Great Basin Gold Ltd.: Exhibit 99.2 - Filed by newsfilecorp.com
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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| Cautionary Note regarding Forward Looking Statements |
This discussion includes certain statements that may be deemed
"forward-looking statements" and information. These forward-
looking statements constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act
of 1934. All statements in this discussion, other than statements
of historical facts, that address future production, reserve potential,
exploration drilling, exploitation activities and events or developments
that the Company expects to take place in the future are forward-looking
statements and information. Although the Company believes the expectations
expressed in such forward-looking statements and information are based on
reasonable assumptions, such statements are not guarantees of future
performance and actual results or developments may differ materially from
those in the forward-looking statements and information. Factors that
could cause actual results to differ materially from those in forward-
looking statements include market prices, exploitation and exploration
successes, drilling and development results, continued availability of
capital and financing and general economic, market or business conditions. |
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| Cautionary Note regarding Non-GAAP Measurements |
Cash production cost per ounce/tonne is a not a generally
accepted accounting principles ("GAAP") based figure but rather is
intended to serve as a performance measure providing some indication of
the mining and processing efficiency and effectiveness. It is determined
by dividing the relevant mining and processing costs including royalties
by the ounces produced/tonnes milled in the period. There may be some
variation in the method of computation of "cash production cost per
ounce/tonne" as determined by the Company compared with other mining
companies. Cash production costs per ounce/tonne may vary from one period
to another due to operating efficiencies, waste to ore ratios, grade of
ore processed and gold recovery rates in the period. We provide this
measure to our investors to allow them to also monitor operational
efficiencies. As a Non-GAAP Financial Measure cash production costs should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. Adjusted loss per share is
also a Non-GAAP measure and is calculated by excluding the impact of
certain fair-value accounting charges. There is material limitations
associated with the use of such Non-GAAP measures. |
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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Great Basin is a mineral exploration and development company
that is currently focused on delivering two advanced stage projects: the
Hollister Project (“Hollister”) on the Carlin Trend in Nevada, USA and
the Burnstone Project (“Burnstone”) in the Witwatersrand Goldfields in
South Africa. The Company, currently recognized as an emerging producer, will
migrate to the rank of a junior gold producer as production from these two
projects increase during 2011 and 2012. Over and above the exploration being
conducted at the above mentioned properties, greenfields exploration is being
undertaken in Tanzania and Mozambique.
This Management’s Discussion and Analysis ("MD&A") should
be read in conjunction with the interim financial statements of Great Basin Gold
Ltd. ("Great Basin", the "Company", or the “Group”) for the three months ended
March 31, 2011 and the year ended December 31, 2010 which are prepared in
accordance with International Financial Reporting Standards and are available
through the internet on SEDAR at www.sedar.com. All dollar amounts herein are
expressed in Canadian Dollars unless stated otherwise. This MD&A is prepared
as of May 15, 2011.
1. Executive summary
Highlights for the quarter include :
- Completion of capital project at Burnstone with maiden revenue recognized.
- Improvement of recoveries at Esmeralda plant.
- Hollister operation removed from potential pattern of violation (“PPOV”).
- Successful completion of a $86 million bought deal public offering
(which included exercise of the underwriters’ 15 percent over-allotment right) at a
record high price for a Great Basin offering of common equity.
- Completed Credit Agreement with a major international bank for a US$70
million term loan financing to allow repayment of the high cost 2008 Senior
Secured Notes.
- Continued decrease in loss from operating activities as revenue from both
projects increase.
Our results are now being prepared in accordance with
International Financial Reporting Standards (“IFRS”). Although the transition to
IFRS had minimal impact on operating results the presentation of the unaudited
consolidated financial statements for the quarter ended March 31, 2011 differ
from that used in all previously issued financial statements. Further details on
the conversion to IFRS is presented in the notes to our unaudited consolidated
financial statements as at and for the quarter ended March 31, 2011.
|
3 months
ended
March 31
2011 |
3 months
ended
March 31
2010 |
| Recovered Au eqv oz |
29,593 |
12,533 |
| Au eqv oz sold |
20,118 |
6,062 |
| Cash production cost per Au eqv oz sold |
$695 |
$825 |
| Revenue ($’000) |
$26,343 |
$6,822 |
| Loss from operating activities ($’000) |
($827) |
($6,601) |
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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South African operations
At Burnstone, the Metallurgical Plant as well as all other
major capital projects were commissioned during January 2011. 5,511 Au oz were
recovered during the quarter with 2,794 oz sold to record maiden revenue of $3.8
million. Cash production cost1 per tonne was $68 (ZAR490) for the
quarter, which is inline with the planned cost during production build-up.
Ounces recovered were predominantly from development ore processed, which
includes more dilution than stoped material and negatively impacts on the mill
head grade. This lower head grade also impacts on recoveries with 83% achieved for
the quarter on the 0.03 Au oz/t (1.03 g/t) head grade. Recoveries are expected
to improve to the planned 95% as the head grade increases. The impact of the
lower head grade is reflected in the cash production cost per ounce of $1,344
(ZAR 9,555) recorded for the quarter. The Metallurgical Plant is
performing in line with the production build-up plan with approximately 199,878
tonnes processed during the quarter.
Nevada operations
Hollister maintained the momentum from Q4 2010 by recording
17,324 Au eqv2 oz in revenue during the quarter, with an additional
11,000 Au eqv oz delivered to the refiner by quarter end that has not been
included in revenue. During the continuing installation of the acid regeneration
system at the Esmeralda Mill loaded carbon is sent to the refiner as opposed to
dore, which results in a timing delay as to when the revenue on these ounces can
be recognized. In total, approximately 28,500 Au eqv oz were therefore delivered
to the refiner during the quarter. Notwithstanding the delay caused in
recognizing the revenue on carbon treatment, replacing the carbon delivered the
planned results, with Au recoveries increasing to an average of 88% during the
quarter. The program to continuously replace carbon commenced in February 2011 and since then, Au recoveries have exceeded 90% with Ag recoveries exceeding 70%. The Esmeralda Mill
treated 21,634 tonnes during the quarter with an average Au eqv head grade of
approximately 1 oz/t (32.15 g/t). Cash production costs for the quarter were
$670 per Au eqv oz and are still impacted by the lower recoveries and the
additional costs incurred in replacing the carbon.
The Company has also received notification from the Federal
Mine Safety and Health Administration (“MSHA”), the responsible federal agency,
that it has formally determined that a PPOVdoes not exist at Hollister and so
has removed the Company from the PPOV Federal watch list.
Exploration at Hollister continued during the quarter, with
drill results from the Velvet target indicating potential for southerly
extensions of the Gloria vein system (some 6,000 feet or 1,820 meters to the
north-northwest), as well as numerous silicified zones interpreted to be deeper
expressions of epithermal Au-Ag mineralization above. The Velvet targets will be
further tested by surface drilling during the upcoming summer field season. In
addition, fifteen boreholes were completed on the Blanket zone, testing the
extensions of Blanket zone mineralization exposed by trial mining at 3000N 1E,
which is located in the Clementine #18 vein. The close relationship of the
development of bonanza grades with underlying high grade “pay-shoot” epithermal
veins is becoming evident. As a consequence, the Blanket drilling program is
being modified and extended to test other targets within the mine development.
