EXHIBIT 15.1
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF
DIRECTORS AND STOCKHOLDERS OF CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
We have audited the accompanying consolidated balance sheets of Crown Gold
Recoveries (Proprietary) Limited and its subsidiaries as of June 30, 2004 and
2003, and the related consolidated income statements, statements of changes in
equity and cash flow statements for each of the years in the two-year period
ended June 30, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the 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, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Crown Gold Recoveries (Proprietary) Limited and its
subsidiaries at June 30, 2004 and 2003, and the consolidated results of its
operations and its cash flows for each of the years in the two-year period ended
June 30, 2004, in conformity with South African Statements of Generally Accepted
Accounting Practice.
The accompanying financial statements have been prepared assuming that the Group
will continue as a going concern. As discussed in Note 19 to the financial
statements, the Group has suffered recurring losses from operations and has a
net capital deficiency and its current liabilities exceed its current assets.
These matters raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 19. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty
KPMG INC
Registered Accountants and Auditors
Chartered Accountants (SA)
/s/ W van der Merwe
- ----------------------------
W van der Merwe
Director
Johannesburg, Republic of South Africa
November 26, 2004
1
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
CONSOLIDATED INCOME STATEMENTS
for the years ended June 30
Notes 2004 2003
R'000 R'000
REVENUE 2 643,610 571,894
COST OF SALES (646,760) (582,808)
-------- --------
Operating costs (599,338) (522,231)
Depreciation 5 (19,637) (45,266)
Retrenchment costs (56) -
Movement in provision for
environmental rehabilitation 12 (28,094) (15,958)
Movement in gold-in-process 365 647
-------- --------
GROSS LOSS (3,150) (10,914)
Administration expenses (29,372) (27,149)
Impairment of mining assets (44,964) (204,987)
-------- --------
NET OPERATING LOSS 3 (77,486) (243,050)
Other income 9,212 15,728
Interest received 1,124 1,619
Interest paid (53,368) (50,769)
-------- --------
LOSS BEFORE TAXATION (120,518) (276,472)
Taxation 4 (166) (586)
-------- --------
NET LOSS FOR THE YEAR (120,684) (277,058)
======== ========
2
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
CONSOLIDATED BALANCE SHEETS
at June 30
ASSETS Notes 2004 2003
R'000 R'000
NON-CURRENT ASSETS 108,575 93,615
-------- --------
Mining assets 5 100,638 86,175
Investments 6 7,937 7,440
-------- --------
CURRENT ASSETS 54,843 81,086
-------- --------
Inventories 7 18,536 19,362
Accounts receivable 15,330 20,747
Taxation 128 -
Cash and cash equivalents 20,849 40,977
-------- --------
TOTAL ASSETS 163,418 174,701
======== ========
EQUITY AND LIABILITIES
CAPITAL AND RESERVES
Share capital 8 - * - *
Accumulated loss (596,997) (476,313)
-------- --------
Shareholders' deficit (596,997) (476,313)
NON-CURRENT LIABILITIES 588,264 428,558
-------- --------
Shareholders' loans 9 361,872 298,413
Long-term liabilities 10 130,306 66,267
Provision for post-retirement
medical benefits 11 9,577 5,463
Provision for environmental
rehabilitation 12 86,509 58,415
-------- --------
CURRENT LIABILITIES 172,151 222,456
-------- --------
Taxation - 15
Leave pay provision 13 12,612 6,420
Short-term portion of shareholders'
loans 9 3,934 23,359
Accounts payable and accrued
liabilities 151,859 192,662
Bank overdraft 3,746 -
-------- --------
TOTAL EQUITY AND LIABILITIES 163,418 174,701
======== ========
* Less than R1,000.
3
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
for the years ended June 30
NUMBER OF
ORDINARY SHARE ACCUMULATED
SHARES CAPITAL LOSS TOTAL
R'000 R'000 R'000
Balance at June 30, 2002 100 -* (199,255) (199,255)
Net loss for the year - (277,058) (277,058)
--------- ---------- ----------
BALANCE AT JUNE 30, 2003 100 -* (476,313) (476,313)
Net loss for the year (120,684) (120,684)
--------- ---------- ----------
BALANCE AT JUNE 30, 2004 100 -* (596,997) (596,997)
========= ========== ==========
* Less than R1 000.
