| Celtic Financials 2009 (Part 1) |
(ctd…)
17. Financial instruments and financial risk management
Financial exposures, in varying degrees, arise in the normal course of the Company's consolidated operations and include commodity price risk, foreign exchange risk, interest rate risk, liquidity risk and credit risk associated with trade and financial counterparties. These exposures are monitored by Senior Management and are assessed and mitigated in accordance to the Group Risk Management Policy.
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and hedge contracts.
Short-term financial assets are amounts that are expected to be settled within one year. The carrying amounts in the consolidated balance sheets approximate fair value because of the short term nature of these instruments.
The carrying amounts of the financial instruments and their fair values as at 31 December 2009 and 2008 are as follows:
| Carrying amount 2009 2008 |
Fair value 2009 2008 |
|||||||
| Financial assets | ||||||||
| Cash and cash equivalents | 113,642 | 170,296 | 113,642 | 170,296 | ||||
| Accounts receivable | 26,813 | 20,057 | 26,813 | 20,057 | ||||
| Derivative financial asset | – | 10,282 | – | 10,282 | ||||
| Available-for-sale asset | 1,490 | – | 1,490 | – | ||||
| Financial liabilities | ||||||||
| Accounts payable and accrued liabilities | 12,684 | 16,263 | 12,684 | 16,263 | ||||
| Derivative financial liability | 1,064 | – | 1,064 | – | ||||
| Fair Value 2009 Quoted market price (Level 1) |
Fair Value 2009 Valuation technique market observation inputs (Level 2) |
||
| Financial assets | |||
| Available-for-sale asset | 1,490 | – | |
| Financial liabilities | |||
| Derivative financial liability | – | 1,064 |
Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. The fair value of the listed equity investments are based on quoted market prices.
For financial instruments not quoted in active markets, the Company used valuation techniques such as present value and Black – Scholes option valuation techniques, comparison to similar instruments for which market observable prices exist and other relevant models used by market participants. These valuation techniques use both observable and unobservable market inputs.
Commodity Price Risk – The Company's net profit and value of the mineral resource properties are related to the prices of gold, silver, copper, zinc and lead and the outlook for these commodities.
Gold prices historically have fluctuated widely and are affected by numerous factors outside of the company's control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by market participants, levels of worldwide production, macro-economic and political variables and certain other factors related specifically to gold. Silver and, in particular, base metal prices have historically tended to be driven more by the demand and supply fundamentals for each metal, however, they are also influenced by speculative activity, macro-economic and political variables and certain other factors related specifically to silver and base metals.
The long term profitability of the Company's operations is highly correlated to the market price of its commodities and in particular gold. To the extent that these prices increase, asset values increase and cash flows improve; conversely, declines in metal prices directly impact value and cash flows. A protracted period of depressed prices could impair the Company's operations and development opportunities, and significantly erode shareholder value.
Hedging commitments – The Company enters into financial transactions in the normal course of business and in line with Board guidelines for the purpose of hedging and managing its expected exposure to commodity prices. There are a number of financial institutions which offer metal hedging services and the Company deals with highly rated banks and institutions who have demonstrated long term commitment to the mining industry. The Company has one counterparty in respect of its lead and zinc hedge contracts noted below. Market conditions and prices would affect the fair value of these hedge contracts and in certain market conditions, where the fair value of the hedge contract is positive to the Company, if this counterpartywere unable to honour its obligations under the hedge contract, the Company would be exposed to the value of the hedge and the difference between the hedged priceand the then current market price on the date of thesettlement. The hedges below are treated as cash flow hedges in accordance with CICA 3865: Hedges.
Lead and Zinc hedging contracts – As at 31 December 2009, the Company had entered into hedging arrangementsas illustrated below which, for the amount of production shown, protect the Company from decreasing prices below the floor price and limit participation in increasing prices above the cap price. The period of the hedge is from 1 January 2010 until 31 December 2010 and is cash settled on a monthly basis between the monthly average of the relevant commodity price and the cap and floor price, as applicable. As at 31 December 2009, these contracts had a fair value of ($1,064) (2008 – $10,282), determined by a 3rd party valuation using the appropriate Black-Scholes options valuation model, based on the then prevailing market prices including lead and zinc prices, interest rates and market volatility.
| Period January 2010 – December 2010 Lead |
Lead |
Zinc |
|||
| Total Volume | (tonne) | 6,000 | 7,800 | ||
| Monthly Volume | (tonne) | 500 | 650 | ||
| Floor Price | ($/tonne) | 2,000 | 2,000 | ||
| Cap Price | ($/tonne) | 2,900 | 2,925 | ||
During the year ended 31 December 2009, the Company recorded income relating to its hedging program of $5,621 (2008 – $4,918).
