Annual Report 2008 Responsible Delivery Responsible Delivery
GREAT BASIN GOLD
A GLOBAL MINING
COMPANY CONTENTS
OUR CULTURE 02 CORPORATE PROFILE 04 OVERVIEW 05 PERFORMANCE SUMMARY 06 CHAIRMAN’S LETTER 08 CHIEF EXECUTIVE OFFICER’S REVIEW 11 LEADERSHIP DEVELOPMENT 15 HEALTH AND SAFETY 16 PEOPLE 18 CORPORATE SOCIAL RESPONSIBILITY 20 ENVIRONMENTAL MANAGEMENT 26 REVIEW OF OPERATIONS: BURNSTONE 31 REVIEW OF OPERATIONS: HOLLISTER 41 REVIEW OF OPERATIONS: OTHER MINES 57 DIRECTORS & EXECUTIVES 60 CORPORATE GOVERNANCE 66 STRATEGIC RISKS 71 CONSOLIDATED FINANCIAL STATEMENTS 76 GLOSSARY 166
l GREAT BASIN GOLD l ANNUAL REPORT 2008 1 Responsible Delivery
OUR CULTURE
We are committed to customer-driven quality and a plan-do-check-act way of working. We engage in process thinking, where we view our everyday work as a series of activities rather than as individual, unrelated occurrences. We manage through the use of facts and data, not intuition, and we are constantly seeking improvement in our processes and results. Ferdi Dippenaar, Chief Executive Officer
2 l GREAT BASIN GOLD l ANNUAL REPORT 2008 OUR CULTURE
What We Think, Say, Do
We are responsible to all our stakeholders.
We build high performance teams focused on delivery.
Our approach is problem elimination based on high levels of employee engagement and commitment.
An open, honest and diverse environment encourages mutual respect.
We get involved to make a difference.
We focus on ideas, growth, development and creating value.
We value honesty, integrity, respect and trust.
Our leaders engage, communicate, develop and deliver.
l GREAT BASIN GOLD l ANNUAL REPORT 2008 3 Great Basin Gold – A Global Mining Company
CORPORATE PROFILE
reat Basin Gold (hereafter “Great Basin Gold” or “the Company”) is a mineral exploration and development G company that is currently focused on delivering two advanced-stage projects: the Hollister gold project, which covers about 5% of the Hollister property on the Carlin Trend in Nevada, USA; and the Burnstone gold project in the Witwatersrand goldfields in South Africa.
The Company, currently recognised as an emerging producer, will migrate to the ranks of the junior gold producers as these two projects commence full commercial gold production. Over and above exploration being conducted at these two properties, greenfields exploration is being undertaken in Tanzania, Mozambique and the Island of Kurils in Russia, though much of this has been suspended until the economic environment improves.
4 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery OVERVIEW
The current global economic crisis which has UÊ ,i`ÕV}ÊiÝ«À>ÌÊÕ`iÀÌ>iÊ>ÌÊ impacted on the availability of capital in the Hollister as well as at Burnstone – equity and financial markets has required exploration continues at Hollister and will management to re-assess the development be focused on in-fill drilling and the Hatter schedule of both advanced-stage projects and Graben area, while exploration drilling at planned exploration. Burnstone is now focused on underground delineation and evaluation of the initial Management has implemented a strategy of mining areas; cash preservation to ensure that Great Basin UÊ ,i«>}ÊÌ iÊ/>â>>ÊiÝ«À>ÌÊ Gold is able to meet contractual obligations projects for 2009, based on the and preserve shareholder value. availability of funding; and
This strategy entails: UÊ *>V}Ê}À>ÃÃÀÌÃÊiÝ«À>ÌÊ«ÀiVÌÃÊ>ÌÊ Tsetsera (Mozambique) and Kurils on hold UÊ ÌÕ}ÊÜÌ ÊÌ iÊ`iÛi«iÌÊvÊÕÀÊ until free cash flow is available to continue. Hollister and Burnstone projects to ensure that they are completed as planned and Since the fourth quarter of 2008 and early within budget; 2009, Great Basin Gold has launched various UÊ ÃÕÀ}ÊÌ >ÌÊ«À`ÕVÌÊÌ>À}iÌÃÊ>ÀiÊiÌÊ fundraising initiatives to ensure adequate cash (which will deliver the necessary cash flow resources for project development. The strategy to finance operating and development entailed a three-phase approach comprising activities); a combination of debt and equity, taking into account the availability of funding in the market UÊ «ÀÛ}ÊVÃÌÊ>>}iiÌÊ«ÀVi`ÕÀiÃÊ as a result of the global economic crisis.
l GREAT BASIN GOLD l ANNUAL REPORT 2008 5 Responsible Delivery
PERFORMANCE SUMMARY
6 l GREAT BASIN GOLD l ANNUAL REPORT 2008 PERFORMANCE SUMMARY
PERFORMANCE SUMMARY: BURNSTONE UÊ ÊÌÌ>ÊvÊ£Ç]Óä{vÌÊx]Ó{ήÊvÊ underground development has been The following milestones were reached: completed, of which 6,099ft (1,859m) UÊ "Ê"VÌLiÀÊÓn]ÊÓään]ÊÌ iÊ i«>ÀÌiÌÊ was directed at exposing the veins. Total of Minerals & Energy (DME) granted the development to December 31, 2008 is New Order Mining Right to mine for gold 22,132ft (6,746m). and silver in the project area. UÊ / iÊ«iÀÌÊvÀÊ>À}iÀÃV>iÊÌiÃÌÊ}Ê UÊ ÌÊÌ iÊi`ÊvÊ iViLiÀÊÓään]ÊÌ iÊÛiÀÌV>Ê activities was granted by the Nevada shaft reached a depth of 538ft (164m). Division of Environmental Protection to UÊ >Õ>ÀÞÊÓääÊÃ>ÜÊÌ iÊVÃÌÀÕVÌÊvÊÌ iÊ extract up to 275,000 tons of ore per year. permanent head gear. UÊ ÊÕ«`>Ìi`Ê Ê{Σä£ÊÌiV V>ÊÀi«ÀÌÊ UÊ / iÊÕ`iÀ}ÀÕ`Ê`iViÊ>`Û>Vi`ÊÌÊ was filed in March 2009. 6,867ft (2,093m) of its 7,590ft (2,314m) UÊ ÊvÕÀÌ iÀÊ{]{ÈävÌÊ£x]äÇx®ÊvÊ planned length by December 31, 2008. underground delineation and exploration The total length achieved, including all drilling on the Gweniviere-Clementine vein secondary pre-development, is 9,702ft system was completed. (2,957m). The reef will be intercepted at UÊ / iÊ>ÌÌiÀÊÀ>LiÊÛiÊÃÞÃÌiÊÜ>ÃÊ 7,218ft (2,200m). discovered to the east of the Hollister UÊ ÊÕ«`>Ìi`Ê Ê{Σä£ÊÌiV V>ÊÀi«ÀÌÊ project area. was filed in March 2009.
UÊ -ÕÀv>ViÊiÝ«À>ÌÊ`À}Ê`ÕÀ}ÊÓäänÊ PERFORMANCE SUMMARY: CORPORATE involved a further 31 boreholes, totalling The following milestones were reached: 80,106ft (24,415m) drilled on Areas 1, 3 UÊ / iÊf£xäÊÊ1-f£ÓÎÊ®ÊiµÕÌÞÊ and 4. The drilling has confirmed further unit offering was successfully completed areas of mineralisation in Area 1, as well in March 2009, with the proceeds to be as increased channel thickness, spreading used to bring the Burnstone project into into Area 4. commercial production.
PERFORMANCE SUMMARY: HOLLISTER UÊ iViLiÀÊÓäänÊÃ>ÜÊÌ iÊÃÕVViÃÃvÕÊ placement of 51,500 Senior Secured Notes The following milestones were reached: >ÌÊf£]äääÊ1-fnÓ£®Êi>V ]ÊÌÊw>ViÊ UÊ xä]£È£ÊÌÃÊvÊÀiÊqÊ>ÌÊ>Ê>ÛiÀ>}iÊ}À>`iÊ the acquisition and refurbishment of the of 1,61 equivalent gold oz/ton – were Esmeralda mill and continue the funding of extracted from trial mining activities. both the Hollister and Burnstone projects.
UÊ ÎÎ]nÎäÊÌÃÊvÊÀiÊÜiÀiÊÌÊÌÀi>Ìi`]Ê UÊÊ À}Ê«À}À>iÃÊ>ÌÊ ÕÜiÃ]ÊÜiÀÕÊ thereby advancing metallurgical test work. and Lubando prospects in Tanzania were UÊ / iÊ ÃiÀ>`>Ê«À«iÀÌÞÊ>VµÕÃÌÊÜ>ÃÊ completed. completed, thereby securing an in-house UÊ ÊÎÎ iÊ`>`Ê`À}Ê«À}À>iÊ milling solution for Hollister ore. was completed in Kurils, eastern Russia.
l GREAT BASIN GOLD l ANNUAL REPORT 2008 7 Responsible Delivery CHAIRMAN’S LETTER
Dear Fellow Shareholder It should have been a time when gold investing was at the fore, but the stress was so great 2008 was an astonishing year, and we will that everything was simply sold. It was a time be talking about it for years to come. of liquidation, not valuation. Mining companies around the world were tremendously stressed We shifted from a position of confidence and and had to react immediately, implementing stability in the first half, to unprecedented drastic measures to ensure survival and economic capitulation and panic in the latter. long-term viability. At Great Basin Gold, we The downturn came quickly and ferociously, were also stressed as we were in the process eliminating any liquidity in the equity markets of building two mines – one in South Africa and banking sector, affecting virtually every and the other in Nevada, USA. I am pleased segment of the economy and industry, with to report that in times of stress we really found commodity markets severely hit. our “true mettle”.
I am confident that we will not only survive but we will thrive as we move forward in building our Company.
Ronald W Thiessen, Chairman of the Board
8 l GREAT BASIN GOLD l ANNUAL REPORT 2008 CHAIRMAN’S LETTER
The Company needed to respond quickly to Hollister ore and will significantly reduce our the changed conditions in order to preserve total costs of production. liquidity, reassess our development plans and schedule, and put together financing and Burnstone reached a number of milestones, contingency plans in the event that funds could including the construction of the permanent not be raised. In short, we have been successful head gear, advancement of the vertical shaft in that we have been able to raise the and underground decline and the granting necessary capital to preserve our development of the New Order Mining Right by South plans and schedule. I know many companies Africa’s DME. faced the prospect of drastic measures during these times, and those with committed On the corporate front, the Company received management were able to persevere. significant support and confirmation of our projects’ value in the form of successful While it is still too early to state that the financial transactions. Great Basin Gold was global recession has bottomed, we have seen able to complete several large financings, decisive action from major governments to which include: inject liquidity into capital markets. Panic has UÊ f£xäÊÊ1-f£ÓÎÊ®Êequity subsided or, perhaps more appropriately, offering, with proceeds to be used to bring been replaced by caution. The gold sector the Burnstone project into commercial reacted positively in the early part of 2009 production; and and gold equities have recovered to an extent from their lows in the latter part of 2008. UÊ *>ViiÌÊvÊx£]xääÊ-iÀÊ-iVÕÀi`Ê ÌiÃÊ>ÌÊf£]äääÊÊ1-fnÓ£®Êeach, to At the beginning of 2008, Great Basin Gold finance the acquisition and refurbishment was gaining recognition as an emerging gold of the Esmeralda mill and continue the producer and preparing to join the ranks of funding of the Burnstone project. junior gold producers, with our Hollister and Burnstone projects at advanced stages of The strong vote of confidence from the market development. That view is again dominating ensures Great Basin Gold will achieve its the view of investors, potential investors, project development goals. It is also a sign analysts and others. that the long-term prospects for commodities are far from over. Emerging economies, Hollister has made considerable progress in specifically India and China, are on a path terms of ongoing delineation of resources, towards urbanisation, which should improve trial mining activities which commenced living standards for citizens. Both countries in 2008, and new discoveries. The ore are top consumers of gold and we expect this extracted from the trial mining was treated trend to continue for many years to come. at toll facilities, allowing us to produce 80,000 ounces for the year. The opportune The Board of Directors is tasked with acquisition of the Esmeralda property in late providing guidance and support to Great 2008 secured an in-house milling solution for Basin Gold management. We will continue
l GREAT BASIN GOLD l ANNUAL REPORT 2008 9 CHAIRMAN’S LETTER
to uphold the highest standards of Board “Never allow a crisis to go to waste”. We governance and to represent shareholder have used it to reflect upon and adopt the ÌiÀiÃÌðÊ/ ÃÊ«>ÃÌÊÕi]Ê >Û`ÊÊ «i>`Ê necessary attitudes and protocols and I am stepped down as a Director. We thank him confident that we will not only survive but we for his years of service and wise counsel will thrive as we move forward in building our on the Board. I would also like to thank all Company. This crisis has made us stronger. the Board members for their counsel and dedication in 2008. On behalf of the Board,
I highly commend the Great Basin Gold team – management, staff, employees and contractors – for their tremendous achievements over the course of the past year and for steering the Company through uncharted territories. Ronald W Thiessen There is a saying that is apt for these times: Chairman of the Board
10 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
CHIEF EXECUTIVE OFFICER’S REVIEW
t Great Basin Gold, we are responsible to all our stakeholders – the environment, our people, the governments A in all our jurisdictions and the communities in which we operate – but ultimately we are accountable to our shareholders.
Our ongoing commitment to Responsible again rendered that plan unfeasible. Delivery means our philosophy at Great Basin Gold has been to take the way we do things The Burnstone project was two and a half a step further than is really necessary, with years into its development and just 18 months the resources that are available, and deliver from commissioning in mid 2010. Stopping according to our values of respect, honesty, underground mining and infrastructure trust and integrity. development would have severely impacted on the Company’s valuation as well as the Taking our business that step further was difficult ability to raise funds to resume activities in during the latter half of 2008, which can only vÕÌÕÀi°Ê/ iÊÀiµÕÀiiÌÊÜ>ÃÊÌÊëi`Êf£Ç{Ê be described as a challenging year in which Ê1-f£{xÊ®ÊÊÓääÉÓä£ä]Ê the markets altered radically, liquidity dried up VÕÃÛiÊvÊfÎäÊÊ1-fÓxÊ®ÊÊ and capital became hugely expensive. pre-production costs. But as liquidity in the markets dried up, the South African banks Our strategy to transform the company from (which had agreed to provide project funding late-stage exploration to emerging producer for the Burnstone Mine) changed their was threatened by these significant changes, requirements, and instead of a programme of caused by a shift in global economies and co-funding, Great Basin Gold was required to the way business will be done in the next 12 ëi`ÊÌÃÊfnÈÊÊ1-fÇÓʮʫÀÌÊ to 24 months. We had to decide whether to of the capital to develop the mine before the downscale our activities at both our projects, banks would contribute their portion. maybe more so at our Burnstone Mine in South Africa, or to work on a solution which An additional requirement was to provide the would allow us to pursue our plans without L>ÃÊÜÌ ÊfÓÈÊÊ1-fÓÓÊ®ÊÊÃÌ>`LÞÊ losing momentum. Experience has shown equity, resulting in a minimum requirement of that restarting mothballed operations is not f££ÎÊÊ1-f{Ê®°ÊÊ`iVÃÊÜ>ÃÊ easily achievable, and the additional cost and taken to proceed with raising capital through potential delay in getting them up and running an equity offering in March 2009.
l GREAT BASIN GOLD l ANNUAL REPORT 2008 11 CHIEF EXECUTIVE OFFICER’S REVIEW
SHARE PRICE PERFORMANCE
VWAP prior to 23 Feb Gold price drops from high of US$1,000/oz to below US$900/oz during financing Announcement (TSX) 2.50 30 day C$1.80 Feb 3, 2009 Mar 13, 2009 1,000 60 day C$1.50 Results of trial Completion of 90 day C$1.40 mining and ongoing C$130 million unit offering metallurgical test work at Hollister Oct 30, 2008 2.00 Receive mining Dec 8, 2008 925 right for Burnstone Sign agreement to Spot Gold Price (US$/oz) from DME purchase Esmeralda mill
1.50 850 Mar 26, 2009
Share Price (C$) Announce Dec 16, 2008 Jan 22, 2009 exercise of over Close US$51.5 NDEP issues a allotment resulting 1.00 million offering of Water Pollution Feb 23, 2009 in further 775 Senior Secured Notes Control Permit for Announce public proceeds of and Warrants Hollister offering of C$19.5 million Nov 27, 2008 approximately Sign ore purchase agreement C$125 million with Newmont for Hollister of units 0.50 700 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Source: Bloomberg Share Price Gold Price
By raising the capital, we ensured the survival ensure that we are able to successfully extract of Burnstone Mine and the sustainability the narrow high-grade gold and silver veins. of Hollister, our project in Nevada, USA, The Hatter Graben discovery in early 2008 ÊÜ V ÊÜiÊ >ÛiÊëiÌÊfÈÇÊÊ continues to return good results from follow-up 1-fxÎÊ®ÊÌÊ`>Ìi]ÊÜÌ Êf{nÊÊ exploration drilling. 1-f{äÊ®ÊÃÌÊÌÊLiÊëiÌÊÊV>«Ì>Ê development, inclusive of the Esmeralda mill We are confident that continued exploration at refurbishment, in 2009 and 2010. both Burnstone and Hollister will deliver more of the good results we have seen to date. The next 12 to 15 months are critical for Burnstone, and during that time we During the year ahead, our focus will be on will develop the decline, complete the cash preservation and increasing production vertical shaft and other associated surface from current operations, and therefore vÀ>ÃÌÀÕVÌÕÀiÊ>`]ÊLÞÊÕiÊÓä£ä]ÊiÊ we have ceased active exploration on all 110, 000 ounces of gold. The plan is to prospects other than those at our Hollister commission the metallurgical plant by that and Burnstone properties. With respect to our time, with the ore from the stockpile and Tanzanian and Russian exploration projects, run-of-mine operations. we are completing technical reports on work undertaken during 2008 and will soon be During the past year, we made good progress able to better assess continuing exploration with trial mining at Hollister, extracting expenditure, once funding becomes available. approximately 80, 000 ounces at a grade of 1,6oz/t (54g/t), while focusing on various We are also completing a technical review mining methods which can be applied to of the Esmeralda property in Nevada, where
12 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
From front to back, left to right: Phil Bentley, Dawie Mostert, Boniface Ngarachu, Lou van Vuuren, Louis Coetzee, >Ê"ivÃi]ÊiÀ`Ê ««i>>À]Ê ÕÃÊ-V ii«iÀÃÊ>`Ê7iÊ iV>°
early indications suggest that prospects are ensured that our two current operations, positive. We have appointed a project team to Burnstone and Hollister, provide the company evaluate all historical exploration and drilling and its shareholders with an excellent return data and geological reports on the property. on investment. We are entering an exciting This process could take six months before any phase in the development of the company, with decision on either future exploration or mining both projects potentially reaching commercial can be made. production levels at below industry average cash costs. We also believe that, in time, our Though our plans for aggressive growth share price will move back to levels which take through exploration and value-enhancing into account the value of the organisation, as acquisitions have been curtailed, we have well as trading in line with our peer group.
ATTRACTIVE VALUATION AND RE-RATING POTENTIAL
$139 Enterprise Value / Measured, 1.3x Price / Net Asset Value Indicated & Inferred Resources 1.2x $103 (US$/oz) 0.9x 0.8x 0.8x 0.8x 0.7x $58 $43 0.5x
$22 $16 $10 $4 DRD DRD Gold Gold Allied Allied Jaguar Jaguar Aflease Aflease Alamos Alamos Nevada Nevada Anatolia Anatolia Centamin Centamin Great Basin Great Basin
Source: Company reports, share prices as at May 7, 2009 Note: Share prices as at May 7, 2009 Note: Non-gold bi-products converted to gold equivalent ounces at prices of Net asset values as per RBC Capital Markets’ equity research estimates 1-fÇÈäÉâÊÕ]Ê1-f£ÓÉâÊ}Ê>`Ê1-fxäÉLÊ13O8
l GREAT BASIN GOLD l ANNUAL REPORT 2008 13 CHIEF EXECUTIVE OFFICER’S REVIEW
The progress towards delivery was made spurred on by exceptional levels of employee possible by input from all members of the engagement. We have made good progress team – not just my team, but also Paul Huet and I look forward to a challenging but and Chris Knoetze and members of their teams rewarding 2009. from Hollister and Burnstone respectively.
In conclusion, although the 2008/2009 world economic downturn seriously challenged our strategic intentions as a relatively young organisation, I am of the opinion that we have accelerated in leadership maturity and the development of our people. We will continue Ferdi Dippenaar to develop a value-based organisation, Chief Executive Officer
14 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery LEADERSHIP DEVELOPMENT
reat Basin Gold could have chosen a variety of strategic organisational design initiatives on which to build the G Company. We identified leadership development and a management approach based on project delivery principles as key to building a company that changes the way mining is done.
We do things differently, from an operations functioning, and strategic planning and point of view, but we’ve also chosen to do execution per operating level: executive business things differently when it comes to our people, management, technical managers and the our communication, our management and our frontline. From this programme, we plan to leadership approach. produce a continual stream of competent leaders who understand how to keep the business To focus leaders and teams on delivery, innovative while still achieving great results. we require an operating environment that facilitates employee initiative and recognises Leadership development is structured to enable sustained performance. technical leaders to exploit their high levels of competence – regardless of the functional To create these environments, leaders need to discipline, be it finance or mining – using be technically proficient in their functional areas facilitative coaching methods to allow self-reflection as well as capable of focusing their teams on and personal motivation, aligned to optimise both achieving common goals and connecting with team and strategic leadership dynamics. individuals, thus realising increased levels of employee engagement. Our intention is for our Leadership starts with the mind – the thinking employees to say outright that Great Basin Gold process. We have to think first. We have to is the best place to work, thus attracting the best think about what we are going to say and do, people in the industry. and think about the consequences. We have to think about our colleagues and the communities Our leadership development programme with whom we work. We have to think before integrates individual awareness, team we say and do.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 15 Responsible Delivery
HEALTH AND SAFETY
BURNSTONE the requirements of the DME. The Burnstone project has progressed well, considering that 60% of the workforce is local, The Company is in the process of introducing with no mining experience. The Company has behaviour-based safety training which will ensure adopted “Always Safe” as a motto, which that employees take the safety of their colleagues rests on our four pillars, namely: infrastructural as seriously as their own. This will be enhanced design; predictive people behaviour; systems by the Company’s decision to only employ staff and monitoring; and auditing. It is through these with qualifications of Grade 10 and upwards. pillars that the safety of the mine is cascaded to employees, specifically those who are new. The Burnstone project has been subjected to a full Presidential Audit and no negative feedback The Company has further adopted the Project was received. Management Approach as a platform to empower employees to undertake safety HOLLISTER planning and to understand the consequences The Hollister Mine worked 302,062 hours in of their actions. The 24/7 production approach 2008, with zero fatalities and only one Lost provides teams with adequate overlap to allow Time Accident. This is an exceptional record, continuity while enhancing production and given that this is a relatively new property ensuring that safety is adhered to at all times. being developed with new processes and new employees at all levels. In accordance with South African legislation, the Burnstone project is classified as a “middle In September 2008, Hollister Mine was notified mine”. As such, the project has had to complete that it had received several safety awards from system audits, the results of which were very the Nevada Mining Association for its 2007 good for a new project. This is also in line with performance. Submissions in five areas received
16 GREAT BASIN GOLD l ANNUAL REPORT 2008 l HEALTH AND SAFETY
We have developed a safety programme which uses lead indicators as opposed to lag indicators. In other words, we use safety meetings and plan our expectations rather than using past occurrences to monitor our safety record. In August 2008, Hollister won the Nevada State Mining Association award for the state’s safest mine.
Lee Morrison, Hollister Safety Manager
three awards. The mine itself was recognised for In addition to providing coverage for the having the lowest accident incident rate in the Hollister project, the teams provide backup to State of Nevada, for a mine its size. our neighbouring mines, operated by Barrick Goldstrike and Newmont Mining Corporation. In addition, two employees received awards: Red McKinnon, General Foreman of the Year, for his Hollister also has a fully-equipped mine innovative promotion of a safe work environment emergency response vehicle that is capable and his commitment to safety and health; and of operating underground and on surface Doug Crawford, Mine Superintendent of the Year, roads. Hollister has 15% of its workforce “first for his promotion of safety and health in his area responder” trained, with the goal of 25%. To of responsibility and his overall support of the become a first responder, an employee must mine safety programme. attend 40 hours of instruction and successfully pass a State of Nevada certified examination In 2008, the Hollister project recruited and retrain/recertify every two years. Because employees to serve on the underground mine the mine is 35 minutes’ air travel or 85mi rescue team. The Company purchased (137km) from the nearest medical facility, it is state-of-the-art self-contained breathing apparatus important that it has medically trained personnel and associated equipment to properly equip on site to render aid until further advanced life and train two complete mine rescue teams. support is obtained.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 17 PEOPLE
Over the last 18 months we have grown, Our culture entails being innovative while increasing the number of employees from 50 maintaining Responsible Delivery through to more than 400 on two continents, and with exceptional levels of employee engagement. We that we have seen the Great Basin Gold culture can deliver only if our people understand and starting to grow an identity. embrace the concept, as we believe people are
18 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
our only real differentiator. and that engagement is a very different way of leading people. We understand how ongoing Our leaders understand that sustained communication will help people to understand performance requires them to engage with their own purpose while developing a common their hearts as well as their hands and brains, purpose within the Company.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 19 Responsible Delivery CORPORATE SOCIAL RESPONSIBILITY
The Great Basin Gold CSR strategy and the UÊ >>}iÊÌ iÊ«iiÌ>ÌÊvÊÌ iÊ -,Ê aligned Corporate Social Investment (CSI) strategy strategy in accordance with the Company’s are operationalised, with the appointment of a Project Management Approach; credible in-country CSR partner to: UÊ `iÌvÞÊÀi>ÊVÕÌÞÊii`ÃÊÌ >ÌÊ>ÀiÊ
20 GREAT BASIN GOLD l ANNUAL REPORT 2008 l CORPORATE SOCIAL RESPONSIBILITY
aligned with host country development community expectations. planning and which optimise existing local and regional synergies; Our CSR strategy and programme are therefore aligned to government and local committees’ UÊ `iÌvÞÊ>`ÊÕÌÃiÊVÕÌÞÊi>`iÀÃÊÌÊi>`Ê programmes and priorities, and will help to and sustain CSR projects; establish global and country-based partnerships. UÊ >LiÊVÕÌiÃÊÌÊÌ>iÊÜiÀÃ «ÊvÊ CSR projects; Key CSR Focus Areas UÊ "ÛiÀÃiiÊÌiV V>Ê>`Ê}ÛiÀ>Vi To accomplish strategic CSR objectives, the training of community leaders and locals to Company has identified and adopted a number enhance CSI projects and, ultimately, the of key focus areas: education and training; Company’s local labour pool; and entrepreneurship and enterprise development; community engagement; community health and UÊ }>}iÊÜÌ ÊÌ iÀÊÃÌ>i `iÀÃÊ«iÀ>Ì}ÊÊ wellness; local economic development; and host areas, and seek areas of collaboration. supply chain management.