4
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
CONSOLIDATED CASH FLOW STATEMENTS
for the years ended June 30
Notes 2004 2003
R'000 R'000
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from sales of precious metals 643,610 571,894
Cash paid to suppliers and employees (674,704) (464,266)
-------- --------
Cash (applied to)/generated by A (31,094) 107,628
operations
Interest received 1,124 1,619
Taxation paid (310) (581)
Interest paid (21,181) (25,334)
-------- --------
NET CASH FLOW FROM OPERATING ACTIVITIES (51,461) 83,332
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Net purchase of mining assets (79,056) (63,272)
Purchase of non-current investments
and other assets (9) -
Acquisition of subsidiary net of cash
acquired B (99,065)
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES (79,065) (162,337)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 64,038 17,613
Proceeds from shareholders' loans 42,614 77,574
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES 106,652 95,187
======== ========
Net (decrease)/increase in cash and
cash equivalents (23,874) 16,182
Cash and cash equivalents - at
beginning of year 40,977 24,795
-------- --------
CASH AND CASH EQUIVALENTS - AT END OF
YEAR C 17,103 40,977
======== ========
5
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS
for the years ended June 30
2004 2003
R'000 R'000
A. RECONCILIATION OF LOSS BEFORE TAXATION TO
CASH (APPLIED TO)/ GENERATED BY OPERATIONS
Loss before taxation (120,518) (276,472)
Adjusted for: 154,385 316,049
-------- --------
Depreciation 19,637 45,266
Movement in environmental
rehabilitation provision 28,094 15,958
Movement in gold-in-process (365) (647)
Impairment of mining assets 44,964 204,987
Interest received (1,124) (1,619)
Interest paid 53,368 50,769
Growth in rehabilitation trust fund (518) (767)
Rehabilitation payments from trust fund 30 23
Provisions for employee benefits raised
during the year 10,306 2,089
Profit on sale of mining assets (7) (10)
-------- --------
Working capital changes: (64,961) 68,051
-------- --------
Inventories 1,192 (1,683)
Accounts receivable 6,838 5,736
Accounts payable and accrued liabilities (72,991) 63,998
-------- --------
Cash (applied to)/generated by operations (31,094) 107,628
======== ========
B. ACQUISITION OF SUBSIDIARY NET OF CASH ACQUIRED
Mining assets 179,862
Inventories 1,682
Accounts receivable 17,110
Cash and cash equivalents 5,307
Provision for environmental rehabilitation (21,469)
Accounts payable (69,897)
Leave pay provisions (8,223)
--------
TOTAL NET BOOK VALUE AT DATE OF
ACQUISITION 104,372
LESS CASH AND CASH EQUIVALENTS OF
ACQUIRED ENTITY (5,307)
--------
NET CONSIDERATION 99,065
========
6
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS
for the years ended June 30
2004 2003
R'000 R'000
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents 20,849 40,977
Bank overdraft (3,746) -
------- ------
17,103 40,977
======= ======
7
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003
1. PRINCIPAL ACCOUNTING POLICIES
1.1 BASIS OF PREPARATION
The financial statements are prepared on the historical cost basis as
modified by the revaluation of certain financial instruments to fair value
and incorporate the following principal accounting policies, which are
consistent with those applied the previous year and comply with South
African Statements of Generally Accepted Accounting Practice.
1.2 CONSOLIDATION
The financial statements incorporate the financial statements of the
Company, its subsidiaries and their associated environmental
rehabilitation trust funds. The results of the subsidiaries are included
from the date on which effective control was acquired up to the date
control ceased to exist.
All inter-company transactions and balances have been eliminated.
Unrealized profits that arise between Group entities are also eliminated.
1.3 GOODWILL
Goodwill represents the excess of the purchase consideration over the
Group's interest in the fair value of the identifiable assets and
liabilities of the acquired subsidiary at the date of acquisition.
The carrying amount of goodwill is reviewed annually and written down for
impairment where considered necessary.
1.4 MINING ASSETS
1.4.1 Mine development
Development costs relating to major programmes at existing mines and
plants are capitalized. Development costs consist primarily of
expenditures to initially establish a mine and to expand the capacity of
operating mines and plants. Ordinary development costs to maintain
production are expensed as incurred.
Initial development and pre-production costs relating to a new facility,
including interest on borrowed funds used to develop the facility, are
capitalized until the facility is brought into production, at which time
the costs are amortized.
1.4.2 Plant and machinery
Plant and machinery are recorded at cost of acquisition less sales,
recoupments and amounts written off. Depreciation of plant facilities is
computed principally by the life of mine method based on estimated proven
and probable ore reserves. Proven and probable ore reserves reflect
estimated quantities of economically recoverable reserves, which can be
recovered in the future from known sand, slime and archive material from
previously worked out mines.
