CGA Mining - Management's Discussion and Analysis and 30 September 2011 Interim Unaudited Financial Statements

ABN: 88 009 153 128

PERTH, Western Australia, Nov. 11, 2011 /CNW/ -

Management's Discussion and Analysis

The Management's Discussion and Analysis ("MD&A") provides an analysis to enable readers to assess material changes in financial condition and results of operations for the 3 month period ended September 30, 2011. This MD&A, prepared as of November 7, 2011 is intended to complement and supplement our Interim Financial Statements. It should be read in conjunction with the MD&A for the period ended June 30, 2011, our Interim Financial Statements for the period ended September 30, 2011 and our Annual Information Form for 30 June 2011. Our financial statements and this MD&A are intended to provide investors with a reasonable basis for assessing our results of operation and our financial performance.

Our Interim Financial Statements are prepared in accordance with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards ("IFRS"). All dollar amounts contained in this MD&A are expressed in US dollars, unless otherwise specified.

Where we say "we", "us", "our", the "Company" or "CGA", we mean CGA Mining Limited and/or one or more of all of its subsidiaries, as it may apply.

Background and Review of Operations

CGA is incorporated and domiciled in Australia.  The Company has been listed on the Australian Stock Exchange ("ASX") since April 1991 and on the Toronto Stock Exchange ("TSX") since February 2005.

During the 2007 year, the Company entered into agreements to acquire interests in the Masbate Gold Project in the Philippines, the Mkushi Copper Project in Zambia, and the Segilola Gold Project in Nigeria.

The Company executed a joint venture agreement on May 30, 2007 between Seringa Mining Limited ("SML"), a then wholly owned subsidiary of the Company, African Eagle Resources plc ("AFE") and Katanga Resources Limited ("Katanga"), a wholly owned subsidiary of AFE whereby CGA acquired a 51% interest in the Mkushi Copper Project in Zambia, with AFE retaining a 49% interest.

On May 27, 2007, the Company through its then wholly owned subsidiary, Segilola Gold Limited ("SGL"), entered into a joint venture agreement ("the JV Agreement") with Tropical Mines Limited ("TML"), to earn a 51% interest in the Segilola Gold Project in Nigeria, considered to be the most advanced gold exploration project in the country.  TML is a Nigerian company owned in joint venture by local investors and the Government.

On January 31, 2007, the Company entered into a Sale and Purchase Agreement ("SPA") for the acquisition of 100% of Thistle Mining Inc's interest in the Masbate Gold Project located in the Republic of the Philippines. The agreed purchase consideration was $51M, and the transaction was completed on March 19, 2007 through an issue of 40,985,538 shares and cash payments of $25M.

During the 2008 financial year, the Company's activities were focused on the Masbate Gold Project development in the Philippines. During the December 2007 quarter, the Company secured the necessary equity funding to enable a commitment to development of the Masbate Gold Project and construction was commenced. A private placement of 48,200,000 ordinary shares in the capital of the Company and 25,000 units, for a total capital raising of approximately $65M was closed on November 22, 2007.  Each unit comprised of one 12% senior unsecured promissory note with a par value of US$1,000 issued by CGA Financing Holding Company B.V., a wholly owned subsidiary of the Company, and 250 transferable share purchase warrants issued by the Company.

The Company completed an additional private placement on June 12, 2008, of 21,212,000 ordinary shares in the capital of the Company. The shares were sold at C$1.65 per share, raising C$35M. The proceeds, in combination with existing cash reserves, an $80.3M senior debt facility arranged by BNP Paribas (discussed below), and the $10M loan facility with Meridian Capital CIS Fund ("Meridian") and Casten Holdings Limited ("Casten") drawn down during the 2009 year, were used to fund construction of the Masbate Gold Mine in the Philippines, including the construction of a power plant. Both private placements made during the 2008 fiscal year were marketed on a best efforts basis by way of a brokered private placement with Haywood Securities Inc. as agent.

On May 26, 2008, the Company announced that the $80.3M project finance facility documentation had been signed with BNP Paribas and Standard Chartered Bank. Subsequently, two additional banks joined the syndicate, West LB and DZ Bank who are now also parties to the facility documentation. The funds available under the BNP Paribas arranged facility were applied to the development of the Masbate Gold Project in the Philippines with repayment over a 4.5 year term to 31 December 2013.

The Company completed a private placement, which closed on February 9, 2009, of 20M ordinary shares in the capital of the Company at C$1.25 per share for a total capital raising of C$25M. On June 12, 2009, the Company closed an additional private placement of 14,815,000 ordinary shares in the capital of the Company. The shares were sold at C$1.35 per share, raising C$20,000,250. The proceeds, in combination with existing cash reserves, were utilised to supplement working capital during the initial months of production at the Masbate Gold Mine.

During the 2009 year, the Company's focus continued to be the development and commissioning of the Masbate Gold Project with the construction of the processing plant completed in the 2009 March quarter and the power plant in the 2009 June quarter. The Masbate Gold Project achieved its first gold pour on 12 May 2009. Prior to commencement of commercial production, most costs were capitalised as development costs.

On October 30, 2009 the Company completed a private placement of 14,705,000 ordinary shares in the capital of the Company at C$1.70 per share for a total capital raising of C$24,998,500.  The net proceeds, after costs of the issue, in combination with existing cash reserves, were utilised to fund further enhancements in the plant and exploration activities at the Masbate Gold Mine.

A further private placement was completed on February 5, 2010 on a bought deal basis, of 39.1M ordinary shares in the capital of the Company at C$2.20 per share for total gross proceeds of C$86M. The net proceeds from the sale of the shares were used to repay indebtedness, including the early repayment of the loan facility with Meridian and Casten, the $25M Senior Promissory Notes, to increase exploration activity at the Masbate Gold Project and for general corporate purposes.

During the June 2010 quarter, the Company entered into a strategic alliance with Sierra Mining Limited ("Sierra"), which holds prospective gold exploration interests in the Philippines. Projects include the property immediately adjacent to Medusa Mining Limited's (TSX:MLL) rich Co-0 gold mine (December 2010 quarter - average grade 13.09g/t and cash costs of $185/oz) and other properties to the south of the King-king gold and copper deposit. This will leverage CGA's exploration expenditure and further capitalise on the success to date in the Philippines.  In November 2010, the Company purchased a further 4M shares in Sierra, increasing its holding at 31 March 2011, to 19.7M shares or approximately 9.5%.

In 2010, the Company incorporated a new entity, Ratel Gold Limited ("Ratel") now called St Augustine Gold and Copper Limited ("SAU") which acquired the Company's African assets. During the June 2010 quarter, the Company announced a proposed spin-off of Ratel from the Company, with Ratel undertaking an initial public offering of common shares (the "Offering") in Ratel. The Offering closed successfully on 6 August 2010, with Ratel issuing 70M common shares at a price of C$0.20 per common share, for aggregate gross proceeds of C$14M.  The Offering, along with a subsequent issue of 2.5M shares by Ratel, diluted the Company's holding in Ratel to 19.4%. Accordingly the African assets, being the Segilola Gold Project and the Mkushi Copper Project, are no longer controlled by the Company or consolidated into its financial statements.

In October 2010 the Company entered into a strategic alliance with Ratel  (now called SAU) in connection with Ratel's agreement to acquire the interests held by Russell Mining & Minerals, Inc. and their subsidiaries (the "RMMI Group"), in the 20.7M equivalent gold ounce King-king Copper-Gold Project in the Philippines ('the King-king Interests"). As part of the acquisition, the Company agreed to provide a loan facility to the RMMI Group to fund the initial settlement payments to Benguet Corporation ("Benguet") and debt holders of Benguet, together with working capital, which was fully secured against the King-king Interests. The total amount loaned was $14,489,202, which was fully repaid to the Company on 7 January 2011, along with interest of $336,705. The acquisition was conditional on the successful completion of a C$25M capital raising at C$0.30 ('the Ratel Placement") per share and securing all necessary shareholder and TSX approval for the acquisition, share issue to the RMMI Group and the Ratel Placement. The Company subscribed for a total of 50M additional shares in the Ratel Placement, increasing its interest in Ratel Gold Limited (now called SAU) to its current interest of 23%. The Ratel Placement along with the acquisition of the King-king interests was successfully closed on 7 January 2011.

With the closure of the Ratel Placement, Ratel (now called SAU) completed a spin-off of its existing African assets, by way of an entitlement issue back to shareholders of shares in Ratel Group Limited ("Ratel Group"), a TSX-listed company trading under the symbol "RTG". Under the terms of the reorganization, the Company was issued a further 9,722,222 Ratel Group shares. The Company also participated in a capital raising of Ratel Group, taking up 19M shares at C$0.10 each. As a result the Company now holds a 19.1% interest in Ratel Group.

Operations at the Masbate Gold Project progressed well through the 2010-11 year. Mill throughput continued to improve with a ninth consecutive quarterly record set in the June 2011 quarter. Total tonnes milled for the 2011 financial year was 6,152,561 tonnes. The commissioning of a fourth mining fleet during the June 2011 quarter will support further throughput improvements as the Company finalises the 6.5Mtpa plant upgrade.  The commissioning of the supplementary crusher occurred during September 2011. Work on the comprehensive scoping study to lift production rates to 10Mtpa is also well advanced and continues to track well. The initial mine scheduling shows that mining can match the higher throughput with the new larger equipment and that the expansion can be supported, independent of exploration success. Sedgman WA has finalised the study to identify equipment requirements and capital costs. The study is showing that an expansion of the crushing and grinding circuits can be achieved without interference to the existing operation and the final tie into the plant can occur with minimal down time.

During June 2011, the Company successfully achieved Project Completion for the project finance facility for the Masbate Gold Project.  Having now satisfied Project Completion, the following additional benefits apply to the facility:

  • the margin has reduced from LIBOR plus 3.65% to LIBOR plus 3.15%;
  • any guarantees from CGA have been released and the project is non-recourse to CGA;
  • the Project will be able to flow all excess funds (above and beyond the Debt Service Reserve Account) to any other entity within the CGA group, with any payment out of the security structure to be applied as to 25% to a further prepayment of the principal outstanding under the facility, subject to the satisfaction of normal financial ratios.

On 10 July 2011, cracks were detected in the SAG mill at the Masbate Gold Project. The SAG mill was shut down to be repaired, although interim production was re-established on 21 July 2011 with a reconfiguration of the grinding circuit and ore now being fed directly into the ball mills. Production rates were steadily increased as the revised circuit was bedded down and the supplementary crushing circuit was ramped up. Repairs to the SAG mill are well advanced with METSO Australia providing technical guidance and site supervision. Specialist welding supervision was provided by Metalock from USA under METSO. All cracks have been identified through ultrasonic and magnetic particle testing and welding on the shell including the addition of strengthening gussets to the feed and discharge ends as recommended by METSO is continuing. The alignment work on the trunnion, pinions and girth gear is required before restarting the mill and resuming full production in the December quarter.  The Company has an insurance policy for both repairs and loss of profits, subject to the normal deductibles and exclusion clauses.

On 20 September 2011, the supplementary crusher came online and at the end of the quarter the throughput rates were at approximately 500tp/h. The commissioning of the supplementary crusher is expected to increase the throughput capacity to 11,000-12,000t/day once fully operational.