Stope delineation drilling in the western section of the mine has indicated the
emergence of another significant pay shoot on and around the Clementine #18
structure, as well as the intersection of a number of unmodelled veins with
significant gold and silver grades. These are interpreted as splays of existing
high grade veins.
_________________________________
1 Cash production cost is a non-GAAP measure and is
calculated by deducting non-cash charges from production costs (refer to section
12.2)
2 Au eqv oz is calculated based on US$1,325Au and
US$30Ag.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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Corporate
The Company closed a $75 million bought deal public offering,
as well as the 15% over-allotment option, on February 23, 2011 with the proceeds
from this transaction mainly being utilized for working capital requirements
during the production build-up at the Burnstone Mine. A US$70 million Term Loan
facility was also closed on March 16, 2011 with the proceeds being utilized to
settle the 2008 Senior Secured Notes (“SSN”). The facility has been fully drawn
down and has a term of 4 years, is repayable in quarterly installments
commencing September 2011, and bears interest at a premium of 3.75% over the 3
month US LIBOR rate. It is secured by the Company’s Nevada assets. As part of
the facility, the Company executed a zero-cost-collar hedging program,
consisting of a total of 117,500 ounces of gold spread over a 4 year term
commencing in January 2012. The call option price was fixed at US$1,930 per
ounce with the put option at US$1,050 per ounce, and as long as gold trades
within these prices, there is no cash cost to the hedge.
The delay in recognizing revenue from the Nevada operations had
a negative impact on the earnings for the quarter. Loss from operating
activities significantly improved from the $6.6 million loss recorded in the
comparative quarter in 2010 to a loss of $827 thousand recorded in Q1 2011. The
net loss for the quarter of $20.3 million was impacted by the fair value charges
attributable to the initial recognition and mark-to-market of the zero cost collar (“ZCC”) hedge
programs ($6.0 million) as well as the settlement loss recognized on repayment
of the SSN ($8.8 million). The adjusted loss per share3 for the
quarter is $0.01with the loss per share for the quarter being $0.05.
Pre-development costs ($3.7 million for the quarter) incurred at Hollister
are still being expensed until such time as the required permitting is
granted to allow for full-scale underground mining.
2. Results of Operations
Revenue
The table below provides a summary of Au eqv oz sold.
|
3 months ended |
| March 31 2011 |
March 31 2010 |
| Au eqv oz sold –
Nevada operations |
17,324 |
6,062 |
| Au eqv oz sold –
South African operations |
2,794 |
- |
| Total Au eqv oz
sold |
20,118 |
6,062 |
Revenue of $26.4 million from the sale of 17,324 Au eqv oz from
our Nevada operations as well as 2,794 Au oz from our South African operations
was recorded for the quarter. Approximately 11,000 Au eqv oz delivered to
refiners were not included in revenue (approximately $15 million in revenue) for
the quarter due to the transfer of ownership to the buyer only taking place in
April. In Nevada the sale of 53,671 Ag oz, included in the Au eqv oz,
contributed $1.6 million to revenue.
_________________________________
3 Adjusted loss per share is a non-GAAP measure used
by the Company to compare quarterly and annual results on a sustaining basis by
eliminating out of the ordinary expenses incurred.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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Production costs
The following table provides a breakdown of the production
costs incurred.
|
3 months ended |
| March 31 2011 |
March 31 2010 |
| Production costs –
Nevada operations ($’000) |
$11,690 |
$5,090 |
| Production costs –
South African operations ($’000) |
$2,456 |
- |
| Total
production costs ($’000) |
$14,146 |
$5,090 |
| Production cost per Au eqv oz – Nevada operations |
$675 |
$833 |
| Production cost per Au oz – South African operations |
$879 |
- |
| Cash production cost per Au eqv oz – Nevada operations |
$670 |
$825 |
| Cash production cost per Au oz – South African
operations |
$843 |
- |
Production costs as well as cash production costs are impacted
by the weighted average cost of stock piles and metal in process at the
beginning of the reporting period. The construction phase of the South African
operations was only completed in January 2011 with all pre-production costs
capitalized to the asset under construction. The impact of this is that the
opening stock pile and metal in process for the South African operations carried
no value on February 1, 2011 when the production phase commenced. The table
above reflects this impact on production costs and cash production costs.
Adjusting for the impact of the opening inventory results in cash production
costs of $1,344 per Au oz sold and $68 ($49 mining and $19 milling) per tonne. These costs are in-line with the planned cost target during the production
build-up phase. The cash production costs per Au oz were impacted by the head
grade sent to the mill which predominantly consisted of development ore that
carries additional dilution to stoping material.
Cash production costs for the Nevada operations over the
quarter increased 4% from the prior quarter and amounted to $646 (Q4 2010: $620)
per tonne consisting of $441 (Q4 2010: $410) mining and $205 (Q4 2010: $210)
milling and haulage. On an Au eqv oz basis, cash production costs for the
quarter improved by 3% over Q4 2010 and consisted of $458 (Q4 2010: $455) for
mining and $212 (Q4 2010: $235) for milling and haulage. The improvement in the
metal recoveries for the quarter and the resultant improvement in costs were
somewhat off-set by the higher royalty cost incurred as a result of the higher
average Au and Ag prices. On a cost per tonne basis the increase in the mining
costs is the result of the lower ore tonnes extracted during the quarter with
the improvement in milling costs impacted by the ore tonnes processed as well as
the result of the increased focus on the costs incurred at the mill.
The significant improvement in the cash production costs when
compared to Q1 2010 is a result of the cost management project and the increase
in production volumes.
Depletion charge
This is a non-cash item and relates to the amortization charge
on the Hollister and Burnstone mineral properties. It is calculated on the ratio
of Au eqv oz sold to the proven and probable reserves. The increase year on year
is due to the increase in Au eqv oz recovered and sold from trial mining at
Hollister ($1.1 million) as well the commencement of production at Burnstone
($28,000).
Depreciation charge
This is a non-cash item and relates to the depreciation charge
for the Nevada and South African operations. The increase year on year is due to
the commencement of production at the Burnstone operation ($0.5 million) as well
as the increase in trial mining activities at the Nevada operations ($0.7
million).
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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Exploration expenses
The exploration expense for the quarter was $2.9 million
compared to $2.4 million in the previous quarter and $2.3 million during the
quarter ended March 31, 2010. These costs predominantly relate to underground
exploration at our Hollister property which amounted to $2.4 million for Q1
2011. The increase from Q4 2010 is due to the additional drilling conducted on
the Blanket zone and Velvet target.
