As used herein, the term “the Company,”
“we,” “us,” and “our” refer to Eastern Goldfields,
Inc., a Nevada corporation and its subsidiaries unless otherwise
noted.
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Item 1.
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Description of
Business
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General
Eastern Goldfields, Inc., (the “Company" or "EGI") is the
parent company of Eastern Goldfields SA (Proprietary) Limited, (“EGSA”), a
corporation organized under the laws of the Republic of South Africa. EGSA conducts all
of the Company’s business operations in South Africa through its South African
corporation subsidiaries.
Eastern Goldfields, Inc. was incorporated under the laws of the State of
Nevada on July 15, 1998, originally under the name of Fairbanks Financial, Inc. The
Company was established as a business management, marketing and consulting firm to
serve both the emerging and established business entrepreneur. Since its incorporation,
the Company has had minimal operations. From July 15, 1998, up to and including
September 23, 2005, the Company had total revenues of $44,300 generated from its
operations. On or about September 23, 2005, the Company experienced a change of control
via a purchase of the controlling shareholder ownership interest and the appointment of
new officers and directors. The Company then redirected its business efforts and on
September 23, 2005 it purchased 100% of the issued and outstanding common or ordinary
stock of EGSA. EGSA was formerly known as Makonjwaan Properties Keurboom One five (Pty)
Ltd. and originally was incorporated on November 16, 1993, with the main business
activity being that of investment property. The common or ordinary stock was 100% held
by Makonjwaan Imperial Mining Company (Pty) Ltd (MIMCO). All rental income earned by
EGSA from the leasing of the property from the date of incorporation until the sale of
its property on May 20, 1999, was assigned to MIMCO. This company remained dormant
until being sold to EGI. On July 27, 2005, this company changed its name to Eastern
Goldfields SA (Pty) Ltd and it changed its principle business activity to that of an
investment holding company. On October 1, 2005, the Company’s wholly owned
subsidiary, EGSA, acquired, via a share exchange, 100% of the issued and outstanding
common or ordinary stock of Eastern Goldfields Limited (“EGL”), a South
African gold producer and developer corporation. This share exchange agreement for the
acquisition of EGL by EGSA was undertaken in order to achieve compliance with the
Exchange Control Regulations of the South African Reserve Bank. EGL conducts mining
operations in the Barberton Greenstone Belt area of the Mpumalanga Province, South
Africa. On October 25, 2005, the Company changed its corporate name to Eastern
Goldfields, Inc. to more accurately reflect its business operations.
The economic substance of this acquisition or merger was that EGI issued
new equity to the shareholders of EGL in exchange for 100% of EGL’s common
stock.This share exchange for the acquisition of EGL by EGI’s wholly owned South
African subsidiary, EGSA, was accounted for as a reverse acquisition, and, accordingly,
for financial statement purposes, EGL was considered the accounting acquiror and the
subject transaction was considered a recapitalization of EGL rather than an acquisition
by the Company. Accordingly, the historical financial statements prior to this share
exchange are those of EGL, however, the name of the consolidated corporation going
forward is Eastern Goldfields, Inc.
EGL itself is a South African holding company which has three South
African subsidiary corporations; namely, Makonjwaan Imperial Mining Company (Pty) Ltd.
(“MIMCO”), Eastern Goldfields Exploration (Pty) Ltd. (“EGE”)
and Centurion Mining Company (Pty) Ltd. (“Centurion”). The Company’s
“mineral rights” or “claims”, as more specifically described in
“Item 2. Description of Property”, are held in the name of EGL itself and
in the names of EGL’s South African subsidiaries.
Our Objectives
To the extent that we are able, we are pursuing a strategy of growth in
our mineral reserves through optimization of current operations, exploration and
prudent acquisitions. We believe that if we are successful in implementing our business
plan, we have the personnel and properties necessary to make the transition from our
current production status as a small mining company to a “junior resource
company”. In the gold mining industry a “junior resource company” is
generally considered a mining company with a minimum annual production of 100,000 oz.
We are lead by an experienced management team and Board of Directors that are made up
of professional engineers, financiers and geologists who have significant hands-on
experience at every stage of gold exploration, development and production.
5
We hold mineral claims covering 14,000 hectares (approximately 34,600
acres) in the Barberton Greenstone Belt of South Africa, which has been an active
mining district for more than 100 years, yet is still largely under-explored. Our
producing mine, the Lily Mine, has been operating profitably as an open pit operation
under current management since 2000 with production of about 15,000 ounces of gold
annually from the various open pit operations. However, we cannot assure you that these
profitable operations will continue or, if they do continue, that they will continue at
the same level and to the extent of current levels.
If we are successful and to the extent that we are able, we intend to
extend the life of operations at the Lily Mine area by commencing underground
operations by the end 2008
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Accordingly, in September 2005, the Company raised $2,750,000 via a
Phase I private placement offering of 630,000 restricted common shares. This Phase I
funding was primarily utilized to conduct a Phase 2 diamond drilling program (discussed
below) which did confirm and enhance the results of earlier preliminary studies with
respect to the Company’s reserves located at the Lily Mine area.
The results of this Phase 2 diamond drilling program were incorporated
in a pre-feasibility study prepared by the Company to assess its future development.
The possibility of extending the open pit was considered in addition to the building of
a new underground mine. The pre-feasibility study concluded that a new underground mine
would provide a better return on investment, particularly as the mineral reserves in
the upper region of the mine could be accessed very quickly. The pre-feasibility study
also concluded that additional drilling should be carried out in order to place greater
confidence in the Company’s mineral reserves.
The international mining consultant firm of Behre Dolbear was engaged by
the Company to provide an independent expert opinion on the pre-feasibility study.
Senior personnel from Behre Dolbear's London and Toronto offices visited Lily Mine
during May 2006 to complete this due diligence work. Behre Dolbear endorsed the
recommendation to carry out additional drilling (Phases 3 and 4).
Diamond drilling phases 3 and 4 were successfully completed during 2007,
financed by additional private placements at the end of 2006 and during 2007. The
continued success of drilling encouraged management to embark in June 2007 on the
compilation of a full Bankable Feasibility Study (BFS), a project managed by Turgis
Consulting (Pty) Ltd. The BFS was completed with the combined services of a number of
recognized consulting firms in March 2008. These drilling programs greatly increased
the reserve estimates and subsequent financial viability and life of mine at the Lily
Mine and have been included in the BFS that was completed on March 7, 2008.
To the extent that the Company is able, the Company has set the
following objectives:
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To raise sufficient funds to develop the Lily Mine into
a full underground operation in 2008 in line with the BFS;
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To raise sufficient funds to acquire the nearby Barbrook
Mine. Completion of this acquisition will allow a revision to the BFS
and assumes that the plant at the Barbrook Mine can be refurbished for
operation in 2008 to process the Lily ore. Prior to this planned new
processing plant becoming operational, underground ore will continue to
be transported to the existing Makonjwaan processing plant;
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To continue exploration on all other company
properties;
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To continue investigating other potential
acquisitions.
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There can be no assurance that the Company will be successful in
achieving any of its objectives. The Company is a relatively small competitor in the
gold mining industry and there are many variables that are beyond its control. Further,
the price of gold is often influenced by cyclical and macoeconomic conditions that can
not easily be predicted.
Overview of the Company’s Mining Operations
In order to better understand the Company’s mining operations in
general and specifically its mineral exploration and drilling programs, a description
of these programs along with the industry accepted definitions of the confidence level
for the anticipated extraction of minerals is provided. The Company’s mining
operations generally comprise the following:
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The search for and location of mineralized deposits with
mine development potential;
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The determination of the quantity (tonnage), quality
(grade) and continuity of a mineralized deposit necessary for its
classification as a mineral reserve;
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The demonstration, through a recognized Feasibility or
Bankable Feasibility Study, of the commercial viability of any
identified mineral reserve; and
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The commencement of mineral production utilizing
existing or newly constructed processing facilities.
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Mining Operation Terms and Definitions
The following mining terms and definitions will be of assistance in
understanding the present and contemplated mining operations of the Company:
Mineral Deposit
A “mineral deposit” is defined as a concentration of
mineralization which may be such as to constitute an ore body. It will havebeen
delineated by appropriate drilling and/or underground sampling to support a mining
operation producing sufficient tonnages and average grades of metal(s) to be
economically viable. Under SEC accounting rules, a “mineral deposit” does
not qualify as a mineral reserve until a comprehensive evaluation, based upon unit
cost, grade, recoveries, and other modifying factors is taken into consideration in an
economic feasibility.
Mine Development
A “mine development” is defined as the preliminary
activities undertaken for the specific purpose of exploiting a “mineral
deposit” so as to make the actual ore extraction possible.
Reserve
That part of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination. Reserves are
customarily stated in terms of “ore” when dealing with metalliferous
minerals and the quantity of “reserves” is based on estimates obtained by
management consistent with generally accepted practices in the industry and as provided
by studies undertaken to evaluate the extent of reserves.
Proven (Measured) Reserves
Reserves for which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; grade and/or quality are computed from the
results of detailed sampling and (b) the sites for inspection, sampling and measurement
are spaced so closely and the geologic character is so well defined that size, shape,
depth and mineral content of reserves are well-established.
Probable (Indicated) Reserves
Reserves are estimates for which quantity and grade and/or quality are
computed from information similar to that used for proven (measured) reserves, but the
sites for inspection, sampling, and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven
(measured) reserves, is high enough to assume continuity between points of observation.
However, all calculations are based on current estimates and are subject to revision or
reduction as additional information is obtained by the Company.
South African Mining Legislation
The current South African mining legislation promulgated under
“Mineral and Petroleum Resources Development Act 2004 (“MPRDA”)
seeks, among other things, (i) to expand opportunities for historically disadvantaged
people to enter the mineral industry and obtain benefits from the exploitation of
mineral
7
resources; and (ii) to promote employment, socialand economic welfare as
well as ecologically sustainable development. In order to convert an old order mining
right to a new order mining right the holder is compelled to lodge a social and labor
plan and an undertaking on how it is intended to expand opportunities for historically
disadvantaged persons to enter the mineral industry. Further, for purposes of mining
right conversions effective May 1, 2004, the MPRDA (incorporating the Mining Charter)
requires mining company ownership for historically disadvantaged South Africans at 15%
during the first five years and 26% in 10 years, such transfer of ownership to be at
fair market value. Accordingly, on February 2, 2006, and pursuant to the requirements
of MPRDA, EGL sold 26% of its ordinary stock to Lomshiyo Investments (Proprietary)
Limited (“Lomshiyo”) for a consideration of R9,900,000 ($1,442,778).
Lomshiyo is a Sou th African corporation whose majority shareholders are historically
disadvantaged persons.
As indicated above, the MPRDA dictated the sale of this 26% interest to
Lomshiyo. Other than the sale of this 26% interest there are no anticipated costs for
compliance with the requirements of MPRDA.
Since its redirection, the Company's activities have been limited
primarily to the production of gold and the implementation of preliminary exploration
programs on those properties in which it has an interest. Prospecting and mining rights
are held in the South African subsidiary companies and are consolidated in the north
eastern portion of the Barberton Goldfield. These rights include a mining license for
the Lily Mine and various prospecting rightsgranted to the Company’s various
subsidiary corporations. The total area covered by these Mineral Rights is in excess of
14,000 hectares (approximately 34,600 acres).
See “Item 2.
Description of Property”.
Description of EGI’s Mining Operations
Eastern Goldfields Limited Mining Operations
The following is a specific discussion of the ownership and operation of
those mining claims that are held in the name of EGL:
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1.
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Number of
Claims
:
14,518 (21,338 acres)
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2.
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Location and Means of Access to
Claims
:
These claims are located in the areas referred to as the
Jamestown and Albion Claims Group. These claims include the dormant
Worcester Gold Mine which is located 19 kilometers north of the town of
Barberton and 25 kilometers from the city of Nelspruit (capital of the
Mpumalanga Province) where EGL has its headquarters.
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3.
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Description of
Claims
:
These claims encompass approximately 21,338 acres of
exploration ground. This area includes portions of the Sheba Hills
Claims Group, the Jamestown West Claims Group, the Barberton Townlands
Claims Group, the Albion Claims Group and the Worcester Claims
Group.
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Numerous old workings, other than the Worcester Mine, exist within this
claim area and include: Bonnie Dundee, Independent, Connat, Mary Hope, Great Britain
and other smaller old-timer prospects.
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4.
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History of Previous
Operations
:
The Worcester Mine has been the focus of sporadic
attention since the mine was first opened in 1887. Total recorded gold
production until production ceased in 1991 was approximately 200,000
ounces of gold. The mine and surrounding area has been explored by
various companies and individuals using geological mapping, air photo
interpretation, soil and rock chip geochemistry, geophysics, trenching,
underground mapping and channel sampling and finally surface diamond
drilling. The property has been dormant since its closure in 1991 to
the present time.
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5.
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Present Condition of the
Property
:
Exploration has been planned in phases over the claim
area. The first phase was focused on two specific locations.
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Worcester Mine - The initial exploration drilling
program (3,125m) consisting of nine diamond drill holes (with
non-directional wedges) was completed during the first quarter of 2007.
This program explored to a depth of 450 meters below surface. The
results indicated down dip extension and assisted in interpreting
complex structural features which have displaced
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8
previously interpreted reef positions. A second phase of drilling was
initiated in November 2007. This phase, of which five holes are already complete
(1,900m), will continue to probe the depth extensions below the existing workings based
on new structural interpretation as well as the lateral unexplored extension. This
program is expected to be finished by the end of the third quarter 2008.
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Jamestown Claims - 8,500 line meters of surface
geochemical soil sampling and ground magnetics, supported by detailed
structural and geological mapping was initiated in September 2006. This
initial focus was on the extension of the Worcester mineralized zone
eastwards towards the Bonnie Dundee prospect along the Albion Fault, a
major structural feature responsible for the mineralization within most
of the prospects mentioned above. An initial phase of field work has
been completed and results accompanied by geological interpretation
have been submitted for continued investigation and ongoing exploration
planning.
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6.
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Description of Rock Formations and
Mineralization
:
The Worcester Mine and other prospects are located in
the Jamestown Schist Belt which is a north-westerly trending synclinal
feature of metamorphosed mafic and ultramafic rocks stretching from the
well known Consort Mine (Barberton Mines Limited – Metorex Group)
to the east to beneath the Transvaal Drakensberg escarpment in the
west. The belt varies from 1 to 6 kilometers in width and is the
northwestern arm of the main Archaean Barberton Greenstone Belt. The
schist belt is bounded in the northeast by the porphyritic Nelspruit
granite and in the southwest by the Kaap Valley granite pluton. A
number of strong structural features exist parallel to the syncline
axis and splays off these features generally host the zones of gold
mineralization.
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The main lithological units are the Theespruit and Komati Formations of
the Lower Onverwacht Group. Minor layers of argillaceous sediments of the Fig Tree
Group are evident and form the core of the syncline. Also included are small layered
ultramafic bodies belonging to the Tjakastad Sub-group of the Onverwacht Group. Small
granite domes have been noted close to the Worcester Mine.
With respect to specific mineralization of the Worcester Mine, the
quartz vein located therein is white to gray in color, slightly foliated in appearance
and contains slivers of siliceous basic schist, flecks of fuchsite and bits of
chlorite, biotite and talc. Free-milling gold occurs as blebs, smears and flakes along
the fractures in the vein. There is a minor sulphide component (listed in decreasing
order of content) of pyrite, chalcopyrite, arsenopyrite, sphalerite and traces of
tetrahedrite.
Makonjwaan Imperial Mining Company Mining Operations
MIMCO is a South African company incorporated on October 20, 1987 with
its principle business activity being that of gold mining activities. On November 4,
2004, EGL acquired 100% of the issued and outstanding common or ordinary stock of MIMCO
via a share exchange. A brief description of past and current mining operations is
given below:
The following is a specific discussion of the ownership and operation of
those mining claims that are held in the name of MIMCO:
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1.
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Number of
Claims
:
1,040 (1,530 acres)
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2.
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Location and Means of Access to
Claims
:
The
main area of concentration is the Lily Mine which is situated on the
main road between the towns of Kaapmuiden and Barberton and
approximately 65 kilometers from the city of Nelspruit where EGL
headquarters are located.
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3.
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Description of
Claims
:
These claims cover areas of the northeastern part of the
Barberton Greenstone Belt, south and west of the Barbrook Gold Mine
(recently acquired by EGL). These claims include the old Makonjwaan and
Sofala open pits and many other old workings, adits and trenches from
earlier prospecting operations.
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4.
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History of Previous
Operations
:
MIMCO has been in operation since 1989 when its ore
processing plant was commissioned to initially treat ore from the
Makonjwaan open pit as part of a four year planned operation. This was
next followed by a five year treatment operation for the Sofala open
pit
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mine. MIMCO then entered into a joint venture agreement with Cluff
Mining SA under which the ore from the Svengali open pit mine was treated for one year
while exploration work was being carried at Lily Mine.
The Lily Mine, MIMCO’s primary operation, was discovered in 1888,
began production in 1891 and was worked sporadically by various operators until 1997.
The mine was purchased by MIMCO in 1997 and after additional mapping, trenching and
reverse circulation drilling, open pit mining commenced in June 2000.
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5.
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Present Condition of the
Property
:
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In June 2000, the Lily Mine operation was initiated.
During the period 1997-1999 extensive exploration was completed which
included trenching, 68 reverse circulation drill holes (2,576m) and
detailed field mapping.
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- The Lily Main open pit operation commenced in
2000 and was closed in October 2006. In this period 1,012 million tons were
successfully extracted at an average grade of 2.89 g/t to an elevation of 510 meters
above mean sea level (“amsl”).
- Production was immediately replaced, after a short
reverse circulation drilling program (1,222m), by the Lily East pit, essentially an
easterly on-strike extension of the Main pit. Production at Lily East pit commenced in
October 2006 and continued until June 2007 when it was discontinued due to safety
factors. A total of 770,000 tons were extracted at an average grade of 2.59
g/t.
- Immediate production in July 2007 after a
further reverse circulation drilling exercise (798m) continued on the Rosie’s
Fortune open pit also situated on the easterly strike extension of the Main Lily zone.
This operation is still in progress and is expected to continue at present production
levels up to October 2008.
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6.
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Underground mining development began in June 2007 from
the 2 Level adit. This Main Adit portal enters into the west wall of
the original Lily Main Pit. The final conversion from open pit mining
to underground mining and stoping is planned for the latter part of
2008. Thereafter underground operations will produce the required
run-of-mine tonnage.
Description of Rock
Formations and
Mineralization
:
Two styles of gold mineralization occur in the ore zone.
The first consists of partially refractory gold related to pyrrhotite,
being the major sulphide, together with minor arsenopyrite,
chalcopyrite, pyrite/marcosite, pentlandite and sphalerite. The host
rock is typically well sheared, altered by chlorite and carbonate,
silicified and contorted. The second style of gold mineralization is
free, native gold associated with quartz and quartz-carbonate veins
which are erratically distributed throughout the ore zone.
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Gold mineralization is erratically distributed along the numerous steep
south dipping anastamosing shears in the altered shale-chert-amphibolites. This broad
zone of gold mineralization is called the “Lily Zone”. The more intense the
shearing, the thicker and more continuous the gold mineralization.
The oxide-hosted gold mineralization is represented by a mixture of
quartz veining, sheared and altered greywacke with chert bands in which occur
stringers, disseminations and bands of earthy to shiny red to brown gossan after
pyrrhotite, arsenopyrite and pyrite. In the transition zone, the gossan may be more
siliceous and contain specks of fresh pyrrhotite and minor arsenopyrite and
pyrite.
Based on pit floor mapping, reverse circulation (“RC”) chip
logging and core logging, it has been noticed that sulphides associated with gold
mineralization generally occur as fine-grained disseminated specks and
‘clouds’, irregular grains and blebs of pyrrhotite with minor pyrite. The
better-mineralized material includes massive, fine grained pyrrhotite, needles and
laths of arsenopyrite with minor pyrite, chalcopyrite and bornite
Eastern Goldfields Exploration Mining Operations
EGE is a South African company which was incorporated on July 7, 1994.
The principle business activity is that of a holder of mineral rights in the Barberton
greenstone belt of South Africa. An exploration program was carried out in the
1990’s under the supervision of Vaaldiam Resources Limited of Canada. The results
of this exploration program identified various target ore body prospects but these
prospects were not followed up at that time due to declining gold prices. EGL acquired
100% of the issued and outstanding common stock of EGE on September 30, 2004 via a
share exchange. EGE remains dormant to the present time.
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The following is a specific discussion of the ownership and operation of
those mining claims that are held in the name of EGE:
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1.
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Number of
Claims
:
6,772 (9,953 acres)
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2.
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Location and Means of Access to
Claims
:
These claims include the Sheba Hills area which is in
the northeast trending strip of mountainous country between the well
known Sheba Mine (Barberton Mines Limited – Metorex Group) and
Lily Mine. These claims located approximately 14 kilometers northeast
of the town of Barberton which is a 45 minute drive from EGL’s
Nelspruit headquarters cover the Monty’s Mine, Golden Mamba and
Royal Sheba East prospects.
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3.
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Description of
Claims
:
These claims consist of 9,953 acres which will be the
subject of various planned exploration programs as part of the Sheba
Hills Claims Group. Priority exploration programs within this
geographic area will be the Monty’s Mine area and the Golden
Mamba Mine area.
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4.
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History of Previous
Operations
:
This area has been prospected since the late
1800’s and various shallow diggings have been excavated but
yielded no production of consequence. The Golden Mamba Mine was mined
briefly in the 1950’s. Gold production was minor at about 0.72 kg
from an estimated 350 tons. It is understood that production ceased
when the grade of ore dropped below 17 grams per ton.
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5.
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Present Condition of the
Property
:
A
phased regional exploration program began as planned in the last
quarter of 2006. The first phase of exploration involved 52,000 line
meters of surface geochemical soil sampling and ground magnetics
supported by detailed structural and geological mapping. The
exploration grids identified specifically focused on three existing old
prospect target areas situated within the greater EGE prospecting
license area. These areas covered the farms Crystal Streams North and
South, situated west of Lily Mine and on the same Lily fault, and Royal
Sheba East, east of Sheba Mine and on the same Sheba Fault. Results
from these exercises have been submitted for interpretation and
exploration planning.
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6.
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Description of Rock Formations and
Mineralization
:
The rock formations underlying the Golden Mamba Mine
property are the lower stratigraphic units of the Fig Tree Group within
the Ulundi Syncline. Folding has deformed the rocks into tight easterly
plunging isoclines. Gold mineralization occurs in quartz veins or
discontinuous quartz lenses in meta-sediments or in folds and fracture
systems in the deformed iron formations.
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Centurion Mining Operations
Centurion Mining is a South African company which was incorporated in
1966 with its principle business activity being that of gold mining activities. MIMCO
acquired 100% of the issued and outstanding common or ordinary stock of Centurion on
April 1, 1990 via a stock exchange. On October 31, 2005, EGL acquired 100% of the
issued and outstanding common or ordinary stock of Centurion also via a share
exchange.