During the September 2011 quarter, the Company announced that it has agreed to acquire 100% of the interests of Bloomsbury Holdings Limited in the companies owning a direct and indirect interest in the highly prospective Pajo MPSA, immediately to the north of our Colorado Pit. On 7 November 2011, the Company completed the purchase of the interests held by Bloomsbury Holdings Limited. Exploration activities have already commenced on the MPSA with the first hole drilled, returning  85m @ 0.85g/t Au including 14m @ 1.26g/t Au from surface. The assays were conducted by SGS at their onsite laboratory using Fire Assay techniques with a 50g charge. The Pajo MPSA is part of an expansion of the exploration program over the next 12 months which will include additional diamond core and RC rigs being brought to site.

A drill hole proposal was also designed for Pajo South totalling 28 holes for 2,850m. This area is 300 - 400m due east of Colorado and Grand View Pits and is suspected to host a parallel structure to the Colorado deposit. Proposals for an additional twenty holes totalling 3,000m have been done for Pajo Hill Prospect and drilling will commence when drill pads are completed.

During the 2011-12 year, the Company plans to extend its exploration program, with a focus on materially enhancing the reserve and resource base of the project. This exploration program is well underway with $8.123M spent as at 30 June 2011, and a further $20M expenditure planned in the coming year. During the September quarter $2.808M was spent on exploration activities, with a further $4.471M planned to be spent during the December 2011 quarter. The expansion of the exploration program over the next 12 months will include additional diamond core and RC rigs being brought to site.

The business of the Company and its shares should be considered speculative given the volatility in world stock markets (particularly with respect to mining and exploration companies) and the uncertain nature of mining and exploration activities generally.  Amongst other things, some of the key risk factors faced by CGA include:

  • foreign exchange movements;

  • movements in commodity prices (in particular the gold price and costs of production);

  • access to new capital (both debt and equity) and meeting liquidity requirements;

  • meeting forecast operating parameters, including grade, operating costs, throughput and reliability of mechanical components;

  • the uncertain nature of exploration and development activities;

  • commissioning risks in new development projects including the use of second hand equipment;

  • satisfying banking requirements and covenants;

  • increases in capital expenditures necessary to advance the Company's projects;

  • the ability to profitably exploit new development projects;

  • political, security and sovereign risks of the Philippines;

  • permitting, local community and small scale miners support;

  • environmental obligations; and

  • weather conditions.

For further information on these and other risks inherent in the Company's business, we direct readers to Section 9 of this MD&A and the Company's Annual Information Form ("AIF") for the most recently completed financial year lodged on SEDAR at www.sedar.com.

1. Financial and Operating Highlights
(In thousands of dollars, except amounts per ounce, per tonne and per share)

  Three-month period ended
  September 30, 2011 June 30,
2011
Gold ounces produced  14,935 46,281
Gold ounces sold 16,615 53,714
Proceeds - Gold and silver sales 16,287 72,857
Masbate Project operating gross profit/(loss)¹ (7,690) 28,575
Consolidated Group net profit/(loss) ² (11,935) 18,800
Basic earnings per share (3.58) 5.65
Diluted earnings per share (3.52) 5.55
Group net revenue ³ 17,048 73,625
Masbate Project cash flow from operating activities 4 (3,184) 35,152
Masbate Project operating cash flow per share 4 (0.95) 10.56
Average realized gold price (per ounce) 960 1,332
Cash operating cost (per ounce sold) 4 1,167 699
Adjusted cash operating cost (per tonne processed) 4 37.08 20.45

1 The Masbate Project operating gross profit shows a combination of the operating results of our subsidiary, Phil. Gold Processing and Refining Corp. ("PGPRC") and our associate, Filminera Resources Corporation ("FRC"), excluding financing costs, fair value movements on derivative instruments and foreign exchange movements.
2 Group net profit or loss represents the consolidated group and accordingly includes amounts that may not be related to the Masbate Gold Project, does not consolidate FRC and includes the margin on ore sales between PGPRC and FRC.
3 Group net revenue adjusts revenue from the sale of gold and silver for refining / selling costs, interest income and notional interest accretion.
4 Masbate Project cashflow from operating activities and adjusted cash operating cost per ounce reflects a combination of the operating results of PGPRC and FRC and excludes changes in working capital items, and adjusts for gold inventory and stockpile movements, capital expenditure, all taxes, royalties and corporate costs.

2. Consolidated Results
(In thousands of dollars, except amounts per ounce, per tonne and per share)

Profit and Loss

  Three-month period ended
  September 30,
2011
June 30,
2011
Variation
Revenues 17,048 73,625 (56,577)
Group net profit/(loss) (11,935) 18,800 (30,841)
Depreciation and amortisation¹ 1,953 3,647 (1,694)
Interest 729 932 (203)
Basic earnings per share (continuing
operations)
(3.58) 5.65 (9.26)

¹ Depreciation and amortisation reflects the accounting expense booked by the consolidated group so excludes depreciation and amortisation expensed by FRC.

The consolidated profit and loss results reflect the consolidated CGA group results and accordingly include a consolidation of PGPRC and do not consolidate the results of FRC.  On this basis, it includes the margin paid by PGPRC to FRC for the acquisition of ore, and some of the costs of FRC such as taxes paid, depreciation and other costs which are on charged to PGPRC as included in the mining fee. For the comparison of the quarter and year to date to the previous quarter and periods, please refer to Section 10 of this MD&A.

Consolidated Cash Flows from Operating Activities
(In thousands of dollars)

  Three-month period ended
  September 30,
2011
June 30,
2011
Reconciliation of net loss after tax to net cash flows from
operations
   
Net profit/(loss)after related income tax (11,935) 18,800
Adjustment for non-cash income and expense items:    
Depreciation and amortisation 1,953 3,647
Gain on deconsolidation - 2,929
Unrealised foreign exchange (gain)/loss (19) 539
Share-based payments 460 460
Movement in fair value of Warrants - -
Share of loss of associate 949 1,018
Interest income on receivable from associate (728) (652)
Borrowing costs 962 1,818
Movement in fair value of derivatives 471 535
Other - (1)
     
Changes in assets and liabilities:    
Change in working capital (5,816) 8,236
     
Net cash inflow/(outflow) from operating activities (13,703) 37,329

Consolidated cash flows from operations reflect the consolidated CGA group results and accordingly include a consolidation of PGPRC and do not consolidate the results of FRC.  On this basis, it includes the margin paid by PGPRC to FRC for the acquisition of ore, and some of the costs of FRC such as taxes paid, depreciation and other costs which are on charged to PGPRC as included in the mining fee. These cash flows also reflect the operating cash flows of the corporate entities within the group, which include activities not directly related to the Masbate Gold Project.

Cash flows from operating activities were a net outflow of $13.703M for the quarter ended 30 September 2011 (30 June 2011 net inflow of $37.329M). The decrease from the prior period is largely due to the decreased gold sales resulting from the reduced processing capacity of the mill.  Mill throughput was reduced as a result of the SAG Mill breakdown with 566,938 tonnes milled for the September quarter, as compared to 1,601,739 tonnes for the previous quarter, producing 14,935 ounces of gold (June quarter: 46,621 ounces of gold), a decrease of 69%. Sales of gold at spot prices have been minimal, due to reduced production levels, resulting in an average gold sales price of $960 for September, compared to $1,332 for June, with 14,482 oz of gold sales relating to hedge sales. Operating cash outflows have decreased as a result of the reduced mining operations and operating capacity of the SAG Mill, although fixed costs have remained constant.  Repair work has been undertaken on the SAG mill during the quarter, and normal production is expected to resume in the December quarter.

3. Mining Operations
(In thousands of dollars, except amounts per ounce, per tonne and per share)

Masbate Gold Project Three-month period ended
Operating Data September 30,
2011
June 30,
2011
Variance
Ore mined (tonnes) 0.50M 1.76M (1.26)
Ore processed (tonnes) 0.57M 1.60M (1.03)
Head grade (g/t) (processed) 0.92 1.06 (0.14)
Recovery (%) 89.3% 86.3% 3.0%
Gold ounces produced 14,935 46,261 (31,326)
Gold ounces sold 16,615 53,714 (37,099)
       
Financial Data
(in thousands of dollars)
     
Revenues - Gold and silver
sales
16,287 72,941 (56,654)
Masbate Project cash
operating costs
19,386 37,564 (18,178)
Excise tax¹ 1,553 1,139 414
Depreciation and amortisation 2,544 5,326 (2,782)
Corporate / Makati
administration
622 781 (159)
Interest² 821 941 (120)
Masbate Project gross
profit/(loss)
(7,690) 28,575 (36,265)
Masbate Project net
profit/(loss)
(9,110) 23,561 (32,671)
Masbate Project cashflow
from operating activities³
(3,184) 35,152 (38,336)
Mining fleet capital payments 1,082 1,424 (342)
Total capital expenditure 8,185 9,830 (1,645)
Deferred mining expenditure - - -
Tax related payments 4 1,814 3,451 (1,637)

Masbate Gold Project Three-month period ended
Statistics ($) September 30,
2011
June 30,
2011
Variance
Average realized price (per
ounce)
960 1,332 (372)
Cash operating cost (per
ounce sold) 2
1,167 699 468
Adjusted cash operating cost
(per tonne processed) 2
37.08 20.45 16.63

1 Excise tax reflects tax paid rather than tax accrued for as there are quarterly payments that cross over accounting periods. 
2 Interest expense includes interest payments in relation to the BNP finance facility and the finance lease held by PGPRC for the Masbate project mine equipment.
3 Masbate Project cashflow from operating activities and adjusted cash operating cost per ounce reflects a combination of the operating results of PGPRC and FRC and excludes changes in working capital items, and adjusts for gold inventory and stockpile movements, capital expenditure, all taxes, royalties and corporate costs. 
4 Taxes includes the VAT payments which are in part recoverable, and accordingly capitalised and not recognised in the net income figures, and other local taxes but excludes excise tax.

Masbate Operations

The financial and operating results set out above for the Masbate Gold Project are not based on the consolidated group financial statements as FRC, the entity that mines the ore and sells it to PGPRC for processing is not consolidated. The specific purpose analysis set out above is done as an illustration of the operating results of the project if you were to combine the financial results of PGPRC and FRC as if it were a group.

Revenue from metal sales for the September quarter decreased by $56.654M or 78% from the previous quarter, a result of production being 68% lower in the September quarter as compared to the June quarter.  The decreased gold production resulted in limited gold sales at spot prices, with the majority of gold sales covering the hedge contracts, therefore reducing the average realised price of gold sold in the current quarter to $960/oz for the September quarter as compared to $1,332/oz for the June quarter. Mill throughput was reduced as a result of the SAG Mill breakdown. Mill throughput was 566,938 tonnes  (June quarter: 1,601,739 tonnes) to produce 14,935 ounces (June quarter: 46,621 ounces) of gold. Gold production decreased due to lower ore tonnes treated, although there was an improvement in the recovery rate of 89.3% (June quarter: 86.3%). The repairs to the SAG Mill are well under way, and the commissioning of the supplementary crusher has resulted in a further improvement in throughput.  Repairs are expected to be completed in the December quarter, which should see production return to previous levels.

Adjusted cash costs per tonne milled were $37.08/t compared to $20.45/t during the previous quarter, adjusted for waste deferral and ore stockpile valuation changes. Cash operating costs per ounce were up 67% to US$1,167/oz (US$699/oz in the June quarter) due to reduced throughput and the impact of fixed operating costs on the production cost/oz.