Pre-development expenses
The pre-development expenditures relate to underground
development at our Hollister Project and amounted to $3.7 million during the
quarter compared to $3.1 million in the previous quarter and $2.9 million for
the quarter ended March 31, 2010. The rate of development remains fairly
consistent throughout the year. Some development ends were accelerated during Q1
2011 to ensure adequate stopes are available to deliver the planned ounces for
the year.
Foreign exchange gain
This movement predominantly relates to the fluctuation between
the Canadian (“$”) and United States (“US$”) dollar on the senior secured notes
and term facility agreement as these are denominated in US$. The strong
performance of the $ against the US$ in Q1 2011 resulted in a decrease in the
liability measured in $ with the corresponding credit charged to earnings.
Stock based compensation
The income statement charge relating to this non-cash expense
is impacted by the quantum and timing of stock options issued as well as the
valuation thereof being influenced by the volatility of the Company’s share
price.
Interest expense
Interest expenses were capitalized during the construction
phase of the Burnstone project in terms of the Company’s accounting policy. The
construction phase concluded in January 2011 and future interest will therefore
be expensed through the income statement. The interest expense includes the
accretion charge on the convertible debentures, interest on the term loan
facilities as well as the interest incurred on the SSN.
Loss on settlement of SSN
This is a non-cash accounting charge resulting from the
accounting method for the SSN. A monthly accretion charge to increase the
recorded liability is processed to increase the liability to the settlement
value over the maturity period of the notes. Due to the notes being settled on
March 15, 2011 as opposed to December 12, 2011 the remaining accretion charge
was recorded on the day of settlement, resulting in an accounting loss on
settlement. From a cash flow perspective the notes were settled in terms of the
note agreement and no additional costs were incurred on settlement.
Unrealized loss and mark-to-market adjustments on financial
instruments
A fair value loss of $7.3 million was recorded in March 2011 on
initial recognition of the ZCC hedge program for the US$70 million term loan. A
profit of $1.3 million was recognized on the fair value movement of the ZCC
hedge programs for the quarter. The fair value adjustment recorded in the
financial statements is calculated with reference to the price of the call
options and is impacted by gold price volatility, US interest rates and the
quantity and remaining term of the put and call options in the structure. These
fair value adjustments are non-cash charges with cash earnings only impacted
should the price of gold exceed the price of the call options (US$1,705 and
US$1,930).
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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3. Financial condition review
Total assets
Total assets increased by $69 million and current assets by $64
million since December 31, 2010 predominantly due to the increase in inventories
as well as cash resources following the closure of the $75 million bought deal
offering during the quarter.
Total liabilities
Total liabilities increased by $26 million since December 31,
2010 mainly due to the following reasons:
Convertible debentures
The balance increased by $4 million due to
the accretion charge being recorded over the term of this facility.
Term facility and SSN
The Company entered into a term facility
agreement with Credit Suisse in March 2011 for US$70 million. US$52 million
from the proceeds of this loan was used to settle the SSN on March 15, 2011.
Other liabilities
A net fair value liability of $6 million was
recorded on the hedge program executed in March 2011.
Shareholder’s equity
During the quarter, the Company’s issued share capital
increased by 39 million common shares due to the following transactions:
Bought deal public offering
The Company closed a $75 million bought
deal public offering in February 2011. The 15% overallotment option of the
underwriters was executed as well taking the gross proceeds to $86 million.
33.8 million shares were issued at a price of $2.55 per share which
constituted a 5% discount to market price on the day.
Share purchase warrants exercised
4.4 million share purchase
warrants were exercised during the quarter.
Share purchase options exercised
900,000 Share purchase options
were exercised by employees and management during the quarter.
At March 31, 2011, the Company had 453 million common shares
issued and outstanding. A further 21 million share purchase warrants and 22
million share options were outstanding.
As of the date of this MD&A the Company had 454 million
common shares issued and outstanding. A further 19.6 million share purchase
warrants and 21.6 million share options were outstanding.
Liquidity
The Company monitors its spending plans, repayment obligations
and cash resources and takes actions with the objective of ensuring that there
is sufficient capital in order to meet short term business requirements, after
taking into account cash flows from operations and the Company’s holdings of
cash and cash equivalents. The Company believes that these sources
will be sufficient to cover the likely short and long term operating cash
requirements.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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Taking cognizance of the start-up risks associated with new projects management has initiated and closed a bought deal public offering in February 2011 with net proceeds of $81 million received on February 23, 2011. Proceeds from this offering were used to settle outstanding construction creditors for Burnstone with the remainder predominantly being used to fund working capital during the Burnstone production build-up.
The Company utilised net cash of $9.5 million in operating activities during the quarter, compared to the $19.2 million utilized in operating activities during the quarter ended March 31, 2010. The pre-development costs incurred at the Company’s Hollister project are being expensed and are also included under cash utilised in operating activities as opposed to investment activities where capital development is included. The increase in inventories due to the delay in recognizing the revenue on all ounces delivered to refiners as well as the impact of valuing the Burnstone inventories for the first time resulted in a cash outflow from operations of $8.5 million for the quarter.
Cash utilized in investment activities increased to $36.7 million during the quarter compared to $29.2 million in the quarter ended March 31, 2010. This increase is due to the increased underground development activities at Burnstone as well as the completion of the capital project.
The Company received a net amount of $102 million from
financing activities during the quarter. Net proceeds from financing activities
predominantly relate to the bought deal public offering and warrants exercised
($88 million) and the net increase in debt ($14 million).
At March 31, 2011, the Company had net working capital4
of $49 million, that included $68 million in cash reserves.
The Company has no "Purchase Obligations", defined as any
agreement to purchase goods or services that is enforceable and legally binding
on the Company that specifies all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction.
4. Operations review
4.1 Nevada operations
The Company’s Nevada operations consist of the Hollister
Property (“Hollister”) located in the northern part of the Carlin Trend and the
Esmeralda Property (“Esmeralda”) located in the south-west close to the border
between Nevada and California. Great Basin’s surface exploration efforts at
Hollister during 1997-2001 resulted in the discovery and delineation of several
high-grade epithermal gold-silver vein systems on the property. The main vein
systems, called Clementine and Gwenivere, have been accessed by decline and
underground development for geological and resource confirmation and trial
extraction of mineral resources; the development also provides staging for the
ongoing exploration and development drilling that is in progress.
_________________________________
4 Working capital includes cash and cash
equivalents, trade and other receivables, inventories, trade payables and
accrued liabilities and is considered a non-GAAP measure.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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The environmental impact study (“EIS”) process for the
Hollister Project is currently underway by the Bureau of Land Management
(“BLM”). Pending the completion of the EIS process and receipt of BLM approval
for the amended Plan of Operations, the underground exploration and development
activities at Hollister must be conducted within the 275,000 ore tons per year
limit set out in the Water Pollution Control Permit issued by the Nevada
Department of Environmental Protection , and in a manner that aims to fully
protect the environment and archaeological resources near the development and
will not create any additional surface disturbance or significant new
environmental impacts.