The following is a specific discussion of the ownership and operation of
those mining claims that are held in the name of Centurion:
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1.
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Number of
Claims
:
1,367 (2,009 acres)
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2.
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Location and Means of Access to
Claims
:
The
claims in this area are accessed via the Barberton-Malelane road and
the Sheba Mine road about 20 kilometers northeast of the town of
Barberton. The topography is rugged and the claims can only be reached
in most cases by existing old dirt roads and tracks.
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3.
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Description of
Claims
:
These claims are in an area of 2,009 acres which
surround the dormant Bonanza Mine in the area designated as the
Stateland Claims Group. These claims cover areas of the north central
part of the Barberton Greenstone Belt, immediately north of the Sheba
Gold Mine and enclose the Bonanza Gold Mine and many old workings,
adits and trenches.
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4.
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History of Previous
Operations
:
No reliable history is currently available with respect
to mining operations, other than Bonanza Mine, on these
claims.
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Centurion Mining, under MIMCO, commenced operations in 1979 as an ore
dump re-treatment operation. This activity continued for approximately two years when
underground mining operations commenced at the dormant Bonanza mine. These underground
mining operations were terminated in 1989 due to the low price of gold. Exploration
drilling was carried out in 1990 which did not yield additional ore reserves. Various
feasibility studies were carried out to retreat the company's remaining ore dump
reserves. These remaining ore dump reserves were deemed non-viable again due to the
declining price of gold. Bonanza also remains dormant to the present time.
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5.
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Present Condition of the
Property
:
A
phased regional exploration program was commenced in November over a
small target area within the prospecting license claims. The
exploration program, which focused on the extension to the dormant
Bonanza Mine, consisted of detailed surface geochemical soil sampling
and ground magnetics for an estimated 10,000 meters. A detailed desktop
study covering the old Bonanza mine workings was also completed to
assist in identifying potential targets. This data will assist in
directing future exploration to be planned in the latter half of
2008.
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6.
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Description of Rock Formations and
Mineralization
:
The Bonanza Mine area contains the gold mineralized
occurrence and is located in the Moodies Group quartzites adjacent to
the nearby Sheba Gold Mine (which up to 1990 produced 1,390 kilograms
of gold from 256,000 tons of ore) along a suite of shears and fractures
immediately north of the Sheba Fault.
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Gold mineralization is contained in 2 sub-parallel north dipping
fracture hosted reefs. These reefs are connected by a shallow dipping ore body between
the north and south fractures. Previous minor exploration has demonstrated the presence
of gold mineralization west of the existing workings and has confirmed the eastern
extension of the south fracture.
EGL - Company Drilling Program
The focus of exploration diamond drilling during 2007 has remained at
the two principal assets, namely, Lily Mine and Worcester Mine. A brief description of
the drilling programs at each of these two projects is given below.
LILY MINE
- In addition to completing the
reverse circulation drilling program (Phase 5 - 1,222m) to identify and delineate the
Lily East pit, it became necessary to initiate and complete in June 2007 another
reverse circulation drilling program (Phase 6) to identify and delineate the
Rosie’s Fortune open pit further east along strike. This drilling, which involved
15 short holes (798m) over a strike length of 300 meters, successfully identified new
open pit reserves totaling approximately 140,000 in estimated tons at 3.22g/t.
Extraction, planned to coincide with the closure of the Lily East pit, began in July
2007 andit is anticipated to carry production through until and including October 2008
to coincide with the conversion to full underground operations.
Phase 2 (pre-feasibility period) diamond drilling conducted by the
Company was completed in March 2006 and was designed to confirm the lateral and down
dip extensions of the Lily Mine’s ore body and to upgrade mineral reserve
estimates by improving estimation confidence. A total of 6,724 meters were drilled in
27 boreholes (with 24 deflections).
Phase 3 diamond drilling program commenced in September 2006 and was
completed early in 2007. This Phase (5,950m) resulted in the successful completion of
21 additional diamond drill holes (with deflections), 13 holes were specifically infill
holes to improve reserve estimation confidence as per Behre Dolbear’s
recommendations. The remainder of the drilling was directed to further increase
reserves and mineralized material in depth below Lily East pit and along strike. This
increase in confidence and overall tonnage estimate is reflected in the reserve and
mineralized material tonnage reported.
Phase 4 drilling comprising a further 33 holes (8,662m) was completed in
December 2007. Most holes were completed with non-directional wedges. This drilling
further extended the underground potential by investigating and successfully adding the
depth extensions of Lily East pit and the current Rosie’s Fortune pit
12
mineralized zone down to a depth of greater than 400m below surface. The
extended mineralized strike is now almost 2,000m in extent and has greatly increased
the estimated extractable tonnage potential within the defined Lily ore
body.
A “deflection” is a planned “wedge” (directional
or non-directional) off at a predetermined depth down a long diamond drill hole to
economically achieve an additional intersection and sample of a geological zone of
interest. A metal wedge is placed down the hole to a specified depth and then the hole
is re-drilled from this position. The drill rods deflect off at a slight angle to the
original hole and continue through the zone of interest yielding a second core string
for logging and assay sample analysis.
The drilling intersections of each of the zones of economic interest are
sampled based on a geological selection and reported as a weighted average grade over a
true width of the respective mineralized section.
The results, shown in the table below, of the exploration diamond
drilling programs have continued to successfully confirm the geological model of the
Lily ore body, continually re-defining the ore body strike limits and demonstrating
consistency in depth beyond present information. However, the Company may discover
additional facts that do not support these conclusions. To the extent that the
conclusions currently made by the Company’s management are later found to be
flawed, the Company may incur significant additional costs and losses
thereby.
Therefore from purely geological and structural analysis and
interpretation, the continuation of the Lily ore body can be inferred to continue in
depth further than present modeling methodology has indicated and, therefore, is
reported as “open ended”. Accordingly, in this context, use of the term
“open ended” implies that as the Lily Mine develops to depth so too will
the exploration drilling continue to probe the mineralized zone with depth.
WORCESTER MINE
- Phase 1 diamond drilling
(3,125m) consisting of nine diamond drill holes (with non-directional wedges) was
completed during the first quarter of 2007. This program explored the extension of the
mined out workings at approximately 200 meters to a depth of 450 meters below surface.
The results indicated down dip extension and assisted in interpreting complex
structural features. Phase 2 diamond drilling was initiated in November 2007, of which
five holes are already complete (1,900m). This phase will continue to probe the depth
extensions below the existing workings as well as the lateral unexplored extension. As
currently projected and subject to the Company’s ability to fund projected
exopenditures,this program is expected to be finished by the end of the third quarter
2008.
Results of the Company’s Exploration Drilling
Program
The Company’s drilling programs and results thereof are summarized
in the tables below.
LILY MINE – Results of Exploration Drilling completed during
2007
|
Hole
|
Phase
|
|
Date
|
Zone 1 – Average
|
Other
|
|
ID
|
|
Actual
|
Defl
|
Month
|
Year
|
g/t
|
cm
|
cmg/t
|
v/depth
|
Intersections
|
|
LD29
|
3
|
301.87
|
0.00
|
Sep
|
2006
|
5.00
|
276
|
1380
|
123
|
Z2=1.25/901
|
|
LD30
|
3
|
266.11
|
0.00
|
Oct
|
2006
|
0.00
|
0
|
0
|
|
|
|
LD31
|
3
|
329.07
|
22.00
|
Jan
|
2007
|
2.61
|
224
|
585
|
300
|
|
|
LD32
|
3
|
307.72
|
32.82
|
Oct
|
2006
|
2.73
|
660
|
1802
|
228
|
|
|
LD33
|
3
|
238.07
|
15.00
|
Oct
|
2006
|
7.52
|
570
|
4286
|
210
|
|
|
LD34
|
3
|
371.02
|
26.00
|
Jan
|
2007
|
3.10
|
455
|
1411
|
343
|
|
|
LD35
|
3
|
253.92
|
14.00
|
Nov
|
2006
|
4.25
|
267
|
1135
|
239
|
Z2=6.3/144
|
|
LD36
|
3
|
443.09
|
15.70
|
Jan
|
2007
|
3.80
|
510
|
1938
|
399
|
Z2=2.77/291
|
|
LD37
|
3
|
238.87
|
16.00
|
Nov
|
2006
|
2.13
|
145
|
309
|
215
|
|
13
|
LD38
|
3
|
374.27
|
10.00
|
Dec
|
2006
|
4.41
|
138
|
609
|
166
|
|
|
LD39
|
3
|
323.04
|
22.00
|
Dec
|
2006
|
0.86
|
227
|
195
|
288
|
|
|
LD40
|
3
|
233.12
|
19.00
|
Nov
|
2006
|
2.62
|
639
|
1674
|
82
|
|
|
LD41
|
3
|
281.22
|
28.00
|
Nov
|
2006
|
2.36
|
108
|
255
|
245
|
|
|
LD42
|
3
|
340.17
|
15.00
|
Dec
|
2006
|
2.41
|
192
|
463
|
294
|
|
|
LD43
|
3
|
230.00
|
20.00
|
Nov
|
2006
|
6.40
|
347
|
2221
|
86
|
|
|
LD44
|
3
|
221.12
|
17.00
|
Nov
|
2006
|
2.58
|
195
|
503
|
172
|
|
|
LD45
|
3
|
160.66
|
19.00
|
Nov
|
2006
|
2.19
|
424
|
929
|
103
|
|
|
LD46
|
3
|
128.00
|
20.00
|
Nov
|
2006
|
2.00
|
307
|
614
|
107
|
|
|
LD47
|
3
|
263.02
|
10.00
|
Feb
|
2007
|
0.00
|
0
|
0
|
|
Z2=1.71/138
|
|
LD48
|
3
|
296.84
|
24.00
|
Feb
|
2007
|
2.01
|
245
|
492
|
111
|
Z2=6.7/120
|
|
LD49
|
4
|
331.45
|
15.60
|
Jun
|
2007
|
6.19
|
58
|
359
|
125
|
Z2=3.48/88
|
|
LD50
|
4
|
165.50
|
17.50
|
Jun
|
2007
|
5.94
|
194
|
1152
|
62
|
|
|
LD51
|
4
|
136.60
|
|
Jul
|
2007
|
6.12
|
142
|
869
|
51
|
|
|
LD52
|
4
|
256.45
|
13.45
|
Jul
|
2007
|
2.21
|
108
|
239
|
89
|
Z2=2.26/136
|
|
LD53
|
4
|
289.55
|
14.85
|
Jul
|
2007
|
1.95
|
199
|
388
|
197
|
|
|
LD54
|
4
|
202.45
|
13.00
|
Aug
|
2007
|
3.50
|
490
|
1715
|
168
|
|
|
LD55
|
4
|
109.40
|
20.45
|
Aug
|
2007
|
2.33
|
236
|
550
|
87
|
|
|
LD56
|
4
|
259.55
|
6.00
|
Aug
|
2007
|
2.06
|
50
|
103
|
245
|
|
|
LD57
|
4
|
349.65
|
18.65
|
Aug
|
2007
|
1.30
|
109
|
142
|
332
|
Z2=1.07/137; Z3=2.33/139
|
|
LD58
|
4
|
370.00
|
18.60
|
Aug
|
2007
|
7.17
|
379
|
2717
|
323
|
|
|
LD59
|
4
|
370.65
|
|
Sep
|
2007
|
3.42
|
192
|
657
|
142
|
Z2=1.2/157
|
|
LD60
|
4
|
373.70
|
17.00
|
Sep
|
2007
|
7.52
|
98
|
737
|
351
|
|
|
LD61
|
4
|
190.40
|
21.20
|
Oct
|
2007
|
2.07
|
1429
|
2958
|
132
|
|
|
LD62
|
4
|
301.70
|
25.70
|
Oct
|
2007
|
5.41
|
410
|
2218
|
278
|
|
|
LD63
|
4
|
295.60
|
21.50
|
Nov
|
2007
|
7.07
|
723
|
5112
|
258
|
|
|
LD64
|
4
|
340.60
|
12.18
|
Nov
|
2007
|
2.39
|
207
|
495
|
311
|
|
|
LD65
|
4
|
139.45
|
25.75
|
Nov
|
2007
|
2.70
|
267
|
721
|
121
|
Z2=2.16/158
|
|
RF01
|
4
|
210.00
|
16.00
|
Jun
|
2007
|
2.54
|
407
|
1034
|
153
|
|
|
RF02
|
4
|
266.87
|
25.87
|
Jul
|
2007
|
1.65
|
226
|
373
|
233
|
Z2=4.21/92
|
|
RF03
|
4
|
205.49
|
28.00
|
Aug
|
2007
|
2.18
|
339
|
739
|
156
|
|
|
RF04
|
4
|
252.03
|
0.00
|
Sep
|
2007
|
3.04
|
204
|
620
|
112
|
|
|
RF05
|
4
|
222.00
|
0.00
|
Sep
|
2007
|
2.60
|
834
|
2168
|
76
|
|
14
|
RF06
|
4
|
258.00
|
0.00
|
Oct
|
2007
|
2.86
|
436
|
1247
|
116
|
|
|
RF07
|
4
|
218.85
|
24.20
|
Oct
|
2007
|
3.07
|
595
|
1827
|
156
|
|
|
RF08
|
4
|
306.00
|
15.00
|
Oct
|
2007
|
2.08
|
110
|
229
|
286
|
|
|
RF09
|
4
|
279.00
|
23.00
|
Nov
|
2007
|
4.05
|
164
|
244
|
|
|
|
RF10
|
4
|
249.00
|
0.00
|
Dec
|
2007
|
0.00
|
0
|
0
|
|
Dyke
|
|
RF11
|
4
|
285.00
|
0.00
|
Dec
|
2007
|
1.45
|
215
|
312
|
122
|
|
|
RF12
|
4
|
223.80
|
0.00
|
Dec
|
2007
|
2.66
|
224
|
596
|
204
|
|
|
RF13
|
4
|
151.60
|
33.60
|
Dec
|
2007
|
0.72
|
208
|
150
|
132
|
|
|
RF14
|
4
|
194.48
|
21.93
|
Dec
|
2007
|
0.00
|
0
|
0
|
|
|
|
RF15
|
4
|
277.61
|
14.00
|
Dec
|
2007
|
0.00
|
0
|
0
|
|
|
|
RF16
|
4
|
99.90
|
16.55
|
Dec
|
2007
|
2.99
|
371
|
1109
|
68
|
|
|
Totals
|
|
13783.53
|
825.10
|
|
|
|
|
|
|
|
|
Phase
|
3
|
5946.72
|
|
|
|
|
|
|
|
|
|
|
4
|
8661.91
|
|
|
|
|
|
|
|
|
|
Total
|
14608.63
|
|
|
|
3.38
|
15553
|
52578
|
|
|
The drilling summarized above was spread over the entire strike length
of the Lily Mine ore body and was focused at increasing the measured and indicated
reserve tonnage in preparation for the publication of the Bankable Feasibility Study.
The results are included in the modeling and have greatly increased the estimated
reserves which are given in a later section.
WORCESTER MINE – Results of Exploration Drilling completed during
2007
|
|
|
|
|
|
Worcester Reef
|
|
|
|
Hole
|
|
|
Main Hole
|
Deflection
|
|
Hole ID
|
Phase
|
Depth
|
Year
|
Month
|
Grade
|
Width
|
Grade
|
Width
|
|
|
|
(m)
|
|
|
(g/t)
|
(cm)
|
(g/t)
|
(cm)
|
|
WS 1
|
1
|
200.22
|
2006
|
Nov
|
1.88
|
233
|
1.76
|
310
|
|
WS 2
|
1
|
310.73
|
2006
|
Dec
|
0.84
|
45
|
1.22
|
150
|
|
WS 3
|
1
|
340.17
|
2007
|
Jan
|
T
|
|
T
|
|
|
WS 4
|
1
|
342.87
|
2007
|
Jan
|
T
|
|
T
|
|
|
WS 5
|
1
|
449.21
|
2007
|
Feb
|
6.65
|
800
|
6.51
|
970
|
|
WS 6
|
1
|
241.52
|
2007
|
Feb
|
1.56
|
51
|
1.02
|
102
|
|
WS 7
|
1
|
370.50
|
2006
|
Dec
|
T
|
|
T
|
|
|
WS 8
|
1
|
370.00
|
2007
|
Feb
|
1.18
|
69
|
1.54
|
260
|
|
WS 9
|
1
|
260.50
|
2007
|
Mar
|
0.52
|
80
|
0.51
|
65
|
|
WS10
|
2
|
324.13
|
2007
|
Nov
|
2.05
|
400
|
Abandoned
|
|
|
WS11
|
2
|
380.48
|
2007
|
Nov
|
3.01
|
1,005
|
4.00
|
1500
|
|
WS12
|
2
|
372.19
|
2007
|
Dec
|
2.58
|
387
|
5.55
|
775
|
|
WS13
|
2
|
370.94
|
2007
|
Dec
|
T
|
|
T
|
|
|
WS14
|
2
|
440.48
|
2007
|
Dec
|
T
|
|
T
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
4,773.94
|
|
|
|
|
|
|
15
Compilation of geological information from underground mapping and
borehole core from both recent and previous phases of drilling indicate that the
Worcester mineralized zone (Worcester Mylonite) is cut by an array of shallow dipping
bedding-parallel faults. Near surface these features dip at fairly shallow angles and
are responsible for the increased thickness by contiguous duplication (or
en-echelon
stacking) of the
mineralized quartz-filled mylonite, indicating a reverse movement on the planes. The
angle of the fault array steepens with depth and dislocations of the shear’s
quartz filling of up to 40m can occur.
The south easterly extension of the Worcester Mylonite appears to
continue for about 900m to the New Independence Mine workings where the shear enters a
chert-shale horizon. Previous sampling of New Independence 3 Level indicate some
economic values but no detailed geological work has been done in these workings or in
the intervening area between Worcester and these workings. Records show that the New
Independence Mine is a sheared chert that hosts intruded quartz veins mineralized by
free-milling gold similar to Worcester Mine.
To the northwest the Worcester Mylonite approaches the Albion Fault and
boreholes WCR 11, WS1 and WS9 tested the full width extension of the shear in the depth
range of 200m to 250m below surface although their intersection values, as in the
surrounding short length holes, were disappointing by comparison.
EGI’s Mineral Reserves
Lily Mine, being the only operational mine for which sufficient
technical and economic studies had been completed at the date of reporting, contains a
Mineral Reserve which is based on estimates developed consistent with industry
practices.
The 2007 estimated Mineral Reserves increased by 198,900 ounces to an
estimated 565,000 ounces.
Proven Reserves relate to the current open pit operations at the Lily
Mine (Rosie’s Fortune) and Probable Reserves relate to the planned underground
section at Lily Mine which are projected to begin production in the fourth quarter 2008
based on the Company’s current plans.
Proven Mineral Reserves were estimated by EGL at a gold price of US$850
per ounce at an exchange rate of ZAR/US$ 7.25 in contrast to the US$650 and ZAR/US$
7.20 applied in 2006.
Probable Mineral Reserves were extracted from the Bankable Feasibility
Study using an estimated gold price of US$800 per ounce at a projected exchange rate of
ZAR/US$ 7.00 in contrast to the US$650 and ZAR/US$ 7.20 applied in 2006.
|
EGI Lily Mine
|
|
Mineral Reserves
|
|
Reserve Category
|
As at
December 31, 2007
|
As at
December 31, 2006
|
As at
December 31, 2005
|
|
Tons (000)
|
g/t
|
Oz
(000)
|
Tons (000)
|
g/t
|
Oz
(000)
|
Tons (000)
|
g/t
|
Oz
(000)
|
|
Proven
|
132
|
2.12
|
9
|
93
|
2.58
|
8
|
186
|
2.82
|
17
|
|
Probable
|
5,769
|
3.00
|
556
|
2,089
|
5.34
|
358
|
Nil
|
|
|
|
TOTAL
|
5,901
|
2.98
|
565
|
2,182
|
5.22
|
366
|
186
|
2.82
|
17
|
The pay limits and cut-off grades are calculated according to prevailing
operating costs, gold price, recoveries and yields. The Mineral Reserve blocks are
estimated using the following information:
16
|
LILY MINE – Open Pit Section (Proven
Reserves)
|
|
Operating pay limit (Quarters 1to 3 of
2008)
|
|
|
|
|
|
Operating Costs (monthly average)
|
(R)
|
4,572,000
|
|
|
|
|
|
Tons milled (monthly average)
|
(t)
|
14,500
|
|
|
|
|
|
Cost per ton milled
|
(R/t)
|
315.31
|
|
Gold price
|
(US$/oz)
|
850
|
|
Exchange rate
|
(R/US$)
|
7.25
|
|
Gold price
|
(R/kg)
|
198,000
|
|
Recovery Yield
|
(g/t)
|
1.59
|
|
|
|
|
|
Recovery
|
(%)
|
90
|
|
ROM Yield
|
(g/t)
|
1.76
|
|
|
|
|
|
Mine call factor
|
(%)
|
90
|
|
Operating Pay limit
|
(g/t)
|
1.96
|
|
|
“R” denotes South African Rand
|
|
LILY MINE - Underground Section (Probable
Reserves)
|
|
Operating pay limit (Quarter 4 of
2008)
|
|
|
|
|
|
Operating Costs (monthly average)
|
(R)
|
3,413,244
|
|
|
|
|
|
Tons milled (monthly)
|
(t)
|
14,458
|
|
|
|
|
|
Cost per ton milled
|
(R/t)
|
236.08
|
|
Gold price
|
(US$/oz)
|
800
|
|
Exchange rate
|
(R/US$)
|
7.00
|
|
Gold price
|
(R/kg)
|
180,000
|
|
Recovery Yield
|
(g/t)
|
1.31
|
|
|
|
|
|
Recovery
|
(%)
|
95
|
|
ROM Yield
|
(g/t)
|
1.38
|
|
|
|
|
|
Mine call factor
|
(%)
|
90
|
|
Operating Pay limit
|
(g/t)
|
1.90
|
|
|
“R” denotes South African Rand
|
The extent of the Reserves and the estimates of Operating Costs, gold
prices, recovery yield, and other critical factors are based on estimates that the
Company has made with respect to these mining properties. While the Company believes
that its estimates are reasonable and reflect the best estimates based on
current
17
information, there can be no assurance that the Company’s
estimates may not be reduced as additional information becomes available. Further, all
of the estimates utilize assumptions which may later be shown to be unrealistic. For
these and other reasons, the reader of this Form 10-KSB should consider the discussions
regarding the Company’s “Mining Operations” to be
“forward-looking” statements.
Proven Reserves - Lily Mine – Open Pit
At Lily Mine, the proven mineral reserve is estimated from the
Rosie’s Fortune pit surface as surveyed at the end of December 2007 down to the
planned pit base at 455 meters above sea level. It is based on a pay limit of 1.96 g/t
Au calculated from operating costs, gold price, US$ exchange rate, recovery and MCF
(mine call factor).
