ASSETS 163,418 174,701 ======== ======== EQUITY AND LIABILITIES CAPITAL AND RESERVES Share capital 8 - * - * Accumulated loss (596,997) (476,313) -------- -------- Shareholders' deficit (596,997) (476,313) NON-CURRENT LIABILITIES 588,264 428,558 -------- -------- Shareholders' loans 9 361,872 298,413 Long-term liabilities 10 130,306 66,267 Provision for post-retirement medical benefits 11 9,577 5,463 Provision for environmental rehabilitation 12 86,509 58,415 -------- -------- CURRENT LIABILITIES 172,151 222,456 -------- -------- Taxation - 15 Leave pay provision 13 12,612 6,420 Short-term portion of shareholders' loans 9 3,934 23,359 Accounts payable and accrued liabilities 151,859 192,662 Bank overdraft 3,746 - -------- -------- TOTAL EQUITY AND LIABILITIES 163,418 174,701 ======== ========
* Less than R1,000. 3 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY for the years ended June 30
NUMBER OF ORDINARY SHARE ACCUMULATED SHARES CAPITAL LOSS TOTAL R'000 R'000 R'000 Balance at June 30, 2002 100 -* (199,255) (199,255) Net loss for the year - (277,058) (277,058) --------- ---------- ---------- BALANCE AT JUNE 30, 2003 100 -* (476,313) (476,313) Net loss for the year (120,684) (120,684) --------- ---------- ---------- BALANCE AT JUNE 30, 2004 100 -* (596,997) (596,997) ========= ========== ==========
* Less than R1 000. 4 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED CONSOLIDATED CASH FLOW STATEMENTS for the years ended June 30
Notes 2004 2003 R'000 R'000 CASH FLOW FROM OPERATING ACTIVITIES Cash received from sales of precious metals 643,610 571,894 Cash paid to suppliers and employees (674,704) (464,266) -------- -------- Cash (applied to)/generated by A (31,094) 107,628 operations Interest received 1,124 1,619 Taxation paid (310) (581) Interest paid (21,181) (25,334) -------- -------- NET CASH FLOW FROM OPERATING ACTIVITIES (51,461) 83,332 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES Net purchase of mining assets (79,056) (63,272) Purchase of non-current investments and other assets (9) - Acquisition of subsidiary net of cash acquired B (99,065) -------- -------- NET CASH FLOWS FROM INVESTING ACTIVITIES (79,065) (162,337) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES Proceeds from long-term borrowings 64,038 17,613 Proceeds from shareholders' loans 42,614 77,574 -------- -------- NET CASH FLOWS FROM FINANCING ACTIVITIES 106,652 95,187 ======== ======== Net (decrease)/increase in cash and cash equivalents (23,874) 16,182 Cash and cash equivalents - at beginning of year 40,977 24,795 -------- -------- CASH AND CASH EQUIVALENTS - AT END OF YEAR C 17,103 40,977 ======== ========
5 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS for the years ended June 30
2004 2003 R'000 R'000 A. RECONCILIATION OF LOSS BEFORE TAXATION TO CASH (APPLIED TO)/ GENERATED BY OPERATIONS Loss before taxation (120,518) (276,472) Adjusted for: 154,385 316,049 -------- -------- Depreciation 19,637 45,266 Movement in environmental rehabilitation provision 28,094 15,958 Movement in gold-in-process (365) (647) Impairment of mining assets 44,964 204,987 Interest received (1,124) (1,619) Interest paid 53,368 50,769 Growth in rehabilitation trust fund (518) (767) Rehabilitation payments from trust fund 30 23 Provisions for employee benefits raised during the year 10,306 2,089 Profit on sale of mining assets (7) (10) -------- -------- Working capital changes: (64,961) 68,051 -------- -------- Inventories 1,192 (1,683) Accounts receivable 6,838 5,736 Accounts payable and accrued liabilities (72,991) 63,998 -------- -------- Cash (applied to)/generated by operations (31,094) 107,628 ======== ======== B. ACQUISITION OF SUBSIDIARY NET OF CASH ACQUIRED Mining assets 179,862 Inventories 1,682 Accounts receivable 17,110 Cash and cash equivalents 5,307 Provision for environmental rehabilitation (21,469) Accounts payable (69,897) Leave pay provisions (8,223) -------- TOTAL NET BOOK VALUE AT DATE OF ACQUISITION 104,372 LESS CASH AND CASH EQUIVALENTS OF ACQUIRED ENTITY (5,307) -------- NET CONSIDERATION 99,065 ========
6 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS for the years ended June 30
2004 2003 R'000 R'000 C. CASH AND CASH EQUIVALENTS Cash and cash equivalents 20,849 40,977 Bank overdraft (3,746) - ------- ------ 17,103 40,977 ======= ======
