FOR: EASTERN PLATINUM LIMITED
TSX, AIM SYMBOL: ELR
February 15, 2007
Eastern Platinum Limited Reports Quarterly Results
LONDON, ENGLAND--(CCNMatthews - Feb. 15, 2007) - Eastern Platinum Limited (the "Company" or
"Eastplats") (TSX:ELR)(AIM:ELR) announces the financial results for the six month period ended
December 31, 2006 ("Q2 - 2007") (all amounts reported in $CDN).
Overview
The Company is a platinum group metal ("PGM") producer engaged in the acquisition, exploration,
development and mining of PGM properties located in various provinces in South Africa. All of the
Company's properties are situated on the western and eastern limbs of the Bushveld Igneous Complex
("BIC") the geological environment that supports over 70% of the world's PGM supply. The Company's
Nominated Adviser and Broker ("NOMAD") is Canaccord Adams Limited.
- The Company's working capital position was approximately $78.7 million as at December 31, 2006 (June
30, 2006 - $105.6 million).
- The Company had net income for the six months ended December 31, 2006 of $7.4 million or $0.01 per
share compared to a loss of $0.4 million or $ less than 0.01 greater than per share during the six
months ended December 31, 2005. The net income in the six months ended December 31, 2006 was a result
of the increased production at Crocodile River Mine and from the Foreign Exchange Gain for the quarter
of $5.8 million (six months ended December 31, 2006 $1.6 million). The general and administrative
expenses for the current quarter were $4.3 million (previous quarter $3.8 million and six months ended
December 31, 2006 $8.1 million). Included within these balances are costs associated with managing the
South African operations and severance paid to a past director and officer of the Company. During the
quarter the Company paid and accrued interest on Barplats' outstanding debt as agreed at the time of
acquisition. Portions of this debt are still outstanding and interest continues to accrue. Earned
interest income totaling $2.0 million (prior quarter $1.9 million and six months ended December 31,
2006 $3.9) during Q2-07.
- Revenues and costs directly attributable to Barplats activity have caused the changes in the
financial results when compared to the three and six month periods ended December 31, 2005. - $Nil.
Significant Transactions
- On August 1, 2006, subsequent to the Barplats acquisition, the Company purchased the Nedbank Capital
Loan of $16.7 million and purchased $9.5 million of Gubevu Consortium Holdings (Pty) Limited
("Gubevu") debt from Nedbank Capital. The Gubevu loan is a demand loan with interest accruing at South
African prime rate which, at December 31, 2006 was 12.5% (Gubevu is Barplats' BEE partner).
- The Company holds an 87% direct and indirect joint venture interest in the Spitzkop PGM project and,
on August 22, 2006, it acquired a 49% interest in South African, Black Economic Empowerment ("BEE")
company, Afriminerals (Pty) Ltd. ("Afriminerals"). Afriminerals' net assets consist wholly of a 26%
shareholding in Spitzkop Platinum (Pty) Ltd. ("Spitzplats"), and is the Company's joint venture
partner on the Spitzkop PGM project. The balance of the shares in Afriminerals are owned by a
consortium that includes companies and organizations representing Historically Disadvantaged South
Africans. Total consideration paid to acquire the 49% shareholding in Afriminerals was US$5.5 million
and 3 million shares of the Company.
Ian Rozier, the Company's President and CEO, commented:
"The increase in production and underground mine development at CRM, along with excellent results from
drilling at Spitzkop are in line with our planning and expectations and reflect the excellent progress
being made on all fronts," stated President and CEO, Ian Rozier.
"Progress at the Crocodile River Mine operations is very encouraging and combined with the very strong
fundamentals for platinum and rhodium, suggest that our investment in Barplats, made just over 10
months ago, was a very timely and cost effective acquisition," added Mr. Rozier.
Financial Highlights
Please refer to the attached unaudited interim consolidated financial statements and Management's
Discussion and Analysis for the six months ended December 31, 2006 as well as the Company's annual
consolidated financial statements and accompanying Management Discussion and Analysis for the years
ended June 30, 2006 and 2005 which are available on SEDAR at www.sedar.com and on the Company's
website www.eastplats.com.
About the Company
Eastern Platinum Limited is a platinum group metal ("PGM") producer engaged in the acquisition,
exploration, development and mining of PGM properties in South Africa.
The Company's shares are listed on the TSX and on the AIM (Alternative Investment Market) of the
London Stock Exchange.
See accompanying notes to the interim consolidated financial statements.