Proven Mineral Reserves based on a 1.00 g/t Au cut-off and after
dilution have been estimated for the Rosie’s Fortune open pit and are summarized
bench by bench as follows:
|
Proven Mineral Reserves—Rosie’s Fortune
Section – as at December 31, 2007
|
|
|
In Situ Ore @ > 1.0g/t
|
Dilution
10%
|
Mineral Reserves
|
|
Bench
|
Tonnes
|
g/t
|
Tonnes
|
Tonnes
|
g/t
|
kg
|
oz
|
|
485
|
8,183
|
1.98
|
818
|
9,001
|
1.80
|
16.20
|
520
|
|
480
|
12,302
|
2.07
|
1,230
|
13,532
|
1.88
|
25.40
|
816
|
|
475
|
25,841
|
2.31
|
2,584
|
28,426
|
2.10
|
59.70
|
1,920
|
|
470
|
23,975
|
2.35
|
2,398
|
26,373
|
2.14
|
56.40
|
1,813
|
|
465
|
18,264
|
2.48
|
1,826
|
20,090
|
2.26
|
45.30
|
1,456
|
|
460
|
17,704
|
2.56
|
1,770
|
19,475
|
2.33
|
45.40
|
1,456
|
|
455
|
13,789
|
2.30
|
1,379
|
15,168
|
2.09
|
31.70
|
1,020
|
|
Total
|
120,059
|
2.33
|
10,627
|
132,065
|
2.12
|
280.10
|
9,000
|
Probable Reserves – Lily Mine - Underground
The estimate of the Probable mineral reserves was derived from a
combination of geological modeling using the GEMCOM (GEMS 6) software package and
traditional weighted triangular section estimation methods. The data base upon which
the estimation methods were applied included diamond drill borehole intersection values
covering the area from the base of the now defunct Lily Main pit to the expected pit
base of the Lily east pit at the end of its forecast operational life in June 2007 and
downwards to the planned underground 14 Level, 250 meters above mean sea level. A
cut-off grade of 2.25 g/t Au was used for the underground mining feasibility, which
coincides closely with the actual calculated pay limit of 2.22 g/t based on cost and
gold price estimates.
The underground Probable Mineral Reserve for Lily Mine as at December
31, 2006 was estimated 2,089,000 tons of ore at an average grade of 5.34 g/t
Au.
|
EGI LILY MINE
|
|
LILY
UNDERGROUND
Probable Mineral Reserves
as at December 31, 2007
|
|
Tons
t
|
Reef
Width
cm
|
Grade
g/t
|
Contents
|
|
(kg)
|
(oz)
|
|
5,768,834
|
410
|
3.00
|
17,000
|
556,000
|
18
Mill Tailings Capacity Analysis
The original pre-feasibility study and current Bankable Feasibility
Study make provision for the utilization of the existing Makonjwaan processing plant
and tailings dam facilities while a new plant and tailings dam are constructed at the
Lily Mine site during the build-up phase of the underground mining. Utilization of the
existing plant is, therefore, merely a transitional phase in the build-up to processing
the full production from underground at the new plant.
The current maximum milling rate is 180,000 t/a. The existing tailings
dam capacity, revised in early 2007 to 360,000 tons as from December 31, 2006, allows
for a further 24 months at maximum production rates during which time an already
selected alternative site to service the new plant will be commissioned.
The planned milling capacity of the proposed new plant may be between
30,000 and 40,000 tons, as determined by the Bankable Feasibility Study undertaken by
Turgis Consulting (Pty) Ltd.
The foregoing calculations represent estimates that may or may not prove
to be accurate. While the Company’s management believes that the calculations and
studies it has made are accurate, the Company may discover additional new information
which may significantly reduce the economic feasibility of these projects. As a result,
all of the estimates are subject to change as the Company obtains additional
information.
Mineralized Material – All EGI Assets
Mineralized Material tonnages and grades are estimated in situ over the
true reef widths and include mineralization at zero g/t Au cut-off. It is the policy of
EGI to report estimated Mineralized Material as an inventory of all gold mineralization
having a reasonable chance of being brought to account given favorable technical and
economic conditions. The following table reflects the mineralized material as “in
place grade and tonnage”:
The 2007 estimated Mineralized Material tonnage was increased from
212,600 ounces to 599,000 ounces.
The increase in EGL’s Mineralized Material was primarily as a
result of the continued successful diamond drilling exploration at the Lily Mine and
Worcester Mine as well as revised modelling techniques applying more scientific and
geological controls.
At Lily Mine a total of 8,600 metres of diamond and 750 metres of
percussion drilling were completed during 2007. This brings the total exploration
diamond drilling completed to 21,000 metres (81 diamond drill holes) since mid 2005.
The aim of the drilling exercise was twofold:
|
|
1.
|
To infill between existing intersections thereby
upgrading the estimation confidence of the Mineral Reserves and
Mineralized Material within the planned underground section of the
extended Lily ore body in preparation for the commencement of
underground mining in late 2008.
|
|
|
2.
|
To further extend Mineral Reserves and Mineralized
Material along strike and in depth. The drilling has successfully
identified the mineralised zone over 2,000 metres of strike down to 600
metres below surface.
|
The overall effect was to substantially increase estimated Mineralized
Material (Measured and Indicated), maintain sufficient open pit mineable Proved
Reserves, and improve confidence in the estimated
19
Probable Reserves included into the Bankable Feasibility Study. However,
there can be no assurance that the estimates will not later be reduced as further work
is completed.
At Worcester Mine a further 2,200 metres of exploration diamond drilling
was completed bringing the total exploration metres completed since 2006 to 5,325
metres. The additional drilling was successful in locating the down dip extension of
the reef horizon below the old mine workings thereby increasing the estimated
Mineralized Material. The 2007 estimated mineral reserve data for Worcester
incorporates all the EGL drilling information and latest geological modelling whereas
previous estimates were derived solely from historical reports.
Although exploration has continued on EGL’s other principal
mineral assets, no changes have been made to the estimated Mineral Reserves reported in
2006 of these exploration targets.
|
EGI All ASSETS
|
|
Total Mineralized Material
|
|
|
As at
December 31, 2007
|
As at
December 31, 2006
|
As at
December 31, 2005
|
|
Tons (000)
|
g/t
|
Tons (000)
|
g/t
|
Tons (000)
|
g/t
|
|
Mineralized Material
|
5,828
|
3.19
|
5,856
|
2.05
|
5,767
|
3.06
|
The Company’s Mining Consultants
In mid 2007 it was decided to embark on the compilation of a full
Bankable Feasibility Study for the Lily Mine project. The services of a number of
mining consultants were integrated under the leadership of Turgis Consulting (Pty) Ltd,
a world renowned mining and engineering consultancy based in Johannesburg, South
Africa. This Bankable Feasibility Study was completed on March 7, 2008.
While the BFS utilizes estimates and assumptions that are consistent
with industry practices, there can be no assurance that the conclusions reached by the
BFS may not later be revised on the basis of additional information and upon estimates
made thereon.
Anticipated Life of Lily Mine Operation
Open Pit Operations - The Open Pit operations at the Lily Mine will
continue production to the end of the third quarter of 2008. It is still the intention
to progress into underground development and mining during the second quarter of 2008.
Therefore, once the Rosie’s Fortune Pit has been completed and assuming that the
Company is successful in these efforts, the Company anticipates that production will
continue from the underground operations.
20
Underground Operations - It will be necessary for the Company to raise
additional capital to build the first phase of the new underground mine. There can be
no assurance that the Company will be successful in raising this additional capital, or
if it is successful, that the Company can do so on terms that are reasonable in light
of the Company’s current circumstances.
The BFS is calculated from current reserves over an estimated mine life
of 14 years. In this period and using these estimates, the project has projected
revenue of ZAR2.96Bn for a projected operating expenditure of ZAR1.38Bn, a projected
capital expenditure of ZAR488M yielding projected profit before tax of ZAR1.093Bn. This
projected 14 year life is inclusive of mine development and construction. While these
projections are based on the estimates and assumptions contained in the Bank
Feasibility Study (“BFS”) which utilizes methods consistent with industry
practices, there can be no assurance that these estimates or the resulting conclusions
of the BFS will not be later revised as further information is obtained or as mining
operations are further undertaken.
From a technical risk perspective, the Company believes that the project
has acceptable risk. The Company perception of the risk characteristics is based on
several factors. These are: (1) the geology is well known and will be managed by
personnel who are familiar with it; (2) all of the methods employed are proven, and are
now currently being practiced in early mining; (3) he mine has already recruited the
core of the team required to operate and manage the mine; and (4) from a metallurgical
perspective, the ore is well known, full test work has been undertaken and the mine
already has a history of processing the ore. However, there can be no assurance that
the Company’s current perception of the risks associated with the mine may not be
later changed after further studies and evaluations are completed. In that event, the
Company may perceive that the risks associated with the project may be substantially
greater than that described in this section.
Upside potential includes capital cost reduction by adopting an owner
build approach going forward, and optimization of the 40,000 tons per month production
rate into the detailed design of the plant from the outset. Upside also includes
further extension of the reserve. The access and mining approach is flexible and easily
amenable to further extensions.
Administrative and Operational Offices
EGI currently maintains a U.S. office at 1660 Hotel Circle North, Suite
207, San Diego, CA 92108-2808
.
The
telephone number is (619) 497-2555. This facility is provided to us by our U.S.
securities attorney. Further, our operations are conducted from our office at 8 Streak
Street, P.O. Box 820, Nelspruit 1200, South Africa. The telephone number is 011
27-13-753-3046.
Employees
EGI currently has 170 employees other than its officers and directors.
During the year EGI employed Mr. V Trashliev, a qualified geologist with 15 years
experience, as the Company’s Group Exploration Geologist, and, Mr J Symonds, a
certificated Mine Manager, as Mine Manager for Lily Mine. Management will continue to
hire additional staff as necessary.
The
Gold Market
After the price of gold declined to approximately $250 per ounce in
2001, its price has risen steadily in the last few years and through most of 2005 it
was traded in a fairly narrow price range between approximately $410 and $450 per
ounce. Its price increased in the third quarter of 2005 and reached the year’s
high of $536.50 on December 12, 2005. This trend continued into 2006 and exceeded
$700-an-ounce level for the first time in 26 years. As investors diversified their
accounts with more gold investments, the price of gold rose 38 percent in 2006 to
$709.10 per ounce on May 11, 2006 (January 1, 2006 - $513.00) and 63 percent since the
start of 2005 (January 1, 2005 - $435.60). However the range for 2006 was between
$600-$650. The steady rise since 2006 of the gold price is widely considered to reflect
a relative decline of the U.S. dollar to other foreign currencies along
21
with
general strength in commodity prices. This surge, however, is believed to be due to
geopolitical tensions, higher oil prices and inflation. The price of gold tends to rise
during times of uncertainty because many investors view it as a hedge against inflation
and as a hedge against a weaker dollar. Adding to the demand is the speculation of
world central banks which will sell their U.S. dollar reserves and buy gold.
Having reached a peak price of over $1,011 per ounce on March 17, 2008,
price of gold has since undergone corrective retreat, nearing the $900 level. What
began as fund profit taking ahead of the end of 2008 first quarter, sparked selling by
weaker longs and holders of leveraged positions. However, there is very good support
right below the market and good jewelry buying once again is seen. The underlying trend
remains bullish and this recent correction was much needed and is ultimately
constructive to the uptrend.
With respect to our competitive position in the gold production
industry, our market share is negligible versus that of the major gold producers.
Relative market share of similar size competitors is also insignificant. We are a
relatively small operator in a fragmented market which is dominated by larger companies
with significantly more resources than we currently possess.
The Company has no ability to control or influence the market price of
gold. In the event that the market price for gold declines, the Company’s
profitability and cash flow will also decline. For these and other reasons cited
elsewhere in this Form 10-KSB, the Company faces risks and uncertainties over which it
has little or no control.
Reports to Security Holders
The Company has voluntarily filed Form 10-SB in order to become a fully
reporting company. This filing was undertaken in order to be eligible for an initial
listing on the NASD OTC Bulletin Board and a listing when qualified on the NASDAQ Small
Cap Market. The Company is presently listed for trading on the “Pink
Sheets” market and accordingly it has a limited ability for fund raising. By
virtue of being listed on the NASD OTC Bulletin Board, the Company will have greater
access to the public markets for fund raising to assist it with its implementation of
its business plan.
Upon acceptance and clearance of the Company’s Form 10-SB
registration statement by the SEC, the Company plans to engage a NASD broker-dealer to
sponsor the Company’s application for listing on the OTC Bulletin Board. No such
broker-dealer has been selected or engaged at this time.
Form 10-SB Registration Statement became automatically effective as of
60 days from the date of filing and consequently, the Company is required to file
annual reports in accordance with the Securities and Exchange Act of 1934.
The public may read and copy any materials filed with the SEC at the
SEC’s Public Reference Room at 101 F Street,
N.E
.
,
Washington, D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address of
that site is
http://www.sec.gov
.
The Company’s internet address is
www.easterngoldfields.com
.
22
Item
1a
.
Factors that May Affect Future
Results
The Company’s operations and its securities are subject to a
number of substantial risks, including those described below. If any of these or other
risks actually occur, the Company’s business, financial condition and operating
results, as well as the trading price or value of its securities could be materially
adversely affected. No attempt has been made to rank these risks in the order of their
likelihood or potential harm. In addition to those general risks enumerated elsewhere
in the document, any purchaser of the Company’s common stock should also consider
the following risk factors:
Risks Related to the Company’s Operations
The Company requires additional funding which may not be available.
If the Company is unable to obtain necessary financing on acceptable terms, it may have
to curtail its current or planned operations.
The Company requires additional funding to implement its business plan.
The Company’s current open pit operations at its Lily Mine are anticipated to
terminate in September 2008. Additional capital will be required in order to undertake
underground mining operations at the Lily Mine. The Company also will require still
additional funding to explore its other properties. The Company may seek to obtain such
funding for these activities through equity or debt financing, joint ventures or from
other sources. There can be no assurances that the Company will be able to raise
adequate funds on acceptable terms from these or other sources (in light of the
Company’s current circumstances), which may hinder the Company from continuing or
expanding its operations.
Operational hazards and responsibilities could adversely affect our
operations.
The Company’s operational activities are subject to a number of
risks and hazards which include but not limited to the following:
|
|
•
|
environmental hazards,
|
|
|
•
|
industrial accidents
|
|
|
•
|
labor disputes,
|
|
|
•
|
unusual or unexpected geological or operating
conditions,
|
|
|
•
|
changes in regulatory environment
|
|
|
•
|
natural phenomena such as severe weather conditions,
floods, earthquakes and
|
|
|
•
|
other hazards
|
These occurrences could result in significant damage to, or destruction
of, mineral properties or production equipment, personal injury or death, environmental
damage, delays in mining, monetary losses and possible legal liability. The occurrence
of these operational hazards could adversely affect the Company’s mining
operations by limiting production or the closure of the mines themselves.
The Company is not insured against any losses or liabilities that
could arise from its operations either because insurance is unavailable or because the
premium cost is excessive. The payment of such liabilities could have a material
adverse effect on the Company’s financial position and, depending on the extent
of such liability, could result in the total loss of its assets and
operations.
Exploration for gold involves hazards, which could result in the
Company’s incurring substantial losses and liabilities to third parties for
pollution, accidents and other hazards. The Company has public liability insurance of
$1,500,000 but,if the Company incurs uninsured losses or liabilities, the funds
available for the implementation of its business plan will be reduced and its assets
may be jeopardized. The payment of such liabilities may have a material adverse effect
on the Company’s financial position and, depending on the extent of such
liability, could result in the total loss of its assets and operations.
23
The Bank Feasibility Study (“BFS”) contains estimates and
assumptions regarding the feasibility of the Company’s mining operations which
may later prove to be inaccurate as additional information becomes
available
.
While we believe that the Bank Feasibility Study was conducted in
a responsible fashion and the estimates, assumptions, and methodology of the BFS
follows standards that are consistent with industry practice, the amount of Reserves,
Proven Reserves, and other projections may be later significantly reduced as we obtain
additional information. The extent of any reduction in these estimates and their
magnitude can not be known at this time. The Company is aware that estimates in the
mining industry can be subject to dramatic changes. For these reasons, we can not
assure you that we will not later discover that our estimates need to be significantly
reduced as we complete further work on our mining properties.
The Company’s ability to discover a viable and economic mineral
reserve on its properties is subject to numerous factors, most of which are beyond its
control and are not predictable. If the Company is unable to discover such reserves, it
most likely will not be able to establish a profitable commercial mining operation on
these properties.
Exploration for gold is speculative in nature, involves significant
financial risks and is frequently unsuccessful. Few properties that are explored are
ultimately developed into commercially producing mines. The Company’s long-term
profitability will be, in part, directly related to the cost and success of exploration
programs. The Company’s gold exploration programs entail risks relating to the
following:
|
|
•
|
location of economic ore bodies,
|
|
|
•
|
development of appropriate metallurgical
process
|
|
|
•
|
receipt of necessary government approvals,
and
|
|
|
•
|
construction of mining and processing facilities at
sites chosen for mining
|
The commercial viability of a mineral deposit is dependent on a number
of factors including the following:
|
|
•
|
the price of gold,
|
|
|
•
|
exchange rates,
|
|
|
•
|
the particular attributes of the deposit (i.e. size,
grade and the proximity to infrastructure)
|
|
|
•
|
financing costs,
|
|
|
•
|
taxation,
|
|
|
•
|
royalties,
|
|
|
•
|
land tenure,
|
|
|
•
|
land use,
|
|
|
•
|
water use,
|
|
|
•
|
availability and cost of power source
|
|
|
•
|
importing and exporting gold, and
|
|
|
•
|
environmental protection
|
The effect of these factors cannot be accurately predicted and any one
of which could adversely affect the Company’s ability to operate. Further, the
Company has little or no control over these variables.
The Company’s ability to become and remain profitable, should
it become profitable, will be dependent on its ability to locate, explore, develop and
mine additional properties. There is intense competition for the acquisition of gold
properties. If the Company is unable to accomplish this, it most likely will not be
able to be profitable on a long-term basis.
Gold properties eventually become depleted or uneconomical to continue
mining. As a result, the Company’s long-term success is dependent on its ability
to acquire, discover, develop and mine new properties. The acquisition of gold
properties and their exploration and development are subject to intense
competition.
24
Companies with greater financial resources, larger staffs, more
experience and more equipment for exploration and development may be in a better
position than the Company to compete for such mineral properties. If the Company is
unable to locate, develop and economically mine new properties, it most likely will not
be able to be profitable on a long-term basis.
The Company’s property interests are located in South Africa.
The risk of doing business in a foreign country could adversely affect its results of
operations and financial condition.
The Company faces risks normally associated with any conduct of business
in foreign countries, including various levels of political and economic risk. The
occurrence of one or more of these events could have a material adverse impact on the
Company’s current and future operations which, in turn, could have a material
adverse impact on its future cash flows, earnings, results of operations and financial
condition. These risks include the following:
|
|
•
|
prevalence of various diseases at the mining
sites,
|
|
|
•
|
security concerns
|
|
|
•
|
adverse weather such as rainy season
|
|
|
•
|
labor disputes
|
|
|
•
|
uncertain or unpredictable political and economic
environments,
|
|
|
•
|
war and civil disturbances,
|
|
|
•
|
changes in laws or policies,
|
|
|
•
|
mining policies,
|
|
|
•
|
monetary policies,
|
|
|
•
|
unlinking of rates of exchange to world market
prices,
|
|
|
•
|
environmental regulations,
|
|
|
•
|
labor relations,
|
|
|
•
|
return of capital,
|
|
|
•
|
taxation,
|
|
|
•
|
delays in obtaining or the inability to obtain necessary
governmental permits,
|
|
|
•
|
Governmental seizure of land or mining
claims,
|
|
|
•
|
limitations on ownership,
|
|
|
•
|
institution of laws requiring repatriation of
earnings,
|
|
|
•
|
increased financial costs,
|
|
|
•
|
import and export regulations, and
|
|
|
•
|
Establishment of foreign exchange
regulations.
|
Any such changes may affect the Company’s current miningoperations
and ability to undertake exploration activities in respect of present and future
properties in the manner currently contemplated, as well as its ability to explore and
eventually develop and operate those properties in which it has an interest or in
respect of which it has obtained exploration rights to date. Certain changes could
result in the confiscation of property by nationalization or expropriation without fair
compensation.
There are uncertainties as to title matters in the mining industry.
Any defects in such title may cause the Company to forfeit its rights in mineral
properties and could jeopardize its business operations.
There are uncertainties as to title matters in the mining industry. If
the title to or the Company’s rights of ownership in its properties, prospects
and/or claims are challenged or impugned by third parties, or the
25
properties, prospects and/or claims in which it has an interest are
subject to prior transfers or claims, such title defects could cause the Company to
loose its rights in such properties. If the Company looses its rights in and to any of
its mineral properties, its business operations could be jeopardized. The
Company may not have the financial resources to protect and assert its legal claims in
such properties.
The Company’s current and planned operations require permits
and licenses from various governmental authorities. If the Company is unable to obtain
and maintain such requisite permits, licenses and approvals, its business operations
and ability to become profitable may be adversely affected.
The Company’s current and planned operations require permits and
licenses from various governmental authorities. Such permits and licenses are subject
to change in regulations and in various operating circumstances. The Company cannot
assure that it will be able to obtain or maintain in force all necessary permits and
licenses that may be required to conduct exploration or commence construction or
operation of mining facilities at properties to be explored or to maintain continued
operations at economically justifiable costs. Further, certain of the Company’s
mineral rights and interests are subject to government approvals. In all such cases
such approvals are, as a practical matter, subject to the discretion of the South
African government or governmental officials. No assurance can be given that the
Company will be successful in obtaining any or all of such approvals. The
Company’s inability to obtain and maintain the requisite permits, licenses and
approvals could materially and adversely affect its operations and ability to become
profitable.
Gold prices can fluctuate on a material and frequent basis due to
numerous factors beyond the Company’s control. The Company’s ability to
generate profits from operations could be materially and adversely affected by such
fluctuating prices.
The profitability of the Company’s current and future gold mining
operations is significantly affected by changes in the market price of gold. Between
January 1, 2006 and December 31, 2007, the “fixed price” for gold on the
London Exchange has fluctuated between $608.40 and $841.10 per ounce. Gold prices
fluctuate on a daily basis and are affected by numerous factors beyond the
Company’s control, including:
|
|
•
|
level of interest rates,
|
|
|
•
|
rate of inflation,
|
|
|
•
|
central bank sales, and
|
|
|
•
|
world supply of gold
|
Each of these factors can cause significant fluctuations in gold prices.