Given the current maturity profile of the hedge, market expectations and parameters, we expect that the fair value of the existing hedge contracts ($1,064) will be released to net income within the next 12 months.
Currency risk – The Company is exposed to currency risk on accounts receivable, accounts payable and cash holdings that are denominated in currencies other than the functional currencies of the operating entities in the group. As at the 31 December 2009, the Company held the equivalent of $16,133 (2008 – $30,246) in net assets denominated in foreign currencies. These balances are primarily made up of Euro and, to a lesser extent, Pound Sterling.
The Company publishes its consolidated financial statements in US dollars and as a result, it is also subject to foreign exchange translation risk in respect of Euro denominated assets and liabilities in its foreign operations.
For the year ended 31 December 2009 the Company recorded a foreign exchange loss of $1,576 (2008 – a loss of $6,406), mainly due to the translation of Euro balances in its subsidiaries.
Liquidity risk – Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due.
The Company manages its liquidity risk by ensuring there is sufficient capital to meet working capital, short and long term business requirements after taking into account cash flows from operations and holdings of cash and cash equivalents. Senior management is actively involved in the review and approval of planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities.
The Company does not have any borrowing or debt facilities and settles its obligations out of cash and cash equivalents. The ability to do this relies on the Company collecting its accounts receivable in a timely manner and maintaining cash on hand.
Financial liabilities consist of trade payables, accrued liabilities and financial derivatives. As at 31 December 2009, the Company's trade payables and accrued liabilities amounted to $12,684 (2008 – $16,263), all of which fall due for payment within 12 months of the balance sheet date. The average credit period achieved during the year ended 31 December 2009 was 30 days (2008 – 30 days).
As at 31 December 2009, cash and cash equivalents comprises the following:
| 2009 $ |
2008 $ |
||
| Interest bearing bank accounts | 102,686 | 123,297 | |
| Short-term deposits | 10,956 | 46,999 | |
| 113,642 | 170,296 |
The Company has accounts receivable from trading counterparties to whom concentrate products are sold. Where traders are chosen as counterparties, only the larger and most financially secure metal trading groups are dealt with. The company may also transact agreements with trading groups who have direct interests in smelting capacity or direct to the smelters themselves.
Of the total trade receivable as at 31 December 2009, 4 (2008 – 3) customers represented 84% (2008 – 96%) of the total. The Company does not anticipate any loss for non-performance.
As at 31 December 2009, the accounts receivable comprises the following:
| 2009 $ |
2008 $ |
||
| Trade receivables | 6,712 | 4,986 | |
| Valued added taxes recoverable | 18,360 | 11,780 | |
| Other accounts receivable | 1,741 | 3,291 | |
| 26,813 | 20,057 | ||
As at 31 December 2009, the Company considers its accounts receivable excluding Value Added Taxes recoverable and other accounts receivable to be aged as follows:
| Ageing |
2009 $ |
2008 $ |
|
| Current | 4,139 | 1,807 | |
| Past due (1-30 days) | 2,283 | 2,632 | |
| Past due (31-60 days) | 233 | 417 | |
| Past due (more than 60 days) | 57 | 130 | |
| 6,712 | 4,986 |
Interest rate risk – The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash equivalents. The Company does not have any borrowings or debt facilities and seeks to maximise returns on cash equivalents without risking capital values. The Company's objectives of managing its cash and cash equivalents are to ensure sufficient liquid funds are maintained to meet day to day requirements and to place any amounts which are considered in excess of this on short-term deposits with the Company's banks to earn interest. The Company uses top rated institutions and ensures that access to the amounts can be gained at short notice. During the year ended 31 December 2009 the company earned interest income of $625 (2008 – $5,729) on cash and cash equivalents, based on rates of returns up to 3.5% (2008 – up to 4.40%).
Credit risk– Credit risk represents the financial loss the Company would suffer if the Company's counterparties to a financial instrument, in owing an amount to the Company, fail to meet or discharge their obligation to the Company.