8
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.4 MINING ASSETS (continued)
1.4.3 Equipment and vehicles
Equipment and vehicles are shown at cost less accumulated depreciation.
Depreciation is calculated using the straight line method, principally
over estimated useful lives of 2 to 5 years.
1.4.4 Impairment
Recoverability of the mining assets of the Group, which include
development costs, is reviewed annually. Estimated future net cash flows
are calculated using estimates of proven and probable ore reserves,
estimated future sales (considering historical and current prices, price
trends and related factors), operating costs, development costs and
rehabilitation costs. Reductions in the carrying value of the mining
assets of the Group are recorded to the extent that the carrying value
exceeds the estimate of future discounted net cash flows.
Management's estimates of future cash flows are subject to risks and
uncertainties. Therefore, it is reasonably possible that changes could
occur which may affect the recoverability of the Group's mining assets.
1.5 OPERATING LEASES
Leases where the lessor retains the risks and rewards of ownership of the
underlying asset are classified as operating leases. Payments made under
operating leases are charged against income on a straight line basis over
the period of the lease.
1.6 INVESTMENTS
Investments are accounted for at fair value or at cost where fair value
cannot be reliably measured. Gains and losses are included in the income
statement.
9
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.7 INVENTORIES
Inventories, which include gold work-in-process and consumables, are
stated at the lower of cost and net realizable value. The cost of gold
work-in-process is based on related production costs, which include
amortization. The cost of consumables is determined by the weighted
average cost method. Where necessary, provision is made for obsolete, slow
moving or defective inventory.
1.8 ENVIRONMENTAL REHABILITATION
Long-term environmental obligations comprising decommissioning and
restoration, are based on the Group's environmental management plans, in
compliance with the current environmental and regulatory requirements.
1.8.1 Decommissioning costs
Provision is made for the net present value of the estimated future
decommissioning costs at the end of operating life of the facilities, with
a corresponding increase in the carrying value of the related asset. The
unwinding of the decommission obligation is included in the income
statement. The estimated future costs of decommission obligations are
regularly reviewed and adjusted as appropriate for new circumstances or
changes in law or technology. The estimates are discounted at a pre-tax
rate that reflects current market assessments of the time value of money.
1.8.2 Restoration costs
Estimated restoration costs are accrued based on present obligations, as
environmental damage is incurred. Estimated costs are regularly reviewed
and adjusted as appropriate for changed circumstances. Expenditure on
ongoing rehabilitation costs is brought to account when incurred.
1.8.3 Environmental rehabilitation trust
Periodic contributions are made to rehabilitation trust funds created in
accordance with South African statutory requirements, to fund the
estimated cost of rehabilitation during and at the end of the life of the
facility.
1.9 REVENUE RECOGNITION
Gold bullion revenue (and revenue from related by-products) is recognized
when it is delivered to the relevant refinery, at which stage all risks
and rewards of ownership pass from the Group.
Dividends are recognised when the right to receive payment is established.
Interest is recognized on a time proportion basis taking account of the
principal outstanding and the effective rate to maturity on the accrual
basis.
10
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.10 RETIREMENT AND OTHER EMPLOYEE BENEFITS
Defined contribution plans
The Group contributes to a defined contribution fund. Contributions to
defined contribution funds are charged against income as incurred.
Post-retirement medical benefits
The expected costs of post-retirement medical benefits are assessed in
accordance with the advice of qualified actuaries and contributions to the
relevant fund, including the costs of improved benefits or experience
adjustments, are charged to income over the service lives of employees
entitled to those benefits.
The Projected Unit Credit Method is used to determine the present value of
the post-retirement medical benefit and related current service cost and,
where applicable, past service cost.
Actuarial gains or losses in respect of the post-retirement medical
benefit is recognized as income or expense if the net cumulative
unrecognized actuarial gains and losses at the end of the previous
reporting period exceeded the greater of:
- 10% of the present value of the obligation at that date before
deducting plan assets, and
- 10% of the fair value of any plan assets at that date.
The amount recognized is the excess determined above, divided by the
expected average remaining working lives of the employees participating in
the plan.
Past service costs are recognized as an expense on a straight line basis
over the average period until the benefits vest. To the extent that the
benefits have already vested, past service costs are recognized
immediately.
1.11 TAXATION
Current tax comprises tax payable calculated on the basis of the expected
taxable income for the year, using the tax rates enacted at the balance
sheet date, and any adjustment of tax payable for previous years.
