Results from operations
for the year and quarter ended June 30, 2006
| Expressed in thousands |
|
|
|
|
|
|
|
|
|
| United States dollars |
|
Jun-30 |
|
Mar-31 |
|
Dec-31 |
|
Sep-30 |
|
| |
|
2006 |
2005 |
2006 |
2005 |
2005 |
2004 |
2005 |
2004 |
| Mineral Sales |
$ |
5,443 |
2,122 |
16,753 |
4,804 |
9,502 |
5,755 |
6,255 |
7,685 |
| Direct costs of mineral sales |
|
(4,303) |
(6,087) |
(12,960) |
(5,309) |
(6,302) |
(5,111) |
(4,485) |
(4,713) |
| Depletion and depreciation |
|
(6,297) |
(1,886) |
(1,383) |
(1,360) |
(1,055) |
(1,216) |
(1,027) |
(1,170) |
| |
$ |
(5,157) |
(5,851) |
2,410 |
1,865) |
2,145 |
(572) |
743 |
1,802 |
| Expenses |
|
|
|
|
|
|
|
|
|
| Administration, office and general |
$ |
5,502 |
1,486 |
3,580 |
2,086 |
3,066 |
1,554 |
2,529 |
1,503 |
| Professional fees |
|
596 |
175 |
462 |
315 |
246 |
224 |
133 |
133 |
| |
|
|
|
|
|
|
|
|
|
| Other expenses (income) |
|
|
|
|
|
|
|
|
|
| including stock compensation |
|
11,754 |
(6,557) |
9,373 |
(1,008) |
(983) |
1,926 |
(521) |
642 |
| |
|
|
|
|
|
|
|
|
|
| Net loss |
|
(23,009) |
(955) |
(11,005) |
(3,258) |
(184) |
(4,276) |
(1,398) |
(476) |
| |
|
|
|
|
|
|
|
|
|
Loss per share – |
|
|
|
|
|
|
|
|
|
basic & fully diluted |
$ |
(0.07) |
(0.01) |
(0.03) |
(0.02) |
- |
(0.03) |
(0.01) |
- |
Cash flow from operations |
|
(36,519) |
(6,040) |
6,001 |
(6,911) |
8,209 |
(1,975) |
(7,238) |
(381) |
Cash and cash equivalents |
|
82,482 |
36,722 |
151,381 |
10,230 |
53,897 |
18,559 |
51,944 |
629 |
Total assets |
|
804,668 |
115,744 |
792,282 |
90,260 |
666,324 |
93,374 |
152,764 |
77,428 |
Long term debt |
|
320,560 |
25,981 |
285,440 |
26,744 |
204,157 |
24,806 |
26,132 |
14,123 |
Shareholders’ equity |
|
301,950 |
73,294 |
310,680 |
51,322 |
260,945 |
53,369 |
105,609 |
47,089 |
For the quarter ended June 30, 2006, the Company reported
mineral sales of $5.4 million (quarter ended June 30, 2005 - $2.1
million). This amount is significantly less than anticipated because of
a delay in shipping the fourth campaign for the year from Nalunaq
due to prevailing ice conditions. The shipment was delivered in mid
July and has been processed. This, in part, explains the increase in
inventory from $6.0 million at June 30, 2005 to $25.0 million at
June 30, 2006. The sales from this shipment will be reported in Q1
of fiscal 2007.
Direct costs for the quarter ended June 30, 2006 were $4.3 million
(quarter ended June 30, 2005 - $6.1 million), generating a gross
margin of $1.1 million (quarter ended June 30, 2005 – gross loss
$4.0 million). Depletion and depreciation, which is a non-cash
measure, increased from $1.9 million for the quarter ended June
30, 2005 to $6.3 million for the quarter ended June 30, 2006
primarily due to an additional charge relating to depletion on the
Lefa resource mined based on the acquisition price. Interest and
finance charges expense for the fourth quarter were $5.0 million
(quarter ended June 30, 2005 - $0.7 million) due to the increased
interest and financing costs incurred to finance the acquisition of
Guinor Gold Corporation and the development of the Lefa and
Phase 1 Masara assets.
Administration expenses increased from $1.5 million for the quarter
ended June 30, 2005 to $5.5 million for the quarter ended June
30, 2006 reflecting the ramp up of staff and costs necessary to
build a much larger world class organization to manage and
operate the Company’s significantly expanded asset base in
preparation for the anticipated five fold increase in production rate
in calendar 2007. The Company is in the process of building
appropriate internal control systems that will be required for a
company with annual production between 500,000 and 600,000
ounces of gold per year from three geographically diverse
operations.
The Company also reported a $9.3 million translation loss on
foreign exchange for the quarter ended June 30, 2006 compared
to a $5.4 million gain for the quarter ended June 30, 2005. These
gains and losses represent non cash items relating principally to the
difference, for reporting purposes, upon translation of the amount
of the Company’s debt denominated in Norwegian kroner
(“NOK”) into United States dollars.