Such external factors are in turn influenced by changes in international investment
patterns and monetary systems and political developments. The price of gold has
historically fluctuated widely and, depending on the price of gold, revenues from
mining operations may not be sufficient to offset the costs of such
operations.
Gold is sold in South Africa in South African Rands. If applicable
currency exchange rates fluctuate the Company’s revenues and results of
operations may be materially and adversely affected.
The Company exclusively sells its gold to The Rand Refinery Ltd. which
is a South African corporation and the world’s largest gold refinery. Such sales
are paid for with South African Rands. The Company also incurs a significant amount of
its expenses which are payable in South African Rands. As a result of the required
utilization of the South African Rand, the Company’s financial performance is
affected by fluctuations in the value of the South African Rand to the U.S. Dollar. At
the present time, the Company has no plan or policy to utilize forward contracts or
currency options to minimize this exposure, and even if these measures are implemented
there can be no assurance that such arrangements will be available, be cost effective
or be able to fully offset such future currency risks.
Dependence upon Key Executives and Employees
The Company’s success depends to a great extent upon the continued
successful performance of key executives and employees in general and specifically Mr.
Michael McChesney. Mr. McChesney is presently employed by the Company as its President
and Chief Executive Officer. Mr. McChesney also serves as one of
26
the
Company’s directors. If Mr. McChesney and certain other present key executives
and employees are unable to perform their duties for any reason, the Company’s
ability to operate in South Africa will be materially adversely effected. The Company
does not have a key man life insurance policy on the life of Mr. McChesney or any other
key executives and employees.
Risks Related to the Ownership of the Company’s
Stock
There is a limited market for the Company’s common stock. If a
substantial and sustained market for the Company’s common stock does not develop,
the Company’s stockholders may have difficulty selling, or be unable to sell,
their shares.
The Company’s common stock is presently traded in the
over-the-counter market and is quoted on the “Pink Sheets”. There is only a
limited and sporadic market for the Company’s common stock and there can be no
assurance that this market will be maintained or broadened. If a substantial and
sustained market for the Company’s common stock does not develop, the
Company’s stockholders may have difficulty selling, or be unable to sell, their
shares.
The Company has filed its registration statement to register its common
stock under the Securities Exchange Act of 1934 in order to meet the current
requirements for quotation on the OTC Bulletin Board. The Company’s stock can be
quoted on the OTC Bulletin Board if, and only if:
|
|
•
|
The Securities and Exchange Commission has no further
substantive comments on the Company’s registration statement,
and
|
|
|
•
|
a broker-dealer files a form 211 with the NASD to permit
the Company’s common stock to be quoted on the OTC Bulletin Board
and the broker is granted the right to quote the Company’s
stock.
|
Substantial sales of the Company’s common stock could cause
stock price to fall.
As of March 24, 2008, the Company had outstanding 9,377,986 shares of
common stock of which approximately 4,287,986 shares are considered “restricted
securities” as that term is defined under Rule 144 promulgated under the
Securities Act of 1933. These restricted shares are eligible for sale under Rule 144 at
various times and none of which are currently eligible for sale under Rule 144. No
prediction can be made as to the effect, if any, that the sales of shares of common
stock or the availability of such shares for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial amounts of
the Company’s common stock may be sold in the public market may adversely affect
prevailing market prices for the common stock and could impair the Company’s
ability to raise capital through the sale of its equity securities.
The Company has a significant number of shares authorized but
unissued. These shares may be issued without stockholder approval. Significant
issuances of stock would further dilute the percentage ownership
of
the Company’s current
stockholders and could likely have an adverse impact on the market price of the common
stock.
As of March 24, 2008, the Company has an aggregate of 15,622,014 shares
of Common Stock authorized, but un-issued and not reserved for issuance for any
specific purposes. All of such shares of common stock may be issued without any action
or approval by the Company’s stockholders. Any such shares issued would further
dilute the percentage ownership of the Company’s current stockholders and would
likely have an adverse impact on the market price of the common stock.
The Company does not intend to pay dividends in the near
future.
The Company’s board of directors determines whether to pay
dividends on the Company’s issued and outstanding shares. The declaration of
dividends will depend upon the Company’s future earnings, its capital
requirements, its financial condition and other relevant factors. The Company’s
board does not intend to declare any dividends on the Company’s shares for the
foreseeable future. The Company anticipates that it will retain any earnings to finance
the growth of its business and for general corporate purposes.
27
Possible classification of the Company’s securities as a
“Penny Stock”.
By virtue of Rule 3a51-1 of the Securities Exchange Act of 1934 (the
“Act”), if the Company’s common stock has a price of less than $5.00
per share, it will be considered a “penny stock”. The prerequisites
required by broker-dealers engaging in transactions involving “penny
stocks” have discouraged, or even barred, many brokerage firms from soliciting
orders for certain low priced stocks. The Company’s common stock may not be
suitable as collateral for a margin account or eligible as collateral for any
loan.
Still further, with respect to the trading of penny stocks,
broker-dealers have an obligation to satisfy certain special sales practice
requirements pursuant to Rule 15g-9 of the Act, including a requirement that they make
an individualized written suitability determination for the purchase and receive the
purchaser’s written consent prior to the transaction.
Still even further, such broker-dealers have additional disclosure
requirements as set forth in the Securities Enforcement Act Remedies and Penny Stock
Reform Act of 1990. These disclosure requirements include the requirement for a
broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks of the
penny stock market.
Still even further, a broker-dealer must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and the monthly account
statements showing the market value of each penny stock held in the customer’s
account.
Accordingly, the above penny stock regulations and the associated
broker-dealer requirements will have an adverse effect on the market liquidity of the
Company’s common stock and the ability of any present and prospective shareholder
investors to sell their securities in the secondary market.
However, regardless of the price of the Company’s stock, in the
event the Company has net tangible assets in excess of $2,000,000 and if the Company
has been in continuous operation for at least three (3) years, or $5,000,000, if the
Company has been in continuous operation for less than three (3) years, Rule 3a51-1(g)
of the Act will preclude the Company’s common stock from being classified as a
penny stock.
28
|
Item 2.
|
Description of Properties
|
The properties of the Company are in the form of the right to extract
the minerals from such properties (the “mineral rights” or
“claims”). The South African Mineral Act 50 of 1991 defines
“claims” as “mineral rights held in the name of the claim
holder”. Under South African Law, a “Mining Title” refers to a claim
license which is assigned a license number. A summary of the Company’s
“Mining Titles” and individual “Mining Claims” are listed in
Exhibit 99.2 of this registration statement.
The Company’s properties or mineral rights are all located in the
Barberton Greenstone Belt area of the Mpumalanga Province in South Africa. Unless
otherwise indicated in the more detailed description of the Company’s properties,
all such properties have adequate access to support the Company’s mining
operations. The required source of power utilized or to be utilized with respect to
each of the Company’s properties is presently available from the national South
African power company. These properties are owned by the Company’s subsidiary
corporations; they comprise an area of approximately 30km x 20km and are summarized as
follows:
|
|
|
|
|
|
|
|
|
Company
|
|
Mining Title Claims
|
|
|
|
|
|
No. of
Claims
|
Area (acres)
|
|
|
|
Eastern Goldfields
Limited
|
|
14,518
|
21,337
|
|
|
|
Eastern Goldfields
Exploration (Pty) Ltd.
|
|
6,772
|
9,953
|
|
|
|
Centurion Mining Company
(Pty) Ltd.
|
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1,367
|
2,009
|
|
|
|
Makonjwaan Imperial
Mining Company (Pty) Ltd.
|
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1,040
|
1,529
|
|
|
|
Total
|
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23,697
|
34,828
|
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|
|
|
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In addition, the above subsidiary companies have 282 acres of surface
rights and 67 acres of dump permits on above properties.
Because of these properties’ proximity to proven geological
structures favorable for the concentration of mineralization, the Company believes that
certain of these properties may contain feasible mineralization which will be
determined via the earlier described exploration programs. The following are
descriptions of these various properties:
South African Mining Legislation
On May 1, 2004, the South African “Mineral and Petroleum Resources
Development Act 28” of 2002
(MPRDA)
came into effect. In accordance with Schedule II, “Transitional
Arrangements, Continuation of Old Order Mining Right”,
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(1)
|
Any
old order mining right in force immediately before the MPRDA took
effect continues in force for a period not exceeding five years from
the date on which the MPRDA took effect, subject to the terms and
conditions under which it was granted or issued.
|
|
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(2)
|
A
holder of an old order mining right must lodge the right for conversion
within the 5 year period referred to in (1) at the office of the
Regional Manager together with:
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(a)
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The prescribed
particulars of the holder;
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(b)
|
a
sketch plan or diagram depicting the mining area for which the
conversion is required, which area may not be larger than the area for
which he or she holds the old order mining right;
|
29
|
|
(c)
|
The
name of the mineral or group of minerals for which he or she holds the
old order mining right;
|
|
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(d)
|
An
affidavit verifying that the holder is conducting mining operations on
the area of the land to which the conversion relates and setting out
the periods for which such mining operations will be
conducted;
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(e)
|
a
statement setting out the period for which the mining right is required
substantiated by a mining work program which, in the case of Lily, will
contain the results of and decisions pertaining to the Prefeasibility
study;
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(f)
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a prescribed social and
labor plan;
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(g)
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Information as to whether or not the old order mining
right is encumbered by any mortgage bond or other right registered at
the Deeds Office or Mining Titles Office;
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(h)
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a
statement setting out the terms and conditions which apply to the old
order mining right;
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(i)
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The
original title deed in respect of the land to which the old order
mining right relates.
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(j)
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The
original old order right and the approved environmental management
program and
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(k)
|
An
undertaking that, and the manner in which, the holder will give effect
to 2(d) and 2(f).
|
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(3)
|
The
Minister must convert the old order mining right into a new order
mining right if the holder of the old order mining right;
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(a)
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complies with the requirements of (2);
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(b)
|
Has
conducted mining operations in respect of the right in
question;
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(c)
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indicates that he or she will continue to conduct such
mining operations upon the conversion of such right;
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(d)
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Has
an approved environmental management program; and
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(e)
|
Has
paid the prescribed conversion fee.
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(4)
|
If
the holder fails to lodge the old order mining right for conversion
before the expiry of the period referred to in (1), the old order
mining right ceases to exist.
|
Surface Rights and Servitudes
Lily Mine - There are two servitudes the equivalent of easements that
allow use of the land belonging to other parties in the area. These are the canal
immediately east of the Lily Mine (Low’s Creek Irrigation Board) and the power
line to the South of the Lily Mine (Eskom – the national power
company).
Water Rights
Lily Mine - The Company has a right to draw 600m
3
of water
from the Shiyalongubu River for use at the processing plant and permission was obtained
during 2007 from the Low’s Creek Irrigation Board to abstract an additional
900m³ water from their canal for use at the mine site. Whilst the registration of
the water right has been approved, the Company is still waiting for the license from
the Department of Water Affairs to be granted.
30
Lily Mine Area
The Lily Mine and its surrounding properties are owned by the
Company’s subsidiary corporation, Makonjwaan Imperial Mining Company (MIMCO), and
are located in the eastern area of these properties. Located adjacent to a major
geological structure known as the Lily fault, this mine has displayed significant gold
mineralization over a strike length of 2,000m and a depth of at least to 600m from
surface. The ore body is wide in places (plus 15m) and is known to have concentrations
with visible gold.
The extensions along the initial mineralization within the existing
mining right area have not been fully explored and there exists the possibility of
satellite deposits in the immediate vicinity of the Lily Mine. The property’s ore
is pyrrhotite hosted and is only partially refractory which allows for standard
processing techniques and relatively high percentage metal recoveries (between 88% to
92%). The infrastructure in and about the mine is excellent as evidenced by a good road
system, nearby electrical power grid and adequate water supplies. The local community
has a direct interest in the mine through the completed Black Economic Empowerment
(“BEE”) ownership and is supportive of further development.
A number of other ore bodies are also owned by the Company’s
subsidiaries in the vicinity of the Lily Mine, which include the Makonjwaan Mine and
the Imperial Mine, both of which have limited immediate potential in that the ore is
very refractory. The impending acquisition of the nearby Barbrook Mine may alter the
focus on exploration if a processing plant capable of handling sulphidic/graphitic ores
is contemplated.
The Lily Mine and infrastructure are situated on land owned by the
State. The Company is required to negotiate with the landowner for the surface use of
any of this land, even though it is within the boundaries of the mining
title.
Application for the use of the area being used for dumping, offices,
etc. was submitted to the Department of Land Affairs (since this is State land) in
January 2003. A separate request was submitted to Chief Dlamini Kuseni (representing
the Lomshiyo Tribal Authority) for the use of the land for the explosive magazine as
this was situated on land owned by the Lomshiyo Trust.
The existing Mining License at Lily (No. 15/2003) was granted on the May
26, 2003. It is valid for 7 years (
i.e.
until May 25, 2010) or if the mine ceases production and terminates
operations prior to this date. This license was granted in accordance with Section 9 of
the Minerals Act 50 of 1991
.
In terms of the new legislation this license is termed an "old order
right" as it was granted in terms of previous legislation. The MPRD Act requires that
all old order rights be converted to "new order rights" within the 5 year period from
May 2004. A prerequisite for such conversion is a 15% ownership by BEE participants by
2009 and 26% ownership by 2014.
The South African MPRD Act No. 28, 2002 Chapter 4 Section 9 provides
that every party who has applied for a mining right must conduct an environmental
impact assessment and submit an Environmental Management Program within 180 days of the
date on which the party is notified by the Regional Manager to do so. This EMP must
address the following items:
|
|
1.
|
The establishment of baseline information concerning the
affected environment to determine protection, remedial measures and
environmental management objectives;
|
|
|
2.
|
An investigation, assessment and evaluation of the
impact of its proposed prospecting or mining operations on:
|
|
|
b.
|
the socio-economic conditions of any person who might be
directly affected by the prospecting or mining operation;
and
|
31
|
|
c.
|
any national estate referred to in section 3(2) of the
National Heritage Resources Act, 1999 (Act No.25 of 1999), with the
exception of the national estate contemplated in section 3(2)(i)(vi)
and (vii) of that Act.
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|
|
3.
|
The development of an environmental awareness plan
describing the manner in which the applicant intends to inform its
employees of any environmental risks which may result from their work
and the manner in which the risks must be dealt with in order to avoid
pollution or the degradation of the environment; and
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|
|
4.
|
A description of the manner in which it intends
to:
|
|
|
a.
|
modify, remedy, control or stop any action, activity or
process which causes pollution or environmental degradation;
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|
|
b.
|
contain or remedy the cause of pollution or degradation
and migration of pollutants; and
|
|
|
c.
|
comply with any prescribed waste standard or management
standards or practices.
|
While the existing mining license has been granted for the open pit
operations until 2009 the Environmental Management Program (EMP) has been amended for
the new underground mine. This amendment included the submission of a social and labor
plan. Independent consultants, Earth Science Solutions (“ESS”) were engaged
to amend the company's Environmental Management Programme Report (the
“EMPR”) and has applied for the necessary conversion. This amended EMPR was
submitted to the local mining authorities on August 28, 2006. The total cost of
compiling and submission of this report was R268,000 (approximately $38,000 at the then
exchange rate of 7 Rands to 1 US Dollar).
Sheba Hills Area
This area is owned by the Company’s subsidiary, Eastern Goldfields
Exploration (“EGE”), and contains a large prospective block of ground
located to the west of the Lily Mine. These Sheba Hills Area mineral claims are located
in the north central Barberton Mountain Lands, Mpumalanga an approximate 45 minutes
drive from the city of Nelspruit.
These claims consist of 36
blocks containing 6,901 base and precious metal claims. These claims are referred to as
the Sheba Hills Claims Group and encompass an area between the currently operational
Sheba and Lily gold mines. These claims are contiguous to claims owned by the Centurion
subsidiary of the Company.
This property has no known mineral deposits but covers three major
geological structures including the Lily fault, the Bonanza fault and the Sheba fault.
While this area has not been explored in the past 25 years, the combination of its
known geological structures and modern exploration techniques makes this area worthy of
exploration.
This area of approximately 4,000 hectares (approximately 10,000 acres)
is uninhabited bush of rolling hills and valleys. Exploration of the area would
therefore be uncomplicated and has virtually no effect on other interested or affected
parties. The Company has planned an extensive exploration program over the next five
years involving geochemical and geophysical exploration techniques to be followed up by
on site sampling and drilling. The program will be based on the above mentioned three
major geological structures with a view to identifying significant ore
bodies.
The nature of ownership of these claims as earlier described do not
constitute ownership of the land but are just considered “mineral rights”
or “mineral claims”. These “mineral rights” or “mineral
claims” permit the extraction and processing of the ore bodies contained in the
areas subject to the claims. The actual legal ownership of the land resides with the
Republic of South Africa.
Centurion Area
These properties are owned by the Company’s subsidiary, Centurion
Mining Company (Centurion) and are located immediately west of the Sheba Hills area.
The Centurion properties are sandwiched between the Sheba Hills and the renowned Sheba
Mine which contains one of the highest grade ore bodies in the world.
The Centurion properties include the dormant Bonanza Mine, a medium
grade mine with 100,000 ounces of historical production. This mine which is adjacent to
the neighboring Sheba Mine owned by the Metorex
32
subsidiary, Barberton Mines Limited, will be tested for depth extensions
of the ore body. While it is known that almost all gold deposits in the Barberton
Goldfields continue at depth, the Bonanza Mine has never been tested and it is
anticipated that an extension at depth of this ore body exists. Accordingly, the
possibility exists to prove up a significant ore body which, if viable, can be
processed at the Centurion Mine site where the basic infrastructure currently exists.
In this event, however, a new metallurgical processing plant would be required have to
be constructed.
Further mineralization may exist on the Sheba fault where an intensive
exploration program is planned by the Company as this structure contains numerous
deposits to the west of the Centurion property. In this same area, there are two other
major producers; the Sheba Mine and the Fairview Mine. Exploration is also planned on
the Golden Value block of properties sandwiched between the Sheba Mine and the Consort
Mine. Again this area consisting of approximately 200 hectares (approximately 500
acres) has not been subjected to modern exploration techniques in the past 25
years.
With respect to a contemplated processing facility for the Centurion
Area Claims, no planning or feasibility study has been initiated with regard to the
development of a processing facility at this location. Accordingly, the Company at this
time has no identifiable costs or projections with this contemplated processing
facility. The Company, however, has a planned exploration program for this area which
is described in more detail elsewhere in this registration statement.
Worcester Mine Area
The Worcester Mine is presently a dormant mine owned by the
Company’s subsidiary, Eastern Goldfields Limited (EGL) and is located in the
center of a large block of properties on the Jamestown schist belt in the Barberton
Goldfields. This is the western most property and is surrounded by numerous visible
surface gold mineralization or small deposits in the area.
The Worcester Gold Mine claim is located 19 kilometers north of the town
of Barberton, adjacent to the main paved road to the city of Nelspruit. It is also
situated south of the Noord Kaap River. There are power lines to both the mine site and
the plant. Perennial water is available from the Noord Kaap River. The rainfall in a
normal year is about 800 to 900 millimeters. At the mine site, there are well
maintained office buildings, a crusher set-up that requires maintenance, an Atlas Copco
compressor and security personnel. The processing plant has a 6,000 ton per month
capacity and is located approximately 400 meters north of the crushing area.
The Worcester Mine is a substantial ore body with approximately 200,000
ounces of historical production. This ore body is approximately 300 meters in length
and has been mined to a depth of approximately 200 meters. Initial drilling failed to
clearly locate the depth extension of the ore body. However, further drilling completed
during 2007 has lead to a better understanding of the structural controls and the
latest drilling phase will continue to investigate the down dip potential. Current
indications are that at least 200,000 ounces of mineralization may be located below the
old workings. The strike extensions of Worcester Mine have also been investigated and
mapped. The geological relationship between Worcester and other larger targets within
the same claim block area is better understood and will guide further exploration. Some
regional exploration involving geochemical and geophysical techniques has already been
completed and will be followed up by sampling and diamond drilling during 2008. The
application for the conversion of the “old mining rights” for this property
to the “new mining rights” has been submitted and is presently being
processed.
It is presently anticipated that it will cost approximately $280,000 to
conduct a drilling program to ascertain the economic prospects of this mine. It is
further anticipated that this drilling program is to be completed by the end of 2008
and the related mine plan and feasibility study to be completed in the first half of
2009.
With respect to the utilization of the existing facilities at this mine
and a contemplated expansion of the production capabilities of this facility, until we
have completed the mine plan and feasibility study, the Company cannot ascertain the
costs of this undertaking.
Other Company Properties
The Company’s subsidiary, EGL, also owns a narrow block of
properties to the south west of the Sheba Mine that are largely inaccessible by road
and appear to have limited geological potential. This block of properties of
approximately 1,800 hectares (approximately 4,500 acres) will only be subjected, if at
all, to a low
33
cost
exploration program prior to initiating any follow up work. These properties are also
the subject of a license application for conversion to “new mining
rights”.
|
Item 3.
|
Legal Proceedings
|
The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be threatened or contemplated.
|
Item 4.
|
Submission of Matters to a Vote of Security
Holders
|
None
PART II
|
Item 5.
|
Market for Common Equity, Related Stockholder Matters
and Small Business Issuer Purchases of Equity Securities
|
Market Information
The Company’s common stock is presently listed for trading with a
trading symbol “EGDD” on the “Pink Sheets,” market, a quotation
service that displays sale prices, and volume information for transactions with market
makers in over-the-counter (“OTC”) equity securities. All such quotations
reflect inter-dealer prices, without retail mark-up, markdown or commissions and may
not necessarily represent actual transactions. Trading in the Company’s common
stock is limited and sporadic and there can be no assurance that any liquid trading
market will develop or, if it does develop, that it can be maintained.
Based on information obtained from the Pink Sheets, the high and low bid
quotations for the common stock for each of the quarters of our fiscal years ended
December 31, 2006 and 2007 are set forth in the table below:
|
|
Quarter ended 12/31/05
|
(1)
|
N/A
|
N/A
|
|
|
Quarter ended 3/31/06
|
$5.65
|
$3.25
|
|
|
Quarter ended 6/30/06
|
$6.50
|
$6.50
|
|
|
Quarter ended 9/30/06
|
$5.25
|
$5.25
|
|
|
Quarter ended 12/31/06
|
$6.40
|
$6.40
|
|
|
Quarter ended 3/31/07
|
$6.05
|
$6.05
|
|
|
Quarter ended 6/30/07
|
$5.90
|
$5.90
|
|
|
Quarter ended 9/30/07
|
$5.85
|
$5.85
|
|
|
Quarter ended 12/31/07
|
$5.25
|
$5.25
|
|
|
(1)
|
Quotation information is not applicable prior to
December 30, 2004, in that the Company was only listed on the Pink
Sheets for trading on December 30, 2004.
|
Currently, there are seven broker-dealers making a market in the
Company’s common stock. On March 28, 2008, the closing bid and ask prices of our
common stock as published on the Pink Sheets were $4.00 and $4.95 per share,
respectively.