Consolidated financial statements of Eastern Platinum Limited
December 31, 2006 (Unaudited)
/T/
Eastern Platinum Limited
Consolidated statements of operations and deficit
three and six month periods ended December 31
(Expressed in thousands of Canadian dollars, except share and per share
amounts)
(Unaudited)
Three months Six months
ended ended
December 31 December 31
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
$ $ $ $
Revenue 28,363 - 53,813 -
-------------------------------------------------------------------------
Cost of operations
Production costs (18,943) - (36,046) -
Depletion and
depreciation (3,513) - (6,485) -
-------------------------------------------------------------------------
(22,456) - (42,531) -
-------------------------------------------------------------------------
Income before
undernoted items 5,907 - 11,282 -
-------------------------------------------------------------------------
Expenses
General and
administrative 4,388 490 8,140 1,244
Stock-based
compensation 162 3 218 22
-------------------------------------------------------------------------
4,550 493 8,358 1,266
-------------------------------------------------------------------------
Operating income
(loss) 1,357 (493) 2,924 (1,266)
Other income
(expense)
Interest income 1,956 338 3,855 685
Interest expense (1,467) - (2,915) -
Foreign exchange
gain 5,834 185 1,644 189
-------------------------------------------------------------------------
Income (loss)
before income taxes
and non-controlling
interests 7,680 30 5,508 (392)
Recovery of future
income taxes 404 - 807 -
Non-controlling
interests (Note 8) (671) - (1,381) -
-------------------------------------------------------------------------
Net income (loss)
for the period 7,413 30 4,934 (392)
Deficit, beginning
of period (46,434) (29,953) (43,955) (29,531)
-------------------------------------------------------------------------
Deficit, end of
period (39,021) (29,923) (39,021) (29,923)
-------------------------------------------------------------------------
Basic and diluted
income (loss)
per share 0.01 0.00 0.01 (0.00)
-------------------------------------------------------------------------
Weighted average
number of
common shares
outstanding
Basic 515,234,420 90,131,037 514,569,575 87,462,450
Diluted 515,612,386 90,131,037 515,612,386 87,462,450
-------------------------------------------------------------------------
Eastern Platinum Limited
Consolidated balance sheets
(Expressed in thousands of Canadian dollars)
(Unaudited)
December 31, June 30,
2006 2006
-----------------------------------------------------------------------
$ $
Assets
Current assets
Cash and cash equivalents 5,402 50,798
Short-term investments 65,290 83,386
Receivables (Note 3) 31,890 14,446
Inventories (Note 4) 9,307 1,871
-----------------------------------------------------------------------
111,889 150,501
Loan receivable (Note 5) 11,552 -
Property, plant and equipment (Note 6) 676,196 600,739
Refining contract 17,505 16,718
Other assets 1,173 458
-----------------------------------------------------------------------
818,315 768,416
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued
liabilities 19,444 16,128
Short-term debt 13,666 28,761
-----------------------------------------------------------------------
33,110 44,889
Asset retirement obligation 4,237 3,665
Capital leases 7,362 -
Future income taxes 151,113 140,006
-----------------------------------------------------------------------
195,822 188,560
-----------------------------------------------------------------------
Non-controlling interests (Note 8) 15,730 15,120
-----------------------------------------------------------------------
Shareholders' equity
Share capital (Note 7) 672,143 668,453
Contributed surplus (Note 7) 8,284 8,095
Currency translation adjustment
(Note 9) (34,643) (67,857)
Deficit (39,021) (43,955)
-----------------------------------------------------------------------
606,763 564,736
-----------------------------------------------------------------------
818,315 768,416
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Approved by the Board
(Signed) David Cohen
David Cohen, Director
(Signed) Ian Rozier
Ian Rozier, Director
Eastern Platinum Limited
Consolidated statements of cash flows
three and six month periods ended December 31,
(Expressed in thousands of Canadian dollars)
(Unaudited)
Three months Six months
ended ended
December 31, December 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
$ $ $ $
Operating
activities
Net income (loss)
for the period 7,413 30 4,934 (392)
Items not involving
cash
Accretion 120 - 242 -
Depletion and
depreciation 3,513 6 6,485 13
Stock-based
compensation 162 3 218 22
Foreign exchange
gain (2,677) (181) (128) (181)
Future income tax
recovery (404) - (807) -
Non-controlling
interests 671 - 1,381 -
-------------------------------------------------------------------------
8,798 (142) 12,325 (538)
Net changes in
non-cash working
capital items
Receivables (11,998) 601 (17,800) 392
Inventories 3,149 - (6,811) -
Accounts payable
and accrued
liabilities (11,809) (642) 2,390 (395)
-------------------------------------------------------------------------
(11,860) (183) (9,896) (541)
-------------------------------------------------------------------------
Financing
activities
Short-term debt
financing 6,636 - (10,025) -
Shares issued for
cash - 48 - 48
-------------------------------------------------------------------------
6,636 48 (10,025) 48
-------------------------------------------------------------------------
Investing
activities
Purchase of debt
(Note 5) - - (9,691) -
Acquisition of
interest in
Afriminerals (Pty)
Ltd. (Note 6 (c)) - - (6,165) -
Short-term
investments 4,552 (2,123) 17,457 (1,523)
Property, plant and
equipment
expenditures,
net of related
accounts payable (15,768) - (27,111) -
Deferred
acquisition costs
and intangible
assets incurred - (241) - (645)
Deferred
acquisition costs
recovered - 2,129 - 2,129
-------------------------------------------------------------------------
(11,216) (235) (25,510) (39)
-------------------------------------------------------------------------
Effect of exchange
rate changes on
cash and cash
equivalents 50 - 35 -
-------------------------------------------------------------------------
Decrease in cash
and cash
equivalents (16,390) (370) (45,396) (532)
Cash and cash
equivalents,
beginning of period 21,792 1,410 50,798 1,572
-------------------------------------------------------------------------
Cash and cash
equivalents, end of
period 5,402 1,040 5,402 1,040
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash
equivalents are
comprised of
Cash in bank 2,468 1,040 2,468 1,040
Short-term money
market instruments 2,934 - 2,934 -
-------------------------------------------------------------------------
5,402 1,040 5,402 1,040
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary cash
flow information
Interest paid 388 - 701 -
Income taxes paid - - - -
/T/
During the six months ended December 31, 2006, the Company issued 3,000,000 common shares with a value
of $3.7 million for the acquisition of the interest in Afriminerals (Pty) Ltd. (Note 6 (c)).
1. Nature of operations
Eastern Platinum Limited (the "Company") is focused on the exploration, development and exploitation
of platinum group metal ("PGM") properties.
2. Basis of presentation
These unaudited interim financial statements have been prepared in accordance with Canadian generally
accepted accounting principles for interim financial statements. In the opinion of management, the
accompanying financial information reflects all adjustments, consisting primarily of normal recurring
adjustments, which are necessary for a fair presentation of results for the interim periods. Operating
results for the six month period ended December 31, 2006 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2007. These interim consolidated financial
statements should be read in conjunction with and follow the same accounting policies as the audited
consolidated financial statements of the Company for the year ended June 30, 2006.