BURNSTONE U Education and training At Burnstone, we are committed to contributing South Africa has struggled to improve to building a prosperous economy while the standard of education and learner being mindful of the health and wellbeing performance, specifically in mathematics of our employees, the community and the and science. Poor performance in these natural environment. areas not only has the potential to exclude South Africans from participating in the new Our Corporate Social Responsibility objective economy and earning good salaries, but is to implement meaningful, life-changing also could have a detrimental effect on the programmes by understanding the needs of economic growth potential of the country in our communities. relation to the rest of the world.
Many of our programmes revolve around The Company is addressing this problem establishing a sound social infrastructure focused by investing in mathematics and science on community health, poverty alleviation, skills teachers by means of upgrading their development, and job, small business and skills, and supporting learners by providing enterprise development. them with extra tuition via the Thuthuka programme. Since the start of our Burnstone operation, we have initiated a comprehensive CSR The Company has also introduced an programme, which resulted not only from our accounting programme in partnership with need to compile a Social and Labour Plan for the South African Institute of Chartered the purpose of acquiring a mining right, but Accountants (SAICA). In 2008, 557 learners also from a conscious decision taken to participated in the mathematics, science, periodically engage with the community as accounting and English supplementary part of the social dialogue and management of
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 21 CORPORATE SOCIAL RESPONSIBILITY
classes and 27 teachers attended educator A demand-driven approach to local skills upgrade programmes. enterprise development was adopted, targeting opportunities within the Company’s Over 1,000 learners and community business, inclusive of its supply chain, members and over 10 companies, but with the ultimate goal of creating government departments and tertiary sustainable enterprises. institutions participated in the 2008 Career Expo, initiated by the Company. This resulted in the creation of a cleaning and laundry service, sustaining 13 new Great Basin Gold focuses on recruitment jobs and providing services to Burnstone and employee skills development needs, Mine as well as the broader community. and 2008 Thuthuka programme learners who were interested in a career in mining A group of emerging farmers has been assisted have been recruited into the skills training with land and mentorship to grow sunflowers. programme, while some are beneficiaries of The project comprises 10 community members the bursary scheme. who are leasing 300ha of Company land to grow crops for food production. Furthermore, 67 Grade 12 participants in the mathematics and science programme were U Community engagement given an opportunity to visit Burnstone Mine. Since the construction phase of Burnstone Mine, the Company has taken a conscious UÊ Entrepreneurship and enterprise decision to invest in the surrounding development community, and will continue to do so Our enterprise development programme during the life of the mine. seeks to integrate the local community with the mainstream economy – a Every six months, at the mine itself, transformation which, we believe, will the Company gives the community the not only improve the quality of life of the opportunity to raise issues on sustainable community around Burnstone Mine, but will development projects in the area and also grow and increase the local economy’s contribute suggestions on how Great overall sustainability. Basin Gold can assist to maintain and
22 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
enhance the quality of life of the development in the Dipaleseng area. surrounding communities. U Supply chain management U Community health and wellness The Company’s procurement strategy caters The prevalence of HIV/Aids in the for measures to attract outside suppliers into surrounding community is a source of the area for possible franchises/partnerships concern. We have recently upgraded and joint ventures with local suppliers. three Multi-Purpose Centres that form part of an orphan feeding scheme in the Developing a local supplier base Dipaleseng area. During 2006 and most of 2007, procurement spend was mostly on U Local economic development acquisition of land, contractors and specialist The Company has made a significant services such as drilling and construction. contribution to Dipaleseng’s Integrated Development Planning by providing project In the latter part of 2007, and from the management capacity to the municipality. beginning of 2008, a large amount of the expenditure was incurred in the purchasing This has made it possible for the municipality of capital equipment and for mine construction- to access infrastructure development grants related activities such as shaft sinking. from national government. This initiative resulted in the signing of a Land Availability By the end of the 2008 financial year, Agreement between the Dipaleseng more than R60 million had been spent with Municipality and the Mpumalanga Housing suppliers in Mpumalanga. We forecast Development Finance Company for the spending another R100 million plus in construction of 188 units in the area. The Mpumalanga in the next two to three years. housing project will be finalised in 2009. Local and provincial suppliers form an In addition, we have signed a integral part of a very flexible procurement memorandum of understanding with the strategy for the next 20 years, and we are Mpumalanga Economic Growth Agency confident that a large amount of mining (MEGA) to assist with local economic consumables will be purchased from these
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 23 CORPORATE SOCIAL RESPONSIBILITY
suppliers when the mine is in full production.- management process, to ensure that all In acknowledgement of the need to suppliers are reviewed against agreed develop local suppliers to build their criteria and to promote a healthy business capacity in order to satisfy the mine’s goods relationship. and services needs and enable harnessed used of local resources, the Company HOLLISTER championed the establishment of a local In June 2009, Great Basin Gold purchased four Chamber of Commerce. sections in Lander County along Rock Creek and another section west of Rock Creek to prevent Furthermore, initiatives are under way future real estate or mineral development on to encourage larger manufacturers and these lands. distributors to consider offering franchise opportunities to local entrepreneurs or The reason for the purchase of the land lay opening a local branch of their business. in the fact that the Company had determined The possibility of joint ventures between that many Western Shoshone have used small local suppliers and these suppliers the Rock Creek area for over 700 years for are a real opportunity in the region that will traditional purposes. In light of their cultural be properly investigated and explored. importance, Great Basin Gold purchased the lands to preserve them as part of the company’s Contribution towards local supplier philosophy of recognising our responsibility development to the communities in which we operate. We In our endeavours to improve local content have spent $1.6 million (US$1.3 million) at through local supplier development, the our Burnstone project in South Africa as part Company assists local suppliers with specific of our CSR and we are committed to making payment terms at the commencement of comparable social investments in and around contracts. The payment cycle for these our other projects, including at our Hollister suppliers has been reduced from 30 to project in the USA. 14 days. The purchase will safeguard the lands from Supplier performance management development and allow Western Shoshone Great Basin Gold has initiated a supplier people to continue to have access to them for
24 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
traditional uses. Great Basin Gold proposes to guarantees they will be held for eventual transfer donate both the surface and the mineral estates to the tribes and managed in ways that will on these lands for the benefit of the protect these important cultural sites. five federally-recognised Nevada Western Shoshone Tribes. The ultimate disposition of the The Company is discussing a management lands will be determined during consultation agreement with the BLM to ensure the lands are between the US Bureau of Land Management managed appropriately prior to transfer. Great (BLM) and the tribes. Basin Gold proposes to maintain the roads until the transfer so Western Shoshone tribal members As a part of the purchase, third-party rights to will have unrestricted access to the Traditional develop the mineral estate on the four parcels Cultural Property throughout the year. It also along Rock Creek have been terminated. This expects the management agreement to address will ensure that no development will occur protection of aquatic, avian, and terrestrial on these four parcels. Great Basin Gold will wildlife habitats along the Rock Creek drainage continue to encourage the Mineral Lessee of the and preservation of the scenic values associated fifth parcel to extinguish the lease. with Rock Creek Canyon.
These lands are among 15 properties currently The Company created the Rock Creek competing for funding under Round 10 of the Conservancy, LLC for the purpose of holding Southern Nevada Public Lands Management Act lands recently purchased by it, and the (SNPLMA) programme. The Company applauds establishment of the Rock Creek Conservancy the Elko Office of BLM for nominating the Fund. In establishing the Rock Creek Rock Creek lands for possible future purchase Conservancy Fund, Great Basin Gold created using SNPLMA funds. However, given the a resource that the Western Shoshone Tribes current economic climate, the other competing can use in the future for managing the properties, and the length of time it will take to Rock Creek lands. The Company donated complete the SNPLMA review process, we were US$122,500 as seed capital to the Rock concerned that the Department of the Interior Creek Conservancy Fund. might not select these lands for purchase or that another party might buy them for development. Great Basin Gold’s purchase of these lands
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 25 Responsible Delivery ENVIRONMENTAL MANAGEMENT
e are committed to standards of excellence in our environmental practices. We will meet all legal W requirements applicable to our activity. Where feasible, we will exceed the legal requirements. Where there are no applicable legal standards, we will apply responsible practices.
To this end, we expect our employees to: violations or suspected violations to the comply with applicable environmental appropriate people. requirements; seek guidance when they are unsure of the standards; consider what BURNSTONE extra steps we may follow to enhance our The Burnstone project has evolved from a environmental performance; and report so-called greenfields project to a near-production
26 GREAT BASIN GOLD l ANNUAL REPORT 2008 l ENVIRONMENTAL MANAGEMENT
project in the past three years. environmental liabilities at the end of the project.
New infrastructure such as a decline shaft, The waste rock material is crushed into waste rock dump, change houses and aggregates, which are used in the development temporary administration offices are under of infrastructure within the mine environs and construction. The development footprint is limited also sold to the community. This reduces the to a bare minimum, clearing vegetation only in footprint of the waste rock dump as well as the areas necessary for construction purposes, and rehabilitation costs required to finally close the leaving the rest of the site in its natural state. operation at the end of the mine’s life.
The infrastructure is made up of makeshift The Company is acutely aware that material that is easy to remove without major mining activities may impact on the natural breakdowns and rehabilitation, thus reducing environment. However, we believe that
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 27 ENVIRONMENTAL MANAGEMENT
mining can co-exist with the environment if footprint and global warming, but also creates mining activities are conducted in a safe and individual awareness and responsibility towards responsible manner. We have identified all the environment. activities that could have a negative impact on environmental media such as air, water and Protected birds and animals such as black land, and have developed an environmental wildebeest, grass owls and the Giant Bullfrog management programme to monitor and frequent the Burnstone property, and we are effectively manage them. taking special precautions to ensure that their habitat is protected. The protection and conservation of the water resource is our priority, for the benefit of our Our specific priorities relating to the employees as well as the broader community. management of waste include, among others, Water management initiatives are in place to the development of a Waste Information System conserve water by recycling, treating and (WIS). This involves: identifying and quantifying re-using waste water for underground mining of types of waste; separating of waste at source; as well as surface activities. and maximising the re-use and recycling of waste materials, thereby minimising the disposal We have established water sampling points, of waste by landfill. which we monitor on a monthly basis through our water sampling programme, and which We have partnered with the local municipality have also extended to the adjacent farmers. and the surrounding community in a waste We also provide potable water to the local management programme. This involves the school and the adjacent community. clearing of waste heaps into open spaces and play parks. We have at least 40 beneficiaries Dust suppression measures are in place to involved in our waste minimisation and recycling prevent and minimise air pollution on all internal initiative, of which eight are involved in the roads. Continuous consultation with provincial running of a buy-back centre which is co-funded and national authorities bore fruit as the mine by the municipality and the mine. was allowed to extend the dust suppression programme to include the provincial road HOLLISTER running north of the site. This has and will The Hollister project entails the development continue to improve the air quality for the benefit of a remotely located underground mine with of everyone in the area. minimal surface disturbance. Most of the existing and proposed surface facilities are Part and parcel of our environmental culture contained in areas previously disturbed by is to invest in the environment. To this end, surface mining. we have developed the tradition that involves Portions of the Hollister mine are located every employee and all first-time visitors to the within boundaries of the Tosawihi Quarries Burnstone project in planting an indigenous Archaeological District, which is currently tree. To date, 310 indigenous trees have eligible for the National Register of Historic been planted in the surrounding area. This not Places as a Traditional Cultural Property, and only contributes to the reduction of our carbon has been designated as an Archaeological
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District by the BLM Elko Field Office. ongoing traditional practices of contemporary native people, including many members of the The Tosawihi Quarry area is one of the most Western Shoshone Tribe. unique and well documented traditional/ cultural/spiritual use sites on lands administered The majority of surface facilities will be constructed by the BLM Elko Field Office. Known for an or installed within the east pit area or within areas abundance of artefacts supporting human that have been disturbed by past surface mining occupation for approximately 11,000 years, activities. Although the east pit is located within the Tosawihi Quarry holds great significance the Tosawihi Quarry’s Archaeological District to local and regional tribes. Renowned for the boundary, previous open pit mining has disturbed quality of white chert used in ceremonies and the area, thus the surface facilities will not affect tool making, the Tosawihi Quarry supports any cultural sites within this district.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 29 ENVIRONMENTAL MANAGEMENT
In addition, the Company has put a number of the environment. All drilling fluids are contained measures, processes and procedures in place and recycled and all drill cuttings are removed in order not to disturb any cultural resources that from the site. might exist in the area. This includes construction of the ventilation borehole located to the north- The Company has developed the “Playpen northeast of the east pit as well as pipelines Concept” to confine drilling activities to connecting the rapid infiltration basins (RIBs) in approved areas, which entails liaison with the the Little Antelope Creek drainage. The BLM BLM archaeologist and officials to mark drill has designated a minimum 100ft (approximately site boundaries in order to avoid damage to 30m) buffer zone around all cultural resource lithic scatters related to the Tosawihi Quarry and sites, to which all facilities adhere. environmentally sensitive areas.
The Company has also set a new industry The Company then places an orange plastic standard for zero-discharge drilling in sensitive fence around the site, to delineate drill pad settings. Portable sumps are deployed with all boundaries, and flags access route boundaries drilling rigs to prevent any potential discharge to to prevent off-road travel.
30 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
REVIEW OF OPERATIONS: BURNSTONE
As a new mine, we have been able to introduce new ways of doing things. We pride ourselves in being innovative and doing things differently. One of our differentiators is our high percentage of local employees (60%) and women (20%). We have a very aggressive training programme and we are training women to do jobs such as drill rig operation, previously the domain of men. We’re fortunate to be able to mine at very shallow levels, with the first block only 385m below the surface, which helps with costs. Chris Knoetze, General Manager, Burnstone Mine
DESCRIPTION AND LOCATION property through to the feasibility study The Burnstone property is located approximately level, and is currently in the mid-stage construction 50mi (80km) southeast of Johannesburg, near the phase, with a decline to the reef and vertical town of Balfour in South Africa’s Mpumalanga shaft nearing completion. Work on the Province. metallurgical processing plant has commenced, with completion expected by mid 2010. Geologically, it is situated in the South Rand Basin of the Witwatersrand Basin, and Gold occurs within the Kimberley Reef, a comprises mineral rights covering approximately gold-bearing conglomerate unit that is one 35,000ha situated on portions of 32 mineral of four main gold-bearing horizons in the titles, known in South Africa as “farms”. Witwatersrand Basin. The deposit on the Burnstone property comprises four areas. Areas Continuing advanced exploration and 1 and 2 are the most advanced and are now pre-development work has been underway included in the mine plan, and Areas 1, 2 and at the Burnstone property since 2007. It has 4 are the focus of ongoing exploration drilling. progressed from an advanced-stage exploration Gold mineralisation in the resource area is
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 31 REVIEW OF OPERATIONS: BURNSTONE
LOCATION OF BURNSTONE PROPERTY
West Rand Goldfields N Carletonville Goldfields Gold Fields AngloGold Pamodzi, Harmony Harmony, DRD East Rand Goldfields Klerksdorp Goldfields Johannesburg Pamodzi AngloGold Simmer & Jack Pamodzi
Balfour Evander Goldfields Harmony South Rand Goldfields Burnstone Mine
In excess of 360 surface boreholes completed in the Burnstone project Johannesburg area, thereby reducing technical risk associated with orebody South Africa Welkom Goldfields Source: Great Basin Harmony Pamodzi 50 km
Source: Great Basin Gold
distributed in conglomerate beds over an area achieve a target of 26% ownership of its South of 11,8mi (19km) by 3.6mi (5,8km). The African projects by historically disadvantaged conglomerate horizon in the measured resource South Africans (HDSAs) by 2014. portion of the resource area averages 53cm in thickness. Gold-bearing Kimberley conglomerate In 2007, Great Basin Gold completed a has been intersected by exploratory drill holes in series of transactions whereby, in order to areas outside of the resource area on the Burnstone achieve compliance, Tranter Burnstone (a BEE property, encompassing an even greater area. corporation) became the owner of 19,938,650 new common shares in Great Basin Gold. Burnstone property titles are 100% held through This was deemed equivalent to the 26% in the a subsidiary and are held royalty-free, except Burnstone property, as required by the Mineral for a 4% royalty on refined gold, payable to the and Petroleum Resources Development Act government of South Africa, as provided for in (MPRDA) and the Mining Charter. the Mineral and Petroleum Resources Royalty Bill (Royalty Bill). It is uncertain when the Royalty Bill There is an agreed lock-up period of at least will come into force, as the government of South three years, during which the common shares Africa has recently stated that the implementation owned by Tranter cannot be traded. After the of the royalty regime is to be deferred to 2010, March financing, Tranter owns approximately due to the current global economic conditions. 6% of the issued share capital of Great Basin Gold on a fully diluted basis. South Africa’s Black Economic Empowerment (BEE) legislation requires the Company to By concluding this transaction with Tranter
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Burnstone, Great Basin Gold complied with the into an option agreement with Southgold, to MPRDA and was able to submit its application purchase up to 100% of Southgold on a phased for a Mining Right in the name of Southgold. basis. Southgold hence became a wholly- owned subsidiary of Great Basin Gold. On October 28, 2008, the DME granted a Mining Right to Southgold to mine gold, silver GEOLOGY and aggregate at the Burnstone property. The The Witwatersrand Basin is underlain by Mining Right was notarially executed by the DME an Archaean (>3.1 Ga) granite-greenstone and the Company, effective February 17, 2009 basement and rocks of the 3,086 to 3,074 Ma for a period of 19 years, and is renewable. Dominion Group, and is unconformably overlain by the Ventersdorp (2.7 Ga), Transvaal (2.6 Ga) HISTORY and Karoo (280 Ma) Supergroups. Exploration drilling in the Burnstone property area was conducted intermittently between Prior to 1990, it was widely believed that the 1974 and 1993, initially by Union Corporation, Archaean granites represented the floor upon and later by Gencor. Anglovaal also drilled a which the sediments had been deposited. number of holes during this period. However, recent U-Pb isotope dates of granites adjacent to the basin indicate that several Southgold Exploration (Southgold), a privately intrusions were emplaced between 3,074 and owned resource company, drilled three 2,714 Ma, and that each event might have boreholes during the late 1990s and in pre-dated sedimentation in the basin. early 2000, and an additional 15 from May to July 2002. The Witwatersrand deposits probably represent gold concentrations, called placer deposits (or Southgold then commissioned Global Geo “reefs”, in local mining terminology), hosted within Services to geologically model the deposit coarse-grained sediments (conglomerates) deposited and estimate a resource contained in an area in braided stream channels on broad river plains. that approximates the now-called Area 1 gold deposit on the Burnstone property. Economic gold concentrations commonly extend for several kilometres down the dip, In November 2002, Great Basin Gold entered and for up to 30mi (50km) along strike of the
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 33 REVIEW OF OPERATIONS: BURNSTONE
sedimentary rock units. Gold occurs as detrital 2.5mi (4km) apart, have uplifted the central grains in nugget-like shapes, and secondary portion of the gold corridor. As a result, a (re-crystallised) grains, ranging in size between substantial portion of the gold-bearing horizon 0.005mm and 0.5mm diameter. along the main deposit trend lies between 820ft and 2,461ft (250m to 750m) in depth, which is The South Rand area is located in the relatively shallow for Witwatersrand gold deposits. northeastern part of the Witwatersrand Basin. The average thickness of the reef is 35cm. An 11mi (18km) northwest-southeast gold trend has been outlined on the Burnstone property that EXPLORATION AND MINERALISATION appears to be associated with a large braided Surface drilling has been ongoing since January channel system extending over the property. 2003 and now totals over 350 boreholes. During 2009, the Company plans to focus Drilling has also shown that two northwest- drilling on underground stope delineation and southeast trending sub-parallel faults, spaced structural investigations.
Mineral Resource Estimates
CAUTIONARY NOTE TO INVESTORS CONCERNING ESTIMATES OF MEASURED AND INDICATED RESOURCES The following table uses the terms “measured resources” and “indicated resources”. We advise investors that while these terms are recognised and required by Canadian securities regulations (under NI 43-101), the Securities and Exchange Commission (SEC) does not recognise these terms. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into U.S. SEC-defined reserves. See “Strategic Risks”.
MEASURED AND INDICATED MINERAL RESOURCES AS AT JANUARY 2008 – BURNSTONE PROPERTY Cut-off Tonnes Grade Contained Gold(1)(2) Category (cmg/t) (millions) (g/t) (oz) 350 39.0 7.56 9,474,000 Measured 400 33.8 7.80 8,484,000 350 15.7 4.95 2,503,000 Indicated 400 15.1 4.89 2,372,000 350 54.7 6.81 11,977,200 Measured & Indicated 400 48.9 6.90 10,856,000
NOTES TO TABLE: (1) Conversion factor of 31.103 was used to convert grams to ounces for contained metal. (2) Metallurgical recovery was assumed to be 100% for contained metal calculation.
34 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
CAUTIONARY NOTE TO INVESTORS CONCERNING ESTIMATES OF INFERRED RESOURCES This section uses the term “inferred resources”. We advise investors that while this term is recognised and required by Canadian regulations, the SEC does not recognise it. “Inferred resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of a mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of economic studies, except in rare cases. Mineral resources that are not mineral reserves do not have demonstrated economic viability. None of the following mineralisation has been demonstrated to be ore, nor is it considered to be a mineral reserve. Investors are cautioned not to assume that any part or all of an inferred resource exists, or is economically or legally mineable. See “Strategic Risks”.
INFERRED RESOURCES AS AT JANUARY 2008 Cut-off Tonnes Grade Contained Gold(1)(2) Category (cmg/t) (millions) (g/t) (oz) 350 18.6 4.42 2,642,000 Inferred 400 17.0 4.37 2,394,000
NOTES TO TABLE: (1) Conversion factor of 31.103 was used to convert grams to ounces for contained metal. (2) Metallurgical recovery was assumed to be 100% for contained metal calculation.
Mineral Reserve Estimates
CAUTIONARY NOTE TO INVESTORS CONCERNING RESERVE ESTIMATES The following mineral reserve estimates that have been calculated in accordance with NI 43-101, as required by Canadian securities regulatory authorities. For United States reporting purposes, SEC Industry Guide 7 (under the United States Securities Exchange Act of 1934 (the “Exchange Act”)), as interpreted by Staff of the SEC, applies different standards in order to classify mineralisation as a reserve. As a result, the definitions of proven and probable reserves used in NI 43-101 differ from the definitions in the SEC Industry Guide 7. Under SEC standards, mineralisation may not be classified as a “reserve” unless the determination has been made that the mineralisation could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralised material as reserves under the SEC standards. Accordingly, mineral reserve estimates contained in this AIF may not qualify as “reserves” under SEC standards. In addition, disclosure of “contained ounces” is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report mineralisation as in-place tonnage and grade without reference to unit measures.
Mineral reserves are declared at a cut-off recovery (95%) and royalties (4%) to the gold content of 400cmg/t (4g/t over equivalent of proven and probable reserves 100cm). The portion of the mineral disclosed below. resources that were included in the mine plan were modified inclusive of mining The proven and probable reserves have been dilution (minimum stoping width 90cm with determined in terms of Canadian regulations 10cm dilution; minimum tramming width under NI 43-101, which differ from the SEC 120cm), mining gold losses (10%), metallurgical standards for such classification.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 35 REVIEW OF OPERATIONS: BURNSTONE
PROVEN AND PROBABLE RESERVES AT AT FEBRUARY 2009 Tonnes Grade Au Content Category (millions) (g/t) (oz) AREA 1 Proven 20.7 4.59 3,052,000 Probable 1.9 4.22 252,000 AREA 2 Proven 6.9 3.32 741,000 Probable 0.5 3.22 51,000 AREA 1 & 2 Proven 27.6 4.27 3,793,000 Probable 2.4 4.01 303,000 Total 30.0 4.25 4,096,000
ADDITIONAL INFORMATION: (1) Reserves calculated at a 4g/t cut-off.