34
Holders
As of March 28, 2008, there were approximately 78 holders of record of
the Company’s Common Stock.
Dividends
The Company has not paid any cash dividend to date, and it has no
intention of paying any cash dividends on its common stock in the foreseeable future.
The declaration and payment of dividends is subject to the discretion of the
Company’s Board of Directors and to certain limitations imposed under the Nevada
Statutes. The timing, amount and form of dividends, if any, will depend on, among other
things, our results of operation, financial condition, cash requirements and other
factors deemed relevant by our Board of Directors.
Recent Sales
The Company had the following stock issuances as described below. All
such shares were sold by the officers and directors of the Company and no underwriters
were utilized.
|
|
1.
|
On
September 30, 2005, 630,000 shares of restricted common stock at $4.365
per share were issued for cash for a total offering of $2,750,000 less
issue costs of $631,710 totaling $2,118,190.
|
|
|
2.
|
On
October 1, 2005, the Company issued 2,736,247 shares of restricted
common stock to the Class A Preference shareholders of the
Company’s South African subsidiary corporation, Eastern
Goldfields S.A. (Pty) Ltd. (“EGSA”) via a share exchange
for 2,736,247 Class A Preference shares of EGSA.
|
|
|
3.
|
On
December 5, 2006, 400,000 shares of restricted common stock at $5.00
per share were issued for cash for a total offering of $2,000,000 less
offering costs of $160,000 totaling $1,840,000.
4.
On May 17, 2007, 521,739 shares of restricted common stock at $5.75 per
share were issued for cash for a total offering of $3,000,000 less
offering costs of $213,400 totaling $2,786,600.
|
Exemption from Registration
With respect to the issuance of 630,000 common shares listed at 5.1
above of this Item 5, the issuance of 400,000 common shares listed at 5.3 above of this
Item 5 and the issuance of 521,739 common shares listed at 5.4 above of this Item 5,
such issuances were made in reliance on the private placement exemptions provided by
Section 4(2) of the Securities Act of 1933 as amended, (the “Act”) and
Nevada Revised Statutes Sections 78.211, 78.215, 78.3784, 78.3785 and 78.3791
(collectively the “Nevada Statutes”).
With respect to the issuance of the 2,736,247 common shares listed at
5.2 above of this Item 5, such issuance was also made in reliance upon the private
placement exemptions provided by Section 4(2) of the Act and the Nevada
Statutes.
Basis for Reliance Upon Exemption from Registration
The Company has relied upon the private placement exemption from
registration provided by Section 4(2) of the Securities Act 1933 as amended (the
“Act”). These shares were issued pursuant to Section 4(2) of the Act which
exempts from registration transactions by an issuer not involving a public offering.
This offering exemption is available to any issuer but prohibits general solicitation
or advertising. In addition, each purchaser received information regarding the Company
that was substantially equivalent to that found in a registration statement. Each
prospective purchaser had full and unrestricted access to the Company, its books, and
records, and the opportunity to ask questions of the Company’s management and
receive answers to their questions.
35
Further, each purchaser gave the Company assurances that it was
experienced and sophisticated in making investments of this type and that they were
able to make the investment decision and could afford the total loss of their
investment.
In each instance, each of the share purchasers had access to sufficient
information regarding the Company so as to make an informed investment decision. More
specifically, each purchaser signed a Share Purchase Agreement, with respect to their
financial status and investment sophistication wherein they warranted and represented,
among other things, the following:
|
|
1.
|
That
they had the ability to bear the economic risks of investing in the
shares of the Company.
|
|
|
2.
|
That
they had sufficient knowledge in financial, business, or investment
matters to evaluate the merits and risks of the investment.
|
|
|
3.
|
That
they had a certain net worth sufficient to meet the suitability
standards of the Company.
|
|
|
4.
|
That
the Company has made available to them, his counsel and his advisors,
the opportunity to ask questions and that they have been given access
to any information, documents, financial statements, books and records
relative to the Company and an investment in the shares of the
Company.
|
|
Item 6.
|
Management’s Discussion and Analysis or Plan of
Operation
|
In keeping with the Company objective, described in an earlier section,
namely pursuing a strategy of growth in our mineral reserves through optimization of
current operations, exploration and prudent acquisitions, the Company will discuss the
following actions and strategies implemented or anticipated in 2008:
|
|
•
|
Expansion of the Lily Mine operation and success of
drilling programs to date
|
|
|
•
|
Acquisitions – specifically Barbrook
Mine
|
Growth And Expansion
Lily Mine
The primary focus of the company, to the extent that the Company is
able, is to develop the underground mine at Lily. Primary development of the initial
underground section began in July 2007 and first production is expected in the fourth
quarter of 2008. This underground tonnage will be treated at the current Makonjwaan
mill for the next two years. The acquisition of the nearby Barbrook Mine, discussed
below, with a dormant processing plant has altered the original strategy of building a
new plant at the Lily Mine site. It is planned to refurbish the Barbrook plant by the
end of 2008 and be in operation in early 2009.
The Lily Main Pit opencast operation which commenced in 2000 was
completed in September 2006. Production from the additional discovery of open pit
reserves along the eastern strike extension (Lily East and Rosie’s Fortune)
commenced immediately thereafter to give the Company a continuous production life of
mine up until October 2008.
The following table summarizes the tons milled, gold produced and
operating profit (loss) for the life of the open pit operations to date.
|
Period
|
Ore Milled
|
Au Produced
|
Average Grade Produced
|
Operating Profit/(loss)
|
|
Year
|
mths
|
t
|
kg
|
oz
|
g/t
|
oz/t
|
US$
|
|
2000/01
|
9
|
120,000
|
240
|
7,700
|
1.99
|
0.062
|
338,087
|
|
2001/02
|
12
|
154,000
|
309
|
9,900
|
2.00
|
0.063
|
647,117
|
|
2002/03
|
12
|
153,000
|
343
|
11,000
|
2.36
|
0.074
|
1,049,173
|
36
|
2003/04
|
12
|
131,000
|
241
|
7,700
|
1.84
|
0.057
|
(541,559)
|
|
2004
|
9
|
116,000
|
230
|
7,400
|
1.98
|
0.062
|
(743,916)
|
|
2005
|
12
|
168,000
|
398
|
12,800
|
2.37
|
0.074
|
420,522
|
|
2006
|
12
|
166,200
|
377
|
12,100
|
2.27
|
0.071
|
2,276,493
|
|
2007
|
12
|
160,000
|
322
|
10,400
|
2.32
|
0.072
|
1,010,599
|
|
TOTAL
|
|
1,168,200
|
2,460
|
79,000
|
2.11
|
0.064
|
4,456,516
|
|
|
(1)
|
Prior to March 31, 2004, 12 month accounting periods
were from April 1 to March 31
|
|
|
(2)
|
2005 represents the first year of change to the
accounting period or fiscal year based on a calendar year.
|
Potentially 9,000 oz remain in the Rosie’s Fortune Pit for
extraction in the three-quarters of 2008. Thereafter the Company will require, as
reported in previous reports, working capital financing to meet the requirements of its
future short term business plan.
The extensive exploration diamond drilling programs completed since 2005
up to the end of 2007 have successfully increased the mineral reserves of the Lily Mine
to the extent that a full Bankable Feasibility Study has been completed giving the
entire project a very positive NPV and IRR at a conservative medium term gold price of
US$800/ounce. Eighty two diamond drill holes (with wedges), totaling in excess of
21,000 meters of drilling, have increased measured and indicated estimated reserves
from 210,000 ounces at the end of 2004 to an estimated 950,000 ounces by the end of
2007. The discovery cost is remarkably low at an estimated ±US$1.50 per ounce
during this exploration period.
To the extent that we are able and provided that we can implement our
current plans, we anticipate that exploration will continue on the mine property both
from surface and later from underground as the mine develops in depth to continue
increasing the reserve potential.
There can be no assurance that the Company will be successful in
implementing its plans or the plan of operations described in this Form 10-KSB. The
Company faces many risks and uncertainties and has only a limited history of
operations. See Item 1A., “Factors That May Affect Future
Results.”
Acquisitions
As previously stated, the Company intends to make strategic acquisitions
in the next few years with the objective of increasing its production to 100,000
oz/annum. In this regard various opportunities are continually being investigated.
External projects that have or are being considered at present include the Barbrook
Mine.
Barbrook Mine
As previously disclosed in our Form 8-K, on February 21, 2008 we entered
into an agreement to purchase Barbrook Mine. This offer was accepted by the seller
corporation, Caledonia Mining Corporation. The Company has not, as of this date,
completed the acquisition of the Barbrook Mine. The contemplated acquisition of the
Barbrook Mine is subject to the Company’s completion of due diligence, the
Company’s receipt of sufficient financing, and the satisfaction of other
customary requirements necessary to complete the contemplated acquisition.
Currently and based on the due diligence that the Company has completed
to date, the Company believes that the Barbrook Mines Limited holds title to a Mining
Authorization covering an estimated 2,286 hectares which hosts a consolidation of
numerous small mines and claims in the historically renowned Barberton gold mining
district of South Africa. Mining at Barbrook commenced in the 1880’s. In 1996
exploration significantly improved the definition of estimated main ore zones.
Treatment of refractory ores commenced in July 1996 and continued until July 1997. A
total of 166,400 tons of sulphide ore was treated at an average rate of ±14,000
tons per month. 311 kg of gold was produced at a recovered grade of 1.87g/t. Both the
head grade and
37
metallurgical recovery achieved over this period (~40%) were below
target and the mine was put on care and maintenance pending a re-evaluation of the
mining method and metallurgical process.
Historic Production – Barbrook Mine
|
Period
|
Tonnage Treated
T
|
Gold Produced
kg
|
Gold Produced
Oz
|
Recovered Grade
g/t
|
|
Oct ’89 – Jan ‘91
|
220,630
|
500
|
16,075
|
2.31
|
|
Nov ’93 – Jan ‘95
|
490,533
|
645
|
20,740
|
1.31
|
|
Feb ’95 – May ‘95
|
81,130
|
131
|
4,210
|
1.62
|
|
Jul ’96 – Jul ‘97
|
166,397
|
311
|
10,000
|
1.87
|
|
2006
|
74,904
|
224
|
7,200
|
4.64
|
|
Total Production
|
1,033,594
|
1,711
|
58,225
|
1.66
|
Note: Information taken from Venmyn (Pty) Ltd Technical Statement
January 2007
Based on the information we have available and provided that current
trends continue, we believe that the Barbrook Mine looks promising. Various
metallurgical test work took place between 1997-2007 which showed that improvements to
gold recoveries are achievable. A complete re-evaluation was done in 2002. At that
date, this lead to an estimate of Proven and Probable Ore Reserves amounting to 176,000
tons at an insitu grade of an estimated 6.0 g/t gold. All quoted Resource and Reserve
estimates will be re-evaluated by EGL’s competent staff in time as additional
information becomes available
The present state of the mine includes extensive (±40km)
underground development above “10 Level” adit (600m amsl) up to surface.
Measured and Indicated Mineral Reserves to 400 metres below 10 Level are reported at an
estimated 322,000 oz of gold. A complete but partially operational plant remains
requiring refurbishment. Barbrook lies approximately 7km from Lily Mine on a flat well
maintained dirt road.
If we are successful in obtaining sufficient financing on reasonable
terms and assuming that our due diligence review is completed and confirms our current
assessments, we intend to complete our efforts to acquire the Barbrook Mine. However,
there can be no assurance that we will be successful in these efforts.
Prospects for the Future:
Exploration
Other Properties
To the extent that we are able, we anticipate that geological
exploration will continue on the Worcester project area, the Bonanza project area and
other target locations, where drilling programs will be continued and where possible
completed. The outcome of these drilling programs is expected to result in the further
delineation of new ore bodies which can be developed for mining in the short term
future. To the extent that it is possible and if we are successful, our goal is to
produce an additional 20,000 oz/annum from a second operation. While we currently
believe that this goal is feasible, we cannot assure that we will achieve this goal or
the related objectives.
|
|
We anticipate that the acquisition of Barbrook may also
add to the exploration focus for 2008.
|
38
Requirement for Additional Capital
Based on our current estimates and subject to later evaluations that are
to be completed by management, we anticipate that our capital requirements can be
grouped into three areas:
|
|
•
|
Development of the Lily underground mine and new
processing plant
|
|
|
•
|
Exploration of the company’s minerals rights
including extensions to Lily and the Worcester project area
|
|
|
•
|
Partial financing of acquisitions.
|
The development of the underground mine at Lily is of primary importance
and the capital expenditure estimate for this project is US$70 Million. This will allow
for the development of the underground workings and the mine infrastructure as well as
the construction of a new processing plant at the Lily Mine site.
Ongoing exploration is expected to continue at the Worcester Mine and
the other target locations within the company’s mineral rights. In most cases
encouraging results have been obtained so far and a further amount of US$3.5 Million is
required for exploration purposes over the next 18 months.
The Company intends to make at least one acquisition in 2008 and will
require funds in order to secure such acquisition or to provide initial support for the
acquired operation. An amount of US$10 Million has been estimated for this purpose and
this estimate may be changed as we complete further reviews in light of new additional
information.
Accordingly the Company seeks to raise additional capital for its Lily
Mine underground development in the third quarter of 2008 in which the Company will
seek an additional $70 million in new capital. There can be no assurance that the
Company will be successful in raising any such additional new capital or, if it is
successful, that the additional new capital can be raised on terms that are reasonable
in light of the Company’s current circumstances.
The abovementioned capital raising is planned to take place
approximately 3 months from now. In the interim the company requires bridging finance
in order to maintain ongoing operations and meet its capital commitments.
Accordingly, a convertible bond facility is planned in April 2008 for
the raising of US$4 million for the abovementioned purposes. This interim funding is
necessary to implement the company’s plans prior to the main fund raising in the
third quarter of 2008. There can be no assurance that these efforts to raise additional
new capital will be successful.
Results of Operations for the 12 Months ended December 31, 2007 and
2006
A
summary of the Company’s operations, which arise only from work at its Lily Mine,
for the 12 month period ended December 31, 2007 compared with the same period for 2006
are given below.
Comparative 12 Months - 2007 vs 2006 Operational
Results
|
|
2007
|
2006
|
|
Ore Tons Milled
|
160,003
|
166,228
|
|
Yield – gram per ton
|
2.01
|
2.27
|
|
Gold Produced – oz
|
10,287
|
12,389
|
|
Gold Price - $/oz
|
$703
|
$602
|
|
|
|
|
|
Total Income*
|
$7,289
|
$7,420
|
|
Cost of Production*
|
($5,955)
|
($5,362)
|
|
Operating Income/(Loss)*
|
$1,334
|
$2,058
|
|
Operating Expense, net*
|
($2,738)
|
($2,549)
|
|
Net Income (Loss)*
|
($1,404)
|
($491)
|
*
Expressed in Thousands
39
Comparative Results for the 12 Months ended December 2007 and
2006
Revenues:
For the 2007 year covering twelve
months of commercial production from January 1, 2007 to December 31, 2007, the Company
produced 10,287 ounces of gold versus 12,389 ounces of gold for 2006, a decrease in
production of 17%. Conversely, the Company recorded revenues of approximately
$7,289,000 from the sale of gold versus revenues of approximately $7,420,000 for 2006,
which amounted to a decrease of approximately 2%. The factors affecting these
fluctuations in production and revenue were as follows:
|
|
•
|
From January to June 2007 oxide ore was mined from the
Lily east pit which contained excessive moisture leading to a viscosity
problem that prohibited the normal throughput of tons through the
processing plant. In July 2007 production began at Rosie's Fortune. The
presence of "old workings" in the Rosies' open pit resulted in lower
tons treated. The "old workings" are previously stopped out areas and
represent a loss of ore. In comparison, during 2006 higher grade
sulphide ore was mined from the Lily open pit. Despite this lower
production, revenues remained stable due to the increase in the gold
price.
|
|
|
•
|
Despite the lower production for 2007, revenues were
positively affected by an increase in the US Dollar gold price which
averaged $703 per oz of gold versus $602 per oz of gold for 2006, an
increase of approximately 17%.
|
While we believe that we were able to achieve some success in our
efforts, there can be no assurance that we will continue to achieve this success in the
future.
Production:
Cost of production increased
from approximately $5,362,000 in 2006 to approximately $5,955,000 in 2007, an increase
of 11%. This decrease was largely due to the high waste to ore strip ratio in both Lily
open pit and Rosies’ Fortune. Total waste tons mined for the December 2006 year
was 417,102 tons at a strip ratio of 2.5:1. Comparatively, the waste tons mined for the
December 2007 year was 1,345,310 tons at a strip ratio of 11.9:1. As a result, the
Company’s cost of production in 2007 was approximately $579 per oz of gold
produced. In 2006, however, the Company’s cost of production was $425 per oz of
gold produced.
Impact of Exchange Rate Differences for years ended December 31, 2007
and December 31, 2006:
Changes in exchange rates have a
significant impact on the comparability of our results for the years ended December 31,
2007 versus 2006. The average rates of exchange for the years ended December 31, 2007
and December 31, 2006 were SAR 6.9455 to $1 and SAR 6.6879 to $1, respectively –
approximately 3.9% weakening of the South African Rand against the US Dollar. Had this
exchange rate remained the same in 2007 as that of 2006, the results of our operations
arising from South African Rand transactions would have been approximately $24,000
higher.
Changes in exchange rates had a significant impact on the comparability
of our balance sheets for December 31, 2007 versus 2006. The rates of exchange as at
December 31, 2007 and December 31, 2006 were SAR 6.8620 to $1 and SAR 7.0290 to $1,
respectively – approximately 2.4% strenghtening of the South African Rand against
the US Dollar. Had this exchange rate remained the same in 2007 as that of 2006, our
total South African Rand based assets would have been approximately $310,979 lower.
This variation in the main relates to our property, plant and mine development
costs.
Operating Expenses:
The Company’s
operating expenses increased by approximately $189,000 to $2,738,000 mainly due to the
costs of compliance of the corporation in 2007 due to the listing requirements and the
costs involved in the corporation’s application to a higher listing on the OTC
Bulletin Board. Also, an expense of $182,000 was recorded in 2007 for minority interest
(2006 - $219,000).
Restructuring:
On March 28, 2008, EGSA
entered into a Convertible Loan Agreement. The agreement involves EGSA receiving
$3,981,932 (32,000,000 SA Rands) of proceeds. The loan principal can convert into 6.9%
of the total issued and outstanding shares of ordinary capital after the conversion of
the loan by EGSA. If EGSA is able to list its shares with JSE Limited (JSE) within six
months of the agreement date then no interest is due and payable. If EGSA is not able
to list its ordinary shares with the JSE within six months of the agreement date then
interest will accrue at the South African Prime Rate and be due and payable
immediately. If EGSA list its ordinary shares with JSE after six months due but before
twelve months of the agreement date, then interest will accrue and be paid on a monthly
basis until conversion or repayment of the loan. If EGSA has been unable to list
its
40
ordinary shares with JSE within twelve months of the agreement date,
then the lender can demand repayment of principal and accrued interest or conversion of
the debt into the corresponding shares of ordinary shares of EGSA.
|
Item 7.
|
Financial Statements
|
See
pages beginning with page F-1.
Item
8.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
|
Item 8A.
|
Controls and Procedures
|
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in company
reports filed or submitted under the Securities Exchange Act of 1934 (the
“Exchange Act”) is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in company
reports filed under the Exchange Act is accumulated and communicated to management,
including the Company’s Chief Executive Officer and Chief Financial Officer (the
“Certifying Officers”), as appropriate to allow timely decisions regarding
required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, the
Certifying Officers carried out an evaluation of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures as of December 31,
2007. Their evaluation was carried out with the participation of other members of the
Company’s management. Based upon their evaluation, the Certifying Officers
concluded that the Company’s disclosure controls and procedures were
effective.
The Company’s internal control over financial reporting is a
process designed by, or under the supervision of, the Certifying Officers and effected
by the Company’s Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of the Company’s financial
reporting and the preparation of the Company’s financial statements for external
purposes in accordance with generally accepted accounting principles. Internal control
over financial reporting includes policies and procedures that pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the Company’s assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of the
Company’s financial statements in accordance with generally accepted accounting
principles, and that the Company’s receipts and expenditures are being made only
in accordance with the authorization of the Company’s Board of Directors and
management; and provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on its financial statements. There has been no change in
the Company’s internal control over financial reporting that occurred in the
quarter ended December 31, 2007, that has materially affected, or is reasonably likely
to affect, the Company’s internal control over financial reporting.
|
Item 8B.
|
Other Information
|
None
41
PART III
|
Item 9.
|
Directors, Executive Officers, Promoters and Control
Persons; Compliance
|
|
|
with Section 16(a) of the Exchange
Act
|
The directors and executive officers currently serving EGI are as
follows:
|
Name
|
Age
|
Positions Held and Tenure
|
|
|
|
|
|
Michael McChesney
|
57
|
Director, President and Chief Executive Officer since
October 2005
|
|
Tamer Muftizade
|
55
|
Director and Chief Financial Officer since October
2005
|
|
Dr. William Morton Stear
|
61
|
Director and Chief Technical Officer since October
2005
|
|
Maurice Emery
|
54
|
Director since January 2006
|
|
George Kanaan
|
61
|
Director since February 2007
|
|
Robert McDermott
|
63
|
Director from October 2005 to February 2007
|
|
Derrick Short
|
41
|
Secretary since October 2005
|
The Directors named above will serve until the next annual meeting of
stockholders, or until their successors have been elected. Officers serve at the
pleasure of the Board of Directors unless such officers have specific employment
agreements which provide for a definitive employment term. The Company presently has
employment agreements with its President, its Chief Financial Officer, its Chief
Technical Officer and its Secretary each of which are for a period of three years
commencing January 1, 2006.
Each of the foregoing persons may be deemed a “promoter” of
the Company, as that term is defined in the rules and regulations promulgated under the
Securities Act 1933. Additionally, one of the minority shareholders of the Company,
Zenith Premier Limited, is also deemed to be a “promoter” of the
Company.
Biographical Information
Michael McChesney, age 57, has been the Chief Executive Officer and a
Director of the Company from October 2005 to the present. Mr. McChesney was
educated in Johannesburg, South Africa where he graduated with a Bachelor of Science
degree in Civil Engineering from the University of the Witwatersrand in 1973 and a
Bachelor of Science in Mining Engineering from the University of the Witwatersrand in
1975. Mr. McChesney is a registered Professional Engineer with the Engineering Council
of South Africa and is a member of the South African Institute of Mining and
Metallurgy. He has over 30 years of experience in engineering, mine management and
corporate management of various South African mining companies. Mr. McChesney has held
various senior positions in mining companies in South Africa including the position as
Chief Executive Officer of several mining companies. His responsibilities have included
mineral exploration, feasibility studies, engineering design, project management,
operations and general management. Recently Mr. McChesney has been involved in
establishing and developing a number of gold mining companies in Southern Africa. With
respect to the previous five years, Mr. McChesney has held the following
positions:
|
|
2006 - Present:
|
Eastern Goldfields, Inc.
|
|
|
Date
of Employment: January 1, 2006
|
|
|
Job
Title: Chief Executive Officer and Director
|
|
|
1995 - Present:
|
Cheston Minerals (Pty) Ltd
|
|
|
Date
of Employment: March 1, 1995
|
|
|
Job
Title: Managing Director
|
Tamer Muftizade, age 55, has been the Chief Financial Officer and a
Director of the Company from September 2005 to the present. Mr. Muftizade was educated
in London, England and received a Bachelor of Arts in Accountancy with Honors from the
City of London Polytechnic, School of Business Studies in 1974. Mr.