3. Receivables
/T/
December 31, June 30,
2006 2006
--------------------------------------------------------
$ $
Trade receivables 24,745 12,888
Other receivables 1,762 1,179
Refundable taxes 4,182 112
Prepaid expenses 1,201 267
--------------------------------------------------------
31,890 14,446
--------------------------------------------------------
--------------------------------------------------------
/T/
4. Inventories
/T/
December 31, June 30,
2006 2006
--------------------------------------------------------
$ $
Consumables 2,934 777
Ore and concentrate 6,373 1,094
--------------------------------------------------------
9,307 1,871
--------------------------------------------------------
--------------------------------------------------------
/T/
5. Loan receivable
During the three months ended September 30, 2006, the Company (through a wholly-owned subsidiary)
purchased a loan held by Nedbank Capital in favour of Gubevu Consortium Investment Holdings (Pty) Ltd.
("Gubevu"), Barplats' minority shareholder and Black Economic Empowerment partner, under the same
commercial terms and conditions as the Nedbank Capital loan. The debt was purchased for $9.5 million
and is a demand note with interest accruing at the floating South African prime rate (December 31,
2006 - 12.5%).
6. Property, plant and equipment
/T/
December 31, June 30,
2006 2006
-------------------------------------------------------------------------
Accumulated Net Net
depreciation/ book book
Cost depletion value value
-------------------------------------------------------------------------
$ $ $ $
Mining plant and
equipment 129,520 2,547 126,973 80,634
Mineral properties
Crocodile River Mine (a) 108,074 2,869 105,205 115,608
Kennedy's Vale Project (b) 329,524 - 329,524 303,571
Spitzkop PGM Project (c) 86,821 - 86,821 73,640
Mareesburg JV (d) 27,641 - 27,641 27,209
Other property, plant
and equipment 64 32 32 77
-------------------------------------------------------------------------
681,644 5,448 676,196 600,739
-------------------------------------------------------------------------
-------------------------------------------------------------------------
/T/
(a) Crocodile River Mine ("CRM")
CRM is located on the eastern portion of the western limb of Bushveld Igneous Complex ("BIC"). The
Maroelabult and Zandfontein sections are currently in production with the Crocette deposit and other
potential near-surface opportunities being in the development stages.
(b) Kennedy's Vale Project ("KV")
KV is located on the eastern limb of the BIC, near Steelpoort in the Province of Mpumalanga. It
comprises PGM mineral rights on five farms in the Steelpoort Valley.
(c) Spitzkop PGM Project
The Company holds a 50% direct joint venture interest in the Spitzkop PGM Project ("Spitzkop Project")
along with a 37% indirect interest in Spitzkop and on August 22, 2006 it acquired a 49% interest in
South African, Black Economic Empowerment ("BEE") company, Afriminerals (Pty) Ltd. ("Afriminerals").
Afriminerals' net assets consist wholly of a 26% shareholding in Spitzkop Platinum (Pty) Ltd.
("Spitzplats"), and is the Company's joint venture partner on the Spitzkop Project. The balance of the
shares in Afriminerals are owned by a consortium that includes companies and organizations
representing Historically Disadvantaged South Africans ("HDSA's"). Total consideration paid to acquire
the 49% shareholding in Afriminerals was US$5.5 million and 3,000,000 shares of the Company.
As part of the overall transaction the Company has an obligation to either finance, or organize,
project financing for Afriminerals for its share of capital costs for the development of the mine at
Spitzkop. Such financing will be repaid from the proceeds of initial production attributable to
Afriminerals.
(d) Mareesburg JV
The Company entered into an agreement dated January 27, 2004 to participate in a 50:50 joint venture
with Lion's Head Platinum (Pty) Ltd. ("LHP") to purchase the mineral rights on the farm Mareesburg 8JT
from Samancor Limited. The Company then entered into two agreements dated April 26, 2004 to acquire a
100% interest in Royal Anthem ("RA").
RA holds a 51% ownership interest in LHP. Following the amalgamation, the Company holds indirectly a
75.5% interest in the Mareesburg project.
7. Share capital
(a) Authorized
Unlimited number of preferred redeemable, voting, non-participating shares without nominal or par
value.
Unlimited number of common shares with no par value.
(b) Issued
/T/
Number of
common Contributed
shares Amount surplus
-------------------------------------------------------------------------
$ $
Balance, June 30, 2006 513,228,985 668,453 8,095
Issued for acquisition of
Afriminerals (Pty) Ltd. 3,000,000 3,690 -
Stock-based compensation - - 110
Stock option expense of
subsidiary, net of
non-controlling interest
portion of $36,000 - - 79
-------------------------------------------------------------------------
Balance, December 31, 2006 516,228,985 672,143 8,284
-------------------------------------------------------------------------
-------------------------------------------------------------------------
/T/
(c) Stock options
During the six month period ended December 31, 2006, the Company cancelled 142,500 stock options and
granted 350,000 stock options.
The following table summarizes information concerning outstanding and exercisable options at December
31, 2006:
/T/
Options Options Exercise
outstanding exercisable price Expiry date
------------------------------------------------------------
$
2,775,000 2,775,000 1.70 May 25, 2007
175,000 175,000 1.70 January 14, 2008
625,000 625,000 0.56 November 5, 2008
312,500 312,500 1.00 August 26, 2009
37,500 37,500 1.12 September 17, 2009
13,075,000 12,175,000 1.70 May 24, 2011
350,000 350,000 1.70 November 27, 2011
------------------------------------------------------------
17,350,000 16,450,000
------------------------------------------------------------
------------------------------------------------------------
/T/
(d) Share purchase warrants
During the six months ended December 31, 2006, no share purchase warrants were issued, exercised or
cancelled.
The following table summarizes information concerning outstanding warrants at December 31, 2006:
/T/
Number of Exercise
warrants price Expiry date
---------------------------------------
$
3,900,000 1.50 March 18, 2007
11,373,500 2.40 May 11, 2007
1,364,820 1.80 May 11, 2007
11,361,054 2.00 April 22, 2008
59,999,996 1.80 March 28, 2009
---------------------------------------
87,999,370
---------------------------------------
---------------------------------------
/T/
(e) Stock based compensation
The fair value of each option granted is estimated at the time of the grant using the Black-Scholes
option pricing model with weighted average assumptions for grants as follows:
/T/
Six months ended
December 31,
2006
-----------------------------------------------------------------------
Risk free interest rate 3.9%
Expected dividend yield 0%
Expected option life (years) 3
Expected stock price volatility 49%
Weighted average fair value of options granted
at market prices $0.31
/T/
8. Non-controlling interests
The Company holds an indirect interest in Barplats of 69.0% (June 2006 - 69.0%).