Deferred tax is provided using the balance sheet liability method, based
on temporary differences. Temporary differences are differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and their tax base. The amount of deferred tax provided is based
on the expected manner of realisation or settlement of the carrying amount
of assets and liabilities using tax rates enacted or substantively enacted
at the balance sheet date. Deferred tax is charged to the income statement
except to the extent that it relates to a transaction that is recognized
directly in equity, or a business combination that is an acquisition. The
effect on deferred tax of any changes in tax rates is recognized in the
income statement, except to the extent that it relates to items previously
charged or credited directly to equity. NOTES TO THE FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
11
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.11 TAXATION (continued)
A deferred tax asset is recognized to the extent that it is probable that
future taxable profits will be available against which the associated
unused tax losses and deductible temporary differences can be utilised.
Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be recognized.
1.12 FINANCIAL INSTRUMENTS
Financial instruments recognized on the balance sheet include investments,
accounts receivable, cash and cash equivalents, long-term and short-term
liabilities, accounts payable and accrued liabilities, and bank
overdrafts.
Measurement
Financial instruments are initially measured at cost, including
transaction costs, when the Group becomes a party to the contractual
arrangements. The subsequent measurement of financial instruments is dealt
with in the individual policy statements associated with the relevant
item.
Investments
Investments are classified as held for trading and are accounted for at
fair value or at cost where fair value cannot be reliably measured.
Realized and unrealized investment gains and losses are included in
earnings for the relevant period.
Accounts receivable
Accounts receivable are carried at anticipated realizable value. Estimates
are made for doubtful debts. Irrecoverable amounts are written off during
the year in which they are identified.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand. The carrying amount of
cash and cash equivalents is stated at cost, which approximates fair
value.
Financial liabilities
Non-derivative financial liabilities are recognized at amortized costs,
comprising original debt less principal payments and amortizations.
Derivative instruments
Derivative instruments are measured at fair value.
12
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
1. PRINCIPAL ACCOUNTING POLICIES (continued)
1.12 FINANCIAL INSTRUMENTS (continued)
Gains and losses on subsequent measurement
Gains and losses arising from a change in the fair value of financial
instruments that are not part of a hedging relationship are included in
net profit or loss in the period in which the change arises.
Gains and losses from measuring the fair value of the hedging instruments
relating to a fair value hedge are recognized immediately in net profit or
loss.
Gains and losses from remeasuring the hedging instruments relating to a
cash flow hedge to fair value are initially recognized directly in equity.
If the hedged firm commitment or forecast transaction results in the
recognition of an asset or a liability, the cumulative amount recognized
in equity up to the transaction date is adjusted against the initial
measurement of the asset or liability. For other cash flow hedges, the
cumulative amount recognized in equity is included in net profit or loss
in the period when the commitment or forecast transaction affects profit
or loss.
Where the hedging instrument or hedge relationship is terminated but the
hedged transaction is still expected to occur, the cumulative unrealized
gain or loss at that point remains in equity and is recognized in
accordance with the above policy when the transaction occurs. If the
hedged transaction is no longer expected to occur, the cumulative
unrealized gain or loss is recognized in the income statement immediately.
1.13 FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the rate of exchange
ruling at the transaction date. Monetary assets and liabilities
denominated in foreign currencies are translated at the rate of exchange
ruling at the balance sheet date. Gains and losses arising on translation
are credited to or charged against income.
1.14 PROVISIONS
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, for which it is
probable that an outflow of economic benefits will occur, and where a
reliable estimate can be made of the amount of the obligation.
13
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
2004 2003
R'000 R'000
2. REVENUE
Gold revenue 636,603 570,833
By-product revenue 7,007 1,061
-------- --------
Total revenue 643,610 571,894
-------- --------
3. NET OPERATING LOSS
Net operating loss includes the following:
Royalties paid - (2,538)
Employment remuneration (212,581) (224,269)
-------- --------
- salaries and wages (191,620) (133,574)
- pension fund contributions (8,818) (6,921)
- contracted employees (12,143) (83,774)
-------- --------
Management, technical, administrative and
secretarial service fees paid
to Durban Roodepoort Deep, Limited and Khumo
Bathong Holdings Limited (23,967) (25,626)
Profit on the sale of mining assets 7 10
Profit on the sale of listed investments - 2,080
Dividends received - 580
14
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
2004 2003
R'000 R'000
4. TAXATION
South African normal tax
- current non-mining tax 166 586
-------- --------
Mining tax on mining income is determined on a formula which takes into
account the profit and revenues from mining operations during the year.