7 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 1. PRINCIPAL ACCOUNTING POLICIES 1.1 BASIS OF PREPARATION The financial statements are prepared on the historical cost basis as modified by the revaluation of certain financial instruments to fair value and incorporate the following principal accounting policies, which are consistent with those applied the previous year and comply with South African Statements of Generally Accepted Accounting Practice. 1.2 CONSOLIDATION The financial statements incorporate the financial statements of the Company, its subsidiaries and their associated environmental rehabilitation trust funds. The results of the subsidiaries are included from the date on which effective control was acquired up to the date control ceased to exist. All inter-company transactions and balances have been eliminated. Unrealized profits that arise between Group entities are also eliminated. 1.3 GOODWILL Goodwill represents the excess of the purchase consideration over the Group's interest in the fair value of the identifiable assets and liabilities of the acquired subsidiary at the date of acquisition. The carrying amount of goodwill is reviewed annually and written down for impairment where considered necessary. 1.4 MINING ASSETS 1.4.1 Mine development Development costs relating to major programmes at existing mines and plants are capitalized. Development costs consist primarily of expenditures to initially establish a mine and to expand the capacity of operating mines and plants. Ordinary development costs to maintain production are expensed as incurred. Initial development and pre-production costs relating to a new facility, including interest on borrowed funds used to develop the facility, are capitalized until the facility is brought into production, at which time the costs are amortized. 1.4.2 Plant and machinery Plant and machinery are recorded at cost of acquisition less sales, recoupments and amounts written off. Depreciation of plant facilities is computed principally by the life of mine method based on estimated proven and probable ore reserves. Proven and probable ore reserves reflect estimated quantities of economically recoverable reserves, which can be recovered in the future from known sand, slime and archive material from previously worked out mines. 8 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 1. PRINCIPAL ACCOUNTING POLICIES (continued) 1.4 MINING ASSETS (continued) 1.4.3 Equipment and vehicles Equipment and vehicles are shown at cost less accumulated depreciation. Depreciation is calculated using the straight line method, principally over estimated useful lives of 2 to 5 years. 1.4.4 Impairment Recoverability of the mining assets of the Group, which include development costs, is reviewed annually. Estimated future net cash flows are calculated using estimates of proven and probable ore reserves, estimated future sales (considering historical and current prices, price trends and related factors), operating costs, development costs and rehabilitation costs. Reductions in the carrying value of the mining assets of the Group are recorded to the extent that the carrying value exceeds the estimate of future discounted net cash flows. Management's estimates of future cash flows are subject to risks and uncertainties. Therefore, it is reasonably possible that changes could occur which may affect the recoverability of the Group's mining assets. 1.5 OPERATING LEASES Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classified as operating leases. Payments made under operating leases are charged against income on a straight line basis over the period of the lease. 1.6 INVESTMENTS Investments are accounted for at fair value or at cost where fair value cannot be reliably measured. Gains and losses are included in the income statement. 9 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 1. PRINCIPAL ACCOUNTING POLICIES (continued) 1.7 INVENTORIES Inventories, which include gold work-in-process and consumables, are stated at the lower of cost and net realizable value. The cost of gold work-in-process is based on related production costs, which include amortization. The cost of consumables is determined by the weighted average cost method. Where necessary, provision is made for obsolete, slow moving or defective inventory. 1.8 ENVIRONMENTAL REHABILITATION Long-term environmental obligations comprising decommissioning and restoration, are based on the Group's environmental management plans, in compliance with the current environmental and regulatory requirements. 