RNS Number:3466L
Thistle Mining Inc.
20 May 2003
2002 ANNUAL REPORT
THISTLE MINING 2002 ANNUAL REPORT
Profile
THE VISION
Thistle Mining Inc. was created in 1998 to take advantage of the low valuations
accorded to proven mining assets in need of capital to fully develop their
potential. The vision was to create a global gold producer of 500,000 ounces of
production with a ten year mine life and the potential for further expansion.
THE CREATION
In January 1999, Thistle Mining completed its first acquisition, a majority
stake in Eurasia Gold Corp. During 2002, Eurasia's production reached 24,000
ounces. The Group completed the acquisition of Philippine Gold in 2001 giving it
an additional resource base of some 3 million ounces.
The acquisition of the President Steyn Gold Mines in South Africa, which was
completed in February 2002, not only brought production of 177,000 ounces per
annum, but also provided the "Golden Triangle Project". The Golden Triangle is
effectively a new mine accessed from existing mine shafts to the north of the
original Steyn mine. During 2002, President Steyn almost doubled its resource
base.
The total equity and debt cost of building Thistle Mining currently stands at
approximately US $90 million. The average cost of acquiring the South African
resource base has been less than US $5 per ounce, with the average cost per
ounce of reserves acquired at US $28 per ounce.
THE FUTURE
The Group has in place plans to continuously expand the production base over the
next two years culminating in the construction of a second process plant at the
Northern Section of the Steyn Complex. A new exploration target has been
identified in the Northern Section, called the Eldorado Massives project. This
project potentially has the ability to significantly increase the Group's
reserve base.
The Group expects to substantially complete its bankable feasibility study at
Masbate during the remainder of the year and secure the financing shortly
thereafter.
It is the policy of the Group to operate on as close to an unhedged basis as
possible, subject to the need for financial prudence.
It is unlikely that the Group will seek to under take "grass roots" exploration.
Further production targets are kept under constant review as are potential
acquisitions. As a matter of policy, the Group seeks to invest in countries with
currencies tied to the US $ or likely to be weak against the US $.
The Group intends to undertake further fundraising to increase production,
undertake expansion plans and strengthen the financial structure of the Group.
THISTLE MINING 2002 ANNUAL REPORT
Operations &
Financial Highlights
Operations
2002 2001
Ounces of gold sold 189,907 19,276
Average $ per ounce of gold sold 335 257
Total mine site operating cash cost per ounce 268 219
Financial
(in thousands of US dollars) 2002 2001
Turnover 63,529 10,681
Operating profit/(loss) 4,857 (5,494)
Cash flow from operating activities 14,037 (581)
Equity shareholders' funds 19,382 12,589
Basic and diluted loss per common share (0.05) (0.14)
Post Balance Sheet Events
Since the balance sheet date the Group has:
* Raised US $6.8 million in a private equity placement.
* Completed the acquisition of President Steyn Gold Mines Limited,
listed on the JSE.
* Repaid US $14.4 million of acquisition debt from restructuring its
hedge programme.
Cautionary Note
Some of the statements contained in this Annual Report are forward-looking
statements, such as estimates that describe the Group's future plans, objectives
or goals, including words to the effect that the Group or management expects a
stated condition or result to occur. Since forward-looking statements address
future events and conditions, by their very nature they involve inherent risks
and uncertainties. Actual results relating to, among other things, reserves,
resources, results of exploration, capital costs and mine production costs could
differ materially from those currently anticipated in such statements by reason
of factors such as the productivity of the Group's mining properties, changes in
general economic conditions in the financial markets, changes in demand and
prices for the minerals the Group produces, litigation, legislative,
environmental and other judicial, regulatory, political and competitive
developments in domestic and foreign areas in which the Group operates,
technological and operational difficulties encountered in connection with the
Group's mining activities, labour relations matters and costs, and matters
discussed under "Management's Discussion and Analysis".
Throughout this report, all amounts are in United States currency unless
specified.
THISTLE MINING 2002 ANNUAL REPORT
Chairman's Report
Thistle Mining became an intermediate gold producer through the successful
acquisition in 2002 of the President Steyn Gold Mines in the Free State of South
Africa. The Free State contains one of the largest gold fields in the world,
with historic resources of 350 million ounces of gold and a remaining 120
million ounces to be mined. Thistle is proud to be the owner of 19 million of
those ounces, in the resource category.
During the year we were awarded one of the first new long-term mining licences
for a period of thirteen years, subject to compliance with Black Empowerment
laws, by the South African government. We also listed the Company on the
Alternative Investment Market of the London Stock Exchange, whilst retaining our
quotation on the Toronto Stock Exchange.
Since the acquisition of President Steyn, we have re-organised the management
and despite recent fluctuations in monthly output, the mines have achieved an
increasing production profile over the year. We have laid the foundations for
future growth, which in turn will lead to lower long-term operating costs. These
achievements have taken place against the background of a rising gold price in
US dollars, but also a strengthening Rand, which is illustrated below. Although
our Rand operating costs have been contained, there is no disguising the adverse
impact of a strong Rand on the unhedged portion of our sales revenue.
We have also experienced a year of legislative change. The new South African
Minerals Bill passed into law, introducing many additional requirements of your
Company. The "scorecard" for compliance has been issued. Many of its
requirements are no more than sound business practice for a foreign company
operating as a socially responsible employer and several had already been put in
place by Thistle Mining since the time of the acquisition. However, within the
next four years the Group will be required to make available 10% of the equity
of its business in South Africa for sale to Historically Disadvantaged South
Africans, who qualify as suitable Black Empowerment partners. The requirement
rises to a maximum of 26% within ten years. Thistle embraced the concept of
Black Empowerment during its decision to invest in the country and
Comparison of US$ to Rand Exchange Rate - 1 January 2002 to 30 April 2003
The exchange rate as at 2 January 2002 was 12.37 rands per 1 US dollar, at 31
December 2002 - 8.56 and at 30 April 2003 - 7.27
THISTLE MINING 2002 ANNUAL REPORT
negotiations are already underway with several recognised Black Empowerment
groups. It is our view that one of the most important Black Empowerment partners
will be our existing workforce, but we will want to ensure inclusion of the new
workers required for the Northern Section expansion.
The introduction of a 3% royalty on gold produced, which by definition is a
charge on gross revenue, not profitability, to be paid to the South African
government, is not such a welcome development. It is simply an additional
operating cost, based on a percentage of the gold price received by the Group.
The royalty is at a relatively high rate, compared with other countries and even
other commodities, such as platinum, for which it is only 4%; and it creates
uncertainty.
In the Philippines, we have made progress with a bankable feasibility study as a
prelude to taking decisions about the future development of our important assets
there. Further work is required on this and is discussed in the Chief
Executive's report. The improvement in the US $ gold price has led to a
substantial improvement in the value to our shareholders of the Masbate deposit.
Your board is actively considering a number of routes to ensure the full-scale
development of the operation.
Our Kazakh mines (held through our 52.9% stake in Eurasia Gold) have again
increased production. After rising from around 11,000 to 19,000 ounces in 2001,
it increased again last year to over 24,000 ounces, resulting in an inaugural
profit from production in that company. We believe this level of production can
be maintained, pending further investment.
On corporate matters, we raised just under US $7 million through Canaccord
Capital Corporation in Canada and Europe on a "bought deal" basis which was
completed in early January 2003. Since the end of the financial year the Group
acquired President Steyn Gold Mines Limited, known as PS Gold on the JSE
Securities Exchange, which was the previous owner of our mines in the Free
State. The principal assets of PS Gold were a royalty of US $8 per ounce
(equivalent to a 2.4% royalty in 2002) on all gold produced from our President
Steyn mines until January 2007 and a US $3.25 million convertible loan note,
which was convertible into 20.8 million common shares of Thistle.
During the year under review, we strengthened our financial team with the
appointment to the Board of John Brown as Group Finance Director and Tim Brebner
as the Finance Director of our African operations. Several other senior
appointments were made at the mine site level in Africa to augment the existing
team. We thank them and, indeed, all our management and staff throughout the
Group for their strong commitment to help us build a successful gold mining
group.
We now look forward to the increased production that our enhanced management
should deliver and the consequent reduction in operating costs per ounce that
will follow, ensuring the profitability of all our operations.
LORD LANG OF MONKTON
Chairman Of The Board
THISTLE MINING 2002 ANNUAL REPORT
Chief Executive's Report
Introduction
During the year to 31 December 2002, 187,735 ounces of gold were produced at the
President Steyn Gold Mines in South Africa. The average gold price received was
US $333 per ounce whilst the cost of production during the year amounted to US
$269 at an average exchange rate of 10.5 Rand to the US dollar. It is the goal
of the Group to double the output from the mines in South Africa over the next
two years.
In Kazakhstan, our interests are held through a 52.9% stake in Eurasia Gold
Corp. The mines operated by Eurasia produced 24,097 ounces of gold and the
average price received was US $322. The cost of production was US $238.
Production is stable at these mines.
In the Philippines, the Group is seeking to build a 200,000 ounce per annum gold
production facility and work continues on the bankable feasibility study.
The recent strength of the South African Rand in the face of a weak US dollar
has surprised many commentators. However, the validity of our decision to enter
into a currency hedge at the time of the acquisition has been borne out as the
Rand reached 7.5 to the US dollar in May 2003. Since the year end the Group has
closed out its forward currency hedge position, which had been put in place to
safeguard the servicing of the acquisition debt over a five-year period. This
process has realised in excess of US $21 million, before tax, and the
opportunity is being taken to restructure the debt position. During 2002, US
$5.6 million of the acquisition debt had been repaid from surplus cash flow. The
balance of the acquisition borrowing has been repaid in full from the proceeds
of the hedge transaction. The Rand denominated Revolving Credit Facility
draw-down in February 2002 remains a short-term liability. In addition, our
principal bankers provided short term facilities of approximately US $7 million
to partly finance the cost of the acquisition of the company which previously
owned the President Steyn complex, to which the Group was committed to pay a
royalty on its gold production until February 2007. This facility was then
repaid from the proceeds of the first part of the hedge restructure. The Group
is currently in discussions to re-arrange this facility onto a longer term basis
for working capital purposes and has agreement in principle as to terms, subject
to contract. It is expected that the necessary documentation will be completed
in short order.
Operationally the impact of the strong Rand is that the profit margin has been
squeezed in the short term. A weakening of the Rand will restore the margins
previously enjoyed. In the meantime, the Group retains partial forward currency
protection at ZAR 8.65 against the US dollar until November 2003.
With the expected production profile at the President Steyn complex, Thistle
Mining is uniquely placed to benefit during the coming year. By increasing
production at the South African mines, Thistle Mining can lower its unit
operating cost. The G & A cost of the Group will also fall on a per ounce basis
when production commences in the Philippines. However, in order to achieve a
trebling of the Group production on a global basis from the present level, and
to diversify the currency exposure, it will be necessary to invest significant
additional capital in both South Africa and the Philippines.
The Board is reviewing several funding options at this time to strengthen the
financial structure of the Group and help establish it as a well funded
international gold producer.
Thistle Mining becomes a significant gold producer
During the year ended 2002, Thistle Mining generated an operating profit of US
$9.5 million from its acquisition of the President Steyn gold mines. The
financial results are discussed in more detail in the Management's Discussion
and Analysis.
THISTLE MINING 2002 ANNUAL REPORT
The Group established itself as a significant player in the gold mining industry
during the year.
On 15 February 2002, Thistle Mining completed the acquisition of President Steyn
Gold Mines (Free State) (Pty) Ltd. from PS Gold Ltd., which was listed on the
Johannesburg Stock Exchange. The mines had historically produced at the rate of
177,000 ounces per annum. The cost of the acquisition was US $33.4 million, plus
a royalty of US $8 per ounce of gold produced until 15 February 2007. In
addition, the Group had to retire US $3.3 million of short term debt owed by
President Steyn.