4. Consolidated Balance Sheet
(In thousands of dollars, except amounts per ounce, per tonne and per share)

      For the period ended
      September 30,
2011
        June 30,
2011
        Variation
Cash and cash equivalents1     83,220         107,336         (24,116)
Cash and liquid assets2     174,416         204,621         (30,205)
Current assets     111,292         134,714         (23,422)
Restricted cash1     9,000         9,000         -
Property, plant and equipment     191,615         191,355         260
Mining fleet finance lease     26,379         27,199         (820)
Investments and other assets     73,739         71,574         2,165
VAT receivable     20,109         19,533         576
                           
Total Assets     438,264         459,636         (21,372)
                           
BNP project finance facility     39,540         43,478         (3,938)
Derivative liabilities     91,286         87,253         4,033
Mining fleet finance lease     24,471         25,552         (1,081)
                           
Total Liabilities     171,638         176,536         (4,898)
                           
Shareholders' Equity     266,626         283,099         (16,473)

1 Cash and cash equivalents at 30 September 2011 include an amount of $9,000,000 (30 June 2011: $9,000,000) held with BNP Paribas in line with the requirements of project financing facility agreement which requires two quarters of principal and interest payments due on the facility to be held on deposit.
2 Cash and liquid assets includes cash and cash equivalents, held by the consolidated group, cash held by the consolidated group's associate, FRC, investments in listed securities valued as at the balance date, and gold on hand, valued at as at the balance date.

Total assets of the Company decreased during the period, mainly attributable to a decrease in the cash on hand balance by $24.116M. The decrease is related to the reduced gold sales during the period as a result of the disruption to the SAG Mill during the quarter. As at 30 September 2011, the Company had 6,204oz of gold on hand, with a market value of $10.1M (based on the market spot rate at 30 September 2011), however for accounting purposes this gold inventory is recorded at its cost value on the balance sheet and carried at $7.9M at the balance date. In addition, the Company has also repaid $3.938M in principal on the BNP finance facility during the current quarter, bringing the outstanding principal balance to $39.540M at 30 September 2011.

The VAT receivable reflects the payments made for VAT as at the balance date and represents an estimate of proceeds to be refunded or realised from a sale of those tax credits to other parties.

5. Derivative Financial Instruments

A hedging program of puts covering 46,079 ounces (which expired during the 2010 financial year) and forward sales covering 214,337 ounces was successfully executed during the September 2008 quarter. The effective portion of changes in the fair value of these derivatives that have been designated and qualify as cash flow hedges are recognised in equity in the cash flow hedge reserve. The gain or loss relating to the ineffective portion or portion that does not qualify for hedge accounting is immediately recognised in the income statement. If the forecast transaction is no longer expected to occur, amounts recognised in equity are transferred to the income statement. In March 2009, the Company subsequently executed further hedging comprising fuel hedges and interest rate swaps. The fuel hedges do not qualify for hedge accounting and all changes to the fair value of the fuel derivatives are recognised in the profit and loss. The gain or loss relating to the ineffective portion or portion that does not qualify for hedge accounting is immediately recognised in the income statement. If the forecast transaction is no longer expected to occur, amounts recognised in equity are transferred to the income statement.  The amount reflected in the group consolidated profit and loss for hedge related expenses is a loss of $0.471M for the quarter, which is the result of losses on its HFO and diesel fuel swap contracts of $0.634M and a gain of $0.163M on its interest rate swap which do not qualify for hedge accounting. The remaining balance of gold forward sales contracts as at 30 September, 2011 is 122,857 ounces at an average price of $889/oz.

Summary of gold forward sales contracts

Expiry Date       Settlement Date       Total Ounces       Average Price
(US$)
27 Oct 2011 - 28 Dec 2011       31 Oct 2011 - 31 Dec 2011       14,486       852.22
27 Jan 2012 - 31 Dec 2012       27 Jan 2012 - 31 Dec 2012       58,146       875.47
29 Jan 2013 - 27 Dec 2013       31 Jan 2013 - 31 Dec 2013       50,225       912.67

Summary of interest rate swap contract

Start Date       End Date       Total Loan Amount
(US$)
      Fixed interest rate
                         
30 Sep 2011       31 Dec 2011       19,800,000       2.41%
31 Dec 2011       31 Mar 2012       17,800,000       2.41%
31 Mar 2012       30 Jun 2012       15,700,000       2.41%
30 Jun 2012       30 Sep 2012       13,600,000       2.41%
30 Sep 2012       31 Dec 2012       5,710,000       2.41%
31 Dec 2012       31 Mar 2013       4,600,000       2.41%
31 Mar 2013       30 Jun 2013       3,500,000       2.41%
30 Jun 2013       30 Sep 2013       2,350,000       2.41%
30 Sep 2013       31 Dec 2013       1,200,000       2.41%

Summary of HFO fuel swap contracts

Expiry Date       Settlement Date       Total Barrels       Average Price
(US$)
1 Oct 2011 - 30 April 2012       1 Oct 2011 - 30 April 2012       19,936       57.48

Summary of diesel swap contracts

Expiry Date       Settlement Date       Total Barrels       Average Price
(US$)
1 October 2011 - 30 April
2012
      1 October 2011 - 30 April
2012
      6,615       78.63

6. Commitments and Contingencies

        Consolidated
 
 
      Sept 2011
US$
      June 2011
US$
                 
Operating lease commitments - Group as lessee                
Due within one year       61,786       167,184
After one year but no more than five years       -       -
Aggregate lease expenditure contracted for at balance date       61,786       167,184
Finance lease commitments - Group as lessee                
Due within one year       7,296,497       7,336,668
After one year but no more than five years       22,409,631       24,226,509
Aggregate lease expenditure contracted for at balance date       29,706,128       31,563,177
                 
Other Commitments                
(a) Mining services commitments       21,948,000       21,948,000
(b) Power services contract commitments       422,086       425,424
(c) Camp Management commitments       86,301       86,301
(d) Laboratory services commitments       205,431       205,431
(e) Other capital commitments       1,204,345       2,434,635

The Company is also party to a mining services contract between Leighton Contractors (Philippines) Limited and Filminera Resources Corporation which has been determined to contain a finance lease. Refer to Note 2(d)(ii) for further details. Under the Ore Purchase Agreement, PGPRC is contracted to purchasing ore from Filminera at cost plus a profit margin. The Company is also party to a contract for the operation of the power station at the Masbate Gold Project. The contract has a 3 month termination notice period. The camp management commitments relate to capital commitments for camp improvements. Laboratory services agreements relate to a 3 month termination notice period on the laboratory services contract.

BNP project finance debt facility       30 Sept 2011       30 June 2011
Due within one year       12,334,810       16,272,330
After one year but no more than five years       27,205,220       27,205,890
        39,540,030       43,478,220

  Payments due by period
Contractual Obligations  Total Less than
1 year
1 - 3 years 4 - 5 years After
5 years
Debt          
Finance Lease Obligations 29,706,128 7,296,497 17,984,931 4,424,700 -
Operating Leases 61,786 61,786 - - -
Purchase Obligations 23,866,163 23,866,163 - - -
Other Obligations - - - - -
Total Contractual Obligations 53,634,077 31,224,446 17,984,931 4,424,700 -

7. Liquidity and Capital Resources 

As at 30 September, 2011, the Company had cash and cash equivalents of $83.2M as compared to $107.3M at 30 June 2011, and $97.3M at 30 September 2010. Cash and liquid assets of the Company were $174.4M at 30 September 2011 (30 June, 2011: $204.6M). The decrease from the prior quarter is principally due to the decrease in gold production which has resulted in the current quarter's reduced metal sales, together with a decrease of $9.86M in the market value of listed investments. 

During the 2010 financial year the Company completed a private placement, issuing 39.1M ordinary shares at C$2.20 per share in February 2010, raising a total of C$111.02M. The net proceeds from this issue were used, amongst other things, to repay the $25M promissory notes and $10M loan facility from Meridian and Casten and were used to increase exploration activity at the Masbate Gold Project.

During the current quarter, the Company has repaid $3.9M in principal and $0.5M in interest on the financing facility with BNP Paribas, reducing the balance owing at 30 September 2011 to $39.5M.

The Company manages liquidity risk through cash reserves, credit facilities and equity capital raising to meet the operating requirements of the business, investing excess funds in highly liquid short term cash deposits. The Company's liquidity needs can likely be met through cash on hand and short and long-term borrowings, subject to current forecast operating parameters being met.

The Company currently has in place an active program of financial forecasting and budgeting both at a corporate and project level to manage both the application of funds and planning for future financial needs to ensure that any shortfall in revenue funds is adequately covered by cash reserves or planned new sources being either debt or equity based on the then most cost effective weighted average cost of capital.

Credit Risk represents the loss that would be recognised if counterparties failed to perform as contracted. The Group's maximum exposures to credit risk at the reporting date in relation to each class of financial asset is the carrying amounts of those assets as indicated in the Balance Sheet.

8. Subsequent Events

On 7 November 2011, the Company completed the purchase of the previously announced acquisition of 100% of the interests of Bloomsbury Holdings Limited in the companies owning a direct and indirect interest in the highly prospective Pajo MPSA, immediately to the north of our Colorado Pit at the Masbate Gold Project.

9. Risks and Uncertainties  

As a mining company, the Company faces the financial, operational, political and environmental risks inherent to the nature of its activities. These risks may affect the Company's profitability and level of operating cash flow.  The Company also faces risks stemming from other factors, such as fluctuations in gold prices, oil prices, interest rates, exchange rates, tax or royalty rates or the adoption of new interpretation relating thereto and financial market conditions in general. As a result, the securities of the Company must be considered speculative. Prospective purchasers of the common shares of the Company should give careful consideration to all of the information contained or incorporated by reference in this Management's Discussion and Analysis including the Annual Information Form for June 2011 and, in particular, the following risk factors.

Financial Risks

Fluctuation in Gold Prices
The profitability of CGA's operations will be significantly affected by changes in the market price of gold. Gold production from mining operations and the willingness of third parties, such as central banks, to sell or lease gold affects the gold supply. Demand for gold can be influenced by economic conditions, gold's attractiveness as an investment vehicle and the strength of the US dollar and local investment currencies. Other factors include the level of interest rates, exchange rates, inflation and political stability. The aggregate effect of these factors is impossible to predict with accuracy.  Gold prices are also affected by worldwide production levels.  In addition, the price of gold has on occasion been subject to very rapid short-term changes because of speculative activities.  Fluctuations in gold prices may adversely affect CGA's financial performance and results of operations.

Fluctuation in Oil Prices
Because CGA uses diesel and heavy fuel oil to power its mining equipment and power stations to supply its mining operations, CGA's operating results and financial results may be adversely affected by rising petroleum prices. A portion of the costs until April 2012 are the subject of fuel hedges.

Exchange Rate Fluctuations
The operations of CGA in the Philippines are subject to currency fluctuations and such fluctuations may materially affect the financial position and results of CGA. Gold is currently sold in US dollars and although the majority of the costs of CGA are also in US dollars, certain costs are incurred in other currencies. The appreciation of non-US dollar currencies against the US dollar can increase the cost of exploration and production in US dollar terms, which could materially and adversely affect CGA's profitability, results of operations and financial condition.

