Great Basin Gold Ltd.: Exhibit 99.2 - Filed by newsfilecorp.com
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
| Cautionary Note regarding Forward Looking Statements
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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 |
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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 processed 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 and other non-operating charges.
There is material limitations associated with the use of such Non-GAAP
measures. |
1
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Great Basin Gold Ltd (“the Company” or “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 for
the three and six months ended June 30, 2011 and the annual financial statements
for the year ended December 31, 2010 which 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 August 12,
2011.
The Company returned a much improved quarter in respect of Au
and Ag ounces sold which combined with an improvement in cash costs allowed the
Company to report adjusted earnings per share1 for the quarter (Q1
2011: adjusted loss per share of $0.01) .
Highlights for the quarter included :
- 115% increase in revenue quarter on quarter to $57 million.
- 100% increase in Au eqv oz sold quarter on quarter to 40,141.
- Operational improvement at Nevada operation with good progress made on
long hole stoping at Burnstone.
- 10 million warrants exercised by quarter end with a further 9.2 million
warrants exercised subsequently.
- Completed Credit Agreement with a major international bank for a US$40
million standby debt facility.
|
3 months ended |
6 months ended |
June 30 2011 |
March 31 2011 |
June 30 2010 |
June 30 2011 |
June 30 2010 |
Recovered Au eqv oz |
31,651 |
29,593 |
40,733 |
61,244 |
53,157 |
Au eqv oz sold |
40,141 |
20,118 |
36,721 |
60,259 |
42,783 |
Realized Au eqv price |
$1,413 |
$1,309 |
$931 |
$1,379 |
$1,046 |
Cash production cost per Au eqv oz sold |
$728 |
$695 |
$741 |
$717 |
$825 |
Gross cash operating margin |
49% |
46% |
37% |
48% |
35% |
Revenue ($’000) |
$56,738 |
$26,343 |
$37,940 |
$83,081 |
$44,762 |
Profit (loss) from operating activities ($’000) |
$6,278 |
($827) |
($5,811) |
$5,451 |
($12,421) |
Adjusted earnings (loss) per share |
$0.00 |
($0.01) |
($0.02) |
($0.01) |
($0.03) |
___________________________________
1 Adjusted
earnings (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.
2
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Nevada operations
The Nevada operations recorded $49 million in revenue during
the quarter on record sales of 34,522 Au eqv2 oz, an increase of 100%
quarter on quarter. During the continuing construction and installation of the
acid wash and carbon regeneration system at the Esmeralda Mill, loaded carbon is
sent to the refiner as opposed to dore. Improved refining terms resulted in a
decrease of approximately 5,000 Au eqv oz in inventory held at the refiner from
Q1 2011. The Esmeralda Mill treated 22,237 tonnes during the quarter (Q1
2011:21,634) with a marked improvement in Au and Ag recoveries of 95% and 75%.
Cash production costs for the quarter improved a further 9% quarter on quarter
to $611 per Au eqv oz in Q2 2011.
Underground exploration and stope delineation drilling
continued during the quarter, with a record footage of 45,000 feet or 13,636
meters completed from 84 boreholes. The focus has been on completing phases of
drilling on the Blanket Zone and south east Gwenivere targets, providing further
data for incorporation in the upcoming mineral resource update (anticipated
release date September 2011). The stope delineation drilling has continued to
tighten up controls for short interval trial stope planning. Surface exploration
has continued collating geological and geophysical data as well as reviewing
surface expressions of interpretations with structural and geological
observations.
South African operations
Operational efficiencies at Burnstone improved significantly
with mechanized ore development increasing by 33% quarter on quarter to 1,550
meters in addition to 1,872 meters of waste development completed during the
quarter. The increase in ore development allowed for an increase of 36% in the
square meters stoped quarter on quarter. Despite the relatively close drill
spacing in the current mining area, the exact position and orientation of
geological faults could not be identified earlier as most of these are of a
graben nature. Additional infill and delineation drilling as well as extensive
mapping and interpretation of the structural information from the over 10
kilometers of underground development, now provides management with more
detailed data to incorporate these faulting into the mine plan. An additional
66% waste development was completed during the 6 months ended June 30, 2011 in
response to the geological faulting encountered compared with the original
planned meters.
Excellent progress has been made with long hole stoping as the
mining method, with the efficiency of the teams improving on a monthly basis.
The improved hanging and footwall conditions experienced in the C block allowed
for a significant improvement in decreasing the stoping width which was measured
as low as 67cm in some stopes. This also had a positive impact on the mining
grade of stope material which improved 60% from Q1 2011.
The Metallurgical Plant is performing in line with expectation
with approximately 202,660 tonnes processed during the quarter (Q1 2011:199,878
tonnes).Tonnes processed however remain predominantly from development ore which
includes more dilution than stoped material and negatively impacts on the mill
head grade. Recoveries for the quarter improved to 85% (Q1 2011:83%) although
still impacted by the low head grade ore delivered to the mill.
___________________________
2 Au eqv oz is
calculated based on US$1,400Au and US$30Ag.