| Selected Annual Information |
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
$ 000 |
$ |
’000 |
$ |
’000 |
Mineral sales |
$ |
37,953 |
|
20,366 |
|
- |
Direct cost of mineral sales |
|
(28,050) |
|
(21,220) |
|
- |
Depletion and depreciation |
|
(9,762) |
|
(5,632) |
|
- |
| |
$ |
141 |
$ |
(6,486) |
|
- |
| |
|
|
|
|
|
|
Administration, office and general |
$ |
(14,677) |
|
(6,629) |
|
(5,237) |
Professional fees |
|
(1,437) |
|
(847) |
|
(705) |
Stock compensation expense |
|
(1,805) |
|
(326) |
|
(308) |
Other income (expenses) |
|
(19,592) |
|
3,455 |
|
3,011 |
Income taxes and Minority Interest |
|
1,774 |
|
1,868 |
|
380 |
Net Loss |
$ |
(35,596) |
$ |
(8,965) |
$ |
(2,859) |
EBITDA (see below) |
|
768 |
|
3,055 |
|
(1,088) |
Loss per share – basic and fully diluted |
$ |
(0.13) |
$ |
(0.05) |
$ |
(0.02) |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
|
281,543,480 |
|
167,424,369 |
|
143,324,571 |
Cash flow from operations |
|
(29,547) |
|
(15,307) |
|
(4,483) |
Cash and cash equivalents |
|
82,482 |
|
36,722 |
|
1,994 |
Total assets |
|
804,668 |
|
115,744 |
|
74,825 |
Long term debt |
|
320,560 |
|
25,981 |
|
14,048 |
| |
|
|
|
|
|
|
Shareholders’ equity |
$ |
301,950 |
$ |
73,294 |
$ |
46,770 |
EBITDA (1) is calculated as follows: |
|
|
|
|
|
|
Net loss |
|
(35,596) |
|
(8,965) |
|
(2,859) |
Depletion and depreciation |
|
9,762 |
|
5,632 |
|
- |
Interest and finance charges |
|
11,938 |
|
4,176 |
|
1,771 |
Stock compensation expense |
|
1,805 |
|
326 |
|
308 |
Foreign exchange loss (gain) |
|
12,859 |
|
1,886 |
|
(313) |
| |
|
|
|
|
|
|
| EBITDA (1) |
|
768 |
|
3,055 |
|
(1,088) |
(1) The Company defines EBITDA as “Earnings before interest, taxes, depreciation and depletion, non-cash foreign exchange gain or loss,
stock compensation expense and interest and finance expense”. It is a non-GAAP measure and is more specifically described in the
section entitled “Non-GAAP measures” on the final page of this MDA.
The Company acquired, together with its associated Philippine
partner, control of Apex Gold Mining Company and its Masara
Mine (“Masara”) in December 2005. The Company also acquired
85% of Guinor Gold Corporation and its Lefa Mine (“Lefa”) in
December 2005 and the remaining 15% in June 2006. The
financial results of the Company incorporate those of Masara and
Lefa since their dates of acquisition.
Fiscal year 2006 and the remainder of calendar year 2006 are
periods of acquisition, expansion and development for the
Company. Subsequent to the acquisition of Masara and Lefa,
management’s focus has been to take all necessary steps at both
sites so that a targeted five fold increase in the Company’s gold
production rate can commence during calendar 2007.
The financial results for fiscal year 2006 and for the remainder of
the calendar year 2006 reflect, and will reflect, the costs of
financing the acquisition of Guinor Gold Corporation and the
development of the Lefa and Phase 1 Masara assets and the
increased costs of building a much larger world class organization
to manage and operate the Company’s significantly expanded
asset base in preparation for commencement of full production in
early 2007.
The Company reported EBITDA for the year ended June 30, 2006
of $0.8 million compared to $3.0 million for the year ended June
30, 2005. This decrease is due to the expected increase in general
and administrative expenses associated with the increase in staff
during the preproduction ramp up of the Lefa and Masara
operations which was expected.
The Company reported a net loss for fiscal year 2006 of $35.6
million ($0.13 per share) compared to a net loss of $9.0 million
($0.05 per share) for fiscal year 2005, an increase of $26.6
million. More than half of this increase consists of non-cash items,
including foreign exchange translation adjustments (arising
principally from the translation of the Company’s NOK
denominated debt to U.S. dollars for reporting purposes) and
depletion and depreciation expenses (due primarily to the
depletion of the Lefa mineral property). An additional $7.7 million
of the increase is attributable to interest and financing costs incurred
to finance the acquisition of Guinor Gold Corporation and the
development of the Lefa and Phase 1 Masara assets. Also
contributing to the loss were increased general and administrative
expenses of $8.0 million relating to the cost of staffing and building
a world class organization to manage the Company’s expanded
asset base. Finally, the results for 2006 include profits on the sale of non core assets totalling $3.4 million compared to $9.9 million
in 2005.
The increase in interest and administrative costs are cash costs that
will be reduced in future years. The interest will be reduced as
principal payments are made or as bonds are converted to equity.
Administrative costs will be reduced as the organization moves from
the construction phase to production. The exchange translation
adjustment is a non-cash entry that is required to translate all the
companies’ assets and liabilities into USD, the measurement and
reporting currency of the Company.
For the first quarter of fiscal 2007, owing to the weakening of the
NOK against the US dollar, the Company expects to record noncash,
unrealized foreign exchange gains which will reduce most of
the unrealised loss incurred in fiscal 2006.
Interest and finance charges for the year were $11.9 million for the
year ended June 30, 2006 compared to $4.2 million for the year
ended June 30, 2005. Included within interest and finance charges
for the year ended June 30, 2006 are the costs of new convertible
bonds drawn down by the Company to finance the acquisition of
Guinor Gold Corporation and the costs of bonds drawn down in
March 2006 to finance the development of Lefa and Phase 1 of
Masara. The new convertible bonds total $194.6 million and are
denominated in NOK. The bonds drawn down in March 2006
total $99.2 million and are denominated 50% in NOK and 50% in
US dollars. The year on year increase in interest and finance
charges arises directly from interest, accretion charges, and
amortization of financing costs from the date of draw down to the
year end.
Included within interest and finance charges for the year ended
June 30, 2005 are one-time costs associated with a reorganisation
of the Company’s borrowings that occurred in October 2004. The
Company paid $1.2 million to the then existing holders of those
convertible bonds to induce them to convert their position. This
resulted in an interest saving of approximately $2.2 million over the
remaining period of the convertible bonds.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2006 the Company’s main source of liquidity was
unrestricted cash of $82.5 million (June 30, 2005 - $36.7 million).
At June 30, 2006, the Company’s consolidated working capital
comprising cash, restricted cash, accounts receivable, prepaids,
inventories, and less accounts payable was $75.7 million (June 30,
2005 - $36.2 million). The increase in working capital arises as a direct result of the cash received in respect of the bond and share
issuances to finance the Lefa and Apex projects and Guinor group
acquisition and the assumption of its creditors.