Financial instruments that expose the Company to credit risk consist of cash and cash equivalents, accounts receivable and in certain market conditions, hedging contracts. The cash equivalents consist mainly of short-term investments, such as money market deposits. The Company does not invest in asset-backed commercial paper and has deposited the cash equivalents only with the largest banks within a particular region or with top rated institutions.
The Company's concentrate offtake arrangements also expose it to credit risk which would result should the Company's offtakers default under these arrangements, as a result of which the Company would not realise its trade receivable amount. The Company manages this exposure through assessing the offtaker's credit risk before entering the offtake agreement, the structure of the offtake contract and sells to a number of different offtakers which diversifies this risk
Included in the Company's accounts receivable is an amount of $18,095 relating to value added taxes recoverable which is subject to Greek government credit risk.
Sensitivity analysis – The Company has completed a sensitivity analysis to estimate the impact on net (loss)/profit of a 5% change in foreign exchange rates, a 1% change in interest rates and a 10% change in base metal prices, excluding the effect of hedging, during the years ended 31 December 2009 and 2008. The results of the sensitivity analysis can be seen in the following table:
| Impact on Net (Loss)/Profit (+/-) |
2009 $ |
2008 $ |
|
| Change of – 5 % US$: € foreign exchange rate | (1,676) | (460) | |
| Change of + 5 % US$: € foreign exchange rate | 1,674 | 564 | |
| Change of +/- 1% in interest rates | 890 | 1,321 | |
| Change of +/- 10% in commodities prices | 8,281 | 5,417 |
Limitations of sensitivity analysis – The above table demonstrates the effect of each sensitivity in isolation. In reality, there may be a correlation between a combination of any of these sensitivities. Additionally, the financial position of the Company may vary at the time any of these factors occurs, causing the impact on the Company's results to differ from that shown above.
18. Capital Risk Management
The Company's objectives when managing its capital are to maintain financial flexibility to achieve its long term business development plan, whilst managing its costs, optimizing its access to capital markets and preserving capital value. Further, it ensures that there is sufficient liquidity available to meet day to day operating requirements.
The Company currently has no debt and considers its Shareholders' Equity and cash and cash equivalents as components of its capital structure.
The Company's Board of Directors continually assesses the Company's capital through its short-term budgets and long-term development plan, meeting regularly through quarterly board meetings and regular communication with Officers and senior management to assess the requirements, changes to Company's set of assumptions and capital market conditions.
Going forward, as part of its capital management, the Company expects to raise a level of debt based on the forecast cashflows of its projects. As a result, the Company will need to comply with certain financial covenants and financial restrictions accordingly.
In order tomaximiseongoing development efforts, the company does not pay out dividends.
The Company's investment policy is to invest its cash in high-grade investment securities with varying terms, maturity and counterparties, selected with regards to the expected timing of expenditures from continuing operations and counterparty risk.
The Company expects its current capital resources and anticipated debt raising will be sufficient to carry out its plans and operations through its current operating period.
The Company is not subject to externally imposed capital requirements and there has been no change in the overall capital risk management as at 31 December 2009.
Capital under management was as follows:
| 2009 | 2008 | ||
| $ | $ | ||
| Capital stock | 545,180 | 538,316 | |
| Contributed surplus | 10,047 | 7,788 | |
| Accumulated other comprehensive income | 35,911 | 43,676 | |
| Deficit | (13,828) | (2,045) | |
| 577,310 | 587,735 |
19. Supplementary cash flow information
| 2009 | 2008 | ||
| $ | $ | ||
| Changes in non-cash working capital: | |||
| Accounts receivable and prepaid expenses | (7,404) | (3,696) | |
| Inventory | (1,845) | (943) | |
| Accounts payable and accrued liabilities | (4,416) | (5,137) | |
| (13,665) | (9,776) | ||
| Supplemental disclosure of non-cash transactions: | |||
| Share options and restricted share units issued for non-cash consideration | 6,820 | 2,788 | |
| Exercise or exchange of share options – Transfer from contributed surplus to share capital |
(1,244) | (24) | |
| Vesting of restricted share units | (3,317) | (973) |
20. Commitments
The Company has spending commitments of $236 or £166 (2008 – $180) per year (plus service charges and value added tax) for a term of ten years under the lease for its office in London, England, which commenced in April 2004. The rent was subject to an upward only review in April 2009, for which new rent became effective from November 2008.