The highly leveraged acquisition was funded using banking facilities of US $27.5
million provided by Standard Bank London Ltd. a US $5 million equity funding
completed by Loewen, Ondaatje, McCutcheon Ltd. in Toronto and a US $3 million
convertible note offering by Canaccord Capital (Europe) Ltd. A further US $4.5
million of convertible notes were issued to PS Gold as part of the acquisition
cost, by Thistle's wholly owned South African subsidiary, convertible into
Thistle Mining common shares.
Operations
During the year, a number of operational changes were introduced at the
President Steyn Complex. In particular, three changes began to take effect:
* The workforce had previously been employed through a labour broker and
this practice was brought to an end. All employees are now directly employed
by the mine site.
* A series of ore pass systems were developed during the year allowing the
separation of ore from waste mined in development tunnels. As a result of
this the company achieved an effective throughput of 100,000 tonnes per
month of ore rather than 80,000 tonnes a month of ore together with 20,000
tonnes of waste.
* A fourth ball mill was commissioned.
As the following table illustrates, the President Steyn mines saw steady
improvement in its level of output throughout the year.
THISTLE MINING 2002 ANNUAL REPORT
2002 at a glance - South Africa
1st Quarter* 2nd Quarter 3rd Quarter 4th Quarter Total
Tonnes Hoisted 289,333 281,283 347,691 294,664 1,212,971
Hoisted grade 4.60 5.24 4.61 5.22 4.90
Tonnes milled 306,566 311,070 320,070 310,647 1,249,053
Recovered grade 4.44 4.66 4.80 4.80 4.67
Plant recovery % 95.08 95.71 95.91 96.00 95.69
Ounces Sold 42,121 45,865 48,362 51,387 187,735
US $ realised ** 313 314 323 314
Hedge book 15 17 31 19
US $ received 328 331 354 333
Cash costs 207 256 298 244
Royalty 8 8 8 8
Margin 113 67 48 81
Avg gold price US $290 US $313 US $314 US $323 US $310
Avg exch rate ZAR 11.33 ZAR 10.69 ZAR 10.41 ZAR 9.64 ZAR 10.52
Gold market data is all in US $
* Production figures are for the whole quarter although Thistle only acquired
the mine on 15 February 2002.
** Mine acquired 15 February 2002; hence no quarterly financials are relevant.
Operational improvements
During the course of the year a number of operational improvements were made at
the minesite, which resulted in an initial improvement in the overall production
level from 177,377 to 187,735 ounces for the year. As these and further
developments are completed increases in production can be expected.
When Thistle Mining set out to acquire the business of President Steyn, one of
the key issues identified was the large and mostly unused infrastructure capable
of supporting a much larger mining operation than the existing level. When this
was combined with the exploration potential and the strict reporting
requirements of reserves in South Africa, the longer term potential of the
investment became apparent.
SHAFT 1 2 1A VENT 3 7 9
Pit bottom (Feet) 5,400 7,300 3,000 7,500 5,900 5,900
(1,676m) (2,233m) (885m) (2,326m) (1,902m) (1,900m)
Hoisting capacity
(tonnes per month) 95,000 95,000 - 135,000 - 90,000
Current utilisation
(tonnes per month) 30,998 20,128 - 25,173 - 24,933
% 33 21 - 19 - 28
THISTLE MINING 2002 ANNUAL REPORT
The Southern Section
The mine management structure was re-designed leading to the creation of the
Southern Section based outside Welkom, containing Steyn 1, 2 and 1A vent shaft,
together with the gold process plant and the head office facilities in South
Africa.
The milling circuit has seen its capacity increased during the year from 100,000
tonnes per month to 135,000 tonnes per month through the installation of a
fourth ball mill. A proposal to install a fifth ball mill is under review as the
press plant has a capacity of 180,000 tonnes per month.
The map illustrates the Basal reef at the Southern Location. Those areas in red
are fully developed and represent approximately 800,000 ounces of gold. The
areas illustrated in grey represent areas which have been mined since the
opening in April 1954.
It should be noted that the A reef and the Leader reef systems which are 460
feet and 65 feet shallower respectively have only been mined on a small scale.
Whilst the infrastructure is in place, it is estimated that a gold price of ZAR
125,000 per kilo would be required to make them economically viable, as they are
lower grade than the Basal reef.
Apart from the infrastructure available, the Southern Section reflects the
glorious past of the President Steyn Mine, but only a very small part of the
future.
The Northern Section
The Northern Section, which is located 35 kilometres north of Welkom, is based
outside Odendaalsrus. It comprises the old Loraine 3 shaft together with the
Free State Gelduld (historically known as Freddies) 7 & 9 shafts. These shafts
form the basis of the "Golden Triangle". At present there is no gold processing
facility at the Northern Section.
Thistle Mining bought, what is in effect, a brand new mine with access already
provided by a series of three existing shafts. The presence of a "mine boundary
", in the past, between Loraine and Freddies meant that in the roughly
triangular section between the three mine shafts no mining has been undertaken.
As the number 3 shaft is much deeper at 7,400 feet, it is easier to access the
resources from that location. The red areas indicate the 2.4 million ounces in
the reserve category. The total resource identified to date in the "Golden
Triangle" stands at 4.4 million ounces.*
* Based on reports prepared by Peter Camden Smith, an independent geologist.
THISTLE MINING 2002 ANNUAL REPORT
Medium term development
The Group is in the process of opening up the potential of the "Golden Triangle"
but in the medium term the challenge is to develop sufficient working areas to
allow the monthly tonnage hoisted from 3 shaft, to increase to 135,000 tonnes.
At present the tonnage hoisted is 50,000 tonnes from all the shafts in the
Northern Section. The capital expenditure to achieve this level of production is
estimated at US $7 million.
At the present time, management is examining the cost of constructing a new
milling plant and gold processing plant at the Northern Section. This investment
has been provisionally estimated by management at US $15 million. The company
has the flexibility to transport the ore to the Southern Section rather than
expend capital in the Northern Section. However, preliminary studies suggest
that the cost of a process plant would be recovered from the cost saving of
transporting the ore between the mine sites, within two and a half years.
Exploration potential
Since completing the acquisition and receiving title to the mines, the company
has been able to access the historic mining records of the old Loraine 3 mine.
Significant potential exists in areas, which had been mined until 1996. These
areas which occur in the Eldorado reef sequence are now known as the Massives
Project.
At this stage only preliminary work has been completed and the results of the
digitisation of the data should be available around the middle of the year.
Small scale remnant mining has commenced in the Massives area, which can be
accessed from the 50 and 52 levels of number 3 shaft. It is expected that larger
scale mining will commence in June 2003 in areas offering 7 - 8 grams per tonne
in situ material.
Geology
South Division
Mining in the South Division will predominantly take place in small-scattered
remnant blocks. A depletion schedule within the long-term plan exploits only 30%
of the remnant blocks with mining also taking place in virgin areas on the
extension of A-Reef payshoots and in the Basal Reef in the NE steeply dipping 54
Level area and below the decline in the SE area (64 to 66 Level).
The South Division Resource base (total of Measured, Indicated and Inferred) is:
In-situ Gold Content
Reef Stope Grade Ounces
Type Tonnes g/t tonnes (in '000s)
A-Reef 14.0 5.3 74.7 2,401
Leader Reef 3.4 4.1 13.9 447
Basal Reef 11.7 11.1 129.4 4,159
THISTLE MINING 2002 ANNUAL REPORT
North Division
Mining in the North Division will predominantly take place in large blocks
identified between geological structures. A depletion schedule within the
long-term plan exploits the unmined virgin areas. The long-term plan includes
the necessary cover drilling and development.
Three Reef units are presently being mined in the North Division, namely Basal
Reef, B-Reef and A-Reef. All reef types are thin tabular type bodies typical of
the Witwatersrand Supergroup. The Basal Reef is mined extensively on all three
shafts while the channelised A-Reef is only mined at Steyn 3 Shaft. The B-Reef
is only being mined in the 7 Shaft area and in the far south of Steyn 3 Shaft
area.
The Eldorado Reefs consisting of a multiple package of reef (EA to ED) has been
identified as an exploration target. Project management of this target is
outsourced to technical specialists to ensure normal mine operations remain
focussed on mining the three long-established Reef units. Initial exploration
activities, which include diamond drilling, pilot mining and resampling, are
such that the mine will incur no capital expenditure. The professional team
comprises Mining Engineers, Geologists and Geostatisticians. The team has, over
the last three months, captured enough information to define an exploration
target in excess of 1 million ounces. Target priorities are close to and easily
accessible from existing shaft infrastructure. The objective of the team is to
upgrade the exploration target to a Resource and Reserve by December 2003.
The North Division Resource base (total of Measured, Indicated and Inferred) is:
In-situ Gold Content
Reef Stope Grade Ounces
Type Tonnes g/t tonnes (in '000s)
A-Reef 7.5 3.7 27.8 895
B-Reef 2.0 8.5 17.3 556
Basal Reef 37.2 9.1 340.1 10,932
Developing the future potential
In the opinion of the Group, the single most important development was the
changeover from a workforce employed by a labour broker, which was then
sub-contracted to the mine, to a workforce employed directly by the company.
This process was begun during the third quarter of 2002 and completed in March
2003. At the end of the year, relationships with the Trades Union movement were
strained, but since the year end 17 of 18 union requests have been resolved to
everyone's satisfaction, leading to a much improved working position by the end
of the first quarter.
Acquisition of PS Gold
On 24 December 2002, Thistle Mining through its wholly owned South African
subsidiary, Dissel Holdings SA Ltd., announced an offer for 100% of PS Gold, a
company listed on the Johannesburg Stock Exchange, which had previously owned
President Steyn Gold Mines (Free State) (Pty) Ltd. During the year, Thistle
Mining through its South African subsidiary, had paid a royalty of US $8 per
ounce of gold produced from the Steyn mines amounting to US $1.3 million. The
royalty would have been payable until January 2007 and would have cost US $8
million at the current level of production. In considering plans to expand the
output from the mines the costs of the royalty, especially when faced with the
introduction of a royalty payable to the government, weighed heavily on the
decision to make the acquisition.
In addition PS Gold held a US $3.25 million 10% loan note, which was convertible
into Thistle Mining common shares. The only other asset held by PS Gold was a
60% participation in the low grade Freddie's waste dump with Steyn owning the
balance.
Since the end of the financial year Thistle Mining has successfully completed
its offer for the entire share capital of PS Gold with a 97% acceptance as at 28
March 2003. The Group is now moving forward to compulsorily acquire the balance
of the shares outstanding. PS Gold will then be de-listed from the Johannesburg
Stock Exchange. This is expected to be completed by the end of May 2003.
Financial aspects of mining in South Africa
Throughout the year the South African Rand exchange rate strengthened against
the weak US dollar. This was part of the general weakness of the US dollar
against many other currencies and against commodity driven currencies in
particular. However, since the year end the Rand has risen rapidly to trade as
high as 7.05 against the US dollar.
These charts illustrate the price of gold in US $, the price in South African
Rand and the "hedge price" negotiated by Thistle at the time of the acquisition.
"Hedge price" is the price received by the group per ounce after taking into
account the net receipts of the hedge programme during the year.
US $ gold price Rand gold price
THISTLE MINING 2002 ANNUAL REPORT
From a purely financial perspective, it would have been in Thistle's best
interests to have hedged the South African Rand as a specific deal. However, the
Group did not have a strong enough Balance Sheet to be able to negotiate that
position. In the event we were able to offset the Currency against the gold
price protection programme, which the Group was obliged to undertake, to cover
the banking facilities used to negotiate the acquisition. The currency
protection scheme was in the form of Rand denominated Puts. The disadvantage of
the Puts was that a significant rise in the gold price undermined the benefit of
the strengthening Rand. This was clearly seen during the latter part of 2002
when the Group benefited from a strengthening Rand but as the gold price moved
up to US $382 in early 2003 that benefit was undermined.
Since the year-end the Group has been able to buy back its Rand Gold hedge
position and to repay completely its term debt to Standard Bank London.