To finance the acquisition of Guinor, the Company issued
109,311,557 new shares for aggregate gross proceeds of
approximately $146 million. Additionally the Company issued
senior unsecured convertible bonds in two tranches raising
approximately $194 million. The new equity and convertible
bonds were issued via private placements.
The Company incurred total costs of $17.1 million in respect of
raising the financing of $340 million and the subsequent
acquisition of Guinor. Of these, $7.9 million have been treated as
deferred financing costs resulting from the issue of the 6%
convertible bonds of $194 million, $5.9 million have been treated
as issue costs of the new equity of $146 million and $3.3 million
has been included as an acquisition cost of the Guinor Mineral
Property Interest.
Prior to its acquisition by Crew, Guinor, through its subsidiary
Societé Miniére de Dinguiraye (“SMD”), entered into a credit
facility that provided for up to US$60m of debt financing for the
expansion of the Lefa Corridor Gold Project in Guinea. The facility
was to take the form of US$54M project debt with the US$6M
balance provided in the form of a convertible instrument. The
Company did not consider this route the optimal financing
arrangement for the project, being restrictive both in the amount
and impact upon the operation and the requirement to hedge its
future gold sales.
As a result, the Company secured debt financing to replace the
facility and to partially fund the development of Phase 1 of Masara
and the increased resource expansion programs planned for Lefa
and Masara. On March 31, 2006 the Company received
subscriptions for a new issue of secured bonds in the aggregate
principal amount of approximately $81.6 million, comprised of a
USD tranche of $50.0 million and a NOK tranche of NOK200
million which is approximately $31.6 million. In the final quarter of
fiscal 2006, further subscriptions for NOK 125 million,
approximately $20 million were received.
The USD tranche of the bonds has a floating interest rate of 3
month LIBOR + 5.0% per annum, whereas the NOK tranche has a
floating interest rate of 3 month NIBOR + 5.0% per annum. The
bonds have a 5-year term, and Crew may redeem the bonds
(wholly or in part) at the third anniversary of the issuance at a price of 105.0% and at the fourth anniversary of issuance at a price of
102.5%. The bonds are collateralized by a pledge over all the
shares of Crew's wholly owned subsidiary Guinor Gold
Corporation. Crew has undertaken not to raise any new debt which
results in the Company exceeding specified financial ratios nor
raise any new debt in Guinor. In addition, Crew also agreed not to
make any dividend payments or other distributions to its
shareholders constituting more than, on a consolidated basis, 50%
of Crew's net profit after taxes for the previous financial year (other
than in respect of a divesting of non-gold assets of Crew into a
separate entity listed on a stock exchange).
On April 6, 2006 the Company closed private placement
subscriptions for 32.3 million common shares at NOK 13 per share
(approximately CDN$2.01) for aggregate gross proceeds of NOK
420 million (approximately $65 million). The proceeds were used
to fund the acquisition of the interest of the Government of Guinea
in Lefa, Phase 1 and part of Phase 2 of Masara and other
corporate purposes.
The Company had total assets of $804.7 million at June 30, 2006
(June 30, 2005 - $115.7 million) and shareholders’ equity of
$302.0 million (June 30, 2005 - $73.3 million).
Project capital expenditures for the year ended June 30, 2006
totalled $89.8 million (year ended June 30, 2005 - $7.1 million).
The amounts of capital expended on the individual projects for the
year ended June 30, 2006 were Lefa $71.5 million (2005 - $nil),
Masara $13.2 million (2005 - $nil) and Nalunaq $5.1 million
(2005 - $7.1 million). Exploration expenditures for fiscal 2006
were $1.6 million (2005 - $0.3 million).
The Company has not entered into gold hedging contracts during
the year or since year-end. Consideration will be given to hedging
in the future and will depend on production rates and anticipated
gold prices.
The Company’s audited consolidated financial statements at June 30
2006 contain a continuing operations note. Please see Note 1 to the
Company’s audited consolidated financial statements at June 30,
2006. Management believes that the completion of both phases of
the Masara project will lead to the highest return for the company.
To facilitate maximum growth by significantly expanding the Lefa
regional exploration program, expanding the Masara underground
development and Phase 2 of the processing facility, and the possible
acquisition of a processing plant for Nalunaq and an acquisition of a minority holding in Apex, and to have sufficient working capital to
meet the growth over the next six months, the Company will pursue
an equity financing prior to December 31, 2006.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
The Company is committed to minimum annual non-cancellable
future operating lease payments as follows:
|
|
2006 |
|
2005 |
Within one year |
$ |
369 |
$ |
218 |
Years two to five |
$ |
- |
$ |
- |
| |
$ |
369 |
$ |
218 |
As at June 30, 2006, the Company has capital commitments with
respect to the Lefa project amounting to $41,081,000. These are
all to be incurred within the year ending June 30, 2007.
The Company has exercised an option agreement with Altai
Philippines Mining Corporation (“APMC”) in order to acquire
Mineral Property Sharing Agreements and exploration permits for
the Negros sulphur concessions. Under this agreement the
Company has certain obligations if it wishes to continue this
exploration. (see note 15 to the audited financial statements for
further details)
OUTLOOK
Fiscal 2006, the balance of calendar year 2006, and part of
2007, has been, and will be, a period of expansion and
development for Crew. The Company’s primary objectives have
been to expand and develop Lefa and Masara, ready for
commencement of production in 2007, while maximizing returns
from its other production assets and continuing to add value by
developing exploration projects.
Management believes that the Company will meet its stated goal of
realizing mid tier producer status in 2007 and that the Company
will have a strong platform to expand reserves and resources and
to advance to its next goal of becoming a one million oz gold
producer with over 10 million ounces in reserves and resources.
The implementation of the expansion at Lefa, including the CIP plant,
continues on schedule. The Kelian plant has now been substantially
reassembled. The first two deliveries of new mining fleet has been
received and the remainder is expected imminently. The civil
construction work on the plant site and mine development work are
now well advanced. When operational, output is forecast at more
than 350,000+ounces per year at a reserve grade of 1.7 g/t.