Esmeralda consists of patented and unpatented mining claims,
fee lands, water rights and a mill. Ore extracted through the trial mining
activities conducted at Hollister is trucked to Esmeralda for metallurgical
processing.
Other features of Esmeralda include crushing facilities,
stockpile areas, waste rock facilities, roads and other miscellaneous areas.
There are currently no mining activities or further exploration work being
conducted at Esmeralda.
Esmeralda is approximately 220 miles (354 kilometers) from
Winnemucca and approximately 290 miles (467 kilometers) from Hollister with 80%
of the latter distance over paved roads.
Progress on the Environmental Impact Statement
The Preliminary Draft EIS (“PDEIS”) was completed and presented
to the BLM for comments during the quarter. The BLM indicated that it expected
to finalize its comments on the PDEIS by end April 2011. The estimated
completion date of the EIS remains Q1 2012.
Trial stoping and milling
|
3 months
ended March 31
2011
|
3 months
ended March 31
2010
|
| Ore tonnes to
surface |
21,828 |
23,391 |
| Contained Au oz
extracted |
20,177 |
25,208 |
| Contained Ag oz
extracted |
154,448 |
166,643 |
| Contained Au eqv
oz extracted |
22,434 |
27,707 |
| Contained average
grade Au eqv oz/tonne |
1.03 |
1.18 |
| Tonnes milled |
21,634 |
14,534 |
| Recovered Au oz
|
22,012 |
11,756 |
| Recovered Ag oz
|
111.757 |
51,762 |
| Recovered Au eqv
oz |
24,082 |
12,533 |
| Recovery % Au |
88% |
77% |
| Recovery % Ag |
68% |
57% |
The presentation of production results for the Nevada
operations were changed from imperial to metric to be consistent with production
results reported for the South African operations and allow for improved
comparability to industry. Comparative results have been adjusted to
conform.
Ore tonnes to surface were7% lower than Q1 2010 due to
additional focus on underground development during the quarter to ensure
adequate stopes are available for the remainder of the year to deliver the
planned 110,000 Au eqv oz sold. Production from the Blanket zone was limited to
1,025 tonnes of lower grade (average of 3 oz/t Au eqv) that was blended with
normal production. Current exploration drilling and evaluation of the Blanket
zone continues with further production of the high grade “sweet spot” expected
during the next quarter.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS |
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QUARTER ENDED MARCH 31, 2011 |
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Mill availability was good for the quarter although a few
interruptions to process were experienced due to adverse weather conditions. Au
and Ag recoveries improved 10% and 11% respectively from Q4 2010 due to the
continuous replacement of carbon to prevent the fouling of carbon and the
resultant drop in recoveries. The installation of the acid regeneration system
is scheduled for completion in Q3 2011 and in the interim loaded carbon is sent
to the refiner as opposed to dore which results in a timing delay as to when the
revenue on these ounces can be recorded. The program to continuously replace
carbon commenced in February 2011 and since then, Au recoveries have exceeded
90% with Ag recoveries exceeding 70%.
On November 19, 2010, the Company was notified by letter from
the MSHA that MSHA had conducted a “pattern” of violation screening pursuant to
Section 104(e) of the Federal Mine Safety and Health Act of 1977. The
letter stated that MSHA had initially concluded that a potential pattern of
violations exists at Hollister and set out a process by which Hollister could
work with MSHA to avoid any further sanctions pursuant to that program. MSHA
conducted a series of safety inspections at Hollister during the quarter to
assess if a potential pattern of violations exist. Hollister was able to prove
its culture of safe and responsible operations during these inspections and the
Company received notification from MSHA that it has formally determined that a
pattern of violations does not exist at Hollister and so has removed the
Company from the PPOV Federal watch list.
Underground exploration
Underground exploration and stope delineation drilling has
continued during Q1 2011. In total, two exploration holes at the Velvet target,
fifteen Blanket exploration holes (totaling 15,487 feet or 4,693 meters) and
twenty-four stope delineation holes (totaling 10,080 feet or 3,054 meters) were
completed.
Velvet Target
Two initial exploration holes have been
completed, testing the Velvet target north of the current mine infrastructure.
The boreholes were drilled at low angles across the Ordovician basement strata,
and were approximately 500 feet (160 meters) below the Tertiary volcanic
unconformity. HDB-432 was drilled laterally to 3,383 feet (1,025 meters) and
HDB-433 to 2,854 feet (865 meters). Of note, the current Hollister mine
development, exposing the Gwenivere and Clementine vein systems, extends
vertically from 5,050 to 5,425 feet (1,530 to 1,644 meters) above mean sea
level. HDB-432 tested to an elevation of 4,600 feet (1,394 meters) and HDB-432
to 5,000 feet (1,515 meters) above mean sea level.
A number of significant silver assays
(5.5 to 7.4 opt Ag, 190 to 255 g/t Ag) with anomalous gold values were received
in the 630 to 705-foot (210 to 240-meter) zones. These are interpreted to be
southerly extensions of the Gloria vein system some 6,000 feet (1,820 meters) to
the north-northwest. The correlation would imply structural continuity with the
Gloria vein system and, as such, constitutes a very significant vein extension
target, requiring further exploration drilling. The metal zoning is considered
indicative of mineralized structures in the lower zones of a Hollister
equivalent epithermal mineral system.
Borehole HDB-432 also intersected
multiple mineralized vein and silicified zones between 875 and 1,117 feet (265
to 338 meters). HDB-433 intersected similar zones between 1,314 and 2,795 feet
(398 to 847 meters). The silicified zones ranged from 2.6 to 28.4 feet (0.8 to
8.6 meters) in width. These zones correlate with existing structural features as
well as historic mercury diggings such as Butte #2 and Velvet north of the
current mine development. Multi-element geochemical analyses and clay mineralogy
studies are in progress. The Velvet targets will be further tested by surface
drilling during the upcoming summer field season.
11
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
Blanket Zone
During the quarter fifteen boreholes
were completed, testing the extensions of Blanket zone mineralization exposed by
trial mining at 3000N 1E; assays from nine boreholes are still awaited. The
drilling is indicating structural cutoffs of this mineralization in-line with
the structures controlling the Clementine #18 vein pay shoot below.
The evaluation strategy for the Blanket
zone mineralization is being modified as mining and drilling advance. It is
clear that the bulk sample exposures are proving to be a more accurate in
evaluating the variable extent of the bonanza grade mineralization. Planned
infrastructure will allow ramping up to 5478 level, followed by phased short
distance fan drilling.
The close relationship of the
development of bonanza grades with underlying high grade “pay-shoot” epithermal
veins is becoming evident. As a consequence, the Blanket drilling program is
being modified and extended to test other targets within the mine
development.