The Group's efforts are now focussed on increasing overall production so that
the amount of gold (presently approximately 12,000 ounces per month) committed
to the forward sales programme becomes a smaller part of total revenue.
Philippine Gold Ltd
During 2001 when the gold price reached its low point of US $256, the Masbate
gold project was placed on care and maintenance. The rise in the US $ gold price
has significantly altered the project economics and we are considering the next
step in the development of the site.
For the calendar year ending 2002, a total of 44 Reverse Circulation drill-holes
and 14 diamond drill-holes were completed at the Colorado, Grand View and
Montana deposits for an advance of 4,847 metres, representing 43% of the planned
drilling programme.
Utilising the information obtained so far, a complete re-interpretation of the
geology, including oxidation, alteration and veining systems, and mineralisation
envelopes has been carried out and a preliminary resource estimate completed for
Colorado and Montana deposits. The schematic below demonstrates the various vein
systems in the Colorado resource, which is currently the project's second
largest resource, after the Main Vein deposit.
Masbate Geology Masbate Gold Project
THISTLE MINING 2002 ANNUAL REPORT
This latest round of drilling has also encountered additional gold/silver
mineralisation within the Colorado system that was not recognised in previous
drilling and interpretations. In addition, Colorado's Vein 5 has also increased
in size close to surface. As a result, there may be additional requirements for
drilling to better define these zones, which will in turn add tonnage and
contained ounces of gold (+silver) to the total resources, and which would most
likely be included within potential open-pit perimeters.
For the Colorado and Montana resources, a combined total measured, indicated and
inferred resource estimate has been calculated at 16.37 million tonnes at an
average grade of 1.46g/t gold (lower cutoff grade of 0.7g/t gold, upper cutoff
grade of 21g/t gold) for a total contained 770,200 ounces of gold. Based on the
gold:silver ratios obtained during assaying of samples from this drilling
campaign (1:1), the total resource is estimated to contain approximately 770,000
ounces of silver.
The tables below relate solely to the drilling undertaken during 2002.
Resource estimates for Colorado and Montana
@ low cut-off grade of 0.5 g/t Au
Resources (0.5 g/t Au low cut)
Resource Measured Indicated Inferred Total Total
Area tonnes g/t Au tonnes g/t Au tonnes g/t Au tonnes g/t Au Contained
Gold (oz)
Colorado 7.61 Mt 1.26 6.97 Mt 1.25 5.47 Mt 1.17 20.06 Mt 1.23 794,400
Montana 623 kt 1.78 432 kt 1.70 218 kt 1.77 1.27 Mt 1.75 71,700
Total 8.24 Mt 1.30 7.40 Mt 1.28 5.69 Mt 1.19 21.33 Mt 1.26 866,000
@ low cut-off grade of 0.7 g/t Au
Resources (0.7 g/t Au low cut)
Resource Measured Indicated Inferred Total Total
Area tonnes g/t Au tonnes g/t Au tonnes g/t Au tonnes g/t Au Contained
Gold (oz)
Colorado 5.83 Mt 1.46 5.41 Mt 1.44 4.02 Mt 1.37 15.26 Mt 1.43 701,200
Montana 543 kt 1.95 371 kt 1.87 196 kt 1.91 1.11 Mt 1.92 68,400
Total 6.38 Mt 1.50 5.77 Mt 1.47 4.22 Mt 1.40 16.37 Mt 1.46 770,200
Note: In both tables, totals do not appear to add correctly as a consequence of
rounding.
These resource estimates are classified with respect to the CIM and JORC codes
and guidelines for the reporting of mineral resources and ore reserves.
These latest resource estimates are significant in that they represent a slight
increase in the contained gold compared to the resource estimates carried out by
the previous owners in 1997- 98, for the both the Colorado and Montana deposits
(previously 13.24 million tonnes at an average grade of 1.64g/t gold, or 699,900
contained ounces, at a lower cutoff grade of 0.7g/t gold and an upper cutoff
grade of 6g/t gold). Additionally, the new resource estimates do not include the
southern extensions to the Colorado mineralisation, whereas the previous
operators had done so. Thus the contained gold for the Colorado and Montana
deposits has effectively
THISTLE MINING 2002 ANNUAL REPORT
been upgraded by a factor greater than 10%. The southern extensions to the
Colorado mineralisation were not included in the current resource estimate as
they are peripheral to the previous pit optimisation studies conducted by
previous owners.
Essentially, the current phase of drilling has led to revised mineralisation
interpretations and a greater degree of confidence in those interpretations. The
encouraging aspect of this programme is that as a consequence of the new
interpretations, the resource estimation work has defined resources which are
now slightly greater in tonnage and contained gold than previously calculated
(albeit at a slightly reduced average grade). It is anticipated that the
drilling programme proposed for the remainder of the resources (Main Vein, Grand
View, and Holy Moses/Basalt) will result in a similar increase in confidence of
the mineralisation interpretations and potentially resource size.
The remaining 7,500 metres of the drilling programme is anticipated to be
completed within 3 months after re-commencement. The bankable feasibility study
will be initiated during the drilling, and will include: completion of final
metallurgical testwork; an aerial photographic survey and compilation; ore
reserve estimation; pit optimisation studies; mine planning and scheduling, and
plant design. The feasibility study is expected to be carried out over a ten
month period.
Eurasia Gold Corp.
The Group owns 52.9% of the equity of Eurasia Gold Corp, a gold mining operation
in Kazakhstan.
The year 2002 saw Eurasia continue to build the foundations for the future
growth of its production.
During 2002 Eurasia achieved a number of milestones in its history. Not only was
a record level of production obtained, the operations achieved earnings before
interest, tax, depreciation and amortisation (EBITDA) of US $1.9 million.
The following table summarises the production for both mine sites:
Central Mukur Myaly Total
Tonnes of material mined (t) 2,925,234 2,075,965 5,001,199
Tonnes of ore to the pads (t) 650,266 536,893 1,187,159
Ore grade (g/t) 1.44 1.10 1.29
Assumed recovery 60% 60% 60%
Recoverable gold added to the pads during 2002 (oz) 18,020 11,437 29,457
Recoverable gold on pads as at 31 December 2002 (oz) 4,722 2,949 7,671
The stripping ratio increased during the year. This was due to the overburden
removal on new ore zones to be mined, as previously stripped zones have now been
mined out.
The stripping ratio for Central Mukur was 4.5:1 and for Myaly the stripping
ratio was 3.8:1.
This gave an average of 4.2:1 stripping ratio for both mine sites; it is
anticipated that this average stripping ratio will be maintained during 2003.
THISTLE MINING 2002 ANNUAL REPORT
Gold sales for the year amounted to 24,097 ounces compared to 19,276 ounces in
2001, which generated revenue of US $7.8 million equivalent to an average price
of US $322. Cash cost of production in 2002 averaged US $237 per ounce.
The total amount of material mined during the year was 5,001,199 tonnes. From
this 1,187,159 tonnes of ore were placed on the leach pads at Central Mukur and
Myaly. Gold recovery from the run of mine ore under leach is taken on average to
be 60% of the ore placed under leach. Studies are underway to examine the
introduction of crushing, grinding and agglomeration circuit to improve
recoveries.
Looking forward, Eurasia has set its production target for gold sales for 2003
at 25,000 ounces. This will be achieved by a combination of optimising the
mining operations and utilising the improved precipitation facilities at the
Central Mukur and Myaly mine sites.
CIDEM
During the year, we completed the disposal of virtually all of the remaining
interests acquired with this French investment company. The proceeds of these
disposals were modest but they have allowed us to reduce administrative costs
significantly by closing the Paris office and releasing the remaining staff.
This leaves only the relinquishment of the mining concessions in France, on
which work is well advanced.
W. P. McLucas
President & Chief Executive Officer
THISTLE MINING 2002 ANNUAL REPORT
Management's Discussion & Analysis
Introduction
The Management's Discussion and Analysis ("MD&A") provides an analysis of
Thistle Mining Inc.'s business and compares its financial results with those of
the previous year. In order to better understand the MD&A it should be read in
conjunction with the audited financial statements of the Group and the notes
thereon found on pages 24 to 44. The Group prepares and files its consolidated
financial statements and MD&A in United States ("US") dollars and in accordance
with UK generally accepted accounting principles ("UK GAAP"). A reconciliation
to Canadian GAAP is presented as note 32 to the financial statements.
All references to dollars in this report are to United States dollars except
where otherwise specified. As at 13 May 2003, US $1 is equivalent to South
African Rand 7.33 and US $1 is equivalent to Canadian $1.39. One Canadian dollar
is equivalent to South African Rand 5.27.
The MD&A is presented in two sections:
* The Financial Review provides a detailed insight to the Group's
operating results together with a review of its liquidity and capital
resources.
* The Risk Management section provides details of the Group's gold and
currency hedging operations and Management's role in reducing
commodity and currency risk to the business.
Financial review
Results
Financial Highlights
(in thousands of US dollars) 2002 2001
Turnover 63,529 10,681
Gross profit/(loss) 12,680 (1,392)
Operating profit/(loss) 4,857 (5,494)
Retained loss (8,403) (12,992)
Cash flow from operating activities 14,037 (581)
Net assets 20,638 14,095
The Group achieved a gross profit of $12.7 million in 2002 compared to a gross
loss from continuing operations of $2.0 million in the previous year. After
accounting for general and administrative expenses and other operating expenses,
the Group reported an operating profit of $4.9 million compared to a loss of
$5.4 million in 2001. The total retained loss was $8.4 million, or 5 cents per
share, compared to $13.0 million, or 14 cents per share in the previous year.
THISTLE MINING 2002 ANNUAL REPORT
Acquisition
The Group acquired the President Steyn Gold Mining complex of five operating
mines and a process plant, together with the TMTI Training Centre (PSGM), on 15
February 2002. The contribution to the Group results from the South African
operations commenced on that date.
The South African sub-group EBITDA (i.e. earnings before interest, depreciation
and amortisation and foreign exchange losses) over that period, was $15.3
million. After depreciation and amortisation of $4.0 million and foreign
exchange losses of $1.7 million, the contribution to group operating profit was
$9.5 million; its profit on ordinary activities before tax was $4.9 million.
Included in turnover is the April to December revenue from the Group's hedge
contracts of $3.1 million. Cost of sales included $1.3 million in respect of a
royalty of $8 per ounce of gold produced payable to the vendors of PSGM from the
date of acquisition until January 2007. On 1 April 2003, the Group announced
that it had acquired the company owning the royalty and this ceased to be
payable from 1 March 2003.
Administrative and other operating expenses
In 2002, administration costs increased by $1.9 million to $4.9 million. This
reflects the increase in the scale of the Group's business following the PSGM
acquisition.
Other operating expenses contain the cost for the Company's listing on the
London Alternative Investment Market (AIM) of $0.9 million, advisory fees of
$0.3 million towards developing a suitable Black Empowerment scheme and foreign
exchange losses of $1.8 million.
Amounts written off investments
The write-down of investments relates to a provision of $0.5 million for the
book value of the Group's small passive equity investment in a ceramic tile
manufacturer in Portugal (acquired with CIDEM and now considered worthless) and
a $1.2 million provision for diminution in value of certain listed fixed asset
investments. The Board considers it more prudent to carr y these fixed asset
investments at their quoted value.
Interest payable and similar charges
The increase in interest and other financial charges compared to 2001 reflects
the level of borrowing raised for the PSGM acquisition, and also includes a
foreign exchange loss arising from cash flow management in a strengthening
currency of $1.8 million, together with amortisation of $1.0 million of deferred
financing costs incurred in securing the acquisition debt.
Taxation
The current tax charge of $4.5 million principally arises on the Rand
denominated profit of the PSGM mining operations. In addition, South African tax
legislation requires a Group operating in overseas currency to book and pay tax
on its unrealised currency gains on US $ borrowings. There is also a current tax
charge in respect of our Kazakhstan operations. Deferred taxation of $1.6
million has been provided on the timing differences at the PSGM operations at
the rate they are expected to reverse of 39.5 %.