1.8.1 Decommissioning costs Provision is made for the net present value of the estimated future decommissioning costs at the end of operating life of the facilities, with a corresponding increase in the carrying value of the related asset. The unwinding of the decommission obligation is included in the income statement. The estimated future costs of decommission obligations are regularly reviewed and adjusted as appropriate for new circumstances or changes in law or technology. The estimates are discounted at a pre-tax rate that reflects current market assessments of the time value of money. 1.8.2 Restoration costs Estimated restoration costs are accrued based on present obligations, as environmental damage is incurred. Estimated costs are regularly reviewed and adjusted as appropriate for changed circumstances. Expenditure on ongoing rehabilitation costs is brought to account when incurred. 1.8.3 Environmental rehabilitation trust Periodic contributions are made to rehabilitation trust funds created in accordance with South African statutory requirements, to fund the estimated cost of rehabilitation during and at the end of the life of the facility. 1.9 REVENUE RECOGNITION Gold bullion revenue (and revenue from related by-products) is recognized when it is delivered to the relevant refinery, at which stage all risks and rewards of ownership pass from the Group. Dividends are recognised when the right to receive payment is established. Interest is recognized on a time proportion basis taking account of the principal outstanding and the effective rate to maturity on the accrual basis. 10 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 1. PRINCIPAL ACCOUNTING POLICIES (continued) 1.10 RETIREMENT AND OTHER EMPLOYEE BENEFITS Defined contribution plans The Group contributes to a defined contribution fund. Contributions to defined contribution funds are charged against income as incurred. Post-retirement medical benefits The expected costs of post-retirement medical benefits are assessed in accordance with the advice of qualified actuaries and contributions to the relevant fund, including the costs of improved benefits or experience adjustments, are charged to income over the service lives of employees entitled to those benefits. The Projected Unit Credit Method is used to determine the present value of the post-retirement medical benefit and related current service cost and, where applicable, past service cost. Actuarial gains or losses in respect of the post-retirement medical benefit is recognized as income or expense if the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of: - 10% of the present value of the obligation at that date before deducting plan assets, and - 10% of the fair value of any plan assets at that date. The amount recognized is the excess determined above, divided by the expected average remaining working lives of the employees participating in the plan. Past service costs are recognized as an expense on a straight line basis over the average period until the benefits vest. To the extent that the benefits have already vested, past service costs are recognized immediately. 1.11 TAXATION Current tax comprises tax payable calculated on the basis of the expected taxable income for the year, using the tax rates enacted at the balance sheet date, and any adjustment of tax payable for previous years. Deferred tax is provided using the balance sheet liability method, based on temporary differences. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax is charged to the income statement except to the extent that it relates to a transaction that is recognized directly in equity, or a business combination that is an acquisition. The effect on deferred tax of any changes in tax rates is recognized in the income statement, except to the extent that it relates to items previously charged or credited directly to equity. NOTES TO THE FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 11 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 1. PRINCIPAL ACCOUNTING POLICIES (continued) 1.11 TAXATION (continued) A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the associated unused tax losses and deductible temporary differences can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be recognized. 