Stope Delineation
The stope delineation drilling has
continued evaluating the main Gwenivere (#8) and Clementine (#14-19) veins. Of
note is
-
the emergence of another significant pay shoot on
and around the Clementine #18 structure, in the western section of the mine,
from which trial mining is currently grading at a diluted average of 2.844 opt
(97.50 g/t) Au and 22.2 opt (761 g/t) Ag over stope lengths of approximately
162 feet (49 meters) and average vein width of 2.4 feet (0.73 meters); and
-
the intersection of a number of unmodelled veins
(VN #99) with significant gold and silver grades. These are interpreted as
splays of existing high grade veins.
Surface Exploration
BLM approvals for surface drilling at Hollister have been
received. Budgeting and planning of the surface exploration drilling for Q2-Q3
2011 are now being advanced, and include a further eight boreholes on the Hatter
Graben target and surface follow up of the Velvet underground drilling.
Significant progress has also been made on the sub-regional and
mine site scale collation and interpretation of geophysical data, specifically,
airborne magnetic, ground CSMAT (high resolution resistivity), and gravity. This
work is in process of being integrated with a first-pass structural
interpretation of the larger Hollister area. The structural work has
significantly advanced the understanding of the timing and geometry of ore fluid
controlling basement structures, given that the Hollister mineralization is
approximately 15 million years old, and hosted in 430 million year old Vanini
metasedimentary rocks and unconformably overlying 16 million year old mid
Miocene volcanic rocks.
The whole target rationalization and prioritization at
Hollister is in the process of being reviewed, and there are number of new plays
to be investigated over the forthcoming exploration drilling seasons. These
include a number of structures that are similar to those that control the
geometry of the Gwenivere and Clementine vein systems. To the southeast, altered
intrusive rocks have been interpreted from the geophysical data, interfacing
with the Hatter Graben vein system. A further phase of surface drilling is
planned for the Hatter Graben during Q3 2011. The existence of Carlin age (38-43
Million year old) mineralization in the southeastern portion of the claim block
cannot be ruled out. In this area, a conspicuous structural interface with the
Carlin Trend has been identified which warrants further investigation. CSMAT
high resolution resistivity data is being integrated with empirical borehole
data, and a number of new vein system targets are emerging from this work.
12
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
Plans for remainder of 2011
The Company plans to continue its trial mining (ore removal and
test-processing) activities at Hollister within the allowable ore tonnage
authorizations of its existing permits, with all extracted material to be
processed at the Esmeralda mill. The acid regeneration system being installed
at the Esmeralda mill to enhance recoveries by preventing carbon fouling is
scheduled for completion in Q3 2011. The Nevada operations remains on target to
produce an estimated 110,000 Au eqv oz in 2011 at a cash production cost
estimated to range between US$600 to US$650.
The Company is continuing with underground infill drilling with
a view to bringing the current inferred mineral resources into the indicated or
measured categories, as well as step-out drilling to further explore the
potential for western, northwestern, down dip and Blanket zone extensions to the
mineralized vein systems. The results of underground mapping and exploration
drilling continue to refine the Company’s understanding of the Hollister
Property deposit, to the extent that additional mineralization continues to be
identified within the mineralized vein systems.
The Company will also continue working on finalization of the
EIS for Hollister by Q1 2012.
4.2 South African operations
The Burnstone Property is located in the South Rand area of the
Witwatersrand Goldfields, approximately 50 miles (80 kilometers) southeast of
the city of Johannesburg and near the town of Balfour. The Burnstone Project has
received all of the required permits to complete the development of the mine and
commence full-scale underground mining. Block B and Block C, containing an
estimated 280,000 oz and 231,400 oz of Au, respectively, will be the first areas
of the ore body to be accessed and mined in the next 36 months, while
underground access to the remaining areas of the ore body under the mine plan is
being developed.
Commissioning of capital projects
The initial mine capital expenditure program has generally been
completed and the mine has commenced with production build-up. Major capital
projects that include the vertical shaft, metallurgical plant, decline,
ventilation shaft and required surface and underground infrastructure have been
commissioned by January 2011. The components of the mine required to enter
commercial production have thus been completed and commissioned and therefore
concludes the development phase of the project. Further development costs will
be capitalized as per the Company’s accounting policy.
Production results
|
3 months
ended March 31
2011
|
3 months
ended March 31
2010
|
| Development
(meters) |
3,263 |
- |
| Stoping (square
meters) |
3,760 |
- |
| Ore tonnes to
surface |
92,116 |
- |
| Contained Au oz
extracted |
3,409 |
- |
| Contained average
grade Au eqv oz/tonne |
0.04 |
- |
| Tonnes milled |
199,878 |
- |
| Recovered Au oz
|
5,511 |
- |
| Recovery % Au |
83% |
- |
Ore tonnes to surface increased steadily throughout the quarter
in line with the increase in development meters. Development rates will increase
from a monthly average of 3,300 ft (1,000 meters) in Q1 2011 to 10,000 ft (3,000 meters) by the end of Q4 2011. The majority of
ore tonnes for the quarter relates to low profile on-reef development with only
26% of contained ounces extracted from stoping. This ratio of development tonnes
to stope tonnes impacts on the head grade delivered to the mill which again
negatively impacts on the recoveries.
13
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
Congestion underground and the ability to clean the material
from stopes and development ends still remain a challenge while development work
is continuing around the vertical shaft on 40 and 41 level. Additional travel
ways and material handling systems around the shaft bottom is being developed to
enable maximum hoisting through the vertical shaft which will alleviate the
congestion and improve cleaning time.
Geological interpretation and faulting usually associated with
developing a new ore body within the Witwatersrand Basin also impacts on the
required waste development to access the reef horizon. Only once the waste
development is completed can reef development commence to open up the stopes.
Progress on long hole stoping remains encouraging with the efficiency of the teams improving on a monthly basis. Dilution is well managed and the team has shown that they can stope at the required rate given the availability of stopes and the ability to clean the material. During the trial period we achieved 1.5 to 5 meters of face advance per blast. The team has now increased face advance to 10 meters per blast and encouraging results are achieved with the throw blasting which reduces the stope cleaning required. Dilution in the B-Block remains a challenge due to the weak shale in the footwall. Good progress has however been achieved in addressing this with dilution decreasing from 122% to 54% quarter on quarter. Long hole stoping commenced in the C Middle block in early May 2011 where a more competent footwall is found resulting in further improvements in dilution.
The head grade delivered to the mill during the quarter was in
line with the production build-up plan of 0.03 Au oz/t (1.03 g/t). The head
grade will increase steadily throughout the year as the ratio of stope tonnes to
development tonnes increase. The Metallurgical Plant is performing in line with
the production build-up plan with 199,878 tonnes processed during the quarter.
Underground tones are being augmented with stockpiled material to allow the mill
to operate at an average of 80,000 tonnes per month until such time as
production from underground are sufficient to increase processing rates to the
planned 125,000 tonnes per month.