Net assets
The increase in the Group net assets of $6.5 million between 31 December 2001
and 31 December 2002 reflects the addition of the PSGM assets and related
liabilities, the borrowings to finance their purchase and the elimination of the
assets and liabilities of Sem Stone in January 2002.
THISTLE MINING 2002 ANNUAL REPORT
Cash flows
Positive cash flow from the South African operations resulted in Group cash
inflow from operating activities (cash operating profit, adjusted for movements
in current assets and liabilities) of $14.0 million for the year against a cash
outflow of $0.6 million in 2001. We reinvested $7.8 million of this cash flow in
capital expenditure at our mines. The most significant financing activities were
the increased debt obligations incurred primarily for the acquisition of PSGM,
and the issue of $9.6 million of shares for cash.
Liquidity and capital resources
The debt incurred to finance the acquisition of PSGM on 15 February 2002 was US
$35 million provided by:
$ million
Standard Bank London:
Secured 5 year term loan 20.0
Working capital facility 5.0
Overdraft facility 2.5
Listed loan notes of Thistle 3.0
Loan notes of Dissel convertible to shares in Thistle 4.5
TOTAL 35.0
At 31 December 2002, $5.6 million of the term loan and $1.1 million of the
overdraft facility have been repaid out of cash flow and $1.25 million of the
Dissel loan notes had been converted to shares of Thistle. The working capital
facility was converted to Rand denominated borrowings in May 2002. During the
year, $0.5 million of the Thistle listed loan notes were converted to Thistle
common shares. The $35 million of debt had therefore been reduced by $8.5
million by the year end.
In addition, holders of $1.3 million of Thistle loan notes in issue prior to the
PSGM acquisition had exercised their right to convert to Thistle Common shares
during 2002.
The Group continues to reduce its net debt. At 31 December 2002 it was just over
$29 million, analysed as follows:
$ million
Cash and cash equivalents (2.1)
Debt due within one year 8.5
Debt due after one year 24.5
Debt issue costs (1.6)
TOTAL 29.3
Subsequent to 31 December 2002, the remaining balance on the secured term loan
of $14.4 million was repaid and the overdraft facility of $1.5 million was
converted into shares of Thistle. The Group also acquired the company "PS Gold",
owning the remaining $3.25 million Dissel loan notes. This liability reflected
in the balance sheet at 31 December 2002 will cease to be payable.
Standard Bank provided short term facilities of approximately US $7 million to
partially finance the cost of the acquisition of PS Gold which was then
subsequently re-paid from the proceeds of the first part of the hedge
restructure. The Group is currently in discussions to re-arrange this facility
onto a longer term basis for working capital purposes and has agreement in
principle, as to terms, subject to contract.
THISTLE MINING 2002 ANNUAL REPORT
The Company issued US $15.2 million of shares during 2002 which were applied for
the following purposes:
$ million
Issued for cash 9.3
Debt conversion 3.6
For fixed asset investments 2.3
TOTAL 15.2
Further equity has been raised by the business since the year end. On 13 January
2003 the Company completed a private placement of 19.2 million shares in Thistle
for gross proceeds of US $7.4 million (Cdn $11.5 million), net US $6.8 million.
Summary of Quarterly Results (in thousands of US $, except for share data)
2002 2001
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Total Revenue 7,154 16,334 18,403 21,638 2,901 2,091 2,973 2,716
Net Income (loss) (625) 113 (740) (7,151) (1,493) (1,046) (9,546) (907)
Earnings (loss) per share (0.00) 0.00 (0.00) (0.04) (0.02) (0.01) (0.10) (0.01)
The Company had 226,876,994 shares issued and outstanding as at 9 May 2003.
Risk management
In conducting its business as a gold producer and developer of new mines, the
Group is exposed to technical and operating risks, which are inevitably involved
in any mining project.
The profitability of the Group's operations may also be significantly affected
by fluctuations in the price of gold, over which the Group has no control. If,
as a result of a sustained decline in the gold price, revenues from gold sales
were to fall below cash operating costs, these operations would be re-evaluated
and, if warranted, suspended or discontinued.
The Group operates in several countries, which present a political or
socio-economic risk. It is Management's view that the diversification provided
by the international spread and nature of the operations is such that it helps
to reduce the absolute level of risk. While investments are concentrated in
certain countries, management's task is to reduce the risk exposure for all
stakeholders in the business of Thistle Mining Inc.
It is in recognition of these risks, that the Group has adopted a hedging
strategy to protect shareholders' interests.
Hedging programme
As part of its facilities with Standard Bank London, the Group entered into a
series of put and call options in April 2002 to protect its South African
revenue stream. The hedge was designed to protect the Group against downside in
the US dollar gold price, whilst allowing participation in some of the upside
and against an exposure to a strengthening South African Rand whilst allowing
benefit from Rand weakness. This has been very successful to date. Included in
the turnover figure for 2002 is a net gain of US $3.1 million on the exercise of
the hedge contracts.
All hedging facilities have been undertaken without any need to provide margin.
THISTLE MINING 2002 ANNUAL REPORT
The hedge contracts entered into, tracked approximately 70% of Thistle's
forecast South African production at the time of acquisition over the next five
years and comprised a European put on the US dollar gold price, a European put
on the Rand gold price and a contingent forward sale on the US dollar gold
price. Each contract type had a maturity every month based on that month's
forecast production.
All gold produced in South Africa is sold in the spot market on the day it is
produced. At the end of each month, the number of ounces committed to the hedge
programme are bought back at the spot price and the currency position realised
on a net basis. The Group does not speculate on the gold price using its hedge
position. It is designed to reduce the risks to the Group's revenues and
operating profits and the Board monitors the position on a regular basis.
None of the gold available from the Philippines deposit is committed to a
hedging programme and Eurasia Gold Corp. is a completely un-hedged producer.
Details of the hedge programme in place at the year-end are given in note 28 to
the financial statements.
As announced on 1 April 2003 and then subsequently on 7 May 2003, the Group
twice took advantage of the weakness in the gold price and the strength of the
South African Rand which resulted in a restructuring of its hedging programme,
producing an immediate cash surplus of US $21.4 million in total, before tax,
whilst maintaining a measure of protection for the business. A new hedge
programme was entered into which separates the gold and currency cover for the
business. As well as having some direct currency protection at ZAR 8.65, the
base price at which the majority of the South African gold production has been
sold forward over this period, has now been lifted to US $330 and US $310 from a
potential US $300 previously.
As at 7 May 2003 Thistle had outstanding sales contracts as follows:
2003 2004 2005 2006 2007 Total
USD Gold put options
Forward sales contracts 8 12 12 12 - 44
Total ounces 17,562 10,065 5,592 18,666 - 51,885
Average price (US $/oz) $290 $290 $290 $290 - $290
Contingent forward gold sales
Forward sales contracts - - - - 8 8
Total ounces - - - - 101,520 101,520
Average price (US $/oz) - - - - $315 $315
Forward gold sales
Forward sales contracts 7 12 12 12 - 43
Total ounces 77,826 142,362 151,944 152,400 - 524,532
Average price (US $/oz) $330 $330 $310 $310 - $318
Forward Rand purchases
Forward sales contracts 6 - - - - 6
Total USD (000's) 21,934 - - - - 21,934
Average price (Rand/US $) R 8.65 - - - - R 8.65
The amount of contingent gold sold forward at each maturity is linearly
dependant on the gold p.m.
fix on that day. (In 2007 for example, at $315 per ounce zero gold is sold
forward. At $365 per ounce the maximum gold is sold forward.)
THISTLE MINING 2002 ANNUAL REPORT
During the months from April to December 2002 the Rand traded from 11.34 to 8.56
to the US dollar with an average rate for the period of 10.18. In the same
period the price of gold fluctuated from US $297 to US $349.
Further discussion on the Group's use of financial instruments to mitigate risks
is given in note 28 of the financial statements.
Environmental standards
The Group's activities are subject to extensive regulations governing
environmental protection. The Group keeps these matters under continuous review
and believes that where appropriate, adequate action has been taken when
necessary and that appropriate provision for future environmental costs has been
made in these financial statements. The Board's policy is to maintain operations
in keeping with high international standards and to develop a safe working
culture. In South Africa the company has carried out a full environmental review
and has implemented rehabilitation and monitoring programme, utilising external
environmental consultants where appropriate. In the Philippines, the Masbate
mine site will adopt these high international standards.
Risk management is an ongoing and evolving activity to which management devotes
considerable attention. While it is difficult to eliminate all of the risks
associated with mining on an international scale it is the Group's policy to
manage these risks, to the extent possible, to ensure that the Group's assets
and production are protected.
Statement of Directors' Responsibilities in Respect of the Preparation of the
Financial Statements
The following statements, which should be read in conjunction with the statement
of auditors' responsibilities included in the report, are made with a view for
shareholders to distinguishing the respective responsibilities of the Directors
and the auditors in relation to the financial statements.
The Directors are required to prepare financial statements for each financial
year, which give a true and fair view of the state of affairs of the Company and
the Group and of the profit or loss for the period. In preparing those financial
statements, the Directors are required to:
* select suitable accounting policies and apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company and the Group will continue in
business for the foreseeable future.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Group. They have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
THISTLE MINING 2002 FINANCIAL PAGES
Auditors' Report
Report of the independent auditors to the shareholders of Thistle Mining Inc.
We have audited the Canadian statutory financial statements (the "financial
statements") on pages 24 to 44. These financial statements have been prepared
under United Kingdom generally accepted accounting principles ("UK GAAP").
This report is made solely to the Company's shareholders, as a body, in
accordance with Part 13 of the Business Corporations Act (Yukon). Our audit work
has been undertaken so that we might state to the Company's shareholders those
matters we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's shareholders
as a body, for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors and auditors
As described on page 21, the Company's directors are responsible for preparing
the financial statements in accordance with applicable United Kingdom accounting
standards. Our responsibilities, as independent auditors, are established in the
United Kingdom by statute, the Auditing Practices Board, by our profession's
ethical guidance and the terms of our engagement letter dated 8 May 2003.
Under the terms of our engagement, we are required to report our opinion as to
whether the financial statements give a true and fair view.
We read the other information accompanying the financial statements and consider
whether it is consistent with them. We consider the implications of our report
if we become aware of any apparent misstatements or material inconsistencies
with the financial statements.
Basis of audit opinion
We conducted our audits in accordance with Auditing Standards issued by the
United Kingdom Auditing Practices Board. An audit includes examination, on a
test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the Group's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Future funding
In forming our opinion, we have considered the adequacy of the disclosures made
in note 1 to the financial statements concerning the uncertainty over the
ability of the Group to secure additional funding for working capital and for
the Group's expansion plans. In view of the significance of this uncertainty, we
consider that it should be drawn to your attention but our opinion is not
qualified in this respect.
THISTLE MINING 2002 FINANCIAL PAGES
UK GAAP Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group as at 31 December 2002 and 2001 and of
the loss of the Group for the years then ended, and have been properly prepared
in accordance with United Kingdom accounting practice and standards.
Reconciliation to Canadian GAAP
In connection with our audit of the 2002 and 2001 financial statements presented
in accordance with United Kingdom accounting standards, we have also reviewed
note 32 "Reconciliation to Canadian GAAP". The preparation of this note is the
responsibility of the Directors. Our responsibility is to express an opinion on
this note based on our audits. Generally accepted accounting principles in the
United Kingdom vary in certain significant respects from generally accepted
accounting principles in Canada.
In our opinion, note 32, when considered in relation to the consolidated
financial statements taken as a whole, reflects fairly, in all material
respects, the effect on the results of the Group for the years ended 31 December
2002 and 2001 of applying Canadian generally accepted accounting principles.
KPMG AUDIT Plc.