The non-controlling interests are comprised of the following:
/T/
December 31,
2006
-----------------------------------------------------------------------
$
Balance, beginning of period 15,120
Non-controlling interests' share of income in Barplats 1,381
Non-controlling interests' share of contributed surplus
arising from stock options and cumulative translation
adjustment for the period 34
Non-controlling interests' share of currency translation
adjustment (805)
-----------------------------------------------------------------------
15,730
-----------------------------------------------------------------------
-----------------------------------------------------------------------
/T/
9. Currency translation adjustment
/T/
$
Balance, June 30, 2006 (67,857)
Translation adjustments for the period 33,214
-----------------------------------------------------------------------
Balance, December 31, 2006 (34,643)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
/T/
The Company operates in two functional currencies: Canadian dollar and South African Rand. Translation
gains or losses on the consolidation of the financial statements of self-sustaining operations are
accumulated in the currency translation adjustment account on the consolidated balance sheet.
Translation adjustments arise as a result of fluctuations in foreign currency exchange rates. The
currency translation adjustment for the six month period ending December 31, 2006 resulted from the 9%
strengthening of the South African Rand against the Canadian dollar.
10. Related party transactions
(a) The Company incurred the following expenses with companies and individuals related by way of
directors and/or officers in common:
/T/
Six months ended
December 31,
---------------------------------------------------------
2006 2005
---------------------------------------------------------
$ $
Consulting fees 200 120
Directors' fees 110 60
Management fees 307 60
Severance 400 -
Rent 36 36
/T/
These transactions, occurring in the normal course of operations, are measured at the exchange amount,
which is the amount of consideration established and agreed by the related parties.
(b) Amounts due to related parties are unsecured, non-interest bearing and due on demand. Accounts
payable at December 31, 2006 included $2,637 (June 30, 2006 - $5,000) of directors' fees and expenses.
11. Commitments
The Company has committed to capital expenditures through its indirect investment in Barplats of
approximately $21.1 million (R126.0 million) as at December 31, 2006.
12. Segmented information
(a) Operating segment - The Company operates in one segment: the acquisition, exploration and
production of PGMs in South Africa.
(b) Geographic segments - The Company's assets as at December 31, 2006 and June 30, 2006, and revenues
and expenses by geographic areas for the three and six month periods ended December 31, 2006 and 2005
are as follows:
/T/
December 31, 2006
-------------------------------------------------------------------------
South Africa Canada Total
-------------------------------------------------------------------------
$ $ $
Property, plant and equipment 676,170 26 676,196
-------------------------------------------------------------------------
Total assets 759,829 58,486 818,315
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Property, plant and equipment
expenditures 27,111 - 27,111
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 30, 2006
-------------------------------------------------------------------------
South Africa Canada Total
-------------------------------------------------------------------------
$ $ $
Property, plant and equipment 600,725 14 600,739
-------------------------------------------------------------------------
Total assets 640,617 127,799 768,416
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Property, plant and equipment
expenditures 6,444 - 6,444
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended December 31, 2006
-------------------------------------------------------------------------
South Africa Canada Total
-------------------------------------------------------------------------
$ $ $
Revenues 28,363 - 28,363
Production costs (18,943) - (18,943)
Depletion and depreciation (3,513) - (3,513)
Expenses (3,319) (1,231) (4,550)
Interest income 1,308 648 1,956
Interest expense (1,467) - (1,467)
Foreign exchange gain (loss) 5,835 (1) 5,834
-------------------------------------------------------------------------
Income (loss) before income taxes
and non-controlling interests 8,264 (584) 7,680
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended December 31, 2006
-------------------------------------------------------------------------
South Africa Canada Total
-------------------------------------------------------------------------
$ $ $
Revenues 53,813 - 53,813
Production costs (36,046) - (36,046)
Depletion and depreciation (6,485) - (6,485)
Expenses (6,026) (2,332) (8,358)
Interest income 2,243 1,612 3,855
Interest expense (2,915) - (2,915)
Foreign exchange gain (loss) 1,806 (162) 1,644
-------------------------------------------------------------------------
Income (loss) before income taxes
and non-controlling interests 6,390 (882) 5,508
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended December 31, 2005
-------------------------------------------------------------------------
South Africa Canada Total
-------------------------------------------------------------------------
$ $ $
Revenues - - -
Production costs - - -
Depletion and depreciation - - -
Expenses (248) (245) (493)
Interest income - 338 338
Foreign exchange gain 188 (3) 185
-------------------------------------------------------------------------
Income (loss) before income taxes
and non-controlling interests (60) 90 30
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended December 31, 2005
-------------------------------------------------------------------------
South Africa Canada Total
-------------------------------------------------------------------------
$ $ $
Revenues - - -
Production costs - - -
Depletion and depreciation - - -
Expenses (289) (977) (1,266)
Interest income - 685 685
Foreign exchange gain 189 - 189
-------------------------------------------------------------------------
Loss before income taxes
and non-controlling interests (100) (292) (392)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
/T/
For the six months ended December 31, 2006, 100% of revenue was from two customers and as at December
31, 2006, 82% of trade receivables was from two customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Six Months ended December 31, 2006
This portion of the Quarterly Report provides Management's Discussion and Analysis ("MD&A") of the
financial condition and results of operations to enable the reader to assess material changes in
financial condition and results of operations of Eastern Platinum Limited ("ELR", "Eastplats" or "the
Company") as at, and for the three and six months ended, December 31, 2006 in comparison to the
previous quarter and corresponding previous year comparative quarter. Management believes that a
comparison to the previous quarter from an operating perspective is more meaningful to the reader, as
the Company did not have operational/production results in the quarter ended December 31, 2005. This
MD&A and supporting notes have been prepared in accordance with Canadian Generally Accepted Accounting
Principals (Canadian GAAP). All monetary amounts are in Canadian dollars unless otherwise specified.