Access to Capital Markets
To fund its growth, CGA is often dependent on securing the necessary capital through loans or permanent capital.  The availability of this capital is subject to general economic conditions and lender and investor interest in CGA's projects.

Hedging Risk
The Group is exposed to movements in the gold price, other commodities and interest rates. As part of the risk management policy of the Group and in compliance with the conditions required by the Group's financiers, a variety of financial instruments (such as gold forward sales contracts and gold put options) are used from time to time to reduce exposure to unpredictable fluctuations in the project life revenue streams. Within this context, the hedging programs undertaken are structured with the objective of retaining as much upside to the gold price as possible, but in any event, by limiting hedging commitments to no more than 50% of the group gold reserves. The Group has also entered into a number of other derivative instruments including interest rate swaps and fuel hedging contracts.  In the event that the Group cannot deliver into these contracts due to insufficient gold production at the Masbate Gold Project, an early repayment of the loans or reduced fuel needs, the Group could be exposed to material mark to market adjustments which could cause material liquidity requirements which may not be able to be funded from the cashflow from operations.

Banking Covenants
Construction of the Masbate Project has in part been financed by project finance from commercial banks which has representations, financial commitments, banking ratios and other covenants which must be satisfied at all times. Given the risks to operating cashflow as described above, the Company is exposed to potential Events of Default which could make all amounts due and payable immediately or expose the group to working capital needs which may not be able to be funded by proceeds from operations. Such exposures can also cause cross-defaults on other debt facilities, making those due and payable immediately which may not be able to be funded from cash reserves.

Concentration of Share Ownership
Majority or significant shareholders may be are able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions and such parties may not act in the best interests of the Company.

Thistle, PGO Loan and Inter-Company Loans
Some of the Philippine Gold Limited ("PGO") (which was acquired from Thistle) loans and inter-company loans have been in place for a number of years. In 2005 and 2006, PGO, FRC and PGPRC undertook a restructuring of the inter-company loans acting on the advice of its tax consultants. Some inter-company loans were converted into interest-bearing loans, and a portion of the inter-company loans were converted into "additional paid-in capital".

There is a risk that the past and current structure of the inter-company loans may have adverse tax consequences.

Operational Risks

Uncertainty of Reserve and Resource Estimates
The figures for reserves and resources presented are estimates based on limited information acquired through drilling and other sampling methods.  No assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized.  The ore grade actually recovered may differ from the estimated grades of the reserves and resources.  Such figures have been determined based upon assumed gold prices and operating costs.  Future production could differ dramatically from reserve estimates for, among others, the following reasons:

  • mineralization or formations could be different from those predicted by drilling, sampling and similar examinations;

  • increases in operating mining costs and processing costs could adversely affect reserves;

  • the grade of the reserves may vary significantly from time to time and there is no assurance that any particular level of gold may be recovered from the reserves; and

  • declines in the market price of gold may render the mining of some or all of the reserves uneconomic.

Any of these factors may require CGA to reduce its reserves estimates or increase its costs. Short-term factors, such as the need for the additional development of a deposit or the processing of new different grades, may impair CGA's profitability.  Should the market price of gold fall, CGA could be required to materially write down its investment in mining properties or delay or discontinue production or the development of any new projects.

Production
No assurance can be given that the intended or expected production schedules or the estimated direct operating cash costs will be achieved in respect of the operating gold mine in which CGA has an interest.  Many factors may cause delays or cost increases, including, without limitation, labour and local issues, disruptions in power, transportation or supplies, and mechanical failure.  The revenues of CGA from the operating gold mines will depend on the extent to which expected operating costs in respect thereof are achieved.  In addition, short-term operating factors, such as the need for the orderly development of ore bodies or the processing of new or different ore grades, may cause a mining operation to be unprofitable in any particular period.

Nature of Mineral Exploration and Mining
CGA's profitability is significantly affected by CGA's exploration and development programs.  The exploration and development of mineral deposits involves significant financial risks over a significant period of time, which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of a gold-bearing structure may result in substantial rewards, few properties explored are ultimately developed into mines.  Major expenses may be required to establish and replace reserves by drilling, and to construct mining and processing facilities at a site. It is impossible to ensure that the current or proposed exploration programs on CGA's exploration properties will result in profitable commercial mining operations.

CGA's operations are, and will continue to be, subject to all of the hazards and risks normally associated with the exploration, development and production of gold, any of which could result in damage to life or property, environmental damage and possible legal liability for any or all damage.  CGA's activities may be subject to prolonged disruptions due to weather conditions depending on the location of operations in which CGA has interests. Hazards, such as unusual or unexpected formations, rock bursts, pressures, cave-ins, flooding or other conditions may be encountered in the drilling and removal of material. While CGA may obtain insurance against certain risks in such amounts as it considers adequate, the nature of these risks are such that liabilities could exceed policy limits or could be excluded from coverage.  There are also risks against which CGA cannot insure or against which it may elect not to insure. The potential costs which may be associated with any liabilities not covered by insurance or in excess of insurance coverage or compliance with applicable laws and regulations may cause substantial delays and require significant capital outlays, adversely affecting CGA's earnings and competitive position in the future and, potentially, its financial position and results of operations.

Whether a gold deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as its size and grade, proximity to infrastructure, financing costs and governmental regulations, including regulations relating to prices, taxes, royalties, infrastructure, land use, importing and exporting of gold, revenue repatriation and environmental protection. The effects of these factors cannot be accurately predicted, but the combination of these factors may result in CGA not receiving an adequate return on invested capital.

Depletion of the Company's Mineral Reserves
CGA must continually replace mining reserves depleted by production to maintain production levels over the long term.  This is done by expanding known mineral reserves or by locating or acquiring new mineral deposits. There is, however, a risk that depletion of reserves will not be offset by future discoveries of mineral reserves.  Exploration for minerals is highly speculative in nature and involves many risks.  Many projects are unsuccessful and there are no assurances that current or future exploration programs will be successful.  Further, significant costs are incurred to establish mineral reserves, open new pits and construct mining and processing facilities.  Development projects have no operating history upon which to base estimates of future cash flow and are subject to the successful completion of feasibility studies, obtaining necessary government permits, obtaining title or other land rights and the availability of financing.  In addition, assuming discovery of an economic mine or pit, depending on the type of mining operation involved, many years may elapse before commercial operations commence.  Accordingly, there can be no assurances that CGA's current programs will result in any new commercial mining operations or yield new reserves to replace and/or expand current reserves.

Licenses and Permits
CGA requires licenses and permits from various governmental authorities. CGA believes that it holds all necessary licenses and permits under applicable laws and regulations in respect of its properties and that it is presently complying in all material respects with the terms of such licenses and permits. Such licenses and permits, however, are subject to change in various circumstances. There can be no guarantee that CGA will be able to obtain or maintain all necessary licenses and permits that may be required to explore and develop its properties, commence construction or operation of mining facilities and properties under exploration or development or to maintain continued operations that economically justify the cost.

Competition
The mineral exploration and mining business is competitive in all of its phases. CGA competes with numerous other companies and individuals, including competitors with greater financial, technical and other resources than CGA, in the search for and the acquisition of attractive mineral properties and, increasingly, human resources. There is no assurance that CGA will continue to be able to compete successfully with its competitors in acquiring properties or prospects and in attracting and retaining human resources.

Cash Cost of Gold Production
CGA's cash operating cost to produce an ounce of gold is dependent on a number of factors, including the grade of reserves, recovery and plant throughput.  In the future, the actual performance of CGA may differ from the estimated performance. As these factors are beyond CGA's control, there can be no assurance that CGA's cash operating cost will continue at historical levels or perform as forecast.

Title Matters
While CGA has no reason to believe that the existence and extent of any mining property in which it has a participating interest is in doubt, title to mining properties is subject to potential claims by third parties.  The failure to comply with all applicable laws and regulations, including failure to pay taxes and carry out and file assessment work, may invalidate title to portions of the properties where the mineral rights are not held by CGA.

Outside Contractor Risk
The mining and exploration activities are conducted by outside contractors. As a result, CGA's operations at these sites will be subject to a number of risks, some of which will be outside CGA's control, including:

  • negotiating agreements with contractors on acceptable terms;

  • the inability to replace a contractor and its operating equipment in the event that either party terminates the agreement;

  • reduced control over such aspects of operations that are the responsibility of the contractor;

  • failure of a contractor to perform under its agreement with CGA;

  • interruption of operations in the event that a contractor ceases its business due to insolvency or other unforeseen events;

  • failure of a contractor to comply with applicable legal and regulatory requirements, to the extent that it is responsible for such compliance; and

  • problems of a contractor with managing its workforce, labour unrest or other employment issues.

In addition, CGA may incur liability to third parties as a result of the actions of a contractor.  The occurrence of one or more of these risks could have a material adverse effect on CGA's business, results of operations and financial condition.

Safety and Other Hazards
The mining industry is characterised by significant safety risks.  To minimize these risks, the Company has established an Occupational Health Safety & Environment Management Plan ("OHS&E"). The Company provides OHS&E training and awareness programs to its employees and contractors to continuously improve work practices and the work environment however there are no guarantees that this will prevent safety issues, accidents or other hazards.

Political Risks
CGA currently holds interests in gold projects in the Republic of the Philippines, which may be considered to have high political and sovereign risk. The Company also has its head office operations located in Australia. Any material adverse changes in government policies or legislation of Australia, Nigeria, the Republic of Zambia (given the investment in Ratel Group) or the Republic of the Philippines or any other country that the Company has economic interest in that affect mineral exploration activities, may affect the viability and profitability of the Company.

While the government in the Philippines has historically supported the development of their natural resources by foreign companies, there is no assurance that the government will not in the future adopt different policies or interpretations respecting foreign ownership of mineral resources, royalties rates, taxation, rates of exchange, environmental protection, labour relations, repatriation of income or return of capital or the obligations of CGA under its respective mining codes. The possibility that the government may adopt substantially different policies or interpretations, which might extend to the expropriation of assets, may have a material adverse effect on CGA. Political risk also includes the possibility of civil disturbances and political instability.

Small Scale Miners
Small scale miners have been operating in Aroroy, Masbate since the time Atlas operated in the area. While their processing operations are not on FRC's property, there has been evidence of contamination from tailing and effluent discharges within the Company's boundary. Although FRC is not liable for their contamination, the Company has been diligent in attempting to limit the activities of these miners and informing the public about the risk of contamination. In line with attempts to limit and control their activities the Company, in coordination with local and National government is endeavouring to enter into agreements with small scale miners. The agreements will form local cooperatives to legally work on some areas of the Company's mineral tenements outside of its operations that are not suitable for large scale mining.  There is also a natural conflict in objectives between small scale miners and the Company and FRC as the small scale miners have no legal rights to mine and are keen to access as much ore as possible.  In contrast, the Company and FRC have a stated position of allowing some level of activity however, require it to be contained to nominated areas only.  Accordingly, there are risks that conflict can arise which could materially adversely affect the operations of CGA and/or FRC.

Dependence on Key Management Personnel and Executives
The Company will be dependent upon the continued support and involvement of a number of key management personnel. The loss of the services of one or more of such personnel could have a material adverse effect on the Company. The Company's ability to manage its exploration and development activities and, hence, its success, will depend in large part on the efforts of these individuals. The Company faces intense competition for qualified personnel and there can be no assurances that the Company will be able to attract and retain personnel.

