JSE and any other stock exchange upon which our shares are quoted or listed, we may from time to time reduce our issued capital, share premium account, stated capital and/or capital redemption reserve fund by ordinary resolution.
(h) There is no provision for a sinking fund in our Articles of Association.
(i) There are no provisions relating to the liability of our shareholders for further capital calls.
(j) There are no provisions of the Articles of Association discriminating against existing or prospective holders of any securities as a result of such shareholders owning a substantial number of shares.
(4) Variation of Rights.
(5) General Meeting.
(a) The directors may at any time convene general meetings and shall do so when called upon by at least 100 of our shareholders holding no less than an aggregate of one-twentieth of our capital stock.
(b) Annual general meetings and meetings at which special resolutions will be considered require at least twenty-one (21) calendar days notice. Other general meetings require not less than fourteen (14) days calendar notice.
(c) Subject to any special provisions governing preference shares, every shareholder or representative shall have one vote for every share held. A shareholder may appoint a proxy to represent or vote on his behalf. There are no provisions which limit admission of shareholders to any general meetings.
(6) Limitations of Rights of Ownership.
(a) Our Articles of Association contain no exclusion or limitation in respect of non-resident or foreign shareholders. The only limitation on ownership recognized is where the owner of the shares is subject to a legal incapacity. In such circumstances we would register the name of such person who submits proof of his appointment as executor, trustee, curator or guardian.
(7) Mergers and Acquisitions.
There are no provisions in our Articles of Association which have an effect of delaying, deferring or preventing a change of control.
(8) Ownership Disclosure.
There are no provisions in the Articles of Association requiring disclosure above any threshold level.
A brief summary of material contracts entered into by us, other than in the ordinary course of business, during the last two years follows:
1. Joint Venture Agreement between Randgold & Exploration Company Limited and Eurasia Mining plc, dated October 18, 2002.
This agreement gives Eurasia Mining plc the right to prospect for platinum group metals on the Doornbosch farm in the eastern limb of the Bushveld complex in Mpumalanga, South Africa. The agreement gives Eurasia the opportunity to earn up to 75% in the project through conducting exploration
up to the bankable feasibility study stage and the payment of a total of $810,000 and R412,500. The durations of the agreement is 18 months commencing from the date a prospecting permit is issued.
2. Settlement Agreement between Rolls-Royce Power Ventures Limited, Syama Power Plant Sales Limited, Operation D'Energie De Syama S.A., Societe des Mines De Syama S.A., Randgold Resources Limited and Randgold & Exploration Company Limited, dated December 16, 2002.
We entered into this settlement agreement with RRL, Somisy, Rolls-Royce, Syama Power Sales Limited, or SYPPS, and Operation d'Energie de Syama S.A. regarding our outstanding litigation relating to a contract for the supply of power generating equipment to the Syama gold mine. As a result of this agreement, all parties have withdrawn their claims. Under this agreement, we, Somisy and RRL agreed to pay SYPPS a total amount of $5.3 million in three installments. Resolute assumed the outstanding balance of this settlement when it acquired the Syama mine.
3. Services Agreement between Randgold & Exploration Company Limited and Randgold Resources Limited, dated February 2, 2003.
Under this agreement, we will provide RRL with certain identified services provided or sourced from South Africa at cost plus a mark up. The agreement was cancelled with effect from April 1, 2004.
4. Sale Agreement, dated June 20, 2003 from Platgold Pacific NL, Hazcare Pty Ltd. and Randgold & Exploration Company Limited.
Under this agreement, we purchased the mining rights for the Rotifunk mineral sands project to mine for rutile, ilmenite and zircon in Sierra Leone for $5.2 million which was paid in cash.
5. Agreement between Randgold & Exploration Company Limited and Notable Holdings (Pty) Limited dated July 22, 2003.
Under this agreement, Notable Holdings (Pty) Ltd settled its script lending obligation with us through a cash payment of R27 million to be paid by no later than June 30, 2004 and the transfer of 660,000 Western Areas shares to us. However, the repayment date has been verbally extended to December 31, 2004. An amendment reflecting this extension has not yet been executed.
6. Agreement between Randgold & Exploration Company Limited and Kemonshey Holdings Limited on July 22, 2003.
Under this agreement, we settled the script lending agreement which we had entered into with Kemonshey Holdings Limited dated March 28, 2003, by transferring 3.3 million ordinary shares of Western Areas to Kemonshey Holdings Limited.
7. Sale of Shares Agreement, dated July 28, 2003, amongst Randgold & Exploration Company Limited, Equitant Trading (Proprietary) Limited and Phikoloso Mining (Proprietary) Limited.
Under this agreement, we purchased all of the issued share capital and all of the shareholder claims on loan accounts of Viking Pony Properties 359 (Pty) Ltd from Phikoloso in exchange for 8.8 million new shares, representing 16.4% of our share capital at that time.
8. Agreement between Randgold & Exploration Company Limited and Continental Goldfields Limited, dated December 11, 2003.
Under this agreement Continental Goldfields Limited settled a debt of R13,831,461 owed to us through the transfer to us of 40,000,000 ordinary shares of Simmer and Jack Limited.
9. Agreement made and entered into by and between Randgold & Exploration Company Limited and Masupatsela Investment Holdings (Pty) Limited, dated December 30, 2003.
Under the terms of this agreement, we loaned MIH $11.91 million. This amount was originally scheduled to be repaid on or before June 30, 2004. However, the repayment date has been verbally extended to December 31, 2004. An amendment reflecting the extension has not yet been executed. The loan bears interest at the prime rate charged by The Standard Bank of South Africa plus 0.5% calculated on the daily balance outstanding and capitalized monthly in arrears. MIH has pledged 104 million ordinary shares of JCI Limited as security for the loan.
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10. Call Option Agreement by Lunda Sul Holdings (Proprietary) Limited in favour of Randgold & Exploration Company Limited in respect of Lunda Alluvial Operations (Pty) Ltd dated January 5, 2004.
Under this agreement, we obtained an option to purchase 100% of the issued and outstanding shares of Lunda Alluvial Operations (Pty) Ltd, or Lunda. Lunda holds 100% of the issued shares of Refraction Investments (Pty) Limited which in turn holds 70% of the issues shares of Luembe Mining (Pty) Limited, or Luembe. Luembe holds diamond mining rights in Angola. We exercised this call option on March 30, 2004 and we issued 2.268 million of our ordinary shares to Lunda Sul Holdings (Pty) Ltd. to acquire the above companies.
11. Mineral Rights Agreement between Randgold & Exploration Company Limited and Minrico Limited, dated February 22, 2004.
Under this agreement, we granted our subsidiary Minrico the right to market, manage and turn to account our mineral right holdings in South Africa, in anticipation of the coming into effect of the Mineral and Petroleum Resources Development Act.
12. Subscription and Option Agreement between Randgold & Exploration Company Limited and The Afrikander Lease Limited, dated February 26, 2004.
We entered into an agreement with Aflease in terms of which for a total consideration of R82.5 million we will subscribe for 24 million Aflease shares, and receive a three-year American option to subscribe for a further 24 million Aflease shares at R5 each ("the initial subscription"). After a period of 18 months from the initial subscription, we will be entitled, for a further consideration of R88.5 million, to subscribe for a second tranche of 24 million Aflease shares and to receive another three-year American option to subscribe for a further 24 million Aflease shares at R5 each. We undertook to provide Aflease with a short-term loan of R15 million, bearing interest at the prime rate charged by The Standard Bank of South Africa plus 1.5%, repayable in cash on the earlier of our first subscription or June 30, 2004. In terms of an Addendum to this agreement a further amount of R15 million was lent to Aflease under the same conditions as the principal loan.
13. Heads of Prospecting Agreement between Randgold & Exploration Company Limited and De Beers Consolidated Mines Limited dated April 30, 2004.
This agreement gives De Beers the right to prospect on 99 of our farms representing a total of 267,000 hectares until December 30, 2004 at which stage De Beers must elect whether to apply for prospecting permits over any of these farms. In return, De Beers pays us R267,000 and will pay additional amounts for the farms chosen for further prospecting work. We have the right to subscribe for 25% of any mine bought to production on any of these 99 farms.
14. Underwriting Agreement made and entered into by and between Randgold & Exploration Company Limited and The Afrikander Lease Limited dated May 13, 2004.
Under this agreement, we agreed to purchase any shortfall in the subscription of Aflease shares by its shareholders in connection with its recently announced rights offer, on the same terms as those offered to all other shareholders.
15. Sale of Mining Rights Agreement by Koketso Angola Joint Venture and Randgold & Exploration Company Limited.
16. Sale of Mining Rights Agreement by Masupatsela Angola Mining Ventures (Proprietary) Limited and Randgold & Exploration Company Limited.
17. Sale of Rights Agreement by Quantum African Mining (Proprietary) Limited and Randgold & Exploration Company Limited.
18. Equipment Sale Agreement by Trans Benguela Logistics (Proprietary) Limited and Randgold & Exploration Company Limited.
In June 2004 we entered into the above agreements to acquire various alluvial diamond prospecting and mining licences, together with mining equipment and assets in Angola from the following entities:
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| • | The Koketso Angola Joint Venture, or Koketso. Under this agreement we acquired a 24% interest in the Luxinge alluvial diamond mining license situated in the Luande Norte province of Angola from Koketso in exchange for 1,319,000 of our ordinary shares; |
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| • | Masupatsela Angola Mining Ventures (Pty) Ltd, or Masupatsela. Under this agreement we acquired a 20% interest in the Dando Kwanza alluvial prospecting concession situated in the Bie province of central Angola in exchange for 1,492,000 of our ordinary shares; |
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| • | Quantum African Mining (Pty) Ltd, or Quantum. Under this agreement we acquired a 20% interest in the Somba Sul alluvial diamond prospecting concession situated in the Lunda Sol province of Angola in exchange for 1,373,000 of our ordinary shares; and |
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| • | Trans Benguela Logistics (Pty) Ltd, or Benguela. Under this agreement we acquired mining equipment and assets from Benguela in exchange for 1,506,000 ordinary shares. |
The shares for these acquisitions have been issued.
19. Consortium Sale Agreement amongst Tawny Eagle Holdings (Proprietary) Limited and Anglo South Africa Capital (Proprietary) Limited and Chestnut Hill Investments 60 (Proprietary) Limited and Randgold & Exploration Company Limited.
Under the terms of this agreement, Anglo South Africa Capital (Proprietary) Limited, or Anglo South Africa, sold to Chestnut Hill Investments 60 (Pty) Ltd., or Chestnut, 13,738,507 ordinary shares of WAL at a price of R37.50 per share for a total consideration of R515,194,012.50. This amount is payable by November 1, 2004 and bears interest at the prime rate charged by The Standard Bank of South Africa plus 1.5%. If Chestnut fails to fulfill its obligations to Anglo South Africa, Anglo South Africa is entitled to repurchase the 5,268,800 Western Areas shares purchased by us, at a discount of R70,000,000 or claim a penalty of R70,000,000 from us. Chestnut has subsequently changed its name to Inkwenkwezi Gold Mining Consortium.
20. Randgold Sale Agreement between Anglo South Africa Capital (Proprietary) Limited and Randgold & Exploration Company Limited.
Under the terms of this agreement, Anglo South Africa sold us 5,268,800 ordinary shares of WAL at R37.50 each for a total consideration of R196.7 million plus interest at the prime rate charged by The Standard Bank of South Africa plus 2%. This amount has been paid. The ordinary shares acquired by us represent approximately 5% of the issued ordinary shares of WAL.
21. Option Agreement between Randgold & Exploration Company Limited and Chestnut Hill Investments 60 (Proprietary) Limited.
Under the terms of this agreement we granted Chestnut an option to acquire the 5,268,800 ordinary shares of WAL, which we purchased from Anglo South Africa, for R37.50 per share plus interest, provided these shares have been released from the pledge granted to Anglo South Africa discussed above. This option is for a period of 12 months commencing from the completion date of the Consortium Sale Agreement discussed above.
D. EXCHANGE CONTROLS
Introduction
The following is a general outline of South African exchange controls. We encourage investors to consult a professional advisor as to the exchange control implications of their particular investments.
Although the exchange rate of the South African Rand is primarily market determined, its value at any moment cannot be considered a true reflection of the underlying value of the Rand while exchange controls exist. The South African government has stated repeatedly that it is committed to phasing out controls in a prudent manner. In line with this commitment, the financial rand was abolished in 1995, and subsequently there has been a practice of leniency in applying certain capital ratios.
In view of the many inherent disadvantages of exchange controls, such as the distortion of the price mechanism, the problems encountered in the application of monetary policy, the detrimental effects on
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inward foreign investment and the large administrative costs, the South African Finance Minister has indicated that all remaining exchange controls are likely to be dismantled as soon as circumstances are favorable. The gradual approach to the abolition of exchange controls adopted by the South African government is designed to allow the economy to adjust more smoothly to the removal of controls that have been in place for a considerable period.
The comments below relate to exchange controls in force at June 30, 2003. These controls are subject to change at any time without notice.
Government Regulatory Considerations
Generally, the making of loans to us or our subsidiaries and associated companies, our ability and the ability of our subsidiaries and associated companies to borrow from South African sources and the repatriation of dividends, interest and royalties by us is regulated by the Exchange Control Department of the SARB.
A foreign investor may invest freely in the securities of a South African company, whether listed on the JSE or not. The foreign investor may also sell his equity investment in a South African company at a market price and transfer the proceeds out of South Africa without restriction.
If a foreign investor wishes to lend capital to a South African company, the parties must obtain the prior approval of the SARB mainly in respect of the interest rate and terms of repayment applicable to such loan.
Where 75% or more of a South African company's capital, voting power or earnings is directly or indirectly controlled by non-residents, such a company is designated an "affected person" by the SARB, and certain restrictions are placed on its ability to obtain local financial assistance. We are not and have not been designated an "affected person" by the SARB.
Dividends
Dividends are freely transferable out of South Africa from both trading and non-trading profits earned in South Africa through a South African bank which has been appointed as an authorized dealer in foreign exchange. An audit certificate must be presented to the South African bank, confirming that the payment is a dividend. "Affected persons" must apply for SARB approval for the remittance of dividends offshore if such companies have made local borrowings in excess of the limit allowed.
As a general matter, an "affected person" that has accumulated historical losses may not declare dividends out of current profits without first making good past losses. Moreover, in situations where a South African company has a calculated tax loss without a concomitant accounting loss, the SARB requires that a notional tax charge be deducted from current profits before the profit available for distribution to shareholders is determined.
Interest
Interest on foreign loans is freely remittable abroad, provided the loans received prior SARB approval.
Voting Rights
There are no limitations imposed by South African law or by our Articles of Association on the right of non-South African shareholders to hold or vote our ordinary shares.
E. TAXATION
The comments below relate to tax laws and regulations in force at June 15, 2003 and outline the material tax consequences to U.S. Shareholders (as defined below) of ours under South African, Malian and United States laws and regulations. These laws are subject to change at any time. We encourage investors to consult a professional advisor as to the tax implications of their particular investments.
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It has been assumed that the U.S. Shareholders only own our shares of the Company. Therefore, the only income items that will be received by the U.S. Shareholders are dividends and proceeds on the sale of shares.
Additionally, it has been assumed that the U.S. Shareholders are not resident in South Africa for tax purposes.
South Africa
Withholding Taxes
There are no South African withholding taxes on dividend payments made to a U.S. shareholder.
There is a double taxation treaty between South Africa and the U.S. However, in view of the absence of any withholding taxes on dividends under South African domestic law, the treaty has no effect in this area.
Income Taxes Relating to Shareholders
Normal tax, or income tax, in South Africa is levied on a residence basis. Thus, any person who is a resident will be subject to South African tax on his or her world-wide income. Non-residents are subject to tax on their South African sourced income.
Dividends received by residents and non-residents from South African resident companies are exempt from tax while foreign dividends received by a resident are taxable.
With effect from October 1, 2001, capital gains are included in the taxable income of residents. Non-residents are only subject to capital gains tax in respect of capital gains realized on the disposal of an interest in immovable property situated in South Africa. As the inclusion rate for capital gains is 25% in the case of natural taxpayers, the maximum effective capital gains tax rate in respect of natural persons is 10%. Capital gains on the realization of a shareholding by a U.S. (non-resident) shareholder should prima facie be excluded from South African capital gains tax provided those shares do not relate to an interest in immovable property situated in South Africa. If, however, the South African tax authorities look at the intention behind the ownership of the equity interest and determine that the disposal results in a revenue profit, that profit may be subject to income tax if the profit is from a source within South Africa.
Income Taxes Relating to Us
South Africa: Income Tax
Income tax is levied in South Africa on income that is classified as being of a revenue nature at the corporate tax rate of 30%. As noted above, with effect from October 1, 2001, capital gains are also included in the taxable income of resident companies. Non-resident companies are only subject to capital gains tax in respect of capital gains realized on the disposal of an interest in immovable property situated in South Africa. As the inclusion rate for capital gains is 50% for companies, the effective capital gains tax rate in respect of companies is 15%.
Secondary Tax on Companies
The discussion below on the secondary tax on companies, or STC, provides a description of how STC payable by us is determined. As neither we nor our South African operating subsidiaries have made any dividend payments during the last four fiscal periods, we do not expect to be liable for STC in South Africa.
South African resident companies are currently liable to pay STC at a rate of 12.5% of the net amount of a dividend declared during any dividend cycle. The STC is levied on the company and does not constitute a withholding tax on dividends declared. The net amount of a dividend declared is the excess of the dividend declared by a company over the amount of dividends accruing to the company during a
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dividend cycle. A dividend cycle runs from date of declaration of a dividend to the date of declaration of the next dividend. Thus, STC will therefore only indirectly affect the U.S. Shareholders, as it will be incurred and paid by the relevant South African company declaring a dividend.
Marketable Securities Tax and Stamp Duty
Listed securities (shares and other marketable securities) purchased and sold through a stockbroker are subject to marketable securities tax at a rate of 0.25% of the consideration paid. Where the marketable securities tax is not payable, stamp duty is payable on the registration of transfer or acquisition of shares and other marketable securities at a rate of 0.25% of the consideration or market value for the transfer (whichever is higher).
United States
The following summary describes certain material U.S. Federal income tax consequences to U.S. Shareholders (as defined below) arising from the purchase, ownership and disposition of American Depositary Shares (ADSs) or ordinary shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, final, temporary and proposed U.S. Treasury Regulations promulgated under the Code, and administrative and judicial interpretations of the Code, all as in effect as of the date of this summary, and all of which are subject to change, possibly with retroactive effect. This summary has no binding effect or official status or any kind; we cannot assure holders that the conclusions reached below would be sustained by a court if challenged by the Internal Revenue Service.
For purposes of this discussion, a "U.S. Shareholder" is a holder of our ordinary shares or ADSs that is:
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| • | a U.S. citizen; |
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| • | an individual resident in the United States for U.S. Federal income tax purposes; |
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| • | a domestic corporation, or other entity taxable as a corporation, organized under the laws of the United States or of any U.S. state or the District of Columbia; |
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| • | an estate the income of which is includible in its gross income for U.S. Federal income tax purposes without regard to its source; or |
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| • | a trust, if either: a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all the substantial decisions of the trust, or the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
This summary does not deal with all aspects of U.S. Federal income taxation that may be relevant to particular U.S. Shareholders in light of their particular circumstances or to U.S. Shareholders subject to special rules, including, without limitation:
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| • | certain retirement plans: |
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| • | insurance companies; |
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| • | U.S. Shareholders of securities held as part of a "straddle," "synthetic security," "hedge," "conversion transaction" or other integrated investment; |
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| • | persons that enter into "constructive sales" involving American Depositary Shares or ordinary shares or substantially identical property with other investments; |
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| • | U.S. Shareholders whose functional currency is not the United States dollar; |
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| • | certain expatriates or former long-term residents of the United States; |
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| • | financial institutions; |
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| • | broker-dealers; |
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| • | tax-exempt organizations; |
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| • | U.S. shareholders who own (directly, indirectly or through attribution) 10% or more of the our outstanding voting stock; |
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| • | persons subject to the alternative minimum tax; |
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| • | regulated investment companies; |
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| • | traders in securities who elect to apply a mark-to-market method of accounting; and |
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| • | persons who acquired their shares or ADSs pursuant to the exercise of employee stock options or otherwise as compensation. |
In addition, this summary does not address the effect of any applicable state, local or foreign tax laws. This summary does not consider the tax treatment of persons who own American Depositary Shares or ordinary shares through a partnership or other pass-through entity, and deals only with American Depositary Shares or ordinary shares held as "capital assets" as defined in Section 1221 of the Code. If a partnership (including for this purpose, any entity treated as a partnership for U.S. federal income tax purposes) holds shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If a U.S. Shareholder is a partner in a partnership that holds shares or ADSs, the holder is urged to consult its own tax advisor regarding the specific tax consequences of the ownership and disposition of the shares or ADSs.
U.S. SHAREHOLDERS OF AMERICAN DEPOSITARY SHARES OR ORDINARY SHARES ARE ENCOURAGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL TAX CONSEQUENCES, AS WELL AS THE TAX CONSEQUENCES IN OTHER JURISDICTIONS, OF THE PURCHASE, OWNERSHIP AND SALE OF AMERICAN DEPOSITARY SHARES OR ORDINARY SHARES APPLICABLE IN THEIR PARTICULAR TAX SITUATIONS.
ADSs or Ordinary Shares
Ownership of ADSs or Ordinary Shares
For purposes of the Code, U.S. holders of ADSs will be treated for U.S. Federal income tax purposes as the owner of the ordinary shares represented by those ADSs. Exchanges of ordinary shares for ADSs and ADSs for ordinary shares generally will not be subject to U.S. Federal income tax.
Our Status as a Passive Foreign Investment Company
We believe that we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the taxable year ended 2003, and anticipate that we will be classified as a PFIC for the 2004 taxable year.
U.S. Shareholders who owned our shares in 2003 will be subject to reporting requirements for 2003 and succeeding years, even if in subsequent years we are no longer a PFIC. U.S. Shareholders may also be subject to increased U.S. tax liabilities if we are a PFIC, even if in subsequent years we are no longer a PFIC, although shareholder elections may apply in certain circumstances as described below. The same reporting obligations and tax consequences will apply to U.S. Shareholders who acquire shares during the 2004 taxable year if our expectation that we will be a PFIC for the 2004 taxable year is accurate.
We encourage U.S. Shareholders to consult their own tax advisors regarding our status as a PFIC and the consequences of an investment in a PFIC.
We will be a PFIC in any taxable year if 75% or more of our gross income in the taxable year, including our pro rata share of the gross income of any company, U.S. or foreign, in which we are considered to own 25% or more of the shares by value, is passive income. Alternatively, we will be considered to be a PFIC in any taxable year if at least 50% of our assets in the taxable year, averaged over the year and ordinarily determined based on fair market value and including our pro rata share of the assets of any company in which we are considered to own, for any year during a U.S. Shareholder's holding period, 25% or more of the shares by value, are held for the production of, or produce, passive income.
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If we were a PFIC, and a U.S. Shareholder did not make an election to treat us as a "qualified electing fund" or elect to mark-to-market our ADSs or ordinary shares (each as described below):
Excess distributions by us to a U.S. Shareholder would be taxed in a special way. "Excess distributions" are amounts received by a U.S. Shareholder with respect to our stock in any taxable year that exceed 125% of the average distributions received by such U.S. Shareholder from us in the shorter of either the three previous years or such U.S. Shareholder's holding period for American Depositary Shares or ordinary shares before the present taxable year. Excess distributions must be allocated ratably to each day that a U.S. Shareholder has held our stock. A U.S. Shareholder must include amounts allocated to the current taxable year in its gross income as ordinary income for that year. A U.S. Shareholder must pay tax on amounts allocated to each prior taxable year in which we were a PFIC at the highest rate in effect for that year on ordinary income and the tax is subject to an interest charge at the rate applicable to deficiencies for income tax.
The entire amount of gain that is realized by a U.S. Shareholder upon the sale or other disposition of American Depositary Shares or ordinary shares will also be treated as an excess distribution and will be subject to tax as described above.
The tax basis in shares of our stock that were acquired from a decedent who was a U.S. Shareholder would not receive a step-up to fair market value as of the date of the decedent's death but would instead be equal to the decedent's basis, if lower.
Although we generally will be treated as a PFIC as to any U.S. Shareholder if we are a PFIC for any year during a U.S. Shareholder's holding period, if we cease to satisfy the requirements for PFIC classification, the U.S. Shareholder may avoid PFIC classification for subsequent years if he, she or it elects to recognize gain based on the unrealized appreciation in the American Depository Shares or ordinary shares through the close of the tax year in which we cease to be a PFIC.
A U.S. Shareholder who beneficially owns shares of a PFIC must file Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with the IRS for each tax year in which he, she or it holds stock in a PFIC. This form describes any distributions received with respect to these shares and any gain realized upon the disposition of these shares.
For any tax year in which we are determined to be a PFIC, a U.S. Shareholder may elect to treat his, her or its ADSs or ordinary shares as an interest in a qualified electing fund (a "QEF Election"), in which case the U.S. Shareholder would be required to include in income currently his, her or its proportionate share of our earnings and profits in years in which we are a PFIC regardless of whether distributions of such earnings and profits are actually distributed to such U.S. Shareholder. Any gain subsequently recognized upon the sale by such U.S. Shareholder of his, her or its ordinary shares generally would be taxed as capital gain and the denial of the basis step-up at death described above would not apply.
A U.S. Shareholder may make a QEF Election with respect to a PFIC for any taxable year of the U.S. Shareholder. A QEF Election is effective for the year in which the election is made and all subsequent taxable years of the U.S. Shareholder. Procedures exist for both retroactive elections and the filing of protective statements. An additional election is available to defer the payment of taxes that may result from a QEF Election, although interest must be paid on any deferred taxes. A U.S. Shareholder making the QEF Election must make the election on or before the due date, as extended, for the filing of the U.S. Shareholder's income tax return for the first taxable year to which the election will apply. A U.S. Shareholder must make a QEF Election by completing Form 8621 and attaching it to his U.S. federal income tax return, and must satisfy additional filing requirements each year the election remains in effect. We intend to provide to each U.S. Shareholder, upon request, the tax information required to make a QEF Election and to make subsequent annual filings.
In the alternative, the U.S. Shareholder of PFIC stock which is publicly traded could elect to mark the stock to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC stock and the U.S. Shareholder's adjusted tax basis in the PFIC stock. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Shareholder under the election in prior taxable years. If a mark-to-market election with respect to ADSs or ordinary shares is in effect on the date of a
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U.S. Shareholder's death, the normally available step-up in tax basis to fair market value will not be available. Rather, the tax basis of such ADSs or ordinary shares in the hands of a U.S. Shareholder who acquired them from a decedent will be the lesser of the decedent's tax basis or the fair market value of the ordinary shares. Once made, such election generally continues unless revoked with the consent of the IRS.
U.S. Shareholders are encouraged to consult their own tax advisors regarding the eligibility, manner and advisability of making a QEF Election or a mark-to-market election, and the effect of these elections on the calculation of the amount of foreign tax credit that may be available to a U.S. Shareholder.
Taxation of Dividends
The gross amount of any distributions received (other than in liquidation or in redemption of stock that are treated as exchanges) with respect to American Depositary Shares or ordinary shares (before reduction for South African income tax, if any, withheld from such distributions) will constitute dividends for U.S. Federal income tax purposes, to the extent of our current and accumulated earnings and profits as determined for U.S. Federal income tax purposes. U.S. Shareholders will be required to include this amount of dividends in gross income as ordinary income. Subject to the discussion above under the heading "Passive Foreign Investment Company Status", distributions in excess of our earnings and profits generally would be treated as a non-taxable return of capital to the extent of the U.S. Shareholder's tax basis in the American Depositary Shares or ordinary shares, and any amount in excess of his, her or its tax basis generally would be treated as gain from the sale of American Depositary Shares or ordinary shares. See "—Disposition of American Depositary Shares or Ordinary Shares" below for the discussion on the taxation of capital gains. Dividends will not qualify for the dividends-received deduction generally available to corporations under Section 243 of the Code.
Dividends that we pay in Rand, including the amount of any South African taxes withheld there from, will be included in the U.S. Shareholder's income in a U.S. dollar amount calculated by reference to the "spot rate" on the day such dividends are received or deemed received, regardless of whether the payments are in fact converted into U.S. dollars. A U.S. Shareholder who receives payment in Rand and converts Rand into Dollars at an exchange rate other than the rate in effect on such day may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss. U.S. Shareholders are encouraged to consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding and disposing of Rand. For purposes of this discussion, the "spot rate" generally means a rate that reflects a fair market rate of exchange available to the public for currency under a "spot contract" in a free market and involving representative amounts. A "spot contract" is a contract to buy or sell a currency on or before two business days following the date of the execution of the contract. If such a spot rate cannot be demonstrated, the U.S. Internal Revenue Service (the "IRS") has the authority to determine the spot rate.
Under 2003 tax legislation, the maximum U.S. Federal income tax rate on certain dividends paid to individuals through 2008 is reduced to 15%. However, this reduced rate generally would not apply to dividends paid by us as a result of our status as a passive foreign investment company in the year the dividends are paid or in the prior year. Please refer to the discussion under the heading "Passive Foreign Investment Company Status" above. U.S. Shareholders are urged to consult their own tax advisors regarding the U.S. Federal income tax rate that will be applicable to their receipt of any dividends paid with respect to the ordinary shares and American Depositary Shares.
Dividends paid by us will generally be treated as foreign source income for U.S. foreign tax credit limitation purposes. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends paid by us in respect of our ordinary shares or American Depositary Shares, as applicable, generally will be "U.S. passive income" or, in the case of certain types of U.S. Shareholders, "financial services income" and therefore any U.S. tax imposed on these dividends cannot be offset by excess foreign tax credits that the U.S. Shareholder may have from foreign source income not qualifying as passive income or financial service income, respectively. In addition, dividend income derived with respect to our ordinary shares or American Depositary Shares will constitute "portfolio income" for purposes of the limitation on the use of passive activity losses and,
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therefore, generally may not be offset by passive activity losses, and as "investment income" for purposes of the limitation of the deduction of investment interest expense.
Dispositions of American Depositary Shares or Ordinary Shares
If a U.S. Shareholder sells or otherwise disposes in a taxable transaction American Depositary Shares or ordinary shares, he, she or it will recognize gain or loss for U.S. Federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized on the sale or other disposition and his, her or its adjusted tax basis in American Depositary Shares or ordinary shares. Subject to the discussion above under the heading "Passive Foreign Investment Company Status," such gain or loss generally would be capital gain or loss and generally would be long-term capital gain or loss if the U.S. Shareholder has held the American Depositary Shares or ordinary shares for more than one year at the time of the sale or other disposition. In general, any gain that U.S. Shareholders recognize on the sale or other taxable disposition of American Depositary Shares or ordinary shares will be U.S. source for purposes of the foreign tax credit limitation; losses will generally be allocated against U.S. source income. Deduction of capital losses is subject to certain limitations under the Code.
In the case of a cash basis U.S. Shareholder who receives Rand in connection with the sale or taxable disposition of American Depositary Shares or ordinary shares, the amount realized will be based on the spot rate as determined on the settlement date of such exchange. A U.S. Shareholder who receives payment in Rand and converts Rand into U.S. Dollars at a conversion rate other than the rate in effect on the settlement date may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss.
An accrual basis U.S. Shareholder may elect the same treatment required of cash basis taxpayers with respect to a sale or taxable disposition of American Depositary Shares or ordinary shares, provided that the election is applied consistently from year to year. Such election may not be changed without the consent of the IRS. In the event that an accrual basis U.S. Shareholder does not elect to be treated as a cash basis taxpayer (pursuant to the Treasury regulations applicable to foreign currency transactions), such U.S. Shareholder may have a foreign currency gain or loss for U.S. federal income tax purposes because of differences between the U.S. Dollar value of the currency received prevailing on the date of sale or other taxable disposition and the settlement date. Any such currency gain or loss would be treated as ordinary income or loss and would be in addition to gain or loss, if any, recognized by such U.S. Shareholder on the sale or taxable disposition of such American Depositary Shares or ordinary shares.
U.S. Shareholders may incur South African stamp duty or marketable securities tax in connection with a subsequent registration of transfer of ordinary shares. See "—South Africa—Marketable Securities Tax and Stamp Duty on the Shares". In such case, stamp duty or marketable securities tax, as applicable, will not be a creditable tax for U.S. foreign tax credit purposes, but will be deductible. In the case of an individual U.S. shareholder, such deduction will be subject to specified limits on the deductibility of investment expenses.
Backup Withholding and Information Reporting
Payments in respect of American Depositary Shares or ordinary shares that are made in the United States or by a U.S. related financial intermediary may be subject to information reporting to the IRS and to U.S. backup withholding tax at a rate of 28%. Backup withholding will not apply, however, if you (i) are a corporation or come within certain exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct taxpayer identification number and make any other required certification. Any amount withheld under these rules may be credited against your federal income tax liability.
Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Shareholder's U.S. tax liability, and a U.S. Shareholder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.
Any U.S. Shareholder who holds 10% or more in vote or value of our American Depositary Shares or ordinary shares will be subject to certain additional United States information reporting requirements.
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U.S. Gift and Estate Tax
An individual U.S. Shareholder of American Depositary Shares or ordinary shares will be subject to U.S. gift and estate taxes with respect to American Depositary Shares or ordinary shares in the same manner and to the same extent as with respect to other types of personal property.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
You may request a copy of our U.S. Securities and Exchange Commission filings, at no cost, by writing or calling us at Randgold & Exploration Company Limited, P.O. Box 11165, Johannesburg, 2001, South Africa, Attn: John Berry, telephone: 011+27-11-688-5065. A copy of each report submitted in accordance with applicable United States law is available for public review at our principal executive offices at 28 Harrison Street, Johannesburg, South Africa.
A copy of each document (or a translation thereof to the extent not in English) concerning us that is referred to in this Annual Report, is available for public view at our principal executive offices at Randgold & Exploration Company Limited, 28 Harrison Street, Johannesburg, South Africa
I. SUBSIDIARY INFORMATION
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Hedge Policy
All of our hedging activities are undertaken by our associated company RRL, which until June 30, 2002 was accounted for as a subsidiary.
Although, in general, it is not RRL's policy to hedge its gold sales, RRL believes it is prudent to hedge during times of capital expansion and when it is required to do so under debt financing arrangements. The market price of gold has a significant effect on our and RRL's results of operations, our and RRL's ability to pay dividends and undertake capital expenditures, and the market price of our and RRL's ordinary shares. Gold prices have historically fluctuated widely and are affected by numerous industry factors over which we have no control. The aggregate effect of these factors is impossible for us to predict.
RRL uses hedging instruments to protect the selling price of some of its anticipated gold production. These hedging instruments are required by the terms of the Morila loan with a consortium of financial lenders led by NM Rothschild. The intended effect of the hedging transactions is to lock in a minimum sale price for future gold production at the time of the transactions, and reduce the impact on RRL of a future fall in gold prices.
Morila SA's hedging is administered by AngloGold's treasury department which acts upon the recommendations of a joint financial committee within the guidelines set by a policy agreed between the partners and approved by the board.
All of Morila's derivative transactions must be in compliance with the terms and conditions of the Morila Loan Agreement. That agreement places the following limits on Morila's production:
| | |
| • | forward sales and call options sold are limited to 60% of Morila's forecasted production in a given year; and |
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| | |
| • | put options may be purchased up to 100% of Morila's forecasted production in a given year. |
The above limits apply to a maximum of the planned production of Morila until expiration of the Morila Loan Agreement.
The current position is that approximately 15% of Morila's planned production is sold forward at $275 per ounce for the year 2004. RRL also bought calls amounting to approximately 5% of Morila's production at $360 per ounce to allow further participation in any significant upside in the gold price.
RRL's board agreed as part of the financing arrangements for the development of Loulo that some gold price protection be secured. At March 31, 2004, 300,000 ounces had been sold forward at an average spot price of $409 per ounce. In addition to the above, RRL carried out a Forward Rate Agreement as part of the hedge to fix the four year gold lease rate. An average rate of 1.67% for the four years was achieved.
Subsequent to year-end, RRL entered into fixed rate agreements for a further 100,000 ounces at an average rate of 1.75%. RRL's management has a board mandate to secure protection on a total of 350,000 ounces which represents 39% of planned production over a four year period. The price protection mitigates capital and debt risk in developing the project, maintaining returns which pass RRL's hurdle rates should the gold price move to significantly lower levels.
During the year ended December 31, 2001, we and RRL adopted Statement of Financial Accounting Standard 133 ("FAS 133"): Accounting for Derivative Instruments and Hedging Activities, effective January 1, 2001. Under FAS 133, all derivatives are recognized on the balance sheet at their fair value, unless they meet the criteria for the normal sales exemption.
On the date a derivative contract is entered into, we designate the derivative for accounting purposes as either a hedge of the fair value of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction (cash flow hedge). Some derivative transactions, while providing effective economic hedges under our risk management policies, do not qualify for hedge accounting.
We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking various hedge transactions. This process includes linking derivatives designed as hedges to specific assets and liabilities or to specific firm commitments or forecasted transactions. We formally assess, both at the hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
With the adoption of FAS 133 at January 1, 2001, certain of our derivatives qualified for cash flow hedge accounting resulting in a net of tax, cumulative effect of change in accounting principle adjustment of $1.5 million, net of minority shareholders interest, recorded in other comprehensive income. The cumulative effect adjustment was required to record the fair value of those derivative instruments on the balance sheet, which previously qualified for hedge accounting and were not recorded on the balance sheet.
Foreign Currency Sensitivity
In the normal course of business, we enter into transactions denominated in foreign currencies (primarily U.S. dollar). In addition, we have investments in a number of different currencies (primarily U.S. dollar). As a result, we are subject to transaction and transaction exposure from fluctuations in foreign currency exchange rates. As a result of the South African rand having depreciated against the U.S. dollar since the dates of our initial investments, unrealized exchange profits have been achieved on the net investments held in U.S. dollar. We do not currently hedge our exposure to foreign currency exchange rates. RRL recognized foreign exchange losses of $1.9 million for the year ended December 31, 2003 and $1.9 million for the year ended December 31, 2002.
Commodity Price Sensitivity
General
Our exposure to commodity price sensitivity is through our associate RRL.
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The market price of gold has a significant effect on our and RRL's results of operations, our and RRL's ability to pay dividends and undertake capital expenditures and the market prices of our and RRL's ordinary shares.