This MD&A should be read in conjunction with the June 30, 2006 annual audited consolidated financial
statements and the related notes thereto. Additional information relating to the Company, including
the Company's Annual Information Form, is available on SEDAR at www.sedar.com. This MD&A contains
forward looking statements that are subject to risk factors set out in the cautionary note contained
herein.
1. Overview
Eastern Platinum Limited is a platinum group metal ("PGM") producer engaged in the acquisition,
exploration, development and mining of PGM properties located in various provinces in South Africa.
All of the Company's properties are situated on the western and eastern limbs of the Bushveld Igneous
Complex ("BIC"), the geological environment that supports over 70% of the world's PGM supply.
The Company's strategy is to provide its stakeholders with superior returns from quality assets being
developed and exploited within the PGM mining sector. The Company has not hedged or sold forward any
of its future PGM production. The Company continues its process of maximizing the orebody development
rate while optimizing stakeholder value through traditional cost effective mining methods that place a
premium on a safe work environment witnessed by its fatality free record.
2. Second Quarter Highlights
Eastplats recorded revenue of $28.4 million (0.01 per share) for the second quarter ended December 31,
2006 ("Q2-07") compared with nil revenue for the second quarter for the three month period ended 31st
December, 2005. Highlights for the quarter included:
- Production and sales up to 25,873 ounces of PGM from 22,666 ounces produced in Q1-07, the previous
quarter.
- Revenues of $28.4 million with operating costs of $18.9 million.
- Operating margin in the quarter was $228.31/oz PGM.
- A Net Income of $7.4 million results from increased production at CRM and from the Foreign Exchange
Gain for the quarter of $5.8 million (six months ended December 31, 2006 $1.6 million).
- At December 31, 2006, the Company had a cash position (including temporary investments) of $70.7
million.
3. Results of Operations for the six months ended December 31, 2006
/T/
--------------------------------------------------------------------------
Three months ended Six months ended
December 31, 2006 December 31, 2006
2006 2005 2006 2005
Production 5 PGE + Au oz(1) 25,873 - 48,539 -
Realized Basket Price
per oz(2) $ 1,046 $ - $ 1,109 $ -
Canadian $ '000's
Total revenue $28,363 $ - $53,813 $ -
Total Cash Costs(3) $19,792 $ - $36,871 $ -
Depletion and depreciation $ 3,513 $ - $ 6,485 $ -
Total Production Costs $22,038 $ - $40,491 $ -
EBITDA(4) $ 4,870 $ (487) $ 9,409 $ (1,253)
Net Income (Loss) for
the period $ 7,413 $ 30 $ 4,934 $ (392)
--------------------------------------------------------------------------
1. 5 PGE + Au represent Platinum, Palladium, Rhodium, Ruthenium, Iridium
and Gold.
2. Realized Basket Price is the price received under the off-take
agreement.
3. Total Cash Costs is a non-GAAP measure and is used in this MD&A and
represents all costs associated with production and development and
excludes amortization, depreciation and inventory accounting
adjustments.
4. EBITDA - Earnings Before Interest (income and expense including foreign
exchange gains and losses and non-controlling interests), Taxes (income
and capital), Depreciation and Amortization (including depletion) is a
non-GAAP measure. See EBITDA note in section 14 page 7 for more details
on EBITDA.
/T/
The Company's assets are comprised of direct and indirect investments and interests in Barplats
Investments Limited ("Barplats"), Mareesburg Platinum JV ("Mareesburg") and Spitzkop PGM Project
("Spitzkop").
4. Review of Financial Results
The Company was transformed during April 2006 by acquiring a 69% interest in Barplats which owns
operational PGM properties at the Crocodile River Mine ("CRM") and the Kennedy's Vale Project
(separate development properties). Revenues and costs directly attributable to Barplats activity have
caused the changes in the financial results when compared to the three and six month periods ended
December 31, 2005. During the three and six months ended December 31, 2005, the Company continues to
explore its Kennedy's Vale, Mareesburg and Spitzkop properties.
For the three months ended December 31, 2006, PGM production/sales were 25,873 ounces (previous
quarter 22,666 and NIL for the three and six months ended December 31, 2005).
The Net Profit for the three months ended December 31, 2006, results from increased production at CRM
and from the Foreign Exchange Gain for the quarter of $5.8 million (six months ended December 31, 2006
$1.6 million).
4.1 Metal Prices
As depicted below the market prices of three of the PGM elements that significantly impact the
Company's revenues (platinum, rhodium and palladium) have experienced volatility over the last six
quarters (Source: Johnson Matthey, www.platinum.matthey.com).
To view the platinum graph accompanying this press release please click on the following link:
http://www.ccnmatthews.com/docs/Eastplatsfigure1.jpg.
To view the rhodium graph accompanying this press release please click on the following link:
http://www.ccnmatthews.com/docs/Eastplatsfigure3.jpg.
To view the palladium graph accompanying this press release please click on the following link:
http://www.ccnmatthews.com/docs/Eastplatsfigure2.jpg.
4.2 Currency Exchange Rates
Approximately 90% of the Company's production and development costs are denominated in South African
Rand ("ZAR") and therefore the Company is exposed to fluctuations in both Canadian and US exchange
rates. With 100% of production revenue being US dollar based (on a Canadian dollar, Canadian GAAP
reporting basis), the Company is exposed to exchange rate fluctuations. As the Company does not hedge
any transactions, it is inherently exposed to the devaluation of both the US dollar and the ZAR over
the reporting quarter (and remains exposed to future fluctuations in currency exchange rates to the
ZAR).