The statutory tax rate, which is determined by the formula, varies.
Income other than from mining operations is taxable at a rate of 38%,
since the Company has, in terms of South African tax legislation, opted
for a tax regime which does not require the deduction of Secondary Tax on
Companies (STC) on dividends declared.
Unredeemed capital expenditure allowances available for set-off against
future mining income (518,801) (384,052)
-------- --------
No deferred tax asset has been raised as it is uncertain whether future
taxable profits will be earned against which the assessed tax losses and
unredeemed capital expenditure could be utilized.
15
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
2004 2003
R'000 R'000
5. MINING ASSETS
TOTAL
Cost
Opening balance 498,229 255,106
Acquired through purchase of subsidiary - 179,862
Additions 79,832 63,377
Disposals (826) (116)
-------- --------
Closing balance 577,235 498,229
======== ========
Accumulated depreciation
Opening balance (412,054) (161,822)
Depreciation (19,637) (45,266)
Impairment charge (44,964) (204,987)
Disposals 58 21
-------- --------
Closing balance (476,597) (412,054)
-------- --------
Net carrying value 100,638 86,175
======== ========
MINE DEVELOPMENT
Cost
Opening balance 188,304 -
Acquired through the purchase of subsidiary - 176,083
Additions 14,914 12,221
Disposals (684) -
-------- --------
Closing balance 202,534 188,304
======== ========
Accumulated depreciation
Opening balance (187,924) -
Depreciation (1,760) (18,204)
Impairment charge (12,569) (169,720)
Disposals - -
-------- --------
Closing balance (202,253) (187,924)
-------- --------
Net carrying value 281 380
======== ========
16
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
5. MINING ASSETS (continued)
2004 2003
R'000 R'000
PLANT AND MACHINERY
Cost
Opening balance 303,397 251,542
Acquired through the purchase of subsidiary - 735
Additions 64,244 51,156
Disposals - (36)
-------- --------
Closing balance 367,641 303,397
======== ========
Accumulated depreciation
Opening balance (220,136) (158,481)
Depreciation (17,092) (26,388)
Impairment charge (32,244) (35,267)
Disposals - -
-------- --------
Closing balance (269,472) (220,136)
-------- --------
Net carrying value 98,169 83,261
======== ========
EQUIPMENT AND VEHICLES
Cost
Opening balance 6,528 3,564
Acquired through purchase of subsidiary - 3,044
Additions 674 -
Disposals (142) (80)
-------- --------
Closing balance 7,060 6,528
======== ========
Accumulated depreciation
Opening balance (3,994) (3,341)
Depreciation (785) (674)
Impairment charge (151) -
Disposals 58 21
-------- --------
Closing balance (4,872) (3,994)
-------- --------
Net carrying value 2,188 2,534
======== ========
17
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
2004 2003
R'000 R'000
6. INVESTMENTS
Investments in unlisted mining companies
at fair value and directors' valuation 2,010 2,001
Investment in environmental rehabilitation trust funds
Opening balance 5,439 4,695
Growth in environmental rehabilitation trust fund 518 767
Rehabilitation payments from funds (30) (23)
------- -------
Closing balance 5,927 5,439
======= =======
Total 7,937 7,440
======= =======
7. INVENTORIES
Gold-in-process 6,159 5,793
Consumables and engineering spares 12,377 13,569
------- -------
18,536 19,362
======= =======
8. SHARE CAPITAL
Authorised:
4,000 ordinary shares of R1 each 4 4
------- -------
Issued:
100 ordinary shares of R1 each - * - *
------- -------
Until the forthcoming annual general meeting the directors have the power
to issue the unissued shares on such terms and conditions as they may
determine, subject to Section 222 of the Companies Act.
* Less than R1,000
18
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
2004 2003
R'000 R'000
9. SHAREHOLDERS' LOANS
Secured
Durban Roodepoort Deep, Limited a. 49,603 49,603
Durban Roodepoort Deep, Limited b. 13,359 12,281
Durban Roodepoort Deep, Limited c. 36,667 24,000
Durban Roodepoort Deep, Limited d. 34,209 495
Durban Roodepoort Deep, Limited e. 16,000 -
The loans are secured by a general
notarial bond over assets of the Group.