Gold prices have historically fluctuated widely and are affected by numerous industry factors over which we have no control. The aggregate effect of these factors is not possible for us to predict.
Details of financial instruments as at December 31, 2003 held by RRL are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Hedging Instruments | | Unmatched Instruments | | | | |
Maturity
Dates | | Puts
Purchased | | Forward Sales | | Purchased
Calls | | Forward Sales | | Forward Rate
Agreements |
| | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | Fixed
Rate |
| Morila (attributable portion:) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2004 | | | — | | | | — | | | | 51,941 | | | | 275 | | | | 18,384 | | | | 360 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate (For Loulo) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 20, 2004 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 150,000 | | | | 402 | | | | — | | | | — | |
| June 20, 2004 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 50,000 | | | | 410 | | | | — | | | | — | |
| June 20, 2004 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 200,000 | | | | 1.64 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
And at December 31, 2002:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Hedging Instruments | | Unmatched Instruments |
Maturity
Dates | | Puts
Purchased | | Forward Sales | | Purchased Calls | | Calls Sold |
| | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | $/oz |
| Morila (attributable portion): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2003 | | | –– | | | | — | | | | 60,581 | | | | 275 | | | | 21,446 | | | | 350 | | | | — | | | | — | |
| December 31, 2003 | | | — | | | | — | | | | 51,941 | | | | 275 | | | | 18,384 | | | | 360 | | | | — | | | | — | |
|
The following tables describe RRL's commodity contracts as at December 31, 2003, by type of contract:
(a) Contracts where exposure to downward and upward movements in the gold price is eliminated:
| | | | | | | | | | | | | | |
| Contract Type | | Fair Value
Year Ended
December 31,
2003 | | Total | | Mark-to-Market
December 31, 2003
($ Millions) |
Morila (attributable portion):
Forward Sales | | | | | | | | | | | | |
| Ounces | | | 51,941 | | | | 51,941 | | | | | |
| $ Per Ounce | | | 275.00 | | | | 275.00 | | | | | |
| Total hedged position (ounces) | | | 51,941 | | | | 51,941 | | | | (7.4 | ) |
Corporate (for Loulo):
$ forward sales | | | | | | | | | | | | |
| Ounces | | | 150,000 | | | | 150,000 | | | | | |
| $ per ounce | | | 402.00 | | | | 402.00 | | | | | |
| Ounces | | | 50,000 | | | | 50,000 | | | | | |
| $ per ounce | | | 410.00 | | | | 410.00 | | | | | |
| Total position (ounces) | | | 200,000 | | | | 200,000 | | | | (2.2 | ) |
|
(b) Contracts where exposure to downward movement in the gold price is eliminated but upward participation in gold price movement remains:
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| | | | | | | | | | | | | | |
| Contract Type | | Fair Value
Year Ended
December 31,
2003 | | Total | | Mark-to-Market
December 31, 2003
($ Millions) |
| Morila (attributable portion): | | | | | | | | | | | | |
| $ Calls purchased | | | 18,384 | | | | 18,384 | | | | 1.1 | |
| $ per ounce | | | 360.00 | | | | 360.00 | | | | | |
|
(c) Contracts where exposure to downward and upward movements in the gold lease rate is eliminated:
| | | | | | | | | | | | | | |
| Contract Type | | Fair Value
Year Ended
December 31,
2003 | | Total | | Mark-to-Market
December 31, 2003
($ millions) |
| Forward rate agreements: | | | | | | | | | | | | |
| Ounces | | | 200,000 | | | | 200,000 | | | | — | |
| Gold Lease rate | | | 1.64 | % | | | 1.64 | % | | | | |
|
The following table sets forth a sensitivity analysis of the mark-to-market valuations of RRL's hedges as at December 31, 2003:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sensitivity to Change in Gold Price at December 31, 2003 |
Morila (100%):
Change in $ gold | | $ | 20 | | | $ | 10 | | | $ | 5 | | | $ | 2 | | | | ($2 | ) | | | ($5 | ) | | | ($10 | ) | | | ($20 | ) |
Mark-to-market
($ millions) | | | (1.758 | ) | | | (0.885 | ) | | | (0.444 | ) | | | (0.178 | ) | | | 0.178 | | | | 0.447 | | | | 0.897 | | | | 1.813 | |
| Corporate (for Loulo): | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in $ gold | | $ | 30 | | | $ | 20 | | | $ | 10 | | | | ($10 | ) | | | ($20 | ) | | | ($30 | ) | |
Mark-to-market
($ millions) | | | (6 | ) | | | (4 | ) | | | (2 | ) | | | 2 | | | | 4 | | | | 6 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sensitivity to Change in Weighted Average $ Interest Rate December 31, 2003 |
Morila (100%):
Spot Price | | $ | 1% | | | $ | 0.5% | | | $ | 0.2% | | | | ($0.2% | ) | | | ($0.5% | ) | | | ($1% | ) |
Mark-to-market
($ millions) | | | (0.117 | ) | | | (0.059 | ) | | | (0.024 | ) | | | 0.023 | | | | 0.059 | | | | 0.119 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sensitivity to Change in Gold Lease Rate at December 31, 2002 |
Morila (100%):
Change in base rates | | $ | 1% | | | $ | 0.5% | | | $ | 0.2% | | | | ($0.2% | ) | | | ($0.5% | ) | | | ($1% | ) |
Mark-to-market
($ millions) | | | 0.201 | | | | 0.101 | | | | 0.040 | | | | (0.041 | ) | | | (0.102 | ) | | | (0.205 | ) |
Corporate (for Loulo):
Spot price | | $ | 1.5% | | | $ | 1.0% | | | $ | 0.5% | | | | ($0.5% | ) | | | ($1.0% | ) | | | ($1.5% | ) |
Mark-to-market
($ millions) | | | 4.1 | | | | 2.76 | | | | 1.4 | | | | (1.43 | ) | | | (2.89 | ) | | | (4.38 | ) |
|
During the second quarter of 2000, and as part of the Morila financing arrangements, RRL entered into 700,000 ounces of forward sales contracts at $275 per ounce. At the same time, RRL entered into contracts for 248,000 ounces of call options purchased at prices between $330 and $360 per ounce to allow RRL to participate in any significant upward move in the gold price.
In the second quarter of 2001, the Syama position was closed out except for 148,500 ounces of call options sold at $353 per ounce. The proceeds of $4.3 million were used as part payment of the International Finance Corporation loan.
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In August 2002, the remaining speculative instruments comprising 148,500 call options were closed out at a cost of $1.8 million payable in 2004. The accounting effects of RRL's hedging activities were as follows:
A gain of $7.4 million arose for the year ended December 31, 2001. $1.7 million related to the change in the mark-to-market between December 31, 2000 and 2001, for those Syama instruments that do not qualify for hedge accounting. $4.3 million of the gain related to profits generated on the close out of the portion of the Syama book in 2001. The balance of $1.4 million relates to the amortization of the balance of the deferred gain which arose as part of the May 1999 Syama hedge book restructuring.
RRL has utilized three counterparties for its current hedge book. These counterparties are international banks which have not failed to perform as required under their hedging arrangements.
The total fair value of the above financial instruments as at December 31, 2002 was a loss of $7.5 million (December 31, 2001: unrecognized loss of $2.5 million). These counterparties collectively hold against less than 50% of RRL's revenue, individually and aggregated, over the 3 years these hedges have existed. None of the counterparties are affiliates or parties related to the Group.
During the year ended December 31, 2002, RRL sold 421,126 ounces of gold at an average price of $308 per ounce. At a gold price of approximately $310 per ounce, product sales would have amounted to approximately $131 million for the year, an increase of approximately $1 million in sales.
During the year ended December 31, 2003, RRL sold 317,597 ounces of gold at an average price of $345 per ounce. At a gold price of approximately $363 per ounce, RRL's product sales would have amounted to approximately $115 million for the year, an increase of approximately $5.7 million in sales.
Interest Rate Sensitivity
We generally do not undertake any specific actions to cover our exposure to interest rate risk and at December 31, 2003 were not party to any interest rate risk management transactions.
At December 31, 2002, our assets and liabilities include short-term variable rate instruments. The fair value of these instruments would not change significantly as a result of changes in interest rates as a result of their short-term nature and variable interest rate, respectively.
At December 31, 2002 the fair value of our long term liabilities, including the short-term portion of these liabilities, excluding loans from outside shareholders in subsidiaries, was estimated at $3.6 million. The aggregate hypothetical loss in earnings on an annual basis from a hypothetical increase of 10% of the South African prime rate is estimated to be $0.06 million.
At December 31, 2003 the fair value of our long-term liabilities, including the short-term portion, excluding loans from outside shareholders in subsidiaries, was $0; therefore fluctuations in the South African prime rate will not affect our earnings.
Because our net earnings exposure with respect of debt instruments was to the South African monthly prime rate, the hypothetical loss was modeled by calculating the 10% adverse change in the South African monthly prime rate multiplied by the fair value of the respective debt instrument.
Item 12. Description of Securities Other Than Equity Securities
Not applicable.
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PART II
| |
| Item 13. | Defaults, Dividend Arrearages and Delinquencies |
There has been no material default in the payment of principal, interest, a sinking or purchase fund installment, or any other material default with respect to any of our indebtedness.
| |
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Effective April 29, 2004, we changed the number of ordinary shares represented by each of our ADSs from three ordinary shares to one ordinary share. In connection with this "ratio change", our ADR holders of record on April 29, 2004 received two (2) additional ADRs for every one (1) ADR they held. The prices of our ADRs as quoted by the Nasdaq National Market reflected this change beginning at the commencement of trading on April 30, 2004.
| |
| Item 15. | Controls and Procedures |
Disclosure Controls and Procedures: The Chief Executive Officer and our Financial Director, after evaluating the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 20-F, have concluded that, as of such date, our disclosure controls and procedures were effective.
Internal Control Over Financial Reporting: There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| |
| Item 16. | [Reserved] |
| |
| Item 16A. | Audit Committee Financial Expert |
Our Board has determined that we do not have an "audit committee financial expert" as defined in Item 16A of Form 20-F serving on our Board. We believe that the combined knowledge, skills and experience of all of the members of our Audit Committee, and their authority to engage outside experts as they deem appropriate to provide them with advice on matters related to their responsibilities, enable them, as a group, to act effectively in the fulfillment of their tasks and responsibilities required under the Sarbanes-Oxley Act of 2002.
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| Item 16B. | Code of Ethics |
The Board of Directors have adopted a code of ethics that applies to the Chairman, Financial Director and all financial officers. This code of ethics is posted on our website, www.randgold.co.za.
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| Item 16C. | Principal Accountant Fees and Services |
PricewaterhouseCoopers has served as our independent public accountants for each of the financial years in the three-year period ended December 31, 2003, for which audited financial statements appear in this Annual Report on Form 20-F.
The following table presents the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers to us in 2003 and 2002.
| | | | | | | | | | |
| | | 2003 | | 2002 |
| | | $ |
| Audit Fees (1) | | | 169,467 | | | | 66,944 | |
| Audit-related Fees | | | — | | | | — | |
| Tax Fees (2) | | | 11,510 | | | | 2,880 | |
| All Other Fees | | | — | | | | — | |
| Total | | | 180,977 | | | | 69,284 | |
|
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| |
| (1) | The Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor reasonably can provide, and include our audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the SEC. |
| |
| (2) | Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authorities; tax planning services; and expatriate tax planning and services. |
Audit Committee Pre-Approval Policies and Procedures
Below is a summary of the Audit Committees pre-approval policies and procedures:
The Audit Committees mandate covers the sphere of duties relating to accounting policies, internal control, financial reporting practices, identification of exposure to significant risks and all corporate governance issues.
The Audit Committee is responsible for the appointment, removal and oversight of the activities of the external auditors. In addition the Audit Committee sets the principles for recommending the use of external auditors for non-audit services. The Audit Committee approves all external consulting services and other charges levied by the external auditors.
The Audit Committee met 3 times during 2003, with the external audit partner and our financial manager, to review the audit plans of the internal and external auditors, to ascertain the extent to which the scope of the audit can be relied upon to detect weaknesses in internal controls and to review the quarterly and half-yearly financial results, the preliminary announcement of the annual results and the annual financial statements, as well as all statutory submissions of a financial nature, prior to approval by the board.
No work was performed by persons other than the PricewaterhouseCoopers' full-time, permanent employees on the PricewaterhouseCoopers' engagement to audit our financial statements for 2003
| |
| Item 17. | Financial Statements |
Not applicable.
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Item 18. Financial Statements
The following financial statements and related auditors' reports are filed as part of this Annual Report:
| | | | | | |
| RANDGOLD & EXPLORATION COMPANY LIMITED | |
| Report of the Independent Registered Public Accounting Firm | | | F-1 | |
| Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001 | | | F-2 | |
| Consolidated Balance Sheets as of December 31, 2003 and 2002 | | | F-4 | |
| Consolidated Statements of Shareholders' Equity for the years ended December 31, 2003, 2002 and 2001 | | | F-6 | |
| Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2003, 2002 and 2001 | | | F-9 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002
and 2001 | | | F-10 | |
| Notes to Consolidated Financial Statements | | | F-12 | |
| RANDGOLD RESOURCES LIMITED | |
| Report of the Independent Registered Public Accounting Firm | | | F-45 | |
| Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001 | | | F-46 | |
| Consolidated Balance Sheets as of December 31, 2003 and 2002 | | | F-47 | |
| Consolidated Statements of Shareholders' Equity for the years ended December 31, 2003, 2002 and 2001 | | | F-48 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002
and 2001 | | | F-49 | |
| Notes to Consolidated Financial Statements | | | F-50 | |
| SOCI|$$|AaET|$$|AaE DES MINES DE MORILA SA | |
| Report of the Independent Auditors | | | F-84 | |
| Statement of Operations for the Years Ended December 31, 2002 and 2001 | | | F-85 | |
| Balance Sheet at December 31, 2002 and 2001 | | | F-86 | |
Statement of Changes in Shareholders' Equity for the years ended December 31, 2002
and 2001 | | | F-87 | |
| Cash Flow Statement for the years ended December 31, 2002 and 2001 | | | F-88 | |
| Notes to the financial statements | | | F-89 | |
|
92
Item 19. Exhibits
The following exhibits are filed as part of this Annual Report:
| | | | | | |
| EXHIBIT NO. | | EXHIBIT |
| 1.1* | | Memorandum of Association of Randgold & Exploration Company Limited. |
| 1.2# | | Articles of Association of Randgold & Exploration Company Limited. |
| 2.1* | | Randgold (1993) Share Option Scheme. |
| 2.2* | | Excerpts of Relevant Provisions of the South African Companies Act. |
| 2.3* | | Excerpts of Relevant Provisions of the Johannesburg Stock Exchange Listings Requirements |
| 2.4* | | Rule 144A Deposit Agreement dated as of October 3, 1996 among Randgold & Exploration Company Limited. The Bank of New York as Rule 144A Depositary and holders and beneficial owners of Rule 144A American Depositary Receipts. |
| 2.5* | | Regulation S Deposit Agreement dated as of October 3, 1996 among Randgold & Exploration Company Limited. The Bank of New York as Regulation S Depositary and holders and beneficial owners of Regulation S Global Depositary Receipts. |
| 2.6* | | Adoption Agreement dated October 3, 1996 between Randgold Resources (Holdings) Limited and Randgold Resources Limited constituting Randgold Resources (Holdings) Limited as a party to the Randgold Resources Limited Shareholders Agreement. |
| 2.7++ | | Form of Deposit Agreement amended and restated as of November, 1998 among Randgold & Exploration Company Limited. The Bank of New York as Depositary and owners and holders of American Depositary Receipts. |
| 2.8***** | | Loan Agreement for project finance for Morila Project, dated December 21, 1999, between Société des Mines de Morila S.A., Randgold Resources Limited, Randgold & Exploration Company Limited, Morila Limited, various banks and other financial institutions, NM Rothschild & Sons Limited, Standard Bank London Limited, Bayerische Hypo-Und Vereinsbank AG, Mees Pierson NV and Société Generale (relating to $90 million Loan). |
| 2.9***** | | Amendment to Loan Agreement for project finance for Morila Project, dated April 10, 1999, between Société des Mines de Morila S.A., Randgold Resources Limited, Randgold & Exploration Company Limited, Morila Limited, various banks and other financial institutions, NM Rothschild & Sons Limited, Standard Bank London Limited, Bayerische Hypo-Und Vereinsbank AG, Mees Pierson NV Société Generale and Leonia Corporate Bank plc. |
| 2.10***** | | Morila Security Agreement (Offshore Assets), dated February 24, 2000, between Société des Mines de Morila S.A. and NM Rothschild & Sons Limited. |
| 2.11***** | | Morila Security Agreement (Mali Goodwill Charge) (in French, with English translation), dated March 6, 2000, between Societe des Mines de Morila S.A. and NM Rothschild & Sons Limited. |
| 2.12***** | | Morila Security Agreement (Mali Mining permit Charge) (in French, with English translation), dated March 6, 2000, between Société des Mines de Morila S.A. and NM Rothschild & Sons Limited. |
|
93
| | | | | | |
| EXHIBIT NO. | | EXHIBIT |
| 2.13***** | | Morila Security Agreement (Mali Bank Account Charge) (in French, with English translation), dated March 6, 2000, between Société des Mines de Morila S.A. and NM Rothschild & Sons Limited and Banque de Developpement du Mali. |
| 2.14***** | | Guarantee Agreement, dated February 24, 2000 among Randgold Resources Limited, Randgold & Exploration Company Limited, Morila Limited and NM Rothschild & Son Limited. |
| 2.15***** | | RRL Security Agreement, dated February 24, 2000, between Randgold Resources Limited and NM Rothschild & Sons Limited. |
| 2.16***** | | Morila Holdings Security Agreement (in French, with an English translation), dated March 6, 2000, among Morila Limited, Mr. Mahamadou Samake, Mr. Roger Kebble, Mr. Dennis Bristow, Mr. David Ashworth and N.M. Rothschild & Sons Limited. |
| 2.17***** | | Subordination Agreement, dated March 29, 2000, among Société des Mines de Morila, Randgold Resources Limited, Randgold & Exploration Company Limited, Morila Limited and MN Rothschild & Sons Limited. |
| 2.18***** | | Subordination Agreement, dated March 30, 2000, between Randgold Resources Limited, Barnex and NM Rothschild & Sons Limited. |
| 2.19***** | | Project Account Agreement (Offshore), dated February 25, 2000, between Citibank N.A., NM Rothschild & Sons Limited and Société des Mines de Morila. |
| 2.20***** | | Project Account Agreement (Mali) (in French, with an English translation), dated March 21, 2000, among Banque de Development du Mali, NM Rothschild & Sons Limited and Société des Mines de Morila. |
| 2.21***** | | Secured Credit Facility Offer, dated March 13, 2000, between Rand Merchant Bank and Randgold & Exploration Company Limited. |
| 2.22***** | | Shareholders' Agreement (in French, with an English translation), dated June 23, 2000, between the Government of Mali and Morila Limited. |
| 2.23+++ | | Letter Agreement, dated September 17, 2001, between Société des Mines de Morila SA, Randgold Resources Limited, Morila Limited, NM Rothschild & Sons Limited, Standard Bank London Limited, Bayerische Hypo-Und Vereinsbank AG, Fortis Bank (Nederland) N.V. and Société Generale regarding the Loan Agreement, dated December 21, 1999 and the transfer by Randgold Resources Limited of its interest in Morila Limited to its wholly-owned subsidiary, Mining Investments (Jersey) Limited. |
| 2.24+++ | | Deed of Release, dated September 25, 2001, between Randgold Resources Limited and NM Rothschild & Sons Limited releasing the shares of Morila Limited held by Randgold Resources Limited as collateral for the Morila Loan. |
| 2.25+++ | | Deed of Charge, dated September 25, 2001, between Mining Investments (Jersey) Limited and NM Rothschild & Sons Limited (MIJL/Morila Security Agreement). |
| 4.1* | | Shareholders' Agreement dated as of May 14, 1996 among Randgold & Exploration Company Limited, Beachcove Holdings (Proprietary) Limited, Transvaal Gold Mining Estates Limited, Continental Goldfields Limited and Callina NL. |
| 4.2* | | Variation of the Shareholders' Agreement dated as of December 19, 1996 among Randgold & Exploration Company Limited, Beachcove Holdings (Proprietary) Limited, Transvaal Gold Mining Estates Limited, Continental Goldfields Limited and Callina NL. |
|
94
| | | | | | |
| EXHIBIT NO. | | EXHIBIT |
| 4.3** | | Deed governing the relationship between the parties upon admission between Randgold & Exploration Company Limited and Randgold Resources Limited dated June 26, 1997. |
| 4.4** | | License Agreement dated June 26, 1997 between Randgold & Exploration Company Limited and Randgold Resources Limited. |
| 4.5*** | | Heads of Agreement, dated January 26, 1998, between Randgold & Exploration Company Limited and Rio Tinto Mining and Exploration Limited. |
| 4.6*** | | Financial Agreement, dated December 30, 1997, between Randgold & Exploration Company Limited and Randgold Resources Limited. |
| 4.7*** | | Consultancy Agreement, dated May 31, 1998, between Randgold & Exploration Company Limited and R.A.R. Kebble as Executive Chairman. |
| 4.8*** | | Financial Agreement, dated May 20, 1998, between Randgold & Exploration Company Limited and Consolidated African Mines Limited. |
| 4.9**** | | Joint Venture Agreement, dated March 25, 1999 between Rio Tinto Minining and Exploration Limited, Randgold & Exploration Company Limited and Continental Base Metal Mining Company (Proprietary) Limited. |
| 4.10**** | | Agreement, dated August 25, 1999, between Randgold & Exploration Company Limited, Continental Goldfields Limited, Beachcove Holdings (Proprietary) Limited and Callina NL. |
| 4.11***** | | Sale of Shares Agreement, dated May 29, 2000, between AngloGold, Randgold Resources Limited and Morila Limited. |
| 4.12***** | | Joint Venture Agreement, dated May 29, 2000, between AngloGold and Randgold Resources Limited. |
| 4.13***** | | Operator Agreement, dated May 29, 2000, between Societe des Mines de Morila SA and AngloGold Services Mali, S.A. |
| 4.14+ | | Sale of Shares and Loan Claims Agreement, dated April 27, 2001, between Normandy LaSource SAS and Randgold Resources Limited. |
| 4.15++++ | | Joint Venture Agreement between Randgold & Exploration Company Limited and Eurasia Mining plc, dated October 18, 2002. |
| 4.16++++ | | Services Agreement between Randgold & Exploration Company Limited and Randgold Resources Limited, dated February 2, 2003. |
| 4.17++++ | | Settlement Agreement between Rolls-Royce Power Ventures Limited, Syama Power Plant Sales Limited, Operation D'Energie De Syama S.A., Societe Des Mines De Syama S.A., Randgold Resources Limited and Randgold & Exploration Company Limited, dated December 16, 2002. |
| 4.18# | | Sale Agreement dated June 20, 2003 from Platgold Pacific NL, Hazcare Pty Ltd. and Randgold & Exploration Company Limited. |
| 4.19# | | Agreement between Randgold & Exploration Company Limited and Notable Holdings (Pty) Limited dated July 22, 2003. |
| 4.20# | | Agreement between Randgold & Exploration Company Limited and Kemonshey Holdings Limited on July 22, 2003. |
|
95
| | | | | | |
| EXHIBIT NO. | | EXHIBIT |
| 4.21# | | Sale of Shares Agreement, dated July 28, 2003, amongst Randgold & Exploration Company Limited, Equitant Trading (Proprietary) Limited and Phikoloso Mining (Proprietary) Limited. |
| 4.22# | | Agreement between Randgold & Exploration Company Limited and Continental Goldfields Limited, dated December 11, 2003. |
| 4.23# | | Agreement made and entered into by and between Randgold & Exploration Company Limited and Masupatsela Investment Holdings (Pty) Limited, dated December 30, 2003. |
| 4.24# | | Call Option Agreement by Lunda Sul Holdings (Proprietary) Limited in favour of Randgold & Exploration Company Limited in respect of Lunda Alluvial Operations (Pty) Ltd dated January 5, 2004. |
| 4.25# | | Mineral Rights Agreement between Randgold & Exploration Company Limited and Minrico Limited, dated February 22, 2004. |
| 4.26# | | Subscription and Option Agreement between Randgold & Exploration Company Limited and The Afrikander Lease Limited, dated February 26, 2004. |
| 4.27# | | Heads of Prospecting Agreement between Randgold & Exploration Company Limited and De Beers Consolidated Mines Limited dated April 30, 2004. |
| 4.28# | | Underwriting Agreement made and entered into by and between Randgold & Exploration Company Limited and The Afrikander Lease Limited dated May 13, 2004. |
| 4.29# | | Sale of Mining Rights Agreement by Koketso Angola Joint Venture and Randgold & Exploration Company Limited. |
| 4.30# | | Sale of Mining Rights Agreement by Masupatsela Angola Mining Ventures (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.31# | | Sale of Rights Agreement by Quantum African Mining (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.32# | | Equipment Sale Agreement by Trans Bengula Logistics (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.33# | | Consortium Sale Agreement amongst Tawny Eagle Holdings (Proprietary) Limited and Chestnut Hill Investments 60 (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.34# | | Randgold Sale Agreement between Anglo South Africa Capital (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.35# | | Option Agreement between Randgold & Exploration Company Limited and Chestnut Hill Investments 60 (Proprietary) Limited. |
| 8.1# | | List of subsidiaries and associated companies. |
| 12.1# | | Certification by Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
| 12.2# | | Certification by Financial Director pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
| 13.1# | | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
96
| | | | | | |
| EXHIBIT NO. | | EXHIBIT |
| 13.2# | | Certification by Financial Director pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
| |
| * | Incorporated by reference to our Registration Statement (File No. 0-29150) on Form 20-F. |
| |
| ** | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended March 31, 1997. |
| |
| *** | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended March 31, 1998. |
| |
| **** | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended March 31, 1999. |
| |
| ***** | Incorporated by reference to our Annual Report on Form 20-F for the nine months ended December 31, 1999. |
| |
| + | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2000. |
| |
| ++ | Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form F-6 (Registration Number 333-6482). |
| |
| +++ | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2001. |
| |
| ++++ | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2002. |
| |
| # | Filed herewith. |
97
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Randgold and Exploration Company Limited:
We have audited the accompanying consolidated balance sheets of Randgold and Exploration Company Limited and its subsidiaries and associate ("the Group") as of December 31, 2003 and 2002, and the related statements of operations, comprehensive income, and of cash flows and of changes in shareholders' equity for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 financial position of the Group at December 31, 2003 and 2002, and the results of their operations, their cash flows and their changes in shareholders' equity for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
As discussed in note 2 to the consolidated financial statements the Group changed its policy of accounting for derivative financial instruments.
/s/ PricewaterhouseCoopers Inc.
Chartered Accountants and Registered Auditors
Johannesburg, South Africa
July 14, 2004
F-1
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
| | | | | | | | | | | | | | | | | | |
| | | | | 2003 | | 2002 | | 2001 |
| | | Notes | | $'000 | | $'000 | | $'000 |
| REVENUES | |
| Product sales | | | | | | | — | | | | — | | | | 16,723 | |
| Dividends and interest income | | | | | | | 1,238 | | | | 304 | | | | 2,082 | |
| Management fees and other fees received | | | | | | | 945 | | | | 86 | | | | 38 | |
| Net sundry income | | | | | | | 1,038 | | | | 1,248 | | | | 1,732 | |
| | | | | | | | 3,221 | | | | 1,638 | | | | 20,575 | |
| COSTS AND EXPENSES | |
| Mine production costs | | | | | | | — | | | | — | | | | 19,172 | |
| Royalties | | | | | | | — | | | | — | | | | 1,053 | |
| General and administration expenses | | | | | | | — | | | | 1,083 | | | | 5,753 | |
| Exploration and corporate expenditure | | | | | | | 2,818 | | | | 5,963 | | | | 9,611 | |
| Depreciation and amortization | | | | | | | 24 | | | | 838 | | | | 2,149 | |
| Interest expense | | | | | | | 853 | | | | 2,661 | | | | 6,130 | |
| Impairment of goodwill | | | 4 | | | | 3,316 | | | | — | | | | — | |
| Impairment of available-for-sale investments | | | 5 | | | | 3,882 | | | | — | | | | — | |
| Loss on disposal of listed investments | | | | | | | 4,518 | | | | 143 | | | | 1,323 | |
| Provision for post-retirement benefits | | | | | | | 883 | | | | (104 | ) | | | 3,010 | |
| Loss/(gain) on financial instruments | | | | | | | — | | | | 1,145 | | | | (7,638 | ) |
| Employment termination costs | | | 6 | | | | — | | | | — | | | | 1,470 | |
| Stock compensation | | | | | | | — | | | | 1,797 | | | | 1,739 | |
| Net sundry expenses | | | | | | | — | | | | 1,377 | | | | 3,204 | |
| | | | | | | | 16,294 | | | | (14,903 | ) | | | (46,976 | ) |
| OPERATING LOSS | | | | | | | (13,073 | ) | | | (13,265 | ) | | | (26,401 | ) |
| | |
| NON OPERATING INCOME | |
| Profit on disposal of portion of investment in associate | | | | | | | 33,239 | | | | — | | | | — | |
| INCOME/(LOSS) BEFORE TAXES | | | | | | | 20,166 | | | | (13,265 | ) | | | (26,401 | ) |
| Income tax expense | | | 7 | | | | (3,915 | ) | | | — | | | | (126 | ) |
| INCOME/(LOSS) BEFORE EQUITY INCOME AND MINORITY INTEREST | | | | | | | 16,251 | | | | (13,265 | ) | | | (26,527 | ) |
| Equity income of associate | | | | | | | 19,250 | | | | 25,383 | | | | — | |
| Equity income of joint venture | | | | | | | — | | | | 18,339 | | | | 32,482 | |
| Minority interest | | | | | | | 723 | | | | (2,969 | ) | | | (6,362 | ) |
| NET INCOME/(LOSS) | | | | | | | 36,224 | | | | 27,488 | | | | (407 | ) |
|
Refer to notes to the consolidated financial statements.
F-2
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
| | | | | | | | | | | | | | | | | | |
| | | | | 2003 | | 2002 | | 2001 |
| | | Notes | | $'000 | | $'000 | | $'000 |
| BASIC EARNINGS/(LOSS) PER SHARE (CENTS) | | | 8 | | | | 75 | | | | 64 | | | | (0.98 | ) |
| WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION | | | 8 | | | | 48,236,639 | | | | 43,037,126 | | | | 41,578,185 | |
| DILUTED EARNINGS PER SHARE (CENTS) | | | 8 | | | | 74 | | | | 63 | | | | — | |
| WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION | | | 8 | | | | 48,369,673 | | | | 43,446,490 | | | | 41,578,185 | |
|
No cumulative effect adjustment for the adoption of FAS 133 on January 1, 2001 has been disclosed in the consolidated statement of operations. This is because the derivatives, which did not qualify for hedge accounting and would have required a cumulative effect adjustment upon adoption of FAS 133, in the statement of operations, were held by Morila SA or the Morila joint venture. The equity income of the Morila joint venture for fiscal 2001 is accounted for net of the cumulative effect adjustment for the adoption of FAS 133.
Refer to notes to the consolidated financial statements.
F-3
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2003 AND 2002
| | | | | | | | | | | | | | |
| | | | | 2003 | | 2002 |
| | | Notes | | $'000 | | $'000 |
| ASSETS | | | | | |
| CURRENT ASSETS | | | | | |
| Cash and cash equivalents | | | 9 | | | | 1,672 | | | | 2,541 | |
| Receivables | | | 10 | | | | 517 | | | | 718 | |
| TOTAL CURRENT ASSETS | | | | | | | 2,189 | | | | 3,259 | |
| PROPERTY, MINERAL RIGHTS AND PROSPECTING PERMITS | |
| Cost | | | | | | | 13,277 | | | | 2,719 | |
| Accumulated depreciation and amortization | | | | | | | (1,345 | ) | | | (1,020 | ) |
| NET PROPERTY, MINERAL RIGHTS AND PROSPECTING PERMITS | | | 11 | | | | 11,932 | | | | 1,699 | |
| INVESTMENTS | | | 12 | | | | 64,358 | | | | 17,345 | |
| INVESTMENT IN ASSOCIATE | | | 13 | | | | 65,309 | | | | 57,209 | |
| OTHER LONG-TERM ASSETS | | | 14 | | | | 29,980 | | | | — | |
| TOTAL ASSETS | | | | | | | 173,768 | | | | 79,512 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |
| CURRENT LIABILITIES | |
| Accounts payable and accrued liabilities | | | 15 | | | | 1,005 | | | | 6,697 | |
| Current portion of long-term liabilities | | | 17 | | | | — | | | | 3,615 | |
| Tax liability | | | | | | | 5,846 | | | | — | |
| TOTAL CURRENT LIABILITIES | | | | | | | 6,851 | | | | 10,312 | |
| PROVISION FOR POST-RETIREMENT BENEFITS | | | 16 | | | | 8,757 | | | | 6,005 | |
| TOTAL LIABILITIES | | | | | | | 15,608 | | | | 16,317 | |
|
Refer to notes to the consolidated financial statements.
F-4
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2003 AND 2002
| | | | | | | | | | |
| | | 2003 | | 2002 |
| | | $'000 | | $'000 |
| SHAREHOLDERS' EQUITY | |
| Share capital | |
| Authorized: | |
75,000,000 Ordinary shares of South African Rand 0.01 each,
for all periods presented | |
| Issued: | |
| 55,280,785 (December 2002: 43,696,256) | | | 137 | | | | 120 | |
| Additional paid-in capital | | | 143,496 | | | | 95,257 | |
| Accumulated losses | | | (70,187 | ) | | | (106,411 | ) |
| Accumulated other comprehensive income | | | 80,686 | | | | 74,229 | |
| TOTAL SHAREHOLDERS' EQUITY | | | 154,132 | | | | 63,195 | |
| MINORITY INTEREST | | | 4,028 | | | | — | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | | 173,768 | | | | 79,512 | |
|
Refer to notes to the consolidated financial statements.
F-5
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Ordinary
Shares | | Share
Capital | | Paid in
Capital | | Accumulated
Losses | | Other
Comprehensive
Income | | Total |
| BALANCE AT DECEMBER 31, 2000 | | | 41,437,419 | | | | 118 | | | | 89,320 | | | | (133,492 | ) | | | 45,020 | | | | 966 | |
| Net loss | | | — | | | | — | | | | — | | | | (407 | ) | | | — | | | | (407 | ) |
| Exercise of employee stock options and other issues | | | 264,502 | | | | — | | | | 184 | | | | — | | | | — | | | | 184 | |
| Unrealized gain on available for-sale securities | | | — | | | | — | | | | — | | | | — | | | | 6,044 | | | | 6,044 | |
| Net loss on dilution of holding in RRL due to additional shares issued to minority shareholders and share buyback | | | — | | | | — | | | | — | | | | — | | | | (831 | ) | | | (831 | ) |
| Cumulative effect of change in accounting principal in respect of FAS 133 | | | — | | | | — | | | | — | | | | — | | | | 1,475 | | | | 1,475 | |
| Movement in cash flow hedges | | | — | | | | — | | | | — | | | | — | | | | (2,450 | ) | | | (2,450 | ) |
| Translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 6,592 | | | | 6,592 | |
| BALANCE AT DECEMBER 31, 2001 | | | 41,701,921 | | | | 118 | | | | 89,504 | | | | (133,899 | ) | | | 55,850 | | | | 11,573 | |
|
Refer to notes to the consolidated financial statements.
F-6
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Ordinary
Shares | | Share
Capital
$'000 | | Paid in
Capital
$'000 | | Accumulated
Losses
$'000 | | Other
Comprehensive
Income
$'000 | | Total
$'000 |
| BALANCE AT DECEMBER 31, 2001 | | | 41,701,921 | | | | 118 | | | | 89,504 | | | | (133,899 | ) | | | 55,850 | | | | 11,573 | |
| Net profit | | | — | | | | — | | | | — | | | | 27,488 | | | | — | | | | 27,488 | |
| Exercise of employee stock options and other issues | | | 1,994,335 | | | | 2 | | | | 2,050 | | | | — | | | | — | | | | 2,052 | |
| Unrealized gain on available-for-sale securities | | | — | | | | — | | | | — | | | | — | | | | 10,212 | | | | 10,212 | |
| Net dilution gain due to share capital movements in subsidiary/associate | | | — | | | | — | | | | — | | | | — | | | | 10,126 | | | | 10,126 | |
| Movement in cash flow hedges | | | — | | | | — | | | | — | | | | — | | | | (3,508 | ) | | | (3,508 | ) |
| Share of movement of paid in capital in subsidiary/associate due to stock compensation expense | | | — | | | | — | | | | 3,703 | | | | — | | | | — | | | | 3,703 | |
| Translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 1,549 | | | | 1,549 | |
| BALANCE AT DECEMBER 31, 2002 | | | 43,696,256 | | | | 120 | | | | 95,257 | | | | (106,411 | ) | | | 74,229 | | | | 63,195 | |
|
Refer to notes to the consolidated financial statements.