Underground and surface exploration
Infill drilling from surface is being undertaken to tighten up
on the evaluation and structural geometry of certain mining blocks. Underground
evaluation is principally effected by channel sampling of exposed sidewalls of
development drives and stope panels. Horizontal or shallow dipping cover
drilling is undertaken for development control.
During Q1 2011, 2,686 channel samples were taken with over
10,000 samples taken to date. These samples indicate a summary gold grade of
5.88 g/t, channel width of 81 cm and gold content of 473 cmg/t. These results
are in-line with or better than mine development expectations. Although current
channel widths are skewed due to the higher number of samples for Block B3
sampling, the Life-of-Mine plan indicates an average channel width of 68 cm.
Surface Exploration outside the Burnstone Mining
Right
Surface exploration has recommenced on mineral rights locating
outside the Burnstone mining right, with the initiation of the shallow basin
edge target evaluation program, run under the South Rand Basin Project. Historic
surface diggings and limited stoping of the Kimberley Reef are being
investigated on the farm Rietbult, approximately 7 kilometers northwest from the
Burnstone Mine infrastructure. The first two diamond holes intersected a
Kimberley Reef stope approximately 55 meters below surface, and the Kimberley Reef at 87 meters below surface. Assay results are
awaited. Previous exploration in the area included historic drilling in the
1960’s, as well as validation underground channel sampling of reef exposures.
This work, albeit restricted in extent, showed the Kimberley Reef to be narrow
(10 to 30 cm) but with grades ranging from trace to 35 g/t Au. The current
drilling program will test in the order of 4 kilometers of potential strike,
with a view to evaluating satellite, shallow, narrow reef/high grade underground
development.
14
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
Plans for remainder of 2011
Reef development remains the key to delivering the planned production build-up. During Q1 2011 the ration of waste to reef development was skewed towards waste development with the resultant impact on stopes available for mining. Although this ratio has already improved with all development ends currently being on-reef, a variance of 15% to 20% in 2011 production targets can be expected if this trend continuous. Production targets, inclusive of this potential variance, for the remainder of 2011 are 14,000 Au oz for Q2, 28,000 Au oz for Q3 with 52,000 Au oz targeted for the Q4 2010. A positive development for the remainder of the year is the higher than planned grade in the mining blocks currently accessed which could negate the impact on production targets of the additional waste development. Cash costs for 2011 are estimated in the range of US$600 – US$650/oz and will be impacted by the actual ounces recovered for the remainder of the year.
5. Market Trends
Gold opened at US$1,405 on January 3, 2011 and traded downwards
in January to close at a low of US$1,319 on January 28, 2011. Continuous concern
regarding stability and growth in the Global economy as well as the political
unrest in North Africa and the Middle East contributed to a steady increase in
the Au price from February 2011. A record close of US$1,447 was recorded on
March 24, 2011 and was also the highest close for the quarter. The upward trend
however continued subsequent to quarter end with a new record high closing price set at
US$1,541 on May 4, 2011 after which we saw some volatility with a closing price
of US$1,486 on May 6, 2011.
The price of silver also impacts on the revenue and earnings of the Company, although to a lesser extent than the price of gold. Included in revenue for the quarter is 53,671 Ag oz sold from trial mining activities at Hollister. Silver opened on January 3, 2011 at US$30.63 and traded similar to gold with a low of US$26.68 recorded on January 28, 2011 and then a steady increase to close the quarter at US$37.87. Similar to gold, the price of silver increase subsequent to quarter end and closed as high as US$48.70 on April 28, 2011 with a similar correction to gold seen subsequently with a closing price of US$34.20 on May 6, 2011.
Gold equities did not always follow the trend set by the metal
price with a growing disparity between equity performance and metal price
evident. After opening at $2.95 on January 3, 2011 the share price decreased to
$2.36 on March 10, 2011 and closed at $2.55 on March 31, 2011. The volatility of
the gold price seen in early 2011 as well as the bought deal public offering
closed on February 23, 2011 impacted on our share price in Q1 2011 with an
average trading price of $2.60 achieved for the quarter.
The exchange rate between the US$, $ and the South African Rand
(“ZAR”) impacts on the Company’s earnings and cash flow. The ZAR opened at R6.62
against the US$ on January 1, 2010 and weakened to R7.34 on February 15, 2011.
The ZAR strengthened in the second half of the quarter and closed at US$1 =
R6.78 on March 31, 2011. The US$ and $ traded at an average of US$1 = $0.98
during the quarter with the $ strengthening to US$1 = $0.96 on March 9, 2011 and
a low of US$1 = $1.01 on January 31, 2011.
15
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
6. Quarterly Information
|
Mar 31
2011 |
Dec 31
2010 |
Sept 30
2010 |
Jun 30
2010 |
Mar 31
2010 |
Dec 31
2009 |
Sept 30
2009 |
Jun 30
2009
|
| Current assets |
105,633 |
41,918 |
60,102 |
84,904 |
92,613 |
126,8622 |
78,8542 |
131,5452 |
| Other assets |
718,825 |
713,4653 |
618,9933 |
516,1913 |
408,8563 |
421,4222 |
411,9932 |
380,8392 |
| Total assets |
824,458 |
755,3833
|
679,0953
|
601,0953
|
501,4693
|
548,284 |
490,847 |
512,384 |
| Current liabilities |
89,265 |
115,525 |
87,352 |
89,467 |
60,295 |
72,974 |
27,324 |
25,369 |
| Non-current liabilities |
226,479 |
174,1413 |
217,1463 |
168,0073 |
120,0143 |
101,597 |
86,527 |
90,570 |
| Shareholders’ equity |
508,714 |
465,7173 |
374,5973 |
343,6213 |
321,1603 |
373,713 |
376,996 |
396,445 |
Total liabilities and
shareholders’ equity
|
824,458 |
755,3833 |
679,0953 |
601,0953 |
501,4693 |
548,284 |
490,847 |
512,384 |
Working capital
(deficit) |
49,419 |
(21,096) |
(19,821) |
15,400 |
48,987 |
91,624 |
47,7282
|
98,5912
|
| Revenue |
26,343 |
42,714 |
12,230 |
37,940 |
6,822 |
- |
- |
21,876 |
Expenses
(Loss) profit for the
period |
(46,684)
(20,341) |
(35,529)3
7,1853 |
(35,567)3
(23,337)3 |
(42,842)3
(4,902)3 |
(12,909)3
(6,087)3 |
(8,365)
(8,365) |
(16,382)
(16,382) |
(35,492)
(13,616)
|
Basic (loss) earnings
per share |
($0.05) |
$0.02 |
($0.07) |
($0.01) |
($0.02) |
($0.03) |
($0.05) |
($0.04) |
Adjusted (loss)
earnings per share |
($0.01) |
$0.02 |
($0.03) |
($0.01) |
($0.02) |
($0.03) |
($0.05) |
($0.04) |
Weighted average
number of common
shares outstanding
(thousands) |
431,624 |
405,857 |
351,739 |
340,609 |
336,893 |
333,856 |
333,531 |
333,215
|
1 Working capital includes cash and cash
equivalents, trade and other receivables, inventories, trade payables and
accrued liabilities and is considered a non-GAAP measure.