3
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
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
5,619 Au ounces sold (Q1 2011:2,794 Au eqv oz) as well as the cash production
cost per ounce of $1,447 (ZAR 10,130) for the quarter. During the build-up phase
a more accurate measurement is cost per tonne which improved 12% to $59 (ZAR420)
(Q1 2011:$68) per tonne for the quarter.
Corporate
The Company, with the assistance of RBC Capital markets,
offered a $0.07 per warrant early exercise discount to holders of the $1.25
warrants expiring November 2011. 10 million of the warrants were exercised prior
to June 30, 2011 with another 9.2 million warrants exercised subsequently,
leaving approximately 223,000 warrants to be exercised prior to expiry on
November 15, 2011.
The Company had approximately $38 million in cash reserves on
June 30, 2011 and has also negotiated a US$40 million standby debt facility with
Credit Suisse Ag. This facility will be available in the event that additional
working capital is required at Burnstone as a result of the slower than planned
production build-up.
Ferdi Dippenaar, Great Basin Gold President and CEO, commented:
“Although experiencing the usual challenges with bringing a new mine into
production, Burnstone is settling into a production rhythm and although the
progress made by the team on a monthly basis is reassuring, it is not yet at
planned levels. The need for additional waste development to access the mining
blocks impacted negatively on ore development which in turn impacts on stopes
available for mining. Production from Burnstone for the remainder of the year
will unfortunately be impacted by this approximate 3 month delay in ore
development and we expect to recover between 50,000 to 60,000 Au oz for the
second half of the year and an estimated 60 000 to 70 000 ounces for the 12
month period. The Nevada operations showed improvements in a number of areas
during the quarter, notably in ounces extracted through trial mining as well as
the improved recoveries at our Esmeralda Mill. The latter improvement is
especially pleasing with the impact already evident in the reduced cash costs
and the increased ounces delivered to the refinery. The current performance from
our Nevada operations and the standby debt facility provides the Company with
adequate cash resources to fund the delayed production build-up at Burnstone.
Our short to medium term focus at both of these operations remains to increase
production, manage costs and unlock the intrinsic value of these quality
projects.”
Revenue
The table below provides a summary of Au eqv oz sold.
|
3 months
ended |
6 months
ended |
June 30
2011
|
March 31
2011 |
June 30
2010
|
June 30
2011
|
June 30
2010
|
| Au eqv oz sold – Nevada operations |
34,522 |
17,324 |
13,786 |
51,846 |
19,848 |
| Au eqv oz sold – Third party milling
(Nevada operations) |
- |
- |
22,935 |
- |
22,935 |
| Au eqv oz sold – South African operations
|
5,619 |
2,794 |
- |
8,413 |
- |
| Total Au eqv oz sold |
40,141 |
20,118 |
36,721 |
60,259 |
42,783
|
4
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Au eqv oz sold increased 100% from quarter on quarter which,
together with the increased in the average Au and Ag prices during the quarter,
resulted in an increase of 115% in revenue, Revenue from our Nevada operations set a new record both in Au eqv oz sold as
well as revenue recognized. Improved refining terms at our Nevada operations
resulted in a decrease of approximately 5,000 Au qv oz in inventory held at the
refiner from Q1 2011. Revenue from our South African operations showed a similar
increase to the Nevada operations on the back of a 100% increase in Au oz sold.
In Nevada the sale of 169,596 Ag oz, included in the Au eqv oz sold for the
quarter, contributed $6 million to revenue (226,820 Ag oz sold year to date
generating revenue of $7 million).
Revenue for the 6 months ended June 30, 2011 increased 86%
compared to the 6 months ended June 30, 2010 as a result of the 43% increase in
Au eqv oz sold as well as the increase in precious metal prices. Revenue
generated from third party milling agreements in 2010 is net of metal retention
(approximately 20%).
Production costs
The following table provides a breakdown of the production
costs incurred.
|
3 months
ended |
6 months
ended |
June 30
2011
|
March 31
2011 |
June 30
2010
|
June 30
2011
|
June 30
2010
|
| Production costs – Nevada operations
($’000) |
$21,602 |
$11,690 |
$23,797 |
$33,292 |
$28,887 |
| Production costs – South African operations
($’000) |
$8,432 |
$2,456 |
- |
$10,888 |
- |
| Total production costs ($’000) |
$30,034 |
$14,146 |
$23,797 |
$44,180 |
$28,887 |
| Cash production cost per Au eqv oz – Nevada
operations |
$611 |
$670 |
$765 |
$631 |
$817 |
| Cash production cost per Au oz – South
African operations |
$1,447 |
$1,344 |
- |
$1,246 |
- |
$611 per Au eqv oz in cash production costs for the Nevada
operations was recorded in the quarter, an improvement of 9% over the previous
quarter (Q1 2011: $670) and 20% over the comparative quarter in 2010. Improved
Au and Ag recoveries as well as the improved mill head grade had a positive
impact on the cash production costs for the quarter. Cash production costs per
tonne was $703 (Q1 2011: $646) for the quarter, consisting of $525 (Q1 2011:
$441) mining and $178 (Q1 2011: $205) milling and haulage. This increase in cash
production cost per tonne of 9% quarter on quarter is predominantly due to
increased fuel prices, royalties, net proceed taxes and additional ore
development. Cash production costs per Au eqv oz for the 6 months ended June 30,
2011 improved 23% over the comparative period in 2010 as a result of the
improved throughput, recoveries and continued costs management campaign.