F-7
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Ordinary
Shares | | Share
Capital
$'000 | | Paid in
Capital
$'000 | | Accumulated
Losses
$'000 | | Other
Comprehensive
Income
$'000 | | Total
$'000 |
| BALANCE AT DECEMBER 31, 2002 | | | 43,696,256 | | | | 120 | | | | 95,257 | | | | (106,411 | ) | | | 74,229 | | | | 63,195 | |
| Net profit | | | — | | | | — | | | | — | | | | 36,224 | | | | — | | | | 36,224 | |
| Exercise of employee stock options and other issues | | | 1,253,499 | | | | 2 | | | | 2,210 | | | | — | | | | — | | | | 2,212 | |
| Shares issued during the year | | | 10,331,030 | | | | 15 | | | | 43,985 | | | | — | | | | — | | | | 44,000 | |
| Unrealized gain on available-for-sale securities | | | — | | | | — | | | | — | | | | — | | | | (782 | ) | | | (782 | ) |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 6,343 | | | | 6,343 | |
| Net dilution gain due to share capital movements in associate | | | — | | | | — | | | | — | | | | — | | | | 568 | | | | 568 | |
| Movement in cash flow hedges | | | — | | | | — | | | | — | | | | — | | | | 328 | | | | 328 | |
| Share of movement of paid in capital in associate due to stock compensation expense | | | — | | | | — | | | | 2,044 | | | | — | | | | — | | | | 2,044 | |
| BALANCE AT DECEMBER 31, 2003 | | | 55,280,785 | | | | 137 | | | | 143,496 | | | | (70,187 | ) | | | 80,686 | | | | 154,132 | |
|
Refer to notes to the consolidated financial statements
F-8
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| | | $'000 | | $'000 | | $'000 |
| NET INCOME/(LOSS) | | | 36,224 | | | | 27,488 | | | | (407 | ) |
| | |
| OTHER COMPREHENSIVE INCOME/(LOSS) | |
| Unrealized gain/(loss) on available-for-sale securities | | | (782 | ) | | | 10,212 | | | | 6,044 | |
| Foreign currency translation adjustment | | | 6,343 | | | | 1,549 | | | | 6,592 | |
| Revaluation of investment on acquisition | | | 568 | | | | — | | | | — | |
| Net dilution gain due to share capital movements in subsidiary/associate | | | 621 | | | | 10,126 | | | | (831 | ) |
| Cumulative effect of change in accounting principle, net of tax | | | — | | | | — | | | | 1,475 | |
| Share of movement of paid in capital in subsidiary/associate due to stock compensation expense | | | 2,044 | | | | 3,703 | | | | — | |
| | |
| OTHER COMPREHENSIVE INCOME/(LOSS) | | | 8,794 | | | | 25,590 | | | | 13,280 | |
| | |
| COMPREHENSIVE INCOME/(LOSS) | | | 45,018 | | | | 53,078 | | | | 12,873 | |
|
Refer to notes to the consolidated financial statements.
F-9
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| | | $'000 | | $'000 | | $'000 |
| CASH FLOWS FROM OPERATIONS | | | | | |
| (Loss)/income before taxes, equity income and minority interests | | | 20,167 | | | | (13,265 | ) | | | (26,401 | ) |
| Depreciation and amortization | | | 24 | | | | 838 | | | | 2,149 | |
| Accrued interest | | | (153 | ) | | | 395 | | | | 642 | |
| Loss on disposal of affiliates/investments | | | 4,518 | | | | 143 | | | | 1,323 | |
| Non-cash revenue items | | | (47 | ) | | | (737 | ) | | | — | |
| Loss/(gain) on liabilities on financial instruments | | | — | | | | 1,145 | | | | (7,638 | ) |
| Net increase in provision for environmental rehabilitation | | | — | | | | — | | | | (968 | ) |
| Profit on disposal of inventory of Syama | | | — | | | | — | | | | 296 | |
| Net increase in post-retirement benefits | | | 1,380 | | | | — | | | | 899 | |
| Income and mining taxes paid | | | (452 | ) | | | — | | | | — | |
| Impairment of goodwill | | | 3,316 | | | | — | | | | — | |
| Impairment of available-for-sale investments | | | 3,882 | | | | — | | | | — | |
| Profit on disposal of portion of associate/subsidiary | | | (33,239 | ) | | | — | | | | — | |
| Effects of changes in operating working capital items: | |
| — receivables | | | 414 | | | | (2,190 | ) | | | 4,631 | |
| — inventories | | | — | | | | 297 | | | | 3,236 | |
| — accounts payable and accrued liabilities | | | (56 | ) | | | 3,757 | | | | (5,825 | ) |
| Net cash utilized in operations | | | (246 | ) | | | (9,617 | ) | | | (27,656 | ) |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES | |
Additions to property, mineral rights and prospecting
permits and other long-term assets | | | (23,287 | ) | | | (174 | ) | | | (4,944 | ) |
| Additions to investments | | | (36,241 | ) | | | — | | | | — | |
| Acquisition of subsidiaries | | | (13 | ) | | | — | | | | — | |
Proceeds on disposal of affiliates, listed and other
non-current investments | | | 23,809 | | | | 5,409 | | | | 2,139 | |
| Proceeds on disposal of property, plant and equipment and other long-term assets | | | — | | | | — | | | | 2,407 | |
| Dividends received from the joint venture | | | — | | | | 9,400 | | | | 6,400 | |
| Loans and investment received from the joint venture | | | — | | | | — | | | | 15,673 | |
| Net cash movement on reduction of interest in subsidiary/associate | | | 46,206 | | | | (2,954 | ) | | | — | |
| Net cash provided by investment activities | | | 10,474 | | | | 11,681 | | | | 21,675 | |
|
Refer to notes to the consolidated financial statements.
F-10
RANDGOLD & EXPLORATION COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| | | $'000 | | $'000 | | $'000 |
| CASH FLOWS UTILIZED IN FINANCING ACTIVITIES | |
| Ordinary shares issued | | | 37,865 | | | | 2,052 | | | | 184 | |
| Loans from and interest of outside shareholders in subsidiaries repaid | | | — | | | | — | | | | (31,634 | ) |
| Long-term loans repaid(net, including short-term portion) | | | (9,515 | ) | | | (6,778 | ) | | | (23,963 | ) |
| Proceeds received on financial instruments | | | — | | | | — | | | | 4,300 | |
| Increase/(decrease) in bank overdraft | | | — | | | | 338 | | | | (159 | ) |
| Decrease in long-term liabilities as a result of business combinations | | | (33,476 | ) | | | — | | | | — | |
| Decrease in minority interest as a result of business combinations | | | (6,177 | ) | | | — | | | | — | |
| Cash utilized in financing activities | | | (11,303 | ) | | | (4,388 | ) | | | (51,272 | ) |
| Effects of exchange rate changes on cash and cash equivalents | | | (206 | ) | | | 2,470 | | | | 2,513 | |
| | |
| NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | | | (869 | ) | | | 146 | | | | 54,740 | |
| | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | | | 2,541 | | | | 2,395 | | | | 57,135 | |
| | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | | | 1,672 | | | | 2,541 | | | | 2,395 | |
|
Refer to notes to the consolidated financial statements.
F-11
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
1. NATURE OF OPERATIONS
The Group, directly or indirectly through subsidiaries and associated companies, is engaged in gold mining and exploration activities in Africa. The most significant investments of the Group are currently Randgold Resources Limited ("RRL") and Minrico Limited ("Minrico").
RRL:
RRL is a company listed on the London Stock Exchange. In July 2002, RRL listed on the Nasdaq and simultaneously issued 5 million ordinary shares to new shareholders. This resulted in the Group's investment in RRL being reduced from 59% to 48%. From July 2002 RRL has therefore not been consolidated as a subsidiary, but accounted for by the equity method as an associate company. The Group has further reduced its holding in RRL from 48% to 37% during the 2003 financial year.
RRL carry out opencast activities and exploration and currently has one operating mine in Mali, West Africa, the Morila Gold Mine, which commenced production in October 2000, one mine in Mali, namely the Loulo Mine, a project at feasibility stage in C|$$|Axote d'Ivoire as well as a portfolio of exploration projects in West and East Africa.
The main focus of exploration work is on its advanced projects in Mali West, around Morila, in Senegal and more recently Tanzania.
The Tongon project is at an earlier stage of feasibility where the data currently available is less accurate, requiring further detailed work to be performed. RRL does not capitalize any expenditure until a decision to develop a project is made.
The development of the 80% held Loulo Project was approved by the boards of Société des Mines de Loulo S.A. and RRL in December 2003.
Preparation and negotiations for orders with long lead time items have been initiated and site establishment has commenced to ensure the advancement of the civil works which need to be established prior to the onset of the rainy season in July 2005.
Procurement of the long lead time items and the early civils programme are the essential elements of the Loulo construction programme, which forecasts first production for July 2004.
Output based only on the reserves identified in the two open pits of Loulo 0 and Yalea is expected to average approximately 200,000 ounces per annum over a six year period.
The interests of RRL are Morila SA (Morila), which owns the Morila Mine and Somilo SA (Somilo), which conducts the exploration and development activities over the Loulo site and Somisy SA (Somisy), which owns and operated the Syama Mine. RRL holds an effective 40% interest in Morila, following the sale to AngloGold Limited on July 3, 2000 of one half of RRL's wholly owned subsidiary, Morila Limited. Management of Morila Limited, the 80% shareholder of Morila, is effected through a joint venture committee, with RRL and AngloGold each appointing one half of the members of the committee. AngloGold Services Mali SA (Anser), a subsidiary of AngloGold, is the operator of Morila.
In December 2001, the Syama operation was placed on care and maintenance.
In April 2003, RRL entered into an option agreement with the Australian company, Resolute Mining Limited, over its interest in the Syama Mine in Mali. In terms of the agreement, Resolute was given a 12 month period in which to conduct a full due diligence over Syama. On April 5, 2004, Resolute Mining exercised its option to buy RRL's 80% interest in the Syama Mine. In terms of the option, Resolute paid RRL $6 million and has assumed liabilities of $7 million of which $4 million was owing to RRL. At a gold price of more than $350 per ounce, RRL would receive a royalty of $10 per ounce
F-12
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
1. NATURE OF OPERATIONS (continued)
on the first million ounces of production from Syama and $5 per ounce on the next three million ounces based on the attributable ounces acquired by Resolute. Completion of the deal took place in June 2004 and incorporated a structured hand-over.
Minrico:
Minrico is a company which was formed to manage and turn to account its own as well as other companies' portfolios of South African mineral rights. At December 31, 2002 the Group had a 100% interest in Minrico, but during the 2003 financial year, Marothodi Resources ("Marothodi"), an empowerment company, obtained 26% interest in Minrico for a nominal consideration. Marothodi brings to Minrico their empowerment expertise and with this transaction, Minrico has also progressed towards full compliance under the recently established South African mining industry charter.
2. SIGNIFICANT ACCOUNTING PRINCIPLES
USE OF ESTIMATES: The preparation of the financial statements in conformity with United States generally accepted accounting principles requires the Company's management to make assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The following are accounting policies used by the Company which have been consistently applied for all periods presented, except as disclosed under consolidation and derivatives.
FOREIGN CURRENCY: The functional currency is the South African Rand. The translation differences arising as a result of converting to US dollars using the current exchange rate method, is included as a separate component of shareholders' equity.
Foreign operations which form and integral part of the operations of the Group are classified as integral foreign operations. The balance sheets and income statements of these subsidiaries are translated on the following basis:
| |
| • | Monetary items are translated using the closing rate of exchange. |
| |
| • | Non-monetary items are translated at the rate of exchange at the historical transaction date. |
| |
| • | Income and expense items are translated at the weighted average rate of exchange for the reporting period. |
For self-sustaining foreign entities, assets and liabilities are translated using the closing rates at year end, and income statements are translated at average rates. Differences arising on translation are taken directly to shareholders' equity. When a foreign entity is sold, such exchange differences are recognized in the income statement as part of the gain or loss on sale.
CONSOLIDATION: The consolidated financial statements include the results and financial position of Randgold & Exploration, its subsidiaries and associates. The results of any subsidiaries acquired or disposed of during the year are included from the date control was acquired and up to the date control ceased to exist.
Where an acquisition of a subsidiary is made during the financial year, any excess or deficit of the purchase price compared to the fair value of the attributable net identifiable assets is recognized respectively as goodwill or negative goodwill.
The Group assesses whether there is any indication of impairment on acquisition and at each balance sheet date. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write-down is made if the carrying amount exceeds the recoverable amount.
F-13
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Investment in subsidiaries:
Subsidiaries are those entities over which financial and operating policies the Group has the power to exercise control, so as to obtain benefits from their activities. The Group financial statements incorporate the assets, liabilities and results of the operations of the company and its subsidiaries. The results of the subsidiaries acquired and disposed of during a financial year are included from the effective dates of acquisition and to the effective dates of disposal. Where necessary, the accounting principles of subsidiaries are changed to ensure consistency with the principles adopted by the Group.
Investment in associates:
An associate is an enterprise over whose financial and operating policies the Group has the ability to exercise significant influence and which is neither a subsidiary nor a joint venture of the Group.
The equity method of accounting is adopted in the Group financial statements. In applying the equity method, account is taken of the Group's share of accumulated retained earnings and movements in reserves from the effective date on which the enterprise became an associate and up to the effective date of disposal.
Investments in associates are accounted for by using the equity method of accounting based on the most recent audited financial statements. The Group's interest in the associate is carried in the balance sheet at an amount that reflects the cost of the investment, the Group's share of post acquisition earnings and other movement in reserves. The carrying value of an associate is reviewed on a regular basis and, if impairment in the carrying value has occurred, it is written off in the period in which such permanent impairment is identified.
Dividends received from associates are included in income from investments.
Where the Group's share of losses of an associate exceeds the carrying amount of the associate, the associate's investment is carried at nil. Additional losses are only recognized to the extent that the Group has incurred obligations or made payments on behalf of the associate.
Dilution gains/losses related to associate stock:
Dilution gains related to issuance of associates stock are accounted for through other comprehensive income.
Transactions eliminated on consolidation:
Intra-group balances and transactions, and any unrealized gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with associates are eliminated to the extent of the Group's interest in the enterprises. Unrealized gains resulting from transactions with associates are eliminated against the investment in associate. Unrealized losses on transactions with associates are eliminated in the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.
PROPERTY, MINERAL RIGHTS AND PROSPECTING PERMITS:
Undeveloped properties (mineral rights):
These properties, upon which the Group has not performed sufficient exploration work to determine whether significant mineralization exists, are carried at original cost. Where the directors consider that there is little likelihood of the properties being exploited, or the value of the exploitable rights have diminished below cost, a write down is recorded as exploration expense in its statement of operations.
F-14
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Mining assets:
Long-lived mining assets include mining properties, mine development cost and mine plant facilities. Mine development cost is capitalized to capital work-in-progress and transferred to mining property, plant and equipment when the mining venture reaches commercial production.
Capitalized mine development cost consist primarily of direct expenditure to develop an ore body for economic exploitation and to expand the production capacity of existing operating mines. Following the completion of a bankable feasibility study, development costs, which include interest on borrowing funds, used to place new mines into production and to complete major development projects at operating mines are capitalized. Ongoing costs to maintain production are expensed as incurred.
The long-lived mining assets have useful economic lives which equal or exceed that of the life of the mine. Depreciation and amortization are therefore charged over the life of the mine based on estimated ore tons contained in proven and probable reserves. Proven and probable ore reserves reflect estimated quantities of economically recoverable reserves, which can be recovered in the future from known mineral deposists.
Short-lived mining assets which include motor vehicles, office equipment and computer equipment are depreciated over useful lives of two to five years.
The cost of waste stripping in excess of the expected pit life average stripping ratio is below the expected average ratio. The expected pit life average stripping ratio is calculated as the ratio of future anticipated waste tons to be mined, to anticipated future ore tons to be mined. This ratio is recalculated annually in light of additional knowledge and changes in estimates. The expected pit life ratio is then compared to waste associated with ore mined during the period so as to calculate the deferred stripping costs to be deferred or released for the period.
Rehabilitation costs and related accrued liabilities are based on the net present value of future rehabilitation cost estimates and are recognized and provided for in the financial statements and capitalized to mining assets on initial recognition. Due to the nature of mining operations, initial recognition is at the time of first production and thereafter as and when additional environmental disturbances are created.
The estimates are reviewed annually to take into account the effects of inflation and changes in the estimates and are discounted using rates that reflect the time value of money. Annual increases in the provision are charged to income and consist of finance costs relating to the change in present value of the provision and inflationary increases in the provision estimate.
The present value of additional environmental disturbances created is capitalized to mining assets against an increase in rehabilitation provision. The rehabilitation asset is amortised as noted previously. Rehabilitation projects undertaken, included in the estimates, are charged to the provision as incurred.
Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are expensed when they are known, probable and reasonably estimable.
Impairment of mining property:
Recoverability of the long-term assets of the Group, which include development costs, deferred stripping costs and undeveloped property costs, together with other current assets, is reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
In determining if the asset can be recovered, the Group compares the value in use amount to the carrying amount, or where higher, the disposal value. If the carrying amount exceeds the value in use
F-15
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
amount, the Group will record an impairment charge in the income statement to write down the asset to the value in use amount. To determine the value in use amount, management makes its best estimate of the future cash inflows that will be obtained each year over the life of the mine and discounts the cash flow by a rate that is based on the time value of money adjusted for the risk associated with the applicable project.
Management's best estimate includes only those projections which it believes are reliable, and which based upon past experience, it has the ability to accurately forecast. These estimates are subject to risks and uncertainties including future metal prices. In addition, other factors that management can control may turn out differently than that projected and could have an effect on the determination of the value in use amount. It is therefore reasonably possible that changes could occur which may affect the recoverability of the mining assets. Reductions in the carrying value of the long-term assets of mines are recorded to the extent the remaining investment exceeds the estimate of future discounted net cash flows.
Non-mining assets:
Property is recorded at cost and not depreciated. All other non-mining assets are stated at historical cost less accumulated depreciation. Depreciation is charged on the straight-line basis over the useful lives of these assets of two to 5 years.
Prospecting permits:
Prospecting permits acquired by the Group are stated at cost less accumulated amortization and impairment losses. Subsequent expenditure on capitalized assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other subsequent expenditure is expensed as incurred. Amortization is charged to the income statement on a straight-line basis over the estimated useful lives of the permits. The difference between the net disposal proceeds and the carrying amount of the permit is the gain or loss on disposal of the permit and is recognized in income. The Group applied FSP FAS 141-1 and FAS 142-2 for prospecting permits acquired during the 2003 financial year.
INVENTORIES, which comprises of consumable stores are stated at the lower of cost or net realizable value. The cost of consumable stores is determined principally by the weighted average cost method.
REVENUE RECOGNITION:
Gold sales revenue is recognized when the risk and rewards of ownership are transferred to the buyer. Gross sales revenue represents the invoiced amounts for all gold supplied to customers. Gross sales revenue excludes value-added tax.
Management and other fees are recognized when services are delivered.
Dividends received are recognized when the right to receive payment is established.
Interest received is recognized on a time proportion basis, which takes into account the effective yield on the asset over the period it is expected to be held.
Royalties are recognized when the right to receive payment is established.
PROVISIONS are recognized when the Company has a present legal or constructive obligation as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
F-16
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
EXPLORATION COSTS are expensed as incurred prior to the completion of a final feasibility study to establish provan and probable reserves.
INCOME AND MINING TAXES: The Group follows the comprehensive liability method of accounting for income and mining taxes, whereby deferred income and mining taxes are recognized for the tax consequences of temporary differences, by applying current statutory tax rates to differences between financial statement amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized for temporary differences which result in deductible amounts in future periods, but only to the extent it is possible that sufficient taxable profits will be available against which these differences can be utilized. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year.
FINANCIAL INSTRUMENTS: The Group's financial instruments consist primarily of non-current receivables, investments, cash and cash equivalents, accounts receivable, borrowings, accounts payable and derivative instruments. Financial instruments are initially carried at cost. Subsequent to initial recognition these instruments are measured as set out below in terms of the applicable accounting policy.
Non-current receivables are stated at the gross invoice value adjusted for payments received an an allowance for dcoubtful debts, where appropriate, to reflect the fair value of the anticipated realizable value. Bad debts are written off during the period in which they are identified.
Investments
Investments in subsidiaries are reflected at cost. If the directors are of the opinion that there has been a permanent diminuation in the value of these investments they are written down, with the write down recognized as an expense in the period in which the diminuation is determined to have taken place.
Listed investments, are investments in listed companies, other than investments in subsidiaries and associates and are classified as available-for-sale and are accounted for at fair value. The fair value is based on the quoted market price of the respective listed investments at year-end. Changes in the carrying amount of available-for-sale investments are excluded from earnings and included as a separate component of shareholders' equity. On disposal of available-for-sale investments, amounts previously included as a separate component of shareholders' equity, are transferred to the income statement and included in the determination of the gain/(loss) on disposal of available-for-sale securities. Unrealized losses are recognized in the determination of net income/(loss) when it is determined that a significant, other than temporary, decline in the value of the investment, has occurred.
Cash and cash equivalents are defined as cash on hand, deposits held with banks, money-market instruments and highly liquid investments with maturity within 3 months. Cash and cash equivalents are measured at fair value.
Accounts receivable are stated at the gross invoice value adjusted for payments received and an allowance for doubtful debts where considered appropriate. Bad debts are written off when identified.
Long-term borrowings are initially recorded at the fair value of the consideration received, which is cost net of issue cost associated with the borrowing, and subsequently measured at amortized cost, using the effective interest rate method. Amortized cost is calculated taking into account any issue costs and any discount or premium on settlement. Gains and losses are recognized in net profit or loss when the liabilities are extinguished as well as through the amortization process.
Accounts payable are stated at cost adjusted for payments made to reflect the value of the anticipated economic outflow of resources
F-17
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Derivative instruments
Statement of Financial Accounting Standard 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, was adopted by the Group with effect from January 1, 2001.
Previously gains and losses on derivative instruments, which effectively established minimum prices for designated future production, were recognized in revenue when the planned production was delivered. Previously if an instrument regarded as a hedge was sold, extinguished or terminated prior to delivery of the planned production, losses were recognized at the date of sale or closure, and any gains were deferred until the original designated delivery date. Derivatives which were not designated to future production were accounted for on a mark-to-market basis and the associated gains and losses were immediately recognized in income.
Under SFAS 133, all derivatives are recognized on the balance sheet at their fair value, unless they meet the criteria for the normal purchases, normal sales exemption.
On the date a derivative contract is entered into, the Group designates the derivative for accounting purposes as either:
| |
| (1) | a hedge of the fair value of a recognized asset or liability (fair value hedge); |
| |
| (2) | a hedge of a forecasted transaction (cash flow hedge); |
| |
| (3) | a hedge of a net investment in a foreign entity; |
| |
| (4) | a derivative to be marked to market; or |
| |
| (5) | exempt from SFAS 133, due to qualifying for the normal purchase, normal sales exemption. |
Certain derivative transactions, while providing a degree of economic hedges under the Group's risk management policies, do not qualify for hedge accounting. The Group does not currently hold or issue derivative financial instruments for trading or speculative purposes.
Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a cash flow hedge, are recorded in the income statement, along with changes in fair value of the hedged asset or liability that is attributable to the hedged risk.
Changes in the fair value of a derivative are highly effective, and that is designated and qualifies as a cash flow hedge, is recognized directly as a separate component of shareholders' equity. Amounts deferred as a component of shareholders' equity are included in the income statement in the same periods during which the hedge fimr commitment or forecasted transaction affects the profit or loss.
Hedges of net investment in foreign entities are accounted for similarly to cash flow hedges. Recognition of derivatives which meet the criteria for the normal purchases, normal sales exemptions uner SFAS 133 are deferred until settlement and under these contracts the Group must physically deliver a specified quantity of gold at a future date at a specified price to the contracted counter party.
Changes in the fair value of derivatives which are not designated as hedges, and do not qualify for hedge accounting are recognized in the income statement.
The Group formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking derivatives designed as hedges to specific assets and liabilities or to specific firm commitments for forecasted transactions. The Group formally assesses both the hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
With the adoption of SFAS 133 at January 1, 2001, certain of the Group's derivatives qualified for cash flow hedge accounting resulting in a net of tax, cumulative effect of change in accounting
F-18
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
principle adjustment of $1.5 million, net of minority shareholders' interest, recorded in other comprehensive income. The cumulative effect adjustment was required to record the fair value of those derivative instruments on the balance sheet, which previously qualified for hedge accounting and were not recorded on the balance sheet.
EMPLOYEE BENEFITS
Short-term employee benefits
Remuneration to employees in respect of services rendered during a reporting period is recognized as an expense in that reporting period. Accruals are made for accumulated leave.
Termination benefits
Termination benefits are charges against income when the Group is demonstrably committed to terminating the employment of an employee or group of employees before their normal retirement date.
Post-employment benefits
Defined contribution plans – retirement, provident and pension funds
The Group contributes to a number of retirement plans on behalf of its employees, all being of a defined contribution nature. The Group's contributions to these defined contribution plans in respect of services rendered during a reporting period are recognized as an expense in that period.
Post-retirement medical aid liability
The Group has an obligation to provide certain medical aid benefits to certain pensioners and their dependents. A liability for these retirees and their dependents are accrued for in full based upon an independent actuarial valuation performed annually.
Actuarial gains and losses as a result of experience adjustments and/or the effects of changes in actuarial assumptions are recognized immediately as income or expenditure. Between actuarial valuations, the provision is adjusted for changes in actuarial assumptions recommended by the actuaries.
DIVIDENDS PAID are recognized when declared by the board of directors. Dividends are payable in South African Rands. Dividends declared to foreign shareholders are subject to approval by the South African Reserve Bank in terms of South African foreign exchange control regulations. In practice, dividends are freely transferable to foreign shareholders.
EARNINGS/(LOSS) PER SHARE is computed by dividing net profit/(loss) divided by the weighted average number of shares in issue during the year. Fully diluted earnings per share are presented when the inclusion of potential common shares has a dilutive effect on earnings per share.
STOCK-BASED COMPENSATION:
The Group has elected to follow APB Opinion No. 25 "Accounting for Stock Issued to Employees and related interpretations". Under APB No. 25, because the exercise price of the Group and RRL's employee stock options equaled the market price of the underlying stock on the date of grant, no compensation expense was recognized in the Group's financial statements.
However, in the case of options which are re-priced, FIN 44 "Accounting for Certain Transactions involving stock compensation on interpretation of APB 25" requires that stock compensation be recognized for such re-pricing, reflecting the subsequent movement in the value of the option.
F-19
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Pro-forma information regarding net income and earnings per share is required by SFAS No.123 "Accounting for Stock-Based Compensation". This information is required to be determined as if the Group had accounted for its employee stock options, granted subsequent to December 31, 1995, under the fair value method of that statement.
The fair value of options granted in the fiscal years ended December 31, 2003, 2002 and 2001, reported below has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted assumptions:
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| Expected life (in years) — RSOR(1) | | | — | | | | — | | | | — | |
| Expected life (in years) — RRSOR(2) | | | — | | | | 4 | | | | 4 | |
| Risk free interest rate — RSOR | | | — | | | | — | | | | — | |
| Risk free interest rate — RRSOR | | | — | | | | 1.9 | % | | | 3.9 | % |
| Volatility — RSOR | | | — | | | | — | | | | — | |
| Volatility — RRSOR | | | — | | | | 84 | % | | | 61 | % |
| Dividend yield — RSOR | | | — | | | | — | | | | — | |
| Dividend yield — RRSOR | | | — | | | | 0 | % | | | 0 | % |
|
| |
| (1) | RSOR-Randgold Share Option Scheme. |
| |
| (2) | RRSOR-Randgold Resouces Share Option Scheme. |
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Group's and RRL's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing model does not necessarily provide a reliable single measure of the fair value of its options. No options were granted in the 2003 financial year.
During the fiscal years ended December 31, 2003, 2002 and 2001, the weighted average estimated fair value of employee stock options granted under the RSOR scheme was Rnil, Rnil and Rnil respectively.
During the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001, the weighted average estimated fair value of employee stock options granted under the RRSOR Scheme was $nil, $4.07 and $1.86 per share, respectively.
The following table illustrates the effect on net income and earnings per share, as determined if the Group had applied the fair value recognition provisions of FAS 123, to stock-based employee compensation:
F-20
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
(In thousands except for earnings per share information):
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| | | $000 | | $000 | | $000 |
| Net income/(loss) as reported under US GAAP | | | 36,224 | | | | 27,488 | | | | (407 | ) |
| Less: Total stock-based compensation expense determined under fair value based method of all awards | | | (521 | ) | | | (925 | ) | | | (1,332 | ) |
| Pro-forma net income/(loss) | | | 35,703 | | | | 26,563 | | | | (1,739 | ) |
| Earnings/(loss) per share: | |
| Basic — as reported (cents) | | | 75 | | | | 64 | | | | (1 | ) |
| Basic — pro forma (cents) | | | 74 | | | | 62 | | | | (4 | ) |
| Diluted — as reported (cents) | | | 74 | | | | 63 | | | | — | |
| Diluted — pro forma (cents) | | | 73 | | | | 61 | | | | — | |
|
The impact on pro-forma net income and earnings/(loss) per share in the table above may not be indicative of the effect in future years. The Group and RRL continue to grant stock options to new employees. This policy may or may not continue.
F-21
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
3. RECENT PRONOUNCEMENTS
FASB Interpretation No. 46, Consolidation of Variable Interest Entities (Revised 2003)
On January 17, 2003, the Financial Accounting Standards Board (FASB or the "Board") issued FASB Interpretation No. 46, (FIN 46 or the "Interpretation"), Consolidation of Variable Interest Entities. FIN 46 was intended to provide guidance in determining (1) whether consolidation is required under the "controlling financial interest" model of Accounting Research Bulletin No. 51 (ARB 51), Consolidated Financial Statements (or other existing authoritative guidance) or, alternatively, (2) whether the variable interest model under FIN 46 should be used to account for existing and new entities. However, the guidance contained in FIN 46 for making such a determination resulted in many more questions than it did answers. As a result in July 2003, the FASB added a limited-scope project to its agenda to modify FIN 46. In December 2003, the FASB released a revised version of FIN 46 (hereinafter referred to as FIN 46R) clarifying certain aspects of FIN 46 and providing certain entities with exemptions from the requirements of FIN 46.
The variable interest model of FIN 46R was only slightly modified from that contained in FIN 46. The variable interest model looks to identify the "primary beneficiary" (PB) of a variable interest entity (VIE). The PB is the party that is exposed to the majority of the risk or stands to benefit the most from the VIE's activities. A VIE would be required to be consolidated if either of the following conditions are met:
| |
| 1. | The total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders. |
| |
| 2. | The equity investors lack any one of the following three characteristics of a controlling financial interest: |
| | |
| • | The direct or indirect ability through voting rights or similar rights to make decisions about an entity's activities that have a significant effect on the success of the entity. |
| | |
| • | The obligation to absorb the expected losses of the entity. |
| | |
| • | The right to receive the expected residual returns of the entity. |
FIN 46R requires the application of either FIN 46 or FIN 46R by "Public Entities" (as defined in paragraph 395 of FASB Statement No. 123, Accounting for Stock-Based Compensation) to all Special Purpose Entities ("SPEs") created prior to February 1, 2003 at the end of the first interim or annual reporting period ending after December 15, 2003 (i.e., as of December 31, 2003 for an entity with a calendar year-end). All entities created after January 31, 2003 by Public Entities were already required to be analyzed under FIN 46, and they must continue to do so, unless FIN 46R is adopted early. FIN 46R will be applicable to all non-SPEs created prior to February 1, 2003 by Public Entities that are not small business issuers at the end of the first interim or annual reporting period ending after March 15, 2004.
On April 2003, the Financial Accounting Standards Board (FASB) issued Statement No. 149 ("SFAS 149"), Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities. The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. In particular, it (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to the language used in FIN 45 and (4) amends certain other existing pronouncements.
SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003.
F-22
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
3. RECENT PRONOUNCEMENTS (continued)
The provisions of SFAS 149 that relate to SFAS 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. SFAS 149 should be applied prospectively.
The Group does not expect that the adoption of this Statement will have a material impact on its results of operations and financial position.
On December 18, 2003, the Securities Exchange Commission issued Staff Accounting Bulletin No. 104. This staff accounting bulletin revises or rescinds portions of the interpretative guidance included in Topic 13 of the codification of staff accounting bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The principal revisions relate to the rescission of material no longer necessary because of private sector developments in U.S. generally accepted accounting principles. This staff accounting bulletin also rescinds the Revenue Recognition in Financial Statements Frequently Asked Questions and Answers document issued in conjunction with Topic 13. Selected portions of that document have been incorporated into Topic 13.
The accounting literature on revenue recognition includes both broad conceptual discussions as well as certain industry-specific guidance. If a transaction is within the scope of specific authoritative literature that provides revenue recognition guidance, that literature should be applied. However, in the absence of authoritative literature addressing a specific arrangement or a specific industry, the staff will consider the existing authoritative accounting standards as well as the broad revenue recognition criteria specified in the FASB's conceptual framework that contain basic guidelines for revenue recognition.
Based on these guidelines, revenue should not be recognized until it is realized or realizable and earned. Concepts Statement 5, paragraph 83(b) states that "an entity's revenue-earning activities involve delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations, and revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues".
Paragraph 84(a) continues "the two conditions (being realized or realizable and being earned) are usually met by the time product or merchandise is delivered or services are rendered to customers, and revenues from manufacturing and selling activities and gains and losses from sales of other assets are commonly recognized at time of sale (usually meaning delivery)".
In addition, paragraph 84(d) states that "If services are rendered or rights to use assets extend continuously over time (for example, interest or rent), reliable measures based on contractual prices established in advance are commonly available, and revenues may be recognized as earned as time passes."
The staff believes that revenue generally is realized or realizable and earned when all of the following criteria are met:
| |
| • | Persuasive evidence of an arrangement exists, |
| |
| • | Delivery has occurred or services have been rendered, |
| |
| • | The seller's price to the buyer is fixed or determinable, and |
| |
| • | Collectibility is reasonably assured. |
Some revenue arrangements contain multiple revenue-generating activities. The staff believes that the determination of the units of accounting within an arrangement should be made prior to the application of the guidance in this SAB Topic by reference to the applicable accounting literature.
F-23
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
3. RECENT PRONOUNCEMENTS (continued)
FASB Statement No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits (Revised 2003)
On December 23, 2003 the Financial Accounting Standards Board (FASB or the "Board") released revised FASB Statement No. 132 (FAS 132), Employers' Disclosures about Pensions and Other Postretirement Benefits. The revised standard provides required disclosures for pensions and other postretirement benefit plans and is designed to improve disclosure transparency in financial statements. The revised standard replaces existing pension disclosure requirements. Some of the required disclosures include:
Plan assets by category (i.e., debt, equity, real estate)
Investment policies and strategies
Target allocation-percentages or target ranges for plan asset categories
Projections of future benefit payments
Estimates of future contributions to fund pension and other postretirement benefit plans
Interim disclosures of items such as (1) net periodic benefit cost recognized during the period, including service cost, interest cost, expected return on plan assets, prior service cost, and gain/loss due to settlement or curtailment and (2) employer contributions paid and expected to be paid, if significantly revised from the amounts previously disclosed.
The requirements of the standard are effective for public entities for fiscal years ending after December 15, 2003 (for calendar year companies, this means in their 2003 year-end financial statements) unless otherwise stated in the standard. The Group has adopted the disclosure requirements provided by this statement for the year ended December 31, 2003.
FASB Staff Position (FSP), which amends FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets.
At the March 17-18, 2004 FASB Emerging Issues Task Force (EITF) meeting, the Task Force reached a consensus on EITF Issue No. 04-2, "Whether Mineral Rights Are Tangible or Intangible Assets," that mineral rights, as defined in the issue, are tangible assets. There is an inconsistency between this consensus that mineral rights are tangible assets and the characterization of mineral rights as intangible assets in Statements 141 and 142. This FSP amends Statement 141 and Statement 142 to address that inconsistency.
The guidance in this FSP shall be applied to the first reporting period beginning after April 29, 2004. If the guidance in this FSP results in the recharacterization of an asset, prior-period amounts on the statements of financial position shall be reclassified. Any effects on amortization or depreciation of the asset shall be accounted for prospectively. Early application of this guidance is permitted in periods for which financial statements have not yet been issued. The Group has adopted this standard as of December 31, 2003.
In March 2004, the EIFT issued Emerging Issued Task Force No. 04-3, Mineral assets: Impairment and Business Combinations.
SEC Securities Act Industry Guide No. 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, defines proven and probable reserves, and prohibits disclosure of estimates of any reserves that are not proven or probable. 'Possible' reserves are estimated reserves that are less well established than proven and probable reserves.
FASB Statement No. 89, Financial Reporting and Changing Prices, provide less specific definitions of proven and probable reserves. This Issue addresses whether the value associated with 'possible' mineral reserves and anticipated fluctuations in the future market price of minerals should be included in the valuation of mineral assets when those assets are tested for impairment and recognized in a purchased business combination.
F-24
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
3. RECENT PRONOUNCEMENTS (continued)
In March 2004, the Task Force reached consensus that the value attributable to the value beyond proven and probable reserves (VBPP) "and the effects of anticipated fluctuations in future market prices of minerals should be considered in a manner that is consistent with the expectations of marketplace participants when an entity allocates the purchase price to assets acquired in a business combination.
Additionally, the Task Force reached consensus that the value attributable to VBPP and the effects of anticipated fluctuations in future market prices of minerals should be considered in the cash flow analysis used to test mining assets for impairment under FAS 144".
The consensus should be applied prospectively to business combinations completed and impairment tests performed in reporting periods beginning after March 31, 2004. The additional consensus is effective prospectively to FAS 144 impairment tests completed after March 31, 2004.
The Task Force's consensus was ratified by the FASB at its March 31, 2004 meeting.
The Issue will not be discussed at a future meeting.
The Group is currently evaluating the impact of this issue on its results of operations and financial position.
4. IMPAIRMENT OF GOODWILL
| | | | | | | | | | | | | | |
| | | Year Ended
December 31
2003
$'000 | | Year Ended
December 31
2002
$'000 | | Year Ended
December 31
2001
$'000 |
| Impairment of goodwill | | | 3,316 | | | | — | | | | — | |
|
The goodwill in respect of the Group's investment in Viking Pony, a wholly-owned subsidiary, was found to be impaired as a result of the decrease in market prices of the investments held in Viking Pony at date of acquisition.
The recoverable amount was determined at the cash-generating unit level and represents the value in use, determined by reference to market prices for the equivalent assets. The investment relates to the South African investments and corporate activities segment.
5. IMPAIRMENT OF AVAILABLE-FOR-SALE INVESTMENTS
| | | | | | | | | | | | | | |
| | | Year Ended
December 31,
2003
$'000 | | Year Ended
December 31,
2002
$'000 | | Year Ended
December 31,
2001
$'000 |
| Impairment of available-for-sale investments | | | 3,882 | | | | — | | | | — | |
|
The impairment of the available for sale investments relates to the significant devaluation of the market price of certain listed investments. The devaluation is considered other than temporary.
F-25
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
6. EMPLOYMENT TERMINATION COSTS
| | | | | | | | | | | | | | |
| | | Year Ended
December 31
2003
$'000 | | Year Ended
December 31
2002
$'000 | | Year Ended
December 31
2001
$'000 |
| Employment termination costs | | | — | | | | — | | | | 1,470 | |
|
The $1.47 million retrenchment expense was as a result of the closure of operations at Syama mine.