Encouraging drilling results have been obtained from the Fayalala,
Lero-Karta, Camp de Base and Kankarta deposits and from the
Sikasso and Banora Prospects. Results at Fayalala are immediately
east of the pit and should be captured by an extension to the
current pit design. These grades are substantially higher than the
current reserve grade for the Fayalala ore bodies of 1.4 g/t Au.
These recent results are complemented by an increase in measured
and indicated resources of 0.44 million ounces which moved from
3.40 million ounces to 3.84 million ounces.
Based on these encouraging results, the Company will allocate
further funds to aggressively explore both the Lefa Corridor and the
regional potential with a target to double the resource and reserve
base over the next 2 to 3 year period. This would be a similar
outcome to that from the intensive exploration program conducted
in preparation for the Bankable Feasibility Study completed in
2004. Priority will be given to targets within trucking distance from
the existing plant and targets with higher grade potential.
For the coming fiscal year, the Company has allocated
approximately $6 million for exploration within and around the
existing resources in the Lefa corridor and a further $2.3 million for
regional exploration over the remaining concession and
exploration permits.
The ensuing months at Masara will see accelerated mine
development as new mining equipment is delivered and
commissioned. The annual targeted production rate for Apex for
2007 is 120,000 to 140,000 ounces increasing to 180,000 to
200,000 ounces in 2008. The Company is encouraged by further
high value potential of the Masara Mine which was not
immediately apparent at the time of acquisition. This relates to the
potential for increased overall tonnage and resources available
and potential increased mining width that will allow for increased
production.
These additional targets/projects will be assessed during the next
18 to 24 months and include an evaluation of the potential for
open pit resources towards the southeast of the property where
several major vein sets coalesce and an assessment of the potential
to increase mining widths by capturing the mineralised alteration
selvedges which have been indicated by historical sampling
information for some veins such as Maligaya. Recent underground
sampling appears to support this historical data and based on the
historical information, the Company made provision in the new
plant layout to enable an expansion beyond the initial design
capacity of 2,000 to 2,900 tonnes per day with minimal disruption.
Work has yet to commence on the assessment of the porphyry
copper-gold targets located on the property. A 1980 feasibility study
identified a significant resource at the Masara deposit that has not
been included in the historical reported resources. The Company has
received interest from several copper operators to investigate the
copper potential on the property and it is expected that a programme
to assess these targets will commence during 2007.
The Nalunaq operation has achieved a solid platform from which
to deliver improved performance. Delivered grades have improved
approximately 19% from the previous year. Management believes
improvements seen in Nalunaq’s results will continue, particularly
through the continued implementation of the mine optimisation
project and associated cost reductions. The second phase of the
mine optimisation programme has been to review the mining
equipment to ensure a sustainable balance between mine
development and stope production in order to increase production
rates. The Company has begun receiving additional equipment in
the form of an additional long-hole drill rig, scoops, and
underground trucks with larger 20 tonne capacity together with
ancillary mobile equipment. Further improvements to mining
efficiencies and production rates should be realised in last half of
2006 as this equipment is delivered to site and the underground
equipment workshop is commissioned in late calendar 2006.
All non-gold projects are held by Crew Minerals AS, a wholly
owned subsidiary. With all non-gold projects the Company’s
strategy has been until recently, unlike gold projects, to take little, or
no, financial and operational risk. In conjunction with the spin-off
of Crew Minerals, the strategy has been refined and Crew Minerals
will seek to acquire projects in or close to production and to
operate those projects. The Daguma Coal Project fits this strategy.
The key assets in Crew Minerals will initially be the Mindoro Nickel,
Seqi Olivine royalty and the Daguma Coal project, given a positive
conclusion of the due diligence process. However, the Hurdal
molybdenum project, Pamplona Sulphur, the latest diamond
exploration licence in Greenland and a number of other exploration
licences all represent further potential value for Crew Minerals.
Management believes the Mindoro Nickel Project represents
significant growth potential and value. Considerable work has
been performed on the Mindoro Nickel project in the quarter. The
Company has now completed the collection of a quantitative bulk
sampling for metallurgical testing in Lakefield laboratories in Perth
Australia, by intensive drilling of three representative areas. The test
work will define critical parameters of the leach processing for both limonite and saprolite ore-types. Plans are being completed for a
comprehensive in-fill drilling program in certain parts of the
concession where rich saprolite is expected. The Company has
continues with discussions with major industry players regarding the
development of the project and is continuing to seek a solution that
will give maximum benefit to Crew’s shareholders.
One of the industry’s biggest challenges is to replace and increase
its reserves and resources. Management believes Crew is well
positioned to significantly increase its reserves and resources
organically and have allocated human, technical and financial
resources to produce a substantial increase within the shortest
possible time. We believe the status of the company, with a
massive increase in production rapidly approaching and a large
exploration upside, makes the company very well positioned to
participate in the continued consolidation within the sector.
SHARE CAPITAL
The authorized share capital at September 30, 2006 was
1,000,000,000 common shares without par value. At September
30, 2006, the Company had 369,224,880 shares issued and
outstanding and an additional 119,954,546 shares to be issued on
the conversion of the company’s convertible bonds.
The Company has a Share Option Plan which authorizes the Board
of Directors of the Company to grant up to 26,000,000 options to
directors, officers and employees of Crew and any of its subsidiaries,
to acquire common shares of the Company at a price which is greater
than or equal to the fair market value of each common share on the
date the option is granted. The options are generally exercisable for
up to five years from the date of grant. At September 30, 2006 there
were 12,727,667 options available for grant.
At September 30, 2006 there were 9,140,000 share options
outstanding at an average weighted price of CDN$ 1.43 each. All
options outstanding relate to directors, officers and employees.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in Canada requires companies to
establish accounting policies and to make estimates that affect both
the amount and timing of the recording of assets, liabilities,
revenues and expenses. Some of these estimates require judgments
about matters that are inherently uncertain.