Production costs as well as cash production costs for the South African
operation are still impacted by the weighted average cost and grade of
development ore stock piles and metal in process at the beginning of the
reporting period. The mill head grade is influenced by the quantum of
development ore as well as stock piled material processed. This material has an
average grade of 0.02 Au oz/t due to the impact of dilution from the high
profile development ends. During the build-up phase a more accurate measurement
is cost per tonne which improved 12% to $59 (Q1 2011:$68) per tonne. The
improvement in the reef development and stoping rates decreased the mining cost
to $40 (Q1 2011:$49) per tonne with milling costs remaining unchanged at $19 per
tonne. A further increase in the rate of mining is expected to further
positively impact on the mining and milling cost per tonne with the cost per Au
oz to improve substantially with the increase in the mill head grade.
5
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Depletion charge
|
3 months ended |
6 months ended |
June
30
2011 |
March
31
2011 |
June
30
2010 |
June
30
2011 |
June
30
2010 |
| Nevada operations ($’000) |
$1,625 |
$1,095 |
$3,401 |
$2,720 |
$3,541 |
| South African operations ($’000) |
$231 |
$39 |
- |
$270 |
- |
| Total ($’000) |
$1,856 |
$1,134 |
$3,401 |
$2,990 |
$3,541
|
This is a non-cash item and relates to the amortization charge
on the Hollister and Burnstone mineral properties. It is calculated on the ratio
of Au eqv oz sold to the proven and probable reserves.
Depreciation charge
|
3 months
ended |
6 months
ended |
June 30
2011
|
March 31
2011 |
June 30
2010
|
June 30
2011
|
June 30
2010
|
| Nevada operations ($’000) |
$1,265 |
$721 |
$1,033 |
$1,986 |
$1,236 |
| South African operations ($’000) |
$4,719 |
$493 |
- |
$5,212 |
- |
| Total ($’000) |
$5,984 |
$1,214 |
$1,033 |
$7,198 |
$1,236
|
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 as well as the
increase in trial mining activities at the Nevada operations.
Exploration expenses
The exploration expense for the quarter was $3.4 million
compared to $2.9 million in the previous quarter and $2.6 million during the
quarter ended June 30, 2010. These costs predominantly relate to underground
exploration at our Hollister property which amounted to $3.2 million for Q2
2011. The increase from Q1 2011 is due to the additional drilling conducted on
the Blanket zone target.
Pre-development expenses
The pre-development expenditures relate to underground
development at our Hollister Project which remained at similar levels to Q1 2011
at $3.7 million during the quarter and $3.8 million for the quarter ended June
30, 2010. The rate of development remains fairly consistent throughout the year,
which is reflected by the immaterial change in pre-development costs quarter on
quarter.
Foreign exchange gain
This movement predominantly relates to the fluctuation between
the Canadian (“$”) and United States (“US$”) dollar on the Senior Secured Notes
(“SSN”) (up to settlement in March 2011) and term facility agreement as these
are denominated in US$. The strong performance of the $ against the US$ in 2011
resulted in a decrease in the liability measured in $ with the corresponding
credit included in profit from operations.
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 up to settlement in March 2011.
6
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
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 $7.2 million was recorded in March 2011 on
initial recognition of the ZCC hedge program for the US$70 million term loan
entered into. A loss of $1.4 million was recognized on the fair value movement
of the ZCC hedge programs for the quarter ended June 30, 2011. 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).
| 3. |
Financial condition review
|
Total assets
Total assets increased by $71 million and current assets by $35
million since December 31, 2010 predominantly due to the increase in
inventories, cash resources as well as capitalized costs at Burnstone.
Total liabilities
Total liabilities increased by $15 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 programs.
Shareholder’s equity
During the six months ended June 30, 2011, the Company’s issued
share capital increased by 51 million common shares due to the following
transactions:
7
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
| |
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Bought deal public offering |
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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. |
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Share purchase warrants exercised |
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|
|
|
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|
15.5 million share purchase warrants were
exercised for the 6 months ended June 30, 2011. |
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Share purchase options exercised |
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1.7 million share purchase options were exercised
by employees and management. |
At June 30, 2011, the Company had 465 million common shares
issued and outstanding. A further 9.5 million share purchase warrants and 19
million share options were outstanding.
As of the date of this MD&A the Company had 475 million
common shares issued and outstanding. A further 223,501 share purchase warrants
and 20 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.
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 offered a $0.07 early exercise discount to holders
of the $1.25 warrants expiring November 2011 to mitigate the risk of adequate
cash flow resources during the production build-up phase at Burnstone. 10
million of the warrants were exercised prior to June 30, 2011 with another 9.2
million warrants exercised subsequently, leaving approximately 223,000 warrants
to be exercised prior to November 15, 2011.