MINING OPERATIONS tabular, relatively flat dipping orebodies has been used in Australia and has been Mining Method experimented with in South Africa at a number The current mine plan is based on flexible, of mines. mechanised materials handling and conventional narrow reef underground mining of the deposit Trial mining with this method has shown on the Burnstone property, utilising a combination potential for improved safety, reduced dilution of a decline and a vertical shaft for access for and improved productivity. The main safety Area 1 and a twin decline for Area 2. feature of the proposed mining method is that entry by workers into the stope is not required. Development will occur in two phases, and a Initial costing work, conducted at a concept 14.765ft wide by 15.75ft high (4.5m x 4.8m) study level of detail, showed potential cost decline will be developed first to enable early savings by using LHS. access to the orebody for some mining. Mine Development The Company is currently investigating the The first of a two-stage underground access opportunity to use alternative mining development programme began in July methods at the Burnstone property to 2006. Development and construction improve safety, productivity and potential programmes are ongoing and on December profitability. 31, 2008 approximately 6,867ft (2,093m) of the planned 7,590ft (2,314m) of decline In December 2007, Great Basin Gold development were completed. commissioned Turgis Consulting to evaluate the possibility of using Long-Hole Stoping (LHS) Additional breakaways to reef positions have at Burnstone. The concept of LHS in narrow, been established. A total of 256ft (78m) is
36 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
left to Block B, where stoping is scheduled to being jointly developed with Eskom. Power start in the second quarter, and 581ft (177m) shortfalls during the project construction phase left to Block C, where stoping is scheduled to have been suitably addressed by diesel start in the third quarter. The equipment required generator packs on site. for the stoping of Block B is already on site and the crews have been trained. The metallurgical plant is nearing completion of its design stage, and refurbishment and construction is The construction of the vertical shaft commenced expected to commence in 2009. The metallurgical in early 2008, and is intended primarily for plant was initially designed for a production rate rock hoisting, but will also be equipped for the of 125,000 tonnes per month. However, this insertion and extraction of miners and material. design – with the inclusion of Area 2 in the initial Life-of-Mine (LOM) plan – has been increased by The vertical shaft has progressed to 538ft a further 50,000 tonnes per month to 175,000 (164m) below surface, with the head gear tonnes per month capacity. construction completed. Currently, preparations for the main sink phase to 1,644ft (501m) A metallurgical update, currently being completed, depth are nearing completion, and the vertical is focusing on detailed engineering and design. shaft is on track to be commissioned by 2010. The mills have been subjected to non-destructive testing to determine the level of refurbishment Electrical power supply to the mine on the required. The metallurgical plant commissioning Burnstone property has been planned, and is is on track for completion by mid 2010.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 37 REVIEW OF OPERATIONS: BURNSTONE
FINANCIAL ANALYSIS The 2009 NI 43-101 Burnstone Technical Report (“Report”) included an update on the financial analysis of the Burnstone property, and the tables below provide a summary.
FINANCIAL ANALYSIS ASSUMPTIONS Assumptions 2009 Burnstone Report Au Price US$800/oz US$/R exchange rate R9.00 30 million tonnes @ 4.2g/t of gold Proven and probable reserves used for the financial model 4.1 million oz of Au @ 4g/t Au cut-off Percentage of measured and indicated resources used in financial model 38% Gold recovery 95%
Cash costs of $389/oz (US$319/oz) include: plant and site services; geology; general and direct and indirect mining costs; development administration, workman’s compensation, costs; engineering; environmental, safety, insurance, royalties and milling costs.
CAPITAL COST ESTIMATES Project Capital Cost (US$ millions) 2009 Burnstone Report Total project capital 224 Capital spent up to December 31, 2008 55 Remaining capital to be spent over LOM 169
A total of $177 million (US$145 million) is An after-tax cash flow schedule has been required to bring the mine into commercial developed for the current production scenario production by June 2010. and the capital and operating costs disclosed above. The cash flow includes royalties Total LOM costs of $603/oz (US$495/oz) and taxes payable. The results, at a cut-off include cash costs plus proceeds on mineral of 4g/t Au cut-off, show an estimated Net taxes, income tax payable, and depreciation Present Value (NPV) of $833 million (US$684 and amortisation. million) at a 5% discount rate and an Internal Rate of Return (IRR) of 36%.
Financial Analysis (Post-Tax) 2009 Burnstone Report IRR 35.6% NPV (0% discount rate) US$1,7 billion NPV (5% discount rate) US$687 million NPV (10% discount rate) US$414 million Payback 3,5 years (after mill start-up) Mine life 19 years (including a four-year start-up period)
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SENSITIVITY ANALYSIS USING DIFFERENT GOLD PRICES – BURNSTONE PROPERTY Post-Tax NPV (5%) Gold Price Sensitivity Post-Tax IRR US$ millions $700/oz 28.5% $503.6 $800/oz 35.6% $686.6 $900/oz 42.4% $869.5
BENJAMIN MOSHOADIBA TUMI BOITUMELO MULTI-SKILL OPERATOR MINER
“Burnstone is a good place to work as you get a “I went into the mining industry after finishing my good training here and people really care about matric and doing mining engineering at university. your development. It’s not difficult being a woman miner at Burnstone At the moment, I operate all types of machines and as most people here are fairly young and am also a safety rep. I’m currently also doing a open-minded. I’m in a supervisory role, which health and safety course and am reading about all means I have to ensure that safety regulations are the things I need to know to get a blasting ticket.” strictly complied with and that the underground crews have the right working conditions.
I’m trying to learn as much as I can, and I hope to
BONISILE TSHABALALA prove to everyone that I will, one day, be able to BLASTING ASSISTANT become a mine manager.”
“I’ve had to learn about blasting from scratch – about fuses and explosives. It took me a month to learn to become a blasting assistant, which I really enjoy. I think I will be a miner next.”
Ian Olivier, Contractor
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 39 REVIEW OF OPERATIONS: BURNSTONE
THEMBA TSHABALALA AARON MAKAUBO DUMP-TRUCK OPERATOR MULTI-TASKER
ºÊÃÌ>ÀÌi`Ê iÀiÊÊÕiÊÓääÇÊ>ÃÊ>Ê i«iÀ]Ê “I am competent at a number of jobs, including working underground with a shovel. I went on being a blasting assistant and a dump-truck a two-week training course and now drive the operator. I also help the construction crew to truck which transports the blasted rock from install ventilation as well as assisting the rig underground to the surface. operator. I’d like to become a mine overseer and then a mine manager. I think I have the I like Burnstone as I am constantly improving necessary leadership skills.” my skills and learning new things. I hope my next job will be as a drill rig operator. “
ANTONIO MOKHOTHU ACTING MINE OVERSEER
“My role is one of supervising mineworkers underground while also being responsible for ventilation installation, drilling support, the cleaners and good housekeeping.
I usually go underground an hour before my shift starts, to assess conditions. In our Exchange Room, we do the handover from the outgoing shift and compile our plan for the next few hours.
At Burnstone, we’re doing pioneering stuff. There are many women around, which is very empowering for us. Most of the people on the mine are relatively young, so they don’t have outdated perceptions regarding women miners. Not every woman can be a miner, but I find it fulfilling and financially rewarding. My goal is to get my manager’s ticket.”
Matlala Ramphisa, Senior Exploration Geologist
40 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
REVIEW OF OPERATIONS: HOLLISTER
During the year, we achieved some of our major goals. We broke through the secondary alimak surface – the first ever to be executed in Nevada. It was a huge breakthrough and allowed Hollister to begin trial stoping. At Hollister, we are moving away from mechanised mining and using other methods such as thermal fragmentations, shrinkage and long-haul mining. We’ve had great success using these mining methods. We also introduced some innovative environmental projects such as having the only lined waste dump in Nevada. All the mining done on the Hollister property is on already disturbed land, so we are not disturbing the land any further. Paul Huet, General Manager, Hollister Mine
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 41 REVIEW OF OPERATIONS: HOLLISTER
DESCRIPTION AND LOCATION multiple, steeply dipping vein systems. Permitting The Hollister property is located in Townships 37 and pre-development work are ongoing, and and 38 North, Range 48 East, Ivanhoe Mining additional surface drilling on areas of the District, Elko County, Nevada. The Hollister Hollister property outside of the Hollister property property consists of a total of 950 unpatented, area was conducted in 2008. federal mining claims, covering over 69 square kilometres. It is situated on Nevada’s 50mi- The Hollister property was purchased by the (80km)-long Carlin Trend gold belt and is the host Company from a subsidiary of Newmont of classic Carlin-style low sulphidation epithermal Mining Corporation, which had previously banded veins in Ordovician sediments containing operated a leach recovery mine there to high-grade precious metal values. exploit some near-surface mineralisation. The Company’s primary focus is the deeper Initial feasibility work was completed in mid gold-bearing system underneath an area 2007. Since that time, the Company has currently covering approximately 5% of the focused on permitting, additional development Hollister property, which is known as the to prepare for production, and additional Hollister project, or HP. underground and surface drilling. The HP was a joint venture with Hecla Mining The Hollister project is currently being accessed Corporation from 2002 to 2007, when the for test mining, underground continuity drilling, Company purchased Hecla’s 50% interest for $73 and to obtain bulk through an excavated million (US$60 million). Great Basin Gold now decline. Gold and silver mineralisation occurs in owns a 100% interest in the claims comprising the
42 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
Hollister property, subject to certain royalty interests year off-site. The permit is subject to the ranging from 3% to 5% of any net smelter returns, completion of the Environmental Impact as described in more detail below. Study (EIS) and approval of the amended Plan of Operations; The federal government of the United UÊ -Ì>ÌiÊvÊ iÛ>`>ÊqÊ,iV>>ÌÊ*iÀÌÊ States and the state government of Nevada #0227dated January 18, 2008, have jurisdiction over mining activities and covering reclamation and closure of the communities, habitat users and other interests east pit area surface facilities and fluid that may be affected by mining. In particular, the management systems; BLM has jurisdiction over the land on which the Hollister property is located. UÊ -Ì>ÌiÊvÊ iÛ>`>ÊqÊ7>ÌiÀÊ*ÕÌÊ ÌÀÊ Permit NEV2003114 dated April 7, 2004, PERMITS allowing the operation of the rapid infiltration The Hollister property is subject to a number of basins for the disposal of water collected in the State of Nevada and U.S. federal permits. The decline at the Hollister project; following is a list of the major permits related to UÊ -Ì>ÌiÊvÊ iÛ>`>ÊqÊ,iV>>ÌÊ*iÀÌÊä£äÊ the Hollister Development Block (HDB): dated March 15, 2000, relating to the UÊ -Ì>ÌiÊvÊ iÛ>`>ÊqÊ7>ÌiÀÊ*ÕÌÊ ÌÀÊ exploration activities at the Hollister property; Permit NEV2003107 effective December UÊ -Ì>ÌiÊvÊ iÛ>`>ÊqÊ >ÃÃÊ£ÊÀÊ+Õ>ÌÞÊ 24, 2008, authorising the Company to Permit issued September 26, 2003, process up to 275,000 tonnes of ore per allowing the use of diesel combustion
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 43 REVIEW OF OPERATIONS: HOLLISTER
generators for the generation of electricity. This permit is undergoing a renewal process with the Nevada Division of Environmental Protection (NDEP);
UÊ ÊqÊ*>ÊvÊ"«iÀ>ÌÃÊ««ÀÛ>Ê>`Ê Decision dated May 7, 2004, allowing Rodeo Creek Gold Inc. to conduct underground exploration, test mining and bulk sampling, and to construct ancillary facilities to support the project. This plan has been amended several times to accommodate additional operational needs, including: approvals for an expanded waste rock storage facility; installation of an Alimak Raise; construction of an additional RIB; and the installation of a mine water desilting facility. A second decline has also been approved, but has not yet commenced;
UÊ ÊqÊ/ÜÊ-ÕÀv>ViÊ Ý«À>ÌÊ ÌViÃÊ for the Craig and Hatter Graben areas of the Hollister property have been approved, allowing limited surface exploration activities.
Under the current Plan of Operations approved by the BLM, the Company is permitted to undertake underground exploration and development, inclusive of test mining and the taking and removal of bulk samples.
An amended Plan of Operations to approve full production was submitted to the BLM in March 2008. After evaluating the Company’s proposal for full-scale production, the BLM determined that the environmental analysis required for the Plan of Operations amendment is an EIS and this process has subsequently been initiated.
Prior to the completion of the EIS process and receiving the BLM’s approval of the amended Plan of Operations, the underground
44 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
exploration and development activities at the age. The Northern Nevada Rift is a north- Hollister property must be conducted within the northwest trending feature made up of bimodal 275,000 ore tons per year limit – set out in the volcanic rocks that host Miocene-aged Water Pollution Control Permit recently issued bonanza epithermal gold deposits such as by the NDEP – and in a manner that will aim Ken Snyder, Mule Canyon, Buckskin National to fully protect the environment, including the and Hollister. The Paleozoic stratigraphy and archaeological resources near the mine, and Eocene magmatic pulse that are critical to the not create any additional surface disturbance or development of Carlin-type deposits to the other new environmental impacts, as required by southwest are in evidence at Hollister, as are the the current Plan of Operations. Miocene mineralising events.
ACCESSIBILITY, CLIMATE, LOCAL The Hollister stratigraphic section includes RESOURCES, INFRASTRUCTURE AND Ordovician sedimentary rocks, intruded by PHYSIOGRAPHY mid-Eocene plutons and unconformably overlain The shortest access to the Hollister property is by a veneer of Miocene volcanic and volcano- from the freeway corridor by gravel roads, north sedimentary rocks. Devonian sedimentary of Battle Mountain, over a distance of roughly rocks have been intersected at depth below 50mi (80km). the Ordovician sediments under the Roberts Mountain Thrust. Battle Mountain is the nearest town with full service facilities. The nearest mining Epithermal gold mineralisation at the Hollister infrastructure is at the Dee Mine, located 8mi property occurred in the early Miocene and (13km) by road to the southeast. appears associated with the North Nevada Rift, where it overprints the Carlin Trend. The Hollister Major power transmission lines lie just off the property has a low-sulfidation epithermal system south-eastern corner of the Hollister property, and characterised by banded quartz veins with a sub-station is located 5mi (8km) to the east. electrum and silver selenides.
Elko is the support hub for mining operations Some of the primary geological elements on the Carlin Trend, and has a well-developed of the sediment-hosted gold deposits of the transportation network (air, rail, and road), Carlin Trend are present at the Hollister workforce pool and contractor service base. property, including Eocene intrusive rocks and lower-plate carbonate rocks. The Hatter stock GEOLOGY (a granodioritic intrusive) at the Hollister property The Hollister property is located at the has been dated at 39 Ma and is similar to 39 intersection of the Carlin Trend and the Northern Ma biotite-feldspar porphyry dikes occurring in Nevada Rift. The Carlin Trend is a northwest- the Goldstrike area. trending 50mi- (80km)-long metallogenic corridor. Mines on the Carlin Trend have The main pulse of gold mineralisation on the produced in excess of 70m ounces of gold. Carlin Trend is dated at about 38 Ma and commonly thought to be associated with late Carlin Trend-type mineralisation is Eocene in Eocene magmatism.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 45 REVIEW OF OPERATIONS: HOLLISTER
HOLLISTER PROPERTY AND CARLIN TREND
Oregon
Midas Property Elk (Newmont) Black Mtn Utah Nevada Midas Mine We have 100% ownership of the Hollister property; Las Vegas an area of Carlin Trend California Arizona 33 square miles
Rossi Property (Barrick/Meridian) Dee Mine Dee Property Rossi Deposit N (Glamis) Goldstrike Mine Meikle Mine Goldstrike Property Post/Betze Mine (Barrick) Leeville Property 5 Miles (Newmont) Leevine Deposit Carlin Mine Source: February 18, 2009 Hollister Technical Report by J. Oelofse, P. Bentley and D. van der Heever
EXPLORATION AND MINERALISATION in complex grade thickness patterns. The Geophysical, geochemical and geological Gweniviere-Clementine vein system produces surveys have been carried out over a large a strong Tertiary-hosted gold plume that is part of the Hollister property to aid in targeting generally consistent with the orientation of exploration drill holes. the vein system. The coincidence of the Clementine vein with the north edge of the The most prominent surface features on the plume is striking. Hollister property are the blanket-like, silica replacement bodies that occur in two stratigraphic Gold distribution in the Ordovician is far more positions. Close examination of these features restricted than in the Tertiary. Deeper vein reveals that they have sinters, with associated exploration success was enhanced by orienting mercury mineralisation, as well as replacement vein intercepts in core frames to bedding in historic bodies that are locally up to 200ft (61m) thick. holes in Vinini rocks, in areas where it could be Gold values in these high-level epithermal features demonstrated that fault and fold complications are uniformly low to absent. Gold mineralisation were not present. Step outs were planned using in Tertiary volcanic rocks below the silica cap these orientations, and the Clementine and coincides, in part, with the epithermal veins in Gweniviere vein sets were successfully delineated the basement. Some of the best mineralisation in by the subsequent drill programme. Tertiary rocks, however, is rootless. The Hollister project was the subject of an Gold distribution in the Tertiary at the exploration joint venture between Great Basin Hollister property is widespread, resulting Gold and Hecla Mining Company, which
46 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
All information relating to the contents of the 2009 NI 43-101 Hollister Technical Report (“Report”), including but not limited to statements of the Hollister project’s potential and information such as capital and operating costs, production summary, and financial analysis, are forward-looking statements. The 2009 Hollister Report was prepared to quantify the Hollister project’s capital and operating cost parameters and to determine the project’s likelihood of feasibility and optimal production rate. The capital and operating cost estimates which were used have been developed based on detailed capital cost to production level relationships.
The following are the principal risk factors and uncertainties which, in management’s opinion, are likely to most directly affect the ultimate feasibility of the Hollister project. The mineralised material at the Hollister project is currently classified as a measured and indicated resource, and a portion of it qualifies under Canadian mining disclosure standards as a proven and probable reserve, but readers are cautioned that no part of the Hollister project’s mineralisation is considered to be a reserve under US mining standards as all necessary mining permits and project financing would be required in order to classify the project’s mineralised material as an economically exploitable reserve. Although work has been done to confirm the mine design, mining methods and processing methods assumed in the 2009 Hollister Report, construction and operation of the mine and processing facilities depend on securing environmental and other permits on a timely basis. Additional permits, when required, have yet to be applied for and there can be no assurance that required permits can be secured or secured on a timely basis. Although costs, including design, procurement, construction and ongoing operating costs and metal recoveries have been established at a level of detail required for a feasibility study, these could be materially different from those contained in the 2009 Hollister Report. There can be no assurance that these infrastructure facilities can be developed on a timely and cost-effective basis. Energy risks include the potential for significant increases in the cost of fuel and electricity. The 2009 Hollister Report assumes specified, long-term price levels for gold. The price of this metal is historically volatile, and the Company has no control of or influence on its price, which is determined in international markets. There can be no assurance that the price of gold will continue at current levels or that it will not decline below the prices assumed in the 2009 Hollister Report. Prices for gold have been below the price ranges assumed in the 2009 Hollister Report at times during the past 10 years, and for extended periods of time. The Hollister property will require additional financing. Although interest rates are at historically low levels, there can be no assurance that debt and/or equity financing will be available on acceptable terms. Other general risks include those ordinary to very large construction projects, including the general uncertainties inherent in engineering and construction costs, the need to comply with generally increasing environmental obligations, and accommodation of local and community concerns.
terminated in April 2007. From 2002 to 2006, (12,845m) of underground and 51,032ft Hecla conducted engineering and permitting work (15,554m) of surface exploration diamond in furtherance of an underground development drilling has been completed. The underground programme and obtained the necessary permits to drilling is an important phase of evaluation, complete the Stage 1 underground development, enabling more detailed delineation of vein drilling and feasibility work. mineralisation. There are now 24 recognised discrete veins constituting the Gweniviere and After receiving the requisite permits in mid Clementine systems. 2004, the underground exploration and development programme began at the Hollister During 2008, a total of 17,204ft (5,243m) of project under the management of Hecla. underground development has been completed, Site facilities were established and development of which 6,099ft (1,859m) has been on of the decline to access the gold-silver vein reef exposing the veins. Total development to systems began in October 2004, for the December 31, 2008 is 22,132ft (6,746m), purpose of obtaining bulk samples and to of which 6,697ft (2,041m) has been on veins. conduct underground exploration drilling in The table below summarises the drilling on order to increase the confidence level of the the Hollister property during 2008, and lists mineral resources. whole core sampled intervals. The underground infrastructure established to December 31, 2008 Since April 2007, a further 42,144ft is shown below.
2008 DRILLING
Vein Boreholes Intersections Av True Width Av Au Grade Av Ag Grade System No. No. ft oz/ton g/t oz/ton g/t Clementine 25 64 1.9 1.165 36.23 5.54 191 Gweniviere 33 99 2.6 1.060 32.95 6.97 241
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 47 REVIEW OF OPERATIONS: HOLLISTER
An 18ft (5,5m) raise has also been developed particularly narrow. In the technique, the entire in the West Gweniviere. A ‘split-shot’ mining face is drilled, the waste is shot and mucked technique was implemented for several rounds out, and the ore material slashed off and then in December 2008, where the veins are mucked out.
2008 UNDERGROUND DEVELOPMENT
Clementine Vein System
2008 Trial Mining on Veins Infrastructure Development
Gweniviere Vein System
N Decline from surface
500ft
Additional drifting on the Gweniviere vein and drilling and the more recent drilling during both the South and Central Clementine veins has 2008 has assisted in better defining the newly continued in order to generate representative interpreted continuous veins. bulk samples for metallurgical and mill testing. On the north side of the lateral development, Gweniviere and Clementine are composite, two new veins have been defined over the entire sheeted vein systems. Drilling on both veins strike length of the known Clementine veins. has intercepted more veins than originally On the south side of the lateral, the Gweniviere anticipated, and correlation between historical South veins have proven to be more continuous
48 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
than originally interpreted. In addition, two new the Clementine South vein, hosted by quartzite, continuous veins were confirmed by in-fill drilling. on sections 2900N to 3100N, holes HDB-54, 55 and 79 intersected values of greater than In the western portion of the Clementine vein 1oz/ton). A high-grade chute was defined in the system, vein development is not very robust. The Clementine vein system; the chute is 100ft to 300ft top 100ft to 200ft (30,5m to 61m) of the vein is (30,5m to 91,4m) wide, trends easterly and has a hosted in predominantly siliceous quartzite; here, 30º plunge within the plane of the vein. quartz veins are not well developed and grades are accordingly lower than expected. The Hatter Graben target comprises an east- west trending vein swarm, hosted by Ordovician However, this is not a global phenomenon as other metasediments. Twelve surface boreholes have areas hosted in quartzite have well developed been completed, with intersections ranging up to veins with high-grade intercepts (for example, on 7.8oz/ton Au, as set out below.
HATTER GRABEN VEIN CROSS-SECTION
Tertiary volcanic rock sequence
0.25oz/t/5ft 1.52oz/t/1.5ft 0.13oz/t/4ft 0.30oz/t/2.8ft 0.52oz/t/2.4ft 0.25oz/t/3.3ft 0.65oz/t/2.3ft 2.23oz/t/1.1ft 1.40oz/t/2.3ft H8-269
H8-276 Ordovician sedimentary rock sequence
200 metres Hatter Vein System - 656 feet H8-281
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 49 REVIEW OF OPERATIONS: HOLLISTER
The Velvet Target Area is approximately 1,000ft Hollister project’s ongoing trial mining initiative (305m) north of the Clementine vein system. and sold to third-party milling facilities for Significant drill intercepts have been encountered processing. This formed part of the Company’s in both the Tertiary volcanic rock sequence and metallurgical test work and processing the underlying Ordovician age rocks. optimisation of the ore at the Hollister property.
As part of the 2008 drilling programme, Hole Different stoping methods, specifically shrinkage H8-266 was targeted at mineralisation related and cut/fill methods, were under trial. The to the East Clementine Fault and the adjacent average minimum mining width for stopes under historic drilling – with anomalous gold intercepts. the mine plan is 42in (3,5ft). A total of 50,161 The hole was completed to 1,204ft (366,9m). tons were extracted and 33,830 tons were Study of the Velvet Target Area is ongoing, sent to several different treatment facilities under to determine structural relationships and local processing agreements. controls to mineralisation. A summary of the metallurgical recoveries MILLING from bulk samples generated from the Hollister During 2008, a number of bulk samples of property mine development during 2008 is mineralised material were generated from the given in the table below.
SUMMARY OF METALLURGICAL RECOVERIES FROM BULK SAMPLES Au (Head Ag (Head Dry Short Au Recovery Ag Recovery Mill Locality (Period) Grade) Grade) (tons) (%) (%) (oz pt) (oz pt) Newmont Midas (May) 1.15 9.53 4,737 84.7 94.3 Newmont Midas (June) 0.75 9.70 3,906 88.2 92.6 Newmont Midas (September) 1.43 12.07 10,907 88.1 91.1 Newmont Midas (November)(1) 2.02 16.20 12,075 83.0 N/A Kinross Republic (November)(1) 2.34 20.14 4,692 N/A N/A
NOTE TO TABLE: (1) Actual assays not yet processed.
RESOURCE ESTIMATES the HDB totalled 1.57 million ounces Au Eq, As of June 2008, at a 0.25 Au oz/t cut-off, the with an average in situ Au grade of 0.87oz/ton estimated measured and indicated resources at and Ag grade of 4.57oz/ton.
CAUTIONARY NOTE TO INVESTORS CONCERNING ESTIMATES OF MEASURED AND INDICATED RESOURCES The following table uses the terms “measured resources” and “indicated resources”. We advise investors that while these terms are recognised and required by Canadian securities regulations (under NI 43-101), the SEC does not recognise these terms. Investors are cautioned not to assume that any or all part/s of mineral deposits in these categories will ever be converted into SEC-defined reserves. See “Strategic Risks”.
50 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
MEASURED AND INDICATED RESOURCES AS AT JUNE 2008
Resource Cut-off Tons Tonnes Au Grade Au oz Ag Grade Ag oz Au Eq Category oz/ton ‘000 ‘000 oz/ton g/t‘000 oz/ton g/t ‘000 oz ‘000 0.25 1,121 1,017 0.91 31.29 1,023 5.55 190.45 6,227 1,167 Measured 0.28 1,027 931 0.97 33.33 998 5.92 202.99 6,078 1,138 0.35 867 786 1.09 37.50 948 6.61 226.56 5,725 1,080 0.25 494 448 0.76 26.13 376 2.33 80.00 1,152 403 Indicated 0.28 442 401 0.82 28.11 363 2.48 84.93 1,095 388 0.35 361 328 0.93 32.00 337 2.69 92.39 974 360 0.25 1,615 1,465 0.87 29.71 1,399 4.57 156.68 7,379 1,569 Total Measured & 0.28 1,469 1,333 0.93 31.76 1,360 4.88 167.45 7,173 1,526 Indicated 0.35 1,228 1,114 1.05 35.88 1,285 5.46 187.07 6,699 1,440
ADDITIONAL INFORMATION: (1) Metallurgical recoveries were assumed to be 100%. (2) Gold equivalent was calculated by using the metal prices US$650/oz for Au and US$15/oz for Ag.