7. INCOME AND MINING TAXES
| | | | | | | | | | | | | | |
| | | Year Ended
December 31
2003
$'000 | | Year Ended
December 31
2002
$'000 | | Year Ended
December 31
2001
$'000 |
| Foreign taxation — mining | | | — | | | | — | | | | (126 | ) |
| Current — income tax | | | 4,862 | | | | — | | | | — | |
| Overprovision of taxation in respect of prior year | | | (947 | ) | | | — | | | | — | |
| Total income tax expense | | | 3,915 | | | | — | | | | (126 | ) |
|
South African non-mining current tax is paid at 30%. For the years presented, no significant mining operations were conducted in South Africa.
STC is a tax on dividends declared, and at present the STC tax rate is 12.5%. To the extent that the Company receives dividends from any of its subsidiaries and listed investments, such received dividends are offset against the amount of dividends paid by the Company for the purposes of calculating the amount subject to the 12.5% STC tax.
Foreign taxation consists of taxation paid by the Malian company, Somisy (SA), which is based on the greater of 35% of that company's taxable profit, or 0.75% of gross revenue earned by the company.
The operating joint venture, Morila, benefits from a five year tax holiday in Mali. The tax holiday of Morila expires on November 1, 2005. The benefit of the tax holiday to the Group was to effectively increase its net income by $8.3 million, $15.0 million and $11.3 million, due to not recording its share of Morila's tax expense for the years ended December 31, 2003, 2002 and 2001, respectively. Accordingly, had the Group not benefited from the tax holiday in Mali, earnings per share would have been reduced by $0.28, $0.35 and $0.27 for the years ended December 31, 2003, 2002 and 2001 respectively.
Thus, the tax accounting for the Group on a consolidated basis for 2001 and 2000 reflects the tax accounting for its suspended operation, Somisy. Under Malian tax law, income tax is based on the greater of 35% of taxable income or 0.75% of gross revenue. No tax charge for the periods included in suspended operations has accrued in 2003 and 2002, based on Malian tax law.
Major items causing the Company's income tax provision to differ from the estimated effective South African non-mining tax rate of 30% were as follows:-
The group had assessable losses at December 31, 2003, 2002 and 2001 for deduction against future taxable income.
F-26
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
7. INCOME AND MINING TAXES (continued)
| | | | | | | | | | | | | | |
| | | Year Ended
December 31
2003
$'000 | | Year Ended
December 31
2002
$'000 | | Year Ended
December 31
2001
$'000 |
| Tax at statutory rate | | | 1,575 | | | | (9,137 | ) | | | (1,836 | ) |
| Capital gains tax on RRL shares sold | | | 4,473 | | | | — | | | | — | |
| Tax on imputed interest | | | 360 | | | | — | | | | — | |
| Amount carried over to unrecognized tax losses | | | 2,674 | | | | — | | | | — | |
| Utilization of previously unrecognized tax losses | | | (288 | ) | | | — | | | | — | |
| Disallowable expenditure/deferred income and mining tax asset valuation allowances | | | 1,033 | | | | (3,740 | ) | | | (8,036 | ) |
| Non-taxable income/additional deductions | | | (4,965 | ) | | | 12,877 | | | | 9,746 | |
| Overprovision in prior year | | | (947 | ) | | | — | | | | — | |
| Total income and mining tax expense | | | 3,915 | | | | — | | | | (126 | ) |
|
The non-taxable income during the year is comprised of equity income from RRL, which has a tax holiday (tax exemption).
The disallowable expenditure is comprised of goodwill written off during the year, which is not deductible under South African tax law.
F-27
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
8. EARNINGS PER SHARE
| | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2003 |
| | | Income
$'000
(Numerator) | | Shares
(Denominator) | | Per Share
Amount
$ |
| BASIC EARNINGS PER SHARE | |
| Shares outstanding January 1, 2003 | | | — | | | | 43,696,256 | | | | — | |
| Weighted number of shares issued | | | — | | | | 4,540,383 | | | | — | |
| Income available to shareholders | | | 36,224 | | | | 48,236,639 | | | | 0.75 | |
| EFFECT OF DILUTIVE SECURITIES | |
| Stock options issued to employees | | | — | | | | 133,034 | | | | — | |
| Fully diluted earnings per share | | | 36,224 | | | | 48,369,673 | | | | 0.74 | |
|
| | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2002 |
| | | Income
$'000
(Numerator) | | Shares
(Denominator) | | Per Share
Amount
$ |
| BASIC EARNINGS PER SHARE | |
| Shares outstanding January 1, 2002 | | | — | | | | 41,701,921 | | | | — | |
| Weighted number of shares issued | | | — | | | | 1,335,205 | | | | — | |
| Income available to shareholders | | | 27,488 | | | | 43,037,126 | | | | 0.64 | |
| EFFECT OF DILUTIVE SECURITIES | |
| Stock options issued to employees | | | — | | | | 409,364 | | | | — | |
| Fully diluted earnings per share | | | 27,488 | | | | 43,446,490 | | | | 0.63 | |
|
| | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2001 |
| | | Income
$'000
(Numerator) | | Shares
(Denominator) | | Per Share
Amount
$ |
| BASIC LOSS PER SHARE | |
| Shares outstanding January 1, 2001 | | | — | | | | 41,437,419 | | | | — | |
| Weighted number of shares issued | | | — | | | | 140,766 | | | | — | |
| | | | (407 | ) | | | 41,578,185 | | | | (0.01 | ) |
|
No diluted loss per share has been calculated for the year ended December 31, 2001.
9. CASH AND CASH EQUIVALENTS
| | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 |
| | | $'000 | | $'000 |
| Cash and cash equivalents | | | 1,672 | | | | 2,541 | |
|
Cash and cash equivalents consist of cash on hand, balances with banks and money-market instruments.
F-28
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
10. RECEIVABLES
| | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 |
| | | $'000 | | $'000 |
| Trade accounts receivable: | |
| — Randgold Resources Ltd | | | 167 | | | | — | |
| — Other | | | 145 | | | | — | |
| Other receivables | | | 205 | | | | 718 | |
| | | | 517 | | | | 718 | |
|
11. PROPERTY, MINERAL RIGHTS AND PROSPECTING PERMITS
| | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 |
| | | $'000 | | $'000 |
| Undeveloped properties (mineral rights) | | | 5,284 | | | | 1,280 | |
| Prospecting permits | | | 6,077 | | | | — | |
| Other non-mining assets | | | 571 | | | | 419 | |
| | | | 11,932 | | | | 1,699 | |
|
Accumulated depreciation is not adjusted upon recognition of an impairment charge, as by adjusting the impairment charge against the historical cost of property, mineral rights, prospecting permits and other non-mining assets, the net carrying value thereof is adjusted to its recoverable amount.
12. INVESTMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 | |
| | | $'000 | | $'000 | |
| Other listed investments | | | 64,358 | | | | 17,345 | | |
|
Other listed investments comprise investments in listed South African companies. These investments are classified as available-for-sale, and are accounted for at fair value.
Included in other comprehensive income as at December 31, 2003 are net gains on available for sale investments of $4.9 million and net losses of $0.9 million.
F-29
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
13. INVESTMENT IN ASSOCIATE
Investment in Randgold Resources Limited comprise of:
| | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 |
| | | $'000 | | $'000 |
| Opening balance | | | 57,209 | | | | 20,625 | |
| Net gain on share capital movements in associate | | | 568 | | | | 10,126 | |
| Share of equity income for the period | | | 20,228 | | | | 25,383 | |
| Decrease in Group's holding due to shares sold | | | (14,002 | ) | | | — | |
| Share of movement in cash flow hedges (net) | | | 328 | | | | (876 | ) |
| Share of movement in additional paid in capital due to stock compensation expense | | | 978 | | | | 1,951 | |
| Closing balance | | | 65,309 | | | | 57,209 | |
|
The Group's shareholding in RRL was diluted from 48.12% to 36.86% during the 2003 year due to RRL shares sold and the issue of share options in RRL.
At the time of RRL's listing on Nasdaq in July 2002, it issued 5 million new shares to new shareholders. This resulted in the Group's portion of the total RRL shareholding reducing from 59% to 48%. From July 2002 RRL is therefore not consolidated as a subsidiary, but accounted for by the equity method as an associate company. Subsequent to this date profits from RRL are shown as a single line item in the consolidated financial statements resulting in a gain of $10.1 million reported in 2002.
14. OTHER LONG-TERM ASSETS
| | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 |
| | | $'000 | | $'000 |
| Loan to JCI Gold Limited | | | 13,689 | | | | — | |
| Other loan receivable | | | 12,435 | | | | — | |
| Deferred payment of shares sold | | | 3,856 | | | | — | |
| | | | 29,980 | | | | — | |
|
JCI Gold Limited has pledged $6.7 million in the form of Western Areas Limited shares as security for the respective loan. The loan bears interest at 1% above the call rate that The Standard Bank of South Africa offers its corporate clients. See note 23.
Security has been provided for the other loan receivable in the form of 104 million JCI Limited ordinary shares, fairly valued at $12.1 million on December 31, 2003. The loan bears interest at the prime rate charged by The Standard Bank of South Africa plus 0.5% and is payable on December 31, 2004. See note 23.
Security has been provided for the deferred payment in the form of 660,000 Western Areas Limited ordinary shares, fairly valued at $4.1 million on December 31, 2003.
F-30
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
15. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 |
| | | $'000 | | $'000 |
| Trade payables | | | 65 | | | | — | |
| Payroll and compensation | | | 172 | | | | 84 | |
| Related party payables | | | 260 | | | | 4,684 | |
| Other payables | | | 508 | | | | 1,929 | |
| | | | 1,005 | | | | 6,697 | |
| The related party payables are in respect of: | |
| — Randgold Resources Limited | | | 260 | | | | — | |
| — Consolidated Mining Management Services Limited | | | — | | | | 3,723 | |
| — Western Areas Limited | | | — | | | | 961 | |
| | | | 260 | | | | 4,684 | |
|
16. PROVISION FOR POST-RETIREMENT BENEFITS
| | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 |
| | | $'000 | | $'000 |
| Opening balance | | | 6,005 | | | | 4,506 | |
| Interest cost for the year | | | 654 | | | | 518 | |
| Actuarial loss/(profit) recognized during the year | | | 727 | | | | (249 | ) |
| Contributions paid during the year | | | (498 | ) | | | (373 | ) |
| Translation adjustment | | | 1,869 | | | | 1,603 | |
| | | | 8,757 | | | | 6,005 | |
|
The Group has accrued in full for their post-retirement medical cost obligations based on the latest calculations by independent actuaries that include appropriate mortality tables and assuming long-term estimates of increases in medical costs and appropriate discount rates. The principal assumptions were as a medical cost inflation of 8.5% (2002: 10%) and a valuation interest rate of 9.5% (11.5%) and the measurement date was December 31, 2003.
F-31
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
16. PROVISION FOR POST-RETIREMENT BENEFITS (continued)
Sensitivity analysis on the unfunded accrued liability:
| | | | | | |
| | | December 31,
2003 |
| | | $'000 |
| Assumption and change | |
| Health care inflation | | | | |
| +1% | | | 9.7 | |
| –1% | | | 8.0 | |
| Post retirement mortality | | | | |
| –2 years | | | 9.5 | |
| +2 years | | | 8.1 | |
| Average retirement age | | | | |
| –2 years | | | 8.9 | |
| Withdrawal rates | | | | |
| –25% | | | 8.8 | |
|
17. LONG TERM LIABILITIES
| | | | | | | | | | |
| | | December 31
2003 | | December 31
2002 |
| | | $'000 | | $'000 |
| ABSA short-term loan | | | — | | | | 3,615 | |
| | | | — | | | | 3,615 | |
| Less: Current portion | | | — | | | | (3,615 | ) |
| | | | — | | | | — | |
|
In September 2001 a R70 million (US$ 5.8 million) one year loan was obtained from ABSA bank. The loan bore interest at the South African prime overdraft rate ("prime") for an initial six month period which ended on March 28, 2002 and at prime plus two percent for the six months thereafter. During the 2002 fiscal year the terms of the agreement were renegotiated. The period of the loan was extended to September 30, 2003 and the interest rate changed to the prime rate for the full period of the loan.
In March 2002 R30 million ($2.9 million) of the capital amount of the loan was repaid. This was funded by the sale of 1.5 million shares in Durban Roodepoort Deep Limited. In September 2002 a further R10 million ($1 million) was repaid, leaving an outstanding balance of R30 million ($3.6 million), collaterized by 7,360,000 RRL shares at the end of the 2002 fiscal year.
In March 2003 the Group repaid a further R10 million ($1.2 million) on the loan, and the balance of R20 million ($2.4 million) was settled at the end of June 2003. The March 2003 repayment was funded from the proceeds of employee share options exercised. The final settlement in June 2003 was paid from the proceeds of the sale of RRL shares.
The weighted average interest rate for the year ended December 31, 2002 was 15% (2001: 13%).
F-32
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
18. EMPLOYEE BENEFIT PLANS
18.1 PENSION AND PROVIDENT FUNDS
The Group contributes to several defined contribution provident funds. The provident funds are funded on the "money accumulative basis" with the members' and Group contributions having been fixed in the constitutions of the funds.
All the Group's employees are covered by the abovementioned retirement benefit plans other than those directly employed by Somisy and Morila. Retirement benefits for employees of Somisy and Morila are provided by the Mali state social security system to which the Group and employees contribute a fixed percentage of payroll costs each month. Fund contributions by the Group for the years ended December 31, 2003, 2002 and 2001 amounted to $0.02 million, $0.3 million and $0.3 million respectively.
18.2 RANDGOLD SHARE OPTION SCHEME
Randgold & Exploration Company Limited ("RG&E) has an Employee Share Option Scheme ("Randgold Share Option Scheme" hereafter referred to as the RSOR scheme) under which all employees may be granted options to purchase shares in the Company's authorized but unissued common stock. 7,000,000 unissued shares have been reserved for the RSOR scheme. In terms of the rules of the RSOR scheme, the option purchase price is equal to fair market value at the date of grant.
Options currently expire no later than ten years from the grant date. Two years from grant date, a third of the total options granted are exercisable. Three years from grant date, a further third of the options are exercisable and four years from grant date, a further third of the options are exercisable. Proceeds received by RG&E from exercises are credited to common stock and capital in excess of par value.
Tables are denominated in South African Rands ("R"), where applicable.
The following table summarizes the information relating to the RSOR options outstanding:
| | | | | | | | | | | | | | |
| | | Number of
Shares | | Weighted
Average
Contractual
Life
(in years) | | Weighted
Average
Exercise
Price |
| AT DECEMBER 31, 2003 | |
| Range of exercise price (R) | |
| 5.90 - 11.00 | | | 29,592 | | | | 5.85 | | | | 6.71 | |
| 11.01 - 15.50 | | | 173,830 | | | | 1.29 | | | | 12.39 | |
| Total | | | 203,422 | | | | 1.95 | | | | 11.56 | |
| AT DECEMBER 31, 2002 | |
| Range of exercise price (R) | |
| 5.90 - 11.00 | | | 125,359 | | | | 4.70 | | | | 7.63 | |
| 11.01 - 15.50 | | | 1,115,150 | | | | 2.26 | | | | 12.69 | |
| 15.51 - 22.25 | | | 154,400 | | | | 3.07 | | | | 18.14 | |
| Total | | | 1,394,909 | | | | 2.57 | | | | 12.84 | |
|
F-33
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
18.2 RANDGOLD SHARE OPTION SCHEME (Continued)
The following table summarizes the information about the RSOR options exercisable:
| | | | | | | | | | |
| | | Weighted
Number of
Shares | | Average
Exercise
Price (R) |
| AT DECEMBER 31, 2003 | |
| Range of exercise prices (R) | |
| 5.90 – 11.00 | | | 16,492 | | | | 5.61 | |
| 11.01 – 15.50 | | | 173,830 | | | | 12.39 | |
| | | | 190,322 | | | | 11.80 | |
| AT DECEMBER 31, 2002 | |
| Range of exercise prices (R) | |
| 5.90 - 11.00 | | | 95,359 | | | | 8.09 | |
| 11.01 - 15.50 | | | 1,115,150 | | | | 12.69 | |
| 15.51 - 22.25 | | | 154,400 | | | | 18.14 | |
| Total | | | 1,364,909 | | | | 12.99 | |
|
Activities of the RSOR share option scheme follow:
| | | | | | | | | | | | | | |
| | | Available
For Grant | | Number of
Shares | | Average
Price
Per Share (R) |
| BALANCE AT DECEMBER 31, 2000 | | | 28,612 | | | | 3,687,146 | | | | — | |
| Shares lapsed during the year | | | 33,400 | | | | (33,400 | ) | | | 6.05 | |
| Shares exercised during the year | | | — | | | | (264,502 | ) | | | 8.81 | |
| BALANCE AT DECEMBER 31, 2001 | | | 62,012 | | | | 3,389,244 | | | | — | |
| Shares exercised during the year | | | — | | | | (1,994,335 | ) | | | 17.47 | |
| BALANCE AT DECEMBER 31, 2002 | | | 62,012 | | | | 1,394,909 | | | | — | |
| Shares lapsed during the year | | | (62,012 | ) | | | 62,012 | | | | — | |
| Shares exercised during the year | | | — | | | | (1,253,499 | ) | | | 13,41 | |
| BALANCE AT DECEMBER 31, 2003 | | | — | | | | 203,422 | | | | — | |
|
18.3 RANDGOLD RESOURCES SHARE OPTION SCHEME
An associate of the Company, RRL (previously a subsidiary) has an employee share option scheme ("Randgold Resources Share Option Scheme" hereafter referred to as the RRSOR scheme) under which all employees may be granted options to purchase shares in RRL's authorized but unissued common stock. During 1998 the rules of RRSOR scheme were revised whereby up to 10% of the outstanding share capital of RRL may be reserved for the scheme. As at December 31, 2002 and December 31, 2001, 4,121,644 and 3,371,644 shares respectively, were available to be granted in terms of the RRSOR scheme rules. In terms of the rules of the RRSOR scheme, the option purchase price is equal to fair market value at the date of grant.
On January 29, 2001, 873,200 options granted to various employees at prices between $4.25 and $10.00 were cancelled and reissued at $3.30, RRL's stock price at that date, which was lower than the grant price on the original grant date. These options have been marked to market with reference to the difference between the grant price and the RRL stock price at year end, with the difference recognized in earnings as stock compensation expense.
F-34
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
18.3 RANDGOLD RESOURCES SHARE OPTION SCHEME (Continued)
Options currently expire no later than ten years from the grant date. Options granted to directors and senior management have the following vesting period: at the date of grant a third of the total option vests, and annually upon anniversary of the grant date a further third of the total option grant vests.
Options granted to other employees vest as follows: on the second anniversary of the grant date a third of the total option grant vests, and annually therefore upon anniversary of the grant date a further third of the total option grant vests.
The total number of shares available to RRSOR was amended from 10% to 15% of issued share capital at an extraordinary general meeting held on July 23, 2001. However, the number of actual shares available for distribution was reduced following completion of the share buyback scheme in October 2001.
Share option activity was as follows: (all figures are number of shares, except for average price per share data).
| | | | | | | | | | | | | | |
| | | Available
For Grant | | Number of
Shares | | Average
Price Per
Share ($) |
| BALANCE AT DECEMBER 31, 2000 | | | 647,433 | | | | 2,636,566 | | | | — | |
| Amendment to the share option scheme | | | (35,759 | ) | | | 23,664 | | | | — | |
| Shares authorized during the year | | | 99,740 | | | | — | | | | — | |
| Shares lapsed during the year | | | 1,010,259 | | | | (1,010,259 | ) | | | 4.65 | |
| Shares granted during the year | | | (1,210,000 | ) | | | 1,210,000 | | | | 3.37 | |
| Shares exercised during the year | | | — | | | | (1,013,404 | ) | | | 3.06 | |
| BALANCE AT DECEMBER 31, 2001 | | | 511,673 | | | | 1,846,657 | | | | — | |
| Shares authorized during the year | | | 750,000 | | | | — | | | | — | |
| Shares lapsed during the year | | | 25,322 | | | | (25,322 | ) | | | 3.69 | |
| Shares granted during the year | | | (1,026,639 | ) | | | 1,026,639 | | | | 6.48 | |
| Shares exercised during the year | | | — | | | | (202,110 | ) | | | 3.61 | |
| BALANCE AT DECEMBER 31, 2002 | | | 260,356 | | | | 2,645,774 | | | | — | |
|
The table below summarizes information about the RRSOR options outstanding:
| | | | | | | | | | | | | | |
| Outstanding Options | | Number
of Shares | | Weighted
Average
Contractual
Life
(in years) | | Weighted
Average
Exercise
Price ($) |
| AT DECEMBER 31, 2002 | |
| 2.3 - 4.97 | | | 1,081,259 | | | | 7.61 | | | | 3.46 | |
| 5.00 - 7.00 | | | 1,135,239 | | | | 8.39 | | | | 6.40 | |
| 10.00 - 16.50 | | | 429,276 | | | | 4.15 | | | | 13.46 | |
| | | | 2,645,774 | | | | 7.38 | | | | 6.34 | |
|
F-35
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
18.3 RANDGOLD RESOURCES SHARE OPTION SCHEME (Continued)
The table below summarizes the information about the RRSOR exercisable options outstanding:
| | | | | | | | | | |
| Exercisable Options | | Number
of Shares | | Weighted
Average
Exercise
Average ($) |
| AT DECEMBER 31, 2002 | |
| 2.50 - 4.97 | | | 608,159 | | | | 3.49 | |
| 5.00 - 7.00 | | | 64,600 | | | | 6.03 | |
| 10.00 - 16.50 | | | 429,276 | | | | 13.46 | |
| | | | 1,102,035 | | | | 7.52 | |
|
The range of option exercise prices is wide primarily due to fluctuations of the RRL stock price over the period of the grants.
| |
| 19. | REDUCTION OF INTEREST IN RANDGOLD RESOURCES LIMITED ("RRL") |
As at December 31, 2003
The Group's interest in associate, RRL, decreased from 48.12% to 36.86% through the sale of RRL shares (10.64%) and the issue of share options by RRL during the year.
Details of the sale of shares are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Jun 18
2003 | | Aug 6
2003 | | Sept 30
2003 | | Oct 14
2003 | | Oct 21
2003 | | Nov 25
2003 | | Total
Dec 31
2003 |
| | | $'000 | | $'000 | | $'000 | | $'000 | | $'000 | | $'000 | | $'000 |
| Net book value of interest in RRL | |
| – before sale | | | 68,750 | | | | 70,022 | | | | 66,282 | | | | 67,271 | | | | 66,668 | | | | 64,490 | | | | | |
| – after sale | | | 63,586 | | | | 64,605 | | | | 65,115 | | | | 66,668 | | | | 65,463 | | | | 64,045 | | | | | |
| | | | 5,164 | | | | 5,417 | | | | 1,167 | | | | 603 | | | | 1,206 | | | | 445 | | | | 14,002 | |
| Cash proceeds on sale of Shares | | | 15,812 | | | | 17,231 | | | | 4,746 | | | | 2,161 | | | | 4,305 | | | | 1,951 | | | | 46,206 | |
| Dilution gain on reduction of interest in RRL | | | 10,648 | | | | 11,814 | | | | 3,579 | | | | 1,558 | | | | 3,099 | | | | 1,506 | | | | 32,204 | |
| % decrease | | | 4.75 | % | | | 3.80 | % | | | 0.70 | % | | | 0.44 | % | | | 0.69 | % | | | 0.26 | % | | | 10.64 | % |
|
On June 6, 2003, we sold 952,481 RRL shares to Kemonshey Holdings (Pty) Limited. The balance of 2,527,481 RRL shares were sold on the open market during the year.
As at December 31, 2002
At the time of RRL's listing on the Nasdaq in July 2002, it issued 5 million new shares to new shareholders. This resulted in the Group's portion of the total RRL shareholding reducing from 59% to 48%. From July 2002 RRL is therefore not consolidated as a subsidiary, but accounted for by the equity method as an associate company.
F-36
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
| |
| 19. | REDUCTION OF INTEREST IN RANDGOLD RESOURCES LIMITED ("RRL") (Continued) |
The book value of the Group's share of the assets and liabilities at the time of the change in status was as follows:
| | | | | | |
| | | Jul 7
2002
$'000 |
| Property, plant and equipment | | | 13,955 | |
| Current assets | | | 716 | |
| Investment in JV | | | 51,775 | |
| Long term loans, loans from outside shareholders in subsidiaries and outside shareholders interest | | | (44,389 | ) |
| Net book value of interest in subsidiary before share issue | | | 20,625 | |
| Net book value of interest in associate after share issue | | | 30,751 | |
| Cash proceeds received | | | — | |
| Dilution gain on reduction of interest in subsidiary/associate | | | 10,126 | |
| Currency translation differences: dilution of subsidiary/associate | | | 2,732 | |
| Total gain on reduction of interest in subsidiary/associate | | | 12,858 | |
| Cash proceeds received on reduction of interest in subsidiary/associate | | | — | |
| Net cash decrease on subsidiary becoming an associate | | | 2,954 | |
| | | | 2,954 | |
|
20. ACQUISITIONS
20.1 INTEREST IN VIKING PONY PROPERTIES 359 (PTY) LIMITED ("VIKING PONY")
On July 28, 2003, the Group acquired 100% of the share capital of Viking Pony and an outstanding loan in the amount of $33.5 million through the issue of 8.8 million new ordinary shares to Phikoloso. Viking Pony held 315,000 Anglo Platinum shares, 315,000 Harmony shares and 7.3 million Afrikander Lease shares. In addition, it owns 75% of Kabusha Mining and Finance (Pty) Ltd. which in turn holds 22.5 million shares in Afrikander Lease. On the date of the acquisition, the Group's ordinary shares were valued at $4.01. The acquired business contributed revenues of $249,440 and an operating loss of $1.26 million to the Group for the period from date of acquisition to December 31, 2003. Kabusha is considered a variable interest entity and is, therefore, consolidated into Viking Pony under FIN46. Kabusha's main non-current assets consists of 23 million shares of Afrikander Lease Limited and its only liability consists of a loan payable to Viking Pony in the amount of $17.6 million as at December 31, 2003. Kabusha's only activities consist of the maintenance of its shareholding in Afrikander Lease Limited and the Group is Kabusha's primary beneficiary.
Details of the net assets acquired are as follows:
| | | | | | |
| | | $'000 |
| Available-for-sale investments | | | 32,816 | |
| Minority interest | | | (849 | ) |
| Long-term liabilities | | | (33,476 | ) |
| Fair value of net assets acquired | | | (1,509 | ) |
| Total purchase consideration through the discharge of shares issued | | | (1,807 | ) |
| Goodwill | | | (3,316 | ) |
|
F-37
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
| |
| 19. | REDUCTION OF INTEREST IN RANDGOLD RESOURCES LIMITED ("RRL") (Continued) |
| |
| 20.2 | INTEREST IN FREE STATE DEVELOPMENT AND INVESTMENT CORPORATION LIMITED ("FSD") |
On December 22, 2003, the Group acquired 55.1% of the share capital of FSD through the issue of 1,531,030 million new ordinary shares to various FSD shareholders. FSD holds various mineral and mining participation rights, certain of which are the subject of prospecting agreements with various mining companies. On the date of the acquisition, the Group's ordinary shares were valued at $4.27. The other 44.9% in FSD is held by JCI Limited.
Details of the net assets acquired are as follows:
| | | | | | |
| | | $'000 |
| Cash and cash equivalents | | | 13 | |
| Receivables | | | 3 | |
| Property, plant and equipment | | | 3,506 | |
| Other long-term assets | | | 8,676 | |
| Payables | | | (330 | ) |
| Minority interest | | | (5,328 | ) |
| Fair value of net assets acquired through the discharge of shares issued | | | 6,540 | |
| Cash and cash equivalents acquired in subsidiary | | | 13 | |
| | | | 6,553 | |
|
21. FAIR VALUE AND CREDIT RISK OF FINANCIAL INSTRUMENTS
The Group's activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Group. The Group's financial instruments are set out in note 22.
21.1 CONCENTRATION OF CREDIT RISK
The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that transactions are entered into with counterparties with an appropriate credit history. An adequate level of provision is maintained.
21.2 FOREIGN EXCHANGE RISK
In the normal course of business, the Group enters into transactions denominated in foreign currencies (primarily US$). The Group has investments in foreign subsidiaries, whose net assets are exposed to currency translation risk. As a result, the Group is subject to transaction and translation exposure from fluctuations in foreign currency exchange rates. The Group does not currently hedge its exposure to foreign currency.
21.3 INTEREST RATE AND LIQUIDITY RISK
The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing liabilities. Fluctuations in interest rates impact on the value of income received from short-term cash investments and other long-term assets.
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close our market position. In the ordinary course of business, the Group receives cash from its operations and is required to fund working capital and capital expenditure requirements. This cash is
F-38
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
| |
| 19. | REDUCTION OF INTEREST IN RANDGOLD RESOURCES LIMITED ("RRL") (Continued) |
managed to ensure surplus funds are invested in a manner to achieve maximum returns while minimizing risks. In addition, the Group has been able to actively source financing through public offerings of Randgold & Exploration's shares and the sale of investments.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the Group's financial instruments outstanding at December 31, 2003 and 2002. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
| | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2003 | | 2002 |
| | | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| | | $'000 | | $'000 | | $'000 | | $'000 |
| Financial assets | |
| Cash and equivalents | | | 1,672 | | | | 1,672 | | | | 2,541 | | | | 2,541 | |
| Receivables | | | 517 | | | | 517 | | | | 718 | | | | 718 | |
| Investments | | | 64,358 | | | | 64,358 | | | | 17,345 | | | | 17,345 | |
| Other long-term assets | | | 29,980 | | | | 29,980 | | | | — | | | | — | |
| | |
| Financial liabilities | |
| Accounts payable | | | 1,005 | | | | 1,005 | | | | 6,697 | | | | 6,697 | |
| Current portion of long-term loans | | | — | | | | — | | | | 3,615 | | | | 3,615 | |
|
ESTIMATION OF FAIR VALUES
Receivables, accounts payable, bank overdrafts and cash and equivalents
The carrying amounts are a reasonable estimate of the fair values because of the short maturity of such instruments.
Investments and other non-current assets
The fair value of publicly traded instruments is based on quoted market values. All other instruments have been valued by the directors using discounted cash flow analyses.
23. RELATED PARTY TRANSACTIONS
Mr. R.A.R. Kebble, our chairman, is also the chairman of RRL and JCI and is a non-executive director of Western Areas. Mr. Buitendag is also a director of JCI, Consolidated Mining Management Services Limited and Continental Goldfields Limited. Mr. R.B. Kebble is a director of JCI and Western Areas. As of May 31, 2004, JCI owned 12,527,869 or approximately 21.77% of our ordinary shares.
In terms of a services agreement entered into with RRL, Randgold & Exploration provides certain technical and administrative services to RRL. This is done on a cost plus mark up basis, and the net income for 2003 was $0.1 million (2002: $0.1 million). At December 31, 2003, a net amount of $93,000 (2002: $nil) was payable to RRL.
On June 30, 2003, the Company paid $4.3 million, consisting of $3.7 million capital and 0.6 million interest, to Consolidated Mining Management Services Limited, to settle the loan payable.
F-39
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
23. RELATED PARTY TRANSACTIONS (Continued)
The Company made three payments, totaling $1.1 million during fiscal 2003, to settle the loan of $1 million owing to Western Areas Limited. The final payment was made on October 28, 2003 and included in the total was interest of $0.1 million.
On July 1, 2003, the Company entered into a loan agreement with JCI Gold Limited ("JCI") whereby $4 million was extended to JCI. The loan bears interest at a rate of one percent above the call rate that the Standard Bank of South Africa offers its corporate clients. The outstanding blance on this loan as of December 31, 2003 was $4.7 million.
On July 10, 2003, we converted a debt of $1.8 million owed to us by Continental Goldfields Limited arising from the sale of Transvaal Gold Mining and Estates Limited in 2000, to shares, acquiring 40 million Simmer and Jack Mines, Limited shares. This represents approximately 18% of the issued ordinary share capital of that company.
On December 22, 2003, we acquired a 55.1% interest in Free State Development and Investment Corporation Limited, or FSD, which holds mineral and mining participation rights, certain of which are the subject of prospecting agreements with various mining companies, in exchange for 1,531,030 of our ordinary shares. JCI holds the other 44.9% interest in FSD. Through this acquisition, the Group obtained a loan owed by JCI of which $9 million was outstanding on December 31, 2003.
F-40
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
24. GEOGRAPHIC AND SEGMENT INFORMATION
The Group, through its direct and indirect investments, is involved in mining and exploration activities in South Africa and West Africa.
The Group has three main reportable segments that comprise the structure used by senior management to make key operating decisions and assess performance. These are the gold mining activities in West Africa (RRL), the Group's exploration activities in South Africa (Minrico) and the Group's investments and corporate activities in South Africa.
The Group's reportable segments are differentiated by their geographic location and the activities they undertake.
The amount of each segment item reported is the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance. The measurements of reportable segments profitability and assets are reconciled to the amounts reported in the Group's consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.
a) Year ended December 31, 2003
| | | | | | | | | | | | | | | | | | |
| Geographical segments | | Non-South
African | | South African
Investment | |
| Business segments | | Gold
mining
activities | | Exploration
activities | | South African
Investment
and
corporate
activities | | Total |
| | | $'000 | | $'000 | | $'000 | | $'000 |
| Product sales | | | — | | | | — | | | | — | | | | — | |
| Mine production costs | | | — | | | | — | | | | — | | | | — | |
| Mine operating profit/(loss) | | | — | | | | — | | | | — | | | | — | |
| Interest expense | | | — | | | | (22 | ) | | | (831 | ) | | | (853 | ) |
| Dividends and interest received | | | — | | | | — | | | | 1,238 | | | | 1,238 | |
| Depreciation and amortization | | | — | | | | (8 | ) | | | (16 | ) | | | (24 | ) |
| Impairment of goodwill | | | — | | | | — | | | | (3,316 | ) | | | (3,316 | ) |
| Impairment of available-for-sale investments | | | 3,882 | | | | — | | | | — | | | | 3,882 | |
| Loss on disposal of investments | | | — | | | | — | | | | (4,518 | ) | | | (4,518 | ) |
| Profit due to decrease in holding in associate/ subsidiary | | | 33,214 | | | | — | | | | 25 | | | | 32,239 | |
| Exploration and corporate expenditure | | | (171 | ) | | | (287 | ) | | | (3,243 | ) | | | (3,701 | ) |
| Other income | | | — | | | | 461 | | | | 1,522 | | | | 1,983 | |
| Profit/(loss) before tax, equity income and minority interest | | | 33,043 | | | | 144 | | | | (13,019 | ) | | | 20,168 | |
| Equity income from associate | | | 19,250 | | | | — | | | | — | | | | 19,250 | |
| Minority interest | | | — | | | | 35 | | | | 757 | | | | 93 | |
| Taxation | | | — | | | | (10 | ) | | | (3,905 | ) | | | (3,915 | ) |
| Net income/(loss) | | | 52,292 | | | | 99 | | | | (16,167 | ) | | | 36,224 | |
| Capital expenditure | | | — | | | | 34 | | | | 32 | | | | 66 | |
| Total assets | | | — | | | | 49 | | | | 173,719 | | | | 173,768 | |
| Total external liabilities | | | — | | | | — | | | | 15,608 | | | | 15,608 | |
|
F-41
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
24. GEOGRAPHIC AND SEGMENT INFORMATION (continued)
b) Year ended December 31, 2002
| | | | | | | | | | | | | | | | | | |
| Geographical segments | | Non-South
African | | South African | |
| Business segments | | Gold
mining
activities | | Exploration
activities | | Investment
and corporate
activities | | Total |
| | | $'000 | | $'000 | | $'000 | | $'000 |
| Product sales | | | — | | | | — | | | | — | | | | — | |
| Mine production costs | | | — | | | | — | | | | — | | | | — | |
| Mine operating profit/(loss) | | | — | | | | — | | | | — | | | | — | |
| Interest expense | | | (1,510 | ) | | | — | | | | (1,151 | ) | | | (2,661 | ) |
| Dividends and interest received | | | 65 | | | | — | | | | 239 | | | | 304 | |
| Depreciation and amortization | | | (838 | ) | | | — | | | | — | | | | (838 | ) |
| Loss on financial instruments | | | (1,145 | ) | | | — | | | | — | | | | (1,145 | ) |
| Loss on disposal of investments | | | — | | | | — | | | | (143 | ) | | | (143 | ) |
| Exploration and corporate expenditure | | | (5,859 | ) | | | — | | | | — | | | | (5,859 | ) |
| Other (expenditure)/ income | | | (499 | ) | | | (29 | ) | | | (598 | ) | | | (1,126 | ) |
| Stock compensation | | | (1,797 | ) | | | — | | | | — | | | | (1,797 | ) |
| Loss before tax, equity income and minority interest | | | (11,583 | ) | | | (29 | ) | | | (1,653 | ) | | | (13,265 | ) |
| Equity income from associate | | | 25,383 | | | | — | | | | — | | | | 25,383 | |
| Equity income from joint venture | | | 18,339 | | | | — | | | | — | | | | 18,339 | |
| Minority interest | | | (2,969 | ) | | | — | | | | — | | | | (2,969 | ) |
| Net profit/(loss) | | | 29,170 | | | | (29 | ) | | | (1,653 | ) | | | 27,488 | |
| Capital expenditure | | | 19,373 | | | | — | | | | — | | | | 19,373 | |
| Total assets | | | 163,352 | | | | — | | | | 15,348 | | | | 178,700 | |
| Total external liabilities | | | 150,978 | | | | — | | | | 20,408 | | | | 171,386 | |
|
F-42
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
24. GEOGRAPHIC AND SEGMENT INFORMATION (continued)
c) Year ended December 31, 2001
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Syama
Mine
(Mali) | | Group's
Share of
Morila
Mine
(Mali) | |
Corporate, Exploration and Other | | Sub Total | | Adjustment
for Group's
Share of
Associate Mine | | Total |
| | | Non-South
African | | South
African | |
| | | $'000 | | $'000 | | $'000 | | $'000 | | $'000 | | $'000 | | $'000 |
| Profit and Loss | |
| Gold sales | | | 16,723 | | | | 67,431 | | | | — | | | | — | | | | 84,154 | | | | (67,431 | ) | | | 16,723 | |
| Termination costs relating to the closure of Syama | | | (1,470 | ) | | | — | | | | — | | | | — | | | | (1,470 | ) | | | — | | | | (1,470 | ) |
| Mine production costs | | | (23,867 | ) | | | (21,017 | ) | | | — | | | | (1,058 | ) | | | (45,942 | ) | | | 21,017 | | | | (24,925 | ) |
| Mine operating profit/(loss) | | | (8,614 | ) | | | 46,414 | | | | — | | | | (1,058 | ) | | | 36,742 | | | | (46,414 | ) | | | (9,672 | ) |
| Royalties | | | (1,053 | ) | | | (4,748 | ) | | | — | | | | — | | | | (5,801 | ) | | | 4,748 | | | | (1,053 | ) |
| Interest expense | | | (1,009 | ) | | | (2,277 | ) | | | (781 | ) | | | (4,340 | ) | | | (8,407 | ) | | | 2,277 | | | | (6,130 | ) |
| Dividends and interest received | | | — | | | | 243 | | | | 2,050 | | | | 32 | | | | 2,325 | | | | (243 | ) | | | 2,082 | |
| Depreciation and amortization | | | — | | | | (6,815 | ) | | | (1,482 | ) | | | (667 | ) | | | (8,964 | ) | | | 6,815 | | | | (2,149 | ) |
| Gain on financial instruments | | | 7,638 | | | | (214 | ) | | | — | | | | — | | | | 7,424 | | | | 214 | | | | 7,638 | |
| Loss on sale of investments | | | — | | | | — | | | | — | | | | (1,323 | ) | | | (1,323 | ) | | | — | | | | (1,323 | ) |
| Exploration and corporate expenditure | | | — | | | | 70 | | | | (9,379 | ) | | | (232 | ) | | | (9,541 | ) | | | (70 | ) | | | (9,611 | ) |
Additional provision for
post-retirement benefits | | | — | | | | — | | | | — | | | | (3,010 | ) | | | (3,010 | ) | | | — | | | | (3,010 | ) |
| Stock compensation | | | — | | | | — | | | | (1,739 | ) | | | — | | | | (1,739 | ) | | | — | | | | (1,739 | ) |
| Other income/(expenditure) | | | (4,709 | ) | | | (191 | ) | | | 1,077 | | | | 2,198 | | | | (1,625 | ) | | | 191 | | | | (1,434 | ) |
| (Loss)/income before equity income tax and minority interest | | | (7,747 | ) | | | 32,482 | | | | (10,254 | ) | | | (8,400 | ) | | | 6,081 | | | | (32,482 | ) | | | (26,401 | ) |
| Equity income of joint venture | | | — | | | | — | | | | — | | | | — | | | | — | | | | 32,482 | | | | 32,482 | |
| Tax and minority interest | | | 260 | | | | — | | | | 270 | | | | (7,018 | ) | | | (6,488 | ) | | | — | | | | (6,488 | ) |
| Net (loss)/profit | | | (7,487 | ) | | | 32,482 | | | | (9,984 | ) | | | (15,418 | ) | | | (407 | ) | | | — | | | | (407 | ) |
| CAPITAL EXPENDITURE | | | 2,805 | | | | 9,795 | | | | 1,382 | | | | — | | | | 13,982 | | | | 9,795 | | | | 4,187 | |
| TOTAL ASSETS | | | 14,246 | | | | 89,329 | | | | 15,979 | | | | 9,013 | | | | 128,567 | | | | (41,042 | ) | | | 87,525 | |
| TOTAL EXTERNAL LIABILITIES | | | 13,214 | | | | 40,770 | | | | 35,073 | | | | 15,320 | | | | 104,377 | | | | (20,480 | ) | | | 83,897 | |
|
NOTES ON THE RECONCILIATION OF SEGMENT INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS
A. JOINT VENTURES: For management reporting purposes joint ventures are proportionately consolidated. Under US GAAP the equity method of accounting is applied.