The Company has also negotiated a US$40 million standby debt
facility with Credit Suisse. This facility, which has a coupon of 4% over US$
LIBOR, is available in the event that additional working capital is required at
Burnstone as a result of a slower than planned production build-up. If drawn
upon, this facility will share in the security package for Term Loan I (refer to
the interim financial statements for the period ended June 30, 2011) and be
repayable at the latest May 2014. The loan has certain standard production
measurements and failing these might result in earlier repayment. If the loan is
drawn upon, the Company will be expected to execute a ZCC hedge structure,
similar to those executed in 2010 and 2011 for up to 40,000 Au ounces over a 4
year period. At the date of this MD&A the loan was undrawn.
The Company generated net cash of $23.8 million from operating
activities during the quarter, compared to the $6.2 million during the quarter
ended June 30, 2010. On a year to date basis cash of $14.2 million was generated
from operations against $13 million utilized in operations for the comparative
period. 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.
8
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| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Cash utilized in investment activities increased to $58.1
million during the quarter compared to $48.1 million in the quarter ended June
30, 2010. This increase is due to the increased underground development
activities at Burnstone as well as the completion of the capital project.
Approximately $17 million in payments to construction contractors for work
completed in 2010 is included under investment activities.
The Company received a net amount of $4.4 million from
financing activities during the quarter which included $13 million proceeds on
warrants exercised. Interest was paid on the Convertible Debentures in May 2011
with interest and capital being repaid on the Term facilities. On a year to date
basis net proceeds from financing activities amount to $106.4 million which
predominantly relate to the bought deal public offering in February 2011 and
warrants exercised ($102 million) and the net increase in debt ($4 million).
At June 30, 2011, the Company had net working
capital3 of $30 million that included $38 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.
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.
__________________________
3 Working capital
includes cash and cash equivalents, trade and other receivables, inventories,
trade payables and accrued liabilities and is considered a non-GAAP measure.
9
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
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 unfortunately postponed
their review of the document till early July 2011. Once the revised PDEIS has
been signed off a number of activities must take place, including:
- The actual preparation of the Draft Environmental Impact Statement
(“DEIS”)
- Final preparation of the Notice of Availability (“NOA”)
- Initiation of that review process by BLM of the DEIS before it is
determined ready to print; and
- Printing & mailing of the DEIS.
The DEIS is expected to be published in October 2011 which will
give an indication as to the timeline for final approval of EIS.
Trial stoping and milling
|
3 months
ended |
6 months
ended |
| June 30 2011 |
March 31 2011 |
June 30 2010 |
June 30 2011 |
June 30 2010 |
| Ore tonnes to surface |
25,297 |
21,828 |
21,003 |
47,125 |
44,394 |
| Contained Au oz extracted |
28,075 |
20,177 |
28,315 |
48,252 |
53,523 |
| Contained Ag oz extracted |
233,880 |
154,448 |
164,493 |
393,328 |
331,136 |
| Contained Au eqv oz extracted |
34,246 |
22,434 |
30,782 |
56,680 |
58,489 |
| Contained average grade Au eqv oz/tonne
(gram/tonne) |
1.35 (43.40 g/t) |
1.03 (33.11 g/t) |
1.47 (47.26 g/t) |
1.20 (38.58 g/t) |
1.32 (42.44 g/t) |
| Tonnes milled |
22,237 |
21,634 |
19,800 |
43,871 |
34,333 |
| Recovered Au oz |
23,179 |
22,012 |
16,666 |
45,191 |
28,422 |
| Recovered Ag oz |
151,825 |
111.757 |
74,855 |
263,582 |
126,617 |
| Recovered Au eqv oz |
26,757 |
24,082 |
17,789 |
50,839 |
30,322 |
| Recovery % Au |
95% |
88% |
82% |
92% |
80% |
| Recovery % Ag |
75% |
68% |
55% |
75% |
56% |
The presentation of production results for the Nevada operations were changed from imperial to metric on January 1, 2011 to be consistent and comparable with production results reported for the industry and our South African operations. Comparative results have been adjusted to conform.
Ore tonnes to surface increased 17% quarter on quarter and 20% over the comparative period in 2010. The continued focus to increase throughput from underground is starting to deliver results with additional activities planned to achieve a consistent 320 ore tonnes per day. The average contained grade of 1.32 Au eqv oz p/t for the quarter is a function of the areas where trial mining took place during the quarter. No significant production from the Blanket zone is included in the results for the quarter as the development of the access ramp to allow for larger volume extraction of the area was initiated during the quarter.
10
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Mill availability was good for the quarter although a few
interruptions to process were experienced due to a mill liner failure as well as
repairs required to the mill lube system. Au and Ag recoveries improved 8% and
10% respectively from Q1 2011 and 16% and 36% over Q2 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 wash and carbon regeneration system is
scheduled for completion in Q3 2011 and in the interim loaded carbon, as opposed
to dore, is sent to the refiner.
Underground exploration
Underground exploration at Hollister continued during the
quarter, with the focus on drilling the south east (“SE”) Gwenivere target,
Blanket Zone, and initiating Blanket Zone mine infrastructure plans. The
drilling comprised 8 Blanket exploration holes (totaling 4,293 feet or 1,301
meters), and 34 exploration and cover boreholes testing Clementine and SE
Gwenivere targets (totaling 20,854 feet or 6,319 meters), plus 42 stope
delineation holes (totaling 19,854 feet or 6,116 meters). The record drill
footage has allowed a slowdown in drilling, and a reduction to one drill rig
from June 2011 which will service future Blanket, exploration and stope
delineation drilling programmes.