1.12 FINANCIAL INSTRUMENTS Financial instruments recognized on the balance sheet include investments, accounts receivable, cash and cash equivalents, long-term and short-term liabilities, accounts payable and accrued liabilities, and bank overdrafts. Measurement Financial instruments are initially measured at cost, including transaction costs, when the Group becomes a party to the contractual arrangements. The subsequent measurement of financial instruments is dealt with in the individual policy statements associated with the relevant item. Investments Investments are classified as held for trading and are accounted for at fair value or at cost where fair value cannot be reliably measured. Realized and unrealized investment gains and losses are included in earnings for the relevant period. Accounts receivable Accounts receivable are carried at anticipated realizable value. Estimates are made for doubtful debts. Irrecoverable amounts are written off during the year in which they are identified. Cash and cash equivalents Cash and cash equivalents comprise cash on hand. The carrying amount of cash and cash equivalents is stated at cost, which approximates fair value. Financial liabilities Non-derivative financial liabilities are recognized at amortized costs, comprising original debt less principal payments and amortizations. Derivative instruments Derivative instruments are measured at fair value. 12 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 1. PRINCIPAL ACCOUNTING POLICIES (continued) 1.12 FINANCIAL INSTRUMENTS (continued) Gains and losses on subsequent measurement Gains and losses arising from a change in the fair value of financial instruments that are not part of a hedging relationship are included in net profit or loss in the period in which the change arises. Gains and losses from measuring the fair value of the hedging instruments relating to a fair value hedge are recognized immediately in net profit or loss. Gains and losses from remeasuring the hedging instruments relating to a cash flow hedge to fair value are initially recognized directly in equity. If the hedged firm commitment or forecast transaction results in the recognition of an asset or a liability, the cumulative amount recognized in equity up to the transaction date is adjusted against the initial measurement of the asset or liability. For other cash flow hedges, the cumulative amount recognized in equity is included in net profit or loss in the period when the commitment or forecast transaction affects profit or loss. Where the hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative unrealized gain or loss at that point remains in equity and is recognized in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to occur, the cumulative unrealized gain or loss is recognized in the income statement immediately. 1.13 FOREIGN CURRENCIES Transactions in foreign currencies are recorded at the rate of exchange ruling at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Gains and losses arising on translation are credited to or charged against income. 1.14 PROVISIONS Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will occur, and where a reliable estimate can be made of the amount of the obligation. 13 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued)
2004 2003 R'000 R'000 2. REVENUE Gold revenue 636,603 570,833 By-product revenue 7,007 1,061 -------- -------- Total revenue 643,610 571,894 -------- -------- 3. NET OPERATING LOSS Net operating loss includes the following: Royalties paid - (2,538) Employment remuneration (212,581) (224,269) -------- -------- - salaries and wages (191,620) (133,574) - pension fund contributions (8,818) (6,921) - contracted employees (12,143) (83,774) -------- -------- Management, technical, administrative and secretarial service fees paid to Durban Roodepoort Deep, Limited and Khumo Bathong Holdings Limited (23,967) (25,626) Profit on the sale of mining assets 7 10 Profit on the sale of listed investments - 2,080 Dividends received - 580
14 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued)
2004 2003 R'000 R'000 4. TAXATION South African normal tax - current non-mining tax 166 586 -------- -------- Mining tax on mining income is determined on a formula which takes into account the profit and revenues from mining operations during the year. The statutory tax rate, which is determined by the formula, varies. Income other than from mining operations is taxable at a rate of 38%, since the Company has, in terms of South African tax legislation, opted for a tax regime which does not require the deduction of Secondary Tax on Companies (STC) on dividends declared. Unredeemed capital expenditure allowances available for set-off against future mining income (518,801) (384,052) -------- -------- No deferred tax asset has been raised as it is uncertain whether future taxable profits will be earned against which the assessed tax losses and unredeemed capital expenditure could be utilized.