Unsecured
Crown Consolidated Gold
Recoveries Limited f. 74,232 74,232
Crown Consolidated Gold
Recoveries Limited g. 23,246 23,246
Durban Roodepoort Deep, Limited h. 3,860 22,760
Khumo Bathong Holdings (Pty) Ltd i. 114,556 114,556
Khumo Bathong Holdings (Pty) Ltd j. 74 599
======== ========
Gross shareholders' loans 365,806 321,772
Less: current liabilities (3,934) (23,359)
-------- --------
Net long-term portion of
shareholders' loans 361,872 298,413
======== ========
a. The loan bears interest at the publicly quoted basic rate of
interest per annum at which the Standard Bank of South Africa
Limited lends on overdraft to its first class corporate borrowers.
Interest is calculated monthly in arrear. The loan is repayable
within 84 months on demand. The lender has agreed to an indefinite
suspension of all payments of principal and interest.
b. The loan bears interest at the publicly quoted basic rate of
interest per annum at which the Standard Bank of South Africa
Limited lends on overdraft to its first class corporate borrowers.
Interest is calculated monthly in arrear. The loan is repayable on
demand. The lender has agreed to an indefinite suspension of all
payments of principal and interest.
c. The loan bears interest at the publicly quoted basic rate of
interest per annum at which the Standard Bank of South Africa
Limited lends on overdraft to its first class corporate borrowers.
Interest is calculated monthly in arrear. The loan is repayable in
equal portions over 60 months, commencing in January 2004. The
lender has agreed to an indefinite suspension of all payments of
principal and interest.
d. The loan has no fixed repayment terms. Interest is calculated at
prime less 0.5% overdraft rate. The lender has agreed to an
indefinite suspension of all payments of principal and interest.
e. The loan has no fixed repayment terms. Interest is calculated at
2.5% below prime overdraft rate. The lender has agreed to an
indefinite suspension of all payments of principal and interest.
19
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
9. SHAREHOLDERS' LOANS (continued)
f. The loan bears interest at the publicly quoted basic rate of
interest per annum at which the Standard Bank of South Africa
Limited lends on overdraft to its first class corporate borrowers.
Interest is calculated monthly in arrear. The loan is repayable
within 84 months on demand. The lender has agreed to an
indefinite suspension of all payments of principal and interest.
g. The loan is interest free and repayable on demand. The lender has
agreed to an indefinite suspension of all payments of principal and
interest.
h. The loan is interest free and repayable on demand.
i. The loan bears interest at the publicly quoted basic rate of
interest per annum at which the Standard Bank of South Africa
Limited lends on overdraft to its first class corporate borrowers.
Interest is calculated monthly in arrear. The loan is repayable
within 84 months on demand. The lender has agreed to an indefinite
suspension of all payments of principal and interest.
j. The loan is interest free and repayable on demand.
2004 2003
R'000 R'000
10. LONG-TERM LIABILITIES
Secured
Industrial Development Corporation
of South Africa Limited a. 55,000 40,687
Industrial Development Corporation
of South Africa Limited b. 75,306 25,580
------- ------
130,306 66,267
======= ======
a. The loan bears interest at the prime overdraft rate. Interest is
calculated monthly in arrear. The lender has agreed to an indefinite
suspension of all payments of principal and interest.
b. The loan bears interest at 0.5% below the prime overdraft rate.
Interest is calculated on the balance of the capital outstanding
from day to day and is payable monthly in arrears on the last day of
every successive month. The lender has agreed to an indefinite
suspension of all payments of principal and interest.
The loans are secured by a general notarial bond over assets of the
Group.
20
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
11. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLANS
The Group participates in a number of industry-based retirement plans for
the benefit of its employees. Certain employees participate in the
Sentinel Mining Industry Retirement Fund, a defined contribution fund.
Other employees participate in the Crown Employee Benefit Plan and the
Mineworkers' Provident Fund, both of which are defined contribution plans.
All funds are independently managed and governed by the South African
Pension Funds Act, 1965.
Skilled workers participate in multi-employer plans, which pay certain
medical costs. Employer contributions are determined on an annual basis by
the funds. Qualifying dependants receive the same benefits as active
employees other than as discussed below. The Group has no legal obligation
to retirees and their qualifying dependants for any contributions towards
these medical funds.
PROVISION FOR POST-RETIREMENT MEDICAL BENEFITS
The Group has an obligation to fund a portion of the medical aid
contributions of its employees after they have retired. A provision for
post-retirement medical benefits amounting to R9.6 million (2003:R5.5
million) has been raised in the balance sheet based on the latest
calculations of independent actuaries performed as at January 1, 2003.
Post-retirement medical benefits are actuarially valued every three years.