The Blanket drilling has continued to confirm in localized
situations the linkage of super high grade zones (ie over 5 oz/ton Au) with the
propogation of underlying mineralized vein structures and the “sponge-like”
receptability of tuffaceous stratigraphic horizons within the Tertiary
volcanics. The data generated from the drilling has been modeled into grade
shells which are providing a basis for an initial resource estimate that will be
completed during Q3 2011.The evaluation strategy for the Blanket zone
mineralization has been modified as trial mining and drilling has advanced. It
is clear that bulk sample exposures are more accurate in evaluating the variable
extent of the bonanza grade mineralization. A ramp is now being developed up to
approximately 5478 level between the Gwenivere #5-8 and Clementine #15-18 vein
clusters, which will allow development and trial mining along these mineralized
structures, as well as optimal platforms for horizontal evaluation fan
drilling.
The SE Gwenivere veins have been modeled, and will be included
in the upcoming mineral resource update. Of note are the emergence of broad
zones with slightly different fine grained silcification (“spider-web” breccias)
that are mineralized.
Surface Exploration
Surface exploration has involved the continuation of the
sub-regional and mine site scale collation and interpretation of airborne
magnetic, ground CSMAT (high resolution resistivity), and gravity data. More
emphasis has been placed on structural mapping on surface, tying in features
observed underground. The detailed surface work is providing significant support
to the CSMAT interpretations (correlation of high resistivity spikes with
volcanic vents/geyserites and hydrothermal breccias zones), as well as providing
clear evidence for the western extension of Gwenivere/Clementine system,
supported by volcanic features at surface. Mineralization potential under the
Touchstone – Galactic opencast pit is also being assessed. CSMAT high resolution
resistivity data is still being integrated with empirical borehole data, and a
number of new vein system targets are emerging from this work.
Plans for remainder of 2011
The Company plans to continue its trial mining (ore removal and
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 wash and carbon
regeneration system being installed at the Esmeralda mill
is scheduled for completion in Q3 2011. The Nevada operations remain on target
to produce an estimated 110,000 Au eqv oz in 2011 at a cash production cost
estimated to range between US$600 and US$650 per Au eqv oz.
11
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
The Company is continuing with underground exploration drilling
of the Blanket Zone targets and infill drilling with the objective to upgrade
the current inferred mineral resources to the indicated or measured categories.
Step-out drilling to further explore the potential for extensions of the current
vein systems to the west, northwest, under the existing opencast and north to
Butte and Velvet targets will be scheduled for 2012, and will include surface
diamond drilling. A further phase of surface drilling has been planned for the
Hatter Graben, but is currently being deferred due to exploration successes as
discussed above. 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, together with the BLM, will also continue working
on finalization of the EIS for Hollister by early 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 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 were
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.
12
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Production results
|
3 months
ended
June 30
2011 |
3 months
ended
March 31
2011 |
6 months
ended
June 30
2011 |
| Waste development (meters) |
1,872 |
2,083 |
3,955 |
| Ore development (meters) |
1,550 |
1,167 |
2,717 |
| Total development (meters) |
3,422 |
3,250 |
6,672 |
| Stoping (square meters) |
5,122 |
3,760 |
8,882 |
| Ore tonnes to surface – development |
154,849 |
75,608 |
230,457 |
| Ore tonnes to surface – stoping |
22,990 |
16,508 |
39,498 |
| Ore tonnes to surface – total |
177,839 |
92,116 |
269,955 |
| Contained Au oz extracted - development |
3,168 |
2,520 |
5,688 |
| Contained Au oz extracted - stoping |
1,830 |
889 |
2,719 |
| Contained Au oz extracted - total |
4,998 |
3,409 |
8,407 |
| Contained average grade Au eqv oz/tonne
(g/t) – development |
0.02 (0.64 g/t) |
0.03 (0.96 g/t) |
0.02 (0.64 g/t) |
| Contained average grade Au eqv oz/tonne
(g/t) - stoping |
0.08 (2.57 g/t) |
0.05 (1.61 g/t) |
0.07 (2.25 g/t) |
| Contained average grade Au eqv oz/tonne
(g/t) - total |
0.03 (0.96g/t) |
0.04 (1.29 g/t) |
0.03 (0.96 g/t) |
| Tonnes milled |
202,660 |
199,878 |
402,538 |
| Recovered Au oz |
4,894 |
5,511 |
10,405 |
| Recovery % Au |
85% |
83% |
84% |
66% additional waste development was completed during the 6
months ended June 30, 2011 in response to geological faulting encountered in the
planned mining area. Despite the relatively close drill spacing in the mining
area, the exact position and orientation of the faults could not be identified
as most of it is of a graben nature.
13
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Figure 1 and 2 above demonstrate the impact of the position and
orientation of the faults on the required development.