Foreign currency denominated monetary assets and liabilities are translated at the period-end exchange
rate. Gains and losses arising from foreign currency translation are recognized in the statement of
operations and deficit. Translation gains or losses on the consolidation of the financial statements
of self-sustaining operations are accumulated in the currency translation account ("CTA") on the
consolidated balance sheet. Translation adjustments arise as a result of fluctuations in foreign
currency exchange rates. The currency translation adjustment for this quarter was caused by a 9%
strengthening of the ZAR to the Canadian dollar, and the adjustment of $58.2 million ($33.2 million
for the six months ended December 31, 2006) recorded in the CTA is a result of translating the
Barplats financial statements.
5. Safety Results
Through the second quarter the Company continued to operate fatality free. During the quarter CRM
achieved 1.5 million fatality free shifts, while reporting four lost time injuries (previous quarter
one lost time injury) resulting in a Lost Time Injury Frequency Rate ("LTIFR") of 3.53 (LTIFR previous
quarter 0.93 and six months ended December 31, 2006, 2.26). This compares well against some of the
other platinum producers in South Africa, indicated in the graph below, whose average LTIFR was above
8.00 according to information compiled by the Bushveld Safety Forum.
To view the LTIFR graph accompanying this press release please click on the following link:
http://www.ccnmatthews.com/docs/Eastplatsfigure4.jpg.
6. Operating Results
The Company's Financial Statements present a measure of historical information that differentiates
between operating and development costs. The Company's operating results are affected by the fact that
the Company is exposed to exchange rate fluctuations to the ZAR and the US Dollar and these exchange
fluctuations are reflected in the current financial results.
During the quarter the Company experienced a 4% drop in the realized revenue per ounce to $1,046 from
$1,082 due to a decline in platinum pricing when compared to the previous quarter. Production costs
have stayed consistent over the period on a per ounce basis at approximately $755 ounce, which is in
line with management's current expectations, as the Company continues to fast track development and
made the decision to accelerate the current development activity build a production profile of 160,000
tonnes per month. To accomplish this, the Company will continue to develop its reserves so that there
is 18 to 24 months of completed development. The Company expenses on-reef development in the period in
which the costs are incurred.
The average total mining rate during the second quarter of fiscal 2007 was 70,000 tonnes per month
(previous quarter 64,800 tonnes and six month average 67,400 tonnes per month) at an average PGM grade
of 4.02 g/t (5PGE+Au). With the increased ore production at Zandfontein, ore transport from
underground at Zandfontein is being transformed from truck haulage to an underground conveyor system.
Underground development increased to 2,438m during the quarter (prior quarter 2,351m) which is
integral in generating additional mineable reserves which in turn allows for continued production
build up.
There was no revenue generated from Mareesburg, Spitzkop or Kennedy's Vale properties during the
quarter.
7. Other Costs and Expenses
Amortization
The depreciation and amortization due to Barplats' activities for the current quarter is $3.5 million
(previous quarter $3.0 million and six months ended December 31, 2006 $6.5 million) based upon the
fair value allocation to these assets.
Non-Controlling Interest
Non-controlling interest during the quarter was $0.7 million (previous quarter $0.7 million and six
months ended December 31, 2006 $1.4 million) due to Barplats' non-controlling shareholders.
Corporate Administration
The general and administrative expenses for the current quarter were $4.3 million (previous quarter
$3.8 million and six months ended December 31, 2006 $8.1 million). Included within these balances are
costs associated with managing the South African operations and severance paid to a past director and
officer of the Company.
Stock-Based Compensation
In the current quarter the Company expensed $0.2 million (previous quarter $0.06 million) in share
based compensation. The value of the options has been calculated using the Black-Scholes option-
pricing model.
Interest Income
Interest income recorded during the current quarter totaled $2.0 million (previous quarter $1.9
million and six months ended December 31, 2006 $3.9 million). Interest continued to accrue on bank and
short-term investment balances.
Interest Expense
During the quarter the Company paid and accrued interest on Barplats' outstanding debt as agreed at
the time of acquisition. Portions of this debt are still outstanding and interest continues to accrue.
8. Summary of Quarterly Results
The table below presents selected financial data for the Company's eight most recently completed
quarters:
/T/
-------------------------------------------------------------------------
Dec 31, Sept 30, June 30, Mar 31,
2006 2006 2006 2006
-------------------------------------------------------------------------
In '000's $ $ $ $
Financial results
Revenue 28,363 25,450 14,082 -
Net income (loss)
for period 7,413 (2,479) (3,184) (1,083)
Basic income (loss)
per Share 0.01 (0.00) (0.02) (0.01)
-------------------------------------------------------------------------
Cash expenditures
on mineral
properties 15,768 11,343 6,444 352
Balance sheet data
Cash and short term
deposits 70,692 91,649 134,184 24,808
Deferred
acquisition costs - - - 53
Property, plant and
equipment 676,196 588,021 600,739 100,540
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Dec 31, Sept 30, June 30, Mar 31,
2005 2005 2005 2005
-------------------------------------------------------------------------
In '000's $ $ $ $
Financial results
Revenue - - - -
Net income (loss)
for period 30 (422) (1,160) (174)
Basic income (loss)
per Share 0.00 (0.01) (0.06) (0.01)
Cash expenditures
on mineral
properties 241 405 386 -
Balance sheet data
Cash and short term
deposits 24,590 22,837 23,599 1,565
Deferred
acquisition costs - 36,113 36,113 -
Property, plant and
equipment 100,188 26,554 34,840 382
-------------------------------------------------------------------------
/T/
9. Development Activity
Management evaluates development priorities on a continuous basis and in the second quarter continued
with development on approved activities.
CRM
Design at Crocette has progressed and will be finalized along with the environmental impact study in
the third quarter of the current fiscal year.
Management has awarded the $1.5 million infill drilling program on Kareespruit to OM Tsehla Drilling.
As at January 31, 2007, 1,580 meters had been drilled at an average drilling rate of 32 meters per
shift.
Kennedy's Vale
Drilling on the De Goedeverwachting farm totalled 9,172 meters at the end of the second quarter which
completes Phase I of the drilling program. Samples have been submitted for assay and results are
awaited. The seismic data which exists over portions of Kennedy's Vale is being re-processed and the
final report is expected during the third quarter.