Chartered Accountants
Registered Auditor
London
14 May 2003
THISTLE MINING 2002 FINANCIAL PAGES
Consolidated Balance Sheet
(in thousands of US dollars)
At 31 December 2002 2001
Fixed assets
Tangible assets (note 10) 68,261 22,705
Investments (note 11) 2,483 2,224
70,744 24,929
Current assets
Stocks (note 12) 4,708 2,248
Debtors (note 13) 3,979 2,642
Investments (note 14) 45 60
Cash at bank and in hand 2,106 294
10,838 5,244
Creditors: Amounts falling due within one year
(including convertible debt) (note 15) (28,718) (10,852)
Net current liabilities (17,880) (5,608)
Total assets less current liabilities 52,864 19,321
Creditors: Amounts falling due after more than one year
(including convertible debt) (note 16) (22,875) (5,226)
Provisions for liabilities and charges (note 27) (9,351) -
Net assets 20,638 14,095
Capital and reserves
Share capital (note 18) 75,715 60,498
Profit and (loss) account (note 19) (56,333) (47,909)
Equity shareholders' funds 19,382 12,589
Minority interests (note 21) 1,256 1,506
Subsequent events (note 31)
Commitments (notes 23 and 28)
20,638 14,095
These financial statements were approved by the board of Directors on 14 May
2003 and were signed on its behalf by:
JOHN DAVIES BROWN LORD LANG OF MONKTON
Group Finance Director Chairman Of The Board
THISTLE MINING 2002 FINANCIAL PAGES
Consolidated Profit and Loss Account
(in thousands of US dollars)
For the years ended 31 December 2002 2001
Existing Acquisition Total Total
Turnover - continuing operations 7,784 55,745 63,529 4,949
- discontinued operations - - - 5,732
7,784 55,745 63,529 10,681
Cost of sales - continuing operations (6,949) (43,900) (50,849) (6,968)
- discontinued operations - - - (5,105)
Gross profit/(loss) 835 11,845 12,680 (1,392)
General and administrative expenses* (4,591) (287) (4,878) (2,970)
Other operating expenses - continuing operations (918) (2,027) (2,945) (382)
- discontinued operations - - - (750)
Total operating profit/(loss) - continuing (4,674) 9,531 4,857 (5,371)
operations
- discontinued operations - - - (123)
(4,674) 9,531 4,857 (5,494)
Loss on disposal of discontinued operations (note 2) - (8,074)
Interest receivable and similar income (note 6) 342 171
Amounts written-off investments (1,736) -
Interest payable and similar charges (note 7) (6,001) (954)
Loss on ordinary activities before taxation (note 3) (2,538) (14,351)
Tax on loss on ordinary activities (note 8) (6,115) -
Loss on ordinary activities after taxation (8,653) (14,351)
Equity minority interests (note 21) 250 1,359
Retained loss for the year (note 19) (8,403) (12,992)
Basic and diluted loss per common share for the year (note 9) (0.05) (0.14)
*Costs relate to continuing operations.
THISTLE MINING 2002 FINANCIAL PAGES
Consolidated Cash Flow Statement
(in thousands of US dollars)
For the years ended 31 December 2002 2001
Cash flow from operating activities (note 24) 14,037 (581)
Returns on investments and servicing of finance (note 25) (2,827) (783)
Capital expenditure and financial investment (note 25) (7,798) (1,306)
Acquisitions (note 25) (28,855) -
Cash outflow before financing (25,443) (2,670)
Financing (note 25) 24,565 1,446
Decrease in cash in the year (878) (1,224)
Reconciliation of net cash flow to movement in net debt (note 26)
Decrease in cash in the year (878) (1,224)
Cash inflow from increased debt (22,114) (1,446)
Cash outflow to/(inflow from) short-term investments (15) (133)
Conversion of debt to common shares 3,354 -
Loans disposed with discontinued activities 1,873 -
Net loans acquired with subsidiaries (387) -
Translation differences (1,605) 126
Other non-cash movements (986) -
Movement in net debt in the period (20,758) (2,677)
Net debt at the start of the year (note 26) (8,495) (5,818)
Net debt at the end of the year (note 26) (29,253) (8,495)
THISTLE MINING 2002 FINANCIAL PAGES
Parent Company Balance Sheet
(in thousands of US dollars)
At 31 December 2002 2001
Fixed assets
Tangible assets 41 342
Investments (note 11) 33,745 24,140
33,786 24,482
Current assets
Debtors (note 13) 1,329 155
Investments (note 14) 45 48
Cash at bank and in hand 93 14
1,467 217
Creditors: amounts falling due within one year (note 15) (8,919) (8,354)
Net current liabilities (7,452) (8,137)
Total assets less current liabilities 26,334 16,345
Creditors: amounts falling due after more than one year
(including convertible debentures) (note 16) (2,069) (2,250)
Net assets 24,265 14,095
Capital and reserves
Share capital (note 18) 75,715 60,498
Profit and loss account (51,450) (46,403)
Subsequent events (note 31)
24,265 14,095
These financial statements were approved by the board of Directors on 14 May
2003 and were signed on its behalf by:
JOHN DAVIES BROWN LORD LANG OF MONKTON
Group Finance Director Chairman Of The Board
Consolidated Statement of Total Recognised Gains and Losses
(in thousands of US dollars)
For the years ended 31 December 2002 2001
Loss for the financial year - Group (note 19) (8,403) (12,992)
Currency translation movement (note 19) (21) (163)
Total recognised losses relating to the financial year (8,424) (13,155)
THISTLE MINING 2002 FINANCIAL PAGES
Notes
(forming part of the financial statements)
(in thousands of US dollars unless specified)
1. Accounting policies
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Group's financial
statements, except as noted below.
The Group has adopted FRS 19 "Deferred tax". The impact of adopting this
standard is described in notes 8 and 27 to these financial statements.
There has been no impact of the adoption of this standard on the results for the
year ended 31 December 2001 or the net assets as at that date.
Basis of preparation
The Company prepares its financial statements in accordance with United Kingdom
generally accepted accounting principles ("UK GAAP") and under historical cost
accounting rules.
The financial statements have been prepared on a going concern basis.
In common with many mining companies, the Company raises finance for its
exploration and appraisal activities and capital projects as and when required.
The Directors are currently pursuing a number of expansion plans which would
require significant capital expenditure and new funding to increase production
and strengthen the financial structure of the Group. Also, in common with many
companies operating in South Africa, the impact of the recent strengthening of
the Rand has resulted in pressure on operating margins and cash flows. The
Directors are of the opinion that in the light of these challenges, the Group
will need to raise additional financial resources to meet working capital
requirements and to enable the Group to undertake specific projects to expand
its activities.
As explained in note 31, the Group is currently in discussions with Standard
Bank, its principal lender, to establish a new working capital facility for
approximately US $7 million and to revise the terms of its existing US $7.5
million revolving credit facility (currently Rand denominated). Agreement in
principle has been reached, subject to contract, and a further announcement will
be made once documentation has been completed.
In addition the Directors intend to raise further funds from shareholders and
other means as appropriate during 2003. It is on the basis of their confidence
in the availability of the necessary finance that the Directors have adopted the
going concern basis in the preparation of the financial statements.
Whilst the Directors are confident that the Group will be able to secure
additional funding to enable it to continue to meet its commitments as they fall
due and to undertake its planned capital expenditure programme, there can be no
certainty that this will be the case. The financial statements do not include
any adjustments, particularly in respect of fixed assets or provisions for the
costs of winding up which would be necessary if the Company and Group ceased to
be a going concern.
Basis of consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiary under takings for the year to 31 December 2002. The
Company adopts the acquisition method of accounting. Under this method, the
results of subsidiary undertakings acquired in the year are included in the
consolidated profit and loss account from the date of acquisition.
Any goodwill arising on acquisition is capitalised and amortised over its useful
life, not normally exceeding 20 years.
Tangible fixed assets
Mining interests
Mining properties are recorded at cost less accumulated amortisation and
impairments. Cost includes pre-production expenditure incurred during
development of the mine, expenditure to develop or prepare new or existing ore
bodies and the net present value of future decommissioning costs. Mining assets
are amortised using the unit of production method based on estimated proven and
probable mineral reserves.
Proven and probable mineral reserves reflect estimated economically recoverable
quantities which can be recovered in future from known mineral deposits.
THISTLE MINING 2002 FINANCIAL PAGES
1. Accounting policies cont'd
Deferred exploration costs
All costs associated with mineral exploration and investments are capitalised on
a project-by-project basis pending determination of the feasibility of the
project. Costs incurred include appropriate technical and administrative
expenses but not general overhead. If an exploration project is successful, the
related expenditures will be amortised over the estimated life of the commercial
ore reserves on a unit of production basis. Where a licence is relinquished, a
project is abandoned, or is considered to be of no further commercial value to
the Company, the related costs are written off.
The recoverability of deferred exploration costs and mining interests is
dependent upon the discovery of economically recoverable reserves, the ability
of the Company to obtain necessary financing to complete the development of
reserves and future profitable production or proceeds from the disposition
thereof.
Other fixed assets and depreciation
Tangible fixed assets are recorded at cost less accumulated depreciation.
Depreciation on tangible fixed assets is calculated so as to write down the cost
of those assets to their estimated residual values by equal installments over
the period of their estimated useful economic lives, using the following rates:
Equipment and furniture 10 - 20%
Motor vehicles 20 - 30%
Computer equipment 20 - 33%
Investments
Investments are stated at cost less provisions for any permanent diminution in
value.
Foreign currency translation
The Company has adopted the United States dollar as the reporting currency for
its financial statements and as the functional currency for its major
subsidiaries.
Transactions in currencies other than US dollars are recorded using the rate of
exchange ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the profit and loss account.
Leases
Operating lease rentals are charged to the profit and loss account on a
straight-line basis over the period of the lease.
Stocks
Stocks are stated at the lower of cost and net realisable value. For inventory
in process and finished goods, cost is taken as production cost, which includes
an appropriate proportion of attributable overheads.
Deferred taxation
The charge for taxation is based on the profit or loss for the year and takes
into account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes.
Turnover
Turnover represents the amounts derived from the provision of goods to third
party customers.
Cash and liquid resources
Cash, for the purpose of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand.
Liquid resources are current asset investments which are disposable without
curtailing or disrupting the business and are either readily convertible into
known amounts of cash at or close to their carrying values or traded in an
active market.
Financial instruments
The Group uses certain derivative instruments for hedging purposes to alter the
risk profile of an underlying exposure of the business in accordance with the
Group's risk management policies. Gains or losses on instruments used for
hedging are not recognised until the exposure that is being hedged is itself
recognised. The Group does not enter into speculative derivative contracts.
THISTLE MINING 2002 FINANCIAL PAGES
1. Accounting policies cont'd
Decommissioning, site restoration and environmental costs
Group companies are generally required to restore mine and processing sites at
the end of their producing lives to a condition acceptable to the relevant
authorities and consistent with the Group's environmental policies. The expected
cost of any committed decommissioning or restoration programme, discounted to
its net present value, is provided and capitalised at the beginning of each
project development. The capitalised cost is amortised over the life of the
operation and any increase in the net present value of the provision for the
expected cost is charged to the profit and loss account.
The cost of ongoing programmes to prevent and control pollution and to
rehabilitate the environment is charged to the consolidated profit and loss
account as incurred.
2. Loss on disposal of discontinued operations
Thistle Mining Inc.'s Group interest in Mines de la Lucette SA ("MDLL") was sold
in February 2001. As such, MDLL's operations were treated as a discontinued
operation.
The significant components of the net write-down on discontinued operations were
as follows for the year 2001:
Tangible fixed assets 5,257
Fixed asset investments and other 2,338
Other provisions 479
8,074
3. Loss on ordinary activities before taxation
2002 2001
Loss on ordinary activities before taxation is stated after charging:
Auditors' remuneration:
Group - audit 434 279
- fees paid to the auditor and its associates in respect of other services 330 2
Depletion 2,468 580
Depreciation and amortisation 2,801 352
Amortisation of deferred financing costs 1,016 -
Other assets - rentals payable under operating leases 13 64
4. Remuneration of Directors
2002 2001
Directors' emoluments 1,028 577
The emoluments of the highest paid director were $592 (2001 - $347).
The number of directors as at 31 December 2002 was 10 (2001 - 8).