2 Certain prior historical amounts have been
reclassified to conform to fiscal 2011 and 2010 year presentation. These
reclassifications had no impact on previously reported results of operations or
shareholders' equity.
3 Adjusted to conform to IFRS.
The Company’s adjusted loss per share has generally been
decreasing on a quarterly basis. The generally decreasing losses are
attributable to the increased gold sale proceeds from trial mining at Hollister
as well as the commencement of production at Burnstone during Q1 2011, which
benefited from higher gold and silver prices. The Company also has an aggressive
cost management project aimed at reducing the costs at operations as well as
exploration and general corporate expenses.
7. Off-Balance Sheet Arrangements
(a) Financial guarantee
BEE legislation in South Africa requires a target of 26%
ownership in the Company’s South African projects by historically disadvantaged
South Africans by 2014. In order to comply with this legislation, Tranter
Burnstone (Pty) Ltd. (“Tranter”), a BEE company, acquired 19,938,650 treasury
common shares for $38 million in 2007, which was deemed equivalent to the 26%
underlying value of Burnstone. Tranter borrowed the funds from Investec Bank Ltd
(“Investec”), a South African bank, to purchase the shares and the Company provided a guarantee of ZAR140 million ($21 million) to cover
any shortfall in interest or principal repayments on the loan outstanding by
Tranter to Investec. A loan of $12 million (ZAR 88 million) was advanced to
Tranter in October 2010 with a further $1.6 million (ZAR11 million) advanced in
April 2011 under the guarantee agreement to enable Tranter to meet its interest
payment obligation to Investec.
16
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
As a result of this loan the remaining Tranter guarantee is now
reduced to $5.8 million (ZAR41 million). Any advances to Tranter under this
guarantee are due to be repaid by Tranter in installments from 2014 to 2017,
with interest accruing at the South African prime interest rate plus 2%.
Security for any advances made pursuant to this guarantee includes a second
charge against any shares of the Company held by Tranter (second to
Investec).
The fair value of the guarantee was determined by reference to
the Company’s exposure to potential future losses under the guarantee on grant
date. The probability of future losses under the guarantee agreement, and
therefore the fair value of the guarantee, is dependent on the estimated fair
value of the security granted by Tranter on grant date of the guarantee. Future
assessments are not required unless a change to the contractual relationship
results in a change in fair value.
(b) Hedging program
The Company does not follow a general policy of hedging commodity prices or currencies. The ZCC hedge programs described below were entered into as a condition president to finance transactions during 2010 and 2011. Management is of the opinion that the ZCC structures still allow the required exposure to increases in metal prices over the medium term.
The Company executed a ZCC hedging program in August 2010 for a total 105,000 gold ounces over a period of three years that commenced in January 2011.
As of January 1, 2011, the Company is required to deliver 1,250 gold ounces per month over a twelve month period. The remaining 90,000 gold ounces will be delivered in 24 equal monthly deliveries of 3,750 gold ounces, starting January 1, 2012. The program includes put options priced at US$850 and call options priced at US$1,705 per gold oz.
Gold delivery positions as at March 31, 2011:
|
March 31
2011 |
December 31
2010 |
Expired unexercised at no cost
Remaining positions |
3,750 ounces
101,250 ounces |
Nil ounces
105,000 ounces
|
Marked-to-market movements were calculated using an option
pricing model with inputs based on the following assumptions:
|
March 31
2011 |
December 31
2010 |
Gold price (per ounce)
Risk free interest rate
Expected life
Gold price volatility |
US$1,430
0.24% - 1.50%
1 - 33 months
14.01% - 25.07% |
US$1,419
0.25% - 1.34%
1 - 36 months
17.3% - 27% |
The Company executed another ZCC hedging program in March 2011
for a total 117,500 gold ounces over a period of four years, commencing in
January 2012.
The Company will be required to deliver 875 gold ounces per
month over a twelve month period followed by 3,000 gold ounces per month over a
twenty four month period. The remaining 35,000 gold ounces will be delivered in
12 equal monthly deliveries of 2,916 gold ounces, starting January 30, 2015. The
program includes put options priced at US$1,050 and call options priced at
US$1,930 per gold oz.
17
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
The fair value on inception and subsequent mark-to-market
movements were calculated using an option pricing model with inputs based on the
following assumptions:
|
March 31
2011 |
March 10
2011 |
Gold price (per ounce)
Risk free interest rate
Expected life
Gold price volatility |
US$1,430
0.44% - 2%
9 - 57 months
19.12% - 26.34% |
US$1,410
0.4% - 1.91%
10 - 57 months
19.65% - 26.26% |
8. Contractual obligations
| Payments due by period |
| |
Total
($’million) |
Less than one
year
($’million) |
1 to 3 years
($’million) |
3 to 5 years
($’million) |
More than 5
years
($’million) |
| Convertible
debentures (a)(b) |
166.5 |
10.1 |
20.2 |
136.2 |
Nil |
| Term loan facilities (a)(c) |
151.7 |
31.9 |
92.8 |
27 |
Nil |
| Finance lease
liabilities (a)(d) |
6.3 |
6.3 |
Nil |
Nil |
Nil |
| Operating lease
obligations |
0.4 |
0.2 |
0.2 |
Nil |
Nil |
| Asset retirement
obligations |
7.3 |
Nil |
Nil |
Nil |
7.3 |
| Other (e) |
2.5 |
0.2 |
1.7 |
0.2 |
Nil |
| Total |
$ 334.7 |
$ 48.7 |
$ 114.9 |
$ 163.4 |
$ 7.7 |
Notes
| |
(a) |
Amounts include scheduled interest payments. |
| |
|
|
| |
(b) |
The convertible debentures mature on November 30, 2014
and bear interest at the rate of 8% per annum. Interest is payable
semi-annually in arrears on May 30 and November 30 of each year. The
debentures are direct senior unsecured obligations of the Company and are
guaranteed by certain of the Company’s subsidiaries. |
| |
|
|
| |
(c) |
Term loan I |
| |
|
|
| |
|
The Company closed a $71 million (US$72 million) term
loan facility agreement (“Term loan I”) with Credit Suisse in 2010. The
loan will be repaid in 13 quarterly consecutive instalments, commencing on
May 26, 2011, 12 months after initial draw down and bears interest at a
margin of 4% over the USD LIBOR rate. The Company applied the interest
rate in effect on March 31, 2011 in determining the value of future
payments. The Company has the option to retire the loan 12 months after
draw down at no additional cost. The Burnstone project and certain
subsidiary guarantees serve as security for the loan. |
| |
|
|
| |
|
Term loan II |
| |
|
|
| |
|
The Company closed the $69 million (US$70 million) Term
loan II with Credit Suisse on March 15, 2011. The loan has been fully
drawn down and has a term of 4 years, is repayable in quarterly
installments commencing September 2011, and bears interest at a premium of
3.75% over the 3 month US LIBOR rate. The Company applied the interest
rate in effect on March 31, 2011 in determining the value of future
payments. The Company has the option to retire the loan 12 months after
draw down at no additional cost. The Nevada assets and certain guarantees
by the Company serve as security for the loan. |
18
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
| |
(d) |
The principal debt amounts will be repaid in equal
monthly installments over a period of 12 to 13 months and bear interest at
rates between 6.5% and 22.4% on outstanding capital. The finance leases
are collateralized by the leased assets which had a carrying value of $8.3
million at March 31, 2011. |
| |
|
|
| |
(e) |
Other obligations include nominal exploration and
environmental obligations. |
9. Transactions with Related Parties
Related party transactions are recorded at the exchange amount
which is the amount of consideration paid or received as agreed to by the
parties. Refer section 7(a) for details on transactions with related parties.