Additional infill and delineation drilling, as well as
extensive mapping and interpretation of the structural information from the over
10 kilometers of underground development, now provides management with more
detailed data to incorporate the faulting into the mine plan. The required
increase in waste development had a negative impact on ore development, which
was 65% lower than planned for the 6 months ended June 30, 2011. The decrease in
ore development not only impacted on the mined ounces but also on the
availability of stopes. Only 12% of the planned quarterly stoping could be
completed due to the lack of available stopes. The shortfall in stopes, and
therefore the lack of higher grade material, impacted on the mill head grade
which in turn impacted on the recoveries achieved by the plant.
During the quarter the waste development decreased on a monthly
basis which allowed for an increase in ore development meters and stoping. The
planning for the remainder of 2011focuses on reducing waste development further
while increasing ore development and stoping on a month by month basis. Ore
development comprises only 41% of total development up to June 30, 2011 and is
planned to increase to 77% of total development for the remainder of the year.
Over 25 development ends are currently on-reef which increases the ore
development to the quarterly planned levels. The delay in accessing the planned
mining areas will have an impact on the Company’s ability to achieve its 2011
production target.
The increase in the ore development and stoping during the
quarter increased the ore tonnes to surface 93% from Q1 2011. Only 13% of the ore
tonnes were however from stopes which had a negative impact on the mill head
grade during the quarter. The mill head grade is expected to increase with more
low profile development planned for the remainder of the year as well as from
the increase in stope material delivered to the mill.
Congestion underground and the ability to clean the material from stopes and development ends remained a challenge while development work is continuing around the vertical shaft on 40 and 41 level. Additional tramming ways and material handling systems around the shaft bottom has now been substantially completed.
14
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
Progress on long hole stoping remains encouraging with the
efficiency of the teams improving on a monthly basis. The improved foot wall
conditions experienced in the C block allowed for a significant improvement in stoping width which was measured as low as 67cm
in some stopes (refer figure 3 below). This also had a positive impact on the
grade of stope material which improved 60% from Q1 2011. The current results
continue to show that long hole stoping is efficient with the current constraint
the development to open up stopes.
The Metallurgical Plant is performing in line with expectation
with 202,660 tonnes processed during the quarter, a marginal improvement over Q1
2011. Availability during the quarter was impacted by a mill liner failure as
well as the replacement of a mill bearing. Mill feed is also controlled to
account for the lower than planned ore from development and stopes. Underground
tonnes 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 is sufficient to increase processing rates to the planned 125,000
tonnes per month.
Underground and surface exploration
Infill drilling from surface continued during the quarter, and
is providing very positive results in tightening up on the evaluation and
structural geometry of certain mining blocks. Development and stope panel
evaluation is undertaken by channel sampling of exposed sidewalls. Horizontal or
shallow dipping cover drilling is undertaken for development control.
During Q2 2011, 2,272 channel samples were taken with over
12,000 samples taken to date. The summary gold grade (g/t), channel width (cw)
and gold content (cmg/t) statistics for the various mining blocks are shown
below.
BLOCK
|
Channel
Grade
Au g/t |
Planned
Grade
Au g/t |
Channel
Reef
width
CW cm |
Planned
Reef
width
CW cm |
Channel
Content
Cmg/t |
Planned
Content
Cmg/t
|
| B2 |
8.22 |
11.87 |
56 |
54 |
460 |
641 |
| B3 |
2.77 |
3.19 |
101 |
102 |
280 |
325 |
| C3 |
18.42 |
12.56 |
31 |
30 |
571 |
377 |
| Decline 1287 |
4.85 |
1.70 |
69 |
67 |
335 |
114 |
| 1320 Acc |
6.65 |
7.60 |
55 |
51 |
366 |
388 |
| C Upper |
14.53 |
13.30 |
52 |
43 |
756 |
572 |
| B4 |
2.70 |
3.00 |
125 |
52 |
338 |
156 |
| Averages |
7.41 |
6.90 |
86 |
56 |
417 |
335
|
15
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
These results are in-line with or better than mine development
expectations. The Life-of-Mine plan indicates an average channel width of 68 cm.
Surface Exploration outside the Burnstone Mining Right
Surface exploration continued on mineral rights located outside
the Burnstone mining right, with the initiation of the shallow basin edge target
evaluation program. An initial phase of diamond drilling was completed testing
historic surface diggings and limited stoping of the Kimberley Reef on the farm
Rietbult 505IR, approximately 7 kilometers northwest from the Burnstone Mine
infrastructure. Seven boreholes (1,200 meters) were completed, and two had
positive intersections (including 53 g/t Au over 23cm), one hit an existing
stope, and the other four Reef intersections were faulted out. Field
investigations and planning for drilling that will test the subcropping
Kimberley Reef at Roodeport – Kildare were also undertaken.
Plans for remainder of 2011
Ore development remains the key to delivering the planned
production build-up. During H1 2011 the ratio of waste to reef development was
skewed towards waste development with the resultant impact on stope availability
for mining. Although this ratio has already improved with all development ends
currently being on-reef, a variance in the planned 2011 production targets is
expected. Production targets for the remainder of 2011 are 16,500 Au oz for Q3
with 33,500 Au oz targeted for Q4 2011. 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 Cash costs for the
remainder of 2011 are estimated in the range of US$650 – US$750/oz and will be
impacted by the actual ounces recovered for the remainder of the year.