5. Staff numbers and costs
The average number of employees during the year, analysed by category was as
follows:
2002 2001
Mining and exploration 4,688 561
Other including sales, finance and administration 17 29
4,705 590
Principal locations of employment were:
South Africa 4,123 -
Kazakhstan 562 558
France 1 7
United Kingdom 5 4
Canada 3 3
United States of America - 3
Philippines 11 11
Other - 4
4,705 590
THISTLEMINING 2002 FINANCIAL PAGES
5. Staff numbers and costs cont'd
2002 2001
Wages and salaries 22,264 1,965
Social security costs 428 352
22,692 2,317
6. Interest receivable and similar income
2002 2001
Bank interest receivable 331 82
Interest on loans in respect of fixed asset investments 11 47
Other - 42
342 171
7. Interest payable and similar charges
2002 2001
Interest - on bank loans and overdraft (2,862) (438)
- on other borrowings (308) (516)
Foreign exchange losses (1,815) -
Amortisation of deferred financing costs (1,016) -
(6,001) (954)
8. Taxation
Analysis of tax charge in the year
2002 2001
Corporation tax
Current tax on income for the period 4,490 -
Total current tax charge 4,490 -
Deferred tax
Origination/(reversal) of timing differences 1,681 -
Adjustment for prior years (56) -
Total deferred tax (credit)/charge 1,625 -
Tax on profit on ordinary activities 6,115 -
Current tax reconciliation
The current taxation assessed for the year is higher than the average rate of
corporation tax for the Group of 39.5% (2001 - 39.5%), the tax rate applicable
to the Group's primary operating location.
The differences are explained as follows:
Loss on ordinary activities before tax (2,538) (14,351)
Current tax credit at an average rate of 39.5% (2001 - 39.5%) (1,003) (5,669)
Effects of: Permanent differences 5,196 785
Unrecognised deferred tax assets 1,963 4,174
Capital allowances in excess of depreciation (712) (81)
Lower tax rates on overseas earnings (954) 791
Total current tax charge included in accounts 4,490 -
Factors that may affect future charges
Subsidiaries of the Group have recorded provisions for environmental
liabilities, which are available for deduction against taxable income only when
these costs are incurred or any applicable trust is funded. The recoverability
of these costs will depend on the subsidiaries having sufficient taxable income
in the year these costs are deducted.
The Group has approximately US $44.8 million (2001 - US $35.8 million) of
trading losses to carry forward for future years.
THISTLE MINING 2002 FINANCIAL PAGES
9. Loss per share
Loss per share has been calculated on the basis of retained loss for the year of
$8,403 (2001 - $12,992) and the average number of common shares in issue during
the year of 167.7 million (2001 - 94.9 million). Potential common shares do not
have a dilutive effect on the loss per share.
10. Tangible fixed assets
Mining interests
Turkey Kazakhstan Philippines South Total
Africa
Pumice gold resource resource mining
Group quarry mine property property Other interests
At beginning of year 436 3,664 14,409 - 336 18,845
Additions - - 906 - 10 916
Acquired business - - - 32,198 - 32,198
Depletion - (672) - (1,796) - (2,468)
Transfers - - 21 - (336) (315)
Discontinued operations (436) - - - - (436)
At 31 December 2002 - 2,992 15,336 30,402 10 48,740
At 31 December 2001 436 3,664 14,409 - 336 18,845
Other fixed assets
South Kazakhstan Kazakhstan Philippines
African
Mining mining construction other Corporate
Group assets assets in progress assets assets Total
Cost
At beginning of year - 3,639 848 178 153 4,818
Acquired business 13,687 - - - - 13,687
Additions 4,635 154 - 62 81 4,932
Transfers - 758 (848) - - (90)
Disposals - (50) - - (142) (192)
At end of year 18,322 4,501 - 240 92 23,155
Depreciation
At beginning of year - 799 - 30 129 958
Charge for year 2,225 539 - 21 17 2,802
Transfers - - - - - -
On disposals - - - - (126) (126)
At end of year 2,225 1,338 - 51 20 3,634
Net book value
31 December 2002 16,097 3,163 - 189 72 19,521
31 December 2001 - 2,840 848 148 24 3,860
Total tangible fixed assets
31 December 2002 68,261
31 December 2001 22,705
THISTLE MINING 2002 FINANCIAL PAGES
10. Tangible fixed assets cont'd
Corporate
Company assets
Cost
At beginning of year 30
Additions 37
Disposals (30)
At end of year 37
Depreciation
At beginning of year 24
Charge for year 6
On disposals (24)
At end of year 6
Net book value
31 December 2002 31
31 December 2001 6
11. Fixed asset investments
Loans to Investments Other
in
Group subsidiaries subsidiaries Deposits investments Total
Cost
At beginning of year - - 41 2,183 2,224
Additions - - 114 2,290 2,404
Acquired business - - 390 10 400
Transfers and repayments - - - (346) (346)
Discontinued operations - - - (463) (463)
Provision for impairment - - - (1,736) (1,736)
At end of year - - 545 1,938 2,483
Company
Cost
At beginning of year 7,390 15,671 41 1,038 24,140
Additions 3,845 4,724 - 2,284 10,853
Transfers and repayments - 424 - (434) (10)
Provision for impairment - - - (1,238) (1,238)
At end of year 11,235 20,819 41 1,650 33,745
Included in other investments are listed investments amounting to $1,549 (2001 -
$720), Company $1,634 (2001 - $320). At 31 December 2002, the market value of
these investments was $1,549 (2001 - $720), Company $1,634 (2001 - $320). The
potential tax liability if the investments were sold at this value would be nil,
Company nil.
THISTLE MINING 2002 FINANCIAL PAGES
11. Fixed asset investments cont'd
The principal undertakings in which the Group's interest at the year-end is more
than 20% are as follows:
Country of Ownership Ownership by
by
Subsidiary undertakings incorporation Principal the subsidiaries
activity Company
Dissel Holdings SA Ltd. South Africa Holding Company 100% -
Mindserv (Proprietary) Limited South Africa Holding Company - 100%
President Steyn Gold Mines (Free State)
(Proprietary) Limited South Africa Mining - 100%
TM Training Initiative (Proprietary) Limited South Africa Training Centre - 100%
Compagnie Internationale
de Developpement Minier (SA) France Holding Company 100% -
Philippine Gold Limited England Holding Company 100% -
Filminera Resources Corporation Philippines Mining - 40%
Phil. Gold Processing & Refining Corporation Philippines Mining - 100%
Eurasia Gold Corp. Canada Public Company 52.9% -
Operating
Kazakhstan
Gold Mine
All of the above companies are consolidated in the Group's financial statements
including the 40% owned Philippine company, where the Group has enhanced rights
allowing it to control the business and participate in 100% of the results.
The investments in the above subsidiaries are all held in common shares.
12. Stocks
2002 2001
Raw materials and consumables 1,199 634
In process gold inventory 3,509 1,120
Finished goods and goods for resale - 494
4,708 2,248
13. Debtors
Group Company
2002 2001 2002 2001
Trade debtors 2,434 1,930 - -
Other debtors 325 593 1,217 108
Taxes recoverable 1,073 65 - -
Prepayments and accrued income 147 54 112 47
3,979 2,642 1,329 155
All amounts are due within one year.
14. Investments (held as current assets)
Group Company
2002 2001 2002 2001
Other investments 45 60 45 48
At 31 December 2002, the market value of the investments was $45 (2001 - $60),
Company $45 (2001 - $48). The potential tax liability if the investments were
sold at this value would be nil (2001 - nil), Company nil (2001 - nil).
THISTLE MINING 2002 FINANCIAL PAGES
15. Creditors: Amounts falling due within one year
Group Company
2002 2001 2002 2001
Bank loans and overdrafts 7,529 1,688 - -
Other loans 1,000 1,935 1,000 500
Trade creditors 8,666 4,621 426 284
Amounts owed to group undertakings - - 6,648 6,744
Taxation and social security 4,968 243 - -
Other creditors 1,124 442 - -
Accruals and deferred income 5,431 1,923 845 826
28,718 10,852 8,919 8,354
Included in bank loans and overdrafts is $1,180 lent to Andas-Altyn, a
Kazakhstan LLP, a subsidiary of Eurasia Gold Corp. The fixed assets and mining
licences of Andas-Altyn are pledged as security. The remaining balance is
unsecured.
16. Creditors: Amounts falling due after more than one year
Group Company
2002 2001 2002 2001
Bank loans 17,529 2,976 - -
Other loans 5,319 2,250 2,069 2,250
Other liabilities 27 - - -
22,875 5,226 2,069 2,250
The maturity profile of the Group's financial liabilities is as follows:
2002 2001
Bank Other Bank Other
borrowings loans Total borrowings loans Total
In one year or less, or on demand 7,529 1,000 8,529 1,688 1,935 3,623
In more than one year but not
more than two years 8,293 - 8,293 3,431 - 3,431
In more than two year years but not
more than five years 10,417 5,726 16,143 1,795 - 1,795
26,239 6,726 32,965 6,914 1,935 8,849
Debt issue costs (1,181) (407) (1,588) - - -
25,058 6,319 31,377 6,914 1,935 8,849
There are no undrawn committed borrowing facilities as at 31 December 2002.
Included above are the following:
Bank loans totaling $22.4 million from Standard Bank to the South African
subsidiaries of the Company. The Company guarantees these loans. The guarantee
is secured by a first charge on the assets of the Company. $6.6 million of these
loans mature in 2007 and the interest rate is variable and floats to SA JIBOR.
The remainder of these loans mature in varying amounts to 2006 and the interest
rate is variable and floats to LIBOR. As discussed in note 31, these banking
arrangements were restructured subsequent to the year end.
Bank loan of $2.2 million to Andas-Altyn, a subsidiary of Eurasia Gold Corp. The
fixed assets and mining licences of Andas-Altyn are pledged as security. The
loan matures on 31 December 2004 and bears interest at a variable rate, which
was 14% at 31 December 2002.
$2.5 million convertible notes due 2007 with an interest rate of 10.0%. These
notes are convertible any time before maturity at the option of the holder into
units at Cdn $0.25 per share.
$1.0 million convertible notes due 2003 with an interest rate of 8.5%. These
notes are convertible any time before maturity at the option of the holder into
units at Cdn $0.70 per share.
THISTLE MINING 2002 FINANCIAL PAGES
17. Investment in Dissel Holdings SA Ltd. ("Dissel")
Effective 15 February 2002, Thistle Mining Inc. acquired from President Steyn
Gold Mines Ltd. ("PSGM") three wholly-owned subsidiaries which own and operate
five underground gold mines in the Free State region of South Africa. The
acquisition was made through Thistle Mining Inc.'s wholly-owned subsidiary
Dissel Holdings SA Ltd., incorporated in South Africa and set up for the purpose
of this acquisition. The business combination was accounted for under the
acquisition method and the allocation of the purchase price is as follows (in
$000's):
Cash 2,690
Other current assets 2,308
Mining properties and assets 45,891
Future income taxes (5,015)
Creditors (7,402)
Other liabilities (5,117)
Net assets acquired 33,355
Satisfied by:
Convertible loan note 4,500
Cash from equity proceeds 4,700
Cash from debt financing 24,155
33,355
The book value of the assets and liabilities acquired approximated to their fair
value, with the exception of the mining properties whose fair value was
estimated to be $30.8 million in excess of book value.
Dissel's contribution to the Group's cash flow since the date of acquisition is
summarised as follows (in $000's):
Net cash inflow from operating activities 18,747
Returns on investments and servicing of finance (1,807)
Taxation (3,660)
Capital expenditure and financial investment (4,749)
Pre-acquisition dividend paid (2,529)
Cash inflow before use of liquid resources and financing 6,002
The last financial statements of PSGM were prepared for the year to 31 December
2001. The summarised profit and loss account for PSGM for the period from 1
January 2002 to 15 February 2002, the period prior to the effective date of
acquisition, and for the preceding year are as follows (in $000's):
Period to 12 months to
15 February 2002 31 December
unaudited 2001
Turnover 6,476 43,500
Gross profit 1,821 4,243
Operating profit 1,383 4,447
Net interest payable (39) (742)
Profit on ordinary activities before taxation 1,344 3,705
Tax on profit on ordinary activities (609) (1,806)
Net profit for the period 735 1,899
Dissel's contribution to the Group's results post-acquisition is shown
separately in the consolidated profit and loss account.