2004 2003
R'000 R'000
12 PROVISION FOR ENVIRONMENTAL REHABILITATION
Analysis of rehabilitation provision:
Opening balance 58,415 42,457
Charge to the income statement 28,094 15,958
------ ------
Closing balance 86,509 58,415
====== ======
The provision for rehabilitation comprises:
Provision for decommissioning 48,318 49,240
Provision for restoration 38,191 9,175
------ ------
Amounts provided for in the balance sheet 86,509 58,415
====== ======
The Group's estimated cost of closure is reviewed annually and the
directors are satisfied that adequate provision is made to meet future
obligations. Ongoing rehabilitation expenditure is included in working
costs.
21
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
13. LEAVE PAY PROVISION
AMOUNTS INCURRED
ADDITIONAL AND CHARGED TO
OPENING BALANCE PROVISION MADE PROVISION CLOSING BALANCE
R'000 R'000 R'000 R'000
Leave pay provision 6,420 6,192 - 12,612
===== ===== ===== ======
2004 2003
R'000 R'000
14. COMMITMENTS
Capital expenditure
Capital expenditure approved but not yet
contracted for 2 103,290
======= =======
This expenditure will be financed from
available cash resources and
banking facilities.
15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In the normal course of its operations the Group is exposed to credit,
foreign currency, commodity price, interest rate and liquidity risk.
15.1 Concentration of risk
The Group's financial instruments do not represent a concentration of
credit risk because the Group deals with major banks and a reputable
refinery, and its debtors and loans are regularly monitored. An adequate
level of provision is maintained where necessary.
Because of the international market for gold, the Group believes that no
concentration of credit risk exists with respect to the selected refinery,
which refines and sells gold on behalf of the Group.
22
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
15.2 Foreign currency and commodity price risk
Generally, the Group does not hedge its exposure to gold price fluctuation
risk and sells at market spot prices.
The Group sells its gold in US Dollars. As a result, the Group is subject
to transaction exposure from fluctuations in the foreign currency exchange
rates. It is the Group's current policy not to hedge foreign currency
exchange rate risk. The Group is not subject to any other foreign currency
exposure.
15.3 Interest rates and liquidity risk
Fluctuations in interest rates impact on the value of short-term cash
investments and financing activities, giving rise to interest rate risk.
In the ordinary course of business, the Group receives cash from its
operations, and shareholders where necessary, and it is required to fund
working capital and capital expenditure requirements. This cash is managed
to ensure surplus funds are invested to achieve maximum returns while
minimizing risks.
15.4 Fair value
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 liquidation sale.
The carrying amounts of investments, accounts receivable, cash and cash
equivalents, bank overdraft and accounts payable and accrued liabilities
are reasonable estimates of their fair values because of the short-term
maturity of such investments. Fair values for the long-term liabilities
and shareholders' loans are not determinable as the lenders have agreed to
an indefinite suspension of all payments of principal and interest. These
loans are carried at amortized cost.
16. DERIVATIVE INSTRUMENTS
The Group has entered into hedging transactions which mature in the year
ended 30 June 2005. The transactions consists of forward gold sales of
1700 ounces per month until February 2005 at an average strike price of
US$376. As at June 30, 2004, the fair value of the instrument was a
liability of R2 million. This instrument is not recognized on the balance
sheet, as it is a regular way purchase or sale agreement.
23
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003(continued)
17. RELATED PARTY TRANSACTIONS
The Group has related party relationships with its shareholders, directors
and senior management. Related party transactions are at arm's length.
MATERIAL RELATED PARTY TRANSACTIONS
2004 2003
INTEREST MANAGEMENT Interest Management
PAYABLE FEES PAID TOTAL payable fees paid Total
R'000 R'000 R'000 R'000 R'000 R'000
Crown
Consolidated
Gold
Recoveries
Limited 9,319 - 9,319 12,499 - 12,499
Durban
Roodepoort
Deep, Limited 15,717 21,087 36,804 16,515 22,026 38,541
Khumo Bathong
Holdings
Limited 14,379 2,880 17,259 18,843 3,600 22,443
------ ------ ------ ------ ------ ------
39,415 23,967 63,382 47,857 25,626 73,483
------ ------ ------ ------ ------ ------
Shareholders' loans are disclosed in note 9.
DR. M.P. NCHOLO FUNERAL ASSISTANCE
During 2004, financial assistance was provided by ERPM to the family of
Dr. M.P. Ncholo, a director, with regards to funeral expenses relating to
the death of a family member who was a temporary employee of ERPM. This
assistance amounted to R90,447 and was still outstanding at year end.