B. ASSOCIATES: For management reporting purposes RRL is fully consolidated. Under US GAAP the equity method has been applied since RRL became an associate in July 2003.
25. SUBSEQUENT EVENTS
On February 26, 2004, Randgold & Exploration entered into an agreement with Afrikander Lease, in terms of which:
| |
| • | For a total consideration of R82.5 million, the Company will subscribe for 24 million Afrikander Lease shares ("the initial subscription"), and receive a three-year American option to subscribe for a further 24 million Afrikander Lease shares at R5 each; |
| |
| • | After a period of 18 months from the initial subscription, the Company will be entitled, at a further consideration of R88.5 million, to subscribe for a second tranche of 24 million Afkrikander Lease shares and receive another three-year American option to subscribe for a further 24 million Afrikander Lease shares at R5 each; and |
F-43
RANDGOLD & EXPLORATION COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (continued)
25. SUBSEQUENT EVENTS (continued)
| |
| • | The Company will provide a R30 million short-term facility available to Afrikander Lease which, if drawn, will be repayable in Afrikander Lease shares or in cash. |
The transaction is subject to various shareholder and regulatory approvals including Afrikander Lease shareholders approving the issue of Afrikander Lease shares as a specific issue of shares for cash. Shareholders owning 40% of the issued capital of Afrikander Lease have undertaken to support the transaction.
In addition, Randgold & Exploration has agreed to underwrite a proposed R100 million rights offer by Afrikander Lease.
On March 31, 2004, the Company exercised an option to acquire 100% of the issued share capital of Lunda Alluvial Operations (Pty) Limited, a South African company that effectively holds diamond concessions in Angola. Randgold & Exploration issued 2 268 000 new ordinary shares as payment of the consideration.
On April 29, 2004, Randgold & Exploration announced a ratio change of our ADS's from one ADS to three ordinary shares to one ADS to one ordinary share. The object of the ratio change was to create further stock liquidity and to enhance the marketability of the ADSs without diluting current holders.
On April 30, 2004, the Group and De Beers Consolidated Mines Limited, or De Beers, agreed to the terms of an agreement, which gives De Beers the right to prospect on 99 of our farms representing a total of 267,000 hectares until December 30, 2004, at which stage De Beers must elect whether to apply for prospecting permits over any of these farms. In return De Beers pays us R267,000 and will pay additional amounts for the farms chosen for further prospecting work. We have the right to subscribe for 25% of any mine brought to production on any of these 99 farms.
On May 13, 2004, the Company entered into an agreement with Afrikander Lease in which we agreed to take up any shortfall in the subscription of Afrikander Lease shares by its shareholders in connection with its recently announced rights offer. Afrikander Lease rights proposes to raise R100 million through the issue of 40 million new shares at R2.50 each. Our fees for this undertaking is 1.5% of the total value of the new shares which can be subscribed for, plus 2% of the total value of the new ordinary shares for which no irrevocable undertakings have been received from shareholders.
On June 9, 2004, the Company agreed to acquire 5.3 million Western Areas Limited shares from Anglo South Africa Capital (Proprietary) Limited for a price of R37.50 per share for a total consideration of R197.6 million. The acquired shares represent approximately 5% of the issued share capital of Western Areas Limited. The shares will be pledged to the government of Angola in order to secure the completion of a simultaneous transaction in which Inkwenkweyi Gold Mining Consortium, or Inkwenkweyi, a broad based empowerment consortium, will acquire 13% of Western Areas Limited. Inkwenkweyi has a call option on the 5.3 million Western Areas Limited shares at cost plus interest for 12 months following the date of delivery to Angola.
Effective on June 11, 2004, RRL effectuated a subdivision of its ordinary shares, which increased its issued share capital from 29,273,685 to 58,547,370 ordinary shares. In connection with this "share split", RRL's ordinary shareholders of record on June 11, 2004 received two additional $0.05 ordinary shares for every one $0.10 ordinary share they held. Following the share split, each shareholder will hold the same percentage interest in RRL, however, the trading price of each share will be adjusted to reflect the share split. ADR holders will be affected the same way as shareholders and the ADR ratio will remain 1 ADR to 1 ordinary shares.
On June 23, 2004, the Company acquired various alluvial diamond prospecting and mining licenses, together with mining equipment and movable assets in Angola in exchange for a total of 5,690,000 ordinary shares issued to the sellers of these assets.
F-44
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Randgold Resources Limited:
We have audited the accompanying consolidated balance sheets of Randgold Resources Limited and its subsidiaries and joint venture ("the Group") as of December 31, 2003 and 2002, and the related statements of operations, of cash flows and of changes in shareholders' equity for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 financial position of the Group at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with International Financial Reporting Standards.
International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 23 to the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London, United Kingdom
March 10, 2004 (except for note 22 for which the date is April 26, 2004)
F-45
RANDGOLD RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| | | | | | | | | | | | | | | | | | |
| | | Notes | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| REVENUES | | | | | | | | | | | | | | | | |
| Products sales | | | | | | | 109,573 | | | | 131,440 | | | | 84,154 | |
| Interest income | | | | | | | 999 | | | | 225 | | | | 2,293 | |
| Exchange gains | | | | | | | 3,829 | | | | 2,477 | | | | 427 | |
| Other income | | | | | | | 2,104 | | | | 509 | | | | 633 | |
| | | | | | | | 116,505 | | | | 134,651 | | | | 87,507 | |
| | | | | | | | | | | | | | | | | |
| COSTS AND EXPENSES | | | | | | | | | | | | | | | | |
| Mine production costs | | | | | | | 26,195 | | | | 22,706 | | | | 37,349 | |
| Transport and refinery costs | | | | | | | 408 | | | | 588 | | | | 547 | |
| Movement in production inventory and stockpiles | | | | | | | (6,229 | ) | | | (145 | ) | | | (813 | ) |
| Transfer to deferred stripping costs | | | | | | | (3,483 | ) | | | (5,043 | ) | | | (1,991 | ) |
| General and administration expenses | | | | | | | 6,108 | | | | 4,128 | | | | 11,262 | |
| Royalties | | | | | | | 7,648 | | | | 9,185 | | | | 5,801 | |
| Exploration and corporate expenditure | | | | | | | 17,007 | | | | 16,686 | | | | 9,187 | |
| Depreciation and amortization | | | | | | | 10,269 | | | | 8,765 | | | | 7,097 | |
| Interest expense | | | | | | | 1,895 | | | | 3,686 | | | | 4,067 | |
| Loss/(gain) on financial instruments | | | | | | | 1,733 | | | | 346 | | | | (7,424 | ) |
| Provision for environmental rehabilitation | | | | | | | 990 | | | | 600 | | | | 317 | |
| Exchange losses | | | | | | | 1,937 | | | | 1,900 | | | | 1,269 | |
| Other | | | | | | | 4,852 | | | | 5,741 | | | | 3,610 | |
| | | | | | | | 69,330 | | | | 69,143 | | | | 70,278 | |
| INCOME BEFORE TAXES | | | | | | | 47,175 | | | | 65,508 | | | | 17,229 | |
| Income tax expense | | | 3 | | | | — | | | | — | | | | (126 | ) |
| INCOME BEFORE MINORITY INTEREST | | | | | | | 47,175 | | | | 65,508 | | | | 17,103 | |
| Minority interest | | | | | | | 351 | | | | 220 | | | | 656 | |
| NET INCOME | | | | | | | 47,526 | | | | 65,728 | | | | 17,759 | |
| BASIC EARNINGS PER SHARE ($) | | | 4 | | | | 1.66 | | | | 2.61 | | | | 0.58 | |
| WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION | | | 4 | | | | 28,720,680 | | | | 25,147,820 | | | | 30,517,646 | |
| DILUTED EARNINGS PER SHARE ($) | | | 4 | | | | 1.65 | | | | 2.59 | | | | 0.57 | |
| WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION | | | 4 | | | | 28,801,682 | | | | 25,408,733 | | | | 30,761,095 | |
|
Subsequent events — Share split and discontinued operations — see note 22
See notes to the consolidated financial statements
F-46
RANDGOLD RESOURCES LIMITED
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2003 AND 2002
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| | | | | | | | | | | | | | |
| | | Notes | | 2003
$'000 | | 2002
$'000 |
| ASSETS | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | |
| Cash and equivalents | | | | | | | 105,474 | | | | 59,631 | |
| Restricted cash | | | 5 | | | | 3,882 | | | | 4,526 | |
| Receivables | | | 6 | | | | 15,196 | | | | 14,462 | |
| Inventories | | | 7 | | | | 17,165 | | | | 11,601 | |
| TOTAL CURRENT ASSETS | | | | | | | 141,718 | | | | 90,020 | |
| | |
| PROPERTY, PLANT AND EQUIPMENT | | | | | | | | | | | | |
| Cost | | | | | | | 175,195 | | | | 168,540 | |
| Accumulated depreciation and amortization | | | | | | | (102,373 | ) | | | (92,104 | ) |
| NET PROPERTY, PLANT AND EQUIPMENT | | | 8 | | | | 72,822 | | | | 76,436 | |
| OTHER LONG-TERM ASSETS | | | 9 | | | | 10,885 | | | | 7,402 | |
| TOTAL ASSETS | | | | | | | 225,425 | | | | 173,858 | |
| | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | | | 10 | | | | 11,990 | | | | 10,838 | |
| Current portion of long-term liabilities | | | 13 | | | | 11,567 | | | | 9,726 | |
| Bank overdraft | | | 11 | | | | 1,550 | | | | 1,170 | |
| Total current liabilities | | | | | | | 25,107 | | | | 21,734 | |
| PROVISION FOR ENVIRNMENTAL REHABILITATION | | | 12 | | | | 5,962 | | | | 4,972 | |
| LONGTERM LIABIILTIES | | | 13 | | | | 7,723 | | | | 19,307 | |
| LONG-TERM MINORITY SHAREHOLDERS IN | | | | | | | | | | | | |
| SUBSIDIARIES | | | 14 | | | | 9,478 | | | | 9,506 | |
| LIABILITIES ON FINANCIAL INSTRUMENTS | | | 15 | | | | 8,488 | | | | 7,530 | |
| MINORITY SHARE OF ACCUMULATED LOSSES | | | | | | | (8,520 | ) | | | (8,176 | ) |
| | |
| SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
| Share capital | | | | | | | | | | | | |
| AUTHORIZED: | | | | | | | | | | | | |
| 40,000,000 ordinary shares of 10 US cents each, for both years presented | | | | | | | | | | | | |
| ISSUED: | | | | | | | | | | | | |
| 29,260,385 ordinary shares (2002: 27,663,740) | | | | | | | 2,926 | | | | 2,766 | |
| Additional paid-in capital | | | | | | | 200,244 | | | | 190,618 | |
| Accumulated losses | | | | | | | (18,580 | ) | | | (66,106 | ) |
| Other reserves | | | | | | | (7,403 | ) | | | (8,293 | ) |
| TOTAL SHAREHOLDERS' EQUITY | | | | | | | 177,187 | | | | 118,985 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | 225,425 | | | | 173,858 | |
| | | | | | | | | | | | | |
|
Commitments and contingencies — see note 20
See notes to the consolidated financial statements
F-47
RANDGOLD RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
ordinary
shares | | Share
capital
$'000 | | Additional
paid-in
capital
$'000 | | Accumulated
losses
$'000 | | Other
reserves
$'000 | | Total
$'000 |
BALANCE AT
DECEMBER 31, 2000 | | | 33,076,629 | | | | 3,307 | | | | 240,742 | | | | (150,108 | ) | | | — | | | | 93,941 | |
| Change in accounting policy in respect of IAS 39 | | | — | | | | — | | | | — | | | | 515 | | | | 2,388 | | | | 2,903 | |
| | |
| RESTATED BALANCE AT JANUARY 1, 2001 | | | 33,076,629 | | | | 3,307 | | | | 240,742 | | | | (149,593 | ) | | | 2,388 | | | | 96,844 | |
| Net income | | | — | | | | — | | | | — | | | | 17,759 | | | | — | | | | 17,759 | |
| Exercise of employee stock options | | | 997,404 | | | | 100 | | | | 1,639 | | | | — | | | | — | | | | 1,739 | |
| Movement on cash flow hedges | | | — | | | | — | | | | — | | | | — | | | | (4,133 | ) | | | (4,133 | ) |
| Share buyback and related expenses | | | (11,612,403 | ) | | | (1,161 | ) | | | (80,551 | ) | | | — | | | | — | | | | (81,712 | ) |
| | |
BALANCE AT
DECEMBER 31, 2001 | | | 22,461,630 | | | | 2,246 | | | | 161,830 | | | | (131,834 | ) | | | (1,745 | ) | | | 30,497 | |
| Net income | | | — | | | | — | | | | — | | | | 65,728 | | | | — | | | | 65,728 | |
| Exercise of employee stock options | | | 202,110 | | | | 20 | | | | 683 | | | | — | | | | — | | | | 703 | |
| Movement on cash flow hedges | | | — | | | | — | | | | — | | | | — | | | | (6,548 | ) | | | (6,548 | ) |
| Issue of shares – public offering | | | 5,000,000 | | | | 500 | | | | 32,000 | | | | — | | | | — | | | | 32,500 | |
| Share issue expenses | | | — | | | | — | | | | (3,895 | ) | | | — | | | | — | | | | (3,895 | ) |
| | |
BALANCE AT
DECEMBER 31, 2002 | | | 27,663,740 | | | | 2,766 | | | | 190,618 | | | | (66,106 | ) | | | (8,293 | ) | | | 118,985 | |
| Net income | | | — | | | | — | | | | — | | | | 47,526 | | | | — | | | | 47,526 | |
| Exercise of employee stock options | | | 1,596,645 | | | | 160 | | | | 9,626 | | | | — | | | | — | | | | 9,786 | |
| Movement on cash flow hedges | | | — | | | | — | | | | — | | | | — | | | | 890 | | | | 890 | |
| | | | 29,260,385 | | | | 2,926 | | | | 200,244 | | | | (18,850 | ) | | | (7,403 | ) | | | 177,187 | |
|
The Company listed its shares on the Nasdaq Stock Market on July 11, 2002 when it issued and allotted 5,000,000 million new shares to new shareholders and raised US$32.5 million. The Company's Global Depositary Receipts were exchanged for American Depositary Receipts (ADR) which trade on the Nasdaq and London Stock Exchange. Each ADR equated to two ordinary shares at the time of the listing.
During the first quarter of 2003 the ratio was split to 1 ADR to 1 ordinary share.
See notes to the consolidated financial statements
F-48
RANDGOLD RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| CASH FLOWS FROM OPERATIONS | | | | | | | | | | | | |
| Income before taxes | | | 47,175 | | | | 65,508 | | | | 17,229 | |
| Depreciatin and amortization | | | 10,269 | | | | 8,765 | | | | 7,097 | |
| Transfer to deferred stripping | | | (3,483 | ) | | | (5,043 | ) | | | (1,991 | ) |
| Loss/(gain) on financial instruments | | | 1,618 | | | | 346 | | | | (7,427 | ) |
| Loss on the disposal of inventories at Syama | | | — | | | | — | | | | 296 | |
| Net increase in provision for environmental rehabilitation | | | 990 | | | | 600 | | | | 724 | |
| Effects of changes in operating working capital items: | | | | | | | | | | | | |
| — receivables | | | (934 | ) | | | 2,328 | | | | 10,211 | |
| — inventories | | | (5,564 | ) | | | (1,858 | ) | | | 498 | |
| — accounts payable and accrued liabilities | | | 1,152 | | | | (13 | ) | | | (5,367 | ) |
| Net cash provided by operations | | | 51,223 | | | | 70,633 | | | | 21,270 | |
| | |
| CASH FLOW FROM INVESTING ACTIVITIES | | | | | | | | | | | | |
| Additions to property, plant and equipment, net | | | (6,655 | ) | | | (5,464 | ) | | | (11,946 | ) |
Proceeds on disposal of property, plant and equipment
at Syama | | | — | | | | — | | | | 2,407 | |
| Movement in restricted cash | | | 644 | | | | (52 | ) | | | (4,474 | ) |
| Net cash utilized in investing activities | | | (6,011 | ) | | | (5,516 | ) | | | (14,013 | ) |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
| Proceeds received on financial instruments | | | — | | | | — | | | | 4,278 | |
| Ordinary shares issues | | | 9,786 | | | | 33,203 | | | | 1,739 | |
| Share buy back | | | — | | | | — | | | | (81,287 | ) |
| Share issue/buy back expenses | | | — | | | | (3,895 | ) | | | (425 | ) |
| Loan-term loans and loans from outside shareholders in subsidiaries (repaid)/received — (net, including shore-term portions) | | | (9,534 | ) | | | (40,939 | ) | | | 11,775 | |
| Increase/(decrease) in bank overdraft | | | 380 | | | | (538 | ) | | | (159 | ) |
| Cash provided by/(utilized in) financing activities | | | 632 | | | | (12,169 | ) | | | (64,079 | ) |
| NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS | | | 45,844 | | | | 52,948 | | | | (56,822 | ) |
| CASH AND EQUIVALENTS AT BEGINNING OF YEAR | | | 59,631 | | | | 6,683 | | | | 63,505 | |
| CASH AND EQUIVALENTS AT END OF YEAR | | | 105,475 | | | | 59,631 | | | | 6,683 | |
|
See notes to the consolidated financial statements
F-49
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| |
| 1. | NATURE OF OPERATIONS |
The Company, its subsidiaries and joint venture ("the Group") carry out opencast mining activities and exploration. The Group currently has one operating mine in Mali, West Africa, the Morila Gold Mine, which commenced production in October 2000, one mine in Mali under construction, namely the Loulo Mine, a project at feasibility stage in Côte d'Ivoire as well as a portfolio of exploration projects in West and East Africa.
The main focus of exploration work is on advanced projects in Mali West, around Morila, in Senegal and more recently Tanzania. The Tongon project is at an earlier stage of feasibility where the data currently available is less accurate, requiring further detailed work to be performed. The Company does not capitalize any expenditure until a decision to develop a project is made.
The development of the 80% held Loulo Project was approved by the boards of Société des Mines de Loulo S.A. and the Company in December 2003.
Preparation and negotiations for orders with long lead time items have been initiated and site establishment has commenced to ensure the advancement of the civil works which need to be established prior to the onset of the rainy season in July 2004.
Procurement of the long lead time items and the early civils programme are the essential elements of the Loulo construction programme, which forecasts first production for July 2005.
Output based only on the reserves identified in the two open pits of Loulo 0 and Yalea is expected to average approximately 200 000 ounces per annum over a six year period.
The interests of the Group are Morila S.A. ("Morila") which owns the Morila mine and Somilo S.A. ("Somilo") which conducts the exploration and development activities over the Loulo site. The Company holds an effective 40% interest in Morila, following the sale to AngloGold Limited on July 3, 2000 of one-half of the Company's' wholly-owned subsidiary, Morila Limited. Management of Morila Limited, the 80% shareholder of Morila, is effected through a joint venture committee, with the Company and AngloGold each appointing one-half of the members of the committee. AngloGold Services Mali S.A. ("Anser"), a subsidiary of AngloGold, is the operator of Morila.
In December 2001, the Syama operation was placed on care and maintenance.
In April 2003, the Company entered into an option agreement with the Australian mining company Resolute Mining Limited, over its interest in the Syama Mine in Mali. In terms of the agreement, Resolute was given a 12 month period in which to conduct a full due diligence over Syama. On April 5, 2004, Resolute Mining exercised its option to buy the Company's 80% interest in the Syama Mine. In terms of the option, Resolute paid the Company US$6 million and has assumed liabilities of US$7 million of which US$4 million was owing to ourselves. At a gold price of more than US$350 per ounce, the Company would receive a royalty of US$10 per ounce on the first million ounces of production from Syama and US$5 per ounce on the next three million ounces based on the attributable ounces acquired by Resolute. Completion of the deal took place in June 2004 and incorporated a structured hand-over.
| |
| 2. | SIGNIFICANT II ACCOUNTING POLICIES |
The financial information in this report has been prepared on the historical cost basis in accordance with International Financial Reporting Standards. A summary of the significant accounting policies, which have been applied consistently for all periods covered by this report, is set out below.
F-50
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
GENERAL: The financial statements are measured and presented in US dollars, as it is the primary functional currency in which transactions are undertaken. Monetary assets and liabilities in foreign currencies are translated to US dollars at rates of exchange ruling at the end of the financial period. Translation gains and losses arising at period-end, as well as those arising on the translation of settled transactions occurring in currencies other than the functional currency, are included in net income.
CONSOLIDATION: The consolidated financial information includes the financial statements of the Company, its subsidiaries and Company's proportionate share of the joint venture.
A company in which the Group holds directly or indirectly, through other subsidiary undertakings, a controlling interest is classified as a subsidiary undertaking. Subsidiaries are consolidated from the date control is transferred to the Group and are no longer consolidated from the date control ceases. The minority interest in the consolidated equity and in the consolidated results are shown separately.
Any excess or deficits of the purchase price when compared to the fair value of the subsidiary acquired is attributed to mineral property interests and amortized in terms of the Group accounting policies. The results of subsidiaries are included from effective dates of acquisition and up to the effective dates of disposal. Intercompany accounts and transactions are eliminated on consolidation.
Joint ventures are those investments in which the Group has joint control and are accounted for under the proportional consolidation method and under this method, the proportion of assets, liabilities and income and expenses and cash flows of each joint venture attributable to the Group are incorporated in the consolidated financial statements under appropriate headings. The results of joint ventures are included from the effective dates of acquisition and up to the effective dates of disposal. Intercompany accounts and transactions are eliminated on consolidation.
Any excess or deficits of the purchase price when compared to the Group share of the fair value of the joint venture acquired is attributed to mineral property interests and amortized in accordance with Group accounting policies.
CASH AND EQUIVALENTS include all highly liquid investments with a maturity of three months or less at the date of purchase.
INVENTORIES which include ore stockpiles, gold in process and supplies and insurance spares, are stated at the lower of cost or net realizable value. The cost of ore stockpiles and gold produced is determined principally by the weighted average cost method using related production costs.
Stockpiles consist of two types of ore, high grade and medium grade ore, which will be processed through the processing plant. Both high and medium grade stockpiles are currently being processed and all ore is expected to be fully processed within the life of mine.
The processing of ore in stockpiles occurs in accordance with the life of mine processing plan that has been optimized based on the known mineral reserves, current plant capacity, and mine design.
Stockpiles are measured by estimating the number of tons (via truck counts and/or in-pit surveys of the orebody before stockpiling) added and removed from the stockpile, the number of contained ounces (based on assay data) and the recoverability percentage (based on the historical recovery rates of the processing plant). Stockpile tonnages are verified by periodic surveys. Stockpiles are valued based on mining costs incurred up to the point of stockpiling the ore, including applicable depreciation and amortization relating to the mining operations. Value
F-51
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
is added to the stockpile based on the current mining cost per ton plus applicable depreciation and amortization and removed at the average cost per recoverable ounce of gold in the stockpile.
In-process inventories represent materials that are currently in the process of being converted to saleable product. In-process material is measured based on assays of the material fed to process and the projected recovery of the plant. In-process inventories are valued at the average cost of the material fed to process attributable to the source material coming from the mine or stockpile plus the in-process conversion costs, including applicable depreciation relating to the plant facility, incurred at that point in the process.
EXPLORATION COSTS are expensed as incurred. Costs related to property acquisitions are capitalized.
UNDEVELOPED PROPERTIES upon which the Group has not performed sufficient exploration work to determine whether significant mineralization exists, are carried at original cost. Where the directors consider that there is little likelihood of the properties being exploited, or the value of the exploitable rights have diminished below cost, a write-down is recorded.
DEVELOPMENT COSTS AND MINE PLANT FACILITIES relating to existing mines are capitalized. Development costs consist primarily of direct expenditure to develop an ore body for economic exploitation and to expand the production capacity of existing operating mines. Following the completion of a bankable feasibility study, development costs, which include interest on borrowed funds, used to place new mines into production and to complete major development projects at operating mines are capitalized. Ongoing costs to maintain production are expensed as incurred.
DEFERRED STRIPPING COSTS: The costs of waste stripping in excess of the expected pit life average stripping ratio are deferred and charged to production when the actual ratio is below the expected average ratio. The expected pit life average stripping ratio is calculated as the ratio of future anticipated waste tonnes to be mined, to anticipated future ore tonnes to be mined. This ratio is recalculated annually in light of additional knowledge and changes in estimates. The expected pit life ratio is then compared to waste associated with ore mined during the period so as to calculate the deferred stripping costs to be deferred or released for the period. The remaining life of the open-pit mine operations where the Group defers mining costs is 6 years, which represents the time period over which the deferred stripping costs will be amortized. The amortization of deferred stripping costs is reflected in the statement of operations over the remaining life of the open-pit mine operations so that no unamortized balance remains at mine closure. Cash flows from the Group's open pit operations are reviewed regularly, and at least annually, for the purpose of assessing whether any write downs to the deferred stripping cost balances are required.
The deferred stripping accounting method is generally accepted in the mining industry when 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 Group's operation where it is employed, by assigning each ounce of gold with an equivalent amount of waste removal cost. If the Group were to expense stripping costs as incurred, there could be greater volatility in the Group's period-to-period results of operations.
The Group has classified these costs as "Other Long-Term Assets" on the Consolidated balance sheet. Deferred stripping costs is the only component of "Other Long-Term Assets". Total deferred stripping costs as at December 31, 2003 and 2002 were $10.9 million and $7.4 million respectively. Additions to deferred stripping costs are included as "Transfer to Deferred
F-52
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
Stripping Costs" in the Consolidated Statement of Operations and amounted to $3.5 million, $5 million and $2.0 million in the years ended December 31, 2003, 2002 and 2001 respectively.
DEPRECIATION AND AMORTIZATION: Long-lived assets include mining properties, mine development costs and mine plant facilities. These assets have useful economic lives which equal or exceed that of the life of the mine. Depreciation and amortization are therefore charged over the life of the mine based on estimated ore tonnes contained in proven and probable reserves. Proven and probable ore reserves reflect estimated quantities of economically recoverable reserves, which can be recovered in the future from known mineral deposits.
Short-lived assets which include motor vehicles, office equipment and computer equipment, are depreciated over estimated useful lives of two to five years.
MINING PROPERTY EVALUATIONS: Recoverability of the long-term assets of the Company, which include development costs, deferred stripping costs and undeveloped property costs, together with other current assets, is reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In determining if the asset can be recovered, the Company compares the value in use amount to the carrying amount. If the carrying amount exceeds the value in use amount, the Company will record an impairment charge in the income statement to write down the asset to the value in use amount. To determine the value in use amount, management makes its best estimate of the future cash inflows that will be obtained each year over the life of the mine and discounts the cash flow by a rate that is based on the time value of money adjusted for the risk associated with the applicable project.
Management's best estimate includes only those projections which it believes are reliable, and which based upon past experience, it has the ability to accurately forecast. These estimates are subject to risks and uncertainties including future metal prices. In addition, other factors that management can control may turn out differently than that projected and could have an effect on the determination of the value in use amount. It is therefore reasonably possible that changes could occur which may affect the recoverability of the mining assets.
REHABILITATION COSTS: The net present value of future rehabilitation cost estimates is recognized and provided for in the financial statements and capitalized to mining assets on initial recognition. Due to the nature of mining operations, initial recognition is at the time of first production and thereafter as and when additional environmental disturbances are created. The estimates are reviewed annually to take into account the effects of inflation and changes in the estimates and are discounted using rates that reflect the time value of money.
Annual increases in the provision are charged to income and consist of finance costs relating to the change in present value of the provision and inflationary increases in the provision estimate. The present value of additional environmental disturbances created are capitalized to mining assets against an increase in rehabilitation provision. The rehabilitation asset is amortized as noted previously. Rehabilitation projects undertaken, included in the estimates, are charged to the provision as incurred.
Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are expensed when they are known, probable and may be reasonably estimated.
PROVISIONS are recognized when the Company has a present legal or constructive obligation as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
GOLD SALES: Revenue arising from gold sales is recognized when the risks and rewards of ownership and title pass to the buyer under the terms of the applicable contract and the pricing is fixed and determinable.
F-53
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
INTEREST is recognized on a time proportion basis, taking into account the principal outstanding and the effective rate over the period to maturity.
DERIVATIVES: The Company adopted International Accounting Standard 39 ("IAS 39"). "Financial Instruments: Recognition and Measurement" effectively January 1, 2001.
Previously gains and losses on derivative instruments, which effectively established minimum prices for designated future production were recognized in revenue when the planned production was delivered. Derivatives which were not designated to future production were accounted for on a mark-to-market basis and the associated gains and losses were immediately recognized in income. Currently all derivatives are recognized on the balance sheet at their fair value, unless they meet the criteria for the normal purchases normal sales exemption.
On the date a derivative contract is entered into, the Company designates the derivative for accounting purposes as either a hedge of the fair value of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction (cash flow hedge). Certain derivative transactions, while providing effective economic hedges under the Company's risk management policies, do not qualify for hedge accounting.
Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a cash flow hedge, are recognized directly in equity. Amounts deferred in equity are included in the income statement in the same periods during which the hedge firm commitment or forecasted transaction affects net profit or loss.
Recognition of derivatives which meet the criteria for the normal purchases, normal sales exception are deferred until settlement. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized in the income statement.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking derivatives designed as hedges to specific assets and liabilities or to specific firm commitments for forecasted transactions.
The Company formally assesses, both at the hedge inception and at the end of each reporting period, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
With the adoption of the Accounting Standard at January 1, 2001, certain of the Company's derivatives qualified for cash flow hedge accounting. The effect on the opening and subsequent year's reserves has been disclosed in the consolidated statement of changes in shareholders' equity. Certain of the Company's derivatives did not qualify for hedge accounting. The effect was disclosed as an adjustment to accumulated losses in the statements of consolidated shareholder's equity.
PROVIDENT FUNDS AND OTHER EMPLOYEE BENEFITS: Provident funds, which are defined contribution plans are funded through monthly contributions which are charged to income statement as incurred.
FINANCE LEASES: Leases of plant and equipment where the Company assumes substantially all the benefits and risks of ownership are classified as a finance lease. Finance leases are capitalized at the estimated present value of the underlying lease payments. Each leas payment is allocated between the liability and the finance charges to achieve a constant rate on the finance balance outstanding. The interest portion of the finance payment is charged to the income statement over the lease period. The plant and equipment acquired under the finance lease are depreciated over the useful life of the assets.
INVESTMENTS: Investments are stated at cost less any provisions for impairment. Dividends are accounted for when declared in respect of unlisted investments. On the dispoal of an
F-54
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the income statement.
INCOME AND MINING TAXES: The Company follows the comprehensive liability method of accounting for income and mining taxes, whereby deferred income and mining taxes are recognized for the tax consequences of timing differences, by applying current statutory tax rates to differences between financial statement amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized for temporary differences which result in deductible amounts in future periods, but only to the extent it is probable that sufficient taxable profits will be available against which these differences can be utilized.
Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year.
EARNINGS PER SHARE is computed by dividing net income by the weighted average number of ordinary shares in issue during the year/period.
FULLY DILUTED EARNINGS PER SHARE is presented when the inclusion of potential ordinary shares has a dilutive effect on earnings per share.
| |
| 3. | INCOME AND MINING TAXES |
The Company is not subject to income tax in Jersey. The operating joint venture, Morila SA, benefits from a five year tax holiday in Mali. The tax holiday of Morila expires on November 1, 2005. The benefit of the tax holiday to the Company was to increase its net income by US$22.5 million, $31.7 million and $11.3 million, due to not incurring its share of Morila's tax expense for the years ended December 31, 2003, 2002 and 2001 respectively.
Accordingly had the Company not benefited from the tax holiday in Mali, earnings per share would have been reduced by $0.78, $1.26 and $0.37 for the years ended December 31, 2003, 2002 and 2001 respectively. Thus, the tax accounting for the Group on a consolidated basis reflects the tax accounting for its suspended operation, Somisy. Under Malian tax law, income tax is based on the greater of 35 per cent of taxable income or 0.75 per cent of gross revenue.
| |
| 3.1 | CURRENT TAX |
The tax charge for the year ended December 31, 2001 included in suspended operations, represents minimum Mali tax. No tax liability has accrued in the year ended December 31, 2003 and 2002 based on Malian tax law.
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| CURRENT | | | | | | | | | | | | |
| Income and mining tax on suspended operations | | | — | | | | — | | | | (126 | ) |
| Income and mining tax on continuing operations | | | — | | | | — | | | | — | |
| Total current income and mining taxes | | | — | | | | — | | | | (126 | ) |
|
F-55
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
Major items causing the Company's actual income tax charge to differ from the standard charge as follows:
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| | | | | | | | | | | | | |
| Tax at statutory rate | | | — | | | | — | | | | — | |
| Minimum tax payable on Malian mining operations | | | — | | | | — | | | | (126 | ) |
| Total current income and mining taxes | | | — | | | | — | | | | (126 | ) |
| | | | | | | | | | | | | |
|
| |
| 3.2 | DEFERRED INCOME AND MINING TAX LIABILITIES AND ASSETS ARE MADE UP AS FOLLOWS: |
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| Deferred income and mining tax liabilities | | | | | | | | | | | | |
| — depreciation and amortization | | | — | | | | — | | | | — | |
| Gross deferred income and tax assets: | | | | | | | | | | | | |
| — assessable tax loss carry forwards | | | (126,141 | ) | | | (125,057 | ) | | | (118,500 | ) |
| — provisions including rehabilitation accruals | | | (2,600 | ) | | | (2,600 | ) | | | (2,000 | ) |
| Gross deferred income and mining tax assets | | | (128,741 | ) | | | (127,657 | ) | | | (120,500 | ) |
| Deferred income and mining tax asset valuation | | | | | | | | | | | | |
| Allowances | | | 128,741 | | | | 127,657 | | | | 120,500 | |
| Net deferred income and mining tax assets | | | — | | | | — | | | | — | |
| Net deferred income and mining tax liability | | | — | | | | — | | | | — | |
|
The operations at Syama have assessable non-capital tax loss carry forwards of $126.1 million, $125.1 million and $118.5 million at December 31, 2003, 2002 and 2001 respectively and capital expenditure carry forwards of $63.7 million, $78.8 million, and $81.3 million at December 31, 2003, 2002 and 2001 respectively for deduction against future mining income. The assessable non-capital tax loss carry forwards do not expire and can be utilized for any future taxable mining income generated in Mali by Somisy SA. The capital expenditure carry forward losses are available only for the Syama operations and expire within five years as follows (in millions):
| | | | | | |
| Fiscal 2004 | | | 22.3 | |
| Fiscal 2005 | | | 18.5 | |
| Fiscal 2006 | | | 13.5 | |
| Fiscal 2007 | | | 6.7 | |
| Fiscal 2008 | | | 2.7 | |
|
F-56
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 4. | EARNINGS PER SHARE |
| | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2003 |
| | | Income
(Numerator)
$000 | | Share
(Denominator) | | Per share
amount
$000 |
| BASIC EARNINGS PER SHARE | | | | | | | | | | | | |
| Shares outstanding January 1, 2003 | | | | | | | 27,663,740 | | | | | |
| Weighted number of shares issued | | | | | | | 1,056,940 | | | | | |
| Income available to shareholders | | | 47,526 | | | | 28,720,680 | | | | 1.66 | |
| EFFECT OF DILUTIVE SECURITIES | | | | | | | | | | | | |
| Stock options issued to employees | | | | | | | 81,002 | | | | | |
| Fully diluted earnings per share | | | 47,526 | | | | 28,801,682 | | | | 1.65 | |
|
| | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2002 |
| | | Income
(Numerator)
$000 | | Share
(Denominator) | | Per share
amount
$000 |
| BASIC EARNINGS PER SHARE | | | | | | | | | | | | |
| Shares outstanding January 1, 2002 | | | | | | | 22,461,630 | | | | | |
| Weighted number of shares issued | | | | | | | 2,686,190 | | | | | |
| Income available to shareholders | | | 65,728 | | | | 25,147,820 | | | | 2.61 | |
| EFFECT OF DILUTIVE SECURITIES | | | | | | | | | | | | |
| Stock options issued to employees | | | | | | | 260,913 | | | | | |
| Fully diluted earnings per share | | | 65,728 | | | | 25,408,733 | | | | 2.59 | |
|
| | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2002 |
| | | Income
(Numerator)
$000 | | Share
(Denominator) | | Per share
amount
$000 |
| BASIC EARNINGS PER SHARE | | | | | | | | | | | | |
| Shares outstanding January 1, 2001 | | | | | | | 33,076,629 | | | | | |
| Weighted average number of shares bought back | | | | | | | (2,903,100 | ) | | | | |
| Weighted number of shares issued | | | | | | | 344,117 | | | | | |
| Income available to shareholders | | | 17,759 | | | | 30,517,646 | | | | 0.58 | |
| EFFECT OF DILUTIVE SECURITIES | | | | | | | | | | | | |
| Stock options issued to employees | | | | | | | 244,259 | | | | | |
| Fully diluted earnings per share | | | 17,759 | | | | 30,761,905 | | | | 0.57 | |
|
| |
| 5. | RESTRICTED CASH |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| Debt service reserve | | | 3,882 | | | | 4,526 | |
| | | | 3,882 | | | | 4,526 | |
|
The debt service reserve account relates to the N.M Rothschild & Son Limited debt service reserve account. This amount is held in escrow for partial repayment of the Morila project loan. Refer to Note 13.5.