Land Holdings
In general, Filminera has valid title to or preferential rights to use and possess the parcels of land needed for its mining operations at the Masbate Gold Project. The following are outstanding issues:




(i)     
(ii)     
titles to three parcels of land are being judicially confirmed by applying for registration under the Land Registration Act; and
three claimants have filed an action contesting the title of FRC to three parcels of land.

While FRC anticipates that these land issues will be resolved, no assurance can be given that the matters will be resolved in FRC's favour in a timely manner, or at all.

Community Relations
At the Masbate Gold Project, community support is critical to the continued successful operation of the project, including equitable and sensible co-operation with local small scale mining activities. The Philippines operates on a relatively decentralised system and accordingly, all constituents potentially have an impact on the operations of the project and may have interests that conflict with those of the project, which may have a material adverse effect on the project and the Company.

Regulations in the Philippines
The Philippines Constitution provides that all natural resources are owned by the State which may enter into a co-production, joint venture or production sharing agreement with citizens of the Philippines or corporations or associations at least 60% of whose capital is owned by Philippine citizens.

Commonwealth Act No. 108, as amended (otherwise known as the "Anti-Dummy" Act), provides penalties for, amongst others: (a) Filipinos who permit aliens to use them as nominees or dummies so that the aliens could enjoy privileges otherwise reserved for Filipinos or Filipino corporations, and (b) aliens or foreigners who profit from the adoption of these dummy relationships. It also penalises the act of falsely simulating the existence of minimum stock or capital as owned by citizens of the Philippines or any other country in cases in which a constitutional or legal provision requires that before a corporation or association may exercise or enjoy a right, franchise or privilege, not less than a certain percentage of its capital must be owned by such citizens.

The Anti-Dummy Act likewise prohibits aliens from intervening in the management, operation, administration or control of nationalised business or enterprises, whether as officers, employees or labourers, with or without remuneration, except that aliens may take part in technical aspects only, provided (a) no Filipino can do such technical work, and (b) it is with express authority from the Secretary of Justice. The Anti-Dummy Act also allows the election of aliens as members of the boards of directors or the governing bodies of corporations or association engaged in partially nationalised activities in proportion to their allowable participation or share in the capital of such entities. Although we have advice our structure complies with all Philippine regulations, there is a risk that it could be questioned or challenged given limited precedents to date in country.

Environmental Risks and Hazards
All phases of CGA's operations are subject to environmental regulation. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors and employees. Environmental hazards which are unknown to CGA at present and which have been caused by previous or existing owners or operations of the properties may exist on CGA's properties. Failure to comply with applicable environmental laws and regulations may result in enforcement actions there under and may include corrective measures that require capital expenditures or remedial actions. There is no assurance that future changes in environmental laws and regulations and permits governing operations and activities of mining companies, if any, will not materially adversely affect CGA's operations or result in substantial costs and liabilities to CGA in the future.

Production at CGA's mines involves the use of sodium cyanide which is a toxic material. Should sodium cyanide leak or otherwise be discharged from the containment system, CGA may become subject to liability for clean-up work that may not be insured.  While all steps have been taken to prevent discharges of pollutants into ground water and the environment, CGA may become subject to liability for hazards that it may not be insured against.

10. Quarterly Information

Selected Quarterly Information
($US in thousands, except for per share information)
(unaudited, in accordance with IFRS)

  Q1
Sep -
11
2011
Annual
Total
Q4
Jun -
11
Q3
Mar -
11
Q2
Dec -
10
Q1
Sep -
10
2010
Annual
Total
Q4
Jun -
10
Q3
Mar -
10
Q2
Dec -
09
Gold  and
silver sales
16,287 235,314 72,942 43,483 68,539 50,350 155,476 47,270 40,477 39,066
Total
revenues
17,049 238,481 73,625 44,272 69,542 51,042 158,024 47,360 41,358 39,808
Net
profit/(loss)
(11,935) 65,082 18,800 7,263 26,983 12,036 15,992 2,940 5,413 3,983
Per share
(undiluted
US$ cents
per share)
(3.58) 19.56 5.65 2.16 7.93 3.83 5.36 0.99 1.63 1.45
Per share
(diluted
US$ cents
per share)
(3.52) 19.23 5.55 2.14 7.88 3.79 5.30 0.97 1.61 1.36

Fluctuations in the quarterly net loss or profit amounts over the two year period ended 30 September 2011 are predominantly due to the following factors:

  • the ramp up of production at the Masbate Gold Project which commenced during the 2010 financial year and achieved a steady state in the 2011 financial year;
  • Additional borrowing costs across the 2010 financial year in relation the Meridian and Casten loan facility and the promissory notes, both of which were repaid in the March quarter of the 2010 financial year;
  • the recognition of fair value mark to mark movements of the Company's derivative instruments which do not qualify for hedge account, or the ineffective portion of those that do;
  • exploration activities in Zambia and Nigeria for the periods up to 30 June 2010 and notional gain on the deconsolidation of the entities holding these project in quarter 1 of the 2011 financial year;
  • the recognition of a notional expense on share options and warrants issued by the Company which expired in February 2010. Fluctuations in the theoretical fair value on the warrants were required to be recognised in the profit and loss statement each period. These amounts do not represent either a current or future cash flow or loss to the Company; and
  • the decreased gold production during the September 2011 quarter, resulting from the breakdown of the SAG Mill in July 2011, which has resulted in lower gold sales and higher costs per ounce due to the fixed cost component of operations.

Quarterly Results & Year to Date Results
Three Months Ended September 30, 2011 Compared to the Three Months Ended June 30, 2011 and the Three Months Ended September 30, 2010

The Company's result for the three months ended September 30, 2011 was a net loss of $11.935M or 3.58 cents per share (undiluted) as compared to a net profit of $18.800M or 5.65 cents per share (undiluted) for the June 2011 quarter and a net profit of $12.036M or 3.83 cents per share (undiluted) for the September 2010 quarter. The result for the most recent quarter reflects the impact from the disruption to the SAG Mill during the quarter resulting in reduced processing capacity for the period and consequently reduced metals sales and revenues in the current quarter of $16.287M, as compared to the June 2011 quarter sales revenue of $72.94M.  Cost of sales for the current quarter was $23.541M as compared to $48.187M in the previous quarter (including depreciation, amortisation and tax expenses). The reduction in cost of sales was predominantly a result of the SAG Mill breakdown, with reduced mining & processing activities during the current period.  The cost of sales includes a mark-up of 10% charged to PGPRC by FRC on the ore sales of $0.354M for the September 2011 quarter as compared to $1.262M for the June 2011 quarter, as FRC is an associate of the group and is therefore not consolidated for accounting purposes.

As previously mentioned, the Mkushi Copper Project and Segilola Projects that were previously operated by the Company were spun out and the interests are now held by the Ratel Group, a 19.1% associate of the Company. The market value of the investment in Ratel Group at 30 September 2011 was $69.5M ($63.2M June 2011).  The Company no longer incurs exploration and evaluation expenses in relation to these activities, however the Company has taken up its proportional share of their loss for the period, along with its other associates being SAU, Masminero Resources, Aroroy Resources and FRC. The total loss from associates taken up by the Company during the current period is $0.949M ($1.018M: June 2011 quarter).

Revenues

The Company earned $17.049M in revenue for the September 2011 quarter as compared to $73.625M in revenue for the prior quarter and $51.042M in revenue for the September 2010 quarter. The decrease in revenues by $56.576M or 77% from the prior quarter is in line with a decrease in gold ounces sold of 37,099oz or 69% for the September 2011 quarter. Gold production for the quarter was significantly lower than the previous quarter due to the breakdown of the SAG Mill and the resulting decreased throughput capacity.  The lower gold production resulted in the majority of gold sales being derived from forward sales contracts, with minimal gold sales at spot prices, which resulted in the average gold sales price of $960/oz as compared to $1,332/oz in the previous quarter. In addition, as a result of the acquisition of the Masbate Gold Project in late March 2007, the Company has recognised a receivable from its associate, FRC. The acquisition accounting for the business combination through which the Project was acquired requires the accretion of the interest on the discounted receivable to be recognised as revenue during each period. As FRC is an associate, it is required to be equity accounted by the group, with the Company recognizing its ownership portion of the FRC loss in the Company's accounts. As the notional interest accretion gain is recognised as income in the consolidated group and recognised as an expense in Filminera accounts, the amounts are largely offset. The notional interest accretion recognised for the 3 months ended September 30, 2011 was $0.728M (June 2011: $0.652M and September 2010 $0.652M).

Cost of Sales

Cost of sales for the September 2011 quarter was $23.541M as compared to $48.187M for the June 2011 quarter and $34.717M for the September 2010 quarter. Fixed operating costs remained comparable in spite of the reduced mining & processing operations, while variable costs decreased due to the reduced operations.

Cash operating costs for the project (based on a combination of the results of FRC and PGPRC before depreciation, amortisation and taxes) were $1,167/oz as compared to $699/oz in the June 2011 quarter, with the increase due to the impact of fixed costs over the lower production volume for the period. Total project cash operating costs for the current quarter decreased by $18.177M or 48% as compared to the June 2011 quarter, largely due to the reduced mining operations undertaken during the September, 2011 quarter, and the 65% decrease in ore processed from the prior quarter, 0.567M tonnes in September 2011 compared to 1.60M tonnes processed in the June 2011 quarter as previously discussed in the Masbate Operations section.  Consumables and supplies expense was $7.004M for the September 2011 quarter as compared to $12.153M for the June 2011 quarter, a decrease of $5.149M or 42.4%. This is due to the reduction in tonnes milled for the September quarter which has resulted in the reduced processing costs for the current quarter.  The reduction in consumables and supplies expenditure is not as high as the decrease in processing, due to the timing impact of previous backorders being filled, and the purchase of other consumables & supplies during the current quarter, which will be utilised in processing in future periods.

The cost of ore (purchased from the Company's associate, FRC) was $9.214M for the September quarter, as compared to $22.994M for the June 2011 quarter, a decrease of $13.78M. The movement in this expense is largely due to the reduced mining undertaken in the September quarter.  Mining was suspended on 13 July 2011 as a result of the SAG Mill failure.  Upon recommencement, mining operations was limited to mining only high grade ore required for processing with minimal waste stripping, which resulted in lower quantities of ore produced.

Taxes and government charges for the September quarter were $0.460M as compared to $2.019M for the June quarter, a decrease of $1.559M. The decrease in the current quarter is largely attributable to reduced input tax expense of $1.438M for the period as compared to the June quarter, and a reduction in freight and duties charges of $0.121M, as a result of the reduced consumables purchases this period.

Production costs disclosed in the interim financial statements also include costs which are not included in the cash cost calculation, such as depreciation, amortisation, refining and treatment charges and tax expenses, along with the cost mark up on purchases of ore from its associate, FRC, of $0.354M for September 2011 quarter ($1.261M June 2011 quarter).

Other Expenses

Net other expenses (after cost of sales) for the September 2011 quarter were $5.442M as compared to $6.236M for the June 2011 quarter and $3.888M in the prior year comparative quarter.