Mareesburg
There was no additional exploration work at Mareesburg during the period.
Spitzkop
During the quarter 11,262 meters were drilled leaving only 2,000 meters to be completed in 2007. To
date assay results have been received back for the first four batches comprising 31 holes on the UG2
reef and nine holes on the Merensky reef. All results are in line with management expectations (see
the Company release "More High Grade Platinum - Rhodium rich UG2 Reef Intersections reported at
Spitzkop", January 30, 2007). Existing seismic data over portions of Spitzkop is being re-processed
and the final report is expected during the third quarter.
/T/
-----------------------------------------------------------------------
Eastern Platinum Limited Summary of Mineral Resources
Mineral Resource - UG2
-----------------------------------------------------------------------
Crocodile River Mine Tonnes ('000) 3PGE+Au (g/t) 3PGE+Au (000oz)
-----------------------------------------------------------------------
Measured 6,894 4.19 928
Indicated 30,324 4.41 4,303
Inferred 52,482 4.41 7,449
Total 89,700 4.40 12,680
-----------------------------------------------------------------------
Kennedy's Vale Tonnes ('000) 5PGE+Au (g/t) 5PGE+Au (000oz)
-----------------------------------------------------------------------
Indicated 152,100 5.41 26,475
Inferred 70,000 6.17 13,880
Total 222,100 5.65 40,355
-----------------------------------------------------------------------
Spitzkop Project Tonnes ('000) 5PGE+Au (g/t) 5PGE+Au (000oz)
-----------------------------------------------------------------------
Measured 37,460 7.70 9,270
Total 37,460 7.70 9,270
-----------------------------------------------------------------------
Mareesburg Project Tonnes ('000) 3PGE+Au (g/t) 3PGE+Au (000oz)
-----------------------------------------------------------------------
Measured 8,757 5.38 1,515
Indicated 6,737 2.31 501
Total 15,494 4.05 2,016
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Mineral Resource - Merensky
-----------------------------------------------------------------------
Kennedy's Vale Tonnes ('000) 5PGE+Au (g/t) 5PGE+Au (000oz)
-----------------------------------------------------------------------
Indicated 96,500 3.88 12,038
Inferred 67,300 3.44 7,443
Total 163,800 3.70 19,481
-----------------------------------------------------------------------
Spitzkop Project Tonnes ('000) 5PGE+Au (g/t) 5PGE+Au (000oz)
-----------------------------------------------------------------------
Indicated 47,380 2.43 3,710
Total 47,380 2.43 3,710
-----------------------------------------------------------------------
/T/
10. Investing Activity
On August 1, 2006, subsequent to the Barplats acquisition, the Company purchased the Nedbank Capital
loan of $16.7 million and purchased $9.5 million of Gubevu Consortium Holdings (Pty) Limited
("Gubevu") debt from Nedbank Capital (Gubevu is the Barplats BEE partner).
11. Liquidity and Capital Resources
As at December 31, 2006, the Company's working capital position was $78.8 million (previous quarter
$79.4 million) and its cash and cash equivalents and short-term investments totalled $70.7 million
(previous quarter $91.6 million). The decrease in the cash balances from previous quarter is due in
part to exploration expenditures including associated property, plant and equipment totalling $15.8
million (previous quarter $11.3 million).
12. Contractual Obligations and Commitments
During the second quarter the Company incurred capital obligations for capital projects as follows:
/T/
Barplats Operating Capital $4.7 million (previous quarter $7.3 million)
Barplats Development Capital $3.3 million (previous quarter $2.5 million)
/T/
The Company has remaining commitments in the current fiscal year for capital expenditures as follows:
/T/
Barplats Operating Capital $5.3 million
Barplats Development Capital $14.9 million
/T/
13. Hedging
The Company does not currently have any commodity or foreign exchange hedging or other derivative
instruments and there are currently no plans to enter into any such contracts. The Company has not
forward sold any of its production. The Company has not factored any of its trade receivable balances.
14. EBITDA
Earnings before interest (income and expense, foreign exchange gains and losses, non-controlling
interests), taxes (income and capital), depreciation and amortization (including depletion) ("EBITDA"
a non-GAAP measure), was $4.9 million during the second quarter (previous quarter $4.5 million). The
Company uses this non-GAAP measure to evaluate the financial productivity of operations, allowing
management to evaluate similar operations taking into consideration the various financing mechanisms
and exchange exposures within which these operations exist.
/T/
--------------------------------------------------------------------------
Three months ended Six months ended
December 31 December 31
2006 2005 2006 2005
Net Income (loss) for
the period $ 7,413 $ 30 $ 4,934 $ (392)
Adjustments:
Depletion and depreciation 3,513 6 6,485 13
Interest expense 1,467 - 2,915 -
Interest income (1,956) (338) (3,855) (685)
Future income tax recovery (404) - (807) -
Non controlling interest 671 - 1,381 -
Foreign Exchange Adjustments (5,834) (185) (1,644) (189)
Adjusted to EBITDA $ 4,870 $ (487) $ 9,409 $ (1,253)
--------------------------------------------------------------------------
/T/
15. Operational Risks
Management is aware that the government has proposed a 3% royalty based upon gross mining revenues
with a projected effective date of January 1, 2009. This proposal is currently under industry review
with comments due back to government early in calendar 2007. Management continues to work with other
mining companies active in South Africa to draft an objection to the proposed royalty.
16. Mineral Tenture - Department of Minerals and Energy
A new order mining right was granted to Barplats' operating property, CRM over the eastern part of the
Maroelabult section, allowing for mining to continue on these areas. Additional new order prospecting
rights were granted at CRM and KV bringing the total number of prospecting rights issued to 11 (out of
18 applications filed) at CRM and 2 (out of 3 applications filed) at KV.
A new order prospecting right was granted for Mareesburg.
Barplats has had its Social and Labour Plan approved.