THISTLE MINING 2002 FINANCIAL PAGES
18. Share capital
a) Authorised
Unlimited common shares without par value
Unlimited Class "A" preference shares
b) Issued
Common shares
Number Amount
of shares $000
1 January 2002 92,241,305 60,498
Private placement 42,180,000 5,006
Exercise of warrants 20,107,490 3,096
Conversion of loans 3,231,390 525
Retirement of debt 14,859,482 2,817
Investment in Resources Investment Trust 21,000,000 2,644
Other 2,631,320 311
Public offering 3,025,000 818
Balance 31 December 2002 199,275,987 75,715
On 7 January 2002, the Company issued 2,000,000 units consisting of one share
and 1/2 share purchase warrant, under a private placement for a net cash
consideration of $250,000. The warrants were exercised on 25 March 2002 for a
net cash consideration of $156,000.
On 28 January 2002, the Company issued 21,000,000 units consisting of one share
and 1/2 share purchase warrant, under a private placement for a net
consideration of $375,000 cash and 1,616,742 #1 ordinary shares issued at par in
Resources Investment Trust, a mineral resource investment company listed on the
London Stock Exchange. This has been recorded in shareholders equity at a total
of $2,644,000. On 19 April 2002 the warrants were exercised. As a result,
10,500,000 shares were issued for cash amounting to $1.64 million.
On 15 February 2002, the Company issued 40,180,000 units consisting of one share
and 1/2 share purchase warrant, under a private placement for a net cash
consideration of $4,756,000. The proceeds of this fund raising were used in the
acquisition of three wholly-owned subsidiaries from President Steyn Gold Mines
Ltd.
On 11 March 2002, the Company disbursed 2,631,320 shares held for the benefit of
the Company for a recorded value of $311,000.
On 31 March 2002, holders of loan notes converted the outstanding amount of
$1,390,000, including accrued interest, for 6,253,703 shares of the Company.
On 19 April 2002, 10,500,000 warrants were exercised for a net cash
consideration of $1,528,000.
On 29 June 2002, holders of convertible loan notes converted $1,267,000,
including accrued interest, for 8,105,782 shares of the Company.
On various dates in July 2002, holders of loan notes converted the outstanding
amount of $375,000 for 2,296,410 shares of the Company.
On 5 July 2002, 8,000,000 warrants were exercised for a net cash consideration
of $1,306,000. On various dates in September and October 2002, 595,000 warrants
were exercised for a cash consideration of $84,000. On 30 September 2002,
124,900 warrants were exercised on a ten-for-one basis for a cash consideration
of $12,000.
On 14 August 2002, the Company issued 3,025,000 shares under a private placement
for a net cash consideration of $818,000. This fund raising was undertaken in
conjunction with the Company's introduction to the Alternative Investment Market
(AIM) in the United Kingdom.
On various dates in December 2002, holders of loan notes converted the
outstanding amount of $310,000 for 1,434,980 shares of the Company.
The shares of the Company were traded during the year 2002 from Cdn $0.18 to Cdn
$0.86 per share, the value as of 31 December 2002 being Cdn $0.55 per share
(2001 - Cdn $0.19).
THISTLE MINING 2002 FINANCIAL PAGES
18. Share capital cont'd
c) Stock options
Options to purchase common shares under the Company's Stock Option Plan (the "
Plan") may be granted by the Board of Directors to directors, officers, certain
full-time employees of the Company and service providers at the Board's
discretion.
Changes in the share option plan are as follows (in thousands except per share
amounts):
2002 2001
Weighted Weighted
Average average
Number of exercise Number of exercise
Shares price* shares price*
Outstanding at beginning of year 10,760 0.94 10,870 0.94
Granted 14,460 0.36 - -
Cancelled (940) 1.09 - -
Expired (1,400) 1.00 (110) 2.61
Outstanding at end of year 22,880 0.57 10,760 0.94
The following share options were outstanding and exercisable at 31 December
2002:
Outstanding Exercise Remaining
(in thousands) price* years
Directors 527 0.88 1.2
2,803 1.00 1.8
1,450 1.00 2.0
2,020 0.70 2.8
10,200 0.35 4.3
750 0.59 4.7
17,750 0.57
Non-directors (officers, employees and service providers) 200 0.88 1.2
590 1.00 1.8
360 1.00 2.0
470 0.70 2.8
3,510 0.35 4.3
5,130 0.52
22,880 0.56
* weighted average exercise price and exercise price are in Canadian dollars.
d) Common share purchase warrants
Changes in the number of warrants are as follows:
Outstanding Average exercise
(in thousands) price*
Outstanding at beginning of year 4,090 1.50
Issued 36,855 0.26
Exercised (20,107) 0.25
Outstanding at the end of the year 20,838 0.51
* average exercise price and exercise price are in Canadian dollars.
THISTLE MINING 2002 FINANCIAL PAGES
19. Statement of movements in reserves
Profit and loss
account
At beginning of year (47,909)
Loss for the year (8,403)
Exchange movements taken to reserves (21)
At end of year (56,333)
20. Reconciliation of movements in shareholders' funds
2002 2001
Group Company Group Company
At beginning of year 12,589 14,095 27,087 34,011
Total recognised loss for the year (8,424) (5,047) (13,155) (18,573)
New share capital subscribed (net of expenses) 15,217 15,217 - -
Charges to share capital - - (1,343) (1,343)
At end of year 19,382 24,265 12,589 14,095
21. Minority interests
Group 2002 2001
At beginning of year 1,506 2,865
Share of loss (250) (1,359)
At end of year 1,256 1,506
22. Contingent liabilities
There are minor cases of litigation pending against the Group in the normal
course of business. The Group does not expect any material financial loss to
result from these claims.
23. Commitments
The Group has entered into a number of forward commitments. Details of these are
given in Note 28. Annual commitments under non-cancellable operating leases are
as follows:
2002 2001
Equipment Office Office
Lease lease lease
Group
Operating leases which expire:
Within one year 113 56 18
In the second to fifth years inclusive 26 73 153
139 129 171
Company
Operating leases which expire:
Within one year - 38 18
In the second to fifth years inclusive - 73 -
- 111 18
THISTLE MINING 2002 FINANCIAL PAGES
24. Reconciliation of operating loss to operating cash flows
2002 2001
Operating profit/(loss) 4,857 (5,494)
Depreciation, amortisation 5,270 932
Debtors - (increase)/decrease (2,436) 556
Creditors - increase/(decrease) 5,365 (1,621)
Stocks - (increase)/decrease (1,093) 4,752
Increase in environmental liability 588 -
Other non-cash movements 1,486 294
Net cash inflow from/(outflow to) operating activities 14,037 (581)
25. Analysis of cash flows
2002 2001
Returns on investment and servicing of finance:
Interest received 342 171
Interest paid (3,169) (954)
(2,827) (783)
Capital expenditure and financial investment:
Mining interests (604) (621)
Purchase of fixed asset investments (2,404) (318)
Transfers and repayments - 70
Tangible fixed assets (4,932) (1,059)
Disposal of fixed assets 142 489
Disposal of current asset investments - 133
(7,798) (1,306)
Acquisitions:
Purchase of subsidiary undertakings 28,855 -
Net loan acquired with subsidiary undertakings (387) -
Financing:
Issue of share capital 9,595 -
Debt due within one year
Increase in short-term borrowing 8,364 890
Transfers and repayments (1,263) (980)
Debt due after more than one year
Increase in long-term borrowing 23,146 1,536
Transfers and repayments (10,777) -
Vendor take-back loan on acquisition (4,500) -
24,565 1,446
26. Analysis of net debt
Other
At beginning Acquisitions/ Exchange non-cash At end
of year Cash flow disposals movement movements of year
Cash on hand and in bank 294 (878) 2,690 - - 2,106
Debt due after one year (5,226) (21,693) (3,077) (1,598) 8,719 (22,875)
Debt due within one year (3,623) (421) 1,873 (7) (6,351) (8,529)
Current asset investments 60 - (15) - - 45
Total (8,495) (22,992) 1,471 (1,605) 2,368 (29,253)
THISTLE MINING 2002 FINANCIAL PAGES
27. Provisions for liabilities and charges
Environmental Deferred Total
liabilities taxes
At beginning of year - - -
Acquired with subsidiary (2,040) (5,015) (7,055)
Profit and loss charge (588) (1,708) (2,296)
At end of year (2,628) (6,723) (9,351)
The deferred taxes above is comprised of differences between accumulated
depreciation and other capital allowances of US $7.2 million less other timing
differences of US $0.5 million.
The Group's mining operations are subject to reclamation and closure
requirements. Minimum standards for mine reclamation have been established by
various governmental agencies, which affect certain operations of the Group. A
reserve for mine reclamation costs is established for restoring certain
abandoned and currently disturbed mining areas based upon estimates of costs to
comply with existing reclamation standards.
The Group's estimate of its ultimate accrual for reclamation costs may change
due to changes in laws and regulations, and interpretations thereof, and changes
in cost estimates.
At 31 December 2002 the Group has a provision of approximately $2.6 million
recorded for environmental liabilities in South Africa and approximately $71,000
for environmental liability in Kazakhstan.
28. Financial instruments
The Directors determine, as required, the degree to which it is appropriate to
use financial instruments, commodity contracts or other hedging contracts or
techniques to mitigate risks. The main risks for which such instruments may be
appropriate are foreign currency risk, commodity price risk, interest rate risk
and liquidity risk, each of which is discussed below. The Group only enters into
financial instruments and commodity contracts for hedging purposes and does not
trade in them.
In accordance with FRS13, short term debtors and creditors are excluded from the
numerical disclosures with the exception of currency risk disclosures.
Currency risk
The Group has potential currency exposures in respect of items denominated in
currencies other than US $:
(S) Transactional exposure in respect of operating costs, capital
expenditures and, to a lesser extent, sales incurred in currencies other than
the functional currency of operations and in respect of certain exchange control
restrictions, which require funds to be maintained in currencies other than the
functional currency of operations.
(S) Translation exposures in respect of investments in operations, which
have functional currencies other than dollars. At present the Group is not
exposed to significant translation risk.
The majority of the Group's operations is based in South Africa, with the income
stream derived from gold sales denominated in US dollars, which are then
normally converted into South African Rand as required. The Rand hedging
programme discussed in the Management's Discussion and Analysis section of this
report is designed to reduce the currency risk arising in South Africa.
The table below shows the US dollar values at which Group companies have
monetary assets and liabilities in currencies other than the functional
currency, being the US dollar. Foreign exchange differences on retranslation of
such assets and liabilities are taken to the profit and loss account.
Financial assets Financial liabilities
2002 2001 2002 2001
South African Rand 5,036 - 13,490 -
United Kingdom # 112 1 486 -
Euros 420 - 333 -
Canadian $ 91 9 724 500
Philippine Peso 54 66 792 775
Kazakhstan tenge 599 - 2,302 629
6,312 76 18,127 1,904
THISTLE MINING 2002 FINANCIAL PAGES
28. Financial instruments cont'd
Interest rate risk
Corporate borrowing facilities and surplus funds have generally been at both
floating and fixed rates of interest. The benefits of fixing or capping interest
rates on financing to achieve greater predictability of cash outflow is
considered and implemented on a case-by-case basis.
The interest rate profiles of the Group's borrowings at 31 December 2002 and 31
December 2001 were as follows:
At 31 December 2002 Floating rate Fixed rate Total
US $ 15,842 10,116 25,958
South African Rand 6,597 - 6,597
Canadian $ - - -
Kazakhstan tenge - 57 57
Total 22,439 10,173 32,612
At 31 December 2001 Floating rate Fixed rate Total
US $ - 5,106 5,106
South African Rand - - -
Canadian $ - - -
Kazakhstan tenge - 389 389
Total - 5,495 5,495
Interest on floating rate US dollar borrowings is determined primarily to LIBOR.