42
Muftizade is a Chartered Accountant and a Fellow of the Institute of
Chartered Accountants in England and Wales with 30 years of experience in international
accounting and auditing in both public practice and private industry. Mr. Muftizade has
held a variety of senior positions for clients and employers in both Europe and the
Middle East. He has served as an Audit Manager, an Audit Leader, as Chief Internal
Auditor and Chief Financial Officer for various public clients and private employers.
Mr. Muftizade has worked for various oil and gas companies and precious metal resource
companies. Most recently, Mr. Muftizade served as a management and financial consultant
to a U.S. corporation, Cresset Precious Metals, Inc., which conducted gold mining
operations in Egypt. Mr. Muftizade presently serves as a director of Zenith Premier
Ltd. which also is a shareholder of the Company. With respect to the previous five
years, Mr. Muftizade has held the following positions:
|
|
2006 - Present:
|
Eastern Goldfields, Inc.
|
|
|
Date
of Employment: January 1, 2006
|
|
|
Job
Title: Chief Financial Officer and Director
|
|
|
2000 - Present:
|
Zenith Premier Limited
|
|
|
Date
of Employment: April 26, 2000
|
|
|
Job
Title: Management Consultant
|
|
|
Job
Title: Chief Financial Officer and Director from May 2005
|
|
|
2004 – 2005
|
Crystalix Group International, Inc.
|
|
|
Date
of Employment: July, 2004
|
Job Title: Chief Financial Officer of European subsidiary and Director
of the US corporation. This corporation is a reporting company listed on the NASD OTC
Bulletin Board and is involved in sub-surface laser engraving inside crystal glass for
the retail, corporate and photographic markets.
Dr. William Stear, age 61, has been the Chief Technical Officer and a
Director of the Company from October 2005 to the present. Dr. Stear is a graduate of
various universities in South Africa, namely the University of Stellenbosch, the
University of the Witwatersrand and the Nelson Mandela Metropolitan University. His
post-graduate qualifications include a Doctorate (PhD) in Sedimentary Geology in 1980,
a Master of Science degree, cum laude, in Economic Geology in 1976, a Master of Science
degree in Mining Engineering in 1986 and a Master of Philosophy degree, cum laude, in
Ancient Cultures in 2006. Dr. Stear is a registered Natural Scientist with the South
African Council for Natural Scientific Professions, a Fellow of the Australasian
Institute of Mining and Metallurgy, a Fellow of the South African Institute of Mining
and Metallurgy and a Fellow of the Geological Society of South Africa. He is an
internationally acknowledged “Competent Person” which is the professional
designation as an “Expert” in his particular professional discipline. Dr.
Stear has more than 35 years of experience in mineral exploration, mining geology and
mineral economics, most of which has been in a management and advisory capacity. Dr.
Stear's professional career has included the analysis and planning of gold mining
projects. He has held various senior positions in major mining companies in South
Africa, including Exploration Manager and Consulting Mining Geologist. He also has
served on the board of directors of various resource companies. He has founded and for
almost two decades, managed a mineral industry consultancy company which specializes in
independent technical and economic evaluations of mining companies and mineral
projects. As an independent consultant he has further developed related expertise in
merchant banking and resource investment. With respect to the previous five years, Dr.
Stear has held the following positions:
|
|
2006 - Present:
|
Eastern Goldfields, Inc.
|
|
|
Date
of Employment: January 1, 2006
|
|
|
Job
Title: Chief Technical Officer and Director
|
|
|
2005 - 2006:
|
Willo & Associates cc.
|
|
|
Date
of Employment: March 1, 2005
|
|
|
Job
Title: Member (Mining Consultant)
|
|
|
1997 - 2005:
|
Venmyn Rand (Pty) Limited
|
|
|
Date
of Employment: September 1, 1997
|
|
|
Job
Title: Executive Director of Mining
|
|
|
1996 - 1997:
|
Rand Merchant Bank Resources (A division of Rand
Merchant Bank Ltd.)
|
43
|
|
Date
of Employment: April 1, 1996
|
|
|
Job
Title: Deputy Chairman of RMB Resources
|
|
|
1988 - 1996:
|
Venmyn Rand (Pty) Limited
|
|
|
Date
of Employment: September 1, 1988
|
|
|
Job
Title: Managing Director – Mining
|
Maurice Emery, age 54, has been a director of the Company from January
2006 to present. Mr. Emery is a Swiss Certified Public Accountant. During his earlier
working career in Switzerland, Mr. Emery worked for Union Suisse Assurances, a Swiss
insurance company. He also worked as an accountant for the Basle Cantonal Hospital and
for a private real estate management company. Since 1986 to present Mr. Emery has
served as the Managing Director of Kestrel S.A., a Swiss company which provides
international trust, company and investment advisory services to a wide variety of
international clients who include various mining companies. These mining company
clients have permitted Mr. Emery to develop specialized experience and expertise in the
mining industry. Mr. Emery has at various times served on the Board of Directors of
several public mining companies which are listed on the Johannesburg and London Stock
Exchanges. With respect to the previous five years, Mr. Emery has held the following
positions:
|
|
2006 - Present:
|
Eastern Goldfields, Inc.
|
|
|
Date
of Employment: January, 2006
|
|
|
1986 – Present
|
Kestrel S.A.
|
|
|
Date
of Employment: April 28, 1988
|
George Kanaan, age 61, has been a director of the Company from February
2007 to present. Mr. Kanaan holds a MSc (Civil Engineering) degree from the
Carnegie-Mellon University, Pennsylvania and a MBA degree from the University of
Bridgeport, Connecticut. He was Candidate for the degree of Doctor in Business
Administration at the Harvard University Graduate School of Business Administration and
he is a Registered Professional Engineer in the states of New York and Connecticut. Mr.
Kanaan started his career with Citibank and was appointed as General Manager heading
the London branch of Citibank NA/Saudi American Bank from inception. Mr. Kanaan also
headed, as its CEO, the Private Asset Management Company of one of the most prominent
members of the Saudi royal family. With respect to the previous five years, Mr. Kanaan
has held the following positions:
|
|
2007
- Present: Eastern Goldfields, Inc.
|
|
|
Date
of Employment: February 17, 2007
|
|
|
1997 - Present:
|
Resource Consolidated Limited
|
|
|
Date
of Employment: May 1, 1997
|
|
|
Job
Title: President. This corporation is a management
consulting company
|
Robert McDermott, age 63, served as a director of the Company from
October 2005 to February 2007 when he resigned for personal reasons.
Derrick Short, age 41, has been the Secretary of the Company from
October 2005 to the present. Mr. Short was educated in Pretoria, South Africa where he
graduated with a Bachelor of Accounting Science degree from the University of South
Africa in 1992. Mr. Short was initially trained as an auditor after completing his
compulsory work experience with a major accounting firm before moving into the mining
industry. He has over 15 years experience in the mining industry and has held various
positions including financial, administrative, budgetary control and general management
positions. Most recently Mr. Short has served as the Finance Director for the
Company’s South African subsidiaries. With respect to the previous five years,
Mr. Short has held the following positions:
|
|
2006 - Present:
|
Eastern Goldfields Inc.
|
|
|
Date
of Employment: January 1, 2006
|
44
|
|
Job
Title: Corporate Secretary
|
|
|
1999 – 2005:
|
Cheston Minerals (Pty) Ltd
|
|
|
Date
of Employment: February 15, 1999
|
|
|
Job
Title: Financial Manager
|
The Company has established various committees which presently include
an Audit Committee, a Remuneration Committee and an Ethics Committee. This Audit
Committee has two members who the Company has determined are financial experts, namely,
Messrs. Maurice Emery and George Kanaan . Both of these parties are considered
“independent”, as the term used in Item 7(d)(3)(iv) of Schedule 14A under
the Securities Exchange Act 1934. The Company plans to form such other committees as
may be required by federal securities laws and the newly adopted rules of various stock
markets and exchanges.
No director of the Company is also currently a director of any company
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any company
registered as an investment company under the Investment Company Act of
1940.
|
Item 10.
|
Executive Compensation
|
The following table sets forth information on the remuneration of our
chief executive officer and our four most highly compensated executive officers who
served as executive officers at the end of December 31, 2007 and earned in excess of
$100,000 per annum during any part of our last three fiscal years:
|
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Compensation
|
|
|
|
|
|
|
|
Awards
|
Payouts
|
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Other Annual Compensation ($)
|
Restricted Stock Award(s) ($)
|
Securities Underlying Options/ SARs (#
|
LTIP Payouts ($)
|
All Other Compensation ($)
|
|
1. Michael McChesney
|
2005 (1)
|
-0-
|
-0-
|
-0-
|
-0-
|
150,000
|
-0-
|
$36,000 (2)
|
|
President & Chief
|
2006 (1)
|
$163,800
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Executive Officer
|
2007 (1)
|
$171,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
2. Tamer Muftizade
|
2005 (1)
|
-0-
|
-0-
|
-0-
|
-0-
|
100,000
|
-0-
|
-0-
|
|
Chief Financial
|
2006 (1)
|
$129,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Officer
|
2007 (1)
|
$141,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
3. Dr. William Stear
|
2005 (1)
|
-0-
|
-0-
|
-0-
|
-0-
|
100,000
|
-0-
|
-0-
|
|
Chief Teachnical
|
2006 (1)
|
$102,000
|
-0-
|
-0-
|
-0-
|
50,000
|
-0-
|
-0-
|
|
Officer
|
2007 (1)
|
$126,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
4. Derrick Short
|
2005 (1)
|
-0-
|
-0-
|
-0-
|
-0-
|
80,000
|
-0-
|
$27,000 (2)
|
|
Secretary
|
2006 (1)
|
$114,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
|
2007 (1)
|
$126,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
|
(1)
|
The
above listed officers joined the Company in October 2005. None of these
officers received any compensation directly from the Company for fiscal
2005. No compensation was paid to the previous officers of the Company
for the 2003 and 2004 fiscal years.
|
45
|
|
(2)
|
At
the time of the acquisition of the Company’s South African
subsidiary, Eastern Goldfields Limited (“EGL”), EGL had an
existing management consulting agreement with a third party entity,
Cheston Minerals (Pty) Limited (“CML”). CML in turn
employed Messrs. McChesney and Short who provided management services
to EGL. The Company elected to continue with this contractual
arrangement for the remainder of the fiscal year 2005. Accordingly, Mr.
McChesney received a total of $36,000 for the remaining three months of
fiscal year 2005. Mr. Short received a total of $27,000 for the same
period.
|
|
|
(3)
|
All
of the above listed officers entered into three-year employment
contracts with the Company effective as of January 1, 2006.
|
Compensation Discussion and
Analysis
The Company’s current officers and directors joined the Company in
October 2005 but the Company did not pay and these officers did not accrue any cash
compensation for their services during the year ending December 31, 2005. In place of
any cash compensation, the Company granted stock options to its officers as follows:
(1) options to purchase 150,000 shares of the Company’s common stock to Michael
McChesney, the Company’s President and Chief Executive Officer; (2) options to
purchase 100,000 shares to Tamer Muftizade, the Company’s Chief Financial
Officer; (3) options to purchase 100,000 shares to Dr. William Stear, the
Company’s Chief Technical Officer; and (4) options to purchase 80,000 shares to
Derrick Short, the Company’s Secretary. At the time of the grant of these stock
options, the Company’s Board of Directors sought to provide a sufficient
incentive arrangement for each member of the Company’s management while also
conserving the Company’s available cash resources.
Further and during the year ending December 31, 2007, the
Company’s Board of Directors approved annual compensation to the Company’s
officers as follows: (A) $171,000 as cash compensation to Michael McChesney, the
Company’s President and Chief Executive Officer; (B) $141,000 as cash
compensation to Tamer Muftizade, the Company’s Chief Financial Officer; (C)
$102,000 as cash compensation and options to purchase 50,000 shares to Dr. William
Stear, the Company’s Chief Technical Officer; and (D) $114,000 as cash
compensation to Derrick Short, the Company’s Secretary. All of the compensation
paid to the Company’s officers during 2007 was paid pursuant to the terms of the
three year employment agreements that the Company entered into with each of
them.
Compensation of Non-Executive Directors
Non-executive directors do not receive compensation but are reimbursed
for their expenses for each meeting of the board that they attend.
Stock Option Plan
In October 2005, the Company’s Board adopted the 2005 Stock Grant
and Option Plan (the “Plan”) in order to provide incentives to Directors,
employees and others rendering services to the Company. During the fiscal years ended
December 31, 2007 and December 31, 2006, no stock options were exercised under this
Plan. This Plan authorizes the granting of up to 850,000 stock options to Officers,
Directors, employees and consultants. As of December 31, 2007, 850,000 options
have been granted to twelve individuals at an exercise price of $1.50 per share, with
options vesting incrementally through October 28, 2008. The first exercisable date for
these options, and, amounting to 33 1/3% of the amount of grant was October 28,
2006.
46
|
Option/SAR Grants in Last Fiscal Year
|
|
Individual Grants
|
|
|
|
|
|
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|
Name
|
Number of Securities Underlying Options/SARs Granted
(#)
|
% o Total Options/SARs Granted to Employees in Fiscal
Year
|
Exercise or Base Price ($/Sh)
|
Expiration Date
|
|
Dr. William Stear Chief Technical Officer
|
50,000
|
100%
|
$1.50
|
10/28/2009
|
47
Item
11.
Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information relating to the beneficial
ownership of the Company common stock by those persons beneficially holding more than
5% of the Company’s common stock, by the Company’s directors and executive
officers, and by all of the Company’s directors and executive officers as a group
as of December 31, 2007:
|
(1)
|
(2)
|
(3)
|
(4)
|
|
Title of Class
|
Name and Address
of Beneficial Owner
|
Amount and Nature of Beneficial Owner (1)
|
Percent of Class (2)
|
|
1. Common
|
Michael McChesney
PO Box 820, Nelspruit 1200, South Africa
|
-0- (3)
|
-0-
|
|
|
|
|
|
|
2. Common
|
Tamer Muftizade
2 Simmonscourt Square, Dublin 4, Ireland
|
30,000
|
0.32%
|
|
|
|
|
|
|
3. Common
|
Dr. William Morton Stear,
PO Box 1343, Kynsna 6570, South Africa
|
-0- (4)
|
-0-
|
|
|
|
|
|
|
4. Common
|
Maurice Emery
Pausilippe, Chemin des Trois Portes 11, 2000
Neuchâtel, Switzerland
|
15,000 (5)
|
0.16%
|
|
|
|
|
|
|
5. Common
|
George Kanaan
8 Airlie Gardens, Kensington, London W8 7AJ, United
Kingdom
|
-0-
|
-0-
|
|
|
|
|
|
|
6. Common
|
Derrick Short
PO Box 820, Nelspruit 1200, South Africa
|
-0- (6)
|
-0-
|
|
|
|
|
|
|
7. Common
|
Kevin Timothy Ryan
1181 Grier Drive, Suite B, Las Vegas, Nevada 89119,
USA
|
1,100,000 (7)
|
11.73%
|
|
|
|
|
|
|
8. Common
|
Birol Nadir
2 Simmonscourt Square,
Dublin 4, Ireland
|
661,720 (8)
|
7.06%
|
|
|
|
|
|
|
9. Common
|
Stirling Nominees Limited Pausilippe, Chemin des Trois
Portes 11, 2000 Neuchâtel, Switzerland
|
2,881,393
|
30.73%
|
|
|
|
|
|
|
10. Common
|
Officers and directors as a group
|
2,603,567
|
27.76%
|
48
|
(1)
|
“Beneficial Owner” means having or sharing,
directly or indirectly (i) voting power, which includes the power to
vote or to direct the voting, or (ii) investment power, which includes
the power to dispose or to direct the disposition, of shares of the
common stock of an issuer. The definition of beneficial ownership
includes shares, underlying options or warrants to purchase common
stock, or other securities convertible into common stock, that
currently are exercisable or convertible or that will become
exercisable or convertible within 60 days. Unless otherwise indicated,
the beneficial owner has sole voting and investment power.
|
|
|
(2)
|
Percentages are based on 9,377,986 common shares
issued and outstanding as of March 24, 2008.
|
|
|
(3)
|
Mr.
McChesney is a trustee of the Chesnut Trust and sole shareholder of
Cheston Minerals (Pty) Limited which collectively own 2,332,592 Class A
Preference Shares of EGI’s South African subsidiary corporation,
EGSA. Subject to a yet to be executed offer and acceptance documents,
these entities may collectively be entitled to the economic benefits
associated with a maximum total of 2,332,592 EGI common
shares.
|
|
|
(4)
|
Dr.
Stear is the trustee of the Willo Stear Family Trust which owns 103,763
Class A Preference Shares of EGI’s South African subsidiary
corporation, EGSA. Subject to a yet to be executed offer and acceptance
documents, this trust may be entitled to the economic benefits
associated with a maximum total of 103,763 EGI common
shares.
|
|
|
(5)
|
Mr.
Emery is the principal shareholder of Kestrel S.A. which holds a total
of 15,000 shares.
|
|
|
(6)
|
Mr.
Short is the trustee of the Zonika Short Trust which owns 132,212 Class
A Preference Shares of EGI’s South African subsidiary corporation
EGSA. Subject to a yet to be executed offer and acceptance documents,
this trust may be entitled to the economic benefits associated with a
maximum total of 132,212 EGI common shares.
|
|
|
(7)
|
This
amount represents 538,600 shares held directly by Mr. Ryan. This amount
further includes a total of 315,000 shares held by Ryan Capital
Management of which Mr. Ryan is the President and principal
shareholder. This amount still further includes a total of 246,400
shares held by Rush & Co. a U.S. brokerage firm for the benefit of
Mr. Ryan.
|
|
|
(8)
|
This
amount represents 315,000 shares held by Zenith Premier Limited of
which Mr. Nadir is the President and principal shareholder. This amount
further includes a total of 346,720 shares held by various brokerage
firms for the benefit of Mr. Nadir. The Company’s Chief Financial
Officer, Mr. Tamer Muftizade, also serves as a director of Zenith
Premier Limited. Mr. Muftizade is also a minority shareholder of the
same entity.
|
|
|
(9)
|
Mr.
Emery is one of the trustees of the Stirling Trust which is the
principal owner of Stirling Nominees Limited.
|
49
|
Item 12.
|
Certain Relationships and Related
Transactions
|
Services and Support Agreement with Cheston Minerals (Pty)
Limited
On January 1, 2006, the Company entered into a Services and Support
Agreement (the “Services Agreement”) with Cheston Minerals (Pty) Limited, a
South African corporation (“CPL”). The President of the Company is the sole
shareholder and President of CPL. CPL had prior to January 1, 2006, a similar agreement
with the Company’s subsidiary, Eastern Goldfields Limited (“EGL”). As
earlier described above, the Company elected to continue with this agreement for the
remaining three months of fiscal 2005.
Beginning January 1, 2006, the Company entered into this new Services
Agreement for a one year period wherein for the monthly payment of $10,000 ($15,000
from July 1, 2006), CPL agreed to provide the Company the following premises,
furniture, furnishings, equipment and related services, including but not limited
to:
|
|
1.
|
The
3,000 sq. ft. premises located at 8 Streak Street, Nelspruit, South
Africa, for use as the Company’s administrative and corporate
headquarters (the “Premises”).
|
|
|
2.
|
All
of the telephones, fax machines, computers, software, furniture, office
equipment and furnishings presently located at the Premises sufficient
for the Company to support its business activities.
|
|
|
3.
|
CPL
is also required to pay for all property taxes, property, content and
liability insurances for the Premises.
|
With respect to a conflict of interest regarding this new services
agreement, the Board of Directors independent of Mr. McChesney had determined that this
new services agreement was necessary, beneficial and reasonable under the
circumstances. More specifically, the Company decided that in the interest of
maintaining administrative continuity during the ownership transition that a commitment
to a one year agreement would be advantageous. Still further, even though absent from
this agreement, the Company would be required to obtain administrative offices and the
associated business equipment, furniture and furnishings from third party vendors.
Still further, the Company determined that the costs of these services and associated
equipment rendered per the agreement represent fair market value.
Conflicts of Interest with Other Mining Companies
Mr. McChesney is presently a director of Pan African Mining (Pvt)
Limited (“Panaf”), a gold producing company incorporated in Zimbabwe. Panaf
is only legally able to sell its gold production to the Reserve Bank of Zimbabwe. EGI,
on the other hand, is not permitted to sell gold to Zimbabwe and is limited to the sale
of its production exclusively to the Reserve Bank of South Africa. Accordingly, we
believe that based on his respective positions and the government imposed restrictions
as to the sale of gold, no conflict of interest exists.
Agreement for Consulting Services and Public Relations with Zenith
Premier Limited
On January 1, 2006, the Company entered into an Agreement for Consulting
Services and Public Relations (the “Consulting Agreement”) with Zenith
Premier Limited, an Irish corporation (“ZPL”). ZPL and its President, Birol
Nadir, are minority shareholders of the Company. One of ZPL’s directors, Tamer
Muftizade, is the Company’s Chief Financial Officer and a Director. Mr. Muftizade
is also a minority shareholder of ZPL
Beginning January 1, 2006, and for a period of one year, ZPL agreed to
provide the Company with corporate advice and various public relations services. As
consideration for these services, the Company has agreed to pay ZPL a monthly fee of
$15,000 ($16,500 from July 1, 2006).