15 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued)
2004 2003 R'000 R'000 5. MINING ASSETS TOTAL Cost Opening balance 498,229 255,106 Acquired through purchase of subsidiary - 179,862 Additions 79,832 63,377 Disposals (826) (116) -------- -------- Closing balance 577,235 498,229 ======== ======== Accumulated depreciation Opening balance (412,054) (161,822) Depreciation (19,637) (45,266) Impairment charge (44,964) (204,987) Disposals 58 21 -------- -------- Closing balance (476,597) (412,054) -------- -------- Net carrying value 100,638 86,175 ======== ======== MINE DEVELOPMENT Cost Opening balance 188,304 - Acquired through the purchase of subsidiary - 176,083 Additions 14,914 12,221 Disposals (684) - -------- -------- Closing balance 202,534 188,304 ======== ======== Accumulated depreciation Opening balance (187,924) - Depreciation (1,760) (18,204) Impairment charge (12,569) (169,720) Disposals - - -------- -------- Closing balance (202,253) (187,924) -------- -------- Net carrying value 281 380 ======== ========
16 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 5. MINING ASSETS (continued)
2004 2003 R'000 R'000 PLANT AND MACHINERY Cost Opening balance 303,397 251,542 Acquired through the purchase of subsidiary - 735 Additions 64,244 51,156 Disposals - (36) -------- -------- Closing balance 367,641 303,397 ======== ======== Accumulated depreciation Opening balance (220,136) (158,481) Depreciation (17,092) (26,388) Impairment charge (32,244) (35,267) Disposals - - -------- -------- Closing balance (269,472) (220,136) -------- -------- Net carrying value 98,169 83,261 ======== ======== EQUIPMENT AND VEHICLES Cost Opening balance 6,528 3,564 Acquired through purchase of subsidiary - 3,044 Additions 674 - Disposals (142) (80) -------- -------- Closing balance 7,060 6,528 ======== ======== Accumulated depreciation Opening balance (3,994) (3,341) Depreciation (785) (674) Impairment charge (151) - Disposals 58 21 -------- -------- Closing balance (4,872) (3,994) -------- -------- Net carrying value 2,188 2,534 ======== ========
17 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued)
2004 2003 R'000 R'000 6. INVESTMENTS Investments in unlisted mining companies at fair value and directors' valuation 2,010 2,001 Investment in environmental rehabilitation trust funds Opening balance 5,439 4,695 Growth in environmental rehabilitation trust fund 518 767 Rehabilitation payments from funds (30) (23) ------- ------- Closing balance 5,927 5,439 ======= ======= Total 7,937 7,440 ======= ======= 7. INVENTORIES Gold-in-process 6,159 5,793 Consumables and engineering spares 12,377 13,569 ------- ------- 18,536 19,362 ======= ======= 8. SHARE CAPITAL Authorised: 4,000 ordinary shares of R1 each 4 4 ------- ------- Issued: 100 ordinary shares of R1 each - * - * ------- ------- Until the forthcoming annual general meeting the directors have the power to issue the unissued shares on such terms and conditions as they may determine, subject to Section 222 of the Companies Act.
* Less than R1,000 18 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued)
2004 2003 R'000 R'000 9. SHAREHOLDERS' LOANS Secured Durban Roodepoort Deep, Limited a. 49,603 49,603 Durban Roodepoort Deep, Limited b. 13,359 12,281 Durban Roodepoort Deep, Limited c. 36,667 24,000 Durban Roodepoort Deep, Limited d. 34,209 495 Durban Roodepoort Deep, Limited e. 16,000 - The loans are secured by a general notarial bond over assets of the Group. Unsecured Crown Consolidated Gold Recoveries Limited f. 74,232 74,232 Crown Consolidated Gold Recoveries Limited g. 23,246 23,246 Durban Roodepoort Deep, Limited h. 3,860 22,760 Khumo Bathong Holdings (Pty) Ltd i. 114,556 114,556 Khumo Bathong Holdings (Pty) Ltd j. 74 599 ======== ======== Gross shareholders' loans 365,806 321,772 Less: current liabilities (3,934) (23,359) -------- -------- Net long-term portion of shareholders' loans 361,872 298,413 ======== ========
a. The loan bears interest at the publicly quoted basic rate of interest per annum at which the Standard Bank of South Africa Limited lends on overdraft to its first class corporate borrowers. Interest is calculated monthly in arrear. The loan is repayable within 84 months on demand. The lender has agreed to an indefinite suspension of all payments of principal and interest. b. The loan bears interest at the publicly quoted basic rate of interest per annum at which the Standard Bank of South Africa Limited lends on overdraft to its first class corporate borrowers. Interest is calculated monthly in arrear. The loan is repayable on demand. The lender has agreed to an indefinite suspension of all payments of principal and interest. c. The loan bears interest at the publicly quoted basic rate of