Hellas Gold has spending commitments of $150 (€104) per year for a term of 9 years under the lease for its office in Athens, Greece, which commenced in December 2007. The rent will be reviewed on the second anniversary of the commencement of the term to reflect any increase in rents in the market.
As at 31 December 2009, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 37,050 dmt of zinc concentrates, 5,778 dmt of lead/silver concentrates and 106,489 dmt of gold concentrates until the financial year ending 2012.
During 2007, Hellas Gold entered into purchase agreements with Outotec Minerals OY for long-lead time equipment for the Skouries project with a cost of $46,657 (€34,470) which is to be paid by the end of 2009. As at 31 December 2009, $46,062 (€31,974) of the commitment had been paid. Hellas Gold has pledged $1,105 (€762) in support of a letter of credit issued on behalf of Outotec Minerals OY through Nordea Bank of Finland.
21. Transactions with related parties
Aktor S.A ("Aktor") Greece's largest construction Company owns 5% of Hellas Gold the Company's 95% owned subsidiary. Aktor is a 100% subsidiary of Ellaktor S.A., which owns 19.7% of the Company's issued share capital. Aktor, which is deemed a related party, contracts management, technical and engineering services to Hellas Gold.
During the year ended 31 December 2009, Hellas Gold incurred costs of $33,566 (2008 – $41,852) which have been recognised as cost of sales in the statements of profit and loss and capitalised to property, plant and equipment, for services received from Aktor. As at 31 December 2009, Hellas Gold had accounts payable of $3,881 (2008 – $3,637) to Aktor. These expenditures were contracted in the normal course of operations and are recorded at the exchange amount agreed by the parties. The terms of the payable is 30 days (2008 – 30 days).
22. Segmented report
During 2009, the Company had four reporting segments. The Company has identified its operating segments based on internal reports prepared by management. Management has identified the operating segments based on the location of its activities. The Company's operations are managed on a regional basis. The Greek reporting segment includes the production activities of the Stratoni mine and development activities of the Olympias and Skouries. The Romanian reporting segment includes the development activities of the Certej project. The Turkish reporting segment includes the exploration activities of the Ardala project. The other reporting segment includes the operation of the Company's corporate office. The accounting policy used by the Company in reporting segments are in accordance with the measurement principles of Canadian GAAP.
| Greece |
Romania |
Turkey |
Corporate |
2009 Total |
|||||
| Assets | |||||||||
| Production stage mineral properties | 24,051 | – | – | – | 24,051 | ||||
| Development stage mineral properties | 405,146 | 50,173 | – | – | 455,319 | ||||
| Exploration stage mineral properties | – | – | 1,625 | – | 1,625 | ||||
| Property, plant and equipment | 92,711 | 3,102 | 53 | 234 | 96,100 | ||||
| Segment assets | 521,908 | 53,275 | 1,678 | 234 | 577,095 | ||||
| Income | |||||||||
| Sales to external customers | |||||||||
| Concentrate sales | 39,563 | – | – | – | 39,563 | ||||
| Gold pyrite sales | 23,149 | – | – | – | 23,149 | ||||
| Total segment income | 62,712 | – | – | – | 62,712 | ||||
| Result | |||||||||
| Segment result excluding hedge contract profit and equity based compensation |
3,929 |
– |
(82) |
(8,589) |
(4,742) |
||||
| Hedge contract profit | – | – | – | (5,621) | (5,621) | ||||
| Equity-based compensation | – | – | – | 6,530 | 6,530 | ||||
| Total segment result before income taxes | 3,929 | – | (82) | (7,680) | (3,833) | ||||
| Income taxes (expense)/benefit | (2,007) | – | – | (1,369) | (3,376) | ||||
| Total segment result | 1,922 | – | (82) | (9,049) | (7,209) | ||||
| Reconciliation of segment loss after income taxes |
|||||||||
| Depletion | (3,216) | ||||||||
| Accretion | (131) | ||||||||
| Write-down of mineral property | (1,171) | ||||||||
| Loss for the year | (11,727) |
| Greece |
Romania |
Turkey |
Corporate |
2008 Total |
||||||
| Assets | ||||||||||
| Production stage mineral properties | 26,652 | – | – | – | 26,652 | |||||
| Development stage mineral properties | 403,907 | 45,187 | – | – | 449,094 | |||||
| Exploration stage mineral properties | – | – | 456 | – | 456 | |||||
| Property, plant and equipment | 71,293 | 2,759 | 40 | 309 | 74,401 | |||||
| Segment assets | 501,852 | 47,946 | 496 | 309 | 550,603 | |||||
| Income | ||||||||||