CAUTIONARY NOTE TO INVESTORS CONCERNING ESTIMATES OF INFERRED RESOURCES This section uses the term “inferred resources”. We advise investors that while this term is recognised and required by Canadian regulations, the SEC does not recognise it. “Inferred resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of a mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of economic studies, except in rare cases. Mineral resources that are not mineral reserves do not have demonstrated economic viability. None of the following mineralisation has been demonstrated to be ore, nor is considered to be a mineral reserve. Investors are cautioned not to assume that any part or all of an inferred resource exists, or is economically or legally mineable. See “Risk Factors”.
Don McKinnon, Hollister Mine Manager
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 51 REVIEW OF OPERATIONS: HOLLISTER
INFERRED RESOURCES AS AT JUNE 2008 Au Grade Ag Grade Au Eq Resource Cut-off Tons Tonnes Au oz Ag oz oz Category oz/ton ‘000 ‘000 ‘000 ‘000 oz/ton g/t oz/ton g/t ‘000 0.25 1,252 1,136 0.51 17.40 635 1.43 49.10 1,793 677 Inferred 0.28 1,149 1,043 0.53 18.14 608 1.39 47.74 1,600 645 0.35 848 770 0.61 20.80 515 0.99 33.81 837 534
ADDITIONAL INFORMATION: (1) Metallurgical recoveries were assumed to be 100%. (2) Gold equivalent was calculated by using the metal prices US$650/oz for Au and US$15/oz for Ag. (3) Resources are reported undiluted.
In order to complete the resource estimates on the wireframes, also in 3-D. This approach the Hollister Project, drilling from March 2007 to is commonly applied in estimating vein-style March 2008 totalling approximately 40,000ft deposits, particularly those anticipated to be (12,191m) was taken into account. The drilling exploited by open-pit mining methods and those was done from suitable positions to explore the sufficiently wide to offer the possibility deeper parts of the deposit and to in-fill gaps of mining selectivity across the vein width. from previous exploration programmes. The methodology works well for narrow veins where a sufficient density of data is The grade-tonnage models of the Hollister available to model the width of the vein deposit consists of 24 separate veins. The accurately. The Company is currently reviewing models were created using a 3-D wireframe the resource estimation methodology in light of approach, within which grades were continued drilling and geological modelling of directly estimated to blocks located within the veins.
Mineral Reserve Estimates
CAUTIONARY NOTE TO INVESTORS CONCERNING RESERVE ESTIMATES The following mineral reserve estimates have been calculated in accordance with NI 43-101, as required by Canadian securities regulatory authorities. For United States reporting purposes, SEC Industry Guide 7 (under the Exchange Act), as interpreted by Staff of the SEC, applies different standards in order to classify mineralisation as a reserve. As a result, the definitions of proven and probable reserves used in NI 43-101 differ from the definitions in the SEC Industry Guide 7. Under SEC standards, mineralisation may not be classified as a “reserve” unless the determination has been made that the mineralisation could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralised material as reserves under the SEC standards. Accordingly, mineral reserve estimates contained in this AIF may not qualify as “reserves” under SEC standards. In addition, disclosure of “contained ounces” is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report mineralisation as in-place tonnage and grade, without reference to unit measures.
Mineral reserves are declared at a cut-off (for cut-off purposes only) to the equivalent of grade of 0.33oz/ton Au. The portion of proven and probable reserves disclosed in the the mineral resources that were included in table below. the mine plan were modified inclusive of mining dilution (minimum mining width 42”), Proven reserves were classified according to mining gold losses (6%), metallurgical recovery mine infrastructure and current access as the (90%) and approximate royalties of 2.5% economically mineable part of the measured
52 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
resources. According to the mine plan, they are to the mine plan, they are expected to be expected to be mined during 2009. depleted over the following eight years. The proven and probable reserves have been The remainder of the economically mineable determined in accordance with Canadian part of the measured and indicated resources regulations under NI 43-101, which differ from were classified as probable reserves. According the SEC’s standards for such classification.
PROVEN AND PROBABLE RESERVES AS AT FEBRUARY 2009 Reserve Au Grade Ag Grade Au Ag Au Eq(2) Cut-off(1) Tons Category (oz/ton) (oz/ton) (oz) (oz) (oz) Proven 0.33 109,600 1.107 7.77 121,348 851,946 134,127 Probable 0.33 1,124,742 0.818 3.98 920,475 4,479,868 987,673 Total 0.33 1,234,342 0.844 4.32 1,041,823 5,331,814 1,121,800
NOTES TO TABLE: (1) The cut-off grade for reserves was calculated using the direct operating cost achieved during steady state production, excluding taxes and contingencies. (2) Gold equivalent was calculated using US$800/oz for Au and US$12/oz for Ag.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 53 REVIEW OF OPERATIONS: HOLLISTER
FINANCIAL ANALYSIS that form the basis of the financial analysis The tables below provide a summary of the have been determined in accordance with key parameters and results of the financial Canadian regulations under NI 43-101, analysis conducted with the 2009 Hollister which differ from the SEC’s standards for Report. The proven and probable reserves such classification.
FINANCIAL ANALYSIS ASSUMPTIONS Assumptions 2009 Hollister Report Au price US$800/oz Ag price US$12/oz Proven and probable reserves 1,284,503(1) tons @ 0.87 oz/ton Au @ 4.58 oz/ton Ag @ 0.33 oz/ton cut-off 1.1 million oz Au 5.9 million oz Ag 1.2 million oz Au equivalent Percentage of measured and indicated 80% resources used in financial model Gold recovery 90% Silver recovery 90%
NOTE TO TABLE: (1) Total includes 50,161 tons of production in 2008.
Regarding the mining capital cost table capital to be spent on life of mine raises and below, the trial mining conducted by the sill pillars. Company up to December 31, 2008 indicates additional development required to maximise The life of mine capital costs include the extraction of the high-grade veins. Improving underground development for a 10-year mine the safety and ventilation of the underground life and acquisition and refurbishment costs of workings necessitates additional development the Esmeralda mill.
CAPITAL COST ESTIMATES Capital Costs (US$ millions) 2009 Hollister Report Total project capital 110 Capital spent up to December 31, 2008 53 Remaining capital to be spent over LOM 57
Current cash costs of US$426/oz include insurance, property tax, royalties, ore haulage, direct and indirect development costs, milling costs and contingencies in each section. engineering, environmental, safety, plant The cash costs also include haulage costs to and site services, geology, general and the Esmeralda mill. These costs will improve as administration, workman’s compensation, economies of scale are achieved.
54 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
Total Life-of-Mine costs of US$559/oz (per and the capital and operating costs disclosed gold equivalent ounce) include cash costs plus herein. The cash flow includes royalties and proceeds on mineral taxes, federal income tax, taxes payable. The results, at a cut-off of 0.30 contingencies, depreciation and amortisation. oz/ton, show an estimated NPV of $157.9 million (US$129.6 million) at a 5% discount rate An after-tax cash flow schedule has been and an internal rate of return of 41.2%. developed for the current production scenario
FINANCIAL ANALYSIS Financial Analysis (After Tax) 2009 Hollister Report IRR 41.2% NPV (5% discount rate) US$129.6 million NPV (10% discount rate) US$93.8 million Payback 5 years Mine life 10 years, including one-year start-up
SENSITIVITY ANALYSIS USING DIFFERENT GOLD PRICES – HOLLISTER PROPERTY Post-Tax NPV (5%) Gold Price Sensitivity Post-Tax IRR US$ million US$700/oz 25.0% $73.2 US$800/oz 41.2% $129.6 US$900/oz 59.3% $185.3
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 55 REVIEW OF OPERATIONS: HOLLISTER
PLANS could result in the recovery of approximately Exploration drilling in 2009 will focus on the 110,000 tons of ore. east and west extensions, and cross-cuts to the north are planned. These will provide systematic These activities are subject to ascertainment drill platforms which will enable the testing of with Nevada mining authorities that none the system at depth. Notably, the base of the of the activities fall outside the recently vein system on the Hollister property has not yet acquired Water Pollution Control Permit and been detected. other applicable permits. This ore will be processed off-site, in accordance with the The Company plans to continue its test mining Water Pollution Control Permit, to determine its (ore removal and test processing) activities at metallurgical characteristics. the Hollister project within the allowable ore tonnage authorisations of its existing permits. The Company also intends to refurbish the Using the existing infrastructure, the planned Esmeralda mill in anticipation that operating 2009 underground bulk sampling programme costs will be less than the cost of the toll milling will develop approximately 260,000 tons of arrangements that have been offered to the rock (both waste and ore), similar to the volume Company. of rock developed and removed from the underground workings in 2008. Management The Company will also be working on anticipates that the planned 2009 activities preparation of the required Environmental Impact Statement, and will continue to refine its resource estimates. The current resource estimates will be reviewed in the next few months and will incorporate additional borehole and underground sampling, as well as use a variety of estimation techniques.
The base of the mineral system remains unconstrained and is an important exploration target. The Company believes there is still considerable exploration potential on the Hollister property and 16 drill targets peripheral to the Hollister project have been prioritised for exploration drilling.
Recommended exploration expenditure in 2009 includes: surface drilling (13,000ft/3,962m) estimated at $1.83 million (US$1.5 million); airborne geophysical survey estimated at $0.6million (US$0.5 million); and underground drilling (92,000ft/28,040m) estimated at $7.8 million (US$6.4 million).
56 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
REVIEW OF OPERATIONS: OTHER MINES
ESMERALDA PROPERTY (US$1,1 million) reclamation liability incurred Great Basin Gold purchased the Esmeralda under the asset purchase was recorded property on December 16, 2008 from Metallic against the Esmeralda property. The Esmeralda Ventures for an aggregate consideration of property is approximately 290mi (467km) from $2,4 million (US$2 million). The Esmeralda the Hollister property, with 80% of that distance property consists of patented and unpatented over paved roads. mining claims, fee lands (land fees), water rights and a mill (the Esmeralda mill). The Esmeralda mill was operational for a short period during 2003 and 2004, after which it A reclamation asset equal to the $1,3 million was placed under care and maintenance. The
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 57 REVIEW OF OPERATIONS: OTHER MINES
mill processed ore through a carbon-in-pulp properties for which GSR holds mineral rights. process with tailing deposition into an adjacent impoundment. Other features of the Esmeralda An initial soil sampling and ground geo-physics property include crushing facilities, stockpile programme was completed on the property areas, waste rock facilities, roads and other during 2008. Four follow-up exploration targets miscellaneous areas. were delineated from this work.
The required permits – allowing for the operation GBG RUSAF GOLD of the mining, milling and associated crushing During 2008, Great Basin Gold has, through its activities – are currently being transferred to the GBG Rusaf subsidiaries, conducted exploration Company. An initial assessment of previous in Tanzania and Kurils in eastern Russia. mining activities on the Esmeralda property, including the quantum and quality of available In Tanzania, the programme consisted of drilling, geological and mining-related data, is three regional exploration programmes in the currently underway. following areas:
UÊ >iÊ6VÌÀ>ÊÀÌ ÜiÃÌ®]ÊVÕ`}ÊÃiÛiÀ>Ê The Esmeralda mill can currently process up early-stage exploration programmes and to 350 tonnes a day. The re-commissioning drilling on two targets; and reconfiguring of the Esmeralda mill is expected to be completed by July 2009, and UÊ Õ«>ÊÃÕÌ ÜiÃÌ®]ÊÜ iÀiÊÌ iÊ ÕÜÃÊ the anticipated costs of refurbishment and project was the focus of a surface drilling commissioning are estimated at approximately programme; and $9,75 million (US$8 million). UÊ Õ}ÜiÊViÌÀ>ÊÃÕÌ ®]ÊÜ iÀiÊ>Ê soil-sampling programme was completed. Operating costs of the Esmeralda mill are estimated to not exceed $60 (US$50) per Exploration on the island of Kurils in 2008 tonne; however, this figure cannot be relied included a 33-diamond borehole aimed at upon until test work is done. establishing indicated mineral resources in the main project area. TSETSERA PROPERTY Great Basin Gold has a joint venture with Final results received from the drill programme GS Minase Refnaria (GSR) to establish a in Lake Victoria are currently being processed gold exploration and mining business in and geological modelling and mineral resource Mozambique, where it will have the exclusive estimation on the Lubando and Imweru is right to explore all GSR’s properties. expected to be completed during the second quarter of 2009. It has the right to earn-in an 80% interest in the joint venture and has committed to exploration The Nkulwisi (Lupa) drill programme was expenses of approximately $2.4 million completed in mid-October, results of which (US$2 million) over a three-year period on the have been received. Geological modelling and Tsetsera property (located 50mi/80km south mineral resource estimation is being undertaken of Manica in Mozambique) and on other during 2009.
58 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
In Kurils, 33 diamond boreholes totalling 20,073ft (6,118m) were completed on the Pereselencheskoye (Peres) target. Partial analyses from 11 drill holes have been received. The most significant results to date are in hole number: PC08-01 with 130ft (39.5m) at 1.82g/t Au and >0.4% Zn; PC08-03 with 223ft (68m) at 0.36 g/t Au and >0.26% Zn; and PC08-05 with 39ft (12m) at 2.4g/t Au, >0.49% Pb, >0.51% Zn.
Final assays are still pending, inclusive of additional analysis due to overlimits (>10ppm for silver, >10,000ppm for Pb and >10,000ppm for Zn) on many of the samples. Preliminary conclusions based on results to date show a large low-grade Au-Pb-Zn deposit. A disseminated gold halo appears to exist around dacitic to rhyolitic intrusive dike and stock(s). The receipt of remaining assays and completion of a technical report will determine the level of exploration in 2009.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 59 Responsible Delivery
DIRECTORS & EXECUTIVES
DIRECTORS
PATRICK COOKE | B.Comm (Wits), CA (SA)
Patrick Cooke was appointed as a His industry experience is wide, Director in May 2006 and is a South including involvement in Information African by birth. He received his Technology, Fast Moving Consumer Chartered Accountant designation in Goods, Financial Services and South Africa in 1981. professional services companies.
As a CA, he worked as a management Mr Cooke has been involved with the consultant with one of the large Pangea Group, initially as a consultant accounting companies as well as for a on the Burnstone property and the merchant bank. vending of that project to the Company. Thereafter he joined the Pangea Group Mr Cooke has been responsible for as Financial Director. listing two companies on the main board of the Johannesburg Stock Exchange Mr Cooke recently resigned from (JSE) and was the Financial Director of a the Pangea Group and is currently third JSE-listed company. self-employed.
BARRY COUGHLAN | BA
Barry Coughlan is a self-employed private investment company. businessman and financier who, over He joined the Great Basin Gold Ltd. the past 23 years, has been involved Board in February 1998. in the financing of publicly-traded companies.
His principal occupation is President and Director of TBC Investments Ltd., a
60 GREAT BASIN GOLD l ANNUAL REPORT 2008 l DIRECTORS & EXECUTIVES
FERDI DIPPENAAR: PRESIDENT, CEO |B.Comm, B.Proc, MBA
Ferdi Dippenaar is a resident of South Following Harmony Gold’s acquisition Africa and a well-known figure in the of Grootvlei and Cons Modder, he country’s gold mining industry. He holds was appointed Marketing Director Bachelors of Commerce and Procuration of Harmony in 1997, overseeing Degrees and an MBA from North West Harmony’s service delivery departments, University in South Africa. corporate affairs and investor relations. Most recently, he was the Executive Mr Dippenaar started his career at the Director of Marketing for Harmony. Buffelsfontein gold mine in 1982 and was employed in various financial and Mr Dippenaar was appointed Director, administrative capacities at the Gengold President and CEO of Great Basin Gold mines. In 1996, he became Managing in December 2005. Director of Grootvlei and East Rand Proprietary Mines.
DAVID ELLIOTT | B.Comm, ICD.D, F
David Elliott graduated from the served as Chairman of the Canadian University of British Columbia with a Sugar Institute. Bachelor of Commerce Degree and In 1999, he became President and Chief then acquired a Chartered Accountant Operating Officer of the International designation with KPMG LLP. In 2006, Group – a company involved with food he became a certified Director with the distribution as well as the manufacture Institute of Corporate Directors. and distribution of pet and animal Mr Elliott joined BC Sugar Company in feed – based in St Louis, Missouri. 1976, working in a number of senior For several years, he worked with positions before becoming President companies developing email and data and Chief Operating Officer of the management services. operating subsidiary, Rogers Sugar. In Mr Elliott has been a Director of the 1997, he joined Lantic Sugar in Toronto Company since December 2005. as Executive Vice-President. He also
WAYNE KIRK | LLB
Wayne Kirk is a retired California State A Harvard University graduate, he Attorney and professional consultant. received his Law Degree in 1968. With over 35 years of professional From 1992 to 2001, Mr Kirk was experience, Mr Kirk also has over nine the Vice-President, General Counsel years of senior executive experience and Corporate Secretary of Homestake in the mining industry, and has been Mining Company. Prior to his serving on the Great Basin Gold Ltd. retirement in June 2004, he spent Board since July 2004. two years as Special Counsel for law Mr Kirk is a citizen of the United States firm Thelen Reid & Priest, in and is a resident of Orcas, Washington. San Francisco.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 61 DIRECTORS & EXECUTIVES
SIPHO NKOSI | B.Comm (Hons) (Econ), MBA, Diploma in Market Management
Sipho Nkosi began his career as joined ABB Power Generation in 1998 a market analyst with Ford Motor as Managing Director. He was the Company South Africa in 1980. In founder and has been CEO of Eyesizwe 1986, he moved to Anglo American Holdings since 2001. Mr. Nkosi was Coal Corporation, where he worked appointed CEO (designate) of Exxaro as a marketing co-ordinator. Resources Limited in November 2006.
In 1992, he joined Southern Life Other current directorships: African Life Association as Senior Manager: Company (Pty) Ltd., Everest Systems Strategic Planning. The following year, Solutions (Pty) Ltd., Eyesizwe Coal he accepted the position of Marketing (Pty) Ltd., Eyesizwe Holdings (Pty) Ltd., Manager: New Business Development Eyesizwe Mining (Pty) Ltd., Gold Fields at Trans-Natal Coal Corporation, which Coal Ltd., Richards Bay Coal Terminal later became Ingwe Coal Corporation. Company Ltd., Amawazi Technologies and Southgold Exploration (Pty) Ltd. In 1997, Mr Nkosi joined Asea Brown Boveri (South Africa) Limited Mr Nkosi joined the Great Basin Gold as Vice-President: Marketing. He Board in August 2003.
WALTER SEGSWORTH | P. Eng
Walter Segsworth, who was appointed Mr Segsworth is a past Director as a Director of the Company in January and Chairman of the Mining 2003, has been an active and respected Associations of Canada and British member of the international mining Columbia, and was voted British industry for over 30 years. He has Columbia Mining Industry Person an excellent track record in employee of the Year in 1996. safety, environmental excellence and He is a member of the Canadian turnaround production situations. Institute of Mining, Metallurgy and During Mr Segsworth’s tenure as Petroleum and, until recently, was part President, Chief Operating Officer of the Mining Curriculum Advisory and Director at Homestake Mining Board of the Michigan Technological Company, the Company set a 125- University, from which he earned his year gold production record and its Degree in Mining Engineering. operating costs reached 25-year lows.
RONALD THIESSEN: CHAIRMAN | CA
Ronald Thiessen is a Chartered of mining and mineral exploration Accountant with professional experience companies. He is employed by Hunter in finance, taxation, mergers, acquisitions Dickinson Inc. – a company providing and re-organisations. Mr Thiessen is the management and administrative non-executive Chairman of the Board services to several publicly-traded and has been serving as a Director of companies – where he focuses on the Company since October 1993. directing corporate development and financing activities. He is also a Director Since 1986, Mr Thiessen has been of Hunter Dickinson Services Inc. involved in the acquisition and financing
62 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
EXECUTIVE OFFICERS
LOU VAN VUUREN: CHIEF FINANCIAL OFFICER | CA
Mr van Vuuren is a qualified Chartered He has been involved in the Accountant and joined the Company international gold mining sector for a from PricewaterhouseCoopers. number of years and gained valuable exposure during his involvement in He brings a wealth of experience in various capital-raising transactions as multi-national companies listed on well as mergers and acquisitions. various world markets, and in the required regulatory requirements posed to such companies.
JOHAN OELOFSE: CHIEF OPERATING OFFICER | B.Sc (Eng), MSC Mining Eng, Pr.Eng
Mr Oelofse is a qualified mining South African gold mining environment engineer with 28 years of experience, and gained a working knowledge of all including working on projects in aspects of the industry. He has a B.Eng South Africa, Uganda, Mozambique, Degree from Pretoria University in South Argentina, Kentucky (USA), Kazakhstan, Africa and an MSc in Mining Engineering Uzbekistan, Tajikistan, China, Malaysia, from Camborne School of Mines. Indonesia and the DRC. Mr Oelofse joined Great Basin Gold as Mr Oelofse began his career in the Chief Operating Officer in March 2006.
WILLIE BECKMANN: VICE PRESIDENT: BUSINESS SERVICES | °ÕÀÃÊ
Mr Beckmann is an accredited attorney, He joined the gold mining industry in notary and conveyancer. He obtained his 2002 as Group Security Manager of B.Juris LLB from North West University Harmony Gold Mining Company, before in 1983. successfully founding the Legal and Compliance Department, overseeing the Mr Beckmann started his career as an security, legal and enterprise-wide risk officer in the South African Defence management functions at Harmony. Force, where he gained extensive experience in administrative law, the Mr Beckmann joined Great Basin Gold in drafting of legislation and investigatory March 2006, responsible for the Legal and review techniques. Compliance functions and business services.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 63 DIRECTORS & EXECUTIVES
DAWIE MOSTERT: VICE PRESIDENT: HUMAN CAPITAL | (DPLR) (Advanced Labour Law), MBA
Mr Mostert has a Diploma in Labour Development; Executive: Employee Relations (DPLR) (Advanced Labour Law) Relations; Executive: Human Resources and a MBA Degree from Wits University and Executive: New Mines. in South Africa. Mr Mostert was appointed to the He has approximately 17 years of Executive of Harmony Gold Mining experience in the mining industry, Company in April 2002, in which during which he has functioned in many capacity he served on the Boards of The positions including: Human Resources South African Mathematics Foundation Manager; Mine Manager: Elandsrand; and the Mining Qualifications Authority Executive: Training and People (Mining SETA).
PHIL BENTLEY: VICE PRESIDENT: EXPLORATION | MSc (Economic Geology and Mineral Exploration)
Phil Bentley, a New Zealander by birth, unravelling the geotectonic setting of has been operating from South Africa mineral provinces endowed with gold since 1984. His qualifications include mineralisation. This specialisation in MScs in Economic Geology and Mineral gold mineralisation and metallogeny Exploration. He has more than 27 years will add value in Great Basin Gold’s of experience in the mineral exploration exploration strategy. and mining sector, much of it gained in His recent employment included Central sub-Saharan Africa and Australasia. African Gold plc, Metallon Gold Ltd., Over and above core exploration Randgold Resources Ltd. and Randgold management and orebody evaluation Exploration. skills, Phil has an ongoing passion for
LOUIS COETZEE: VICE PRESIDENT: CORPORATE DEVELOPMENT | B.A. (Hons) LLB, MBA
Louis has experience in starting up as the development, promotion and and managing businesses within listing thereof. various sectors, nationally as well as He has a BA Law Degree, a BA internationally. Honours Degree and an MBA Degree. His mining experience involves the establishment of several junior mining exploration companies, as well
64 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
BONIFACE NGARACHU: ORGANISATIONAL EFFECTIVENESS EXECUTIVE | MBA +++
Boniface Ngarachu is a Masters across different cultures and markets. graduate in Business Administration He has worked across diverse from Ashridge Management College sectors and industry categories from in the UK, a Certified Accountant, Pharmaceuticals and Healthcare to Fast Certified Corporate Secretary and Moving Consumer Goods, Distribution, a seasoned international business Hospitality, Banking, Consulting, manager with experience in strategy Telecommunications, Agriculture, Asset and organisational change as well as Management and Corporate Finance. financial and operational management. This experience has led to an He has a proven track record in understanding of the corporate supporting the growth of several environment – what makes companies multi-national businesses. Boniface work, and what doesn’t. has had strategic business exposure to close to a dozen markets in Africa and Europe, and is thus able to operate
LOUIS SCHEEPERS: PROJECT MANAGEMENT EXECUTIVE | B.A. Law, MBA
Prior to teaming with the Company as Management. He has gained valuable Senior Manager: Project Development experience in feasibility study and in March 2007, Louis acted as a greenfields mining projects, spending consultant to an international mining much time in south, central and east conglomerate and later as General Africa, as well as the Middle East. Manager of an international Project He is responsible for the establishment Management company. and maintenance of Great Basin Gold’s He specialises in the field of Project project delivery processes.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 65 Responsible Delivery CORPORATE GOVERNANCE
GENERAL corporate governance practices for reporting The Board of Directors believes that good issuers such as the Company. corporate governance improves corporate performance and benefits all shareholders. In addition, the CSA has implemented The Canadian Securities Administrators NI 58-101F1 Disclosure of Corporate (the “CSA”) has adopted National Policy Governance Practices, which prescribes certain 58-201 Corporate Governance Guidelines, disclosure by the Company of its corporate which provides non-prescriptive guidelines on governance practices.