All of the Company’s significant accounting policies and the
estimates derived there-from are included in Note 2 to the annual Consolidated Financial Statements for the year ended June 30,
2006. While all of the significant accounting policies are important
to the Company’s consolidated financial statements, the following
accounting policies, and the estimates derived there-from, have
been identified as being critical:
- Carrying Values of Mining Property, Plant and Equipment and
Other Mineral Property Interests;
- Depletion and Depreciation of Property, Plant and Equipment;
- Reclamation and Remediation Obligations;
- Income Taxes
Carrying Values of Mining Property, Plant and Equipment
and Other Mineral Property Interests
The Company reviews and evaluates its mining properties for
impairment at least annually or when events and changes in
circumstances indicate that the related carrying amounts may not
be recoverable. Impairment is considered to exist if the total
estimated future undiscounted cash flows are less than the carrying
amount of the assets. Estimated undiscounted future net cash flows
for properties in which a mineral resource has been identified are
calculated using estimated future production, commodity prices,
operating and capital costs and reclamation and closure costs.
Undiscounted future cash flows for exploration stage mineral
properties are estimated by reference to the timing of exploration
and / or development work, work programs proposed, the
exploration results achieved to date and the likely proceeds
receivable if the Company sold specific properties to third parties.
If it is determined that the future net cash flows from a property are
less than the carrying value, then an impairment loss is recorded
with a charge to operations, to the extent the carrying value
exceeds discounted estimated future cash flows.
The estimates used by management are subject to various risks and
uncertainties. It is reasonably possible that changes in estimates could
occur which may affect the expected recoverability of the Company’s
investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Mining property, plant and equipment comprise the largest
component of the Company’s assets and, as such, the amortization
of these assets has a significant effect on the Company’s financial
statements.
On the commencement of commercial production, depletion of each
mining property is provided on the unit-of-production basis using
estimated proven and probable reserves as the depletion basis. The mining plant and equipment and other capital assets are
depreciated, following the commencement of commercial production,
over their expected economic lives using either the unit-of-production
method or the straight-line method (over two to 10 years), as
appropriate.
Capital projects in progress are not depreciated until the capital asset
has been put into operation.
The proven and probable reserves are determined based on a
professional evaluation using accepted international standards for
the assessment of mineral reserves. The assessment involves the study
of geological, geophysical and economic data and the reliance on a
number of assumptions. The estimates of the reserves may change,
based on additional knowledge gained subsequent to the initial
assessment. This may include additional data available from
continuing exploration, results from the reconciliation of actual mining
production data against the original reserve estimates, or the impact
of economic factors such as changes in the price of commodities or
the cost of components of production. A change in the original
estimate of reserves would result in a change in the rate of depletion
and depreciation of the related mining assets or could result in
impairment resulting in a write-down of the assets.
Reclamation and Remediation Obligations
The Company has obligations for site restoration and
decommissioning related to its mining properties. The Company,
using mine closure plans or other similar studies that outline the
requirements planned to be carried out, estimates the future
obligations from mine closure activities. Because the obligations are
dependent on the laws and regulations of the countries in which the
mines operate, the requirements could change resulting from
amendments in those laws and regulations relating to environmental
protection and other legislation affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of mining property, plant
and equipment, when those obligations result from the acquisition,
construction, development or normal operation of the assets. Initially,
a liability for an asset retirement obligation is recognized at its fair
value in the period in which it is incurred. Upon initial recognition of
the liability, the corresponding asset retirement cost is added to the
carrying amount of the related asset and the cost is amortized as an
expense over the economic life of the asset using either the unit-ofproduction
method or the straight-line method, as appropriate.
Following the initial recognition of the asset retirement obligation, the
carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying
cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the
determination of closure provisions, management makes a number of
assumptions and judgments. The closure provisions are more
uncertain the further into the future the mine closure activities are to
be carried out. Actual costs incurred in future periods related to the
disruption to date could differ materially from the $1.7 million
discounted future value estimated by the Company at June 30, 2006.
Income Taxes
Future income tax assets and liabilities are computed based on
differences between the carrying amounts of assets and liabilities on
the balance sheet and their corresponding tax values, using the
enacted or substantially enacted, as applicable, income tax rates at
each balance sheet date. Future income tax assets also result from
unused loss carry-forwards and other deductions. The valuation of
future income tax assets is reviewed quarterly and adjusted, if
necessary, by use of a valuation allowance to reflect the estimated
realizable amount.
The determination of the ability of the Company to utilize tax loss
carry-forwards to offset future income tax payable requires
management to exercise judgment and make assumptions about the
future performance of the Company. Management is required to
assess whether the Company is “more likely than not” to benefit from
these tax losses. Changes in economic conditions, metal prices and
other factors could result in revisions to the estimates of the benefits to
be realized or the timing of utilizing the losses.
RISKS AND UNCERTAINTIES
The Company and its projects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies
engaged in mining operations and the acquisition, exploration and
development of mineral properties. These risk factors could materially
affect the Company’s future operating results and cause actual future
events to differ materially from those described in forward-looking
statements. The key risk factors are outlined below.
Liquidity Risk
Liquidity risk measures the risk that the Company may not be able to
meet its liabilities as they fall due. At the year-end the Company had
no committed credit facilities in place.
Were the Company unable to complete a further raising of capital,
it may not be able to fulfil its intention of significantly expanding the Lefa regional exploration program, expanding the Masara
underground development and processing facility, and acquiring a
processing plant for Nalunaq.
Currency Risk
Results of our operational and development projects based in
Guinea, Greenland, the Philippines and Norway, are reported and
measured in US dollars, and are therefore affected by exchange
rates between the US dollar and local currencies. All of the
Company’s revenues are recorded and measured in US dollars. A
weaker dollar would cause costs incurred in a currency other than
US dollars to increase. The Company does not, at present,
undertake any trading activity in financial instruments; however
foreign exchange risk is managed by satisfying foreign
denominated expenditures or liabilities with cash flows or assets
denominated in the same currency. The Company funds its foreign
currency denominated operations on a short-term basis to minimize
the level of foreign currency denominated assets held and
therefore, mitigates the risk of exposure against the US dollar.