| Sales to external customers | ||||||||||
| Concentrate sales | 44,812 | – | – | – | 44,812 | |||||
| Gold pyrite sales | 15,232 | – | – | – | 15,232 | |||||
| Total segment income | 60,044 | – | – | – | 60,044 | |||||
| Result | ||||||||||
| Segment result excluding hedge contract profit and equity based compensation |
(8,370) |
– |
(214) |
2,082 |
(6,502) |
|||||
| Hedge contract profit | – | – | – | (4,918) | (4,918) | |||||
| Equity-based compensation | – | – | – | 2,900 | 2,900 | |||||
| Totalsegment result before income taxes | (8,370) | – | (214) | 64 | (8,520) | |||||
| Income taxes (expense)/benefit | 875 | – | – | 15,764 | 16,639 | |||||
| Total segment result | (7,495) | – | (214) | 15,828 | 8,119 | |||||
| Reconciliation of segment profit after income taxes |
||||||||||
| Depletion | (2,946) | |||||||||
| Accretion | (133) | |||||||||
| Write-down of mineral property | – | |||||||||
| Profit for the year | 5,040 | |||||||||
23. Pension plans and other post-retirement benefits
The Company's subsidiary, European Goldfields (Services) Limited, maintains a defined contribution pension plan for its employees. The defined contribution pension plan provides pension benefits based on accumulated employee and Company contributions. Company contributions to these plans are a set percentage of employees' annual income and may be subject to certain vesting requirements. The cost of defined contribution benefits is expensed as earned by employees.
As at 31 December 2009 and 2008, the Company recognised the following costs:
| 2009 | 2008 | ||
| $ | $ | ||
| Defined contribution plans | 641 | 261 |
24 (Loss)/Earnings per share
The calculation of the basic and diluted earnings per share attributable to holders of the Company's common shares is based as follows:
| 2009 | 2008 | ||
| $ | $ | ||
| (Loss)/Profit for the year | (11,783) | 5,519 | |
| Effect of dilutive potential common shares | – | – | |
| Diluted earnings | (11,783) | 5,519 | |
| Weighted average number of common shares for the purpose of basic earnings per share |
179,825 | 179,566 | |
| Incremental shares – Share options | – | 1,657 | |
| Weighted average number of common shares for the purpose of diluted earnings per share | 179,825 | 181,223 |
In 2008, the weighted average number of options excluded from the computation of diluted earnings per share because their effect was not dilutive, was 1,220.
25. Comparative figures
Certain prior year amounts have been reclassified from statements previously presented to conform to the presentation of 2009 Consolidated Financial Statements.
26. Post balance sheet event
Since 31 December 2009, the Company granted 550,000 (2008 – 584,779) restricted share units under the Company's Restricted Share Unit Plan and 1,600,000 (2008 – Nil) share options under the Company's share option plan.
27. Recently issued accounting standards
Business Combination, Consolidated Financial Statements and Non Controlling Interest – In January 2009, the CICA issued Handbook Sections 1582 – Business Combinations, 1601 – Consolidated Financial Statements and 1602 – Non-Controlling Interests which replace CICA Handbook Sections 1581 – Business Combinations and 1600 – Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards. Section 1582 is applicable for the Company's business combinations with acquisition dates on or after January 1, 2011. Early adoption of this Section is permitted. Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Company's interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011. Early adoption of this Section is permitted. If the Company chooses to early adopt any one of these Sections, the other two sections must also be adopted at the same time.
International Financial Reporting Standards –("IFRS) – In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB confirmed that publicly listed companies will be required to adopt IFRS for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011, and in April 2008, the AcSB issued for comment it's Omnibus Exposure Draft, Adopting IFRS in Canada. Early adoption may be permitted, however it will require exemptive relief on a case by case basis from the Canadian Securities Administrators.
The Company has begun assessing the adoption of IFRS and is in the process of completing its overall conversion plan. The plan assesses the possible benefits of early adoption, the key differences between IFRS and Canadian GAAP including disclosures as well as a timeline for implementation.
This information is provided by RNS
The company news service from the London Stock Exchange
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