F-57
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 6. | RECEIVABLES |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| Trade | | | 4,944 | | | | 6,089 | |
| Taxation debtor | | | 5,851 | | | | 3,057 | |
| Other | | | 4,401 | | | | 5,004 | |
| Owing by related party | | | — | | | | 112 | |
| | | | 15,196 | | | | 14,262 | |
|
| |
| 7. | INVENTORIES |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| Consumable stores | | | 8,385 | | | | 9,050 | |
| Ore stockpiles | | | 8,255 | | | | 2,191 | |
| Gold in process | | | 525 | | | | 360 | |
| | | | 17,165 | | | | 11,601 | |
|
Included in consumable stores are US$2.8 million (2002: US$3.0 million) of inventories which related to the Syama mine which are carried at estimated net realizable value.
Included in ore stockpiles is US$1.7 million (2002: US$0 million) attributable for the tailings storage facility (TSF) at Morila, which was carried at its net realizable value in 2002. In 2003, the provision was reversed so as to carry the TSF stockpile at a cost of US$1.7 million (2002: US$1.9 million). The provision was reversed in 2003 as management now has a detailed plan for the processing of the TSF, and began blending it in production during 2003.
| |
| 8. | PROPERTY, PLANT AND EQUIPMENT |
Mine properties, mine development costs, mine plant facilities and equipment.
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| Cost | | | | | | | | |
| At beginning of year | | | 168,540 | | | | 163,076 | |
| Additions | | | 6,655 | | | | 6,082 | |
| Disposals | | | — | | | | (618 | ) |
| | | | 175,195 | | | | 168,540 | |
| Accumulated depreciation | | | | | | | | |
| At beginning of year | | | 92,104 | | | | 83,339 | |
| Charge for the year | | | 10,269 | | | | 8,765 | |
| | | | 102,373 | | | | 92,104 | |
| NET BOOK VALUE | | | 72,822 | | | | 76,436 | |
|
LONG-LIFE ASSETS
Long-life assets are those assets which are amortized over the life of the mine and are comprised of the metallurgical plant, tailings and raw water dams, power plant and mine infrastructure. The net book value of these assets was $54.1 million as at December 31, 2003 (2002: $61.9 million).
F-58
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
SHORT LIFE ASSETS
Short life assets are those assets which are amortized over their useful life and are comprised of motor vehicles and other equipment. The net book value of these assets was $9 million as at December 31, 2003 (2002: $4.9 million).
UNDEVELOPED PROPERTY
Included in property, plant and equipment are undeveloped property costs of $9.7 million (2002: $9.7 million).
Accumulated depreciation is not adjusted upon recognition of an impairment charge, as by adjusting the impairment charge against the historical cost of property, plant and equipment, the net carrying value of property, plant and equipment is adjusted to its recoverable amount.
| |
| 9. | OTHER LONG-TERM ASSETS |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| DEFERRED STRIPPING COSTS: | | | | | | | | |
| Opening balance | | | 7,402 | | | | 2,359 | |
| Additions during the year | | | 3,483 | | | | 5,043 | |
| Closing balance | | | 10,885 | | | | 7,402 | |
|
The deferred stripping balances at the end of 2003 and 2002 pertain to the Morila mine. In terms of the life of mine plan, pre-stripping is performed in the earlier years. This results in the cost associated with waste stripped at a rate higher than the expected pit life average stripping ratio, being deferred to those years. These costs will be released in the period where the actual stripping ratio decreases to below such expected pit life ratio. The expected pit life average stripping ratios used to calculate the deferred stripping were 3.68 in 2003 and 3.68 in 2002. These stripping ratios were calculated taking into account the actual strip ratios achieved of 4.77 and 7.15 for 2003 and 2002 respectively.
| |
| 10. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| Trade | | | 4,162 | | | | 2,926 | |
| Payroll and other compensations | | | 3,129 | | | | 4,475 | |
| Other | | | 4,571 | | | | 3,027 | |
| Owing to holding company | | | 128 | | | | 99 | |
| Related parties | | | — | | | | 311 | |
| | | | 11,990 | | | | 10,838 | |
|
On December 16, 2002, the Company entered into a settlement agreement with Rolls-Royce to end the dispute relating to the failure of the Syama power plant under a 10 year finance lease agreement for $5.3 million. Of this an amount of US$2.65 million was outstanding at 31 December 2002. Under the settlement agreement the Company has paid $1.3 million in 2003. The outstanding balance has been assumed by Resolute as part of the sale agreement in April 2004.
F-59
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 11. | BANK OVERDRAFT |
The Bank overdraft is a Communaute Financiere Africaine Franc denominated facility with the Banque de Developpement du Mali, is unsecured and bears interest at a fixed rate of 10.25% (2002: 10.25%). $1.6 million (2002: $1.2 million) of the 1 billion FCFA ($1.7 million) facility was drawn down. The overdraft has also been taken over by Resolute as part of the sale agreement in April 2004.
| |
| 12. | PROVISION FOR ENVIRONMENTAL REHABILITATION |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| Accrued rehabilitation costs | | | 5,962 | | | | 4,972 | |
|
The provisions for close down and restoration costs include estimates for the effect of future inflation and have been discounted to their present value at 6% per annum, being an estimate of the cost of borrowing.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, the Group has estimated that the remaining costs for the Syama mine, in current monetary terms, will be US$2.6 million. The Company has entered into an option agreement with the Australian mining company Resolute Mining Limited, over its interest in the Syama Mine in Mali. In terms of the agreement, Resolute were given a 12 month period in which to conduct a full due diligence over Syama. On April 5, 2004 Resolute Mining exercised its option to buy the Company's 80% interest in the Syama Mine, which has been on care and maintenance since 2002. In terms of the option, Resolute will assume the rehabilitation liability of the Syama mine.
Current rehabilitation costs related to Morila are estimated to be US$12.3 million (2002: US$8.4 million), the majority of which will only be expended in nine years time.
Although limited environmental rehabilitation regulations currently exist in Mali to govern the mines, management has based the environmental rehabilitation accrual using the standards as set by the World Bank, which require an environmental management plan, an annual environmental report, a closure plan, an up-to-date register of plans of the facility, preservation of public safety on closure, carrying out rehabilitation works and ensuring sufficient funds exist for the closure works. However, it is reasonably possible that the Group's estimate of its ultimate rehabilitation liabilities could change as a result of changes in regulations or cost estimates.
The Company is committed to rehabilitation of its properties and to ensure that it is adequately provided to do so it makes use of independent environmental consultants to advise it and it also uses past experience in similar situations to ensure that the provisions for rehabilitation are adequate.
There are no unasserted claims reflected in either of the provisions for Syama or Morila.
While the ultimate clean-up costs may be uncertain, there are no uncertainties with respect to joint and several liability that may affect the magnitude of the contingency at either Syama or Morila as the extent of these obligations are clearly defined in their respective mining conventions.
The total cost of rehabilitation is estimated at $14.9 million, $2.6 million of which relates to Syama and $12.3 million of which relates to Morila and the majority of which will only be spent after six years.
F-60
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
There are no other potentially responsible parties to consider for cost sharing arrangements.
The Company carries insurance against pollution including cost of cleanup. At present, there are no losses and or claims outstanding.
| |
| 13. | LONG-TERM LIABILITIES |
| | | | | | | | | | | | | | |
| | | | | 2003
$000 | | 2002
$000 |
| Morila project loan | | | 13.1 | | | | 7,200 | | | | 14,538 | |
| Morila finance lease | | | 13.2 | | | | 6,730 | | | | 7,642 | |
| BRGM | | | 13.3 | | | | 891 | | | | 833 | |
| Morila Air Liquide finance lease | | | 13.4 | | | | 1,201 | | | | 1,529 | |
| N.M Rothschild loan | | | 13.5 | | | | 1,943 | | | | 1,841 | |
| Rolls-Royce Power Ventures | | | 13.6 | | | | 1,325 | | | | 2,650 | |
| | | | | | | | 19,290 | | | | 29,033 | |
| Less: Current portion disclosed under current liabilities | | | | | | | (11,567 | ) | | | (9,726 | ) |
| | | | | | | | 7,723 | | | | 19,307 | |
|
| |
| 13.1 | MORILA PROJECT LOAN |
NM Rothschild & Sons Limited is acting as agent for a consortium of banks for the Morila Project loan. The loan bears interest at US three month LIBOR plus 2% per annum. The final loan repayment will be made from the Debt Service Reserve Account in June 2004. The loan is collateralized over the assets of the Morila project whose book value at December 31, 2003 amounted to $108 million (2002: $103.4 million). Additionally the Company has pledged its interest in Morila Limited and related assets and Morila Limited has pledged its interest in Morila and related assets to secure Morila's obligations under this loan. It is non-recourse to the Company. The weighted average interest rate for the year ended December 31, 2003 was 3.29% (2002: 4.05%).
Under the terms of this loan, the Company is required to enter into certain gold price forward sales and option contracts in respect of approximately 25% - 30% percent of Morila's first five years of production.
Various debt covenants apply to the loan, including:
| | |
| • | Hedging arrangements as stipulated by NM Rothschild will be put into place. The Company will provide evidence to the effect that Morila Limited or AngloGold Limited has entered into committed hedging agreements and that the proceeds of sale of gold are sufficient to ensure that, as at all calculation dates scheduled, no default would have occurred; |
| | |
| • | Limitations on material assets disposals and acquisitions; |
| | |
| • | No declaration, payment or distribution of dividends without approval; |
| | |
| • | Maintain insurance with reputable insurance companies; |
| | |
| • | Establish the Debt Service Reserve Account with the minimum credit balance on all dates equal to the aggregate principal amount of and interest accruing on the loan and the aggregate amount of premium accruing in connection with the Political Risk Insurance during the six month period commencing on such date; |
| | |
| • | No other long-term indebtedness (other than noted below) is to be incurred regarding the Morila project; |
| | |
| • | No indebtedness shall exceed $2 million incurred by way of capital leases other than the contractor for the development of the mine and the Rolls-Royce power plant; |
F-61
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| | |
| • | The Government of Mali principal indebtedness in Morila S.A. is not to exceed the original $1.6 million as stipulated in the Convention; |
| | |
| • | Certain financial ratios need to be adhered to throughout the loan agreement. |
| |
| 13.2 | MORILA FINANCE LEASE |
Morila finance lease relates to five generators leased from Rolls-Royce for Morila. The lease is repayable over ten years commencing April 1, 2001 and bears interest at a variable rate of which as at December 31, 2003 was approximately 15.55% per annum (December 31, 2002: 15.54%). The lease is collateralized by plant and equipment whose net book value at December 31, 2003 amounted to $6.8 million (2002: $8.1 million). Average lease payments of $1.5 million are payable in installments over the term of the lease. The Company has together with AngloGold Limited jointly guaranteed the repayment of this lease.
| |
| 13.3 | BRGM |
The Bureau de Recherches Geologiques et Minieres ("BRGM") loan is uncollateralised and bears interest at the base rate of The Central Bank of Western African States plus 2% per annum. The loan is repayable from cash flows of the Loulo mine after repayment of all other loans.
| |
| 13.4 | MORILA AIR LIQUIDE FINANCE LEASE |
Morila Air Liquide finance lease relates to three oxygen generating units leased from Air Liquide for Morila. The lease is payable over 10 years commencing December 1, 2000 and bears interest at a variable rate which as at December 31, 2003 was approximately 17% per annum. The lease is collateralized by the gas producing equipment whose net book value at December 31, 2003 amounted to $1.1 million.
| |
| 13.5. | N.M. ROTHSCHILD LOAN |
On August 28, 2002 the Syama hedge transactions were closed through a cancellation agreement with N.M. Rothschild & Sons Limited. On that date the Company agreed to buy gold call options to offset existing positions with N.M. Rothschild & Sons Limited comprising sold call options of 148,500 oz at $353/oz at a cost of $1,805,760. In lieu of the existing premium due, N.M. Rothschild & Son Limited agreed to lend to the Company the sum of $1,805,760 on a pre-agreed repayment schedule to repay the loan monthly through the 2004 financial year. The loan interest was accrued and fixed at the prevailing LIBOR rate plus 3% per annum.
| |
| 13.6 | ROLLS-ROYCE POWER VENTURES |
The Rolls-Royce Power Ventures loan relates to the settlement reached in respect of the Syama Power Supply Contract. As at December 31, 2003 a total liability of $1.3 million was outstanding, after a payment of $1.3 million in December 2002 was made. In terms of the Settlement Agreement the outstanding balance will bear interest at LIBOR plus 2% per annum on the outstanding balance and be paid plus interest in December 2004. Refer to note 10 for further details.
F-62
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 13.7 | MATURITIES |
The long-term liabilities mature over the following periods:
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | |
| Year ending December 31, 2003 | | | — | | | | 9,726 | | |
| Year ending December 31, 2004 | | | 11,567 | | | | 11,380 | | |
| Year ending December 31, 2005 | | | 1,064 | | | | 1,064 | | |
| Year ending December 31, 2006 | | | 1,122 | | | | 1,122 | | |
| Year ending December 31, 2007 | | | 1,158 | | | | 1,158 | | |
| Thereafter | | | 4,379 | | | | 4,583 | | |
| | | | 19,290 | | | | 29,033 | | |
|
| |
| 14. | LOANS FROM MINORITY SHAREHOLDERS IN SUBSIDIARIES |
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | |
| SOMISY 14.1 | | | | | | | | | |
| Government of Mali – principal amount | | | 4,345 | | | | 4,345 | | |
| | | | 4,345 | | | | 4,345 | | |
| Government of Mali – deferred interest | | | 3,221 | | | | 3,221 | | |
| | | | 3,221 | | | | 3,221 | | |
| | | | 7,566 | | | | 7,566 | | |
| SOMILO 14.2 | | | | | | | | | |
| Government of Mali – principal amount | | | 454 | | | | 436 | | |
| Government of Mali – deferred interest | | | 1,458 | | | | 1,504 | | |
| | | | 1,912 | | | | 1,940 | | |
| Total Somisy and Somilo | | | 9,478 | | | | 9,506 | | |
|
Losses of Somisy and Somilo have been attributed to the minority shareholders as their loans are not repayable until there is "net available cash". In the event of a liquidation of Somisy and Somilo the shareholders loans and deferred interest are not guaranteed.
| |
| 14.1 | SOMISY |
The loans to Somisy are uncollateralized and the principal portion was repayable in full on December 15, 2003 provided there was "net cash available" (as defined in the loan agreements) in Somisy. As at December 31, 2003 Somisy had no net cash available to repay the loan.
The original terms of the loans provide for interest, payable monthly at an average three month $ LIBOR plus 2%. All or part of the interest due could be deferred if "net cash available" was insufficient to pay in full. Deferred interest also incurred interest at the stated rate.
To date, no interest has been paid. Interest has been waived by mutual agreement between the parties as of May 2001 due to the suspended status of the operation.
Under the terms of the loans, the minority shareholders have a binding agreement not to claim payment on these loans until they have made good their share of the acccumulated loss. Unless there is net cash available at the loan settlement date, the loan will be discharged to the extent of the minority shareholders share of the accumulated losses.
F-63
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
The Company purchased the IFC holding of 5% in July 2002 for a nominal amount, thereby acquiring the IFC loan interest in Syama, and accordingly reduced minority interests and shareholders' loan as appropriate. The loan is treated as an inter-company balance and is eliminated on consolidation.
| |
| 14.2 | SOMILO |
The Government of Mali loan to Somilo is uncollateralized and bears interest at the base rate of the Central Bank of West African States plus 2%. The loan is repayable from cash flows of the Loulo mine after repayment of all other loans.
F-64
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 15. | LIABILITIES ON FINANCIAL INSTRUMENTS |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| Mark to market of speculative | | | | | | | | |
| Financial instruments at year-end 15.1 | | | 1,085 | | | | (761 | ) |
| Financial instrument liability 15.2 | | | 7,403 | | | | 8,291 | |
| | | | 8,488 | | | | 7,530 | |
|
| |
| 15.1 | This reflects the mark-to-market adjustment on those derivative instruments which do not, under the Group's accounting policy, qualify for hedge accounting. These derivative instruments are further detailed in note 19. |
| |
| 15.2 | This reflects the mark-to-market adjustment on those derivative financial instruments which under the Group's accounting policy, have been designated as hedging instruments. These derivative instruments are further detailed in note 19. |
| |
| 16. | PENSION AND PROVIDENT FUNDS |
| |
| | The Company contributes to several defined contribution provident funds. The provident funds are funded on the money accumulative basis with the members' and Company contributions having been fixed in the constitutions of the funds. |
| |
| | All the Company's employees are covered by the abovementioned retirement benefit plans other than those directly employed by West African subsidiary companies. Retirement benefits for those employees are provided by the state social security system to which the Company and employees contribute a fixed percentage of payroll costs each month. Fund contributions by the Company for the years ended December 31, 2003 and December 31, 2002 amounted to $0.3 million and $0.2 million respectively. |
| |
| 17. | SEGMENTAL INFORMATION |
| |
| | The Company's mining and exploration activities are conducted in Africa. An analysis of the Company's business segments, excluding intergroup transactions, is set out below. |
| |
| | In January 2001, the Company announced suspension of mining operations at Syama and put the mine on care and maintenance. Processing of Stockpiles continued until early December 2001, when the operation was placed on full care and maintenance. Syama's results are disclosed separately in the table below. |
F-65
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 17. | SEGMENTAL INFORMATION (continued) |
YEAR ENDED DECEMBER 31, 2003
| | | | | | | | | | | | | | | | | | |
| | | Group's
40%
Share of
Morila
Mine | | Syama
(Mali) | | Corporate
and
Exploration | | Total |
| PROFIT AND LOSS | | | | | | | | | | | | | | | | |
| Gold sales | | | 109,573 | | | | — | | | | — | | | | 109,573 | |
| Mine production costs | | | (23,989 | ) | | | — | | | | — | | | | (23,989 | ) |
| Mining operating profit | | | 85,584 | | | | — | | | | — | | | | 85,584 | |
| Royalties | | | (7,648 | ) | | | — | | | | — | | | | (7,648 | ) |
| Interest expense | | | (1,793 | ) | | | — | | | | (102 | ) | | | (1,895 | ) |
| Interest received | | | 117 | | | | — | | | | 882 | | | | 999 | |
| Depreciation and amortization | | | (10,269 | ) | | | — | | | | — | | | | (10,269 | ) |
| Gain on financial instruments | | | 499 | | | | — | | | | (2,232 | ) | | | (1,733 | ) |
| Other (expenses)/income | | | (1,387 | ) | | | (2,069 | ) | | | 2,600 | | | | (856 | ) |
| Exploration and corporate expenditure | | | (752 | ) | | | — | | | | (16,255 | ) | | | (17,007 | ) |
| Income/(loss) before tax and minority interest | | | 64,351 | | | | (2,069 | ) | | | (15,107 | ) | | | 47,175 | |
| Tax and minority interest | | | — | | | | — | | | | 351 | | | | 351 | |
| Net income/(loss) | | | 64,351 | | | | (2,069 | ) | | | (14,756 | ) | | | 47,526 | |
| CAPITAL EXPENDITURE | | | 4,568 | | | | — | | | | 2,087 | | | | 6,655 | |
| TOTAL ASSETS | | | 92,657 | | | | 7,465 | | | | 125,303 | | | | 225,425 | |
| TOTAL EXTERNAL LIABILITIES | | | 31,619 | | | | 6,095 | | | | 10,524 | | | | 48,238 | |
| DIVIDENDS | | | (69,600 | ) | | | — | | | | 69,600 | | | | — | |
| NET CASH FLOWS GENERATED BY/ (UTILIZED IN) OPERATIONS | | | 68,531 | | | | (1,003 | ) | | | (16,190 | ) | | | 51,338 | |
| NET CASH FLOWS GENERATED BY (UTILIZED IN) INVESTING ACTIVITIES | | | (7,755 | ) | | | — | | | | 1,744 | | | | (6,011 | ) |
| NET CASH (UTILIZED IN)/GENERATED FROM FINANCING ACTIVITIES | | | (8,059 | ) | | | 595 | | | | 7,981 | | | | 517 | |
| NET INCREASE IN CASH AND EQUIVALENTS | | | (16,883 | ) | | | (408 | ) | | | 63,135 | | | | 45,844 | |
| NUMBERS OF EMPLOYEES | | | | | | | 18 | | | | 92 | | | | 110 | |
|
F-66
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 17. | SEGMENTAL INFORMATION (continued) |
YEAR ENDED DECEMBER 31, 2002
| | | | | | | | | | | | | | | | | | |
| | | Group's
40%
Share of
Morila
Mine | | Syama
(Mali) | | Corporate
and
Exploration | | Total |
| PROFIT AND LOSS | |
| Gold sales | | | 131,440 | | | | — | | | | — | | | | 131,440 | |
| Mine production costs | | | (22,234 | ) | | | — | | | | — | | | | (22,234 | ) |
| Mining operating profit | | | 109,206 | | | | — | | | | — | | | | 109,206 | |
| Royalties | | | (9,185 | ) | | | — | | | | — | | | | (9,185 | ) |
| Interest expense | | | (2,631 | ) | | | — | | | | (1,055 | ) | | | (3,686 | ) |
| Interest received | | | 195 | | | | — | | | | 30 | | | | 225 | |
| Depreciation and amortization | | | (8,578 | ) | | | — | | | | (187 | ) | | | (8,765 | ) |
| Gain on financial instruments | | | 429 | | | | (775 | ) | | | — | | | | (346 | ) |
| Other income/expenses | | | 295 | | | | (4,777 | ) | | | (773 | ) | | | (5,255 | ) |
| Exploration and corporate expenditure | | | (575 | ) | | | — | | | | (16,111 | ) | | | (16,686 | ) |
| Income/(loss) before tax and minority interest | | | 89,156 | | | | (5,552 | ) | | | (18,096 | ) | | | 65,508 | |
| Tax and minority interest | | | — | | | | — | | | | 220 | | | | 220 | |
| Net income/(loss) | | | 89,156 | | | | (5,552 | ) | | | (17,876 | ) | | | 65,728 | |
| CAPITAL EXPENDITURE | | | 5,464 | | | | — | | | | — | | | | 5,464 | |
| TOTAL ASSETS | | | 116,720 | | | | 8,571 | | | | 48,567 | | | | 173,858 | |
| TOTAL EXTERNAL LIABILITIES | | | 44,213 | | | | 8,375 | | | | 2,285 | | | | 54,873 | |
| Net cash flows generated by/(utilized in) operations | | | 88,112 | | | | (5,012 | ) | | | (12,467 | ) | | | 70,633 | |
| DIVIDENDS | | | (56,800 | ) | | | — | | | | 56,800 | | | | — | |
NET CASH FLOWS GENERATED
BY (UTILIZED IN) INVESTING
ACTIVITIES | | | (5,538 | ) | | | — | | | | (22 | ) | | | (5,516 | ) |
NET CASH (UTILIZED IN)/
GENERATED FROM FINANCING
ACTIVITIES | | | (10,663 | ) | | | 5,559 | | | | (7,065 | ) | | | (12,169 | ) |
NET INCREASE IN CASH AND
EQUIVALENTS | | | 15,111 | | | | 547 | | | | 37,290 | | | | 52,948 | |
| NUMBERS OF EMPLOYEES | | | — | | | | 19 | | | | 101 | | | | 120 | |
|
F-67
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 17. | SEGMENTAL INFORMATION (continued) |
YEAR ENDED DECEMBER 31, 2001
| | | | | | | | | | | | | | | | | | |
| | | Group's
40%
Share of
Morila | | Syama
(Mali) | | Corporate
and
Exploration | | Total |
| PROFIT AND LOSS | |
| Gold sales | | | 67,431 | | | | 16,723 | | | | — | | | | 84,154 | |
| Termination costs related to closure of Syama | | | — | | | | (1,470 | ) | | | — | | | | (1,470 | ) |
| Mine production costs | | | (21,017 | ) | | | (23,867 | ) | | | — | | | | (44,884 | ) |
| Mining operating profit/(loss) | | | 46,414 | | | | (8,614 | ) | | | — | | | | 37,800 | |
| Royalties | | | (4,748 | ) | | | (1,053 | ) | | | — | | | | (5,801 | ) |
| Interest expense | | | (2,277 | ) | | | (1,009 | ) | | | (781 | ) | | | (4,067 | ) |
| Interest received | | | 243 | | | | — | | | | 2,050 | | | | 2,293 | |
| Depreciation and amortization | | | (6,815 | ) | | | — | | | | (282 | ) | | | (7,097 | ) |
| Gain on financial instruments | | | (214 | ) | | | 7,638 | | | | — | | | | 7,424 | |
| Other income/(expenses) | | | (344 | ) | | | (4,709 | ) | | | 1,309 | | | | (4,014 | ) |
| Exploration and corporate expenditure | | | 70 | | | | — | | | | (9,379 | ) | | | (9,309 | ) |
| Income/(loss) before tax and minority interest | | | 32,329 | | | | (7,747 | ) | | | (7,353 | ) | | | 17,229 | |
| Tax and minority interest | | | — | | | | 260 | | | | 270 | | | | 530 | |
| Net income/(loss) | | | 32,329 | | | | (7,487 | ) | | | (7,083 | ) | | | 17,759 | |
| CAPITAL EXPENDITURE | | | 9,795 | | | | 2,805 | | | | 1,382 | | | | 13,982 | |
| TOTAL ASSETS | | | 89,329 | | | | 14,246 | | | | 15,979 | | | | 119,554 | |
| TOTAL EXTERNAL LIABILITIES | | | 40,770 | | | | 13,214 | | | | 35,073 | | | | 89,057 | |
| DIVIDENDS | | | (6,400 | ) | | | — | | | | 6,400 | | | | — | |
NET CASH FLOWS
GENERATED BY/ (UTILIZED IN) INVESTING OPERATIONS | | | 26,838 | | | | (8,810 | ) | | | 3,242 | | | | 21,270 | |
NET CASH FLOWS GENERATED
BY/(UTILIZED IN) ACTIVITIES | | | (13,757 | ) | | | (3,668 | ) | | | 3,412 | | | | (14,013 | ) |
NET CASH (UTILIZED IN)/
GENERATED FROM
FINANCING ACTIVITIES | | | (8,613 | ) | | | 8,453 | | | | (63,919 | ) | | | (64,079 | ) |
NET DECREASE IN CASH AND
EQUIVALENTS | | | (1,932 | ) | | | (4,025 | ) | | | (50,865 | ) | | | (56,822 | ) |
| NUMBERS OF EMPLOYEES | | | — | | | | 25 | | | | 140 | | | | 165 | |
|
| |
| 18. | FAIR VALUE AND RISKS OF FINANCIAL INSTRUMENTS |
| |
| | The Company's financial instruments are set out in note 19. |
| |
| | In the normal course of its operations, the Company is exposed to commodity price, currency, interest, liquidity and credit risk. In order to manage these risks, the Company enters into derivative financial instruments. All derivative financial instruments are initially recognized at cost and subsequently measured at their fair value on the balance sheet. |
F-68
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 18.1 | CONCENTRATION OF CREDIT RISK |
| |
| | The Company's financial instruments do not represent a concentration of credit risk because the Group sells its gold to and deals with a variety of major financial institutions. Its receivables and loans are regularly monitored and assessed and an adequate level of provision for doubtful debts is maintained. |
| |
| | Gold bullion, the Group's principal product, is produced in Mali. The gold produced is sold to reputable gold refineries. Because of the international market for gold the Group believes that no concentration of credit risk exists with respect to the selected refineries to which the gold is sold. |
| |
| 18.2 | FOREIGN CURRENCY AND COMMODITY PRICE RISK |
| |
| | In the normal course of business, the Group enters into transactions denominated in foreign currencies (primarily Euro and Communaute Financiere Africaine Franc). As a result, the Group is subject to transaction exposure from fluctuations in foreign currency exchange rates. |
| |
| | Generally the Group does not hedge its exposure to gold price fluctuation risk and sells at market spot prices. These prices are in US dollars and do not expose the Group to any currency fluctuation risk. However, during periods of capital expenditure or loan finance, the Company secures a floor price through simple forward contracts and options whilst maintaining significant exposure to spot prices. Approximately 15% of Morila's planned production has been sold forward for the year 2004. |
| |
| 18.3 | INTEREST RATES AND LIQUIDITY RISK |
| |
| | Fluctuation in interest rates impact on the value of short-term cash investments and financing activities (including long-term loans), giving rise to interest rate risk. |
| |
| | In the ordinary course of business, the Company receives cash from its operations and is required to fund working capital and capital expenditure requirements. This cash is managed to ensure surplus funds are invested in a manner to achieve maximum returns while minimizing risks. The Group has been able to in the past actively source financing through public offerings, shareholders loans and third party loans. |
| |
| 19. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
| |
| | The following table presents the carrying amounts and fair values of the Company's financial instruments outstanding at December 31, 2003 and 2002. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. |
F-69
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 19. | FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) |
| | | | | | | | | | | | | | | | | | |
| | | December 31, 2003 | | December 31, 2002 |
| | | Carrying Amount
$000 | | Fair
Value
$000 | | Carrying Amount
$000 | | Fair
Value
$000 |
| Financial assets | | | | | | | | | | | | | | | | |
| Cash and equivalents | | | 105,475 | | | | 105,475 | | | | 59,631 | | | | 59,631 | |
| Restricted cash | | | 3,882 | | | | 3,882 | | | | 4,526 | | | | 4,526 | |
| Receivables | | | 15,196 | | | | 15,196 | | | | 14,262 | | | | 14,262 | |
| Financial liabilities | | | | | | | | | | | | | | | | |
| Accounts payable | | | 23,557 | | | | 23,557 | | | | 20,564 | | | | 20,564 | |
| Bank overdraft | | | 1,550 | | | | 1,550 | | | | 1,170 | | | | 1,170 | |
| Long-term debt (excluding loans from outside shareholders) | | | 7,723 | | | | 7,723 | | | | 19,307 | | | | 19,307 | |
| Liabilities on financial instruments | | | 8,488 | | | | 8,488 | | | | 7,530 | | | | 7,530 | |
|
| |
| | FINANCIAL INSTRUMENTS |
| |
| | Details of on balance sheet gold derivative contracts as at December 31, 2003: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Hedging Instruments | | Unmatched Instruments |
Maturity
Dates | | Puts purchased | | Forward sales | | Purchased calls | | Forward sales | | Forward rate
agreements |
| | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | Fixed
Rate |
| MORILA (attributable portion) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2004 | | | — | | | | — | | | | 51,941 | | | | 275 | | | | 18,384 | | | | 360 | | | | — | | | | — | | | | — | | | | — | |
CORPORATE
(For Loulo) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2004* | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 150,000 | | | | 402 | | | | — | | | | — | |
| June 30, 2004* | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 50,000 | | | | 410 | | | | — | | | | — | |
| June 30, 2004* | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 200,000 | | | | 1.64 | % |
|
| |
| | And at December 31, 2002: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Hedging Instruments | | Unmatched Instruments |
Maturity
Dates | | Puts purchased | | Forward sales | | Purchased calls | | Calls sold |
| | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | $/oz | | Ounces | | $/oz |
| MORILA (attributable portion) | |
| December 31, 2003 | | | — | | | | — | | | | 60,581 | | | | 275 | | | | 21,446 | | | | 350 | | | | — | | | | — | |
| December 31, 2004 | | | — | | | | — | | | | 51,941 | | | | 275 | | | | 18,384 | | | | 360 | | | | — | | | | — | |
|
| |
| | The total fair value of the above financial instruments as at December 31, 2003 was a loss of $8.5 million (2002 : $7.5 million). |
F-70
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 19. | FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) |
| |
| | ESTIMATION OF FAIR VALUES |
| |
| | Receivables, restricted cash, accounts payable, bank overdrafts and cash and equivalents. |
| |
| | The carrying amounts are a reasonable estimate of the fair values because of the short maturity of such instruments. |
| |
| | LONG-TERM DEBT |
| |
| | The fair value of market-based floating rate long-term debt is estimated using the expected future payments discounted at market interest rates. |
| |
| | No fair value is determinable for the loans from minority shareholders as repayment is contingent on net available cash from the projects. |
| |
| | GOLD PRICE CONTRACTS |
| |
| | The fair value of gold price forward and option contracts has been determined by reference to quoted market rates at year-end balance sheet dates. |
| |
| 20. | COMMITMENTS AND CONTINGENT LIABILITIES |
| |
| 20.1 | CAPITAL EXPENDITURE |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| Contracts for capital expenditure | | | 320 | | | | 794 | |
| Authorized but not contracted for | | | 148 | | | | 73 | |
| | | | 468 | | | | 867 | |
|
| |
| 21. | RELATED PARTY TRANSACTIONS |
| |
| | Due to the Company wishing to procure selected administrative and technical services in South Africa, a service agreement was entered into with its largest shareholder Randgold & Exploration Company Limited. In terms of the agreement, the Company reimburses Randgold & Exploration for the actual expenditure incurred on its behalf including office accommodation, payroll administration and other services. |
| |
| | Reimbursements charged for the year ended December 31, 2003, including a 5% mark-up, amounted to $0.6 million (2002 : $0.1 million) Included in accounts payable is an amount of $0.1 million owing to the holding company at December 31, 2003 (2001 : $0.1 million). |
| |
| | The agreement was revised on February 3, 2003 whereby payroll administration fees will be reimbursed at cost plus 5%, office rental is payable at R51,000 per month and all other expenses incurred will be reimbursed as incurred. |
| |
| | The service agreement between the Company and Randgold & Exploration Company Limited was terminated by mutual agreement effective from the first of April 2004. |
| |
| | In order to continue to source certain services from South Africa, Seven Bridges Trading 14 (Proprietary) Limited ("Seven Bridges"), a 100 percent subsidiary of the Company was created. |
| |
| | A service agreement has been entered into between the Company and Seven Bridges whereby Seven Bridges will provide certain administrative services to the Company who wish to prevail on the cost effective services, expertise and materials available in South Africa. |
F-71
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 21. | RELATED PARTY TRANSACTIONS (continued) |
| |
| | Seven Bridges will derive its income from the services it will provide to the Company for which it will charge a monthly fee based on the total employment cost to company plus 50 percent. |
| |
| | In terms of the Operator Agreement between Morila S.A. and AngloGold Services Mali S.A., a management fee, calculated as 1% of the total sales of Morila, is payable to AngloGold Services Mali S.A. quarterly in arrears. The attributable management fees for the year ended December 31, 2003 amounted to $1.1 million (2002 : $1.3 million). |
| |
| 22. | SUBSEQUENT EVENTS |
| |
| | Share split |
| |
| | A special resolution was passed on April 26, 2004 to split each of the ordinary shares of US$0.10 in the Company into two ordinary shares of US$0.05 each. The aim is to improve the tradability of the Company's shares, but to equalize a share's value before and after the share split. See the table below for the impact on the financial statements for IFRS and US GAAP. |
| |
| | Discontinued Operation |
| |
| | On April 5, 2004 Resolute Mining exercised its option to buy the Company's 80% interest in the Syama Mine, which has been on care and maintenance since 2002 (refer to notes 1 and 17). In terms of the option, Resolute paid the Company US$6 million and assumed liabilities of US$7 million of which US$4 million was owing to the Company. At a gold price of more than US$350 per ounce, the Company would receive a royalty of US$10 per ounce on the first million ounces of production from Syama and US$5 per ounce on the next three million ounces based on the attributable ounces acquired by Resolute. The transaction was completed in June 2004 and incorporated a structured hand-over. |
| |
| | The following table shows the impact of the discontinued operation and the share split on the Company's financial statements for the years ended December 31, 2003, 2002 and 2001. |
| | | | | | | | | | | | | | |
| | | 2003
$000 | | 2002
$000 | | 2001
$000 |
| IFRS | | | | | | | | | | | | |
| Net income from continuing operations | | | 49,595 | | | | 71,280 | | | | 25,246 | |
| Net loss from discontinuing operations | | | (2,069 | ) | | | (5,552 | ) | | | (7,487 | ) |
| Net income | | | 47,526 | | | | 65,728 | | | | 17,759 | |
| US GAAP | | | | | | | | | | | | |
| Net income from continuing operations | | | 45,029 | | | | 65,213 | | | | 23,921 | |
| Net loss from discontinuing operations | | | (2,069 | ) | | | (5,552 | ) | | | (7,487 | ) |
| Net income | | | 42,960 | | | | 59,661 | | | | 16,434 | |
| Weighted average common shares outstanding after share split | | | 57,441,360 | | | | 50,295,640 | | | | 61,143,292 | |
| Diluted weighted average common shares outstanding after share split | | | 57,603,364 | | | | 50,817,466 | | | | 61,523,810 | |
| Basic earnings per share under IFRS ($) | | | | | | | | | | | | |
| Continuing operations | | | 0.86 | | | | 1.42 | | | | 0.41 | |
| Discontinuing operations | | | (0.03 | ) | | | (0.11 | ) | | | (0.12 | ) |
| Total | | | 0.83 | | | | 1.31 | | | | 0.29 | |
|
F-72
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 22. | SUBSEQUENT EVENTS (continued) |
| | | | | | | | | | | | | | |
| | | 2003
$000 | | 2002
$000 | | 2001
$000 |
| Diluted earnings per share under IFRS ($) | | | | | | | | | | | | |
| Continuing operations | | | 0.86 | | | | 1.40 | | | | 0.41 | |
| Discontinuing operations | | | (0.03 | ) | | | (0.11 | ) | | | (0.12 | ) |
| Total | | | 0.83 | | | | 1.29 | | | | 0.29 | |
| Basic earnings per share under US GAAP ($) | | | | | | | | | | | | |
| Continuing operations | | | 0.78 | | | | 1.30 | | | | 0.37 | |
| Discontinuing operations | | | (0.04 | ) | | | (0.11 | ) | | | (0.12 | ) |
| Change in accounting principle | | | 0.01 | | | | — | | | | 0.02 | |
| Total | | | 0.75 | | | | 1.19 | | | | 0.27 | |
| Diluted earnings per share under US GAAP ($) | | | | | | | | | | | | |
| Continuing operations | | | 0.78 | | | | 1.28 | | | | 0.37 | |
| Discontinuing operations | | | (0.04 | ) | | | (0.11 | ) | | | (0.12 | ) |
| Change in accounting principle | | | 0.01 | | | | — | | | | 0.02 | |
| Total | | | 0.75 | | | | 1.17 | | | | 0.27 | |
|
| |
| | Capital reduction |
| |
| | A special resolution was passed at the Annual General Meeting in April 2004, which was subsequently approved by the court in Jersey, to extinguish accumulated losses by reducing the Company's share premium account by US$100 million in order to clear the way for future dividend payments. |