66 GREAT BASIN GOLD l ANNUAL REPORT 2008 l CORPORATE SOCIAL RESPONSIBILITY
This section sets out the Company’s approach BOARD MANDATE to corporate governance and addresses the The Board mandate is set out in Appendix 1 to Company’s compliance with NI 58-101F1. the Company’s Corporate Governance Policies and Procedures Manual that has been published CONSTITUTION AND INDEPENDENCE on the Company’s website, mentioned on the OF THE BOARD last page. A majority of the Board’s Directors are independent, thus the Board is able to act STEWARDSHIP OF THE COMPANY independently from management. The Company’s Board of Directors is empowered by governing corporate law, Directors are considered to be independent the Company’s Articles and the Corporate if they have no direct or indirect material Governance Policies and Procedures Manual relationship with the Company. A “material to supervise the management of the affairs and relationship” is one which could, in the view of business of the Company. the Company’s Board of Directors, be reasonably expected to interfere with the exercise of a The Board of Directors performs its functions Director’s independent judgment. through quarterly and special meetings and has
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 67 CORPORATE GOVERNANCE
delegated certain of its responsibilities to those who request information about the Company committees described below. In addition, the receive it in a timely manner. Inquiries by Board has established policies and procedures shareholders are directed to and dealt with that limit the ability of management to carry by the President and CEO, and designated out certain specific activities without the prior Senior Managers. approval of the Board. The Board has delegated responsibility for the Long-term strategies and annual operating and integrity of internal controls and management capital plans with respect to the Company’s information systems to the Audit Committee. The operations are developed by Senior Company’s external auditor reports directly to Management and reviewed and approved by the Audit Committee. the Board. In its regular meetings with the external auditor, The CEO has appointed a Risk Steering the Audit Committee discusses, among other Committee with the responsibility to identify the principal enterprise-wide risks to the Company’s business. The Committee is working with management to implement an enterprise-wide risk management programme to identify risks and to establish systems and procedures to ensure that these risks are monitored, mitigated and managed.
The Risk Steering Committee comprises: the President and CEO; the Chief Financial Officer; and the Vice-President, Business Services, and reports to the Board of Directors on a quarterly basis.
All appointments of Executive Officers are approved by the Board.
The Company has adopted a Disclosure Policy Bonisile Tshabalala, to ensure effective communication between Blasting Assistant the Company and its shareholders and the public. The Board of Directors has delegated responsibility for communication to its President and CEO.
Procedures are in place to ensure proper recording, collection and dissemination of information, and that those shareholders
68 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
things, the Company’s financial statements that governs the behaviour of its directors, and the adequacy and effectiveness of the officers and employees. The standards are Company’s internal controls and management available at www.sedar.com. information systems. The auditors meet with the Audit Committee, without management’s The Code of Ethics and Trading Restrictions presence, on a regular basis. are set out as Appendix 4 of the Company’s Corporate Governance Policies and Procedures In terms of the Company’s Articles of Association, Manual that is available on the Company’s none of the Board Committees have the power to website. The Chairs of the Audit and fill vacancies on the Board of Directors, remove Nominating & Governance Committees are a Director, or change the membership or fill responsible for monitoring compliance with vacancies in any of the Board committees. the Code.
ORIENTATION AND CONTINUING The Board of Directors has in place a number EDUCATION of policies designed to ensure that Directors The Board is developing a Director’s Orientation exercise independent judgement in a matter Policy for new Directors. As part of the proposed where a Director or Officer has a material orientation programme, new Directors will interest. The Articles of Association of the meet with senior management to discuss the Company contain similar provisions. In those business of the Company, receive a binder of circumstances, the relevant Director and Officer relevant corporate information, Board policies must declare his or her interest and, in the and historical and current operating and case of a Director, refrain from voting, and the financial information, and may tour selected Audit Committee considers the interested party offices of the Company. transactions in advance of their consideration by the Board. Directors are encouraged to participate in continuing education and other programmes BOARD COMMITTEES intended to enhance their knowledge and The Company has six Board committees, understanding of the Company, the mining set out below, and a Disclosure Committee industry and the specialised fields of knowledge (which is not a Board Committee). The Board that they bring to their positions as Directors, for confirmed the following Committees for 2009 which the Company pays the costs. on 27 March 2009 and intends that their reappointment be made effective immediately ETHICAL BUSINESS CONDUCT after the shareholders’ meeting, on the The Company has adopted a Code of Ethics assumption that they are re-elected as Directors:
Nominating & Governance Audit Committee Compensation Committee Committee David MS Elliott, Chair T Barry Coughlan, Chair Wayne Kirk, Chair Patrick R Cooke Patrick R Cooke Patrick R Cooke Wayne Kirk David MS Elliott T Barry Coughlan Sipho A Nkosi Sipho A Nkosi
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 69 CORPORATE GOVERNANCE
Environmental, Health & Safety Investment Committee Executive Committee Committee Walter T Segsworth, Chair Ferdi Dippenaar, Chair Ronald W Thiessen, Chair David MS Elliott Patrick R Cooke Walter T Segsworth Ferdi Dippenaar Ronald W Thiessen
NOMINATION OF DIRECTORS procedures, and directing and supervising The Board considers its size each year an annual evaluation of the effectiveness when it considers the number of Directors to of the Company’s disclosure controls and recommend for election at the annual meeting procedures of shareholders, taking into account the (d) Ensuring that policies and guidance related number required to carry out the Board’s duties to corporate disclosure and financial effectively and to maintain a diversity of views reporting are developed and issued. and experience. All material disclosures are forwarded to the Although the Board has a Nominating & Board for comments prior to the release thereof. Governance Committee, the nomination of All press releases are required to be approved candidates for election and selection to the by at least two independent Directors, one of Board continues to be currently performed by the which must be a member of the Audit Committee. Board as a whole. ASSESSMENTS DISCLOSURE COMMITTEE The Board and the Board Committees are The Disclosure Committee, which is a non-Board required to self assess annually in respect of Committee, is comprised of the CEO, the CFO, their effectiveness and contribution. The Board a Corporate Secretary and senior members of completed an assessment on March 27, 2009 management. with respect to the 2008 financial year.
The Disclosure Committee’s mandate and The assessment was conducted by way of a responsibilities are detailed in its Charter, and questionnaire forwarded to the Directors by the include: chairman of the Nominating & Governance (a) Determining whether information is material Committee, followed by discussion of the results and ensuring the timely disclosure of material of the survey by members of the committees at information in accordance with securities laws committee meetings, with a report thereon at the following Board meeting, and by the members (b) Reviewing the Company’s disclosure policy of the Board at a Board meeting. to ensure that it addresses the Company’s principal business risks and changes in The Board is satisfied that the Board and its operations or structure, and that it facilitates Committees function effectively and that all compliance with applicable legislative and the Directors contribute towards the effective regulatory reporting requirements and efficient oversight of the management of (c) Designing disclosure controls and the Company.
70 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery STRATEGIC RISKS
he Company manages its strategic, operational and project risks by way of an enterprise-wide risk management process, T inclusive of a business continuity plan. Elementary to this process is the principle that line managers are responsible for the management of the risks relating to their individual areas of responsibility.
The Company’s Risk Steering Committee There are a number of strategic risks that may oversees the roll-out, implementation and have a material and adverse impact on the future management of the enterprise-wide risk operating and financial performance management system, and reports on a quarterly of Great Basin Gold, and could cause the basis to the Board of Directors on the top Company’s operating and financial strategic risks facing the Company. performance to differ materially from the estimates described in forward-looking statements Risk Management is a standing agenda point for relating to the Company. These include Stratcom and Business Unit meetings, and risks – widespread risks (associated with any form of once identified and assessed – are managed by business) and specific risks (associated with way of risk action plans. Great Basin Gold’s business and its involvement
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 71 STRATEGIC RISKS
in the gold exploration and development industry). 3. No history of mining operations or profitability The Company has identified the following non-exhaustive list of strategic risks and The Company’s properties are in the uncertainties which it considers to be relevant exploration and development stages. The to its operations and business plans: future development of any properties found to be economically feasible will 1. There is no assurance that our mineral require Board approval and the construction resources will ever be classified as and operation of mines, processing plants reserves under the disclosure standards of and related infrastructure. the SEC As a result, Great Basin Gold is subject The mineralised material at our properties to all of the risks associated with establishing is currently classified as a measured new mining operations and business and indicated resource, and a portion enterprises, including: the timing and of it qualifies under Canadian mining cost – which can be considerable – of disclosure standards as a proven and the construction of mining and processing probable reserve, but no part of any of our facilities; the availability and cost of properties’ mineralisation is yet considered skilled labour and mining equipment; the to be a reserve under United States mining availability and cost of appropriate smelting standards, among other considerations, and/or refining arrangements; the need to as all necessary mining permits would be obtain necessary environmental and other required to be on hand or issuance governmental approvals and permits – and imminent in order to classify the project’s the timing of those approvals and permits; mineralised material as an economically and the availability of funds to finance exploitable reserve. construction and development activities.
2. The exploration for and development of 4. Uncertainty of acquiring additional mineral deposits involves significant risks commercially mineable mineral rights
Mineral resource exploration is a speculative Most exploration projects do not result business and involves a high degree of risk. in the discovery of commercially mineable The Company has completed feasibility ore deposits and no assurance can be study work which outlines mineral reserves at given that any anticipated level of recovery both the Burnstone property and the Hollister of ore reserves will be realised, nor that property under NI 43-101. any identified mineral deposit will ever qualify as a commercially mineable (or The exploration for and development of viable) orebody which can be legally and mineral deposits involves significant risks, economically exploited. which even a combination of careful evaluation, experience and knowledge 5. Government regulation may not eliminate. Great Basin Gold’s mineral exploration
72 GREAT BASIN GOLD l ANNUAL REPORT 2008 l Responsible Delivery
The more thorough the planning, the easier the execution. Louis Scheepers, Project Management Executive
and planned development activities which could limit or curtail development. are subject to various laws governing prospecting, mining development, 6. A substantial or extended decline in gold production, taxes, labour standards and prices would have a material adverse occupational health, mine safety, toxic effect on our business substances, land use, water use, land claims of local people, and other matters. Our business is dependent on the price of gold, which is affected by numerous factors Although Great Basin Gold’s exploration and beyond our control. development activities are currently carried out in accordance with all applicable rules 7. Although we have no reason to believe and regulations, no assurance can be that the existence and extent of any of given that new rules and regulations will our properties is in doubt, title to mining not be enacted, nor that existing rules and properties is often subject to potential regulations will not be applied in a manner claims by third parties
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 73 STRATEGIC RISKS
Our mineral properties may be subject properties, a variety of risks and, in to previous unregistered agreements or particular, unexpected or unusual geological transfers, and title may be affected by or operating conditions, may occur. It is not undetected defects or changes in mineral possible to fully insure against many of the tenure laws. risks, and we may decide not to take out insurance against such risks as a result of Our mineral interests consist of mineral high premiums or other reasons. claims and new order mining rights, which have not been surveyed, and therefore the In respect of the specific risks relating to precise area and location of such claims or the Burnstone and Hollister projects, rights may be in doubt. respectively, the reader is referred to the Company’s Annual Information Form for 2008, 8. We are not able to obtain insurance for filed on www.sedar.com. many of the risks that we face
In the course of exploration, development and production of mineral
CORPORATE STRUCTURE
Great Basin Gold Ltd Incorporated: Canada (British Columbia)
100% 100% N5C Resources Inc GBG Rusaf Gold Ltd Incorporated: Cayman Islands Incorporated: Canada (BC)
100% 100% 100% 80% earn in 100% 15% Tsetsera JV N6C Resources Inc Kryso Resources PLC Boulder Investments Ltd Kurils Holdings Ltd Manica, Mocambique Incorporated: Cayman Islands Incorporated: United Kingdom (Cyprus) (British Virgin Islands)
100% 100% 100% 100% Great Basin Gold RSA (Pty) Ltd Southgold Exploration (Pty) Ltd Shield Resources Ltd Kurils Project Holdings Ltd Kurils Resources LLC Incorporated: South Africa Incorporated: South Africa (Tanzania) (British Virgin Islands) (Russia)
100% Puma Gold (Pty) Ltd Incorporated: South Africa
100%
BURNSTONE PROPERTY Balfour, Mpumalanga South Africa
74 GREAT BASIN GOLD l ANNUAL REPORT 2008 l 100% 100% Great Basin Gold Inc Pacific Sentinel Resources Inc Incorporated: USA (Nevada) Incorporated: Canada (BC) DE-REGISTERED
100% 100% 100% 100% 100% Franklyn Ltd Goldtone Ltd Graceholme Finance Ltd Antler Peak Gold Inc Ganes Creek Ventures Corp (British Virgin Islands) (British Virgin Islands) (British Virgin Islands) Incorporated: USA (Nevada) Incorporated: USA, (Alaska)
100% 100% 100% 100% 100% Reef Miners Ltd Premier Resources Ltd Protocol Exploration Ltd Esmeralda Property Rodeo Creek Gold Inc (Tanzania) (Tanzania) (Tanzania) Incorporated: USA (Nevada) Incorporated: USA (Nevada)
100% 100% Hollister Venture Corporation Touchstone Resources Company Incorporated: USA (Nevada) Incorporated: USA (Nevada)
HOLLISTER PROPERTY Elko, Nevada 100% USA
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 75 CONSOLIDATED
FINANCIAL
STATEMENTS
YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
76 GREAT BASIN GOLD l ANNUAL REPORT 2008 l CONTENTS
FINANCIAL INFORMATION ...... 78 FINANCIAL REVIEW...... 82 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING...... 84 INDEPENDENT AUDITORS’ REPORT...... 86 CONSOLIDATED BALANCE SHEETS ...... 88 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS...... 90 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND DEFICIT...... 92 CONSOLIDATED STATEMENTS OF CASH FLOWS...... 94 CONSOLIDATED SCHEDULES OF EXPLORATION EXPENSES...... 96 CONSOLIDATED SCHEDULES OF PRE-DEVELOPMENT EXPENSES...... 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...... 101 SHAREHOLDER INFORMATION ...... 165
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 77 FINANCIAL INFORMATION
Dividends The Company has not paid any dividends on any of its shares since incorporation and does not presently have any intention of paying dividends.
Capital Structure As at March 27, 2009, the capital structure consisted of the following:
Expiry Date Exercise Price Number Granted
Common shares N/A N/A 348,033,345
Warrants April 20, 2009 $ 3.50 28,750,000 September 30, 2010 R 20.78 1,684,312 December 12, 2011 $ 1.25 26,994,240 October 15, 2010 $ 1.60 65,000,000
Share options N/A $ 1.66 16,469,632
There have been no changes in the classification of common shares (reclassifications, consolidations, reverse splits or the like) within the past five years.
All common shares of Great Basin Gold rank pari passu (i.e. equally) for the payment of any dividends and distributions in the event of a wind-up. Great Basin Gold’s securities have not received any ratings from any rating organisation.
Legal Proceedings No other material legal proceedings involving Great Basin Gold or its subsidiaries are ongoing or expected.
Interest of Management and Others in Material Transactions Apart from Sipho A Nkosi (a Director of the Company who has a material interest in the Company’s Black Economic Empowerment (BEE) transaction, but who abstained from the relevant resolutions approving the transaction), none of the Directors or Senior Officers of the Company, nor any person who has held such a position since the beginning of the last completed financial year-end of the Company, nor any proposed nominee for election as a Director of the Company, nor any associate or affiliate of the foregoing persons, has any substantial or material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any material transaction of the Company.
Transfer Agent and Registrar The Company’s registrar and transfer agent is Computershare Trust Company of Canada, located in Vancouver, BC, as well as their South African affiliate in Johannesburg. Great Basin Gold maintains separate share registers for Canada and South Africa.
78 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Controls and Procedures Disclosure Controls and Procedures As at the end of the year covered by this report, our management carried out an evaluation, with the participation of our CEO and CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)).
Based upon that evaluation, our CEO and CFO concluded that, as at the end of the year covered by this report, our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, are effective.
It should be noted that while our CEO and CFO believe that our disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud.
A control system, no matter how well-conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met.
There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Changes in Internal Control over Financial Reporting During the year ended December 31, 2008, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Audit Committee Financial Expert The members of the audit committee are Messrs Wayne Kirk, Patrick Cooke and David Elliott. The Board of Directors has determined that Mr David Elliott is a member of the Audit Committee of the Company who qualifies as an Audit Committee “financial expert”, based on his education and experience, and that each of the members is financially literate.
Each of the Audit Committee members is “independent”, as the term is defined by Canadian Multilateral Instrument 52-110. Mr Elliott is an accredited Chartered Accountant in Canada; Mr Cooke is a Chartered Accountant in South Africa; and Mr Kirk is a retired securities attorney.
Great Basin Gold’s Audit Committee charter is available for download on the Company’s website at www.greatbasingold.com
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 79 FINANCIAL INFORMATION
Audit Committee (continued) Principal Accountant Fees and Services The following table sets forth information regarding amounts billed by the Company’s independent auditors for each of the Company’s last two fiscal years:
Years ended December 31 2008 2007
Audit fees $ 281,258 $ 201,876 Audit-related fees 12,632 40,871 Tax fees 4,002 40,834 All other fees 1,440 578
Total $ 299,332 $ 284,157
Audit Fees Audit fees are the aggregate fees billed by the Company’s independent auditor for the audit of the Company’s annual consolidated financial statements, reviews of interim consolidated financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees Audit-related fees are fees charged by the Company’s independent auditor for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees”.
This category comprises fees billed for employee benefit audits, due diligence assistance, consultations on proposed transactions, internal control reviews, and audit and attestation services not required under applicable law, rules and regulations.
Tax Fees Tax fees are fees for professional services rendered by the Company’s independent auditors for tax compliance and tax advice on actual or contemplated transactions.
All Other Fees All other fees relate to services other than the audit fees, audit-related fees and tax fees described above.
Audit Committee Pre-Approval Policies From time to time, the Company’s management requests approval from the Audit Committee of the Company’s Board for non-audit services from the Company’s independent auditors.
80 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
The Audit Committee pre-approves all such non-audit services with set maximum dollar limits. In considering these requests, the Audit Committee assesses, among other things, whether the services requested would be considered prohibited services as contemplated by the United States Securities and Exchange Commission (SEC), and whether the services requested and related fees could impair the independence of the Company’s auditors.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 81 FINANCIAL REVIEW
The 2008 financial year will be remembered as a year of highlights as well as significant challenges for Great Basin Gold. The global economic crisis left its mark on our company and challenged our business model and sustainability.
Sources of capital to develop our Burnstone and Hollister projects reduced significantly in September 2008 and required innovative thinking from the management team. Our strategy of cash preservation and maximising cash flow from trial mining activities at the Hollister project enabled us to leverage our assets to raise US$51 million in Senior Secured Notes in December 2008.
The significance of these funds raised was that we could continue with the planned development rate of our projects as well as acquire the Esmeralda mill and property in Nevada. The $150 million public offering concluded in March 2009 contributed to securing the timely development of our Burnstone project.
Great Basin Gold remains in negotiation to complete the project loan facilities for the Burnstone property development. Deteriorating credit markets during the latter part of 2008 have caused delays in obtaining final approvals from the lenders. We received non-binding commitments from the lenders to provide the remaining R600 million ($79 million) of the facility subject to spending the agreed amount in equity on the project and completion of definitive agreements.
Once concluded, the facility will amount to a total of R800 million ($105 million). An additional stand-by debt facility of R130 million ($17 million) will be made available by the lenders subject to our spending an additional R130 million ($17 million) in equity. The stand-by debt facility is subject to further approval before draw down and will be subject to reaching project completion upon disbursement.
Failure to secure the project finance facility in time will require a reassessment of the development schedule or an alternative external source of finance.
2008 saw the first revenue being recognised from trial mining activities at our Hollister project. Net revenue for the year from metal sales amounted to $24,716,323 after deducting toll milling charges of $4,398,106. The revenue was generated from the sale of 38,465 gold equivalent ounces.
Net revenue was reduced by the conditions of the various toll milling agreements entered into during the year which included fixed metal prices and toll milling costs, calculated based on retention of actual metal recovered. Gross revenue at spot prices would have amounted to some $36 million. No revenue was recognised in the previous year.
The cash costs for the ounces extracted during the year, excluding milling and haulage costs, amounted to $290 (US$272) per gold equivalent ounce. Cash costs include direct mining costs, as well as an appropriate overhead allocation.
The production costs were in line with management’s expectation of the cost to be incurred during the ramp-up phase to planned production. Economy of scale benefits will only be achieved as tonnage build-up progresses.
82 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
During the second quarter of 2008, Great Basin Gold acquired the remaining 63% of Rusaf Gold Ltd (“Rusaf”) for a total consideration of $22.9 million, paid in approximately 6.6 million Great Basin Gold common shares (plus 1.1 million shares issuable on exercise of warrants and options).
Exploration expenses of $23,902,737 were incurred during the year, which include $11,413,418 at the Hollister property, $3,309,362 at Burnstone, $7,538,805 at the former Rusaf properties and a further $1,641,152 at other projects. Planned exploration for 2009 is significantly less than 2008 due to the focus on cash preservation and the priority of delivering the development projects.
The pre-development expenses increased to $62,597,563 during 2008. Pre-development expenses for the Hollister project are expensed until the required permitting has been received to operate the mine at sustainable levels. Pre-development expenses for the Burnstone project have been expensed until October 28, 2008, when the New Order Mining Right was granted. Subsequent development costs for the Burnstone project have been capitalised.
The increase in staff as well as the options granted to senior management and Directors during the second quarter resulted in recognising $9,082,504 in stock-based compensation expense during the year, compared to $4,458,015 in the previous year.
Subsequent to December 31, 2008, Directors, employees and certain consultants were allowed to cancel certain unexercised employee and non-employee stock options and receive new previously unallocated options equal to 50% of the cancelled options at an exercise price of $1.25 and vesting period of 24 months. The allocation of these new options was concluded on January 12, 2009.
We also granted new options in terms of the share option plan during February 2009. Subsequent to the above cancellation, replacement and issuance of stock options, the Company had 16,469,632 options outstanding at an average exercise price of $1.66 and 2,057,669 options that are exercisable at an average price of $2.24.
We also purchased the Esmeralda property on November 30, 2008 from Metallic Ventures (U.S.), Inc. for an aggregate consideration of $2,403,600 (US$2,000,000). The Esmeralda Mine and Property Mill consist of patented and unpatented mining claims, fee lands, water rights and a mill.
A reclamation asset equal to the $1,318,763 (US$1,082,728) reclamation liability incurred under the asset purchase was recorded against the Esmeralda property.
On July 31, 2008, the Company issued 1,862,354 Great Basin common shares as consideration for a 100% interest in the assets of Puma. The shares were valued at the closing price of $3.57 on July 31, 2008 for a total consideration price of $6,648,604.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 83 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Great Basin Gold Ltd is responsible for establishing and maintaining adequate internal control over financial reporting. The United States Securities and Exchange Act of 1934 in Rule 13a-15(f) and 15d-15(f) defines this as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
UÊ *iÀÌ>ÊÌÊÌ iÊ>Ìi>ViÊvÊÀiVÀ`ÃÊÌ >Ì]ÊÊÀi>Ã>LiÊ`iÌ>]Ê>VVÕÀ>ÌiÞÊ>`Êv>ÀÞÊÀiyiVÌÊÌ iÊ transactions and dispositions of the assets of the Company;
UÊ *ÀÛ`iÊÀi>Ã>LiÊ>ÃÃÕÀ>ViÊÌ >ÌÊÌÀ>Ã>VÌÃÊ>ÀiÊÀiVÀ`i`Ê>ÃÊiViÃÃ>ÀÞÊÌÊ«iÀÌÊ«Ài«>À>ÌÊvÊ financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorisations of management and Directors of the Company; and
UÊ *ÀÛ`iÊÀi>Ã>LiÊ>ÃÃÕÀ>ViÊÀi}>À`}Ê«ÀiÛiÌÊÀÊÌiÞÊ`iÌiVÌÊvÊÕ>ÕÌ ÀÃi`Ê>VµÕÃÌ]Ê use or disposition of the Company’s assets that may have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2008. In making this assessment, the Company’s management used the criteria, established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway Commission (COSO).
Management has excluded GBG Rusaf Gold Limited and its subsidiaries, which were acquired in an asset acquisition during 2008, from its assessment of internal control over financial reporting as at December 31, 2008. GBG Rusaf Gold represents total assets of $1.6 million and net loss of $8 million of Great Basin Gold Ltd’s consolidated financial statements as at and for the year ended December 31, 2008.
During the 2008 fiscal year, no changes occurred in the Company’s internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Based upon this assessment, management concluded that the Company’s internal control over financial reporting was effective as at December 31, 2008.
84 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
The effectiveness of the Company’s internal control over fi nancial reporting as at December 31, 2008 has been audited by PricewaterhouseCoopers LLP, our independent auditors, as stated in their report which appears herein.
Ferdi Dippenaar Lou van Vuuren Chief Executive Offi cer Chief Financial Offi cer
Vancouver, British Columbia March 23, 2009
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 85 INDEPENDENT AUDITORS’ REPORT
PricewaterhouseCoopers LLP Chartered Accountants PricewaterhouseCoopers Place, 250 Howe Street, Suite 700, Vancouver, British Columbia, Canada V6C 3S7 Telephone +1 604 806 7000 Facsimile +1 604 806 7806
To the Shareholders of Great Basin Gold Limited We have completed integrated audits of Great Basin Gold Limited’s (“the Company”) 2008 and 2007 consolidated fi nancial statements and of its internal control over fi nancial reporting as at December 31, 2008. Our opinions, based on our audits, are presented below.
Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Great Basin Gold Limited as at December 31, 2008 and December 31, 2007, and the related consolidated statements of operations and comprehensive (loss) income, shareholders’ equity and defi cit and cash fl ows for each of the years then ended. These fi nancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these fi nancial statements based on our audits.
We conducted our audits of the Company’s fi nancial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform an audit to obtain reasonable assurance about whether the fi nancial statements are free of material misstatement. An audit of fi nancial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements. A fi nancial statement audit also includes assessing the accounting principles used and signifi cant estimates made by management, and evaluating the overall fi nancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated fi nancial statements referred to above present fairly, in all material respects, the fi nancial position of the Company as at December 31, 2008 and December 31, 2007 and the results of its operations and cash fl ows for each of the years then ended in accordance with Canadian generally accepted accounting principles (“GAAP”).