Interest Rate Risk
Monetary assets and liabilities are subject to the risk of movements
in interest rates. At June 30, 2006 the Group had total term debt
of $320.6 million denominated in Norwegian Kroner. These
liabilities are held at either at fixed interest terms or relevant to
LIBOR or NIBOR interest rates.
At June 30, 2006, the Company held a total of $89.8 million of
cash on deposit. $71.2 million of this balance was held in Norway,
$0.1 million held in Canada, $16.6 million in the United Kingdom
and the balance of $1.9 million in Greenland.
These deposits are held in the relevant local currency at floating
interest rates. Interest rates are commercial rates, which are fixed by
reference to LIBOR for Canadian and sterling dollar assets, or the
applicable inter-bank interest rates for financial assets held in other
currencies.
Exploration, Development and Operating Risk
The Company’s activities are primarily directed towards mining
operations and the development of it mineral deposits. Its activities
also include the exploration for and development of mineral deposits.
Mining operations generally involve a high degree of risk. The
Company’s Lefa, Nalunaq and Apex operations are subject to all
the hazards and risks normally encountered in the exploration,
development and production of gold. These include unusual and
unexpected geologic formations, rock bursts, cave-ins, adverse
weather conditions, flooding and other conditions involved in the
drilling and removal of material, any of which could result in
damage to, or destruction of, mines and other producing facilities,
damage to life or property, environmental damage and possible
legal liability. Although adequate precautions to minimize risk are
and will be taken, operations are subject to which may result in
environmental pollution and consequent liability.
The exploration for and development of mineral deposits involves
significant risks which even a combination of careful valuation,
experience and knowledge may not eliminate. While the discovery
of an ore body may result in substantial rewards, few properties
which are explored are ultimately developed into producing mines.
Major expenses may be required to locate and establish mineral
reserves, to develop metallurgical processes and to construct mining
and processing facilities at a particular site. It is impossible to ensure
that the exploration or development programs planned by the
Company will result in a profitable commercial mining operation.
Whether a mineral deposit will be commercially viable depends on
a number of factors, some of which are: the particular attributes of the
deposit, such as size, grade and proximity to infrastructure;
commodity prices which are highly cyclical; and government
regulations, including regulations relating to prices, taxes, royalties,
land tenure, land use, importing and exporting of minerals and
environmental protection. The exact effect of these factors cannot be
accurately predicted, but the combination of these factors may result
in the Company not receiving an adequate return on invested capital.
If an alternative to Nalunaq’s current processing arrangement is not
secured imminently there may be a temporary disruption in ore
processing.
There is no certainty that the expenditures made by the Company
towards the search and evaluation of mineral deposits will result in
discoveries of commercial quantities of ore.
Foreign Operations
The Company’s interests in mining operations are based in Guinea,
Greenland, and the Philippines, with further exploration and
development projects in Guinea, Greenland, the Philippines and
Norway. Therefore the Corporation’s activities are exposed to
varying degrees of political, economic, other risks and uncertainties.
These risks and uncertainties vary from country to country and
include, but are not limited to: terrorist activities, hyperinflation, labour unrest, the risks of war or civil unrest, expropriation and
nationalization, renegotiation or nullification of existing concessions,
licenses, permits and contracts, illegal mining, changes in taxation
policies, restrictions on foreign exchange and repatriation, and
changing political conditions, currency controls and governmental
regulations that favour or require the awarding of contracts to local
contractors or require foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction.
Changes in mining or investment policies or shifts in political attitude
could materially impact the Company’s financial results. Operations
may be affected in varying degrees by government regulations with
respect to, but not limited to, restrictions on production, price controls,
export controls, currency remittance, income taxes, expropriation of
property, foreign investment, maintenance of claims, environmental
legislation, land use, land claims of local people, water use and mine
safety. Failure to comply strictly with applicable laws, regulations and
local practices relating to mineral right applications and tenure, could
result in loss, reduction or expropriation of entitlements, or the
imposition of additional local or foreign parties as joint venture
partners with carried or other interests. The occurrence of these
various factors and uncertainties cannot be accurately predicted and
could have an adverse effect on profitability.
Insurance and Uninsured Risks
The Company’s business is subject to a number of risks and hazards
generally, including adverse environmental conditions, industrial
accidents, labour disputes, unusual or unexpected geological
conditions, ground or slope failures, cave-ins, changes in the
regulatory environment and natural phenomena such as inclement
weather conditions, floods, snow falls and avalanches. Such
occurrences could result in damage to mineral properties or
production facilities, personal injury or death, environmental damage
to the Company’s properties or the properties of others, delays in
mining, monetary losses and possible legal liability.
Although the Company maintains insurance to protect against certain
risks in such amounts as it considers reasonable, its insurance will not
cover all the potential risks associated with a mining company’s
operations. The Company may also be unable to maintain insurance
to cover these risks at economically feasible premiums.
Insurance coverage may not continue to be available or may not be
adequate to cover any resulting liability. Moreover, insurance against
risks such as environmental pollution or other hazards as a result of
exploration and production is not generally available to companies
in the mining industry on acceptable terms.
The Company may also become subject to liability for pollution or
other hazards which may not be insured against or which it may elect
not to insure against because of premium costs or other reasons.
Losses from these events may cause the Company to incur significant
costs that could have a material adverse effect upon its financial
performance and results of operations.
Environmental Risks and Hazards
All phases of the Company’s operations are subject to
environmental regulation in the various jurisdictions where it
operates. These regulations mandate, among other things, the
maintenance of air and water quality standards and land
reclamation. They also set forth limitations on the generation,
transportation, storage and disposal of solid and hazardous waste.
Environmental legislation is evolving in a manner which may require
stricter standards and enforcement, increased fines and penalties
for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for
companies and their officers, directors and employees. There is no
assurance that future changes in environmental regulation, if any,
will not adversely affect adversely the Company’s operations.