Interest on floating rate borrowings in Rand is determined primarily to SA
JIBOR.
Details of the Group's loans including maturity profile is described in note 16.
Liquidity risk
The Group's policy on overall liquidity is to ensure that there are sufficient
committed borrowing facilities in place which, when combined with cash resources
available, are sufficient to meet the funding requirements in the foreseeable
future.
When funds are sought, the Group balances the costs and benefits of equity and
debt financing. When funds are received they are deposited with banks of high
standing in order to obtain market interest rates.
Commodity risk
The Group is exposed to the risk of movements in the price of gold. The hedging
programme undertaken by the Group during the year to mitigate this risk is
discussed in the Management's Discussion and Analysis section of this report.
Details of these contracts as at 31 December 2002 are as follows:
Volume Units Average rate Expiration
USD gold puts 65,970 ounces US $290 December 2006
SA Rand gold puts 682,216 ounces ZAR 3,650 June 2007
USD gold call options 691,236 ounces US $310 June 2007
The above volumes are structured as a series of monthly contracts maturing over
a period until final expiration date.
The call options at each monthly maturity are linearly dependent on the gold
price on that day. At $300 per ounce, zero gold would be sold forward, with the
maximum sold at $350.
As discussed at note 31, the Group restructured the above hedging programme
subsequent to the year end.
Gains and losses on instruments used for hedging are not recognised until the
exposure that is being hedged is itself initially recognised. This is the first
year that the Group has entered into financial instruments for hedging purposes.
At 31 December 2002, the forward sales contracts had an unrealised
mark-to-market loss of $35.7 million ($6.6 million of which would fall due in
2003) and the put options had an unrealised mark-to-market gain of $23.3 million
($7.4 million of which would fall due in 2003).
Fair value of financial instruments
Other than disclosed immediately above, there is no material difference between
the fair value and book value of the Group's financial instruments.
THISTLE MINING 2002 FINANCIAL PAGES
29. Pension scheme
The Company does not have any pension scheme for its employees and directors.
30. Related party transactions
Mr. W. P. McLucas, President and Chief Operating Officer, incurs significant
travel and subsistence expenditure in the course of his duties. At certain dates
during 2001 and 2002, reimbursement of these expenses, together with some
payments due in respect of emoluments, had fallen into arrears. Equally at
certain dates, personal expenditures funded by the group through this process
exceeded amounts due to Mr. McLucas. At 31 December 2002, the net balance was an
amount due by Mr. McLucas to Thistle Mining Inc. (a Canadian company), of
approximately $38,000, which is regarded as a loan to a director. Arrangements
are in hand to eliminate this balance during the current financial year.
In addition, amounts of approximately $11,000 and $20,000 were paid by the Group
respectively to Mr. McLucas and to Mr. S. H. Ingall, a director, in respect of
hospitality services provided by entities in which they held significant
interests. In respect of the above, no amounts were due to either director at 31
December 2002.
31. Subsequent events
Equity issues
On 13 January 2003, the Company issued 19.17 million units, consisting of one
share and one 1/2 share purchase warrant, under a private placement for gross
cash consideration of $7.4 million (Cdn $11.5 million), net $6.8 million. Each
full warrant entitles the holder to purchase one share at the price of Cdn $0.70
until 9 January 2004.
On 28 February 2003, Standard Bank converted the amount and interest owing under
the overdraft facility of $1.5 million into 3,761,183 shares of the Company.
Various loan notes amounting to $0.3 million, outstanding at 31 December 2002,
were converted to 1.24 million shares of the Company subsequent to the year end.
Acquisition
On 1 April 2003, the Company announced that it had received acceptances for its
offer to acquire President Steyn Gold Mines Limited, listed on the Johannesburg
Stock Exchange, representing 96.8% of the issued share capital. The process to
acquire compulsorily the balance of the shares in issue is underway and is
expected to be substantially complete in May 2003. President Steyn Gold Mines
Limited has two assets: a US $3.25 million 10% loan note convertible into 20.8
million shares of the Company and a royalty of $8 per ounce (running until
January 2007) on all gold produced at the Steyn mine complex. The cost of the
acquisition, including expenses, is approximately $12 million and will be
accounted for under the acquisition method.
Standard Bank provided short term facilities of approximately US $7 million to
partly finance the cost of the acquisition which was then repaid from the
proceeds of the first part of the hedge restructure. The Group is currently in
discussions to re-arrange this facility onto a longer term working capital basis
and has agreement in principle, as to terms, subject to contract. It is expected
that the necessary documentation will be completed in short order.
Restructuring of hedging programme
On 1 April 2003 and 7 May 2003, the Company announced that it had twice
restructured its hedging programme, realising a cash surplus of $21.4 million in
aggregate. Tax will be assessable on this receipt, in the normal manner, as part
of the taxable profits for 2003. This cash has been used to repay the remaining
$14.4 million balance on the term loan from Standard Bank and to continue the
development of the Steyn mine complex.
Details of the restructured hedging programme are given in the Management's
Discussion and Analysis section of this report.
32. Reconciliation to Canadian GAAP
Under Canadian GAAP the 1999 acquisition of CIDEM was accounted for as a reverse
take over in accordance with EIC10. As a result a purchase price discrepancy of
$2 million arising on the reverse take over was allocated to the Kazakhstan gold
properties.
Under Canadian GAAP the purchase price discrepancy of $21.5 million arising on
the 2002 acquisition of PSGM and the $2 million arising on the purchase of the
Kazakhstan gold properties, noted above, are regarded as temporary differences
under EIC99 and tax effected. These amounts, net of respective tax effects are
being amortised over the life of the assets to which they relate.
THISTLE MINING 2002 FINANCIAL PAGES
32. Reconciliation to Canadian GAAP cont'd
In 2002 the Company issued convertible loan notes. Under HB 3860 Canadian GAAP
requires that the issuer of a convertible loan note should classify the value
into its component parts as to a liability and an equity portion in accordance
with the substance of the contractual arrangement.
In addition in 2002 the Company entered into a number of transactions to hedge
its exposure to the price of gold and the South African Rand. Certain of these
transactions do not qualify as hedges under Canadian GAAP and have been marked
to market at December 31, 2002.
The application of Canadian GAAP would result in a (decrease) increase in
shareholders funds of $(23,777) at 31 December 2002 (2001 - $1,490) attributable
to tangible assets $22,967 (2001 - $3,483), increase in liabilities of $34,099
(2001 - nil) and deferred tax liability of $12,645 (2001 - $1,993).
The application of Canadian GAAP would have impacted the Company's reported
results for 2002 and 2001 as follows:
2002 2001
Net loss under UK GAAP (8,403) (12,992)
Depreciation and write-down of assets (2,016) (2,056)
Incremental interest charge convertible notes (206) -
Mark to market on gold contracts not regarded as hedges (35,684) -
Tax effect on above 10,847 203
Net loss under Canadian GAAP (35,462) (14,845)
Net loss per share based on Canadian GAAP:
For the year (0.21) (0.16)
Basic and diluted continuing operations (0.07)
Basic and diluted discontinued operations (0.09)
Changes in Canadian accounting recommendations
Disposal of long-lived assets and discontinued operations
In December 2002, the CICA revised Section 3475, "Disposal of Long-Lived Assets
and Discontinued Operations". Section 3475 provides a single accounting model
for long-lived assets to be disposed of by sale. It provides specified criteria
for classifying an asset as held-for-sale and requires assets classified as
held-for-sale to be measured at the lower of their carr ying amounts or fair
value, less costs to sell. It also broadens the scope of businesses that qualify
for reporting as discontinued operations to include any disposals of a component
of an entity, which comprises operations and cash flows that can be clearly
distinguished from the rest of the Company, and changes the timing of
recognising losses on such operations. The revised standards contained in
Section 3475 on disposal of long-lived
assets and discontinued operations are applicable to disposal activities
initiated by the Company's commitment to a plan on or after May 1, 2003;
however, early application is permitted. The Company intends to adopt this
standard as of January 1, 2003. The Company does not believe that the adoption
of this standard will have a material impact on the Company's financial
conditions.
Impairment of long-lived assets
In December 2002, the CICA issued Handbook Section 3063, "Impairment or Disposal
of Long-Lived Assets". Section 3063 amends existing guidance on long-lived asset
impairment measurement and establishes standards for the recognition,
measurement and disclosure of the impairment of long-lived assets held for use
by the Company. It requires that an impairment loss be recognised when the carr
ying amount of an asset to be held and used exceeds the sum of the undiscounted
cash flows expected from its use and disposal; the impairment recognised is
measured as the amount by which the carr ying amount of the asset exceeds its
fair value. The new standards contained in Section 3063 on the impairment of
long-lived assets held for use are applicable for years beginning on or after 1
April 2003; however, early application is permitted. The Company intends to
adopt this standard as of 1 January 2003. The Company does not believe that the
adoption of this standard will have a material impact on the Company's financial
conditions.
Accounting for asset retirement obligations
In March 2003, the CICA issued Section 3110, "Accounting for Asset Retirement
Obligations." Under Section 3110, the Company records the full amount of any
obligation associated with the asset retirement, such as the reclamation
associated with the end of a mine's life, as a liability. At the same time, a
corresponding asset is recorded which is depreciated over the life of the asset.
The Company is required to adopt Section 3110, on 1 January 2004. The Company
has not yet determined the impact of implementation of these guidelines on its
2004 consolidated financial statements.
Corporate Information
Head Office
Richmond Adelaide Centre
120 Adelaide Street West
Suite 2215
Toronto, ON Canada
M5H 1T1
Tel: +1-416-594-3293
Fax: +1-416-594-6462
UK Branch Office
10 Dundas Street
Edinburgh, Scotland
EH3 6HZ
Tel: +44-131-557-6222
Fax: +44-131-557-6333
Corporate Structure
& Management
Directors
Chairman of the Board
The Right Honourable
Lord Lang of Monkton
Ayrshire, Scotland
Deputy Chairman
Dr. Adnan Al-Sultan
Kuwait City, Kuwait
President & C.E.O.
William McLucas
Edinburgh, Scotland
Group Finance Director
John Brown
Edinburgh, Scotland
Manaf Alhajeri
Kuwait City, Kuwait
David Beatty, O.B.E.
Toronto, Canada
Simon Ingall
Castle Douglas, Scotland
Abeer Nasser Al-Shubaiki
Kuwait City, Kuwait
Adrian Sykes
Colchester, England
Steven Sharpe
London, England
Officers
William McLucas
President & C.E.O.
Graham Bevan
Vice-President Technical
& Mining Operations
John Brown
Group Finance Director
Harvey McKenzie
Chief Financial Officer
Grant Sawiak
Corporate Secretary
Listing
Toronto Stock Exchange -Symbol THT
Alternative Investment Market,
London Stock Exchange -
Symbol TMG
Registrar &
Transfer Agent
CIBC Mellon Trust Company
Toronto, Ontario
CIBC Mellon Trust Company
London, United Kingdom
Legal Counsel
Fogler Rubinoff
Toronto, Ontario
Dickson Minto
Edinburgh, Scotland
Werksmans
Johannesburg, South Africa
Auditors
KPMG Audit Plc
London, United Kingdom
Nominated Advisors
Grant Thornton Corporate
Finance
London, United Kingdom
Bankers
Royal Bank of Canada
Toronto, Ontario
Standard Bank London Ltd.
London, United Kingdom
Standard Corporate
& Merchant Bank
Johannesburg, South Africa
Annual Meeting
Our Annual Meeting of
Shareholders will be held
on 26 June 2003, at 9:30 a.m.
in the Tom Thomson Room.
Hilton Toronto
145 Richmond Street West
Toronto, Ontario
Canada M5H 2L1
This information is provided by RNS
The company news service from the London Stock Exchange
END
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