There were no other material related party transactions during the quarter.
Information relating to the Company’s related party
transactions is available in the Company’s annual financial statements which are
available on SEDAR at www.sedar.com.
10. Critical Accounting Estimates
The Company's accounting policies are presented in note 3 of
the most recent annual consolidated financial statements.The preparation of
consolidated financial statements in accordance with generally accepted
accounting principles requires management to select accounting policies and make
estimates. Such estimates may have a significant impact on the financial
statements.
11. Financial Instruments
Refer to section 7 above for information relating to the fair
value of financial guarantees and hedge structures.
12. Other
Additional information relating to the Company, including the
Company's Annual Information Form, is available on SEDAR at www.sedar.com.
12.1 International financial reporting standards
The Company has converted its accounting framework to IFRS on January 1, 2011. The adoption of IFRS principles has not had a material effect on the manner in which the Company reports its accounts.
The Company’s IFRS conversion project began during 2009. A formal project plan, governance structure and a project team, including an external advisor, were established. The project philosophy was to align with current accounting practices and, where possible, to minimize the impact of any changes to the business. Regular reporting was provided to senior management and the Audit Committee of the Board of Directors.
The IFRS conversion project consisted of four phases: diagnostic; design and planning; implementation; and post implementation. The impact of the conversion to IFRS is set out in note 12 to the interim unaudited consolidated financial statements for the quarter ended and at March 31, 2011.
The conversion to IFRS has had a low impact on the financial record keeping, internal control and financial disclosure of the Company due to the historical exploration and project development nature of the Company’s business. Accounting systems have been assessed and re-configured to ensure accurate reporting under IFRS, both internally and externally. The Company’s key financial staff has been trained in IFRS and the majority of them have been exposed to reporting under IFRS for five years or more.
19
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
12.2 Non GAAP measures
The Company makes reference to certain non-GAAP measures in its
reporting and believes that these measures, in addition to conventional measures
prepared in accordance with GAAP, are used by certain investors to evaluate the
Company’s performance and ability to generate cash flow. Accordingly, these
measures are intended to provide additional information and should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with GAAP.
Cash production cost
The Company reports cash production cost of ounces sold. In the
gold mining industry, this is a common performance measure but does not have any
standardized meaning. Cash production cost includes direct development, mining,
royalties, transport and processing costs incurred in the recovery of and
disposal of Au and Ag as well as allocated overhead charges.
The reconciliation of production cost to cash production cost
is presented below:
|
3 months ended March
31, 2011 |
3 months ended March
31, 2010 |
Nevada
($’000)
|
South Africa
($’000) |
Nevada
($’000)
|
South Africa
($’000) |
Production cost relating to metal sold
Less non-cash
overhead costs
included in production cost. |
$11,690
(68) |
$2,456
(102) |
$5,090
(49) |
-
- |
Total cash production costs for the
period
|
$11,622 |
$2,354 |
$5,041 |
- |
Au eqv ounces sold
Ore tonnes milled
Cash production
cost per Au eqv oz
Cash production cost per tonne |
17,324
17,984
$670
$646
|
2,794
102,298
$843
$23
|
6,109
7,345
$824
$686
|
-
-
-
-
|
Adjusted loss per share
Adjusted loss per share is used by the Company to compare
quarterly and annual results on a sustaining basis by eliminating certain fair
value adjustments and out of the ordinary expenses incurred. The reconciliation
of loss per share to adjusted loss per share is presented below:
20
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
|
3 months ended |
March 31, 2011
($’000) |
March 31, 2010
($’000) |
Loss for the period
Loss with settlement of SSN
Net unrealized loss on financial instruments
Net unrealized
mark-to-market adjustment on
financial instruments |
$20,341
($8,817)
($7,279)
$1,264 |
$6,081
-
-
- |
| Adjusted loss for the period |
$5,509 |
$6,081 |
Weighted average number of common shares
outstanding (‘000)
Adjusted loss per share |
431,624
$0.01 |
336,893
$0.02
|
12.3 Disclosure Controls and Procedures
The Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”) are responsible for establishing and maintaining adequate disclosure
controls and procedures. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in the Company’s filings under
securities legislation is accumulated and communicated to management, including
the CEO and CFO as appropriate, to allow timely decisions regarding public
disclosure. They are designed to provide reasonable assurance that all
information required to be disclosed in these filings is recorded, processed,
summarized and reported within the time periods specified in securities
legislation. The Company evaluates its disclosure controls and procedures
annually.
It should be noted that while our officers believe that our
disclosure controls and procedures provide a reasonable level of assurance with
regard to their effectiveness, they do not expect that the disclosure controls
and procedures or internal controls over financial reporting will prevent all
errors and fraud. A control system, no matter how well conceived or operated,
can only provide reasonable, but not absolute, assurance that the objectives of
the control system are met.
Except for the impact of converting the Company’s accounting
framework to IFRS as noted in section 12.1 above, there have been no other
significant changes in disclosure controls and procedures during the period
ended March 31, 2011, that could have affected or are reasonably likely to
affect the Company’s internal control over financial reporting.
12.4 Internal Control over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP. Internal
control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
Company, (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP,
and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company, and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.
21
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS |
|
| |
QUARTER ENDED MARCH 31, 2011 |
|
During 2010 the Company has designed and implemented relevant
internal controls in response to the Company’s transition from developer to
producer with further internal controls to be implemented during 2011 in
response to the Burnstone production build-up. These include new internal
controls addressing revenue recognition, inventory and production costs,
depletion, depreciation and development costs incurred following commencement of
commercial production. The implementation of these internal controls over
financial reporting will have a material impact and are reasonably likely to
affect our internal control over financial reporting.
There have been no other significant changes in internal
controls over financial reporting that have affected or are reasonably likely to
affect our internal control over financial reporting during the period ended
March 31, 2011.
22