18. NATURE OF BUSINESS AND HOLDING COMPANY
The Company was incorporated in the Republic of South Africa on September
7, 1988, and operates a gold mine and surface retreatment plants in South
Africa. On July 1, 2002, Crown Consolidated Gold Recoveries Limited
("CCGR") a wholly-owned subsidiary of Durban Roodepoort Deep, Limited
("DRD") sold 60% of Crown Gold Recoveries (Pty) Limited ("CGR") in a black
economic empowerment deal to Khumo Bathong Holdings (Pty) Ltd ("KBH"). KBH
is the controlling shareholder (60%) and DRD the minority shareholder
(40%), through its wholly-owned subsidiary CCGR. The Company is managed by
its directors on behalf of its shareholders. In October 2002, CGR acquired
the East Rand Proprietary Mines Limited ("ERPM") for R100 million.
The Group comprises CGR and its subsidiaries.
The Company's registered address is:
45 Empire Road
Parktown
Johannesburg, 2193
South Africa
24
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
19. GOING CONCERN
The Group incurred significant losses during the year ended June 30, 2004,
and continued to incur losses after year end. At year end the Group's
current liabilities exceeded their current assets and their total
liabilities exceeded their total assets. These facts give rise to
significant doubt as to the Group's ability to realize its assets and to
settle its obligations in the normal course of business.
ERPM has undergone extensive restructuring subsequent to year end. The
outcome of the restructuring programme was for ERPM's underground
operations to be placed on a controlled closure programme, which was
originally scheduled to be completed in March 2005. Following the
retrenchment of 806 employees in August 2004, the mine has achieved a
significant reduction in costs, coupled with improved productivity. As a
result ERPM has reported a net profit for the months of September and
October 2004, and the original planned closure of the underground section
has been postponed. After discussions with the relevant Government
agencies, ERPM has also been awarded a state pumping subsidy of R1 million
per month from April 1, 2004, to March 31, 2005, plus an additional R7
million as a first phase to install eight high pressure concrete plugs to
isolate the Far East Vertical and South East Vertical shafts. Government
will be assessing the pumping subsidy on a year by year basis and the
payment towards the plugs at the end of each phase of the work. The
installation of the plugs will be in three phases, commencing December
2004, and is planned to be completed by August 2008.
CGR has continued to make net losses subsequent to year end.
On the basis that the pumping subsidy remains in place, Government assists
with providing funds for the eight plugs to be installed, the
capitalization of interest on debt and shareholders' loans continues and
the support of shareholders and creditors continues, the forecast cash
flows indicate that the Group will be able to meet their obligations as
they fall due. The going concern basis has therefore been applied in
preparing the financial statements.
20. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA
(US GAAP)
The financial statements have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice (SA GAAP). SA
GAAP differs, in certain respects, from US GAAP. The following is a
summary description of these differences:
20.1 Impairment of assets
Under SA GAAP, mining assets are evaluated for impairment based on the
latest available information. For US GAAP purposes, in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for Impairment of Disposal of Long-Lived Assets, only
impairment indicators in existence at the balance sheet date, are
considered. Accordingly, there is a timing difference of when impairments
are recorded under SA GAAP and US GAAP.
20.2 Post-retirement medical benefits
Under SA GAAP, only the contractual liability for post-retirement medical
benefits is accounted for. Under US GAAP these benefits are accounted in
accordance with the provisions of SFAS No. 106, Employer's Accounting for
Post Retirement Benefits Other Than Pensions, which states that both the
contractual liability and the liability in excess of contributions made by
plan members are accounted for. The result is therefore an increased
liability under US GAAP.
20.3 By-product revenue
Under SA GAAP, revenue includes by-product revenue which is an amount
generated from the sale of silver (refer to note 2 to the financial
statements). Under US GAAP, by-product revenue is excluded from the
revenue amount and is offset against production costs.
25
CROWN GOLD RECOVERIES (PROPRIETARY) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended June 30, 2004 and 2003 (continued)
20. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA
(US GAAP) (continued)
20.4 Other Comprehensive Income
Under SA GAAP, unrealized gains or losses on investments are included in
earnings for the year. Under US GAAP, SFAS No. 130, Comprehensive Income,
unrealized gains or losses are included as other comprehensive income in
the Statement of Stockholders' Equity.
20.5 Bank overdraft
Under SA GAAP, the bank overdraft balance is offset against cash and cash
equivalents in the cash flow statement. Under US GAAP, SFAS No. 95,
Statement of Cash Flows, the movement in the bank overdraft balance is
disclosed under net cash generated in financing activities in the
statement of cash flows.
26