interest per annum at which the Standard Bank of South Africa Limited lends on overdraft to its first class corporate borrowers. Interest is calculated monthly in arrear. The loan is repayable in equal portions over 60 months, commencing in January 2004. The lender has agreed to an indefinite suspension of all payments of principal and interest. d. The loan has no fixed repayment terms. Interest is calculated at prime less 0.5% overdraft rate. The lender has agreed to an indefinite suspension of all payments of principal and interest. e. The loan has no fixed repayment terms. Interest is calculated at 2.5% below prime overdraft rate. The lender has agreed to an indefinite suspension of all payments of principal and interest. 19 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 9. SHAREHOLDERS' LOANS (continued) f. The loan bears interest at the publicly quoted basic rate of interest per annum at which the Standard Bank of South Africa Limited lends on overdraft to its first class corporate borrowers. Interest is calculated monthly in arrear. The loan is repayable within 84 months on demand. The lender has agreed to an indefinite suspension of all payments of principal and interest. g. The loan is interest free and repayable on demand. The lender has agreed to an indefinite suspension of all payments of principal and interest. h. The loan is interest free and repayable on demand. i. The loan bears interest at the publicly quoted basic rate of interest per annum at which the Standard Bank of South Africa Limited lends on overdraft to its first class corporate borrowers. Interest is calculated monthly in arrear. The loan is repayable within 84 months on demand. The lender has agreed to an indefinite suspension of all payments of principal and interest. j. The loan is interest free and repayable on demand.
2004 2003 R'000 R'000 10. LONG-TERM LIABILITIES Secured Industrial Development Corporation of South Africa Limited a. 55,000 40,687 Industrial Development Corporation of South Africa Limited b. 75,306 25,580 ------- ------ 130,306 66,267 ======= ======
a. The loan bears interest at the prime overdraft rate. Interest is calculated monthly in arrear. The lender has agreed to an indefinite suspension of all payments of principal and interest. b. The loan bears interest at 0.5% below the prime overdraft rate. Interest is calculated on the balance of the capital outstanding from day to day and is payable monthly in arrears on the last day of every successive month. The lender has agreed to an indefinite suspension of all payments of principal and interest. The loans are secured by a general notarial bond over assets of the Group. 20 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 11. EMPLOYEE BENEFIT PLANS DEFINED CONTRIBUTION PLANS The Group participates in a number of industry-based retirement plans for the benefit of its employees. Certain employees participate in the Sentinel Mining Industry Retirement Fund, a defined contribution fund. Other employees participate in the Crown Employee Benefit Plan and the Mineworkers' Provident Fund, both of which are defined contribution plans. All funds are independently managed and governed by the South African Pension Funds Act, 1965. Skilled workers participate in multi-employer plans, which pay certain medical costs. Employer contributions are determined on an annual basis by the funds. Qualifying dependants receive the same benefits as active employees other than as discussed below. The Group has no legal obligation to retirees and their qualifying dependants for any contributions towards these medical funds. PROVISION FOR POST-RETIREMENT MEDICAL BENEFITS The Group has an obligation to fund a portion of the medical aid contributions of its employees after they have retired. A provision for post-retirement medical benefits amounting to R9.6 million (2003:R5.5 million) has been raised in the balance sheet based on the latest calculations of independent actuaries performed as at January 1, 2003. Post-retirement medical benefits are actuarially valued every three years.
2004 2003 R'000 R'000 12 PROVISION FOR ENVIRONMENTAL REHABILITATION Analysis of rehabilitation provision: Opening balance 58,415 42,457 Charge to the income statement 28,094 15,958 ------ ------ Closing balance 86,509 58,415 ====== ====== The provision for rehabilitation comprises: Provision for decommissioning 48,318 49,240 Provision for restoration 38,191 9,175 ------ ------ Amounts provided for in the balance sheet 86,509 58,415 ====== ====== The Group's estimated cost of closure is reviewed annually and the directors are satisfied that adequate provision is made to meet future obligations. Ongoing rehabilitation expenditure is included in working costs.