Specific Items Contributing to Changes

Movement in fair value of derivative financial instruments
A loss of $0.471M was recognised in the profit and loss statement in September 2011 being movement in the fair value of the Company's commodity hedges, being losses on its HFO & diesel fuel swap contracts of $0.634M, partially offset by a gain of $163K on interest rate swap contracts. A gain of $0.535M was recognised in the profit and loss for the June 30, 2011 quarter. In the September 2010 quarter a negligible gain was recognised in the profit and loss statement, being a small gain on the HFO fuel swap, offset by a small loss on the diesel fuel swaps.

Finance costs
The Company incurred finance costs of $0.781M during the period as compared to $1.818M during the June 2011 quarter. The decrease in finance costs in September is due to the reducing interest due on the loan facility with BNP as the group continues to pay down the principal owing on this facility, and due to over 12 months of amortisation of capitalised borrowing costs relating to the construction of the Masbate Gold Mine being expensed during the previous quarter, whereas the current quarter only includes 3 months of amortisation.

Share of loss of associates
In the September 2011 quarter, the Company has recognised a loss of $0.949M in relation to its interests in the results of its associates FRC, Ratel Group, SAU, Aroroy Resources, Inc. ("Aroroy") and Masminero Resources Corporation ("Masminero"), which is comparable to the previous quarter loss taken up of $1.017M.  In the September 2010 quarter the Company recognised a loss of $0.117M, which related entirely to FRC.

Administration and other costs
In the current quarter the Company incurred costs of $3.241M as compared to $2.865M for the previous quarter and $2.050M in September 2010. Audit & accounting fees of $0.276M were incurred in the current quarter in relation to the year end audit, together with tax advice in relation to the Ratel Group spin off.

11. Information on Outstanding Shares

As at November 7, 2011 the Company had 333,475,726 common shares outstanding and 10,771,250 unlisted options on issue.  Each option is exercisable into one common share in the capital of the Company.

12. Disclosure Controls and Procedures

In accordance with Multilateral Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings, an evaluation of the effectiveness of the Company's disclosure controls and procedures (DC&P) and its internal control over financial reporting ("ICFR") was conducted. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that DC&P and ICFR were effective as of the three-month period ended September 30 2011, and that, as a result, ICFR design provides reasonable assurance that material information relating to the Company, is made known to them by others within those entities, particularly during the period in which the annual filings are being prepared, and the information that the Company must present in its annual documents, its interim documents or in other documents it files or submits under securities regulations is recorded, processed, condensed and presented within the times frames prescribed by this legislation. Furthermore, ICFR design provides reasonable assurance that the Company's financial information is reliable and that its financial statements have been prepared, for the purpose of publishing financial information, in accordance with the Company's GAAP.  Lastly, no changes to the ICFR that have had or are likely to have a significant effect on this control mechanism were identified by management during the accounting period commencing on July 1, 2011 and ending on September 30, 2011.

13. Critical Accounting Estimates

The significant accounting policies used by CGA are disclosed in Note 2 to the annual financial statements for the year ended June 30, 2011. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  Management reviews its estimates on a regular basis. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

14. Transactions between the group and its related parties

During the quarter ended September 30, 2011, the Company entered into transactions with related parties in the wholly-owned group:

  • loans were advanced and repayments received on short term inter-company accounts; and
  • loans were received from controlled entities on short term inter-company accounts.

During the quarter ended September 30, 2011 the Company entered into loan advances totalling $2.489M on short term intercompany accounts with its 40% associate, Filminera.

These transactions were undertaken on commercial terms and conditions except that:

  • there is no fixed repayment of loans between the related parties; and
  • no interest is payable on the loans at present.

During the financial year, the Company entered into the following transactions with related parties:

  • Office accommodation and administrative support were provided at commercial rates to Ratel Group, in which the Company holds 19.1% of the outstanding share capital.  In the current quarter Ratel Group was charged $99,634 (excluding GST) in relation to the provision of these services.

15. Additional Information and Continuous Disclosure

This MD&A has been prepared as of November 7, 2011. Additional information on the Company is available through regular filings of press releases, financial statements and its Annual Information Form on SEDAR (www.sedar.com). You may also find these documents and other information about CGA on our website at www.cgamining.com.

16. Forward-Looking Statements

This MD&A contains forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding expectations of the Company as to the market price of gold, strategic plans, future commercial production, production targets, timetables, mining operating expenses, capital expenditures, and mineral reserve and resource estimates. Forward-looking statements involve known and unknown risks and uncertainties and accordingly, actual results and future events could differ materially from those anticipated in such statements. Factors that could cause future results or events to differ materially from current expectations expressed or implied by the forward-looking statements include, but are not limited to, fluctuations in the market price of precious metals, mining industry risks, uncertainty as to calculation of mineral reserves and resources, risks related to hedging strategies, risks of delays in construction, requirements of additional financing, increase in tax or royalty rates or adoption of new interpretations related thereto and other risks described in this MD&A and in the Company's other documents filed from time to time with Canadian securities regulatory authorities. Although the Company is of the opinion that these forward-looking statements are based on reasonable assumptions, those assumptions may prove to be incorrect. Accordingly, readers should not place undue reliance on forward-looking statements. Readers can find further information with respect to risks in the Annual Information Form of the Company and other filings of the Company with Canadian securities regulatory authorities available at www.sedar.com. The Company disclaims any obligation to update or revise these forward-looking statements, except as required by applicable law.

17. Future Outlook

During the 2011-12 financial year, the Company's activities will focus on finalising the 6.5Mtpa plant upgrade, with commissioning of the supplementary crusher having already occurred in the September quarter. Work on the comprehensive scoping study to lift production rates to 10Mtpa is also well advanced and continues to track well. The initial mine scheduling shows that mining can match the higher throughput with the new larger equipment and that the expansion can be supported, independent of exploration success. Sedgman WA has finalised the study to identify equipment requirements and capital costs. The study is showing that an expansion of the crushing and grinding circuits can be achieved without interference to the existing operation and the final tie into the plant can occur with minimal down time.

Repair of the SAG mill is still anticipated to be completed in the December quarter and we would anticipated both production and the cash cost profile will then return to levels similar to production in the June quarter.

During the 2011-12 year, the Company plans to extend its exploration program, with a focus on materially enhancing the reserve and resource base of the project. This exploration program is well underway with $2.81M spent as at 30 September 2011, with a further $17M expenditure planned in the coming year. During the quarter the Company announced that it has agreed to acquire 100% of the interests of Bloomsbury Holdings Limited in the companies owning a direct and indirect interest in the highly prospective Pajo MPSA, immediately to the north of our Colorado Pit.  Exploration activities have already commenced on the MPSA with the first hole drilled, returning  85m @ 0.85g/t Au including 14m @ 1.26g/t Au from surface. The assays were conducted by SGS at their onsite laboratory using Fire Assay techniques with a 50g charge. The Pajo MPSA is part of an expansion of the exploration program over the next 12 months which will include additional diamond core and RC rigs being brought to site. The rigs will focus on:

  • deep drilling beneath Colorado and Main Vein to assess the potential for underground resources;

  • resource definition drilling on near mine targets (Blue Quartz, Old Lady, Pajo);

  • infill drilling to upgrade Inferred Resources to Indicated within the current mining areas;

  • exploration drilling of multiple outcropping mineralised quartz vein targets on EP10; and

  • resource drilling at Pajo Hill.

Additional exploration activities will include:

  • IP programs over the identified Baleno copper anomaly to test for porphyry ore bodies at depth;

  • regional mapping and sampling over all of EP10 and the Vicar JV tenement; and

  • geophysical surveys including ground IP and Resistivity which, combined with previously acquired helimag, will be used to identify non outcropping (buried) target zones and extensions of known mineralisation.

 

ABN 88 009 153 128
Interim Financial Statements
For the three months ended
30 September 2011
(Unaudited - Prepared by Management)

CGA MINING LIMITED
Level 5, The BGC Centre, 28 The Esplanade, Perth WA 6000
Phone: +61 08 9263 4000 Fax: +61 08 9263 4020.
Website: www.cgamining.com

NOTICE OF NO AUDITOR REVIEW OF
INTERIM FINANCIAL STATEMENTS

The accompanying interim consolidated financial statements for CGA Mining Limited (the "Company") have been prepared by management in accordance with the Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards ("AIFRS").  Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards ("IFRS").  These financial statements are the responsibility of management and have not been reviewed by the auditors.  The most significant accounting principles have been set out in the June 30, 2011 audited consolidated financial statements. There have been no changes in accounting policies from the latest completed financial year end.  These financial statements have been prepared on a historical cost basis of accounting, except for derivative financial instruments and available for sale assets which have been measured at fair value. A precise determination of many assets and liabilities is dependent on future events.  Therefore, estimates and approximations have been made using careful judgment. Recognizing that the Company is responsible for both the integrity and objectivity of the financial statements, management is satisfied that these financial statements have been fairly presented.

For further information please contact:

Hannah Hudson
Company Secretary

Telephone: +61 8 9263 4000
Fax: +61 8 9263 4020

CORPORATE DIRECTORY

DIRECTORS:
Mark S Savage
Michael J Carrick
Justine A Magee
David A T Cruse
Phillip C Lockyer
Robert N Scott


SECRETARY:
Hannah C Hudson

REGISTERED AND PRINCIPAL OFFICE:
Level 5
BGC Centre
28 The Esplanade
Perth WA 6000

TELEPHONE: +61 8 9263 4000
FACSIMILE: +61 8 9263 4020

BANKERS:
Australia and New Zealand Banking Group Limited
77 St Georges Terrace
Perth  WA  6000

BNP Paribas
20 Collyer Quay
Tung Centre
Singapore 049319

AUDITORS:
Ernst & Young
11 Mounts Bay Road
Perth  WA  6000

STOCK EXCHANGE:
Australian Securities Exchange Limited
Exchange Code:
CGX - Fully paid ordinary shares

Toronto Stock Exchange Inc
Exchange Code:
CGA - Fully paid ordinary shares
    SHARE REGISTER:
Australian Register
Computershare Investor Services Pty Limited
Level 2
45 St Georges Terrace
Perth  WA  6000

Telephone: 1300 557 010 or
                      + 61 8 9323 2000
Facsimile: + 61 8 9323 2033

Canadian Register
Computershare Investor Services Inc
100 University Ave, 11th Floor
Toronto Ontario M5J2Y1
Canada

Telephone: +1 416 263 9449
Facsimile: +1 416 981 9800

LAWYERS
Middletons
Level 2
6 Kings Park Road
West Perth WA 6005

Blake, Cassels & Graydon
Suite 2600
3 Bentall Centre
59 Burrard Street
Vancouver, B.C. Canada
V7X 1L3

NORTH AMERICAN CONTACT:
Mark S Savage
1703 Edwardo y Juanita Ct
Albuquerque, New Mexico, 87107, USA
Telephone: +1 505 344 2822
Facsimile: +1 505 344 2922
Email: marksavage@comcast.net
       

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2011

UNAUDITED - PREPARED BY MANAGEMENT   Consolidated
  Note Three months ended 30 September
      2011   2010
      US$   US$
           
Revenue 3(a)   17,048,733   51,041,514
Cost of sales 3(b)   (23,540,802)   (34,717,562)
Gross profit     (6,492,070)   16,323,952
           