Government approvals and permits are currently, and may in the
future be, required in connection with the Company’s operations. To
the extent such approvals are required and not obtained; the
Company may be curtailed or prohibited from continuing its mining
operations or from proceeding with planned exploration or
development of mineral properties.
Failure to comply with applicable laws, regulations and permitting
requirements may result in enforcement actions, including orders
issued by regulatory or judicial authorities causing operations to
cease or be curtailed, and may include corrective measures
requiring capital expenditures, installation of additional
equipment, or remedial actions. Parties engaged in mining
operations or in the exploration or development of mineral
properties may be required to compensate those suffering loss or
damage by reason of the mining activities and may have civil or
criminal fines or penalties imposed for violations of applicable
laws or regulations. Amendments to current laws, regulations and
permits governing operations and activities of mining and
exploration companies, or more stringent implementation thereof,
could have a material adverse impact on the Company and cause
increases in exploration expenses, capital expenditures or
production costs or reduction in levels of production at producing
properties or require abandonment or delays in development of
new mining properties.
Uncertainty in the Estimation of Ore/Mineral Reserves and
Mineral Resources
The figures for ore/mineral reserves and mineral resources contained
in this document are estimates only and no assurance can be given
that the anticipated tonnages and grades will be achieved, that the
indicated level of recovery will be realized or that ore/mineral
reserves could be mined or processed profitably.
There are numerous uncertainties inherent in estimating ore/mineral
reserves and mineral resources, including many factors beyond the
Company’s control. Such estimation is a subjective process, and the
accuracy of any reserve or resource estimate is a function of the
quantity and quality of available data and of the assumptions made
and judgments used in engineering and geological interpretation.
Short-term operating factors relating to the ore/mineral reserves, such
as the need for orderly development of the ore bodies or the
processing of new or different ore grades, may cause the mining
operation to be unprofitable in any particular accounting period. In
addition, there can be no assurance that gold recoveries derived from
small-scale laboratory tests will be duplicated in larger scale tests
under on-site conditions or during production.
Fluctuation in commodity prices, results of drilling, metallurgical
testing and production and the evaluation of mine plans subsequent
to the date of any estimate may require revision of such estimate.
The volume and grade of reserves mined and processed and
recovery rates may not be the same as currently anticipated. Any
material reductions in estimates of ore/mineral reserves and
mineral resources, or of the Company’s ability to extract these
ore/mineral reserves, could have a material adverse effect on the
Company’s results of operations and financial condition.
Additional Ore and Mineral Reserves
Because mines have limited lives based on proven and probable
ore/mineral reserves, the Company must continually replace and
expand its ore/mineral reserves as its mines produce gold. The lifeof-
mine estimates for the Company’s mining operations may not be
correct. The Company’s ability to maintain or increase its annual
production of gold will be dependent on its ability to bring new
mines into production and to expand ore/mineral reserves at its
existing mines.
Additional Financing
The mining, processing, development and exploration of the
Company’s projects, may require additional external financing. Failure
to obtain sufficient financing could result in the delay or indefinite
postponement of exploration, development or production on any or all of the Company’s projects. There can be no assurance that additional
capital or other types of financing will be available if needed or that,
if available, the terms of such financing will be favourable.
Commodity Prices
The market price of the Company’s common shares, financial results
and exploration, development and mining activities have previously
been, and may in the future be, adversely affected by declines in
commodity prices, which are subject to significant fluctuation. The
factors giving rise to these fluctuations are generally out of the
Company’s control, being largely driven by external global
economic factors.
In particular, the price of gold has fluctuated significantly in recent
years. Declines in the price of gold in the future could render the
Company’s exploration and mining activities uneconomical until such
time as the price recovers. These declines could result in a recalculation
of life-of-mine plans and reserve calculations which could
have a material adverse affect on measured financial performance.
Government Regulation
The mining, processing, development and mineral exploration
activities of the Company are subject to various laws governing
prospecting, development, production, taxes, labour standards and
occupational health, mine safety, toxic substances, land use, water
use, land claims of local people and other matters. Although the
Company’s mining operations and exploration and development
activities are currently carried out in accordance with all applicable
rules and regulations, no assurance can be given that new rules
and regulations will not be enacted or that existing rules and
regulations will not be applied in a manner which could limit or
curtail production or development. Amendments to current laws
and regulations governing operations and mining activities could
have a substantial adverse impact on the Company.
Acquisition Strategy
Part of the Company’s business strategy is to seek new mining and
development opportunities with a particular, but not exclusive, focus
on gold. The Company could, however, fail to select appropriate
acquisition targets, fail to negotiate favourable acquisition or
financing terms, or could complete acquisitions or business
arrangements which do not ultimately benefit the ongoing business
of the Company. The Company also faces strong competition from
other mining and exploration companies in connection with the
acquisition of properties producing, or capable of producing, precious metals, and many of these competing companies have
greater resources than Crew.
Risks Relating to Recent Acquisitions
The Company recently completed its acquisition of Guinor Gold
Corporation and an interest in the Apex Mining Company, Inc.
There can be no assurance that the benefits anticipated from these
acquisitions will be realized by the Company.
Installation of the carbon-in-pulp gold processing plant (the “CIP
Plant”) at the Lefa Gold Project in the Republic of Guinea may not be
completed on schedule or at all, and once installed, the CIP Plant
may not become operational or may not achieve the production
capacity or production cost per ounce expected by the Board.
Similarly, construction of the additional processing plant at the
Masara Mine in the Philippines may not be completed on schedule
or at all, or may never become fully commissioned, which could have
a material adverse affect on the Company’s future production,
profitability, financial performance and results of operations.