17. Property Plant and Equipment
The Company evaluates all costs associated with its acquisition, exploration and development
activities and determines the appropriateness for capitalization to the mineral property. If
economically recoverable ore reserves are developed, capitalized costs of the related property are
reclassified as mining assets and amortized using the unit of production method. When a property is
abandoned, all related costs are written off to operations. If, after management review, it is
determined that the carrying amount of a mineral property is impaired, that property is written down
to its estimated net realizable value. A mineral property is reviewed for impairment on an annual
basis or whenever events or changes in circumstances indicate that its carrying amount may not be
recoverable.
The amounts shown within these Financial Statements for mineral properties do not necessarily
represent present or future values. The recoverability of these minerals are dependent upon the
discovery of economically recoverable reserves, the ability of the Company to obtain the necessary
financing; to complete planned development; the profitable production; and receipts from product
sales.
18. Asset Retirement Obligations and Remediation
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the
retirement of property, plant and equipment, when those obligations result from the acquisition,
construction, development or normal operation of the assets. Initially, the fair value of the
liability for an asset retirement obligation is recognized in the period incurred. The net present
value is added to the carrying amount of the associated asset and amortized over the asset's useful
life. On an annual basis the liability is evaluated for reasonableness and the properties and assets
are evaluated as to remediation costs.
The Company's estimates of reclamation and remediation costs could change as a result of changes in
regulatory requirements and assumptions regarding the amount and timing of the future expenditures. A
change in estimated discount rates is reviewed annually or as new information becomes available.
Expenditures relating to ongoing environmental programs are charged against operations as incurred or
capitalized and amortized depending on their relationship to future earnings. Funding of the
obligation is managed through insurance coverages and cash contributions to a remediation fund.
19. Related Party Transactions
(a) The Company incurred the following expenses, on a cost recovery basis, with companies and
individuals related by way of directors and/or officers in common:
/T/
Six Months ended December 31
2006 2005
Consulting fees $200,000 $120,000
Director's fees 110,000 60,000
Management fees 307,000 60,000
Severance 400,000 -
Rent 36,000 36,000
/T/
These transactions, occurring in the normal course of operations, are measured at the exchange amount,
which is the amount of consideration established ad agreed to by the related parties.
(b) Amounts due to related parties are unsecured, non-interest bearing and due on demand. Accounts
payable at December 31, 2006 included $2,637 (June 30, 2006 - $5,000) of directors fees and expenses.
20. Internal Control
Management continues to evaluate the effectiveness of our disclosure controls and procedures.
Management has concluded, that based upon our evaluation that the Company's control environment is
sufficiently effective to provide reasonable assurance that material information relating to the
Company and its consolidated subsidiaries is made known to management and disclosed in accordance with
applicable securities regulations.
21. Off Balance Sheet Arrangements
The Company has not entered into any off-balance sheet arrangements.
22. Outstanding Share Data
As at February 13, 2007 there were 516,228,985 common shares issued and outstanding. There were also
17,350,000 stock options outstanding to directors and consultants with exercise prices ranging between
$0.56 and $1.70 per share. 16,450,000 of the outstanding options have vested. There were also
87,999,370 warrants outstanding which expire between March 18, 2007 and March 28, 2009 with exercise
prices ranging between $1.50 and $2.40 per share. Refer to Note 7 of the December 31, 2006 unaudited
interim consolidated financial statements for more details on these outstanding securities.
23. Cautionary Statement On Forward Looking Information
Management references certain information contained or incorporated by reference in this Second
Quarter Report 2007, including any information as to our future financial or operating performance
constitute "forward looking statements". All statements, other than statements of historical fact, are
forward looking statements. The words "believe", "expect", "anticipate", "contemplate", "target",
"plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule" and similar expressions
identify forward looking statements. Forward looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by us, are inherently subject to
significant business, economic and competitive uncertainties and contingencies. Known and unknown
factors could cause actual results to differ materially from those projected in the forward looking
statements.
Such factors include, but are not limited to: fluctuations in the currency markets (such as Canadian
dollar, ZAR and US dollar); fluctuations in the PGM basket prices or certain commodities (such as
copper, diesel fuel and electricity); to changes in national and local government legislation,
taxation, controls, regulations and political or economic developments in Canada, the United States,
South Africa, Russia or Barbados or other countries in which we do or may carry on business in the
future and/or whose participation in the PGM sector may affect the industry's supply volumes; business
opportunities that may be presented to or pursued by us; our ability to successfully integrate
acquisitions, including our recent investment in Barplats Investments Limited; operating or technical
difficulties in connection with mining or development activities; employee relations; the speculative
nature of exploration and development, including the risk of obtaining necessary licenses and permits;
diminishing quantities or grades of reserves; adverse changes in our credit rating; and contest over
title to properties, particularly title to undeveloped properties.
In addition, there are risks and hazards associated with the business of PGM exploration, development
and mining, including environmental hazards, industrial accidents, unusual or unexpected formations,
pressures, cave-ins, flooding, staff and equipment availability. Many of these uncertainties and
contingencies can affect our actual results and could cause actual results to differ materially from
those expressed or implied in any forward looking statements made by, or on behalf of us. Readers are
cautioned that forward looking statements are not guarantees of future performance. All of the forward
looking statements made in this First Quarter Report 2007 are qualified by these cautionary
statements. Specific reference is made to the Company's most recent Form 40-F/Annual Information Form
on file with Canadian provincial securities regulatory authorities for a discussion of some of the
factors underlying forward looking statements.
We disclaim any intention or obligation to update or revise any forward-looking statements whether as
a result of new information, future events or otherwise, except to the extent required by applicable
laws.
-30-
FOR FURTHER INFORMATION PLEASE CONTACT:
Eastern Platinum Limited
Ian Rozier
President & C.E.O.
(604) 685-6851
(604) 685-6493 (FAX)
Email: info@eastplats.com
Website: www.eastplats.com
No stock exchange, securities commission or other regulatory authority has approved or disapproved the
information contained herein.
Eastern Platinum Limited
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