| |
| | Amendment of service agreements |
| |
| | The service agreement between the Company and Randgold & Exploration Company Limited was terminated by mutual agreement effective from the first of April 2004. |
| |
| | In order to continue to source certain services from South Africa, Seven Bridges Trading 14 (Proprietary) Limited ("Seven Bridges"), a 100 percent subsidiary of the Company, was created. |
| |
| | A service agreement has been entered into between the Company and Seven Bridges whereby Seven Bridges will provide certain administrative services to the Company who do not have a presence in South Africa, but wish to prevail on the cost effective services, expertise and materials available in South Africa. |
| |
| | Seven Bridges will derive its income from the services it will provide to the Company for which it will charge a monthly fee based on the total employment cost to company plus 50 percent. |
| |
| 23. | RECONCILIATION TO U.S. GAAP |
| |
| | The Group's consolidated financial statements included in this annual report have been prepared in accordance with International Financial Reporting Standards ("IFRS"), which differs in certain respects from Generally Accepted Accounting Principles in the United States ("US GAAP"). The effect of applying US GAAP to net income and shareholders' equity is set out below along with an explanation of applicable differences between IFRS and US GAAP. |
F-73
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 23. | RECONCILIATION TO U.S. GAAP (continued) |
| |
| | RECONCILIATION OF NET PROFIT FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 |
| |
| | Reconciliation of Net Income |
| | | | | | | | | | | | | | | | | | |
| Dollars in thousands, except where otherwise noted | | 2003
$000 | | $2002
$000 | | 2001
$000 | |
| Net income under IFRS | | | 47,526 | | | | 65,728 | | | | 17,759 | | |
| US GAAP ADJUSTMENTS | |
| Share option compensation adjustment | | | (4,780 | ) | | | (5,991 | ) | | | (1,739 | ) | |
| Provision for environmental rehabilitation | | | — | | | | (76 | ) | | | (100 | ) | |
| Net income under US GAAP before change in accounting policy | | | 42,746 | | | | 59,661 | | | | 15,920 | | |
| Change in accounting principle, net of tax | | | 214 | | | | — | | | | 515 | | |
| Net income under US GAAP | | | 42,960 | | | | 59,661 | | | | 16,434 | | |
| OTHER COMPREHENSIVE INCOME | |
| Change in accounting policy for items which meet the Criteria for cash flow hedges | | | — | | | | — | | | | 2,388 | | |
| Changes in the value of cash flow hedges during the year | | | 890 | | | | (6,548 | ) | | | (4,133 | ) | |
| Comprehensive income under US GAAP | | | 43,850 | | | | 53,113 | | | | 14,690 | | |
| Weighted average common shares outstanding | | | 28,720,680 | | | | 25,147,820 | | | | 30,571,646 | | |
| Basic earnings per share under US GAAP ($) | |
| Net income under US GAAP before change in accounting principle | | | 1.49 | | | | 2.37 | | | | 0.52 | | |
| Change in account principle | | | 0.01 | | | | — | | | | 0.02 | | |
| Net income under US GAAP | | | 1.50 | | | | 2.37 | | | | 0.54 | | |
| Diluted weighted average common shares outstanding | | | 28,801,682 | | | | 25,408,733 | | | | 30,761,905 | | |
| Diluted earnings per share under us GAAP ($) | |
| Net income under US GAAP before change in accounting principle | | | 1.48 | | | | 2.35 | | | | 0.51 | | |
| Change in account principle | | | 0.01 | | | | — | | | | 0.02 | | |
| Net income under US GAAP | | | 1.49 | | | | 2.35 | | | | 0.53 | | |
|
| |
| | Reconciliation of Shareholders' Equity |
| | | | | | | | | | |
| | | 2003
$000 | | 2002
$000 |
| Total shareholders' equity under IFRS | | | 177,187 | | | | 118,985 | |
| US GAAP ADJUSTMENTS | |
| Provision for environmental rehabilitation | | | — | | | | (214 | ) |
| Total shareholders' equity under US GAAP | | | 177,187 | | | | 118,771 | |
|
| |
| | The following is a summary of the differences between IFRS and US GAAP as applicable to the Group. |
| |
| | SHARE OPTION COMPENSATION ADJUSTMENT: Under IFRS there is no requirement to account for stock compensation based expenditure. |
F-74
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 23. | RECONCILIATION TO U.S. GAAP (continued) |
| |
| | Under US GAAP where a company undertakes a stock re-pricing whereby existing options are cancelled and reissued at a lower price, such options are mark-to-market with reference to the difference between the grant price and Company stock price, with the difference recognized as stock compensation expense. |
| |
| | The following table illustrates the effect on net income and earnings per share, as determined under US GAAP if the Company had applied the fair value recognition provisions of FAS 123, for stock-based employee compensation. |
| |
| | (In thousands except for earnings per share information): |
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| Net income as reported under US GAAP | | | 42,960 | | | | 59,661 | | | | 16,434 | |
| Less: Total stock-based compensation expense determined under fair value based method of all awards | | | (1,219 | ) | | | (1,707 | ) | | | (2,298 | ) |
| Pro-forma net income | | | 41,741 | | | | 57,954 | | | | 14,136 | |
| Earnings per share: | |
| Basic – as reported ($) | | | 1.50 | | | | 2.37 | | | | 0.54 | |
| Basic – pro forma ($) | | | 1.45 | | | | 2.30 | | | | 0.46 | |
| Diluted – as reported ($) | | | 1.49 | | | | 2.35 | | | | 0.53 | |
| Diluted – pro forma ($) | | | 1.45 | | | | 2.28 | | | | 0.46 | |
|
| |
| | The impact on pro-forma net income and earnings per share in the table above may not be indicative of the effect in future years. The Company continues to grant stock options to new employees. This policy may or may not continue. |
| |
| | PROVISION FOR ENVIRONMENTAL REHABILITATION: Currently under IFRS, full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to balance sheet date. Annual increases in the provision relating to the change in the net present value of the provision and inflationary increases are shown separately in the statement of operations. Previously under US GAAP, expenditure estimated to be incurred on long-term environmental obligations was provided over the remaining lives of the mines through charges in the statement of operations. The Company has adopted FAS 143 "Accounting for Obligations Associated with the Retirement of Long-Lived Assets" effective January 1, 2003. The objective of FAS 143 is to establish accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. FAS 143 requires that an existing legal obligation associated with the retirement of a tangible long-lived asset be recognised as a liability when incurred and the amount of the liability be initially measured at fair value. An entity is required to recognise subsequent changes in the liability and upon initially recognizing a liability, it should capitalise the cost by recognising an increase in the carrying amount of the related long-lived asset. The effect of adopting FAS 143 on the company is that there will no longer be a GAAP difference between IFRS and US GAAP. |
| |
| (B) | ADDITIONAL QUANTITATIVE AND QUALITATIVE US GAAP DISCLOSURES |
| |
| | STOCK BASED COMPENSATION DISCLOSURES |
| |
| | The Company has an employee share option scheme ("Randgold Resources Share Option Scheme" hereafter referred to as the RRSOR scheme) under which all employees may be |
F-75
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| (B) | ADDITIONAL QUANTITATIVE AND QUALITATIVE US GAAP DISCLOSURES (continued) |
| |
| | granted options to purchase shares in RRL's authorized but unissued common stock. During 1998 the rules of RRSOR scheme were revised whereby up to 10% of the outstanding share capital of the Company may be reserved for the scheme. As at December 31, 2003, December 31, 2002 and December 31, 2001, 4,362,340, 4,121,644 and 3,371,644 shares respectively, were available to be granted in terms of the RRSOR scheme rules. In terms of the rules of the RRSOR scheme, the option purchase price is equal to fair market value at the date of grant. |
| |
| | On January 29, 2001, 873,200 options granted to various employees at prices between $4.25 and $10.00 were cancelled and reissued at $3.30, the Company's stock price at that date, which was lower than the grant price on the original grant date. These options have been marked to market with reference to the difference between the grant price and the Company stock price at year end, with the difference recognized in earnings as stock compensation expense. |
| |
| | Options currently expire no later than ten years from the grant date. Options granted to directors and senior management have the following vesting period: at the date of grant a third of the total option vests, and annually upon anniversary of the grant date a further third of the total option grant vests. |
| |
| | Options granted to other employees vest as follows: on the second anniversary of the grant date a third of the total option grant vests, and annually therefore upon anniversary of the grant date a further third of the total option grant vests. |
| |
| | The total number of shares available to RRSOR was amended from 10% to 15% of issued share capital at an extraordinary general meeting held on July 23, 2001. However, the number of actual shares available for distribution was reduced following completion of the share buyback scheme in October 2001. |
| |
| | Share option activity was as follows: (all figures are number of shares, except for average price per share data). |
| | | | | | | | | | | | | | |
| | | Available
for grant | | Number
of shares | | Average price
per share ($) |
| BALANCE AT DECEMBER 31, 2000 | | | 647,433 | | | | 2,636,566 | | | | — | |
| Amendment to the share option scheme | | | (35,759 | ) | | | 23,664 | | | | — | |
| Shares authorized during the year | | | 99,740 | | | | — | | | | — | |
| Shares lapsed during the year | | | 1,010,259 | | | | (1,010,259 | ) | | | 4.65 | |
| Shares granted during the year | | | (1,210,000 | ) | | | 1,210,000 | | | | 3.37 | |
| Shares exercised during the year | | | — | | | | (1,013,404 | ) | | | 3.06 | |
| BALANCE AT DECEMBER 31, 2001 | | | 511,673 | | | | 1,846,567 | | | | — | |
| Shares authorized during the year | | | 750,000 | | | | — | | | | — | |
| Shares lapsed during the year | | | 25,322 | | | | (25,322 | ) | | | 3.69 | |
| Shares granted during the year | | | (1,026,639 | ) | | | 1,026,639 | | | | 6.48 | |
| Shares exercised during the year | | | — | | | | (202,110 | ) | | | 3.61 | |
| BALANCE AT DECEMBER 31, 2002 | | | 260,356 | | | | 2,645,774 | | | | — | |
| Shares authorized during the year | | | 240,696 | | | | — | | | | — | |
| Shares lapsed during the year | | | 55,431 | | | | (55,431 | ) | | | 3.48 | |
| Shares granted during the year | | | — | | | | — | | | | — | |
| Shares exercised during the year | | | — | | | | (1,596,645 | ) | | | 18.04 | |
| BALANCE AT DECEMBER 31, 2003 | | | 556,483 | | | | 993,698 | | | | — | |
|
F-76
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| (B) | ADDITIONAL QUANTITATIVE AND QUALITATIVE US GAAP DISCLOSURES (continued) |
| |
| | The table below summarizes information about the options outstanding: |
| | | | | | | | | | | | | | |
| | | | | Outstanding Options |
| | | Number of
Shares | | Weighted Average
Contractual life
(in years) | | Weighted Average
Exercise Price ($) |
| Range of Exercise Price ($) | | | | | | | | | | | | |
| AT DECEMBER 31, 2003 | | | | | | | | | | | | |
| 2.5 – 4.25 | | | 163,460 | | | | 6.74 | | | | 3.62 | |
| 5.00 – 7.00 | | | 733,960 | | | | 7.53 | | | | 6.42 | |
| 10.00 – 16.50 | | | 96,278 | | | | 3.38 | | | | 15.35 | |
| | | | 993,698 | | | | 7.00 | | | | 6.83 | |
| AT DECEMBER 31, 2002 | |
| 2.5 – 4.25 | | | 1,081,259 | | | | 7.61 | | | | 3.46 | |
| 5.00 – 7.00 | | | 1,135,239 | | | | 8.39 | | | | 6.40 | |
| 10.00 – 16.50 | | | 429,276 | | | | 4.15 | | | | 13.46 | |
| | | | 2,645,774 | | | | 7.38 | | | | 6.34 | |
|
| |
| | The table below summarizes the information about the RRSOR exercisable options outstanding: |
| | | | | | | | | | |
| | | Exercisable Options |
| | | Number of
Shares | | Weighted Average
Exercise Average ($) |
| Exercise Price ($) | |
| AT DECEMBER 31, 2003 | |
| 2.50 – 4.25 | | | 135,460 | | | | 3.51 | |
| 5.00 – 7.00 | | | 19,600 | | | | 6,53 | |
| 10.00 – 16.50 | | | 96,276 | | | | 15.35 | |
| | | | 251,336 | | | | 8.28 | |
|
| |
| | The options exercisable on December 31, 2003, 2002, 2001 were 251,336, 1,102,035 and 1,005,012 respectively. The range of option exercise prices is wide primarily due to fluctuations of the price of the Company's stock over the period of the grants. |
| |
| | The Company has elected to follow APB Opinion No. 25 "Accounting for Stock Issued to Employees and related interpretations". Under APB No. 25, because the exercise price of the Company's employee stock options equaled the market price of the underlying stock on the date of grant, no compensation expense was recognized in the Company's financial statements. |
| |
| | However, in the case of options which are re-priced, FIN 44 "Accounting for Certain Transactions involving stock compensation on interpretation of APB 25" requires that stock compensation be recognized for such re-pricing, reflecting the subsequent movement in the value of the option. |
| |
| | Pro-forma information regarding net income and earnings per share is required by SFAS No.123 "Accounting for Stock-Based Compensation". This information is required to be determined
as if the Company had accounted for its employee stock options, granted subsequent to December 31, 1995, under the fair value method of that statement. The fair value of options |
F-77
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| (B) | ADDITIONAL QUANTITATIVE AND QUALITATIVE US GAAP DISCLOSURES (continued) |
| |
| | granted in the fiscal years ended December 31, 2003, December 31, 2002 and
December 31, 2001, reported below has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted assumptions: |
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| Expected life (in years) | | | 3 | | | | 4 | | | | 4 | |
| Risk free interest rate – RRSOR | |
| Scheme | | | — | | | | 1.9 | % | | | 3.9 | % |
| Volatility | | | — | | | | 84 | % | | | 61 | % |
| Dividend yield | | | — | | | | 0 | % | | | 0 | % |
|
| |
| | The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing model does not necessarily provide a reliable single measure of the fair value of its options. |
| |
| | No options were granted in 2003. |
| |
| | During the fiscal years ended December 31, 2002 and December 31, 2001, the weighted average estimated fair value of employee stock options granted under the RRSOR Scheme was $4.07 and $1.86 per share, respectively. |
| |
| | CONTINGENCIES |
| |
| | Under IFRS, a loss contingency is recognized when (1) an enterprise has a present obligation, (2) it is probable that the obligation will result in an outflow of economic resources, and (3) the amount of the obligation can be estimated reliably. All three conditions have to be met for a loss contingency to be recognized. Probable is defined as more likely than not, that the obligation will be incurred. |
| |
| | Under US GAAP a loss contingency shall be accrued for by a charge to income if both of the following conditions are met. (1) Information is available prior to issuance of the financial statements which indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss, and (2) the amount of loss can be reasonably estimated. |
| |
| | Probable is defined as a future event or events which are likely to occur, that will result in an obligation being incurred. The Company believes that there is no difference in accounting for its contingent liabilities under IFRS and US GAAP. |
| |
| | JOINT VENTURE EQUITY ACCOUNTING DISCLOSURES |
| |
| | Under IFRS the Company accounts for its interest in the incorporated Morila S.A. Limited joint venture using the proportionate consolidation method. Under US GAAP interests in incorporated joint ventures are accounted for under the equity method. Although this presentation under US GAAP would have resulted in a significantly different balance sheet and income statement presentation to that currently presented under IFRS, it has no impact on the income and net asset value of the Company, save for any IFRS/US GAAP differences applicable to the joint venture. |
F-78
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| (B) | ADDITIONAL QUANTITATIVE AND QUALITATIVE US GAAP DISCLOSURES (continued) |
| |
| | The following presents the summarized income statement, balance sheet and cash flow statements of the Company under US GAAP, had the results of operations and financial position of the Morila Limited joint venture been accounted for under the equity method: |
| |
| (A) | BALANCE SHEET |
| |
| | As at December 31 |
| | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 |
| ASSETS | |
| CURRENT ASSETS | |
| Cash and equivalents | | | 101,574 | | | | 39,491 | |
| Receivables | | | 6,327 | | | | 8,544 | |
| Inventories | | | 2,836 | | | | 3,037 | |
| Total current assets | | | 110,737 | | | | 51,072 | |
| NON-CURRENT ASSETS | | | | | | | | |
| Property, plant and equipment | | | 15,577 | | | | 13,143 | |
| Investment in joint venture | | | 67,144 | | | | 72,574 | |
| TOTAL ASSETS | | | 193,458 | | | | 136,789 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accounts payable and accrued liabilities | | | 8,009 | | | | 8,887 | |
| Bank Overdraft | | | 1,550 | | | | 1,170 | |
| TOTAL CURRENT LIABILITIES | | | 9,559 | | | | 10,057 | |
| NON-CURRENT LIABILITIES | | | | | | | | |
| Provision for environmental rehabilitation | | | 2,623 | | | | 2,632 | |
| Long-term liabilities | | | 890 | | | | 3,999 | |
| Loans from outside shareholders in subsidiaries | | | 958 | | | | 1,330 | |
| Liabilities on financial instruments | | | 2,232 | | | | — | |
| TOTAL NON-CURRENT LIABILITIES | | | 6,712 | | | | 7,961 | |
| | | | 16,271 | | | | 18,018 | |
| SHAREHOLDERS' EQUITY | | | | | | | | |
| Share capital | | | 2,926 | | | | 2,766 | |
| Additional paid-in capital | | | 212,754 | | | | 198,348 | |
| Accumulated losses | | | (31,090 | ) | | | (74,050 | ) |
| Other reserves | | | (7,403 | ) | | | (8,293 | ) |
| TOTAL SHAREHOLDERS' EQUITY | | | 177,187 | | | | 118,771 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | | 193,458 | | | | 136,789 | |
|
F-79
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| (B) | INCOME STATEMENT |
| |
| | For the years ended December 31 |
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| Revenues from product sales | | | — | | | | — | | | | 16,723 | |
| Production costs | | | — | | | | — | | | | (25,337 | ) |
| Operating profit/(loss) | | | — | | | | — | | | | (8,614 | ) |
| Interest received | | | 883 | | | | 30 | | | | 2,050 | |
| Interest expense | | | (152 | ) | | | (1,055 | ) | | | (1,790 | ) |
| Royalties | | | — | | | | — | | | | (1,053 | ) |
| Depreciation and amortization | | | (1,957 | ) | | | (1,651 | ) | | | (1,482 | ) |
| Exploration and corporate expenditure | | | (16,255 | ) | | | (16,111 | ) | | | (9,379 | ) |
| (Loss)/profit on financial instruments | | | (2,232 | ) | | | (775 | ) | | | 7,638 | |
| Other expenses | | | (4,908 | ) | | | (11,519 | ) | | | (3,947 | ) |
| Loss before taxes | | | (24,621 | ) | | | (31,081 | ) | | | (16,577 | ) |
| Income tax expense | | | — | | | | — | | | | (126 | ) |
| Loss before equity income and minority interests | | | (24,621 | ) | | | (31,081 | ) | | | (16,703 | ) |
| Equity income of joint venture | | | 67,230 | | | | 90,522 | | | | 32,482 | |
| Minority interest | | | 351 | | | | 220 | | | | 656 | |
| Net income | | | 42,960 | | | | 59,661 | | | | 16,435 | |
|
| |
| (C) | SUMMARISED CASH FLOW STATEMENT |
| |
| | For the years ended December 31 |
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| Cash flow utilized in operating activities | | | (10,331 | ) | | | (19,436 | ) | | | (5,841 | ) |
| Cash flow generated/(utilized in) by investing activities | | | (3,871 | ) | | | 21 | | | | (173 | ) |
| Cash flow generated/(utilized in) financing activities | | | 76,285 | | | | 57,252 | | | | 60,558 | |
| Net increase/(decrease) in cash equivalents | | | 62,083 | | | | 37,837 | | | | 54,544 | |
|
| |
| | The following is summarized audited financial information related to Morila S.A. prepared in accordance with US GAAP for the years ended December 31. |
| | | | | | | | | | | | | | |
| | | 2003
$'000 | | 2002
$'000 | | 2001
$'000 |
| MORILA S.A. | |
| Current assets | | | 81,184 | | | | 100,506 | | | | 50,810 | |
| Non-current assets | | | 153,958 | | | | 159,071 | | | | 150,537 | |
| Current liabilities | | | (38,871 | ) | | | (29,193 | ) | | | (27,260 | ) |
| Non-current liabilities | | | (57,678 | ) | | | (81,341 | ) | | | (93,457 | ) |
| Shareholders' equity | | | 138,593 | | | | 149,043 | | | | 80,630 | |
| Revenues | | | 273,931 | | | | 328,652 | | | | 168,583 | |
| Costs and expenses | | | (109,846 | ) | | | (102,347 | ) | | | (88,666 | ) |
| Income before change in accounting policy | | | 164,085 | | | | 226,305 | | | | 79,917 | |
| Change in accounting policy | | | — | | | | — | | | | 1,288 | |
| Net income | | | 164,085 | | | | 226,305 | | | | 81,205 | |
|
F-80
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| | RECENT ACCOUNTING PRONOUNCEMENTS |
| |
| | US GAAP |
| |
| | FASB Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. |
| |
| | On April 30, 2003, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 149 (FAS 149), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. |
| |
| | FAS 149 : |
| |
| • | Amends and clarifies (1) the accounting guidance on derivative instruments (including certain derivative instruments embedded in other contracts) and (2) hedging activities that fall within the scope of FASB Statement No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities. |
| |
| • | Amends FAS 133 to reflect decisions made (1) as part of the Derivatives Implementation Group (DIG) process that effectively required amendments to FAS 133, (2) in connection with other projects dealing with financial instruments, and (3) regarding implementation issues related to the application of the definition of a derivative. |
| |
| • | Is effective (1) for contracts entered into or modified after June 30, 2003, with certain exceptions, and (2) for hedging relationships designated after June 30. The guidance is to be applied prospectively. |
| |
| | Generally, FAS 149 improves financial reporting by (1) requiring that contracts with comparable characteristics be accounted for similarly and (2) clarifying when a derivative contains a financing component that warrants special reporting in the statement of cash flows. |
| |
| | Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not "Held for Trading purposes" as Defined in Issue No. 02-3 |
| |
| | On February 9, 2004, the EITF issued Emerging Issues Task Force No. 03-11. The Task Force reached a consensus that determining whether realized gains and losses on physically settled derivative contracts not "held for trading purposes" should be reported in the income statement on a gross or net basis is a matter of judgment that depends on the relevant facts and circumstances. |
| |
| | Consideration of the facts and circumstances should be made in the context of the various activities of the entity rather than based solely on the terms of the individual contracts. In evaluating the facts and circumstances for purposes of determining whether an arrangement should be reported on a gross or net basis, the Task Force acknowledged that the economic substance of the transaction as well as the guidance set forth in Opinion 29 relative to nonmonetary exchanges and the gross versus net reporting indicators provided in Issue 99-19 may be considered in making this determination. |
| |
| | SEC — Staff Accounting Bulletin — Revenue Recognition |
| |
| | On December 18, 2003, the Securities Exchange Commission issued Staff Accounting Bulletin No. 104. This staff accounting bulletin revises portions of the interpretative guidance included in Topic 13 of the codification of staff accounting bulletins in order to make this interpretive |
F-81
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| (B) | ADDITIONAL QUANTITATIVE AND QUALITATIVE US GAAP DISCLOSURES (continued) |
| |
| | guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The principal revisions relate to the rescission of material no longer necessary because of private sector developments in U.S. generally accepted accounting principles. This staff accounting bulletin also rescinds the Revenue Recognition in Financial Statements Frequently Asked Questions and Answers document issued in conjunction with Topic 13. Selected portions of that document have been incorporated into Topic 13. |
| |
| | The accounting literature on revenue recognition includes both broad conceptual discussions as well as certain industry-specific guidance. If a transaction is within the scope of specific authoritative literature that provides revenue recognition guidance, that literature should be applied. However, in the absence of authoritative literature addressing a specific arrangement or a specific industry, the staff will consider the existing authoritative accounting standards as well as the broad revenue recognition criteria specified in the FASB's conceptual framework that contain basic guidelines for revenue recognition. |
| |
| | Based on these guidelines, revenue should not be recognized until it is realized or realizable and earned. Concepts Statement 5, paragraph 83(b) states that "an entity's revenue-earning activities involve delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations, and revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues". |
| |
| | Paragraph 84(a) continues "the two conditions (being realized or realizable and being earned) are usually met by the time product or merchandise is delivered or services are rendered to customers, and revenues from manufacturing and selling activities and gains and losses from sales of other assets are commonly recognized at time of sale (usually meaning delivery)". In addition, paragraph 84(d) states that "If services are rendered or rights to use assets extend continuously over time (for example, interest or rent), reliable measures based on contractual prices established in advance are commonly available, and revenues may be recognized as earned as time passes." |
| |
| | The staff believes that revenue generally is realized or realizable and earned when all of the following criteria are met: |
| |
| • | Persuasive evidence of an arrangement exists, |
| |
| • | Delivery has occurred or services have been rendered, |
| |
| • | The seller's price to the buyer is fixed or determinable, and |
| |
| • | Collectibility is reasonably assured. |
F-82
RANDGOLD RESOURCES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| (B) | ADDITIONAL QUANTITATIVE AND QUALITATIVE US GAAP DISCLOSURES (continued) |
| |
| | Issue 04-2, Whether Mineral Rights are Tangible Assets and Related Issues. |
| |
| | In March 2004, the Task Force reached a consensus that mineral rights should be accounted for as tangible assets. Additionally, the Task Force decided that mining entities should disclose mineral rights in a separate caption, either on the face of the balance sheet or in the footnotes. |
| |
| | Issue 04-3, Mineral Assets: Impairment and Business Combinations. |
| |
| | SEC Securities Act Industry Guide No.7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, defines proven and probable reserves, and prohibits disclosure of estimates of any reserves that are not proven or probable. "Possible" reserves are estimated reserves that are less well established than proven and probable reserves. FASB Statement No. 89, Financial Reproting and Changing Prices, provides less specific definitions of proven and probable reserves. This Issue addresses whether the value associated with "possible" mineral reserves and anticipated fluctuations in the future market price of minerals should be included in the valuation of mineral assets when those assets are tested for impairment and recognized in a purchase business combination. |
| |
| | In March 2004, the Task Force reached a consensus that the value attributable to the value beyond proven and probable reserves (VBPP) and the effects of anticipated fluctuations in future market prices of minerals should be considered in a manner that is consistent with the expectations of marketplace participants when an entity allocates the purchase price to assets acquired in a business combination. Additionally, the Task Force reached a consensus that the value attributable to VBPP and the effects of anticipated fluctations in future market prices of minerals should be considered in the cash flow analysis used to test mining assets for impairment under FAS 144. |
| |
| | The Company is busy considering what the impact of these standards will be. |
| |
| | IFRS |
| |
| | The IASB has reissued many International Financial Reporting Standards and announced several new standards (e.g. IFRS 2, 3 & 5). The company is busy considering what the impact of this will be. |
F-83
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors of Randgold Resources Limited
We have audited the accompanying balance sheets of Societe des Mines de Morila SA. (the "Company") as of December 31, 2002 and 2001, and the related statements of operations, of cash flows and changes in shareholders' equity for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with International Standards on Auditing and Auditing Standards Generally Accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure 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 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001 and of the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with International Accounting Standards.
As discussed in note 2.13 to the financial statements, the Company changed its method of accounting for derivative financial instruments.
International Accounting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of the Company's net income for each of the three years in the period ended December 31, 2002 and the determination of shareholders' equity at December 31, 2002 and 2001 to the extent summarized in Note 23 to the financial statements.
/s/ PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants and Auditors
Johannesburg, South Africa
March 11, 2003
F-84
SOCI|$$|AAET|$$|AAE DES MINES DE MORILA S.A.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| | | | | | | | | | | | | | | | | | |
| | | Notes | | 2002
$'000 | | 2001
$'000 | |
| Revenue | | | 14 | | | | 328,652 | | | | 168,583 | | |
| Operating costs | | | | | | | (97,783 | ) | | | (79,178 | ) | |
| Operating profit | | | 15 | | | | 230,868 | | | | 89,405 | | |
| Other expenditure — net | | | | | | | (4,372 | ) | | | (9,238 | ) | |
| — interest received | | | | | | | 486 | | | | 1,087 | | |
| — finance charges | | | | | | | (6,574 | ) | | | (9,266 | ) | |
| — other financial income/(costs) | | | | | | | 1,715 | | | | (1,059 | ) | |
| Profit before taxation | | | | | | | 226,496 | | | | 80,167 | | |
| Taxation | | | 16 | | | | — | | | | — | | |
| Net profit | | | | | | | 226,496 | | | | 80,167 | | |
|
See notes to the financial statements
F-85
SOCI|$$|AAET|$$|AAE DES MINES DE MORILA S.A.
BALANCE SHEET
AT DECEMBER 31
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| | | | | | | | | | | | | | |
| | | Notes | | 2002
$'000 | | 2001
$'000 |
| Non current assets | |
| Mining assets | | | 8 | | | | 140,566 | | | | 144,639 | |
| Deferred stripping | | | 9 | | | | 18,506 | | | | 5,898 | |
| Current assets | | | | | | | 100,506 | | | | 50,810 | |
| Cash and equivalents | | | | | | | 50,350 | | | | 12,572 | |
| Restricted cash | | | 12 | | | | 11,315 | | | | 11,185 | |
| Inventories | | | 10 | | | | 21,409 | | | | 17,055 | |
| Accounts receivable | | | 11 | | | | 17,026 | | | | 9,666 | |
| Prepaid expenses | | | | | | | 405 | | | | 332 | |
| Total assets | | | | | | | 259,577 | | | | 201,347 | |
| Equity | |
| Capital and reserves | |
| Share capital | | | 3 | | | | 16 | | | | 16 | |
| Distributable reserves | | | | | | | 149,027 | | | | 80,902 | |
| Other reserves | | | | | | | (20,733 | ) | | | (4,362 | ) |
| Retained income | | | | | | | 169,760 | | | | 85,264 | |
| Shareholders' equity | | | | | | | 149,043 | | | | 80,918 | |
| Non-current liabilities | | | | | | | 81,341 | | | | 93,169 | |
| Shareholders' subordinated loans | | | 4 | | | | 18,394 | | | | 17,715 | |
| Environmental rehabilitation provision | | | 5 | | | | 5,850 | | | | 5,850 | |
| Long term liabilities | | | 6 | | | | 38,271 | | | | 66,050 | |
| Financial instrument liability | | | 7 | | | | 18,826 | | | | 3,554 | |
| Current liabilities | | | | | | | 29,193 | | | | 27,260 | |
| Accounts payable | | | 13 | | | | 8,537 | | | | 6,701 | |
| Short term portion of long term liabilities | | | 6 | | | | 20,656 | | | | 20,559 | |
| Total shareholders' equity and liabilities | | | | | | | 259,577 | | | | 201,347 | |
|
See notes to the financial statements
F-86
SOCI|$$|AAET|$$|AAE DES MINES DE MORILA S.A.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| | | | | | | | | | | | | | | | | | |
| | | Share
Capital
$'000 | | Retained
Income
$'000 | | Other
Reserves
$'000 | | Total
$'000 |
| Balance at January 1, 2001 | | | 16 | | | | 21,097 | | | | (4,780 | ) | | | 16,333 | |
| Net profit for the year | | | — | | | | 80,167 | | | | — | | | | 80,167 | |
| Movement in cash flow hedge | | | — | | | | — | | | | 418 | | | | 418 | |
| Dividends declared and paid | | | | | | | (16,000 | ) | | | — | | | | (16,000 | ) |
| Balance at December 31, 2001 | | | 16 | | | | 85,264 | | | | (4,362 | ) | | | 80,918 | |
| Net profit for the year | | | — | | | | 226,496 | | | | — | | | | 226,496 | |
| Movement in cash flow hedge | | | — | | | | — | | | | (16,371 | ) | | | (16,371 | ) |
| Dividends declared and paid | | | — | | | | (142,000 | ) | | | — | | | | (142,000 | ) |
| Balance at December 31, 2002 | | | 16 | | | | 169,760 | | | | (20,733 | ) | | | 149,043 | |
|
See notes to the financial statements
F-87
SOCI|$$|AAET|$$|AAE DES MINES DE MORILA S.A.
CASH FLOW STATEMENT
FOR THE YEARS ENDED DECEMBER 31
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| | | | | | | | | | | | | | | | | | |
| | | Notes | | 2002
$'000 | | 2001
$'000 | |
| Cash flows from operating activities | |
| Income before interest and taxes | | | 17.1 | | | | 236,664 | | | | 98,425 | | |
| Cash utilized by changes in working capital | | | 17.2 | | | | (9,949 | ) | | | (26,090 | ) | |
| | | | | | | | 226,715 | | | | 72,335 | | |
| Interest paid — net | | | | | | | (6,088 | ) | | | (8,179 | ) | |
Net cash flows generated by/(utilized in)
operating activities | | | | | | | 220,627 | | | | 64,156 | | |
| Cash flows from investing activities | |
| Increase in restricted cash | | | | | | | (131 | ) | | | (11,185 | ) | |
| Additions to mining assets | | | | | | | (13,715 | ) | | | (23,207 | ) | |
| Net cash flows utilized in investing activities | | | | | | | (13,846 | ) | | | (34,392 | ) | |
| Cash flows from financing activities | |
| Long term liabilities (repaid) /raised — net | | | | | | | (27,003 | ) | | | (18,538 | ) | |
| Dividends paid | | | | | | | (142,000 | ) | | | (16,000 | ) | |
| Payment for financial instrument liability | | | | | | | — | | | | (55 | ) | |
| Net cash flows (utilized in)/generated by financing activities | | | | | | | (169,003 | ) | | | (34,593 | ) | |
| Net increase in cash and equivalents | | | | | | | 37,778 | | | | (4,829 | ) | |
| Cash and equivalents at beginning of year | | | | | | | 12,572 | | | | 17,401 | | |
| Cash and equivalents at end of year | | | | | | | 50,350 | | | | 12,572 | | |
|
See notes to the financial statements
F-88
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED)
| |
| 1. | Nature of operations |
The Company owns the Morila gold mine in Mali. Randgold Resources Limited and AngloGold Limited each own 50% of the Company's majority shareholders Morila Limited. The Company is engaged in gold mining and related activities, including exploration, extraction, processing and smelting. Gold bullion, the Company's principal product, is currently produced and sold in Mali.
| |
| 2. | Accounting policies |
These annual financial statements have been prepared on the historical cost basis in accordance with International Accounting Standards. A summary of the significant accounting policies, which except as disclosed under derivatives, have been applied consistently for all periods presented.
| |
| 2.1 | Undeveloped properties |
Undeveloped properties upon which the Company has not performed sufficient exploration work to determine whether significant mineralization exists, are carried at original cost. Where the directors consider that there is little likelihood of the properties being exploited, or the value of the exploitable rights have diminished below cost, a write down is recorded.
| |
| 2.2 | Development costs and mine plant facilities |
Development costs and mine plant facilities relating to the existing mine are capitalized. Development costs consist primarily of direct expenditure to develop an ore body for economic exploitation and to expand the production capacity of the existing operating mine. Following the completion of a bankable feasibility study, development costs incurred including interest on borrowed funds used, to place the mine into production and to complete major development projects at the operating mine are capitalized. Ongoing costs to maintain production are expensed as incurred.
| |
| 2.3 | Depreciation and amortization |
Long lived assets include mining properties, mine development cost and mine plant facilities. These assets have useful economic lives which equal or exceed that of the life of the mine. Depreciation and amortization are therefore charged over the life of the mine based on estimated ore tonnes contained in proven and probable reserves. Proven and probable ore reserves reflect estimated quantities of economically recoverable reserves, which can be recovered in the future from known mineral deposits. Short lived assets, include motor vehicles, office equipment and computer equipment, are depreciated over estimated useful lives of two to five years.
| |
| 2.4 | Exploration costs |
Exploration costs are expensed as incurred. Costs related to property acquisitions are capitalized.
| |
| 2.5 | Mining property evaluation |
Recoverability of the long-term assets of the Company, which include development costs, deferred stripping costs and undeveloped property costs, together with other current assets, is reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. These estimates are subject to risks and uncertainties including future metal prices. It is therefore reasonably possible that changes could occur which may affect the recoverability of the mining assets. Reductions in the carrying value of the long-term assets of mines are recorded to the extent the remaining investment exceeds the estimate of future discounted net cash flows.