Internal Control over Financial Reporting We have also audited Great Basin Gold Limited’s internal control over fi nancial reporting as at December 31, 2008, based on criteria established in the Internal Control - Integrated Framework issued by COSO. The Company’s management is responsible for maintaining effective internal control over fi nancial reporting and for assessing the effectiveness of internal control over fi nancial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over fi nancial reporting, based on our audit.
We conducted our audit of internal control over fi nancial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
86 l GREAT BASIN GOLD l ANNUAL REPORT 2008 and perform the audit to obtain reasonable assurance about whether effective internal control over fi nancial reporting was maintained in all material respects. An audit of internal control over fi nancial reporting includes obtaining an understanding of internal control over fi nancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over fi nancial reporting is a process designed to provide reasonable assurance regarding the reliability of fi nancial reporting and the preparation of fi nancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over fi nancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly refl ect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of fi nancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the Company’s assets that could have a material effect on the fi nancial statements.
Because of its inherent limitations, internal control over fi nancial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded GBG Rusaf Gold Limited and its subsidiaries from its assessment of internal control over fi nancial reporting as at December 31, 2008 because it was acquired by the Company during 2008. We have also excluded GBG Rusaf Gold Limited and its subsidiaries from our audit of internal control over fi nancial reporting. GBG Rusaf Gold Limited is a wholly owned subsidiary of the Company. Its total assets and net loss represent $1.6 million and $8 million, respectively, of the Company’s consolidated fi nancial statement amounts as at and for the year ended December 31, 2008.
In our opinion, the Company maintained, in all material respects, effective internal control over fi nancial reporting as at December 31, 2008 based on criteria established in the Internal Control - Integrated Framework issued by the COSO.
Vancouver, BC, Canada Chartered Accountants March 23, 2009
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 87 CONSOLIDATED BALANCE SHEETS (Expressed in Canadian Dollars)
As at December 31 Note 2008 2007
Assets
Current assets Cash and cash equivalents 6 $ 33,549,118 $ 78,362,954 Restricted cash 25(b) 4,064,100 – Amounts receivable 7 4,940,950 3,737,903 Inventory 8 8,246,093 199,185 Due from related parties 18 23,174 408,638 Held-for-trading financial instruments 9 79,960 833,000 Other receivable 10 912,900 – Prepaid expenses 11 890,183 811,208
52,706,478 84,352,888 Property, plant and equipment 12 48,849,185 14,295,727 Reclamation deposits 13 2,886,539 1,720,456 Available-for-sale financial instruments 14 899,624 3,326,084 Investments in associate 15 – 7,203,973 Mineral property interests 16 259,858,656 218,413,930
Total Assets $ 365,200,482 $ 329,313,058
Liabilities and Shareholders’ Equity
Current liabilities Accounts payable and accrued liabilities 17 $ 26,276,562 $ 6,099,246 Due to related parties 18 252,854 22,098 Current portion of long-term borrowings 19(c) 916,745 –
27,446,161 6,121,344
Long-term borrowings 19 62,060,594 – Future income taxes 20 14,747,392 33,983,164 Site reclamation obligations 21 3,738,380 1,416,964
80,546,366 35,400,128
Shareholders’ equity Share capital 22(a) 428,656,646 390,139,711 Warrants 22(c) 24,005,896 17,934,934 Contributed surplus 22(d) 21,599,521 11,509,102 Deficit (217,267,111) (132,395,033) Accumulated other comprehensive income 213,003 602,872
257,207,955 287,791,586
Total Liabilities and Shareholders’ Equity $ 365,200,482 $ 329,313,058
88 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Note
Nature of operations 1 Segment disclosure 24 Contingencies and commitments 25; 16 Subsequent events 26
See accompanying Notes to the Consolidated Financial Statements.
Approved by the Board of Directors
Ferdinand Dippenaar Ronald W Thiessen Chief Executive Offi cer Chairman of the Board
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 89 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in Canadian Dollars)
Years ended December 31 Note 2008 2007
Revenue $ 24,716,323 $ –
(Expenses) income Production cost (18,177,231) – Depletion charge (6,344,218) – Exploration expenses (see schedule) (23,902,737) (13,091,773) Pre-development expenses (see schedule) (62,597,563) (30,128,319) Accretion of reclamation obligation (31,722) (37,466) Conference and travel (1,607,065) (1,474,495) Foreign exchange loss (2,737,378) (2,532,752) Legal, accounting and audit (1,759,612) (1,235,634) Office and administration (7,396,242) (4,098,435) Other income 1 76,877 2,728,886 Salaries and compensation Salaries and wages (6,844,782) (7,923,752) Stock-based compensation (9,082,504) (4,458,015) Shareholder communications (698,978) (431,526) Trust and filing ( 664,131) (359,877)
Loss before the undernoted and income taxes (116,950,963) (63,043,158) Fair value of financial instruments held-for-trading 9 15,820 937,365 Gain on sale of assets 173,490 992,684 Transaction cost (18,768) – Interest expense (1,273,694) – Interest income 2,357,564 3,692,550 Loss from associate 15 (351,446) (796,027) Unrealised loss on held-for-trading financial instruments 9 (768,860) (104,365)
Loss before income taxes (116,816,857) (58,320,951) Future income tax recovery 20 31,944,779 7,153,285
Loss for the year $ (84,872,078) $ (51,167,666)
90 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Years ended December 31 Note 2008 2007
Other comprehensive (loss) income Unrealised (loss) gain on available-for-sale financial instruments 14 $ (2,701,263) $ 538,061 Unrealised gain on foreign exchange translation of self-sustaining foreign operations 2,311,394 –
Other comprehensive (loss) income $ (389,869) $ 538,061
Total comprehensive loss for the year $ (85,261,947) $ (50,629,605)
Basic and diluted loss per share $ (0.40) $ (0.31)
Weighted average number of common shares outstanding 211,282,760 166,098,884
See accompanying Notes to the Consolidated Financial Statements.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 91 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND DEFICIT (Expressed in Canadian Dollars)
Year ended Year ended Note December 31, 2008 December 31, 2007
Common shares Number of Number of shares shares Balance at beginning of the year 203,395,902 $ 390,139,711 113,411,713 $ 201,457,592 Fair value of options exercised – 2,076,452 – 2,005,064 Fair value of warrants exercised – 545,894 – 688,689 Shares issued for cash, net of – – 57,500,000 121,427,869 share issue costs Share purchase options exercised 2,250,386 4,655,242 3,015,830 5,111,184 Shares issued for Hecla Ventures Corp., April 2007 – – 7,930,214 19,666,931 Shares issued to Tranter Burnstone (Pty) Ltd, October 2007 – – 19,938,650 36,323,195 Shares issued to CW Properties LLC, February 2008 22(e) 10,000 29,700 – – Shares issued for Rusaf Gold Limited, April 2008 22(f) 6,613,636 22,787,802 – – Shares issued for Rusaf Gold Limited, July 2008 22(g) 22,041 76,923 – – Shares issued for Puma Gold (Pty) Ltd, July 2008 22(h) 1,862,354 6,648,604 – – Rusaf share purchase warrants exercised, October 2008 22(d)(i) 13,333 18,409 – – Share purchase warrants exercised 22(c) 998,890 1,677,909 1,599,495 3,459,187
Balance at end of the year 215,166,542 $ 428,656,646 203,395,902 $ 390,139,711
Number of Number of Share purchase warrants warrants warrants Balance at beginning of the year 31,433,202 $ 17,934,934 2,672,000 $ 1,252,000 Warrants issued pursuant to Senior Secured Notes 22(c)(iv) 18,746,000 6,616,856 – – Warrants issued pursuant to share issuance 22(c)(ii) – – 28,750,000 16,210,226 Warrants issued pursuant to Tranter transaction 22(c)(iii) – – 1,684,312 1,178,815 Exercised 22(c)(i) (998,890) (545,894) (1,599,495) (688,689)
Expired – – (73,615) (17,418)
Balance at end of the year 49,180,312 $ 24,005,896 31,433,202 $ 17,934,934
92 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Year ended Year ended Note December 31, 2008 December 31, 2007
Contributed surplus Balance at beginning of the year $ 11,509,102 $ 7,863,472 Stock-based compensation 22(b) 10,411,804 5,633,276 Share purchase options exercised, credited to share capital (2,076,452) (2,005,064) Rusaf share purchase options exercised, credited to share capital 22(d)(i) (8,409) – Fair value of share purchase warrants expired – 17,418 Options and warrants issued on acquisition of Rusaf Gold Limited 22(d)(i) 1,763,476 –
Balance at end of the year $ 21,599,521 $ 11,509,102
Deficit Balance at beginning of the year $(132,395,033) $ (81,227,367) Net loss for the year (84,872,078) (51,167,666)
Balance at end of the year $ (217,267,111) $ (132,395,033)
Accumulated other comprehensive income Balance at beginning of the year $ 602,872 $ 64,811 Unrealised (loss) gain on available- for-sale financial instruments 14 (2,701,263) 538,061 Accumulated unrealised gain on foreign exchange translation of self-sustaining foreign operations 2,311,394 –
Balance at end of the year $ 213,003 $ 602,872
TOTAL SHAREHOLDERS’ EQUITY $ 257,207,955 $ 287,791,586
See accompanying Notes to the Consolidated Financial Statements.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 93 CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Canadian Dollars)
Years ended December 31 2008 2007
Operating activities Loss for the year $ (84,872,078) $ (51,167,666) Items not involving cash Depreciation 3,100,780 1,056,497 Future income tax recovery (31,944,779) (7,153,285) Gain on sale of assets (173,490) (992,684) Assets written off – 1,236 Unrealised loss on held-for-trading financial instruments 768,860 104,365 Fair value of financial instruments held-for-trading (15,820) (937,365) Loss from associate 351,446 796,027 Non-cash stock-based compensation expense (note 22(b)) 10,411,804 5,633,276 Provision for site reclamation cost 478,953 289,660 Unrealised foreign exchange loss (gain) 5,216,445 (961,342) Accretion reclamation obligation 31,722 37,466 Amortisation charge 18,768 – Depletion charge 6,344,218 – Interest accrual 1,837,874 – Changes in non-cash operating working capital Amounts receivable (713,984) (3,311,554) Prepaid expenses 249,427 (271,217) Inventory (8,046,908) (145,748) Accounts payable and accrued liabilities 20,078,224 3,713,801
Cash used in operating activities (76,878,538) (53,308,533)
Investing activities Mineral property acquisition costs (2,690,291) (11,727,860) Acquisition of shares in Rand Mutual Assurance (5) (60) Proceeds on sale of assets 471,306 994,447 Purchase of equipment (34,552,892) (12,978,896) Purchase of shares in Rusaf Gold Limited – (8,000,000) Purchase of Hecla Ventures Corp. – (50,791,500) Transferal to restricted cash (4,064,100) – Purchase of shares in Kryso Resources Plc (274,798) (448,503) Reclamation deposits (1,181,398) (1,616,754)
Cash used in investing activities $ (42,292,178) $ (84,569,126)
94 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Years ended December 31 2008 2007
Financing activities Common shares issued for cash, net of issue costs $ 6,247,772 $ 183,710,476 Advances received from long-term borrowings 65,954,894 – Advances to other parties (985,000) – Advances from (to) related parties 616,220 (213,085)
Cash generated from financing activities 71,833,886 183,497,391
(Decrease) increase in cash and cash equivalents (47,336,830) 45,619,732 Cash acquired through the acquisition of Puma Gold (Pty) Ltd 5,987 – Cash acquired through the acquisition of Rusaf Gold Limited 4,494,976 – Cash acquired through the acquisition of Hecla Ventures Corp – 11,156 Cash and cash equivalents, beginning of year 78,362,954 33,964,436 Foreign exchange (1,977,969) (1,232,370)
Cash and cash equivalents, end of year $ 33,549,118 $ 78,362,954
Refer to note 23 of the Notes to the Consolidated Financial Statements for supplementary information to the cash flow statement.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 95 CONSOLIDATED SCHEDULES OF EXPLORATION EXPENSES (Expressed in Canadian Dollars)
Years ended December 31 Mineral Property Interests Note 2008 2007
Burnstone - Exploration Assays and analysis $ 40,817 $ 122,805 Depreciation – 443,666 Drilling 2,342,178 2,427,840 Engineering 62,128 27,034 Environmental, socio-economic and land (77,592) 12,666 Equipment rental 19,461 (21,900) Geological 669,751 279,522 Graphics 5,596 15,727 Property fees and exploration option payments 7,749 22,907 Site activities 182,379 (17,096)
Exploration expenses before the following 3,252,467 3,313,171 Office and administration 56,895 92,612
Exploration expenses incurred during the year 3,309,362 3,405,783 Cumulative exploration expenditures, beginning of year 27,733,355 24,327,572
Cumulative exploration expenditures, end of year 31,042,717 27,733,355
Hollister - Exploration Assays and analysis 1,348,040 425,298 Depreciation – 612,831 Drilling 8,316,210 2,880,079 Engineering 66,888 1,170,116 Environmental, socio-economic and land 1,086,029 1,574,917 Equipment rental – 24,350 Freight – 47,292 Geological (19,146) 606,237 Graphics 3,578 52,026 Property fees and exploration option payments 133,747 168,334 Site activities 281,851 794,328
Exploration expenses before the following 11,217,197 8,355,808 Office and administration 196,221 233,565
Exploration expenses incurred during the year 11,413,418 8,589,373 Cumulative exploration expenditures, beginning of year 33,781,885 25,192,512
Cumulative exploration expenditures, end of year $ 45,195,303 $ 33,781,885
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Years ended December 31 Mineral Property Interests Note 2008 2007
Rusaf Gold - Exploration Assays and analysis $ 938,192 $ – Depreciation 218,553 – Drilling 2,492,273 – Engineering 186,313 – Environmental, socio-economic and land 13,091 – Equipment rental 477,055 – Freight 450,618 – Geological 935,816 – Graphics 16,494 – Property fees and exploration option payments 329,373 – Site activities 1,481,027 –
Exploration expenses before the following 7,538,805 – Office and administration – –
Exploration expenses incurred, since acquisition 7,538,805 – Cumulative exploration expenditures, beginning of year – –
Cumulative exploration expenditures, since acquisition 15 7,538,805 –
Other - Exploration Assays and analysis 284,553 100,271 Depreciation 14,459 – Drilling 6,605 195,976 Engineering 62,721 20,109 Environmental, socio-economic and land – 4,316 Equipment rental 139,746 46,383 Freight 141,198 14,450 Geological 473,250 273,369 Graphics – 18,408 Property fees and exploration option payments 103,863 84,363 Site activities 384,967 253,184 Transportation 29,790 55,968
Exploration expenses before the following 1,641,152 1,066,797 Office and administration – 29,820
Exploration expenses incurred during the year 1,641,152 1,096,617 Cumulative exploration expenditures, beginning of year 2,528,091 1,431,474
Cumulative exploration expenditures, end of year $ 4,169,243 $ 2,528,091
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 97 CONSOLIDATED SCHEDULES OF EXPLORATION EXPENSES (Expressed in Canadian Dollars)
Years ended December 31 Mineral Property Interests Note 2008 2007
Total exploration expenses before the following $ 23,649,621 $ 12,735,776 Office and administration 22(b) 253,116 355,997
Total exploration expenses incurred during the year 23,902,737 13,091,773 Cumulative exploration expenditures, beginning of year 64,043,331 50,951,558
Cumulative exploration expenditures, end of year $ 87,946,068 $ 64,043,331
See accompanying Notes to the Consolidated Financial Statements.
98 l GREAT BASIN GOLD l ANNUAL REPORT 2008 CONSOLIDATED SCHEDULES OF PRE-DEVELOPMENT EXPENSES (Expressed in Canadian Dollars)
Years ended December 31 Mineral Property Interests Note 2008 2007
Burnstone – Pre-development Mine development Establishment work $ 193,475 $ 697,457 Equipment rental and services 892,541 1,047,259 Surface infrastructure 658,127 836,042 Portal construction 1,292,687 308,660 Underground access and infrastructure 5,558,031 4,000,468 Depreciation 1,144,751 – Other costs Access road 470,575 – Optimisation – 523,543 Operational cost 4,801,643 3,348,964 Long-hole stoping pilot project 192,504 – Waste rock dump 27,063 – Metallurgical plant – 186,837 Vertical shaft 7,778,719 508,530 Energy project 86,256 – Permanent infrastructure – surface 582,674 –
Pre-development expenses before the following 23,679,046 11,457,760 Office and administration 414,214 320,274
Pre-development expenses incurred during the year 24,093,260 11,778,034 Cumulative pre-development expenditures, beginning of year 15,080,245 3,302,211
Cumulative pre-development expenditures, end of year 39,173,505 15,080,245
Hollister – Pre-development Depreciation 1,673,964 – Equipment rental and services 712,008 1,937,187 Surface infrastructure 1,880,509 2,942,261 Underground access and infrastructure development 24,562,157 6,682,426 Operational costs 9,013,695 6,289,421
Pre-development expenses before the following 37,842,333 17,851,295 Office and administration 661,970 498,990
Pre-development expenses incurred during the year 38,504,303 18,350,285 Cumulative pre-development expenditures, beginning of year 18,350,285 –
Cumulative pre-development expenditures, end of year $ 56,854,588 $ 18,350,285
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 99 CONSOLIDATED SCHEDULES OF PRE-DEVELOPMENT EXPENSES (Expressed in Canadian Dollars)
Years ended December 31 Mineral Property Interests Note 2008 2007
Total pre-development expenses before the following $ 61,521,379 $ 29,309,055 Office and administration 22(b) 1,076,184 819,264
Total pre-development expenses incurred during the year 62,597,563 30,128,319
Cumulative pre-development expenditures, beginning of year 33,430,530 3,302,211
Cumulative pre-development expenditures, end of year $ 96,028,093 $ 33,430,530
See accompanying Notes to the Consolidated Financial Statements.
100 l GREAT BASIN GOLD l ANNUAL REPORT 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
1. Nature of Operations Great Basin Gold Ltd. (“Great Basin Gold” or “the Company”) is incorporated under the laws of the Province of British Columbia and is a pre-production mining company engaged in the acquisition, exploration and development of precious metal deposits. The Company currently has two material projects, both of which are at the test-mining stage, namely (a) the Hollister gold project, acquired in 1997, located on the Carlin Trend goldfield in Nevada, USA (the “Hollister property”) and (b) the Burnstone gold project, acquired in 2002, located in the Witwatersrand Basin goldfield in South Africa (the “Burnstone property”).
At the Hollister property, an initial feasibility study was completed in 2007 on a portion of the property called the Hollister Development Block (“HDB”). An underground exploration and development programme is underway to conduct test mining and obtain bulk samples. At the Burnstone property, an initial feasibility study was completed in 2006, followed by an optimised feasibility study that was completed in 2007. The development of an access decline and vertical shaft are now under way.
The Company also acquired the Esmeralda property in Nevada during December 2008, primarily for the metallurgical plant on the facility, and is also conducting early stage exploration on a number of other prospects, primarily in Africa and Russia.
2. Basis of Preparation and Principles of Consolidation These financial statements have been prepared in accordance with Canadian GAAP, as described in note 27. They differ in certain respects from accounting principles generally accepted in the United States of America.
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied in all years presented, unless otherwise stated.
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated.
Subsidiaries: are those entities in which the Company has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. Subsidiaries are consolidated from the date on which control is acquired and are no longer consolidated when control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at acquisition date. Non-controlling interests are recorded at a proportion
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
2. Basis of Preparation and Principles of Consolidation (continued) of the net identifiable assets acquired. The excess of the cost of acquisition over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill.
Incorporation Ownership Percentage
GBG Rusaf Gold Limited Canada 100% Great Basin Gold Inc. Nevada, USA 100% Rodeo Creek Gold Inc. Nevada, USA 100% Antler Peak Gold Inc. Nevada, USA 100% Hollister Ventures Corp. Nevada, USA 100% Touchstone Resources Company Nevada, USA 100% Ganes Creek Ventures Corp. Alaska, USA 100% N5C Resources Inc. Cayman Islands 100% N6C Resources Inc. Cayman Islands 100% Great Basin Gold RSA (Proprietary) Limited South Africa 100% Southgold Exploration (Proprietary) Limited South Africa 100% Puma Gold (Proprietary) Limited South Africa 100% Boulder Investments Ltd Cyprus 100% Franklyn Ltd British Virgin Islands 100% Goldtone Ltd British Virgin Islands 100% Graceholme Finance Ltd British Virgin Islands 100% Kurils Projects Holdings Ltd British Virgin Islands 100% Kurils Resources Holdings Ltd British Virgin Islands 100% Kurils Resources LLC Russia 100% Premier Resources Ltd Tanzania 100% Protocol Exploration Ltd Tanzania 100% Reef Miners Ltd Tanzania 100% Shield Resources Ltd Tanzania 100%
On January 1, 2008 the Company held 37% of Rusaf Gold Limited, and on April 1, 2008 the Company acquired the remaining 63% of the fully diluted equity shares of Rusaf (refer note 16(c)).
Associates: are those entities in which the Company has a material interest and in respect of which the Company exercises significant influence over operational and financial policies, normally owning between 20% and 50% of the voting equity, but which it does not control.
Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Company’s share of its associates’ post-acquisition profits or losses is recognised in the income statement.
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Cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Company’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
3. New Accounting Pronouncements The Canadian Institute of Chartered Accountants (“CICA”) has issued the following new standards which affect the financial disclosures and results of operations of the Company for interim and annual periods beginning January 1, 2009.
(a) Section 3064 and 1000 – Goodwill and intangible assets Section 3064 replaces CICA 3062 and establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. CICA 1000 is amended to clarify criteria for recognition of an asset. CICA 3450 is replaced by guidance in CICA 3064. The new pronouncements are effective for interim and annual financial statements for years beginning on/after October 1, 2008. The Company is currently in the process of evaluating the impact this will have on the Company’s financial statements.
4. Significant Accounting Policies (a) Cash and cash equivalents Cash and cash equivalents consist of cash and highly liquid investments, having maturity dates of three months or less from the date of acquisition, that are readily convertible to known amounts of cash.
(b) Amounts receivable Amounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due, according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.
(c) Inventory Inventories, which include unprocessed ore, stores and materials, are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated cost necessary to perform the sale. Unprocessed ore consists of surface stockpiles and is valued at the average production costs plus allocated overhead expenses. Stores and materials consist of consumables and are valued at the lower of weighted average cost or net realisable value, less allowance for redundant items.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
4. Significant Accounting Policies (continued) (d) Property, plant and equipment Equipment is stated at cost less accumulated amortisation. Amortisation is provided on a straightline basis over three to seven years, which represents the estimated useful lives of the related equipment. Amortisation of equipment used directly on exploration projects is included in exploration expenses
Land is shown at cost and is not depreciated. Improvements and fixtures to buildings are being amortised over a period of 10 years.
Other estimated useful lives of assets have been calculated as follows: Leased assets 3 - 7 years Vehicles 3 - 7 years Computers 3 years Office furniture and fixtures 5 years Assets under construction are not depreciated.
Capitalised mine development costs include expenditure incurred to develop new orebodies, following the receipt of all necessary permits and licences to permit sustained mining activities. Where funds have been borrowed specifically to finance a project, the amount of interest capitalised represents the actual borrowing costs incurred. Mine development costs are capitalised to the extent they provide access to gold-bearing deposit and have future economic benefit.
Depreciation, depletion and amortisation of mine development costs are computed by the units-of- production method based on estimated proven and probable mineral reserves. Proven and probable mineral reserves reflect estimated quantities of economically recoverable reserves which can be recovered in the future from known mineral deposits. These reserves are amortised from the date on which production begins.
(e) Mineral property interests The Company capitalises mineral property acquisition costs on a property-by-property basis. Mineral property acquisition costs are subject to impairment tests for long-lived assets. Exploration expenditures and option payments incurred prior to the determination of the feasibility of mining operations and the decision to commence development are charged to operations as incurred.
Pre-development costs incurred prior to a development decision and the receipt of all necessary permits and licences for sustained mining operations are charged to operations as incurred.
Development expenditures incurred subsequent to the commencement of commercial production to
104 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
increase productive capacity or to extend the life of existing production are capitalised under mine development costs.
Mineral property acquisition costs include the cash consideration and the fair market value of common shares issued for mineral property interests, based on the trading price of the shares at the time the acquisition is closed. Payments relating to a property acquired under an option or joint venture agreement, where such payments are made at the sole discretion of the Company, are recorded in the accounts upon payment.
Administrative expenditures are expensed as incurred.
(f) Impairment of non-financial assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is determined on the basis of estimated undiscounted future cash flows to be derived from the asset group.
Early-stage exploration projects are evaluated based on available technical data with reference to market-related resource ounce prices.
If the recoverable amount is less than the carrying value of the asset group, the fair value of the asset group is estimated. An impairment loss is recognised as the amount by which the asset’s carrying amount exceeds its estimated fair value.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
(g) Income taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are computed based on differences between the carrying amount of existing assets and liabilities on the balance sheet and their corresponding tax values, using the substantively enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Future tax assets are recognised to the extent that they are considered more likely than not to be realised. The carrying value of future income tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated realisable amount.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
4. Significant Accounting Policies (continued) (h) Site reclamation obligations Estimated long-term asset retirement obligations, comprising pollution control, rehabilitation and mine closure, are based on the Company’s environmental management plans in compliance with current technological, environmental and regulatory requirements.
The Net Present Values of expected rehabilitation cost estimates are recognised and provided for in full in the financial statements. The estimates are reviewed annually and are discounted using rates that reflect inflation and the time value of money. The discount rate used is based on a pre-tax credit adjusted risk-free rate that is adjusted to reflect the current market assessments of the time value of money, and the risks specific to the obligation. Annual changes in the provision consist of finance costs relating to the change in the present value of the provision and inflationary increases in the provision estimate, as well as changes in estimates. The present value of environmental disturbances created, as well as changes to estimates, is expensed under exploration expenses against an increase in the rehabilitation provision for those projects for which a decision to develop has not been taken. Change in estimates for projects in the development phase is capitalised and amortised over the Life-of-Mine on the units-of-production method. Rehabilitation costs incurred that are included in the estimates are charged to the provision. The cost of ongoing current programmes to prevent and control pollution is charged against income as incurred.