Gold opened at US$1,439 on April 1, 2011 and generally traded
upwards during the quarter. Continuous concern regarding stability and growth in
the Global economy as well as the Euro debt concern contributed to the upward
trend in the price of Au during the quarter. A new record close of US$1,552 was
recorded on June 22, 2011 and was also the highest close for the quarter. The
upward trend however continued subsequent to quarter end following the down
grade of the US debt rating with a new record high closing price set at US$1,772
on August 10, 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 169,596 Ag oz sold from trial mining activities at
Hollister. Silver opened on April 1, 2011 at US$37.87 and traded similar to gold
with a low of US$32.50 recorded on May 12, 2011 and closing the quarter at
US$35.02. Similar to gold, the price of silver increased subsequent to quarter
end and closed as high as US$41.62 on August 4, 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 $2.55 on April1, 2011 the Company’s share price
decreased to $1.63 on June 17, 2011 and closed at $1.98 on June 30, 2011.
The exchange rate between the US$, $ and the South African Rand
(“ZAR”) impacts on the Company’s earnings and cash flow. The US$ and ZAR traded
at an average of US1 = R6.79 during the quarter. The US$ and $ traded at an
average of US$1 = $0.968.
16
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
|
Jun 30
2011
|
Mar 31
2011
|
Dec 31
2010
|
Sept 30
2010
|
Jun 30
2010
|
Mar 31
2010
|
Dec 31
2009
|
Sept 30
2009
|
| Current assets |
76,575 |
105,633 |
41,918 |
60,102 |
84,904 |
92,613 |
126,8622 |
78,8542 |
| Other assets |
750,077 |
718,825 |
713,4653 |
618,9933 |
516,1913 |
408,8563 |
421,4222 |
411,9932 |
| Total assets |
826,652
|
824,458
|
755,3833 |
679,0953 |
601,0953 |
501,4693 |
548,284
|
490,847
|
| Current liabilities |
87,952 |
89,265 |
115,525 |
87,352 |
89,467 |
60,295 |
72,974 |
27,324 |
| Non-current liabilities |
216,748 |
226,479 |
174,1413 |
217,1463 |
168,0073 |
120,0143 |
101,597 |
86,527 |
| Shareholders’ equity |
521,952 |
508,714 |
465,7173 |
374,5973 |
343,6213 |
321,1603 |
373,713 |
376,996 |
| Total liabilities and
shareholders’ equity |
826,652
|
824,458
|
755,3833 |
679,0953 |
601,0953 |
501,4693 |
548,284
|
490,847
|
| Working capital
(deficit) |
30,314
|
49,419
|
(21,096)
|
(19,821)
|
15,400
|
48,987
|
91,624
|
47,7282
|
| Revenue |
56,738 |
26,343 |
42,714 |
12,230 |
37,940 |
6,822 |
- |
- |
| Expenses |
(57,789) |
(46,684) |
(35,529)3 |
(35,567)3 |
(42,843)3 |
(12,909)3 |
(8,365)
|
(16,382) |
| (Loss) profit for the
period |
(1,051) |
(20,341) |
7,1853 |
(23,337)3 |
(4,903)3 |
(6,087)3 |
(8,365) |
(16,382) |
| Basic (loss) earnings per
share |
$0.00 |
($0.05) |
$0.02 |
($0.07) |
($0.01) |
($0.02) |
($0.03) |
($0.05) |
| Adjusted (loss) earnings per
share |
$0.00 |
($0.01) |
$0.02 |
($0.03) |
($0.01) |
($0.02) |
($0.03) |
($0.05) |
| Weighted average number of
common shares outstanding (thousands) |
454,559 |
431,624 |
405,857 |
351,739 |
340,609 |
336,893 |
333,856 |
333,531
|
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.
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).
17
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
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 of 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 June 30, 2011:
|
June 30
2011
|
December 31
2010 |
| Expired unexercised at no cost |
7,500 ounces |
Nil ounces |
| Remaining positions |
97,500 ounces |
105,000 ounces
|
Marked-to-market movements were calculated using an option
pricing model with inputs based on the following assumptions:
|
June 30
2011
|
December 31
2010 |
| Gold price (per ounce) |
US$1,500 |
US$1,419 |
| Risk free interest rate |
0.23% - 1.09% |
0.25% - 1.34% |
| Expected life |
1 - 30 months |
1 - 36 months |
| Gold price volatility |
13.93% - 24.10% |
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.