Administrative expenses 3(c)   (1,180,446)   (885,596)
Finance costs 3 (f)   (780,816)   (1,236,309)
Movement in fair value of derivative financial instruments 3(e)   (471,456)   523
Share of loss of associate     (949,428)   (117,027)
Other expenses     (2,060,686)   (2,049,983)
      (5,442,832)   (4,288,392)
Profit/(Loss) before income tax expense     (11,934,901)   12,035,560
           
Income tax (expense)/benefit     -   -
           
Net Profit/(Loss) for the period for the period     (11,934,901)   12,035,560
           
           
Other comprehensive income          
Movement in available for sale investments     (896,974)   1,569,095
Cashflow hedges:          
Transferred to the income statement     -   (4,886,316)
Loss taken to equity     (4,195,962)   -
Other comprehensive income/(loss) for the period, net of tax     (5,092,936)   (3,317,221)
           
Total comprehensive income/(loss) for the period     (17,027,838)   8,718,339
           
Earnings/(Loss) per share for profit/(loss) attributable to the
ordinary equity holders of the company
         
Basic earnings/(loss) per share (cents)     (3.58)   3.83
Diluted earnings/(loss) per share (cents)     (3.52)   3.79

The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2011

UNAUDITED - PREPARED BY MANAGEMENT        Consolidated
  Note   30 September
2011
  30 June
2011
ASSETS     US$   US$
Current Assets          
Cash and cash equivalents 6   83,219,791   107,336,346
Trade and other receivables 12   2,317,800   704,293
Inventory 10   19,579,639   17,063,423
Prepayments     5,049,216   7,849,898
Derivative financial assets 8   1,125,388   1,759,748
Total Current Assets     111,291,834   134,713,707
           
Non-Current Assets          
Available for sale financial assets 15   3,284,702   4,181,703
Investment in associate     73,738,639   71,574,436
Property plant and equipment     191,614,787   191,355,070
Other assets     -   -
Intangible assets     38,224,661   38,278,394
Derivative financial assets 8   -   -
Deferred tax assets     20,109,191   19,532,657
Total Non-current Assets     326,971,980   324,922,260
TOTAL ASSETS     438,263,814   459,635,968
           
LIABILITIES          
Current Liabilities          
Trade and other payables     8,953,508   12,697,345
Interest bearing loans and borrowings 7   17,057,603   22,077,574
Derivative financial liabilities 9   43,916,867   37,770,654
Provisions     536,536   527,119
Total Current Liabilities     70,464,513   73,072,692
Non-Current Liabilities          
Interest bearing loans and borrowings 7   46,953,180   46,953,180
Provisions     911,306   911,306
Derivative financial liabilities 9   47,369,212   49,482,368
Deferred Tax Liability     5,939,975   6,116,880
Total Non-current Liabilities     101,173,673   103,463,733
TOTAL LIABILITIES     171,638,186   176,536,426
NET ASSETS     266,625,628   283,099,543
Equity          
Contributed equity 5   302,110,029   302,016,570
Reserves     (73,499,468)   (68,866,996)
Accumulated Profits     38,015,068   49,949,969
TOTAL EQUITY     266,625,628   283,099,543

The above Statement of Financial Position should be read in conjunction with the accompanying notes.

 

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2011

    Consolidated
UNAUDITED - PREPARED BY MANAGEMENT Note Three months ended 30 September
      2011   2010
      US$   US$
Cash flows from operating activities          
Receipts from customers     16,286,850   50,350,016
Payments to suppliers and employees     (28,895,534)   (37,072,873)
Interest received     34,066   39,917
Income tax paid     (1,128,345)   -
Net cash inflow/(outflow) from operating activities     (13,702,963)   13,317,060
           
Cash flows from investing activities          
Payments for property, plant and equipment     (2,159,092)   (2,983)
Loans to associate     (2,385,814)   (3,912,207)
Net cash outflow from investing activities     (4,544,906)   (3,915,190)
           
Cash flows from financing activities          
Proceeds from issue of shares, warrants and options     93,459   1,657,192
Repayment of borrowings     (5,019,971)   (3,606,870)
Interest and financing costs paid     (893,217)   (1,100,148)
Loans to Ratel Gold Limited     -   (1,554,889)
Financing costs     (68,504)   (56,654)
Net cash inflow from financing activities     (5,888,233)   (4,661,369)
           
Net increase/(decrease) in cash and cash equivalents     (24,136,102)   4,740,501
Cash and cash equivalents at beginning of financial period     107,336,346   8,645,140
Effects of exchange rate fluctuations on the balances of cash held
in foreign currencies
    19,547   (111,922)
Cash and cash equivalents at the end of the financial period 6   83,219,791   92,273,719
           

The above Cash Flow Statement should be read in conjunction with the accompanying notes.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2011

UNAUDITED - PREPARED BY MANAGEMENT

                           
CONSOLIDATED Contributed
Equity

  Retained
Profit/(Accumulated
losses)
  Foreign
Currency
Translation
Reserve
  Share
Based
Payments
Reserve
  Cash Flow
Hedge
Reserve
  Available
for Sale
Reserve

  Total

  US$   US$   US$   US$   US$   US$   US$
At 1 July 2011 302,016,570   49,949,969   5,815,359   5,862,078   (82,678,901)   2,134,468   283,099,543
Net gain/(loss) on cash
flow hedges
-   -   -   -   (4,195,962)   -   (4,195,962)
Available for sale
reserve
-   -   -   -   -   (896,974)   (896,974)
Profit/(loss) for the
 period
-   (11,934,901)   -   -   -   -   (11,934,901)
Total comprehensive
income for the period
-   (11,934,901)   -   -   (4,195,962)   (896,974)   (17,027,837
Equity
transactions:
                         
Share-based
payment
-   -   -   460,464   -   -   460,464
Exercise of options and warrants 93,458   -   -   -   -   -   93,458
At 30 September 2011 302,110,029   38,015,068   5,815,359   6,322,542   (86,874,863)   1,237,494   266,625,628

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2010

UNAUDITED - PREPARED BY MANAGEMENT

                           
CONSOLIDATED Contributed
Equity
  Retained
Profit/(Accumulated
losses)
  Foreign
Currency
Translation
Reserve
  Share
Based
Payments
Reserve
  Cash Flow
Hedge
Reserve
  Available
for Sale
Reserve
  Total
  US$   US$   US$   US$   US$   US$   US$
At 1 July 2010 299,576,520   (15,132,295)   5,815,359   4,941,151   (72,551,338)   447,394   223,096,791
Net gain/(loss) on cash
flow hedges
-   -   -   -   (4,886,316)   -   (4,886,316)
Available for sale
reserve
-   -   -   -   -   1,569,095   1,569,095
Profit/(loss) for the
period
-   12,035,560   -   -   -   -   12,035,560
Total comprehensive
income for the period
-   12,035,560   -   -   (4,886,316)   1,569,095   8,718,338
Equity
Transactions:
                         
Exercise of options and
warrants
1,947,276   -   -   -   -   -   1,947,276
At 30 September 2010 301,523,796   (3,046,736)   5,815,359   4,941,151   (77,437,654)   2,016,489   240,885,891


 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2011
UNAUDITED - PREPARED BY MANAGEMENT

1.       CORPORATE INFORMATION

CGA Mining Limited is a company incorporated in Australia and limited by shares which are publicly traded on the Australian Securities Exchange and the Toronto Stock Exchange

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim financial statements does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report.

The interim financial statements should be read in conjunction with the Annual Financial Report of CGA Mining Limited as at 30 June 2011.

It is also recommended that the interim financial statements be considered together with any public announcements made by CGA Mining Limited and its controlled entities during the three months period ended 30 September 2011 in accordance with the continuous disclosure obligations arising under ASX Listing Rules.

(a)        Basis of Accounting

The interim financial statements are a general purpose condensed financial report which has been prepared in accordance with the requirements of the Corporations Act 2001, and AASB 134 "Interim Financial Reporting".

The interim financial statements have been prepared on a historic cost basis, except for the measurement of derivative financial instruments including warrants, put options and forward sales contracts at fair value. The financial report is presented in United States Dollars ("US$").

For the purposes of preparing the interim financial statements, the interim has been treated as a discrete reporting period.

(b)        Significant accounting policies

The interim financial statements have been prepared using the same accounting policies as used in the annual financial statements for the year ended 30 June 2011 except for the adoption of new and amending standards mandatory for annual periods beginning on or after 1 July 2011 as described in Note 2(c).

(c)        New and Revised Accounting Standards and Interpretations

Since 1 July 2011, the Group has adopted all the amending Standards and Interpretations, mandatory for annual periods beginning on or after 1 July 2011 including:

  • AASB 101 Presentation of Financial Statements
    The revised standard stipulates that the terms of a liability that could at any time result in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification as current or non-current. The amendment had no impact.
  • AASB 107 Statement of Cash Flows
    The revised standard states that only expenditures that result in a recognised asset can be classified as a cash flow from investing activities.
  • AASB 117 Leases
    The revised standard removes specific guidance on classifying land as a lease so that only the general guidance remains. The amendment had no impact.
  • AASB 132 Financial Instruments: Presentation
    The revised standard amends the definition of a financial liability to classify certain rights (and certain options or warrants) as equity instruments if they satisfy certain conditions. The amendment had no impact.
  • AASB 136 Impairment
    The revised standard clarifies that the largest unit permitted for allocating goodwill acquired in a business combination is the operating segment defined in AASB 8 before aggregation for reporting purposes. The amendment had no impact.
  • Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
    The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are "consideration paid". As a result, the financial liability is derecognised and the equity instruments issued are treated as consideration paid to extinguish that liability. The amendment had no impact.
  • AASB 2010-3 Amendments to Australian Accounting Standards Arising from the Annual improvements Project
    This amendment affected the following standards:
    AASB 3 Business Combinations;
    AASB 7 Financial Instruments: Disclosures;
    AASB 121 The Effects of Changes in Foreign Exchange Rates;
    AASB 128 Investments in Associates;
    AASB 131 Investments in Joint Ventures;
    AASB 132 Financial Instruments: Presentation; and
    AASB 139 Financial Instruments: Recognition and Measurement.
    The amendments had no impact.

    Adoption of these Standards and Interpretations did not have any material effect on the financial position or performance of the Group

3.       REVENUES AND EXPENSES

      Consolidated
      Three months ended
30 September
      2011         2010
      US$         US$
(a) Revenue                
Revenue from metal sales     16,286,850         50,350,016
Interest - non related parties     34,066         39,917
Interest - accretion on loan     727,816         651,581
      17,048,733         51,041,514
                 
(b) Cost of sales                
Ore purchases     7,975,762         14,274,373
Salaries and employee benefits     354,681         297,593
Contractors and professional fees     3,288,119         3,490,367
Consumables and supplies     7,004,294         9,329,695
Leases and rentals     413,307         197,833
Travel and accommodation     89,708         71,752
Utilities     5,538         6,342
Taxes and government charges     460,005         640,976
Other production overheads     2,041,249         2,325,109
Depreciation and amortisation     1,908,139         4,083,522
       23,540,802         34,717,562
                 
(c) Administrative expenses                
Salaries and wages     622,024         675,580
Defined contributions/superannuation expense     72,536         77,033
Employee share option expense     460,464         -
Foreign exchange (gains)/losses     (19,547)         82,800
Depreciation     44,969         50,183
      1,180,446         885,596
                 
(e) Movement in fair value of derivative financial instruments -
gain/(loss)
    471,456         523
                 
(f) Finance costs                
Interest expense     729,729         1,219,793
Amortisation expense     51,087         -
Lending fees and charges     -         16,516
      780,816         1,236,309

4.       DIVIDENDS PAID OR PROVIDED FOR

No dividends have been paid or provided for during the three months.