(i) Share capital The Company records proceeds from share issuances net of issue costs. Shares issued for consideration other than cash or in a business combination are valued at the quoted market price on the date issued.
(j) Loss per common share Basic loss per common share is calculated by dividing the loss available to common shareholders by the weighted average number of common shares outstanding during the year. For all years presented, loss available to common shareholders equals the reported loss.
Diluted loss per common share is calculated using the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the year.
In years when the Company records a net loss, the effect of the stock options and warrants would be anti-dilutive and accordingly basic and diluted loss per share are the same.
(k) Use of estimates The preparation of financial statements requires management to make estimates and assumptions that
106 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to impairment of mineral property interests, determination of reclamation obligations, the determination of the fair values of financial instruments, assumptions used in determining the fair value of non-cash stock- based compensation and warrants, and determination of valuation allowances for future income tax liabilities. Actual results could differ from these estimates.
(l) Segment disclosure The primary reporting format of the Company is by business segment. As there is only one business segment, being the exploration and development of mineral properties, relevant disclosures are given in the financial statements. The secondary reporting format is by geographical analysis by origin (note 24). The accounting policies of the segments are the same as those described in the accounting policy notes to the Company’s financial statements.
(m) Stock-based compensation The Company has an equity-settled, stock-based compensation plan, where the Company grants stock options to certain employees and non-employees. Non-employees are those individuals over whom the Company does not exercise, nor have the right to exercise, sufficient control to establish an employer-employee relationship as determined by law.
For employees, equity stock-based payments are measured at the fair value of the equity instruments at the date of grant. The deferred stock-based compensation is expensed over the vesting period using the graded method, based on the Company’s estimate of the shares that are expected to eventually vest. For non-employees, equity stock-based payments are measured at fair value of the equity instruments over the vesting periods, the expense of which is being recognised on each vesting date.
The Company used the Black Scholes model in determining the fair value of the options granted. At each balance sheet date, the Company revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment to equity. Consideration received on the exercise of stock options is recorded as share capital and the related contributed surplus is transferred to share capital.
When unvested options are forfeited the Company reverses previously recognised charges to the income statement. The value of vested options remains in contributed surplus.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
4. Significant Accounting Policies (continued) (n) Revenue recognition Revenue is recognised at the fair value of the consideration received or receivable, to the extent that it is probable that economic benefits will flow to the Company and revenue can be reliably measured. The sale of gold and other precious metals, including metal-bearing ore, is recognised when the significant risks and rewards of ownership of the products are transferred to the buyer.
(o) Long-term borrowings Borrowings are initially recognised at fair value net of transaction cost incurred and subsequently measured at amortised cost, and are amortised to the repayment amount over the expected term to repayment using the effective interest method.
(p) Leased assets Assets subject to finance leases are capitalised at the lower of fair value or present value of minimum lease payments measured at inception of the lease with the related lease obligation recognised at the same amount. Capitalised lease assets are depreciated over their estimated useful lives. Finance lease payments are allocated using the rate implicit in the lease, which is included in finance costs, and the capital repayment, which reduces the liability to the lessor.
Operating lease rentals are charged against operating profits in a systematic manner related to the period the assets concerned will be used.
(q) Foreign currency translation Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’).
The Company’s integrated foreign operations translate monetary assets and liabilities denominated in a foreign currency into Canadian Dollars at exchange rates in effect at the balance sheet date. Non- monetary assets and liabilities are translated at historical exchange rates. Revenues and expenses, except amortisation, are translated at the average exchange rates for the period. Amortisation is translated at the same exchange rate as the assets to which it relates. Gains or losses on translation are recorded in the statement of operations.
Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of their fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in other comprehensive income in equity.
The results and financial position of all self-sustaining entities (none of which has the currency of a
108 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
UÊ >ÃÃiÌÃÊ>`Ê>LÌiÃÊvÀÊi>V ÊL>>ViÊÃ iiÌÊ«ÀiÃiÌi`Ê>ÀiÊÌÀ>Ã>Ìi`Ê>ÌÊÌ iÊVÃ}ÊÀ>ÌiÊ>ÌÊÌ i date of that balance sheet;
UÊ ViÊ>`ÊiÝ«iÃiÃÊvÀÊi>V ÊViÊÃÌ>ÌiiÌÊ«ÀiÃiÌi`Ê>ÀiÊÌÀ>Ã>Ìi`Ê>ÌÊÌ ÞÊ>ÛiÀ>}iÊ exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rates prevailing at the date of the transaction); and
UÊ >ÊÀiÃÕÌ}ÊiÝV >}iÊ`vviÀiViÃÊ>ÀiÊÀiV}Ãi`Ê>ÃÊ>ÊÃi«>À>ÌiÊV«iÌÊvÊiµÕÌÞÊ (accumulated other comprehensive income).
When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.
The Company re-assessed the functional currency of its development projects in Nevada as well as South Africa and concluded that the functional currency of both projects should be amended to the currency of the primary economic environment in which the projects are being developed. Due to the stage of development at both projects the operations are no longer regarded as integrated foreign operations effective July 1, 2008.
The functional currency of the Burnstone project is the South African Rand (ZAR) and for the Hollister project it is the United States Dollar (US$). The Canadian Dollar remains the presentation currency for the Company.
5. Adoption of New Accounting Policies Effective January 1, 2008, the Company adopted the following accounting standards updates issued by CICA. These new standards have been adopted on a prospective basis with no restatement to prior period financial statements.
(a) Section 1400 – Assessing going concern Historically, the Company’s sole source of funding has been the issuance of equity securities for cash, primarily through private placements to sophisticated investors and institutions. The Company completed a 100,000,000 unit offering on March 13, 2009 and thereby raised gross proceeds of $130 million to fund the development of the Burnstone project. The Company has granted to the Underwriters an over-allotment option to acquire additional Common Shares in an aggregate amount of up to 15% of the aggregate number of Common Shares sold pursuant to the Offering. This Over-Allotment Option, if exercised, would result in total gross proceeds from the offering of up to $149,500,000.
The Company’s access to future equity financing is always uncertain. During 2008 the Company also raised secured long-term debt to fund its development operations.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
5. Adoption of New Accounting Policies (continued) (a) Section 1400 – Assessing going concern (continued) In addition to the unit offering closed on March 13, 2009, the Company had working capital of $25 million as at December 31, 2008. Management has assessed the Company to be a going concern based on the available cash and cash resources.
(b) Section 1535 – Capital disclosures The Company’s objectives when managing capital are:
UÊ /ÊÃ>vi}Õ>À`ÊÌ iÊ «>Þ½ÃÊ>LÌÞÊÌÊVÌÕiÊ>ÃÊ>Ê}}ÊVViÀ]ÊÃÊÌ >ÌÊÌÊV>Ê«ÀÛ`iÊÀiÌÕÀÃÊ for shareholders and benefits for other stakeholders; and
UÊÊ /Ê«ÀÛ`iÊ>Ê>`iµÕ>ÌiÊÀiÌÕÀÊÌÊÃ >Ài `iÀÃÊLÞÊ«ÀV}Ê«À`ÕVÌÃÊViÃÕÀ>ÌiÞÊÜÌ ÊÌ iÊiÛiÊ of risk.
The Company considers the items included in the Consolidated Statements of Shareholder’s Equity as capital. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares through private placements, sell assets to reduce debt or return capital to shareholders. The Company is not subject to externally imposed capital requirements.
(c) Section 3031 – Inventories This standard requires that inventories be measured at the lower of cost and net realisable value, and includes guidance on the determination of cost, including allocation of overheads and other costs. The standard also requires that similar inventories within a consolidated group be measured using the same method. It also requires the reversal of previous write-downs to Net Realisable Value when there is a subsequent increase in the value of inventories.
The adoption of the Standard had no impact on the Company’s statement of operations. Inventories are valued consistent with prior years at the lower of cost or Net Realisable Value.
(d) Financial instruments – Disclosure (Section 3862) and Presentation (Section 3863) Financial instruments are initially measured at fair value when the Company becomes a party to their contractual arrangements. Transaction costs are included in the initial measurement of financial instruments, except financial instruments classified as being at fair value through profit and loss. The subsequent measurement of financial instruments is dealt with below.
A financial asset is de-recognised when the right to receive cash flows from the asset has expired or the Company has transferred its rights to receive cash and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the assets.
110 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
A financial liability is de-recognised when the obligation under the liability is discharged, cancelled or expires.
On de-recognition of a financial asset, the difference between the proceeds received or receivable and the carrying amount of the asset is included in income or loss.
On de-recognition of a financial liability, the difference between the carrying amount of the liability extinguished or transferred to another party and the amount paid is included in income or loss.
Cash and cash equivalents are non-derivative financial assets which consist of cash and highly liquid investments and are readily convertible to known amounts of cash. These held-for-trading financial assets are recognised at fair value and are included in current assets.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivable. They are initially recognised at fair value and subsequently measured at amortised cost. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Purchases and sales of investments are recognised on trade-date, the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at cost plus transaction costs for all financial assets. Investments are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred, and the Company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of investments classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement. The fair values of quoted investments are based on current bid prices. If the value for a financial instrument cannot be obtained from an active market, the Company establishes fair value by using valuation techniques.
These include the use of recent arm’s-length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
5. Adoption of New Accounting Policies (continued) (d) Financial instruments – Disclosure (Section 3862) and Presentation (Section 3863) (continued) If, in the opinion of the Directors, an other than temporary decline in value exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement.
Financial assets at fair value through profit or loss have two sub-categories: ‘financial assets held-for- trading’, and those designated at fair value through profit and loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as ‘held-for-trading’ unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.
(i) Financial assets The following table sets out the movement of the Company’s financial asset investments, which are accounted for as “available-for-sale”, or “held-for-trading” as defined by CICA 3855, Financial Instruments – Recognition and Measurement. No items were classified as “held-to- maturity” during the year. The carrying amounts and fair values of financial assets are as follows:
December 31, 2008 December 31, 2007 Designation Estimated Fair Carrying Estimated Fair Carrying Value Value Value Value
Cash and equivalents Held-for-trading $ 33,549,118 $ 33,549,118 $ 78,362,954 $ 78,362,954 Restricted cash Held-for-trading 4,064,100 4,064,100 – – Amounts receivable Loans & receivables 4,940,950 4,940,950 3,737,903 3,737,903 Due from related Loans & receivables 23,174 23,174 408,638 408,638 parties Held-for-trading Held-for-trading 79,960 79,960 833,000 833,000 financial instruments Other receivable Loans & receivables 912,900 912,900 – – Reclamation deposits Other 2,886,539 2,886,539 1,720,456 1,720,456 Available-for-sale Available-for-sale 899,624 899,624 3,326,084 3,326,084 financial instruments
Total financial assets $ 47,356,365 $ 47,356,365 $ 88,389,035 $ 88,389,035
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Available-for-sale Held-for-trading Total
At January 1, 2008 $ 3,326,084 $ 79,195,954 $ 82,522,038 Acquired during the year 274,803 15,820 290,623 Cash movements during the year – (44,813,836) (44,813,836) Transferred to restricted cash – 4,064,100 4,064,100 Movements in fair value (2,701,263) (768,860) (3,470,123)
Balance, December 31, 2008 $ 899,624 $ 37,693,178 $ 38,592,802
At January 1, 2007 $ 2,274,649 $ 33,964,436 $ 36,239,085 Acquired during the year 448,563 937,365 1,385,928 Cash movements during the year – 44,398,518 44,398,518 Movements in fair value 602,872 (104,365) 498,507
Balance, December 31, 2007 $ 3,326,084 $ 79,195,954 $ 82,522,038
The exposure of the Company’s financial assets to currency risk is as follows:
December 31, 2008
GBP US$ ZAR CAD Total
Cash and equivalents $ – $ 17,133,275 $ 16,025,198 $ 390,645 $ 3,549,118 Restricted cash – – 4,064,100 – 4,064,100 Amounts receivable – 3,776,320 861,369 303,261 4,940,950 Due from related parties – – 23,174 – 23,174 Held-for-trading financial instruments 79,960 – – – 79,960 Loans 912,900 – – – 912,900 Reclamation deposits – 61,874 604,065 2,220,600 2,886,539 Available-for-sale financial instruments 899,566 – 58 – 899,624
Total financial assets $ 1,892,426 $ 20,971,469 $ 21,577,964 $ 2,914,506 $ 47,356,365
The exposure of the Company’s financial assets to interest rate risk as at December 31, 2008 is limited to its investment in cash and cash equivalents of $33,549,118 as well as reclamation deposits and restricted cash, which are invested at floating rates.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
5. Adoption of New Accounting Policies (continued) (d) Financial instruments – Disclosure (Section 3862) and Presentation (Section 3863) (continued) (i) Financial assets (continued)
December 31, 2007
GBP US$ ZAR CAD Total
Cash and equivalents $ – $ (235,889) $35,511,548 $43,087,295 $ 8,362,954 Amounts receivable – 2,817,453 661,918 258,532 3,737,903 Due from related parties – – 13,679 394,959 408,638 Held-for-trading financial instruments 833,000 – – – 833,000 Reclamation deposits – 50,358 299,498 1,370,600 1,720,456 Available-for-sale financial instruments 3,326,024 – 60 – 3,326,084
Total financial assets $ 4,159,024 $ 2,631,922 $ 36,486,703 $ 45,111,386 $ 88,389,035
The exposure of the Company’s financial assets to interest rate risk as at December 31, 2007 is limited to its investment in cash and cash equivalents of $78,362,954 as well as reclamation deposits which are invested at floating rates.
(ii) Financial liabilities The carrying amounts and fair values of financial liabilities are as follows:
December 31, 2008 December 31, 2007
Estimated Fair Carrying Estimated Carrying Value Value Fair Value Value
Accounts payable and accrued $ 26,276,562 $ 26,276,562 $ 6,099,246 $ 6,099,246 liabilities Due to related parties 252,854 252,854 22,098 22,098 Long-term debt 62,977,339 62,977,339 – –
Total financial liabilities $ 89,506,755 $ 89,506,755 $ 6,121,344 $ 6,121,344
114 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
The exposure of the Company’s financial liabilities to currency risk is as follows:
December 31, 2008
US$ ZAR CAD Total
Accounts payable and accrued $ 13,499,596 $ 11,864,996 $ 911,970 $ 26,276,562 liabilities Due to related parties – 214,840 38,014 252,854 Long-term debt 36,203,403 26,773,936 – 62,977,339
Total financial liabilities $ 49,702,999 $ 38,853,772 $ 949,984 $ 89,506,755
December 31, 2007 US$ ZAR CAD Total
Accounts payable and accrued $ 1,441,580 $ 4,076,921 $ 580,745 $ 6,099,246 liabilities Due to related parties – 21,053 1,045 22,098
Total financial liabilities $ 1,441,580 $ 4,097,974 $ 581,790 $ 6,121,344
The exposure of the Company’s floating rate interest-bearing financial liabilities as at December 31, 2008 is as follows:
Less than 1 2 - 5 years More than 5 year years
Project finance facility $ – $ 33 million $ 15 million (refer note 19(a))
Total $ – $ 33 million $ 15 million
Interest rate is linked to the Johannesburg inter-banking borrowing rate (“JIBAR”) with an average premium of 2.25% above JIBAR. As at December 31, 2008 JIBAR was 12.06%.
The Senior Secured Notes issued in December 2008 and finance lease facility have fixed interest rates of 14% and 6.5% respectively and are therefore excluded from the above analysis (refer note 19(b) and 19(c) respectively). The remainder of the Company’s financial liabilities is not exposed to interest rate risk as they are of a non-interest bearing nature.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
5. Adoption of New Accounting Policies (continued) (d) Financial instruments – Disclosure (Section 3862) and Presentation (Section 3863) (continued) (iii) Financial instrument risk exposure and risk management The Company is exposed in varying degrees to a variety of financial instrument-related risks. The Board approves and monitors the risk management processes, inclusive of documented treasury policies, counterparty limits, controlling and reporting structures. The types of risk exposure and the way in which such exposure is managed, is provided for as follows:
Credit risk Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations and is primarily attributable to liquid financial assets.
The Company’s cash and cash equivalents, reclamation deposits and restricted cash are held through large Canadian and South African financial institutions. Cash equivalents are composed of financial instruments issued by Canadian and South African Banks with high investment-grade ratings and restricted cash of a margin call facility with a large South African financial institution (refer note 25(b)). The Company does not have financial assets that are invested in asset-backed commercial paper.
Amounts receivable and other receivables consist mainly of trade receivables and a deposit due from a recognised, credit-worthy third party (refer note 7(a)). The Company’s GST/VAT receivables consist of general sales tax due from the Governments of Canada and South Africa respectively.
The Company also advanced a convertible loan to a publicly-traded company (refer note 10). This loan has passed its due date, however by not more than 3 months and was not considered to be impaired. The loan accrued interest under the terms of the original agreement and the Company expects repayment during 2009.
The Company’s investments in held-for-trading and available-for-sale instruments are detailed in notes 6, 9 and 14.
The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk.
116 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.
To mitigate this risk the Company monitors its spending plans, repayment obligations and cash resources and takes action with the objective of ensuring that there is sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash and cash equivalents. The Company believes that these sources will be sufficient to cover the likely short- and long-term operating cash requirements.
Contractual obligated cash flow requirements as at December 31, 2008 are as follows:
Total Less than 2 - 5 years More than 5 1 year years
Accounts payable and accrued liabilities $ 26,276,562 $ 26,276,562 $ – $ – Due to related parties 252,854 252,854 – – Operating leases 822,874 182,066 640,808 – Asset retirement obligations 3,738,380 – – 3,738,380 Project finance facility 47,952,443 – 33,254,676 14,697,767 Senior Secured Notes 75,272,400 – 75,272,400 – Finance lease liability 2,673,840 916,745 1,757,095 –
Total $156,989,353 $ 27,628,227 $ 110,924,979 $ 18,436,147
Funding for ongoing development projects of the Company is expected to be provided by a combination of cash flow from operations, available cash resources and borrowings.
The company is in ongoing negotiations with a group of banks for credit facilities to finance the development and construction of the Burnstone property, however, there is no certainty of the Company successfully securing the facilities.
Market risk The significant market risk exposures to which the Company is exposed are foreign exchange risk, interest rate risk and commodity price risk, which are discussed further below. In addition the Company is exposed to price increases in cost of labour, energy and equipment which might influence the ultimate capital investment in the development of the Company’s projects and operational cost.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 117 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
5. Adoption of New Accounting Policies (continued) (d) Financial instruments – Disclosure (Section 3862) and Presentation (Section 3863) (continued) (iii) Financial instrument risk exposure and risk management (continued) Foreign exchange risk The Company’s capital and other income is denominated in Canadian Dollars, whilst revenue is denominated in United States Dollars (“US$”). However, the Company’s operating expenses are primarily incurred in US$ and South African Rand (“ZAR”). The results of the Company’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Company are reported in Canadian Dollars in the Company’s consolidated financial statements. The fluctuation of the US$ and ZAR in relation to the Canadian Dollar will consequently have an impact on the profitability of the Company and may also affect the value of the Company’s assets and the amount of shareholders’ equity.
The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks at this time.
At December 31, 2008, the Company is exposed to currency risk through the following foreign denominated assets and liabilities (refer note 5(d) (i) and (ii)):
GBP US$ ZAR CAD Total
Financial assets $ 1,892,426 $ 20,971,469 $ 21,577,964 $ 2,914,506 $ 47,356,365 Financial liabilities – (49,702,999) (38,853,772) (949,984) (89,506,755)
Net exposure $ 1,892,426 $(28,731,530) $ (17,275,808) $ 1,964,522 $(42,150,390)
Based on the aforementioned net exposure as at December 31, 2008, and assuming that all other variables remain constant, a 10% depreciation or appreciation of the Canadian Dollar against the respective currencies would result in an increase/decrease as set out below in the Company’s net earnings.
GBP US$ ZAR CAD Total
Increase/decrease $190,300 $ (2,873,153) $ (1,726,263) $ – $ (4,409,116)
Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
In respect of financial assets, the Company’s policy is to invest cash at floating interest rates and cash reserves are to be maintained in cash equivalents in order to maintain liquidity, while
118 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
achieving a satisfactory return for shareholders. Fluctuations in interest rates impact marginally on the value of cash and equivalents, as well as reclamation deposits.
In respect of the Company’s financial liabilities, the Senior Secured Notes issued in December 2008 and finance lease facility have fixed interest rates and are therefore not subject to interest rate risk. The interest rate on the project financing is variable with JIBAR.
Based on the amount owing on the project financing facility as at December 31, 2008, and assuming that all other variables remain constant, a 1% change in the JIBAR would result in an increase/decrease of $0.3 million in the interest accrued by the Company per annum.
The remainder of the Company’s financial liabilities is not exposed to interest rate risk as these are of a non-interest-bearing nature.
Commodity price risk The value of the Company’s mineral resource properties is related to the price of gold and the outlook for this mineral. The Company does not have any hedging or other commodity-based risks in respect of its operations.
Gold prices historically fluctuated widely and are affected by numerous factors outside of the Company’s control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative hedging activities, and certain other factors related specifically to gold.
6. Cash and Cash Equivalents
December 31 December 31 2008 2007
Cash $ 709,598 $ 4,296,897 Cash equivalents 32,839,520 74,066,057
$ 33,549,118 $ 78,362,954
Cash equivalents are composed of short-term investments with maturity dates of three months or less, call accounts and money market investments which are available on 24 hour notice and bankers’ acceptances which are readily convertible to known cash amounts, issued by Canadian and South African Banks with high investment-grade ratings.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 119 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
7. Amounts Receivable
December 31 December 31 2008 2007
GST/VAT receivable $ 1,415,918 $ 604,109 Deposit (note 7(a)) 1,523,256 1,239,125 Refund due from Hecla Limited – 1,546,606 Trade receivables 1,812,550 – Other debtors 189,226 348,063
$ 4,940,950 $ 3,737,903
(a) Deposit In connection with the February 20, 2007 share purchase agreement, an amount of $1,523,256 (US$1,250,621) is being retained by Hecla Limited in respect of the successful establishment of the Hollister Ventures Corp. 401K and related pension plans. This condition was met by October 1, 2008 and the amount is due to be refunded to the Company on April 1, 2009.
8. Inventory
December 31 December 31 2008 2007
Stores and materials $ 501,505 $ 199,185 Unprocessed ore 7,744,588 –
$ 8,246,093 $ 199,185
9. Held-for-trading Financial Instruments
Kryso Resources Plc. Number of December 31 Number of December 31 Warrants 2008 Warrants 2007
Balance, beginning of the year 5,000,000 $ 833,000 – $ – Addition – Kryso warrants received 1,086,956 15,820 5,000,000 937,365 Unrealised loss – warrants – (768,860) – (104,365)
Balance, December 31 6,086,956 $ 79,960 5,000,000 $ 833,000
Under the terms of a share purchase agreement entered into during December 2006, with Kryso Resources Plc (“Kryso”), the Company was granted 5,000,000 warrants (First grant), exercisable at a price of 15 pence per common share until July 11, 2012.
120 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
On date of grant the warrants had an estimated fair value of $937,365, which was revalued to $833,000 on December 31, 2007.
Under the terms of the April 2008 Convertible Loan agreement entered into (refer note 10), the Company was granted an additional 1,086,956 warrants from Kryso (Second grant) exercisable at 15 pence per common share until October 31, 2010. On date of grant the warrants had an estimated fair value of $15,820.
The warrants were fair valued on December 31, 2008 based on the assumptions summarised below and an exchange rate of $1.79:1GBP.
First grant Second grant
Expected volatility 75.52% 75.31% Risk-free interest rate 4.5% 4.25% Dividend Nil Nil Remaining life 3.5 years 1.8 years
The unrealised loss of $768,860 is reported in the net loss for the year ended December 31, 2008.
10. Other Receivables
Kryso Resources Plc. December 31 December 31 2008 2007
Balance, beginning of the year $ – $ – Convertible loan 985,000 – Interest accrued 17,900 – Foreign exchange (90,000) –
Balance, December 31 $ 912,900 $ –
During April 2008 the Company granted a convertible unsecured interest-free loan facility to Kryso to the value of GBP500,000 ($985,000), due on October 31, 2008. In connection with the facility, the Company received warrants (refer note 9).
The loan remained outstanding on the repayment date and the Company elected to be repaid and not to convert the loan. As at December 31, 2008, the amount remained outstanding and, under the terms of the agreement, the Company accrued default interest at 12% on the outstanding balance from the repayment date.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 121 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
11. Prepaid Expenses
December 31 December 31 2008 2007
Insurance $ 518,278 $ 680,045 Other 371,905 131,163
Balance, December 31 $ 890,183 $ 811,208
12. Property, Plant and Equipment
December 31, 2008 Accumulated Net Book Cost Amortisation Value
Land and buildings $ 3,458,030 $ 119,774 $ 3,338,256 Mine development 7,293,864 – 7,293,864 Assets under construction 14,661,221 – 14,661,221 Site equipment 22,421,886 3,958,820 18,463,066 Leased assets 2,769,566 32,971 2,736,595 Vehicles 1,910,334 492,478 1,417,856 Computers 946,391 389,818 556,573 Office furniture and fixtures 770,741 388,987 381,754
$ 54,232,033 $ 5,382,848 $ 48,849,185
December 31, 2007 Accumulated Net Book Cost Amortisation Value
Land and buildings $ 3,084,488 $ 31,418 $ 3,053,070 Assets under construction 5,927,750 – 5,927,750 Site equipment 6,827,935 2,157,540 4,670,395 Vehicles 365,517 51,690 313,827 Computers 331,350 94,929 236,421 Office furniture and fixtures 123,520 29,256 94,264
$ 16,660,560 $ 2,364,833 $ 14,295,727
As at December 31, 2008, $21,955,085 (December 2007, $5,927,750), comprising capitalised Burnstone mine development cost and plant and equipment under construction, is not being amortised.