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:
18
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
|
June 30
2011
|
March 10
2011 |
| Gold price (per ounce) |
US$1,500 |
US$1,410 |
| Risk free interest rate |
0.38% - 1.53% |
0.4% - 1.91% |
| Expected life |
6 - 54 months |
10 - 57 months |
| Gold price volatility |
17.41% - 25.61% |
19.65% - 26.26%
|
| 8. |
Contractual
obligations |
| Payments due by
period |
|
Total
($’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)
|
161.4 |
10.1 |
20.2 |
131.1 |
Nil |
| Term loan facilities (a)(c) |
148.4 |
40.9 |
89.6 |
17.9 |
Nil |
| Finance lease liabilities (a)(d)
|
6.2 |
6.1 |
0.1 |
Nil |
Nil |
| Operating lease obligations |
0.3 |
0.2 |
0.1 |
Nil |
Nil |
| Asset retirement obligations |
7.2 |
Nil |
Nil |
Nil |
7.2 |
| Other (e) |
2.6 |
0.2 |
1.8 |
0.2 |
0.4 |
| Total |
$ 326.1 |
$ 57.5 |
$ 111.8 |
$ 149.2 |
$ 7.6
|
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 has a maximum term of 4 years from date of first drawdown and will be
repaid in 13 quarterly consecutive installments and bears interest at a
margin of 4% over the USD LIBOR rate. The first installment was settled on
May 26, 2011, 12 months after initial drawdown. The Company applied the
interest rate in effect on June 30, 2011 in determining the value of
future payments. 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 June 30, 2011 in determining the value of future
payments. The Nevada assets and certain guarantees by the Company serve as
security for the loan. |
| |
|
|
| |
(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 $7.7
million at June 30, 2011. |
| |
|
|
| |
(e) |
Other obligations include nominal exploration and
environmental obligations. |
19
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
| 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.
Additional information relating to the Company, including the
Company's Annual Information Form, is available on SEDAR at www.sedar.com.
The Company entered into an agreement in June 2011 whereby it
granted Shanta Gold Limited (“Shanta”) the option, following the fulfillment of
the conditions precedent, to acquire an 80% interest in the Company’s
wholly-owned subsidiary, Shield Resources Limited (“Shield”), who is the holder
of various prospecting licenses in the Lupa region of Tanzania.
In consideration for providing Shanta with the exclusive right
to acquire the shares in Shield, Shanta is obliged to issue ordinary shares to
the value of US$7 million and Shanta warrants to the value of US$7 million (at
an implied value of 35p each) to the Company. Furthermore Shanta has to fund a
US$12 million exploration program, spread over a period of 3 years ending
December 31, 2013. Shanta will acquire the 80% equity interest in Shield upon
the completion of the exploration program.
| 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
consolidated financial statements for the quarter ended and at June 30,
2011.
20
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 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.
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 and
tonnes produced. 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
June 30, 2011 |
3 months ended
June 30, 2010 |
Nevada
($’000) |
South Africa
($’000) |
Nevada4
($’000) |
South Africa
($’000) |
| Production cost relating to metal sold |
$21,602 |
$8,432 |
$10,545 |
- |
| Less non-cash overhead costs included in
production cost. |
(494) |
(303) |
(323) |
- |
| Total cash production costs for the
period |
$21,108 |
$8,129 |
$10,022 |
- |
| Au eqv ounces sold |
34,522 |
5,619 |
13,786 |
- |
| Ore tonnes processed |
30,043 |
202,661 |
17,418 |
- |
| Cash production cost per Au eqv oz |
$611 |
$1,447 |
$741 |
- |
| Cash production cost per tonne |
$703 |
$40 |
$587 |
- |
4 Nevada results for the 3 and 6 months ended June 30, 2010
excludes production costs and sales relating to third party milling agreements.
21
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
|
6 months ended
June 30, 2011 |
6 months ended
June 30, 2010 |
Nevada
($’000) |
South Africa
($’000) |
Nevada
($’000) |
South Africa
($’000) |
| Production cost relating to metal sold |
$33,392 |
$10,888 |
$16,212 |
- |
| Less non-cash overhead costs included in
production cost. |
(562) |
(405) |
(949) |
- |
| Total cash production costs for the
period |
$32,730 |
$10,483 |
$15,263 |
- |
| Au eqv ounces sold |
51,846 |
8,413 |
19,848 |
- |
| Ore tonnes processed |
48,027 |
304,959 |
25,348 |
- |
| Cash production cost per Au eqv oz |
$631 |
$1,246 |
$769 |
- |
| Cash production cost per tonne |
$681 |
$34 |
$602 |
- |
Adjusted loss per share
Adjusted loss per share is used by the Company to compare
quarterly and annual results on a sustaining basis by eliminating certain fair
value adjustments and out of the ordinary expenses incurred. The reconciliation
of loss per share to adjusted loss per share is presented below :
|
3 months
ended |
6 months
ended |
June 30, 2011
($’000) |
June 30, 2010
($’000) |
June 30, 2011
($’000) |
June 30, 2010
($’000) |
| Loss for the period |
($1,051) |
($4,903) |
($21,392) |
($10,990) |
| Loss with settlement of SSN |
- |
- |
$8,817 |
- |
| Net unrealized loss on financial
instruments |
($70) |
- |
$7,209 |
- |
| Net unrealized mark-to-market adjustment on
financial instruments |
$1,443 |
($422) |
$179 |
($422) |
| Other |
$232 |
- |
$232 |
- |
| Adjusted earnings (loss) for the
period |
$554 |
($5,325) |
($4,955) |
($11,412) |
| Weighted average number of common shares
outstanding (‘000) |
454,559 |
340,609 |
443,155 |
338,761 |
| Adjusted earnings (loss) per share |
$0.00 |
($0.02) |
($0.01) |
($0.03)
|
| 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.
22
| |
| MANAGEMENT'S DISCUSSION AND ANALYSIS |
| QUARTER ENDED
JUNE 30, 2011 |
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 June 30, 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.
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
June 30, 2011.
23