21 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 13. LEAVE PAY PROVISION
AMOUNTS INCURRED ADDITIONAL AND CHARGED TO OPENING BALANCE PROVISION MADE PROVISION CLOSING BALANCE R'000 R'000 R'000 R'000 Leave pay provision 6,420 6,192 - 12,612 ===== ===== ===== ======
2004 2003 R'000 R'000 14. COMMITMENTS Capital expenditure Capital expenditure approved but not yet contracted for 2 103,290 ======= ======= This expenditure will be financed from available cash resources and banking facilities.
15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT In the normal course of its operations the Group is exposed to credit, foreign currency, commodity price, interest rate and liquidity risk. 15.1 Concentration of risk The Group's financial instruments do not represent a concentration of credit risk because the Group deals with major banks and a reputable refinery, and its debtors and loans are regularly monitored. An adequate level of provision is maintained where necessary. Because of the international market for gold, the Group believes that no concentration of credit risk exists with respect to the selected refinery, which refines and sells gold on behalf of the Group. 22 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) 15.2 Foreign currency and commodity price risk Generally, the Group does not hedge its exposure to gold price fluctuation risk and sells at market spot prices. The Group sells its gold in US Dollars. As a result, the Group is subject to transaction exposure from fluctuations in the foreign currency exchange rates. It is the Group's current policy not to hedge foreign currency exchange rate risk. The Group is not subject to any other foreign currency exposure. 15.3 Interest rates and liquidity risk Fluctuations in interest rates impact on the value of short-term cash investments and financing activities, giving rise to interest rate risk. In the ordinary course of business, the Group receives cash from its operations, and shareholders where necessary, and it is required to fund working capital and capital expenditure requirements. This cash is managed to ensure surplus funds are invested to achieve maximum returns while minimizing risks. 15.4 Fair value The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a liquidation sale. The carrying amounts of investments, accounts receivable, cash and cash equivalents, bank overdraft and accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term maturity of such investments. Fair values for the long-term liabilities and shareholders' loans are not determinable as the lenders have agreed to an indefinite suspension of all payments of principal and interest. These loans are carried at amortized cost. 16. DERIVATIVE INSTRUMENTS The Group has entered into hedging transactions which mature in the year ended 30 June 2005. The transactions consists of forward gold sales of 1700 ounces per month until February 2005 at an average strike price of US$376. As at June 30, 2004, the fair value of the instrument was a liability of R2 million. This instrument is not recognized on the balance sheet, as it is a regular way purchase or sale agreement. 23 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003(continued) 17. RELATED PARTY TRANSACTIONS The Group has related party relationships with its shareholders, directors and senior management. Related party transactions are at arm's length. MATERIAL RELATED PARTY TRANSACTIONS
2004 2003 INTEREST MANAGEMENT Interest Management PAYABLE FEES PAID TOTAL payable fees paid Total R'000 R'000 R'000 R'000 R'000 R'000 Crown Consolidated Gold Recoveries Limited 9,319 - 9,319 12,499 - 12,499 Durban Roodepoort Deep, Limited 15,717 21,087 36,804 16,515 22,026 38,541 Khumo Bathong Holdings Limited 14,379 2,880 17,259 18,843 3,600 22,443 ------ ------ ------ ------ ------ ------ 39,415 23,967 63,382 47,857 25,626 73,483 ------ ------ ------ ------ ------ ------
Shareholders' loans are disclosed in note 9. DR. M.P. NCHOLO FUNERAL ASSISTANCE During 2004, financial assistance was provided by ERPM to the family of Dr. M.P. Ncholo, a director, with regards to funeral expenses relating to the death of a family member who was a temporary employee of ERPM. This assistance amounted to R90,447 and was still outstanding at year end. 18. NATURE OF BUSINESS AND HOLDING COMPANY The Company was incorporated in the Republic of South Africa on September 7, 1988, and operates a gold mine and surface retreatment plants in South Africa. On July 1, 2002, Crown Consolidated Gold Recoveries Limited ("CCGR") a wholly-owned subsidiary of Durban Roodepoort Deep, Limited ("DRD") sold 60% of Crown Gold Recoveries (Pty) Limited ("CGR") in a black economic empowerment deal to Khumo Bathong Holdings (Pty) Ltd ("KBH"). KBH is the controlling shareholder (60%) and DRD the minority