50
|
REGULATION
S-B
NUMBER
|
|
EXHIBIT
|
|
3
|
|
Charter and By-Laws
|
|
|
3.1
|
Certificate of Amendment of Articles of Incorporation
of Fairbanks Financial, Inc. changing name to “Eastern
Goldfields, Inc.” (1)
|
|
|
3.2
|
Articles of Incorporation of Fairbanks Financial,
Inc. (1)
|
|
|
3.3
|
By-Laws of Fairbanks Financial, Inc. (1)
|
|
10
|
|
Material contracts
|
|
|
10.1
|
Sale of Shares Agreement Relating to Eastern
Goldfields (Proprietary) Limited for the purchase of EGSA by the
Company dated September 23, 2005 (1)
|
|
|
10.2
|
Sale of Shares Agreement for the purchase of EGL by
EGSA dated September 30, 2005 (1)
|
|
|
10.3
|
Funding Facilitation Agreement For Share Subscription
- Sale of Shares Agreement for 26% of shares of EGL by Lomshiyo
Investments (Proprietary) Limited (BEE Group) dated February 3, 2006
(1)
|
|
|
10.4
|
Mining License No. 15/2003 granted to MIMCO for the
Lily Mine Area dated May 26, 2003 (1)
|
|
|
10.5
|
Order Granting For a Prospecting Right on the Farms
Covington et al granted to EGE for Sheba Hills Area Claims Group dated
February 1, 2006 (1)
|
|
|
10.6
|
Order Granting For a Prospecting Right on the Farms
Gara and others granted to Centurion for Centurion Bonanza Claims Group
dated January 12, 2006 (1)
|
|
|
10.7
|
Accepted ESS Lily Mine Underground Extension Project
EMPR Conversion and Amendment Proposal dated April 10, 2006
(1)
|
|
|
10.8
|
Rand Refinery Limited Confirmation of Depository
Status for purchase of gold dated May 25, 2006 (1)
|
|
|
10.9
|
EGI Employment Contract with Michael McChesney
effective January 1, 2006 (1)
|
|
|
10.10
|
EGI Employment Contract with Tamer Muftizade
effective January 1, 2006 (1)
|
|
|
10.11
|
EGI Employment Contract with Dr. William Stear
effective January 1, 2006 (1)
|
|
|
10.12
|
EGI Employment Contract with Derrick Short effective
January 1, 2006 (1)
|
|
|
10.13
|
EGI 2005 Stock Plan (1)
|
|
|
10.14
|
EGI Board of Directors Resolution dated October 28,
2005 authorizing and adopting the EGI 2005 Stock Plan (1)
|
|
|
10.15
|
Services and Support Agreement with Cheston Minerals
(Pty) Limited dated January 1, 2006 (1)
|
|
|
10.16
|
Agreement for Consulting Services and Public
Relations with Zenith Premier Limited dated January 1, 2006
(1)
|
|
|
10.17
|
Order Granting For a Prospecting Right in Respect of
Remaining Extent of the Farm Oorsprong 326 JU et al granted to MIMCO
dated June 6, 2006 (1)
|
|
|
10.18
|
Order Granting For a Prospecting Right in Respect of
Various Portions of the Farm Townlands 369 JU et al granted to EGL
dated June 6, 2006 (1)
|
|
|
10.19
|
Consulting Services Agreement with Behre Dolbear
International Ltd dated January 1, 2006 (1)
|
|
21
|
|
Subsidiaries of the small business
issuer
|
|
31
|
|
Rule 13a-14(a)/15d-14a(a)
Certifications
|
|
|
31.1
|
Rule 13a-14(a) Certification of Chief Executive
Officer
|
|
|
31.2
|
Rule 13a-14(a) Certification of Chief Financial
Officer
|
|
32
|
|
Section 1350 Certifications
|
|
|
32.1
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Chief Executive Officer
|
51
|
|
32.2
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Chief Financial Officer
|
|
99
|
|
Additional Exhibits
|
|
|
99.1
|
Glossary of Technical Terms (1)
|
|
|
99.2
|
EGSA Mining Titles Summary (1)
|
|
|
99.3
|
Behre Dolbear Consent Letter (1)
|
|
(1)
|
Incorporated by reference to the exhibits to the
registrant's current report on Form 10-SB, filed December 18,
2006.
|
|
Item 14.
|
Principal Accountant Fees and Services
|
Audit Fees
Mendoza Berger & Company, LLP is expected to bill approximately
$75,000 for the audit of our 2007 annual financial statements. For the fiscal years
ended December 31, 2006, Mendoza Berger & Company, LLP & Company billed $90,000
for the audit of our annual financial statements and review of our Form 10-QSB
filings.
Audit-Related Fees
There were no fees billed for services reasonably related to the
performance of the audit or review of our financial statements outside of those fees
disclosed above under "Audit Fees" for fiscal years 2007 and 2006.
Tax
Fees
There were no fees billed for tax compliance, tax advice, and tax
planning services for the fiscal years ended December 31, 2007 and 2006.
All
Other Fees
There were no fees billed for other services for the fiscal years ended
December 31, 2007 and 2006.
Pre-approval Policies and Procedures
Prior to engaging our accountants to perform a particular service, our
board of directors obtains an estimate for the service to be performed. The board in
accordance with procedures for the company approved all of the services described
above.
52
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EASTERN GOLDFIELDS, INC.
______________________________________________________________________________________
(Registrant)
By: /s/ Michael McChesney, Chief Executive Officer
By____________________________________________________________________________________
(Signature and Title)
Date:
April 14, 2007
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Michael McChesney, President, Chief Executive Officer and
Director
______________________________________________________________________________________
(Signature and Title)
By: /s/ Tamer Muftizade, Treasurer, Chief Financial Officer and
Director
______________________________________________________________________________________
(Signature and Title)
By: /s/ William Morton Stear, Chief Technical Officer and
Director
______________________________________________________________________________________
(Signature and Title)
By: /s/ Derrick Short, Corporate Secretary
______________________________________________________________________________________
(Signature and Title)
By: /s/ Maurice Emery, Director
______________________________________________________________________________________
(Signature and Title)
By: /s/ George Elias Kanaan, Director
______________________________________________________________________________________
(Signature and Title)
Date:
April 14, 2007
53
EASTERN GOLDFIELDS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2007 AND 2006
F-1
TABLE OF CONTENTS
|
Report of Independent Registered Public Accounting
Firm
|
F-3
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
F-4
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
F-6
|
|
|
|
|
|
|
|
Consolidated Statement of Stockholders’
Equity
|
F-7
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
F-8
|
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
F-9
|
F-2
Report of Independent Registered Public Accounting
Firm
To
the Board of Directors and Stockholders
of
Eastern Goldfields, Inc.
We
have audited the accompanying consolidated balance sheets of Eastern Goldfields, Inc.
(a Nevada corporation) (the Company) and subsidiaries as of December 31, 2007 and 2006,
and the related consolidated statements of operations, stockholders’ equity, and
cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Eastern Goldfields, Inc.
and subsidiaries as of December 31, 2007 and 2006, and the results of its operations
and its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
Mendoza Berger & Company, LLP
Irvine, California
April 9, 2008
F-3
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
ASSETS
|
|
|
|
|
|
|
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
355,148
|
$
|
1,103,433
|
|
Inventories (Notes 2 and 3)
|
|
|
467,254
|
|
358,414
|
|
Prepaid expenses and other current assets
|
|
|
378,703
|
|
215,822
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
1,201,105
|
1,677,669
|
|
|
|
|
|
|
|
|
|
Property, plant, and mine development, net
|
|
|
|
|
(Notes 2 and 4)
|
|
13,377,800
|
8,775,180
|
|
Other assets
|
|
189,461
|
61,083
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,768,366
|
$
|
10,513,932
|
See
accompanying notes to consolidated financial statement
F-4
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable and other current
liabilities
|
|
$
|
1,688,411
|
|
$
|
911,692
|
|
Advances from stockholders (Note 5)
|
|
|
17,485
|
|
|
6,473
|
|
Current portion of long-term liabilities (Note
6)
|
|
|
202,704
|
|
|
91,776
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,908,600
|
|
1,009,941
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
Long term liabilities, net of current portion (Note
6)
|
|
|
641,280
|
|
|
23,576
|
|
Reclamation and remediation obligation (Notes
2
|
|
|
|
|
|
|
|
and 7)
|
|
|
329,109
|
|
|
323,038
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
970,389
|
|
|
346,614
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
-
|
|
|
-
|
|
Minority interest (Note 9)
|
|
|
1,592,097
|
|
|
1,410,058
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: (Notes 10 and 12)
|
|
|
|
|
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
$0.001 par value, 25,000,000 shares
authorized;
|
|
|
|
|
|
|
|
9,377,986 and 8,856,247 shares issued and
|
|
|
|
|
|
|
|
outstanding at December 31, 2007 and 2006,
respectively
|
|
|
9,378
|
|
|
8,856
|
|
A Class Preference Shares:
|
|
|
|
|
|
|
|
$0.00002 par value, 10,000,000 shares
authorized;
|
|
|
|
|
|
|
|
2,881,393 and 2,921,393 shares issued and
outstanding
|
|
|
|
|
|
|
|
at December 31, 2007 and 2006, respectively
|
|
|
45
|
|
|
46
|
|
Additional paid in capital
|
|
|
21,008,860
|
|
|
17,819,376
|
|
Other comprehensive loss
|
|
|
(448,497)
|
|
|
(1,488,651)
|
|
Accumulated deficit
|
|
|
(8,235,425)
|
|
|
(6,830,993)
|
|
|
|
|
|
|
|
|
|
|
|
|
12,334,361
|
|
|
9,508,634
|
|
|
|
|
|
|
Less: Loan to Lomshiyo (Note 9)
|
|
(2,037,081)
|
(1,761,315)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
10,297,280
|
7,747,319
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’
equity
|
|
$
|
14,768,366
|
$
|
10,513,932
|
See
accompanying notes to consolidated financial statements
F-5
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
Sales (Note 2)
|
|
$
|
7,289,335
|
|
$
|
7,419,741
|
|
Other income
|
|
|
326,023
|
|
|
220,761
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
7,615,358
|
|
|
7,640,502
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Cost of production
|
|
|
5,954,654
|
|
|
5,362,161
|
|
Exploration costs
|
|
|
133,292
|
|
|
-
|
|
Operating expenses
|
|
|
2,706,918
|
|
|
2,526,645
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
8,794,864
|
|
|
7,888,806
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,179,506)
|
|
|
(248,304)
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
Interest
|
|
|
42,887
|
|
|
23,422
|
|
|
|
|
|
|
|
|
|
Loss before minority interest
|
|
|
(1,222,393)
|
|
|
(271,726)
|
|
Minority interest (Note 9)
|
|
|
(182,039)
|
|
|
(218,971)
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(1,404,432)
|
|
|
(490,697)
|
|
Provision for income taxes (Note 11)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,404,432)
|
|
$
|
(490,697)
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.15)
|
|
$
|
(0.06)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
9,183,585
|
|
8,162,955
|
See
accompanying notes to consolidated financial statements
F-6
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
|
Common Stock
|
|
A Class Preference Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock to be
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Number of
|
|
Par
|
|
Number of
|
|
Par
|
|
Issued
|
|
Additional
|
|
Comprehensive
|
|
Accumulated
|
|
Loan to
|
|
Stockholders'
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
(Cancelled)
|
|
Paid-in Capital
|
|
Loss
|
|
Deficit
|
|
Lomshiyo
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
5,610,000
|
|
$
|
5,610
|
|
3,121,393
|
|
$
|
49
|
|
$
|
2,846
|
|
$
|
15,466,406
|
|
$
|
(390,693)
|
|
$
|
(6,340,296)
|
|
$
|
(1,556,775)
|
|
$
|
7,187,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cancelled
|
|
(520,000)
|
|
|
(520)
|
|
-
|
|
|
-
|
|
|
520
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common stock issued for cash
|
|
630,000
|
|
|
630
|
|
-
|
|
|
-
|
|
|
(630)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Restricted common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued in accordance with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share exchange
|
|
2,736,247
|
|
|
2,736
|
|
-
|
|
|
-
|
|
|
(2,736)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common stock issued for cash
|
|
400,000
|
|
|
400
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,839,600
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,840,000
|
|
Common stock issued in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange for A Class Shares
|
|
-
|
|
|
-
|
|
(200,000)
|
|
|
(3)
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common stock options
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
513,367
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
513,367
|
|
Accrual of interest income on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loan to Lomshiyo
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(204,540)
|
|
|
(204,540)
|
|
Net loss
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(490,697)
|
|
|
-
|
|
|
(490,697)
|
|
Foreign currency translation
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,097,958)
|
|
|
-
|
|
|
-
|
|
|
(1,097,958)
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,588,655)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
8,856,247
|
$
|
8,856
|
2,921,393
|
$
|
46
|
$
|
-
|
$
|
17,819,376
|
$
|
(1,488,651)
|
$
|
(6,830,993)
|
$
|
(1,761,315)
|
$
|
7,747,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
521,739
|
|
522
|
-
|
|
-
|
|
-
|
|
2,786,078
|
|
-
|
|
-
|
|
-
|
|
2,786,600
|
|
Common stock issued to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange for A Class Share
|
|
-
|
|
-
|
(40,000)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Common stock options
|
|
-
|
|
-
|
-
|
|
-
|
|
-
|
|
403,405
|
|
-
|
|
-
|
|
-
|
|
403,405
|
|
Accrual of interest income on
|
|
|
|
-
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
loan to Lomshiyo
|
|
-
|
|
-
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(275,766)
|
|
(275,766) (1,404,432)
|
|
Net loss
|
|
-
|
|
-
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,404,432)
|
|
-
|
|
1,040,154
|
|
Foreign currency translation
|
|
-
|
|
-
|
-
|
|
-
|
|
-
|
|
-
|
|
1,040,154
|
|
-
|
|
-
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(364,278)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
9,377,986
|
$
|
9,378
|
2,921,393
|
$
|
46
|
$
|
-
|
$
|
21,008,859
|
$
|
(448,497)
|
$
|
(8,235,425)
|
$
|
(2,037,081)
|
$
|
10,297,280
|
See
accompanying notes to consolidated financial statements
F-7
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
|
2007
|
|
2006
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,404,432)
|
|
$
|
(490,697)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash
used
|
|
|
|
|
|
|
|
in operating activities:
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
|
676,122
|
|
|
501,349
|
|
Stock-based compensation
|
|
|
403,405
|
|
|
513,367
|
|
Minority interest
|
|
|
182,039
|
|
|
218,971
|
|
Increase in amount due from Lomshiyo
|
|
|
(275,766)
|
|
|
(204,540)
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
Inventories
|
|
|
(108,840)
|
|
|
86,962
|
|
Other assets
|
|
|
(128,378)
|
|
|
(61,083)
|
|
Prepaid expenses and other current assets
|
|
|
(162,881)
|
|
|
309,749
|
|
Accounts payable and other current
liabilities
|
|
|
776,719
|
|
|
(108,175)
|
|
Reclamation and remediation
|
|
|
-
|
|
|
130,407
|
|
|
|
|
|
|
|
|
|
Net cash provided from (used in) operations
|
|
|
(42,012)
|
|
|
896,310
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(4,824,912)
|
|
|
(1,818,978)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,824,912)
|
|
|
(1,818,978)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Advances from stockholders
|
|
|
11,012
|
|
|
(21,500)
|
|
Proceeds from issuance of long-term debt
|
|
|
846,063
|
|
|
-
|
|
Repayment of long-term debt
|
|
|
(117,431)
|
|
|
(116,109)
|
|
Proceeds from common stock issued
|
|
|
2,786,600
|
|
|
1,840,000
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,526,244
|
|
|
1,702,391
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
592,395
|
|
|
115,825
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
(748,285)
|
|
|
895,548
|
|
|
|
|
|
|
|
|
|
Cash, beginning or period
|
|
|
1,103,433
|
|
|
207,885
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
355,148
|
|
$
|
1,103,433
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
42,887
|
|
$
|
23,422
|
|
Supplemental disclosure of non-cash
operating,
|
|
|
|
|
|
|
|
investing and financing activities:
|
|
|
|
|
|
|
|
Stock based compensation
|
|
$
|
403,405
|
|
$
|
513,367
|
|
|
|
|
|
|
|
|
|
Interest income on loan to Lomshiyo
|
|
$
|
275,766
|
|
$
|
204,540
|
See
accompanying notes to consolidated financial statements
F-8
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
1.
|
ORGANIZATION AND HISTORY
|
Eastern Goldfields, Inc., (the “Company" or "EGI") is the
parent company of Eastern Goldfields SA (Proprietary) Limited, (“EGSA”), a
corporation organized under the laws of the Republic of South Africa. EGSA conducts all
of the Company’s business operations in South Africa through its South African
corporation subsidiaries.
Eastern Goldfields, Inc. was originally incorporated under the laws of
the State of Nevada on July 15, 1998, under the name of Fairbanks Financial, Inc. The
Company was established as a business management, marketing and consulting firm to
serve both the emerging and established business entrepreneur. Since its incorporation,
the Company has had minimal operations. It redirected its business efforts in late 2005
and on September 23, 2005, following a change in control, it purchased 100% of the
issued and outstanding common or ordinary stock of EGSA. On October 1, 2005, the
Company’s wholly owned subsidiary, EGSA, acquired, via a share exchange, 100% of
the issued and outstanding common or ordinary stock of Eastern Goldfields Limited.
(“EGL”), a South African gold producer and developer corporation. EGL
conducts mining operations in the Barberton Greenstone Belt area of the Mpumalanga
Province, South Africa. On October 25, 2005, the Company changed its corporate name to
Eastern Goldfields, Inc. to more accurately reflect its business operations.
This share exchange for the acquisition of EGL by EGI’s wholly
owned South African subsidiary, EGSA, was accounted for as a reverse acquisition, and,
accordingly, for financial statement purposes, EGL was considered the accounting
acquiror and the subject transaction was considered a recapitalization of EGL rather
than an acquisition by the Company. Accordingly, the historical financial statements
prior to this share exchange are those of EGL, however, the name of the consolidated
corporation going forward is Eastern Goldfields, Inc.
EGL itself is a South African holding company which has three South
African subsidiary corporations; Makonjwaan Imperial Mining Company (Pty) Ltd.
(“MIMCO”), Eastern Goldfields Exploration (Pty) Ltd. (“EGE”)
and Centurion Mining Company (Pty) Ltd. (“Centurion”).
F-9
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
|
Basis of Accounting
The consolidated financial statements of the Company have been prepared
on the accrual basis of accounting and are in conformity with accounting principles
generally accepted in the United States of America and prevailing industry
practice.
Principles of Consolidation
The consolidated financial statements include the financial statements
of the Company and its wholly owned subsidiaries. All amounts are in U.S. dollars
unless otherwise indicated. All significant intercompany balances and transactions have
been eliminated in consolidation.
Property Plant and Mine Development
Mining assets, including mine development and infrastructure costs and
mine plant facilities, are recorded at cost of acquisition. Expenditure incurred to
evaluate and develop new ore bodies, to define mineralization in existing ore bodies,
to establish or expand productive capacity, is capitalized until commercial levels of
production are achieved, at which times the costs are amortized as set out
below.
Mineral rights are recorded at cost of acquisition. When there is little
likelihood of a mineral right being exploited, or the value of mineral rights have
diminished below cost, a write-down is affected against income in the period that such
determination is made.
Non-mining assets are recorded at cost of acquisition. These assets
include the assets of the mining operation not included in the previous categories and
all the assets of the non-mining operations.
Depreciation, depletion and amortization is determined to give a fair
and systematic charge in the income statement taking into account the nature of a
particular ore body and the method of mining of that ore body. Mining assets, including
mine development and infrastructure costs, mine plant facilities and evaluation costs,
are amortized over the life of the mine using units-of-production method, based on
estimated proved and probable ore reserves above the infrastructure. The proven and
probable reserve quantities used to calculate depreciation, depletion and amortization
do not include the proven and probable reserve quantities attributable to stockpiled
inventory.
Proved and probable ore reserves reflect the estimated quantities of
economically recoverable reserves, which can be recovered in future from known mineral
deposits.
F-10
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
Property Plant and Mine Development
(Continued)
Certain mining plant and equipment included in mine development and
infrastructure is depreciated on a straight-line basis over their estimated useful
lives.
Other non-mining assets are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives as follows:
Vehicles – 10 years
Furniture and equipment – 3 years
The carrying amounts of the group's assets are reviewed at each balance
sheet date to determine whether there is any indication of impairment. If such
indication exists, the asset's recoverable amount is estimated.
Use of Estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128 Earnings Per Share which requires the Company to present basic and diluted
earnings per share for all periods presented. The computation of loss per common share
(basic and diluted) is based on the weighted average number of shares actually
outstanding during the period. Diluted earnings per share have been calculated to give
effect to the number of additional common stock that would have been outstanding if the
potential dilutive instruments had been issued in years ended December 31, 2007, and
2006. The weighted average number of outstanding shares includes the common stock as
well as the A Class Preference Shares, as the holders of the A Class Preference Shares
have the same rights and entitlements as those attached to the common stock. The
computation of dilutive loss per common share does not assume conversion, exercise or
contingent exercise of securities that would have an anti-dilutive effect on
earnings.
F-11
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
Income Taxes
Deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
During the year ended December 31, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48), which supplements SFAS No. 109,
“Accounting for Income Taxes,” by defining the confidence level that a tax
position must meet in order to be recognized in the financial statements. The
Interpretation requires that the tax effects of a position be recognized only if it is
“more-likely-than-not” to be sustained based solely on its technical merits
as of the reporting date. The “more-likely-than-not” threshold represents a
positive assertion by management that a company is entitled to the economic benefits of
a tax position. If a tax is not considered “more-likely-than-not” it is to
be sustained based solely on its technical merits. No benefits of the tax position are
to be recognized. Moreover, the more-likely-than-not threshold must continue to be met
in each reporting period to support continued recognition of a benefit. With the
adoption of FIN 48, companies are required to adjust their financial statements to
reflect only those tax positions that are more-likely-than-not to be sustained. Any
necessary adjustment upon adoption would be recorded directly to retained earnings and
reported as a change in accounting principle at December 31, 2006.
Fair Value of Financial Instruments
Financial instruments consist principally of cash, short-term
liabilities and long-term debt. The estimated fair values of these instruments
approximate their carrying value.
Foreign Currency Translation
The Company translates the foreign currency financial statements of its
foreign operations by translating balance sheet accounts at the exchange rate on the
balance sheet date and the income statement accounts using the prevailing exchange
rates at the transaction date. Translation gains and losses are recorded in
stockholders’ equity and realized gains and losses are reflected in operations.
The Company’s functional currency is the South African Rand.
F-12
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
Exploration Expenses
Exploration costs are charged to operations as incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to the
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
Inventories
As described below, costs that are incurred in or that benefit the
productive process are accumulated as stockpiles and inventories. Stockpiles and
inventories are carried at the lower of average cost or net realizable value. Net
realizable value represents the estimated future sales price of the product based on
current and long-term metals prices, less the estimated costs to complete production
and bring the product to sale. Write-downs of stockpiles and inventories, resulting
from net realizable value impairments, are reported as a component of
Cost of production
. The major
classifications are as follows:
Stockpiles
Stockpiles represent materials that are currently in the process of
being converted to a saleable product. Conversion processes vary depending on the
nature of the ore and the specific processing facility, but include mill in-circuit,
leach in-circuit and carbon in-pulp inventories. In-process material is measured based
on assays of the material fed into the process and the projected recoveries of the
respective plants. In-process inventories are valued at the average cost of the
material fed into the process attributable to the source material coming from the
mines, stockpiles and/or leach pads plus the in-process conversion costs, including
applicable depreciation relating to the process facilities incurred to that point in
the process.