Integration Risk
Achieving the anticipated benefits of the Guinor Gold Corporation
and Apex Mining Company, Inc. acquisitions will depend in part
the Company's ability to integrate the two companies’ businesses
with that of Crew in an efficient and effective manner. The process
of integrating the operations and technology of these organizations
is expected to take several months and there can be no assurances
that the Company will be able to accomplish the integration
smoothly or successfully. The Company's failure to do so may result
in a significant diversion of management's time from ongoing
business matters, and may have a material adverse effect on the
business, results of operation and financial condition of the
combined company.
Market Price of Stock
The Company’s common shares are listed on the Toronto Stock
Exchange, the Oslo Børs, the Frankfurt exchange, and are traded
on the over-the-counter bulletin board in the United States.
Securities of mining and exploration companies have experienced
substantial volatility in the past, often based on factors unrelated to
the financial performance or prospects of the companies involved.
These factors include global macroeconomic developments and
market perceptions of the attractiveness of particular industries. The
Company’s share price is also likely to be significantly affected by short-term changes in gold prices or in its financial condition or
results of operations as reflected in its quarterly financial statements.
As a result of any of these factors, the market price of Crew’s
common shares at any given point in time may not accurately reflect
the Company’s long term value. Securities class action litigation
often has been brought against companies following periods of
volatility in the market price of their securities. The Company may in
the future be the target of similar litigation. Securities litigation could
result in substantial costs and damages and divert management’s
attention and resources.
Sales of a large number of the Company’s common shares in the
public markets, or the potential for such sales, could decrease the
trading price of Crew’s shares, and could impair the Company’s
ability to raise capital through future share issues.
There are a significant number of Crew’s shareholders who have
holdings acquired for significantly less than the current market
price. Accordingly, these shareholders have an investment profit in
the Company’s common shares that they may seek to liquidate.
Dependence on Key Personnel
The success of the Company is dependent on senior management.
The experience of these individuals will be a factor contributing to
the Company’s continued success and growth. The loss of one or
more of these individuals could have a material adverse effect on
the Company's business prospects.
Internal Controls
The Company maintains a set of disclosure controls and procedures
designed to ensure that information required to be disclosed in
filings made pursuant to Mutilateral Instrument 52-109 is recorded,
processed, summarised and reported in the manner specified by
the relevant securities laws applicable to the Company. Due to the
amalgamation of the various entities, in a number of
geographically diverse locations that comprise the consolidated
entity, work is ongoing to improve and modernize these controls
and to ensure that they remain consistently applied internationally.
The Chief Executive Officer and Chief Financial Officer have
evaluated the Company’s disclosure controls and procedures as of
June 30, 2006 through discussion with all levels of management of
all entities, as well as by drawing upon their own relevant
experience and by retaining dedicated internal personnel to assist
in such evaluations. The CEO and CFO have concluded that the
disclosure controls and procedures are effective in the
circumstances.but require improvement as the Company's rapid
growth continues. Management has developed and is
implementing a plan to address the disclosure controls and
procedures required for a larger international organization.
Further, the Company maintains and is constantly reviewing, a set
of internal controls over financial reporting which have been
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements in
accordance with Canadian GAAP.
SAFE HARBOUR STATEMENT
Certain statements contained herein, as well as oral statements that
may be made by the Company or by officers, directors or
employees of the Company acting on its behalf, that are not
statements of historical fact, may constitute “forward-looking
statements” and are made pursuant to applicable and relevant
national legislation (including the Safe-Harbour provisions of the
United States Private Securities Litigation Reform Act of 1995) in
countries where Crew is conducting business and/or investor
relations. Forward-looking statements, include, but are not limited to
those with respect to the price of gold, the estimation of mineral
reserves and resources, the realization of mineral reserves
estimates, the timing and amount of estimated future success of
exploration activities, the timing and amount of production
estimates, targeted production cash costs and forecasted cash
reserves, Crew’s hedging practices, currency fluctuations,
requirements for additional capital, government regulation of
mining operations, environmental risk, title disputes or claims
limitations on insurance coverage and the timing and possible
outcome of pending litigation. Often, but not always, forwardlooking
statements can be identified by the use of words such as
“plans”, “expects”, “does not expect”, “is expected”, “targets”,
“budget”, “estimates”, “forecasts”, “intends”, “anticipates” or
“does not anticipate”, or “believes”, or equivalents or variation,
including negative variation, of such words and phrases, or state
that certain actions, events or results, “may”, “could”, “would”,
“might” or “will” be taken, occur or be achieved. Forward-looking
statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the Company to
be materially different from the historical results or from any future
results expressed or implied by such forward-looking statements.
Such risks and uncertainties include, among others, the actual
results of current exploration activities, conclusions of economic
evaluations, changes in project parameters as plans continue to be refined, possible variations in grade and ore densities or recovery
rates, failure of plant, equipment or processes to operate as
anticipated, accidents, labour disputes and other risks of the mining
industry, delays in obtaining government approvals or financing or
in completion of development or construction activities. Although
Crew has attempted to identify important factors that could cause
actual actions, events or cause actions events or results not to be
anticipated, estimated or intended, there can be no assurance that
forward looking statements will prove to be accurate as actual
results and future events could differ materially from those
anticipated in such statements. Except as may be required by
applicable law or stock exchange regulation, the Company
undertakes no obligation to update publicly or release any
revisions to these forward-looking statements to reflect events or
circumstances after the date of this document or to reflect the
occurrence of unanticipated events. Accordingly, readers should
not place undue reliance on forward-looking statements.
NON-GAAP MEASURES
“EBITDA” is a non-GAAP measure of performance that describes
earnings before interest, taxes, depletion and depreciation, stock
compensation charges and non-cash foreign exchange movements.
“Cash Cost per ounce” is a non GAAP measure derived from the
total direct cost of ounces produced, less depletion and
depreciation and other non cash items, as a measure of total
ounces produced. Cash costs are presented as the Company
believes they represent an industry standard of comparison.
EBITDA and cash cost per ounce are not terms defined under
Canadian generally accepted accounting principles, nor do they
have a standard, agreed upon meaning. As such, EBITDA and
cash cost per ounce may not be directly comparable to EBITDA
and cash cost per ounce reported by other similar issuers.