shareholder (40%), through its wholly-owned subsidiary CCGR. The Company is managed by its directors on behalf of its shareholders. In October 2002, CGR acquired the East Rand Proprietary Mines Limited ("ERPM") for R100 million. The Group comprises CGR and its subsidiaries. The Company's registered address is: 45 Empire Road Parktown Johannesburg, 2193 South Africa 24 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 19. GOING CONCERN The Group incurred significant losses during the year ended June 30, 2004, and continued to incur losses after year end. At year end the Group's current liabilities exceeded their current assets and their total liabilities exceeded their total assets. These facts give rise to significant doubt as to the Group's ability to realize its assets and to settle its obligations in the normal course of business. ERPM has undergone extensive restructuring subsequent to year end. The outcome of the restructuring programme was for ERPM's underground operations to be placed on a controlled closure programme, which was originally scheduled to be completed in March 2005. Following the retrenchment of 806 employees in August 2004, the mine has achieved a significant reduction in costs, coupled with improved productivity. As a result ERPM has reported a net profit for the months of September and October 2004, and the original planned closure of the underground section has been postponed. After discussions with the relevant Government agencies, ERPM has also been awarded a state pumping subsidy of R1 million per month from April 1, 2004, to March 31, 2005, plus an additional R7 million as a first phase to install eight high pressure concrete plugs to isolate the Far East Vertical and South East Vertical shafts. Government will be assessing the pumping subsidy on a year by year basis and the payment towards the plugs at the end of each phase of the work. The installation of the plugs will be in three phases, commencing December 2004, and is planned to be completed by August 2008. CGR has continued to make net losses subsequent to year end. On the basis that the pumping subsidy remains in place, Government assists with providing funds for the eight plugs to be installed, the capitalization of interest on debt and shareholders' loans continues and the support of shareholders and creditors continues, the forecast cash flows indicate that the Group will be able to meet their obligations as they fall due. The going concern basis has therefore been applied in preparing the financial statements. 20. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (US GAAP) The financial statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP). SA GAAP differs, in certain respects, from US GAAP. The following is a summary description of these differences: 20.1 Impairment of assets Under SA GAAP, mining assets are evaluated for impairment based on the latest available information. For US GAAP purposes, in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for Impairment of Disposal of Long-Lived Assets, only impairment indicators in existence at the balance sheet date, are considered. Accordingly, there is a timing difference of when impairments are recorded under SA GAAP and US GAAP. 20.2 Post-retirement medical benefits Under SA GAAP, only the contractual liability for post-retirement medical benefits is accounted for. Under US GAAP these benefits are accounted in accordance with the provisions of SFAS No. 106, Employer's Accounting for Post Retirement Benefits Other Than Pensions, which states that both the contractual liability and the liability in excess of contributions made by plan members are accounted for. The result is therefore an increased liability under US GAAP. 20.3 By-product revenue Under SA GAAP, revenue includes by-product revenue which is an amount generated from the sale of silver (refer to note 2 to the financial statements). Under US GAAP, by-product revenue is excluded from the revenue amount and is offset against production costs. 25 CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended June 30, 2004 and 2003 (continued) 20. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (US GAAP) (continued) 20.4 Other Comprehensive Income Under SA GAAP, unrealized gains or losses on investments are included in earnings for the year. Under US GAAP, SFAS No. 130, Comprehensive Income, unrealized gains or losses are included as other comprehensive income in the Statement of Stockholders' Equity. 20.5 Bank overdraft Under SA GAAP, the bank overdraft balance is offset against cash and cash equivalents in the cash flow statement. Under US GAAP, SFAS No. 95, Statement of Cash Flows, the movement in the bank overdraft balance is disclosed under net cash generated in financing activities in the statement of cash flows. 26