F-89
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 2.6 | Deferred stripping costs |
The costs of waste stripping in excess of the expected pit life average stripping ratio are deferred and charged to production when the actual ratio is below the expected average ratio. The expected pit life average stripping ratio is calculated as the ratio of future anticipated waste tonnes to be mined, to anticipated future ore tonnes to be mined. This ratio is recalculated annually in light of additional knowledge and changes in estimates. The expected pit life ratio is then compared to waste associated with ore mined during the period so as to calculate the deferred stripping costs to be deferred or released for the period.
The remaining life of the open-pit mine operations where the Company defers mining costs is 7 years, which represents the time period over which the deferred stripping costs will be amortized. The amortization of deferred stripping costs is reflected in the statement of operations over the remaining life of the open-pit mine operations so that no unamortized balance remains at mine closure. Cash flows from the Company's open pit operations are reviewed regularly, and at least annually, for the purpose of assessing whether any write downs to the deferred stripping cost balances are required.
The deferred stripping accounting method is generally accepted in the mining industry when 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 operation 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.
The Company has classified these costs as "Deferred stripping" on the balance sheet. Deferred stripping costs as at December 31, 2002 and 2001 were $18.5 million and $5.9 million respectively. Additions to deferred stripping costs are included as "Transfer to Deferred Stripping Costs" in the Consolidated Statement of Operations and amounted to $12.6 million and $5.0 million in the years ended December 31, 2002 and 2001, respectively.
| |
| 2.7 | Cash and equivalents |
Cash and equivalents include all highly liquid investments with a maturity of three months or less at the date of acquisition.
| |
| 2.8 | Inventories |
Inventories, which include ore stockpiles, gold in process and supplies and insurance spares, are stated at the lower of cost or net realizable value.
Stockpiles consist of two types of ore, high grade and medium grade ore, which will be processed through the processing plant. Both high and medium grade stockpiles are currently being processed and all ore is expected to be fully processed within the next ten years. The processing of ore in stockpiles occurs in accordance with the life of mine processing plan that has been optimized based on the known mineral reserves, current plant capacity, and mine design.
Stockpiles are measured by estimating the number of tons (via truck counts and/or in-pit surveys of the orebody before stockpiling) added and removed from the stockpile, the number of contained ounces (based on assay data) and the recoverability percentage (based on the historical recovery rates of the processing plant). Stockpile tonnages are verified by periodic surveys. Stockpiles are valued based on mining costs incurred up to the point of stockpiling the ore, including applicable depreciation and amortization relating to the mining operations. Value is added to the stockpile based on the current mining cost per ton plus applicable depreciation and amortization and removed at the average cost per recoverable ounce of gold in the stockpile.
F-90
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
In-process inventories represent materials that are currently in the process of being converted to saleable product. In-process material is measured based on assays of the material fed to process and the projected recovery of the plant. In-process inventories are valued at the average cost of the material fed to process attributable to the source material coming from the mine or stockpile plus the in-process conversion costs, including applicable depreciation relating to the plant facility, incurred at that point in the process.
| |
| 2.9 | Deferred taxation |
Deferred taxation represents the tax effect of all temporary differences and is provided at the current tax rates using the comprehensive liability method. The Company is not subject to income tax in respect of profits earned for a period of five years from the date production reaches commercial quantities. No provision for deferred taxation is therefore required for temporary differences reversing prior to that date.
| |
| 2.10 | Environmental rehabilitation liabilities |
The net present value of future rehabilitation costs estimates is recognized and provided for in the financial statements and capitalized to mining assets on initial recognition. Due to the nature of mining operations, initial recognition is at the time of first production and thereafter as and when additional environmental disturbances are created. The estimates are reviewed annually to take into account the effects of inflation and changes in the estimates and are discounted using rates that reflect the time value of money.
Annual increases in the provision are charged to income and consist of finance costs relating to the change in present value of the provision and inflationary increases in the provision estimate. The present value of additional environmental disturbances created are capitalized to mining assets against an increase in rehabilitation provision. The rehabilitation asset is amortized as noted previously. Rehabilitation projects undertaken, included in the estimates, are charged to the provision as incurred.
| |
| 2.11 | Leased assets |
Assets subject to finance leases are capitalized at inception at the lower of the fair value of the lease property and the present value of the minimum lease payment. Capitalized leased assets are depreciated over the shorter of their estimated useful lives and the lease term. Finance lease payments are allocated, using the effective interest rate method, between the lease finance cost, which is included in interest paid, and the capital repayment, which reduces the liability to the lessor.
| |
| 2.12 | Revenue recognition |
Revenue arising from gold sales is recognized when the risks and rewards of ownership and title pass to the buyer under the terms of the applicable contract and the pricing is fixed and determinable.
Interest is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period of maturity.
| |
| 2.13 | Derivatives |
The Company adopted International Accounting Standard 39 ("IAS"). Financial Instruments: Recognition and Measurement", effective January 1, 2001.
F-91
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
Previously gains and loses on derivative instruments, which effectively established minimum prices for designated future production were recognized in revenue when the planned production was delivered. Derivatives which were not designated to future production were accounted for on a mark-to market basis and the associated gains and losses were immediately recognized in income.
Currently all derivatives are recognized on the balance sheet at their fair value, unless they meet the criteria for the normal purchases normal sales exemption.
On the date a derivative contract is entered into, the Company designates the derivative for accounting purposes as either a hedge of the fair value of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction (cash flow hedge). Certain derivative transactions, while providing economic hedges under the Company's risk management policies, do not qualify for hedge accounting.
Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a cash flow hedge, are recognized directly in equity. Amounts deferred in equity are included in income in the same periods during which the hedge firm commitment or forecasted transaction affects net profit or loss.
Recognition of derivatives which meet the criteria for the normal purchases, normal sales exception are deferred until settlement.
Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized in income.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking derivatives designed as hedges to specific assets and liabilities or to specific firm commitments for forecasted transactions. The Company formally assesses, both at the hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
With the adoption of the Accounting Standard at January 1, 2001, certain of the Company's derivatives qualified for cash flow hedge accounting. The effect on the opening and subsequent year's reserves has been disclosed in the statement of changes in shareholder's equity. Certain of the Company's derivatives did not qualify for hedge accounting. The effect was disclosed as an adjustment to retained income in the statement of shareholders' equity.
| |
| 2.14 | Provident funds and other employee benefits |
Provident funds and other employee benefits: Provident funds, which are defined contribution plans and are funded through monthly contributions which are charged to income as incurred.
| |
| 2.15 | Foreign currencies |
The financial statements are measured and presented in US dollars, as it is the primary functional currency in which transactions are undertaken. Monetary assets and liabilities in foreign currencies are translated to US dollars at rates of exchange ruling at the end of the financial period. Translation gains and losses arising at period-end, as well as those arising on the translation of settled transactions occurring in currencies other than the functional currency, are included in net income.
F-92
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 3. | Share capital |
Share capital consists of the following authorized and issued ordinary par value shares with a nominal value of Communaute Financiere Africaine franc ("CFA") 10 000 ($16.356) each:
|
| | | | | | | | | | | | | | |
| | | Number of
shares authorized
and issued | | 2002
$'000 | | 2001
$'000 |
| Held by: | |
| Morila Limited | | | 800 | | | | 13 | | | | 13 | |
| Government of Mali | | | 200 | | | | 3 | | | | 3 | |
| | | | 1,000 | | | | 16 | | | | 16 | |
|
| |
| 4. | Shareholders' subordinated loans |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Government of Mali | | | 3,145 | | | | 3,029 | |
| Morila Limited | | | 15,249 | | | | 14,686 | |
| | | | 18,394 | | | | 17,715 | |
| Made up of: | |
| Principal | | | 13,108 | | | | 13,108 | |
| Deferred interest | | | 5,286 | | | | 4,607 | |
| | | | 18,394 | | | | 17,715 | |
|
The shareholder loans are denominated in US dollars and interest accrues at a US three month LIBOR dollar rate plus 2% per annum. These loans are subject to the conditions set out in the syndicated loan agreements. Under these agreements, these loans have been subordinated by the shareholders until such time as the Morila project loan (refer note 6) has been repaid in full. The weighted average interest rates as at December 31, 2002 on the shareholders' subordinated loans was 3.79% (December 31, 2001: 5.80%).
| |
| 5. | Environmental rehabilitation provision |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Provided to date | |
| — opening balance | | | 5,850 | | | | 1,540 | |
| — charge to the income statement | | | — | | | | 480 | |
| — rehabilitation asset raised (refer note 8) | | | — | | | | 3,830 | |
| | | | 5,850 | | | | 5,850 | |
|
The provisions for close down and restoration costs include estimates for the effect of future inflation and have been discounted to their present value at 6% per annum, being an estimate of the risk free pre-tax, cost of borrowing.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, the Company has estimated that the remaining costs for Morila, in current monetary terms, will be $8.4 million, the majority of which will only be expended over the life of mine.
Although limited environmental rehabilitation regulations currently exist in Mali to govern the mines, management has based the environmental rehabilitation provision using the standards as
F-93
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
set by the World Bank which require an environmental management plan, an annual environmental report, a closure plan, an up-to-date register of plans of the facility, preservation of public safety on closure, carrying out rehabilitation works and ensuring sufficient funds exist for the closure works. However, it is reasonably possible that the Group's estimate of its ultimate rehabilitation liabilities could change as a result of changes in regulations or cost estimates.
The Company is committed to rehabilitation of its properties and to ensure that it is adequately provided to do so it makes use of independent environmental consultants to advise it. It also uses past experience in similar situations to ensure that the provisions for rehabilitation are adequate.
There are no unasserted claims reflected in the provision.
While the ultimate closure costs may be uncertain, there are no uncertainties with respect to joint and several liability that may affect the magnitude of the contingency as these are clearly defined in the Company's mining convention.
The total cost of rehabilitation is estimated at $8.4 million undiscounted, the majority of which will only be spent after ten years.
There are no other potentially responsible parties to consider for cost sharing arrangements.
The Company carries insurance against pollution including cost of cleanup. At present, there are no losses and or claims outstanding.
| |
| 6. | Long term liabilities |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| a) Morila project loan | | | 36,000 | | | | 65,931 | |
| b) Morila finance lease | | | 19,105 | | | | 20,678 | |
| c) Morila Air Liquide finance lease | | | 3,822 | | | | — | |
| | | | 58,927 | | | | 86,609 | |
| Less: Current portion of long term liabilities: | |
| a) Morila Project loan | | | 18,000 | | | | 18,000 | |
| b) Morila finance lease | | | 2,279 | | | | 2,559 | |
| c) Morila Air Liquide finance lease | | | 377 | | | | — | |
| | | | (20,656 | ) | | | (20,559 | ) |
| | | | 38,271 | | | | 66,059 | |
|
| |
| a) | Morila Project Loan |
N.M. Rothschild & Sons Limited is acting as agent for a consortium of banks for the Morila Project loan. The loan bears interest at US three month LIBOR plus 2% per annum. The loan will be repaid over 5 years commencing on June 30, 2001 and is collateralized over the assets of the Morila mine whose book value at December 31, 2002 amounted to $259.6 million (December 31, 2001: $201.3 million). It is non-recourse to the Company. The weighted average interest rates as at December 31, 2002 on the Morila Project Loan was 4.05% (December 31, 2001: 5.73%).
F-94
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
Under the terms of this loan, the Company is required to enter into certain gold price forward sales and option contracts in respect of approximately 25 to 30 percent of Morila's first five years of production. Various debt covenants apply to the loan, including:
| | |
| • | Hedging arrangements as stipulated by N.M. Rothschilds will be put into place. The Company will provide evidence to the effect that Morila Holdings or AngloGold has entered into committed Hedging Agreements and that the proceeds of sale of gold are sufficient to ensure that, as at all calculation dates scheduled, no default would have occurred. |
| | |
| • | Limitations on material assets disposals and acquisitions. |
| | |
| • | No declaration, payment or distribution of dividends without approval. |
| | |
| • | Maintain insurance with reputable insurance companies. |
| | |
| • | Establish the Debt Service Reserve Account is the offshore bank account with the minimum credit balance on all dates equal to the aggregate principal amount of and interest accruing on the loan and the aggregate amount of premium accruing in connection with the Political Risk Insurance during the six month period commencing on such date. |
| | |
| • | No other long-term indebtedness (other than noted below) is to be incurred regarding the Morila project. |
| | |
| • | No indebtedness shall exceed $2 million incurred by way of capital leases other than the contractor for the development of the mine and the Rolls Royce power plant. |
| | |
| • | The Government of Mali principal indebtedness in Morila SA is not to exceed the original $1.6 million as stipulated in the Convention. |
| | |
| • | Certain financial ratios need to be adhered to throughout the loan agreement. |
The repayment schedule according to the contract is as follows:
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Year ending 2002 | | | — | | | | 18,000 | |
| Year ending 2003 | | | 18,000 | | | | 18,000 | |
| Year ending 2004 | | | 18,000 | | | | 18,000 | |
| Year ending 2005 | | | — | | | | 11,931 | |
| | | | 36,000 | | | | 65,931 | |
|
| |
| b) | Finance Leases |
Morila finance lease relates to five generators leased from Rolls Royce for Morila. The lease is repayable over ten years commencing April 1, 2001 and bears interest at a variable rate of which as at December 31, 2002 was approximately 15.54%. (December 31, 2001: 17.86%) per annum based on the lease contract. The lease is collateralized by plant and equipment whose net book value at December 31, 2002 amounted to $20.3 million (December 31, 2001: $21.5 million). Average lease payment of $0.8 million are payable in installments over the term of the lease. Two of the Company's ultimate shareholders, being Randgold Resources Limited and AngloGold Limited jointly guaranteed the repayment of the lease.
F-95
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
The estimated repayment schedule according to the contract is as follows:
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Year ending 2002 | | | — | | | | 2,559 | |
| Year ending 2003 | | | 2,279 | | | | 2,279 | |
| Year ending 2004 | | | 2,153 | | | | 2,153 | |
| Year ending 2005 | | | 2,276 | | | | 2,276 | |
| Year ending 2006 | | | 2,423 | | | | 2,423 | |
| Year ending 2007 | | | 2,513 | | | | 2,513 | |
| After year ending 2007 | | | 7,461 | | | | 6,476 | |
| | | | 19,105 | | | | 20,679 | |
|
| |
| c) | Morila Air Liquide finance lease |
Morila Air Liquide finance lease relates to three oxygen-generating units leased from Air Liquide for Morila. The lease is payable over 10 years commencing December 1, 2000 and bears interest at a variable rate which as at December 31, 2002 was approximately 17% per annum. The lease is collateralized by the gas producing equipment whose net book value at December 31, 2002 amounted to $3.2 million.
The estimated repayment schedule according to the contract is as follows:
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Year ending 2003 | | | 377 | | | | — | |
| Year ending 2004 | | | 391 | | | | — | |
| Year ending 2005 | | | 404 | | | | — | |
| Year ending 2006 | | | 415 | | | | — | |
| Year ending 2007 | | | 429 | | | | — | |
| After year ending 2007 | | | 1,806 | | | | — | |
| | | | 3,822 | | | | — | |
|
| |
| 7. | Financial instrument liability |
|
| | | | | | | | | | | | | | |
| | | | | 2002
$'000 | | 2001
$'000 |
| Mark to market of speculative financial instruments at year-end | | | 7.1 | | | | (1,907 | ) | | | (808 | ) |
| Financial instrument liability | | | 7.2 | | | | 20,733 | | | | 4,362 | |
| | | | | | | | 18,826 | | | | 3,554 | |
|
| |
| 7.1 | This reflects the mark-to-market adjustment on those derivative instruments which do not, under the Company's accounting policy, qualify for hedge accounting. These derivative instruments are further detailed in note 19. |
| |
| 7.2 | The financial instrument liability relates to Morila derivative instruments which qualify for hedge accounting. These derivative instruments are further detailed in note 19. |
F-96
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 8. | Mining assets |
|
| | | | | | | | | | | | | | | | | | |
| | | Year | | Cost
$'000 | | Accumulated
Depreciation
$'000 | | Net Book Value
$'000 |
| Total mining assets | | | 2002 | | | | 174,728 | | | | 34,163 | | | | 140,566 | |
| Total mining assets | | | 2001 | | | | 161,090 | | | | 16,451 | | | | 144,639 | |
|
Long life assets
Long life assets are those assets which are amortized over the life of the mine and are comprised of the metallurgical plant, tailings and raw water dams, power plant and mine infrastructure. The net book value of these assets was $137.6 million as at December 31, 2002 (2001: $141.6 million).
Short life assets
Short life assets are those assets which are amortized over their useful life and are comprised of motor vehicles and other equipment. The net book value of these assets was $3.0 million as at December 31, 2002 (2001: $3.1 million).
| |
| 9. | Deferred stripping |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Opening balance | | | 5,898 | | | | 919 | |
| Additions during the year | | | 12,608 | | | | 4,979 | |
| | | | 18,506 | | | | 5,898 | |
|
The deferred stripping balances at the end of 2002 and 2001 pertain to the Morila mine. In terms of the life of mine plan, pre-stripping is performed in the earlier years. This results in the cost associated with waste stripped at a rate higher than the expected pit life average stripping ratio, being deferred to those years. These costs will be released in the period where the actual stripping ratio decreases to below such expected pit life ratio. The expected pit life average stripping ratios used to calculate the deferred stripping were 3.68 in 2002 and 4.26 in 2001. These stripping ratios were calculated taking into account the actual strip ratios achieved of 7.15 for 2002 and 5.86 during 2001.
| |
| 10. | Inventories |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Consumables stores | | | 15,032 | | | | 11,242 | |
| Gold in process | | | 901 | | | | 2,530 | |
| Ore stockpiles | | | 5,476 | | | | 3,283 | |
| | | | 21,409 | | | | 17,055 | |
|
F-97
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 11. | Accounts receivable |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Related party receivables | |
| — Anglogold Johannesburg | | | 1 | | | | — | |
| — Randgold Resources Limited | | | 10 | | | | 35 | |
| Gold sales trade receivable | | | 13,301 | | | | 5,997 | |
| TVA receivable | | | 3,281 | | | | 2,574 | |
| Other | | | 433 | | | | 1,059 | |
| | | | 17,026 | | | | 9,666 | |
|
| |
| 12. | Restricted cash |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Debt service reserve | | | 11,315 | | | | 11,185 | |
|
The debt service reserve account relates to the NM Rothschild & Son Limited debt service reserve account. This amount is held in escrow for partial repayment of the Morila Project Loan. Refer to Note 6(a).
| |
| 13. | Accounts payable |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Related party payables | |
| — Randgold Resources Limited | | | 7 | | | | 725 | |
| — Anglogold Limited | | | 286 | | | | 4 | |
| — Anglogold Mali Sa | | | 486 | | | | 343 | |
| Trade creditors | | | 2,663 | | | | 2,992 | |
| Payroll costs accruals | | | 2,209 | | | | 1,780 | |
| Sundry accruals | | | 2,886 | | | | 857 | |
| | | | 8,537 | | | | 6,701 | |
|
| |
| 14. | Revenue |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Gold sales | | | 328,508 | | | | 168,167 | |
| Silver sales | | | 144 | | | | 416 | |
| | | | 328,652 | | | | 168,583 | |
|
F-98
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 15. | Operating profit |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Operating profit is arrived at after taking into account the following: | |
| Depreciation and amortization | | | 17,788 | | | | 14,042 | |
| Auditor's remuneration | |
| — audit fees | | | 58 | | | | 103 | |
| Royalties | | | 19,699 | | | | 10,152 | |
| Loss on financial instruments | | | 1,100 | | | | 535 | |
| Related party management fee (anser) | | | 3,263 | | | | 1,727 | |
|
| |
| 16. | Taxation |
The Company benefits from a five year tax holiday in Mali which expires on November 1, 2005. The benefit of the tax holiday to the Company was to increase its net income by $79.3 million and $28.1 million, due to not recording a tax expense for the taxable income generated by the Morila mine for the years ended December 31, 2002 and 2001, respectively. Under Malian tax law upon expiration of the tax holiday, the Company's income tax expense will be based on the greater of 35 per cent of taxable income or 0.75 per cent of gross revenue.
Major items causing the Company's actual income tax charge to differ from estimated the standard charge of 35% of taxable income are as follows:
|
| | | | | | | | | | |
| | | Year Ended
December 31, 2002 | | Year Ended
December 31, 2001
$'000 |
| Tax at statutory rate | | | 79,274 | | | | 28,058 | |
| Morila tax holiday differences | | | (79,274 | ) | | | (28,058 | ) |
| Total income and mining taxes | | | — | | | | — | |
|
The Morila operations have no assessable capital expenditure carry forwards or assessable tax losses, as at December 31, 2002 and 2001 respectively, for deduction against future mining income.
F-99
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
| |
| 17. | Notes to the Cash Flow Statement |
| | | | | | | | | | | | | | |
| | | | | 2002
$'000 | | 2001
$'000 |
| 17.1 | | Cash generated by operating activities | |
| | | Profit before taxation | | | 226,496 | | | | 80,167 | |
| | | Adjustments | |
| | | — finance charges | | | 6,088 | | | | 8,179 | |
| | | — depreciation and amortization | | | 17,788 | | | | 14,042 | |
| | | — environmental rehabilitation provision | | | — | | | | 480 | |
| | | — (Gain)/loss on financial instruments | | | (1,100 | ) | | | 535 | |
| | | — deferred stripping costs capitalized | | | (12,608 | ) | | | (4,978 | ) |
| | | | | | 236,664 | | | | 98,425 | |
| 17.2 | | Cash utilized by changes in working capital | |
| | | (Increase)/decrease in accounts receivable | | | (7,433 | ) | | | 9,932 | |
| | | Increase in inventories | | | (4,354 | ) | | | (3,573 | ) |
| | | Increase/(decrease) in accounts payable (excluding short term portion of long term loan) | | | 1,838 | | | | (32,449 | ) |
| | | | | | (9,949 | ) | | | (26,090 | ) |
|
| |
| 18. | Fair Value and Credit Risk of Financial Instruments |
The Company's financial instruments are set out in note 19.
In the normal course of its operations, the Company is exposed to commodity price, currency, interest, liquidity and credit risk. In order to manage these risks, the Company may enter into transactions which makes use of off-balance sheet financial instruments. They include mainly gold forward and gold option contracts.
| |
| 18.1 | Concentration of credit risk |
The Company's financial instruments do not represent a concentration of credit risk because the Company sells its gold to and deals with a variety of major financial institutions. Its receivables and loans are regularly monitored and assessed and a provision for bad debts is maintained.
Gold bullion, the Company's principal product, is produced in Mali. The gold produced is sold to reputable gold refineries. Because of the international market for gold the Company believes that no concentration of credit risk exists with respect to the selected refineries to which the gold is sold.
| |
| 18.2 | Foreign currency and commodity price risk |
In the normal course of business, the Company enters into transactions denominated in foreign currencies (primarily $000). In addition, the Company enters into transactions in a number of different currencies (primarily South African rands and Communaute Financiere Africaine franc).
As a result, the Company is subject to transaction exposure from fluctuations in foreign currency exchange rates.
Generally the Company does not hedge its exposure to gold price fluctuation risk and sells at market spot prices. These prices are in US dollars and do not expose the Company to any
F-100
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
currency fluctuation risk. However, the periods of capital expenditure or loan finance, the Company secures a floor price through simple forward contracts and options whilst maintaining significant exposure to spot prices. Between 25% and 30% of Morila's production has been sold forward for the years 2003 and 2004.
| |
| 18.3 | Interest rates and liquidity risk |
Fluctuation in interest rates impact on the value of income receivable from short-term cash investments and interest payment relating to financing activities (including long-term loans), giving rise to interest rate risk.
In the ordinary course of business, the Company receives cash from its operations and is required to fund working capital and capital expenditure requirements. This cash is managed to ensure surplus funds are invested in a manner to achieve maximum returns while minimizing risks. The Company has been able to in the past actively source financing through shareholders' and third party loans.
| |
| 19. | Fair value of financial instruments |
The following table presents the carrying amounts and fair values of the Company's financial instruments outstanding at December 31, 2002 and 2001. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
|
| | | | | | | | | | | | | | | | | | |
| | | December 31, 2002 | | December 31, 2001 |
| | | Carrying
Amount
$'000 | | Fair
Value
$'000 | | Carrying
Amount
$'000 | | Fair
Value
$'000 |
| Financial assets | |
| Cash and equivalents | | | 50,350 | | | | 50,350 | | | | 12,572 | | | | 12,572 | |
| Restricted cash | | | 11,315 | | | | 11,315 | | | | 11,185 | | | | 11,185 | |
| Receivables | | | 17,026 | | | | 17,026 | | | | 9,666 | | | | 9,666 | |
| Financial liabilities | |
| Accounts payable | | | 29,193 | | | | 29,193 | | | | 27,260 | | | | 27,260 | |
| Long-term debt (excluding loans from shareholders) | | | 38,271 | | | | 38,271 | | | | 66,050 | | | | 66,050 | |
| Liabilities on financial instruments | | | 18,826 | | | | 18,826 | | | | 3,554 | | | | 3,554 | |
|
Financial instruments
Details of on balance sheet gold derivative contracts as at December 31, 2002:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Hedging Instruments | | Unmatched Instruments |
| Maturity Dates | | Puts Purchased | | Forward Sales | | Purchased Calls | | Calls Sold
(Matched to
Purchased Puts) |
| | | Ounces | | $/Oz | | Ounces | | Us $/Oz | | Ounces | | Us $/Oz | | Ounces | | Us $/Oz |
| December 31, 2003 | | | — | | | | — | | | | 151,452 | | | | 275 | | | | 53,614 | | | | 350 | | | | — | | | | — | |
| December 31, 2004 | | | — | | | | — | | | | 129,852 | | | | 275 | | | | 45,960 | | | | 360 | | | | — | | | | — | |
|
F-101
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
And at December 31, 2001:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Hedging Instruments | | Unmatched Instruments |
| Maturity Dates | | Puts Purchased | | Forward Sales | | Purchased Calls | | Calls Sold
(Matched to
Purchased Puts) |
| | | Ounces | | $000/Oz | | Ounces | | Us $/Oz | | Ounces | | Us $/Oz | | Ounces | | Us $/Oz |
| December 31, 2002 | | | 60,000 | | | | 275 | | | | 168,240 | | | | 275 | | | | 59,556 | | | | 340 | | | | 60,000 | | | | 310 | |
| December 31, 2003 | | | — | | | | — | | | | 151,452 | | | | 275 | | | | 53,614 | | | | 350 | | | | — | | | | — | |
| December 31, 2004 | | | — | | | | — | | | | 129,852 | | | | 275 | | | | 45,960 | | | | 360 | | | | — | | | | — | |
|
The total fair value of the above financial instruments as at December 31, 2002 was a loss of $18.8 million and a loss of $3.5 million as at December 31, 2001.
Estimation of fair values
Receivables, restricted cash, accounts payable, bank overdrafts and cash and equivalents
The carrying amounts are a reasonable estimate of the fair values because of the short maturity of such instruments.
Long term debt
The fair value of market-based floating rate long-term debt is estimated using the expected future payments discounted at market interest rates.
Gold price contracts
The fair value of gold price forward and option contracts has been determined by reference to quoted market rates at year-end balance sheet dates.
| |
| 20. | Pension and provident funds |
Retirement benefits for employees of the Company are provided by the Mali state social security system to which the Company and its employees contribute a fixed percentage of payroll costs each month. Fund contributions by the Company for the years ended December 31, 2002 and December 31, 2001 amounted to $2.9 million and $1.2 million, respectively.
| |
| 21. | Commitments |
| |
| 21.1 | Capital expenditure |
|
| | | | | | | | | | |
| | | 2002
$'000 | | 2001
$'000 |
| Contracts for capital expenditure | | | 1,985 | | | | 375 | |
| Authorized but not contracted for | | | 183 | | | | 3,843 | |
| | | | 2,168 | | | | 4,218 | |
|
| |
| 22. | Related party transactions |
Included in accounts payable and accounts receivable as at December 31, 2002 are amounts of $0.8 million (2001: $1.1 million) and $0.01 million (2001: $0.04 million) as detailed in notes 13 and 11 above, respectively.
F-102
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
In terms of the Operator Agreement between Morila SA and AngloGold Services Mali SA, a management fee, calculated as 1% of the total sales of Morila, is payable to AngloGold Service Mali SA quarterly in arrears.
The management fees for the year ended December 31, 2002 amounted to $3.3 million (2001: $1.7 million).
| |
| 23. | Reconciliation to US GAAP |
The Company's financial statements included in this registration statement have been prepared in accordance with International Accounting Standards ("IAS") which differs in certain respects from Generally Accepted Accounting Principles in the United States ("US GAAP"). The effect of applying US GAAP to net profit and shareholders' equity is set out below along with an explanation of applicable differences between IAS and US GAAP.
| | |
| a) | Reconciliation of Net Profit and Shareholders Equity for the Years Ended December 31, 2002 and 2001 |
|
| | | | | | | | | | |
| Reconciliation of Net Profit | | 2002
$'000 | | 2001
$'000 |
| Net profit under IAS | | | 226,496 | | | | 80,167 | |
| US GAAP adjustments | |
| Provision for environmental rehabilitation | | | (191 | ) | | | (250 | ) |
| Net profit under US GAAP before change in accounting policy | | | 226,305 | | | | 79,917 | |
| Change in accounting policy | | | — | | | | 1,288 | |
| Net profit under US GAAP | | | 226,305 | | | | 81,205 | |
| Net profit under US GAAP | | | 226,305 | | | | 81,205 | |
| Other Comprehensive Income | |
| Change in accounting policy which meet the criteria for cash flow hedges | | | — | | | | (4,780 | ) |
| Change in fair value of cash flow hedges | | | (16,371 | ) | | | 418 | |
| Comprehensive income under US GAAP | | | 209,934 | | | | 76,843 | |
|
|
| | | | | | | | | | |
| Reconciliation of Shareholders' Equity | | | | 2002
$'000 |
| Total shareholders' equity under IAS | | | | | | | 149,043 | |
| US GAAP ADJUSTMENTS | |
| Provision for environmental rehabilitation | | | | | | | (479 | ) |
| Total shareholders' equity under US GAAP | | | | | | | 148,564 | |
|
The following is a summary of the differences between IAS and US GAAP as applicable to the Company.
| | |
| b) | Quantitative and Qualitative US GAAP Disclosures |
Provision for Environmental Rehabilitation.
Currently under IAS, full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to balance sheet date. Annual
F-103
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
increases in the provision relating to the change in the net present value of the provision and inflationary increases are shown separately in the statement of operations. Under US GAAP, expenditure estimated to be incurred on long-term environmental obligations is provided over the remaining lives of the mines through charges in the statement of operations. The Company will adopt FAS 143 "Accounting for Obligations Associated with the Retirement of Long-Lived Assets" on January 1, 2003 which will eliminate this GAAP difference prospectively.
Change in Accounting Policy
Under IAS, a change in accounting policy is presented as a restatement to the prior's fiscal period shareholders' equity. Accordingly the Company restated its fiscal 2000 shareholders' equity for the impact of adopting IAS 39 "Financial Instruments: Recognition and Measurement". Under US GAAP a change in accounting policy is recorded as a cumulative effect of change in accounting principle adjustment on the first day of the fiscal year in which the Company adopts the new accounting standard. The Company adopted FAS 133 "Accounting for Derivative instruments and Hedging Activities" on January 1, 2001, and accordingly adjusted net income by $1.2 million for those financial instruments which did not meet the criteria for hedge accounting and other comprehensive income by $4.8 million for those financial instruments which met the cash flow hedge accounting criteria.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 establishes accounting standards for recognition and measurement of a liability at fair value for an asset retirement obligation and an addition to the associated asset retirement cost. The accretion of interest expense each period is subsequently recorded as an expense and added to the liability. The Company has determined that the adoption of FAS 143 will not have a material impact on its results of operations and financial position.
In April 2002, the FASB issued Statements of Accounting Standards No. 145, "Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002" ("SFAS 145"). SFAS 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers", and SFAS 64, "Extinguishments of Debt made to satisfy Sinking-Fund requirements". As a result, gains and losses from extinguishment of debt will no longer be classified as extraordinary items unless they meet the criteria of unusual or infrequent as described in Accounting Principles Boards Opinion 30, "Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". In addition, SFAS 145 amends SFAS 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The Company has determined that the adoption of SFAS 145 will not have a material impact on its results of operations and financial position.
In June 2002, the FASB issued Statement of Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
F-104
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS 146 eliminates the definition and requirements for recognition of exit costs in EITF 94-3. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS 146 also concludes that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. The Company has determined that the adoption of SFAS 146 will not have a material impact on its results of operations and financial position.
In December 2002, the FASB issued Statements of Financial Accounting Standards No 148, "Accounting for Stock-Based Compensation Transition and Disclosure — an amendment of FAS 123". Under FAS 148, the statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement 123 to require prominent disclosure on both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to Statement 123 in paragraphs 2(a)-2(e) of this statement shall be effective for financial statements for fiscal years ending after December 15, 2002. Earlier application of the transition provisions in paragraphs 2(a)-2(d) is permitted for entities with a fiscal year ending prior to December 15, 2002, provided that financial statements for the 2002 fiscal year have not been issued as of the date this Statement is issued. Early application of the disclosure provisions in paragraph 2(e) is encouraged. The Company has determined that SFAS 148 will have no impact on its results of operations and financial position for the periods presented as it does not have any stock based compensation plans.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.
This interpretation does not prescribe a specific approach for subsequently measuring the guarantor's recognized liability over the term of the related guarantee. This interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others, which is being superseded. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The interpretive guidance incorporated without change from Interpretation 34 continues to be required for financial statements for fiscal years ending after June 15, 1981 - the effective date of Interpretation 34. The Company has determined that FIN 45 will have no impact on its results of operations and financial position.
In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities — an interpretation of ARB No. 51" ("FIN 46"). This interpretation of
F-105
SOCIÉTÉ DES MINES DE MORILA S.A.
NOTES TO THE FINANCIAL STATEMENTS
(US$ THOUSANDS UNLESS OTHERWISE NOTED) (continued)
Accounting Research Bulletin No. 51. Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities which have one or both of the following characteristics:
| | |
| 1. | the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity; |
| | |
| 2. | the equity investors lack one or more of the following essential characteristics of a controlling financial interest: |
| | |
| a) | the direct or indirect ability to make decisions about the entity's activities through voting rights or similar rights. |
| | |
| b) | the obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to finance its activities. |
| | |
| c) | the right to receive the expected residual returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. |
This Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Interpretation applies to public enterprises as of the beginning of the applicable interim or annual period, and it applies to nonpublic enterprises as of the end of the applicable annual period. This Interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. The Company has determined that FIN 46 will have no impact on its results of operations and financial position as it is not a party to any transactions with variable interest entities.
F-106
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
RANDGOLD & EXPLORATION COMPANY LIMITED
By: /s/ Roger Brett Kebble
Name: Roger Brett Kebble
Title: Chief Executive Officer
Date: July 15, 2004
Exhibit Index
| | | | | | |
| EXHIBIT NO. | | EXHIBIT |
| 1.2 | | Articles of Association of Randgold & Exploration Company Limited. |
| 4.18 | | Sale Agreement dated June 20, 2003 from Platgold Pacific NL, Hazcare Pty Ltd. and Randgold & Exploration Company Limited. |
| 4.19 | | Agreement between Randgold & Exploration Company Limited and Notable Holdings (Pty) Limited dated July 22, 2003. |
| 4.20 | | Agreement between Randgold & Exploration Company Limited and Kemonshey Holdings Limited on July 22, 2003. |
| 4.21 | | Sale of Shares Agreement, dated July 28, 2003, amongst Randgold & Exploration Company Limited, Equitant Trading (Proprietary) Limited and Phikoloso Mining (Proprietary) Limited. |
| 4.22 | | Agreement between Randgold & Exploration Company Limited and Continental Goldfields Limited, dated December 11, 2003. |
| 4.23 | | Agreement made and entered into by and between Randgold & Exploration Company Limited and Masupatsela Investment Holdings (Pty) Limited, dated December 30, 2003. |
| 4.24 | | Call Option Agreement by Lunda Sul Holdings (Proprietary) Limited in favour of Randgold & Exploration Company Limited in respect of Lunda Alluvial Operations (Pty) Ltd dated January 5, 2004. |
| 4.25 | | Mineral Rights Agreement between Randgold & Exploration Company Limited and Minrico Limited, dated February 22, 2004. |
| 4.26 | | Subscription and Option Agreement between Randgold & Exploration Company Limited and The Afrikander Lease Limited, dated February 26, 2004. |
| 4.27 | | Heads of Prospecting Agreement between Randgold & Exploration Company Limited and De Beers Consolidated Mines Limited dated April 30, 2004. |
| 4.28 | | Underwriting Agreement made and entered into by and between Randgold & Exploration Company Limited and The Afrikander Lease Limited dated May 13, 2004. |
| 4.29 | | Sale of Mining Rights Agreement by Koketso Angola Joint Venture and Randgold & Exploration Company Limited. |
| 4.30 | | Sale of Mining Rights Agreement by Masupatsela Angola Mining Ventures (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.31 | | Sale of Rights Agreement by Quantum African Mining (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.32 | | Equipment Sale Agreement by Trans Bengula Logistics (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.33 | | Consortium Sale Agreement amongst Tawny Eagle Holdings (Proprietary) Limited and Chestnut Hill Investments 60 (Proprietary) Limited and Randgold & Exploration Company Limited. |
| 4.34 | | Randgold Sale Agreement between Anglo South Africa Capital (Proprietary) Limited and Randgold & Exploration Company Limited. |
|
| | | | | | |
| EXHIBIT NO. | | EXHIBIT |
| 4.35 | | Option Agreement between Randgold & Exploration Company Limited and Chestnut Hill Investments 60 (Proprietary) Limited. |
| 8.1 | | List of subsidiaries and associated companies. |
| 12.1 | | Certification by Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
| 12.2 | | Certification by Financial Director pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
| 13.1 | | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 13.2 | | Certification by Financial Director pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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