5.       CONTRIBUTED EQUITY

    Consolidated       Consolidated
    30 September
2011
      30 June
2011
      30 September
2011
      30 June
2011
    Number       Number       US$       US$
Issued and paid up capital   333,475,726       333,425,726       302,110,029       302,016,570
Total fully paid capital   333,475,726       333,425,726       302,110,029       302,016,570
                             
Movements in contributed equity during the past three months were as follows:
                             
(i)     Ordinary Shares                            
    Consolidated       Consolidated
    30 September
2011
      30 June
2011
      30 September
2011
      30 June
2011
    Number       Number       US$       US$
Opening balance   333,427,726       331,294,976       302,016,570       299,576,520
Add: shares issued on exercise of
options and warrants
  50,000       2,130,750       93,458       2,449,402
Less: share issue costs   -       -       -       (9,352)
Issued and fully paid   333,475,726       333,425,726       302,110,029       302,016,570
                             
                    Consolidated
                    30 September
2011
      30 June
2011
                    US$       US$
(ii)     Unlisted Options                            
Opening balance                   10,821,250       11,902,000
Issued during the reporting period                   -       1,050,000
Exercised during the reporting period                   (50,000)       (2,130,750)
Closing balance                   10,771,250       10,821,250

6.       CASH AND CASH EQUIVALENTS

For the purposes of the condensed consolidated statement of cash flows, cash and cash equivalents are comprised of the following:

 
    Consolidated
      30 September
2011
      30 June
2011
      US$       US$
               
Cash at bank and on hand     56,681,003       75,228,174
Deposits at call     26,538,788       32,108,172
      83,219,791       107,336,346

Included in cash and cash equivalents is an amount of $9,000,000 held with BNP Paribas in line with the requirements of the project financing facility agreement which requires two quarters of principal payments due on the facility t be held in deposit.

      Consolidated
      30 September
2011
        30 September
2010
      US$         US$
Reconciliation of net loss after tax to net cash flows from operations                
Net profit/(loss)after related income tax     (11,934,901)         12,035,560
Adjustment for non-cash income and expense items:                
Depreciation and amortisation     1,953,108         4,133,704
Unrealised foreign exchange (gain)/loss     (19,547)         (50,483)
Share-based payments     460,460         -
Movement in fair value of Warrants     -         -
Share of loss of associate     949,428         117,027
Interest income on receivable from associate     (727,816)         (651,181)
Borrowing costs     961,721         1,236,309
Movement in fair value of derivatives     471,456         (524)
Capitalised Development     30         1,689,419
Other     30         -
                 
Changes in assets and liabilities:                
(Increase) / decrease in assets:                
      Trade and other receivables     (1,613,508)         (2,470,848)
       Prepayments     2,800,686         (4,211,534)
       Inventories     (2,516,216)         (2,936,833)
       Tax assets     (576,536)         (906,923)
       Other assets     -         679,290
Increase / (decrease) in liabilities:                
       Trade and other payables     (3,743,838)         4,121,362
       Deferred tax liabilities     (176,905)         506,514
       Provisions     9,417         26,600
Net cash inflow/(outflow) from operating activities     (13,702,961)         13,317,060

7.       INTEREST BEARING LIABILITIES

      Consolidated
      30 September
2011
        30 June
2011
      US$         US$
Current                
Loans (i)     12,334,140         16,272,330
Lease liabilities (ii)     4,723,463         5,805,244
      17,057,603         22,077,574
Non-Current                
Loans (i)     27,205,890         27,205,890
Lease liabilities (ii)     19,747,290         19,747,290
      46,953,180         46,953,180

(i) The Group began repaying the BNP Paribas arranged $80,300,000 project finance facility in June 2009. The balance of the facility accrues interest at 3.15% plus LIBOR. The loan is repayable quarterly, from June 2009 to 31 December 2013.
ii) In December 2008, the Company has entered into a finance lease for certain equipment to be used in the mining process for the Masbate Gold Project. The lease details are specified in the Masbate Technical Contract with Leighton Contractors (Philippines) Incorporated and Leighton Holdings Limited. The term of the initially leased assets is for 72 months.  The Company has also acquired an additional fleet during the current year which is for a term of 60 months and both are secured over the underlying assets.

8.       DERIVATIVE FINANCIAL ASSETS
      Consolidated
      30 September
2011
        30 June
2011
      US$         US$
                 
Fuel swaps     1,125,388         1,759,748
      1,125,388         1,759,748

9.       DERIVATIVE FINANCIAL LIABILITIES
      Consolidated
      30 September
2011
        30 June
2011
      US$         US$
Current                
Gold forward sales contracts (i)     43,701,986         37,770,654
Interest rate swaps     214,881         -
      43,916,867         37,770,654
Non-current                
Gold forward sales contracts (i)     47,185,209         48,979,948
Interest rate swaps     184,003         502,420
      47,369,212         49,482,368

(i)The US$80.3M senior debt facility arranged by BNP Paribas requires limited hedging which has been executed. A hedging program of puts covering 46,079 ounces and forward sales covering 214,337 ounces was successfully executed during the September 2008 quarter. The derivative financial liabilities represent the fair values placed on the forward sales as at 30 September 2011.

10.       INVENTORIES

      Consolidated
      30 September
2011
        30 June
2011
      US$         US$
Gold on hand and in circuit     6,545,986         2,986,430
Gold in circuit     1,386,058         3,311,213
Consumables     9,031,106         7,625,071
Ore stockpile     2,616,489         3,140,709
      19,579,639         17,063,423

11.       EVENTS SUBSEQUENT TO BALANCE DATE

Subsequent to 30 September 2011, there has not been any matter or circumstance that has significantly affected, or may significantly affect, the Company's operations, results or state of affairs in future financial years

12.       TRADE AND OTHER RECEIVABLES

      Consolidated
      30 September
2011
        30 June
2011
      US$         US$
(Current)                
VAT and GST     81,096         43,710
Other Debtors     2,236,703         660,583
      2,317,800         704,293

Trade and other receivables are non-interest bearing and generally on 30-90 day terms. There are no receivables past due or impaired. It is expected that these receivables will be received when due.

13.       COMMITMENTS

      Consolidated
      30 September
2011
        30 June
2011
      US$         US$
Operating lease commitments - Group as lessee                
Due within 1 year     61,786         167,184
After one year but no more than five years     -         -
Aggregate lease expenditure contracted for at balance date but not
provided for
    61,786         167,184
                 
Finance lease commitments - Group as lessee                
Due within 1 year     7,296,497         7,336,668
After one year but no more than five years     22,409,631         24,226,509
Total commitment for finance leases     29,706,128         31,563,177
Less: Future Interest expense     5,625,428         6,040,643
Net Lease Liabilities     24,080,701         25,552,534
                 
Other commitments                
(a) Mining services commitments     21,948,000         21,948,000
(b) Power services contract commitments     422,086         425,424
(c) Camp Management commitments     86,301         86,301
(d) Laboratory services commitments     205,431         205,431
(e) Other capital commitments     1,204,345         2,434,635
      23,866,163         25,099,791

The Company is party to a mining services contract between Leighton Contractors (Philippines) Limited and Filminera Resources Corporation which has been determined to contain a finance lease. The Company is also party to a contract for the operation of the power station at the Masbate Gold Project, it has a 3 month termination notice period. The camp management commitments relate to capital commitments for camp improvements. Laboratory service agreements relate to a month termination notice period on the laboratory services contract. Under the Ore Purchase Agreement, PGPRC is contracted to purchase ore from Filminera at cost plus a profit margin.

14.       SEGMENT REPORTING

Identification of reportable segments
For management purposes the group is organized into one business segments which is the Masbate Gold Project in the Philippines. The Masbate Gold Projects primary activity is the extraction and processing of ore for gold sales. The Board is the chief operating decision maker for of the segment and monitors the performance of the business segment separately for the purpose of making decisions about resources to be allocated and of assessing performance.

The following table presents the revenue and result information regarding operating segments for the three months ended 30 September 2011 and 30 September 2010.

    Masbate Gold Project (Philippines)     Total
    30 September
2011
30 September
2010
    30 September
2011
    30 September
2010
    US$ US$     US$     US$
Revenue                  
Segment revenue from external customers   16,202,797 50,350,601      16,202,797     50,350,601 
Interest revenue   728,270 651,581      728,270     651,581 
Other revenue   -     117,665     39,332 
Total revenue per income statement   16,931,067 51,002,182            51,041,514 
                   
Results                  
Segment Profit/(Loss) before tax   (8,688,940) 14,410,035     (8,688,940)     14,410,035 
Other revenue           117,665     39,332 
Share of loss in Associates           (328,824)     -
Administrative expenses           (1,160,275)     (701,983)
Borrowing costs           (51,087)     (16,516)
Depreciation expense (unallocated)           (33,411)     -
Other expenses           (1,790,029)     (1,695,309)
Net profit/(loss) from continuing
operations before tax as per the  income statement
          (11,934,901)     12,035,559
                   
Share of associate Loss   (949,428) (117,027)     (949,428)     (117,027)
Depreciation expense   1,953,108 3,527,542      1,953,108     3,527,542 
                   
The following table presents the total asset information regarding operating segments for the balance dates 30 September 2011 and 30 June 2011.
                   
    Masbate Gold Project (Philippines)     Total
    30 September
2011
30 June
2011
    30 September
2011
    30 June
2011
    US$ US$     US$     US$
Segment Assets   357,442,185 374,791,468     357,442,185     374,791,468
Corporate assets           7,082,989     13,270,064
Investment in associate   32,503,473       73,738,639     71,574,436
Total assets as per the balance sheet           438,263,813     459,635,968
                   
                   
Segment liabilities   226,967,845 230,632,767     226,967,845     230,632,767
Corporate liabilities1           (125,794,172)     (127,169,034)
Total liabilities as per the balance sheet           101,173,673     103,463,733
                   
Other segment information                  
Capital expenditure   1,746,653 1,899,414     1,746,653     1,899,414
Non-Current assets   254,678,750 236,037,640     254,678,750     252,217,879

1 Corporate liabilities are made up of trade creditors, provisions and the loan payable to BNP. The segment liabilities include intercompany payables which eliminate upon consolidation

15.       AVAILABLE FOR SALE FINANCIAL ASSETS

      Consolidated
      30 September
2011
        30 June
2011
      US$         US$
Investments                
Available for sale financial assets     1,855,468         1,855,494
Revaluation of investment at fair value     1,429,235         2,326,209
      3,284,702         4,181,703

The fair value of the available for sale investments has been determined directly by reference to published price quotations in an active market. 

 

 

 

 

 

SOURCE CGA Mining Limited

For further information:

CGA Mining Limited
Level 5, BGC Centre
28 The Esplanade
Perth Western Australia 6000

Tel:  +61 8 9263 4000
Fax: +61 8 9263 4020
Email: info@cgamining.com

www.cgamining.com

Profil de l'entreprise

CGA Mining Limited

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