F-13
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
Inventories
(Continued)
Precious Metals In process
Precious metals in process is gold bullion. Precious metals that result
from the Company’s mining and processing activities are valued at the average
cost of the respective in-process inventories incurred prior to the refining process,
plus applicable refining costs.
Revenue Recognition
Revenue is recognized, net of treatment charges, from a sale when the
price is determinable, the product has been delivered, the title has been transferred
to the customer and collection of the sales price is reasonably assured.
Deferred Stripping Costs
In general, mining costs are allocated to production costs and
inventories, and are charged to c
osts of production
when gold is sold. However, at open pit mines with diverse grades and
waste-to-ore ratios over the mine life, the Company defers and amortizes certain mining
costs on a UOP basis over the life of the mine. These mining costs, which are commonly
referred to as “deferred stripping” costs, are incurred in mining
activities that are normally associated with the removal of waste rock. The deferred
stripping accounting method is generally accepted in the mining industry where mining
operations have diverse grades and waste-to-ore ratios; however, industry practice does
vary. Deferred stripping matches the costs of production with the sale of such
production at the Company’s operations where it is employed, by assigning each
ounce of gold with an equivalent amount of waste removal cost.
If the Company were to expense stripping costs as incurred, there could
be greater volatility in the Company’s period-to-period results of
operations.
Deferred stripping costs are charged to
Costs
of Production
as gold is produced and sold using the UOP
method based on estimated recoverable ounces of proven and probable gold, using a
stripping ratio calculated as the ratio of total tons to be moved to total proven and
probable ore reserves, which results in the recognition of the costs of waste removal
activities over the life of the mine as gold is produced.
The Company reviews and evaluates its deferred stripping costs for
impairment when events or circumstances indicate that the related carrying amounts may
not be recoverable.
F-14
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
|
Deferred Stripping Costs
(Continued)
As the Company’s open pit operations are forecasted to cease in
mid-2008, the Company did not measure and recognize production stage deferred stripping
costs and credits for the years ended December 31, 2007 and 2006.
Reclamation and Remediation Costs (Asset Retirement
Obligations)
In August 2001, the FASB issued Statement of Financial Accounting
Standards (“SFAS”) No. 143, “Accounting for Asset Retirement
Obligations”, which established a uniform methodology for accounting for
estimated reclamation and abandonment costs. Reclamation costs are allocated to expense
over the life of the related assets and are adjusted for changes resulting from the
passage of time and revisions to either the timing or amount of the original present
value estimate. Prior to adoption of SFAS No. 143, estimated future reclamation costs
were based principally on legal and regulatory requirements. Such costs related to
active mines are accrued and charged over the expected operating lives of the mines
using the UOP method based on proven and probable reserves. Future remediation costs
for inactive mines are accrued based on management’s best estimate at the end of
each period of the undiscounted costs expected to be incurred at a site. Such cost
estimates included, where applicable, ongoing care, maintenance and monitoring costs.
Changes in estimates at inactive mines are reflected in earnings in the period an
estimate is revised.
Stock Option Expense
Compensation cost recognized in 2007 and 2006 includes: (a) compensation
cost for all share-based payments granted prior to, which have since vested as of
January 1, 2006, based on the grant-date fair value estimated in accordance with the
original provisions of FAS 123, and (b) compensation cost for all share-based payments
granted subsequent to January 1, 2006, which have vested based on the grant-date fair
value estimated in accordance with the provisions of FAS 123(R).
Reclassification
Certain reclassifications, which have no effect on net income (loss),
have been made in the prior period financial statements to conform to the current
presentation.
Recently Issued Accounting Standards
In
December 2007, the FASB issued SFAS No. 160, “NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS – AN
F-15
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
Recently Issued Accounting Standards
(Continued)
AMENDMENT OF ARB NO. 51 (“SFAS No. 160”). SFAS 160 requires
companies with noncontrolling interests to disclose such interests clearly as a portion
of equity but separate from the parent’s equity. The noncontrolling
interest’s portion of net income must also be clearly presented on the Income
Statement. SFAS 16 is effective for financial statements issued for fiscals years
beginning after December 15, 2008 and will be adopted by the Company in the first
quarter of fiscal year 2009. We do not expect that the adoption of SFAS 160 will have a
material impact on our financial condition or results of operation.
In December 2007, the FASB issued SAFS No. 141 (R), “BUSINESS
COMBINATIONS (REVISED 2007) (“SFAS No. 141 (R)”). SFAS 141 (R) applies the
acquisition method of accounting for business combinations established in SFAS 141 to
all acquisitions where the acquirer gains a controlling interest, regardless of whether
consideration was exchanged. Consistent with SFAS 141 (R) requires the acquirer to
value the assets and liabilities at fair value of the acquiree and record goodwill on
bargain purchases, with the main difference being the application to all acquisitions
where control is achieved. SFAS 141 (R) is effective for financial statements issued
for fiscal years beginning after December 15, 2008 and will be adopted by the Company
in the first quarter of fiscal year 2009. We do not expect that the adoption of SFAS
141 (R) will have a material impact on our financial condition or results of
operation.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements”
(“FAS
157”). FAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about fair
value measurements. The provisions of FAS 157 are effective for the Company’s
fiscal year beginning January 1, 2008. The Company is currently evaluating the impact
that the adoption of this statement will have on the Company’s consolidated
financial position, results of operations or cash flows.
F-16
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
Inventories at December 31 consist of the following:
|
|
2007
|
|
2006
|
|
Stockpiles
Precious metals in process
|
$
|
242,921
224,333
|
|
$
|
160,987
197,427
|
|
|
$
|
467,254
|
|
$
|
358,414
|
|
4.
|
PROPERTY, PLANT AND MINE DEVELOPMENT
|
Major classes of property, plant, and mine development as of December 31, are as follows:
|
|
2007
|
|
2006
|
|
Land and buildings
Mining assets
Mine development costs
Mining rights
Motor vehicles
Furniture and equipment
Metallurgical plant
Plant and equipment
Environmental rehabilitation fund
|
$
|
91,162
5,839,151
7,344,539
1,489,488
97,738
60,099
1,735,479
214,752
331,827
|
|
$
|
88,743
5,684,246
2,452,784
1,449,974
95,145
60,701
1,689,440
209,054
323,025
|
|
Less: accumulated depreciation
and amortization
|
|
17,204,235
(3,826,435)
|
|
|
12,053,112
(3,277,932)
|
|
Net property and equipment
|
$
|
13,377,800
|
|
$
|
8,775,180
|
Depreciation, depletion and amortization expense is $676,122 and $501,349 for the years ended December 31, 2007 and 2006, respectively.
F-17
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
5.
|
ADVANCES FROM STOCKHOLDERS
|
Advances from stockholders as of December 31, are as follows:
|
|
2007
|
|
2006
|
|
Cheston Minerals (Pty) Ltd
|
$
|
17,485
|
|
$
|
6,473
|
|
|
$
|
17,485
|
|
$
|
6,473
|
These are unsecured non-interest bearing loans with no repayment terms
negotiated.
Long term liabilities as of December 31, are as follows:
|
|
2007
|
|
2006
|
|
Standard bank vehicle and asset financing
Less: current portion
|
$
|
843,984
(202,704)
|
|
$
|
115,352
(91,776)
|
|
|
$
|
641,280
|
|
$
|
23,576
|
Secured banking facility against mining equipment bearing interest at
the prime bank lending rate less 1.75% and repayable in monthly installments of South
African Rands 182,669 ($26,620).
The interest rates at December 31, 2007 and 2006 are14.50% and 9.50%,
respectively.
Maturities of the liabilities are as follows:
|
For the year ending December
31:
2008
2009
2010
2011
|
|
|
|
$
|
202,704
202,805
236,662
201,813
|
|
|
|
|
|
$
|
843,984
|
F-18
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
7.
|
RECLAMATION AND REMEDIATION
|
The Company’s mining and exploration activities are subject to
various laws and regulations governing the protection of the environment. These laws
and regulations are continually changing and are generally becoming more restrictive.
The Company conducts its operations so as to protect the public health and environment
and believes its operations are in compliance with applicable laws and regulations in
all material respects. The Company has made, and expects to make in the future,
expenditures to comply with such laws and regulations, but cannot predict the full
amount of such future expenditures. Estimated future reclamation costs are based
principally on legal and regulatory requirements.
At December 31, 2007 and 2006, $329,109 and $323,038, respectively,
were accrued for reclamation obligations relating to currently or recently producing
mineral properties.
The following is a reconciliation of the total liability for reclamation
and remediation:
|
Balance, December 31, 2005
Additions, change in estimate and other
Liabilities settled
Accretion expense
|
|
|
|
$
|
192,631
130,407
-
-
|
|
Balance, December 31, 2006
Additions, change in estimate and other
Liabilities settled
Accretion expense
|
|
|
|
|
323,038
6,071
-
-
|
|
Balance, December 31, 2007
|
|
|
|
$
|
329,109
|
|
8.
|
COMMITMENTS AND CONTINGENCIES
|
A first continuing covering bond in the amount of South African Rands
200,000 ($29,146) was registered over the property held by a subsidiary, Makonjwaan
Properties Henry Nettman Two Eight (Pty) Ltd., in lieu of financial guarantees
amounting to South African Rands 164,000 ($23,900) issued in favor of the Department of
Minerals and Energy.
During the year ended December 31, 2006, the Company entered into a
Service and Support Agreement with Cheston Minerals PTY Limited (“CML”), a
company owned by EGI’s President. This agreement covers the rental of the
Company’s South African office and use of the office equipment and supplies,
which are owned by CML. The term of the agreement is one year and is renewable on an
annual basis. The Company charged
F-19
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
8.
|
COMMITMENTS AND CONTINGENCIES
(Continued)
|
$180,000 and $150,000 to operating expense for the years ended December
31, 2007 and December 31, 2006, respectively.
During the year ended December 31, 2006, the Company entered into an
Agreement for Consulting Services and Public Relations with Zenith Premier Limited
(“ZPL”), a company in which EGI’s CFO serves as a director. This
agreement covers the investor relation services to be provided by ZPL to EGI. The
Company charged $198,000 and $189,000 to operating expense for the years ended December
31, 2007 and December 31, 2006, respectively.
The current South African mining legislation promulgated under
“Mineral and Petroleum Resources Development Act of 2004 (“MPRDA”)
seeks, among other things, (i) to expand opportunities for historically disadvantaged
South Africans to enter the mineral industry and obtain benefits from the exploitation
of mineral resources; and (ii) to promote employment, social and economic welfare as
well as ecologically sustainable development. In order to convert an old order mining
right to a new order mining right the holder is required to submit a social and labor
plan. The plan should describe how it will expand opportunities for historically
disadvantaged South Africans to enter the mineral industry.
Further, for purposes of mining right conversions effective May 1, 2004
(the effective date), the MPRDA (incorporating the Mining Charter) requires mining
company ownership for historically disadvantaged South Africans to 15% ownership within
five years and 26% ownership within 10 years of the effective date. The transfer of
ownership is to be consummated at fair market value.
Accordingly, and pursuant to the requirements of MPRDA, EGL on December
9, 2005 entered into a “Heads of Agreement” to sell 26% of its ordinary
stock to Lomshiyo Investments (Proprietary) Limited (“Lomshiyo”) for a
consideration of R9,900,000 (At December 31, 2007 – $1,442,728 and at December
31, 2006 - $1,404,454). This amount is a loan to Lomshiyo and is reflected as a
reduction of equity in the Company’s December 31, 2007 and December 31, 2006
consolidated balance sheets. Lomshiyo is a South African corporation whose majority
shareholders are historically disadvantaged South Africans. The transaction closed on
February 2, 2006.
F-20
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
9.
|
MINORITY INTEREST
(Continued)
|
The purchase of ordinary stock was financed with a note receivable
bearing an annual interest rate of the South African Prime Rate (14.5% at December 31,
2007 and 12.5% at December 31, 2006). The note accrues interest and is payable to the
Company on January 2, of each year. A total of $480,306 of accrued interest has been
added to the note receivable. The note is due and payable on December 31, 2010. The
Company’s common stock collaterizes the note receivable.
The Company’s balance sheet reflects two classes of equity -
common stock and A Class Preference Shares.
Common Stock
On October 10, 2006, the Company issued 400,000 shares of common stock
for cash proceeds of $1,840,000, net of offering costs of $160,000.
During the year ended December 31, 2006, 200,000 shares of EGI common
stock held by Stirling Nominees were issued to certain EGSA A Class Preference Share.
This came as a result of the cash acceptance of certain A Class Preference Shares as
described below.
On May 17, 2007, the Company issued 521,739 shares of common stock for
cash net proceeds of $2,786,600.
A Class Preference Shares
When the company acquired its wholly owned South African subsidiary,
EGSA, and EGSA subsequently acquired the South African mineral assets through its
purchase of EGL, a mechanism was put in place in order to comply with the Exchange
Control Regulations of the South African Reserve Bank and to accommodate the original
South African shareholders of these assets in EGL. The mechanism which was dealt
through a Sale of Shares Agreement (“the Agreement”) between EGSA and the
shareholders of EGL, involved the issuance of A Class Preference Shares in EGSA which
are directly linked to an equal number of shares in the common stock of EGI. In
accordance with this Agreement the following transactions took place:
|
|
1.
|
During the year ended December 31,2007 and 2006,40,000 and 200,000 A Class
Preference Shareholders exercised Cash Acceptance whereby an equivalent
number of EGI common stock held by Stirling Nominees Limited
("Stirling") were sold for the benefit of these A Class Preference
Shareholders.
|
F-21
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
A Class Preference Shares
(Continued)
|
|
2.
|
All of the exchanges of A Class Preference Shares were
cancelled and are not part of the issued and outstanding capital stock
of the Company as of December 31, 2007 and 2006. Accordingly, as of
December 31, 2007 and 2006, amount of issued and outstanding EGSA A
Class Preference Shares totaled 2,881,393 and 2,921,393, respectively
and are recorded as part of the shareholders' equity in the
consolidated financial statements, in recognition of their substance,
which is economically equivalent to that of common stock.
|
|
|
3.
|
The 2,881,393 shares of EGI common stock are held by
Stirling which can be accessed by the A Class Preference Shareholders
in terms of a Share Services Agreement (“Services
Agreement”). This Services Agreement which is valid through
August 31, 2025, is invoked upon acceptance of an offer by the Company
("EGI Offer") to acquire the A Class Preference Shares from an Offeree.
The Services Agreement provides that:
|
|
|
•
|
in the case of a Share Acceptance Stirling will transfer
equivalent number of shares of common stock of the company’s
common stock to the Offeree or;
|
|
|
•
|
in the case of a Cash Acceptance Stirling will procure
the sale of an equivalent number of shares in the common stock of the
company for the benefit of the Offeree.
|
The A Class Preference Shares referred to above are not considered to be
a liability in accordance with SFAS 150,
Accounting for
Certain Financial Instruments with Characteristics of Both Equity and
Liability
, as EGSA or EGI does not have an obligation to
transfer assets to its shareholders in respect of the Class A Preference
Shares.
The A Class Preference Shares in EGSA have the following significant
rights:
EGI Voting rights
– Stirling will
issue irrevocable proxies to the A Class Preference Shareholders to vote on all matters
relating to the common stock of the company.
EGSA Voting rights
– Each EGSA A
Class Preference Share shall have one vote and each EGSA Ordinary Share shall have
1,000,000 when voting on matters submitted to the shareholders of EGSA.
EGI Dividend rights -
Stirling waives all
of its entitlements to receive cash dividends from the company in favor of EGSA A Class
Preference Shareholders.
F-22
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
10.
CAPITAL STOCK
A Class Preference Shares
(Continued)
EGSA Dividend rights
–The holders of
the EGSA A Class Preference Shares will only be entitled to a dividend if EGI declares
dividends in respect of any year, and then the EGSA Class A shares will be entitled to
a preference dividend out of the profits of EGSA available for distribution per EGSA A
Class share.
11.
INCOME TAXES
The Company files tax returns in both South Africa and the United States
of America
The components of the consolidated income tax provision (benefit) for
the years ended December 31 are as follows:
|
|
2007
|
|
2006
|
|
Current
Deferred
Change in valuation allowance
|
$
|
-
(1,478,000)
1,478,000
|
|
$
|
-
(704,000)
704,000
|
|
Benefit (provision) for income tax
|
$
|
-
|
|
$
|
-
|
A reconciliation of the Company’s effective tax rate with the
federal statutory tax rate for the years ended December 31 is as follows:
|
|
2007
|
|
2006
|
|
U.S. tax benefit on continuing
U.S. operations
Foreign tax benefit from continuing
foreign operations
Change in valuation allowance
|
|
(35%)
(29%)
64%
|
|
|
(35%)
(29%)
64%
|
|
Effective tax rate
|
|
-
|
|
|
-
|
F-23
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
11.
|
INCOME TAXES
(Continued)
|
The formula for determining South African mining tax is:
Y = 35-175/X (2004: Y = 37-185/X)
Where Y is the percentage rate of tax payable and X is the ratio of
mining profit, after the deduction of redeemable capital expenditure, to mining revenue
expressed as a percentage.
As of December 31, 2007 and 2006, the significant components of the
Company’s deferred tax assets and liabilities were as follows:
|
|
2007
|
|
2006
|
|
Deferred tax liabilities:
Fixed assets
|
$
|
(1,549,000)
|
|
$
|
(889,000)
|
|
Deferred tax assets:
Net operating loss carryforwards
Unredeemed capital expenditures
|
|
1,558,000
9,711,000
|
|
|
1,578,000
7,553,000
|
|
Total deferred tax assets
|
|
11,269,000
|
|
|
9,131,000
|
|
Total net deferred tax assets
Valuation allowance
|
|
9,720,000
(9,720,000)
|
|
|
8,242,000
(8,242,000)
|
|
Net deferred tax asset
|
$
|
-
|
|
$
|
-
|
From South African operations, the Company had unredeemed capital
expenditures of $9,711,000 as of the year ended December 31, 2007. The Company had
estimated and assessed losses of $9,061,000 as of the year ended December 31,
2007.
The Company had available approximately $1,101,000 of unused U.S. net
operating loss carry-forwards at December 31, 2007, that may be applied against future
taxable income. These net operating loss carry-forwards expire for U.S. income tax
purposes in 2027. There is no assurance the Company will realize the benefit of the net
operating loss carry-forwards.
F-24
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
11.
|
INCOME
TAXES
(Continued)
|
SFAS No. 109 requires a valuation allowance to be recorded when it is
more likely than not that some or all of the deferred tax assets will not be realized.
As of December 31, 2006 the Company maintained a valuation allowance for the U.S. and
South African deferred tax asset due to uncertainties as to the amount of the taxable
income from operations that will be realized.
Upon adoption of FIN 48 as of January 1, 2007, the Company had
no gross unrecognized tax benefits that, if recognized, would favorably affect the
effective income tax rate in future periods. At December 31, 2007 the amount of
gross unrecognized tax benefits before valuation allowances and the amount that would
favorably affect the effective income tax rate in future periods after valuation
allowances were $0. These amounts consider the guidance in FIN 48-1,
“Definition of Settlement in FASB Interpretation No. 48”. The Company
has not accrued any additional interest or penalties as a result of the adoption of FIN
48.
The Company files income tax returns in the United States federal
jurisdiction in California and South Africa. The Company is no longer subject to U.S.
federal, state or non-U.S. income tax examination by tax authorities on tax returns
filed before December 31, 2004. No tax returns are currently under examination by any
tax authorities.
The Company currently maintains the Eastern Goldfields, Inc. 2005 Stock
Plan (“Stock Plan”), approved by stockholders on November 26, 2005,
for executives and eligible employees. Under this Stock Plan, options to purchase
shares of stock can be granted with exercise prices not less than 100% of fair market
value of the underlying stock at the date of grant. Options granted under the
Company’s stock plan vest over periods ranging from one to three years of the
date of the grant and are exercisable over a period of time not to exceed 10 years from
grant date. At December 31, 2006, no shares were available for future grants under
the Company’s 2005 Stock Incentive Plan.
The following table summarizes annual activity for all stock options for
each of the two years ended December 31:
F-25
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
12.
|
STOCK
OPTIONS
(Continued)
|
|
|
Employee Stock Options
(Continued)
|
|
|
2007
|
|
2006
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Outstanding, beginning
of year
Granted
Exercised
Forfeited and expired
|
|
850,000
-
-
-
|
|
$
|
1.50
-
-
-
|
|
|
800,000
50,000
-
-
|
|
$
|
1.50
1.50
-
-
|
|
Outstanding, end of year
|
|
850,000
|
|
$
|
1.50
|
|
|
850,000
|
|
$
|
1.50
|
|
Options exercisable, end of year
Weighted average fair value of options granted during
the year
|
$
|
833,000
-
|
|
$
|
1.50
|
|
$
$
|
550,000
$5.12
|
|
$
|
1.50
|
The fair value of the stock options granted (and vested) during the
years ended December 31, 2007 and 2006, was approximately $0 and $85,000 or $0 and
$5.12 per stock option, respectively, and was determined using the Black Scholes option
pricing model. The factors used for the years ended December 31, 2006, were the option
exercise price of $1.50 per share, a 3 year life of the options, volatility measure of
50%, a dividend rate of 0% and a risk free interest rate of 4.55%.
The following table summarizes information about stock options
outstanding at December 31, 2007, with exercise prices less than the fair market
value on the date of grant with no restrictions on exercisability after
vesting:
F-26
EASTERN GOLDFIELDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
12.
|
STOCK
OPTIONS
(Continued)
|
|
|
Employee Stock Options
(Continued)
|
|
|
|
Options Outstanding
|
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted-
average
Remaining
Contractual
Life
(in
years)
|
|
Weighted-
average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
$1.50
|
|
850,000
|
|
9
|
|
$
|
1.50
|
|
833,000
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, there was approximately $86,000 of unrecognized
compensation cost related to unvested stock options. This cost is expected to be
recognized over a weighted average period of .9 years.
On March 28, 2008, EGSA entered into a Convertible Loan Agreement. The
agreement involves EGSA receiving $3,981,932 (32,000,000 SA Rands) of proceeds. The
loan principal can convert into 6.9% of the total issued and outstanding shares of
ordinary capital after the conversion of the loan by EGSA. If EGSA is able to list its
shares with JSE Limited (JSE) within six months of the agreement date then no interest
is due and payable. If EGSA is not able to list its ordinary shares with the JSE within
six months of the agreement date then interest will accrue at the South African Prime
Rate. If EGSA list its ordinary shares with JSE after six months but before twelve
months of the agreement date, then interest will accrue and be paid on a monthly basis
until conversion or repayment of the loan. If EGSA has been unable to list its ordinary
shares with JSE within twelve months of the agreement date, then the lender can demand
repayment of principal and accrued interest or conversion of the debt into the
corresponding shares of ordinary shares of EGSA.
F-27