122 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Equipment held under finance leases is amortised over its useful life of seven years. Amortisation of $32,971 was recorded for the year. The carrying value of these assets was $2,736,595 as at December 31, 2008 (2007: nil). Leased assets are pledged as security for the related finance leases (refer note 19(c)).
13. Reclamation Deposits
The continuity of reclamation deposits on the consolidated balance sheets is as follows:
December 31 December 31 2008 2007
Balance, beginning of the year $ 1,720,456 $ 103,702 Guarantee – Burnstone property 144,210 144,000 Investments – Burnstone property 185,221 155,498 Reclamation Bond – Hollister property 850,000 1,326,100 Guarantee – Puma Gold 1,967 – Exchange loss (15,315) (8,844)
Balance, December 31 $ 2,886,539 $ 1,720,456
The components of reclamation deposits on the consolidated balance sheets are as follows:
Hollister Burnstone Property Property (note 13(a)) (note 13(b)) Total
Balance, December 31, 2007 $ 1,420,958 $ 299,498 $ 1,720,456 Guarantee and investments – 331,398 331,398 Reclamation bond 850,000 – 850,000 Exchange gain (loss) 11,515 (26,830) (15,315)
Balance, December 31, 2008 $ 2,282,473 $ 604,066 $ 2,886,539
(a) Hollister property As at December 31, 2008 and 2007, the Company had posted $2,282,473 (US$1,824,886) and $1,420,958 (US$1,324,886) respectively in reclamation deposits with the United States Bureau of Land Management (“BLM”), in respect of exploration drilling and mine development on certain areas of the Hollister property.
(b) Burnstone property As at December 31, 2008 the Company placed investments and deposits for guarantees of $604,066 (ZAR4,607,669) in favour of the South African Department of Minerals & Energy for the reclamation of the Burnstone property.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 123 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
14. Available-for-sale Financial Instruments
December 31 December 31 2008 2007
Balance, beginning of the year $ 3,326,084 $ 2,274,649 Kryso shares (note 14(a)) Change in accounting policy – 64,811 Addition 274,798 448,503 Unrealised (loss) gain (2,701,263) 538,061 Rand Mutual Assurance (note 14(b)) Addition 5 60
Balance, December 31, 2008 $ 899,624 $ 3,326,084
The components of available-for-sale financial instruments are:
Fair Value Shares Cost Adjustment Amount
Kryso Resources Plc 13,401,335 $ 2,997,950 $ (2,098,391) $ 899,559 Rand Mutual Assurance 22 65 – 65
Balance, December 31, 2008 $ 2,998,015 $ (2,098,391) $ 899,624
Kryso Rand Mutual Resources Plc Assurance
Balance, beginning of the year 11,908,429 20 Acquired 1,492,906 2
Total, December 31, 2008 13,401,335 22
(a) Kryso Resources Plc – shares Kryso is a publicly-traded company on the AIM market of the London Stock Exchange. The shares were acquired at an original cost of $2,723,152 and were subsequently revalued to their fair value of $3,326,024 on December 31, 2007, which was calculated based on the closing price of 14.25 pence per share and an exchange rate of $1.96:1GBP.
On January 1, 2008, the Company held 11,908,429 shares equal to 15% of the common shares issued by Kryso Resources Plc (“Kryso”), a mineral resources and exploration company exploring gold and precious metal deposits in Central Asia.
On August 6, 2008, the Company acquired a further 1,492,906 shares during a private placement by Kryso at a total consideration of GBP134,362 (9 pence per share).
124 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
An unrealised loss of $2,701,256 for the year ended December 31, 2008 is reported in the Statement of Operations and Comprehensive Loss under ‘other comprehensive loss’ and was calculated based on the closing price of 3.75 pence per share and an exchange rate of $1.79:1GBP. The decrease in the fair value of the investment is considered to be temporary.
(b) The Rand Mutual Assurance Company Limited – shares The Rand Mutual Assurance Company Limited (“RMA”) is a mutual which caters for the compensation of occupational injuries specifically in the mining industry. The Company was granted two shares from RMA based on its contributions to the fund during the year. Dividends to the value of $17,640 have been earned during the 2007 year and are included under the comparative figures for other income. No dividends were received during 2008.
15. Investments in Associates
December 31 December 31 2008 2007
Balance, beginning of the year $ 7,203,973 $ – Underlying book value of shares acquired – 3,991,304 Excess ascribed to mineral properties – 4,008,696 Share of loss (351,446) (796,027) Mineral property acquired (note 16(c)) (6,852,527) –
Balance, December 31 $ – $ 7,203,973
During 2007, the Company acquired the investment in Rusaf Gold Limited (“Rusaf”) at an accumulated cost of $8,000,000 and recognised an equity loss of $796,027.
During the quarter ended March 31, 2008, the Company recognised $351,446 loss in the statement of operations as its 37% equity portion of Rusaf’s results for the period.
On April 1, 2008 the Company acquired the remaining 63% of the fully-diluted equity shares of Rusaf and subsequently allocated the investment to mineral properties acquired (refer note 16(c)).
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 125 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
16. Mineral Property Interests
December 31 December 31 Mineral Property Acquisition Costs, Net 2008 2007
Hollister property (note 16(a)) $ 88,623,915 $ 95,156,279 Burnstone property (note 16(b)) 122,165,098 123,257,650 Rusaf property (note 16(c)) 36,466,782 – Puma property (note 16(d)) 8,618,467 – Esmeralda property (note 16(e)) 3,762,713 – Kirkland Lake property (note 16(f)) 1 1 Other (note 16(g)) 221,680 –
$ 259,858,656 $ 218,413,930
(a) Hollister property, Elko County, Nevada, USA
December 31 December 31 2008 2007
Balance, beginning of the year $ 95,156,279 $ 3,945,348 Depletion charge (6,344,218) – Foreign exchange (188,146) – Acquisition of interest held by third parties – 91,210,931
Balance, December 31 $ 88,623,915 $ 95,156,279
On April 19, 2007, the Company acquired Hecla Ventures Corp. (“HVC”), which held the remaining 50% earn-in rights and certain tangible assets in the Hollister Development Block. The Company acquired HVC from Hecla Limited for a total consideration of US$60 million plus share issue costs ($70,618,292). The consideration was paid in a combination of cash (US$45 million) and shares (7.93 million shares valued at US$15 million).
The fair value of the assets acquired and liabilities assumed at the date of acquisition was as follows:
Cash $ 11,156 Plant and equipment 903,826 Accounts payable (816,515) Reclamation obligation (722,304) Mineral property 91,210,931 Future income tax liability (19,968,802)
$ 70,618,292
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During the 2008 year, 80,305 gold equivalent ounces were extracted from this property resulting in a depletion charge of $6,344,218.
(b) Burnstone property, RSA
December 31 December 31 2008 2007
Balance, beginning of the year $ 123,257,650 $ 106,964,650 Settlement Agreement: Royalty settlement – 11,568,000 Future income tax provision – 4,725,000 Foreign exchange (1,092,552) –
Balance, December 31 $ 122,165,098 $ 123,257,650
In November 2002, the Company entered into an option agreement (the “Option to Purchase Agreement”) with Southgold Exploration (Proprietary) Limited (“Southgold”) and the then shareholders of Southgold to purchase, on a staged basis, up to 100% of Southgold, which owned the Burnstone property.
The Option to Purchase agreement was exercised in three tranches through payment of cash, issuing of shares and issuing of warrants. The acquisition was completed in July 2006.
Royalty settlement On October 10, 2003, pursuant to a prospecting agreement (the “Prospecting Agreement”) dated October 17, 2000 between GFL Mining Services Limited (“GFL”), Randex Limited (“Randex”), and Southgold, Southgold elected to purchase certain mineral rights held by GFL and Randex within the Burnstone property which were not covered under Southgold’s then-existing rights, for ZAR35 million ($6,695,598) subject to a net smelter return royalty ranging from 1% to 2% (tiered to the gold price), and payable to GFL.
On October 1, 2007, under the terms of the Memorandum of Agreement signed under the Black Economic Empowerment Transaction Framework Agreement, Southgold paid $11.6 million (ZAR80 million) to GFL in full and final settlement of the net smelter royalty payable, which was included in the capitalised cost of mineral properties.
Black Economic Empowerment transaction On February 22, 2007, the Company entered into a framework agreement to achieve compliance with the requirements of South Africa’s Broad-Based Black Economic Empowerment Act in order to secure the new order prospecting rights in respect of Burnstone.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 127 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
16. Mineral Property Interests (continued) (b) Burnstone property, RSA (continued) On October 1, 2007, Tranter Burnstone (Proprietary) Limited (“Tranter Burnstone”) subscribed for and was allotted and issued with 812 new ordinary shares (“the Southgold Shares”) in the issued share capital of Southgold, a wholly-owned subsidiary of Great Basin Gold.
The aggregate subscription price paid by Tranter Burnstone to Southgold was $38 million (ZAR260 million). The 812 new ordinary shares constituted 26% of the issued share capital of Southgold.
Subsequent to the completion of the above, N6C Resources Inc. (“N6C Inc.”), a wholly-owned subsidiary of Great Basin Gold, purchased the Southgold shares from Tranter Burnstone in exchange for 19,938,650 common shares of Great Basin Gold issued to Tranter Burnstone.
In addition to the issue and allotment of the 19,938,650 common shares in Great Basin Gold, the Company provided a total of 1,684,312 Great Basin Gold warrants to Investec Limited (1,263,234) who financed the transaction and Tranter Gold (421,078), respectively. The warrants are exercisable at ZAR20.78 per share until September 2010 and Great Basin Gold may require they be exercised under certain conditions.
Both the Great Basin Gold common shares and the warrants issued in connection with this transaction were valued by independent valuation specialists in order to determine the fair value for accounting purposes.
On February 22, 2007, the date on which the Transaction Framework Agreement was announced, the value of the Great Basin Gold shares was $38 million (ZAR260 million). The transaction was concluded on October 1, 2007 and resulted in the common shares and warrants being valued on the transaction date, taking into account the restrictions as defined in the Subscription and Acquisition Agreement.
On the date of the transaction, the fair value of the shares and warrants was estimated between $34 million (ZAR236 million) for the shares and $1.2 million (ZAR8 million) for the warrants and $37 million (ZAR257 million) for the shares and $1.2 million (ZAR8 million) for the warrants (refer note 22(c)(iii)).
128 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
(c) Rusaf properties, Russia and Republic of Tanzania
December 31 December 31 2008 2007
Balance, beginning of the year $ – $ – Acquisition of interest held by third parties 36,466,782 –
Balance, December 31 $ 36,466,782 $ –
On April 1, 2008, the Company concluded the asset acquisition of Rusaf (refer note 15).
The transaction was structured in three tranches of which the first tranche closed on June 28, 2007 with the payment of $2,000,000 for 3,333,333 common shares at $0.60 per share.
The Company acquired a further 10,000,000 shares on July 20, 2007 at a price of $0.60 per share for an aggregate payment in cash to Rusaf of $6,000,000.
On April 1, 2008, the Company acquired the remaining 63% of Rusaf for a consideration of $22,883,180, payable in 6,613,636 Great Basin Gold common shares. The exchange ratio was one Great Basin Gold share for every 4.5 Rusaf shares.
In addition to the shares issued on April 1, 2008, the Company agreed to issue up to 1,062,034 Great Basin Gold common shares to the former Rusaf shareholders upon exercise of share purchase warrants and share options held by them. The exchange ratio agreed to was one Great Basin Gold share for every 4.5 Rusaf shares. On July 22, 2008, the Company issued 22,041 shares valued at $3.49 per share in terms of warrants exercised by the former Rusaf shareholders.
The acquisition terms also provide for additional Great Basin Gold shares to be issued in the first three years from closing, contingent upon gold discoveries above a threshold of 500,000 ounces in size on certain mineral prospects formerly held by Rusaf. In the event of such discoveries, the Company will issue shares valued at the higher of closing price on date of acquisition or then prevailing market price to the former Rusaf shareholders. This will be on the basis of valuing these gold ounces at US$15/oz for inferred resources and US$40/oz for measured and indicated resources (subject to a minimum average cut-off grade of 1,5 grams per tonne or 0,04 oz per ton).
The Company also agreed to spend a minimum of $7 million and up to a maximum of $20 million to explore the newly-acquired properties during the first three years from closing of the transaction on April 1, 2008. The increased expenditure is contingent upon gold discoveries above a threshold of 500,000 ounces in size on certain mineral prospects formerly held by Rusaf.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 129 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
16. Mineral Property Interests (continued) (c) Rusaf properties, Russia and Republic of Tanzania (continued) The aggregate purchase price was $31,662,942, calculated as follows:
Cash payment $ 8,000,000 Equity loss recognised to date of acquisition (note 15) (1,147,473) Issuance of 6,613,636 Great Basin Gold common shares 22,883,180 Additional 22,041 shares issued to Rusaf shareholders 76,923 Fair value of share options and warrants 1,763,476 Transaction costs 86,836
$ 31,662,942
The value of the 6,613,636 and 22,041 Great Basin Gold common shares issued was determined based on the closing market price of Great Basin Gold’s common shares on the respective dates the shares were issued and the acquisition closed (April 1, 2008 at $3.46 per share; July 22, 2008 at $3.49 per share) (refer note 22(f) and (g)).
The fair value of $1,763,476 estimated for the 1,062,034 future Great Basin Gold shares to be issued was calculated using the Black Scholes option pricing model based on a risk-free interest rate of 2.99%, expected life between one month and four years and 59% volatility, recorded as contributed surplus (refer note 22(d)(i)).
No fair value was allocated to the shares to be issued to the former Rusaf shareholders on resource discoveries due to the fact that the Company currently does not have adequate exploration data available to determine the probability of future share issuances. Any shares issued upon resolution of this contingency will be allocated to the acquisition cost of mineral properties.
The acquisition was accounted for as a purchase of assets, and the preliminary fair value of the assets acquired and liabilities assumed at the date of acquisition are as follows:
Cash and cash equivalents $ 4,494,976 Receivables and prepaid expenses 489,063 Property and equipment 637,825 Exploration advances 328,402 Accounts payable and accrued liabilities (94,866) Mineral properties 36,466,782 Future income tax liability (10,659,240)
$ 31,662,942
130 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
The allocation to mineral properties and future income tax liability balance is subject to change as the valuation process is completed.
The results of operations of Rusaf have been included in the consolidated financial statements of the Company, commencing April 1, 2008.
(d) Puma property, RSA
December 31 December 31 2008 2007
Balance, beginning of the year $ – $ – Acquisition of interest held by third parties 9,223,272 – Foreign exchange (604,805) –
Balance, December 31 $ 8,618,467 $ –
Puma Gold (Proprietary) Limited (“Puma”) is a private South African company which holds prospecting and option contracts located on the eastern edge of the Burnstone property.
On July 31, 2008 the Company issued 1,862,354 Great Basin Gold common shares as consideration for a 100% interest in the assets of Puma. The shares were valued at the closing price of $3.57 on July 31, 2008, for a total consideration price of $6,648,604 (refer note 22(h)).
The acquisition was accounted for as a purchase of assets, and the preliminary fair value of the assets acquired and liabilities assumed at the date of acquisition are as follows:
Cash and cash equivalents $ 5,987 Accounts payable (4,226) Mineral property 9,223,272 Future income tax liability (2,576,429)
$ 6,648,604
The allocation to mineral properties and future income tax liability balance is subject to change as the valuation process is completed.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 131 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
16. Mineral Property Interests (continued) (e) Esmeralda property, Mineral County, Nevada, USA
December 31 December 31 2008 2007
Balance, beginning of the year $ – $ – Acquisition of mine and mill property 2,403,600 – Transfer tax and filing fees 7,875 – Reclamation asset 1,318,763 – Foreign exchange 32,475 –
Balance, December 31 $ 3,762,713 $ –
The Company purchased the Esmeralda property on November 30, 2008 from Metallic Ventures (U.S.), Inc. for an aggregate consideration of $2,403,600 (US$2,000,000). The Esmeralda mine and property mill consist of patented and unpatented mining claims, fee lands, water rights and a mill.
Estimated reclamation liabilities of $1,318,763 (US$1,082,728) have been capitalised to the Esmeralda property (refer note 21).
(f) Kirkland Lake property, Ontario, Canada In 1992, the future economic benefit of the Kirkland Lake property became uncertain, and while the property was not abandoned, there were no plans to make further significant expenditures on the property. Accordingly, the property was written down to a nominal amount.
The Company continues to maintain the property in good standing.
(g) Other properties
December 31 December 31 2008 2007
Balance, beginning of the year $ – $ – Ganes Creek property (note g(i)) 118,865 – Tsetsera property (note g(ii)) 102,815 –
Balance, December 31 $ 221,680 $ –
132 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
(i) Ganes Creek property, Alaska, USA The Company signed an agreement, effective November 14, 2007, whereby it will earn an 80% interest in all hard rock mineral rights on the Ganes Creek property in Alaska by expending a total of US$3 million in exploration expenditures over a three-year period. The Ganes Creek property is held by CW Properties LLC (“CWM”), based in Talkeetna, Alaska, USA.
The Company can also increase its interest in the property at a production decision by purchasing the remaining 20% at fair market value, should CWM not wish to participate in any development costs. CWM would retain a 2% Net Smelter Royalty of which 1% could be purchased by Great Basin Gold for US$2 million.
Pursuant to the agreement, the Company issued 10,000 shares on February 4, 2008 to CWM and remitted two cash payments of US$40,000 each. The shares were valued at the prevailing quoted price of $2.97 per share and were recorded as mineral properties (refer note 22(e)).
(ii) Tsetsera property, Mozambique The Company entered into an unincorporated joint venture with G S Minase Refinaria Limitade (GSR) in Mozambique on August 20, 2007 (“the JV”). The purpose of the JV is to establish a gold exploration and mining business in Mozambique, whereby the company will have the exclusive right to explore all GSR’s properties.
The Company has an 80% interest in the JV, and has committed to exploration expenditures of approximately US$2 million over a three-year period on the Tsetsera property, which is located in Mozambique, and other properties over which GSR holds mineral rights.
Should any financing be required for the conducting of any mining activities, each of the parties is required to contribute to such financing needs in proportion to interests in the JV. Should GSR not be in a position to contribute such finance required by the JV in respect of any property or project, Great Basin Gold shall have the right of first refusal to buy GSR’s remaining 20% share. The consideration payable in respect of the 20% share will be settled either in cash or Great Basin Gold shares, and the value will be based on resources reported at that time and valued at fair market price. GSR however will retain a 3% Net Smelter Royalty.
Pursuant to the agreement, the Company remitted two cash payments of US$50,000 each, which were recorded as mineral properties.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 133 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
17. Accounts Payable and Accrued Liabilities
December 31 December 31 2008 2007
Trade payables $ 12,250,484 $ 1,395,828 Accrued liabilities 10,339,911 4,106,527 Royalty accrual 1,139,881 – Leave liability 681,540 200,891 Bonus provision 1,864,746 396,000
Balance, December 31 $ 26,276,562 $ 6,099,246
18. Related Party Balances and Transactions
Due from related parties December 31 December 31 2008 2007
Hunter Dickinson Services Inc. (note 18(a)) $ – $ 394,959 Tranter Gold (Proprietary) Limited (note 18(b)) 23,174 13,679
Balance, December 31 $ 23,174 $ 408,638
Due to related parties December 31 December 31 2008 2007
CEC Engineering Ltd (note 18(c)) $ – $ 1,045 Tranter Gold (Proprietary) Limited (note 18(b)) 214,840 21,053 Hunter Dickinson Services Inc. (note 18(a)) 38,014 –
Balance, December 31 $ 252,854 $ 22,098
Reimbursement for related party expenses December 31 December 31 and services rendered 2008 2007
CEC Engineering Ltd (note 18(c)) $ 1,807 $ 36,771 Hunter Dickinson Services Inc. (note 18(a)) $ 559,904 $ 974,067 Plateau Resources (Proprietary) Limited (note 18(d)) $ 22,751 $ 156,286 Tranter Gold (Proprietary) Limited (note 18(b)) $ 25,700 $ 670,042
Related party transactions are recorded at the exchange amount which is the amount of consideration paid or received as agreed to by the parties.
Related party balances receivable (payable) are included under current assets and liabilities on the consolidated balance sheets.
134 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
(a) Hunter Dickinson Services Inc. Hunter Dickinson Services Inc. (“HDI”), formerly Hunter Dickinson Inc, is a private company owned equally by one private and eight public companies. HDI has a Director in common with the Company and provides corporate development, administrative and management services to, and incurs third party costs on behalf of, the Company and its subsidiaries on a full cost recovery basis pursuant to an agreement dated September 25, 2007.
(b) Tranter Gold (Proprietary) Limited (“Tranter Gold”) Tranter Gold is a wholly-owned subsidiary of Tranter Burnstone and has a Director in common with the Company. The Company provides Tranter Gold with certain accounting and administrative services on rates negotiated while the officer was dealing at arm’s length with the Company.
During the year ended December 31, 2008, Tranter Gold provided Southgold with geological services in the amount of $212,710 (ZAR1,638,753) (2007: $21,053 (ZAR146,202)), negotiated at arm’s length.
(c) CEC Engineering Ltd. (“CEC Engineering”) CEC Engineering is a private company owned by a former Director of the Company, which provided engineering and project management services on an arm’s-length basis and under normal commercial terms.
(d) Plateau Resources (Proprietary) Limited (“Plateau”) Plateau is a wholly-owned subsidiary of Anooraq Resources Corporation, a Canadian company which has certain Directors in common with the Company. Plateau rented premises and other facilities to the Company pursuant to a cost-sharing agreement based on a full cost recovery basis.
19. Long-term Borrowings
December 31 December 31 2008 2007
Balance, beginning of the year $ – $ –
Project finance facility (note 19(a)) 26,773,936 – Senior Secured Notes (note 19(b)) 33,766,950 – Finance lease liability (note 19(c)) 1,519,708 –
Balance, December 31 $ 62,060,594 $ –
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 135 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
19. Long-term Borrowings (continued)
Aggregate future payments, Less than 1 2 - 5 years More than 5 inclusive of interest year years
Project finance facility $ – $ 33,254,676 $ 14,697,767 Senior Secured Notes – 75,272,400 – Finance lease liability 916,745 1,757,095 –
Total financial liabilities $ 916,745 $ 110,284,171 $ 14,697,767
(a) Project finance facility
December 31 December 31 2008 2007
Balance, beginning of the year $ – $ – Principal amount 26,040,000 – Accrued interest 1,113,710 – Facility arrangement fees (596,468) – Amortised facility arrangement fees 18,768 – Foreign exchange 197,926 –
Balance, December 31 $ 26,773,936 $ –
As of December 31, 2008, the Company utilised a ZAR200 million ($26 million) South African Rand-denominated project finance facility. This facility is collateralised by a first mortgage bond over the Burnstone project.
The facility has a term of seven years with quarterly repayments of ZAR18 million ($2 million) commencing September 2010. Interest rates are linked to JIBAR with an average premium of 2.25% above JIBAR. As at December 31, 2008, JIBAR was 12.06%.
136 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
(b) Senior Secured Notes
December 31 December 31 2008 2007
Balance, beginning of the year $ – $ – Principal amount 57,819,944 – Pre-paid interest (18,042,304) – Transaction cost (5,816,203) – Amortised interest expense 706,432 – Foreign exchange (900,919) –
Balance, December 31 $ 33,766,950 $ –
On December 12, 2008, the Company closed a Senior Secured Note financing (the “Note Financing”), issuing a total of 51,500 units and raising gross proceeds of US$51,500,000 which netted approximately $39 million (US$32 million), following pre-payment of 24 months of interest and other costs of the offering. Each unit consisted of a Senior Secured Note (a “Note”) in the principal amount of US$1,000 and 350 common share purchase warrants (the “Note Financing Warrants”). Each Note Financing Warrant entitles the holder to purchase one common share in the capital of the Company at a price of $1.80 per share on or before December 12, 2011.
These warrants are subject to anti-dilution rights, including certain anti-dilution rights triggered by the issuance of common shares at a price less than the exercise price, but have a minimum exercise price of $1.11 per common share (refer note 26(c)).
Each Note matures at 120% of principal on the earlier of December 12, 2011 and certain stated events, including a change of control. The Notes are also repayable at the election of the holder at 30 days’ notice after November 12, 2010. The Notes bear interest of 14% per annum. The Notes are guaranteed on a joint and several basis by all of the Company’s Nevada subsidiaries and collateralised by their assets, being the Hollister property and all other Nevada assets (refer note 27(d)).
The fair value of the debt and equity components of the Notes was apportioned using the relative fair value method with the fair value assigned to the warrants being recorded in equity (refer note 22(c)(iv)).
The main covenant is that the Company shall, from and after June 30, 2009, maintain a stockpile of ore delivered from the Hollister mine in excess of 7,500 metric tonnes, containing in excess of 10,000 ounces of gold equivalent and, from and after September 30, 2009, the Company will maintain a stockpile of ore delivered from the Hollister mine in excess of 15,000 metric tonnes and containing in excess of 20,000 ounces of gold equivalents for the duration of the Notes.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 137 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
19. Long-term Borrowings (continued) (c) Finance lease liability
December 31 December 31 2008 2007
Balance, beginning of the year $ – $ – Principal debt amount 2,505,706 – Interest expense 17,732 – Payments (66,931) – Foreign exchange (20,054) –
Balance, December 31 $ 2,436,453 $ –
December 31 December 31 2008 2007
Non-current $ 1,519,708 $ – Current 916,745–
Balance, December 31 $ 2,436,453 $ –
On November 15, 2008, the Company financed site equipment through a finance lease agreement with Sandvik Customer Finance LLC. The principal debt amount will be repaid in 36 equal instalments. Interest is charged at 6.5% on outstanding capital and is being calculated on the 15th of each month.
The finance lease is collateralised by the leased assets which had a carrying value of $2,736,595 at December 31, 2008 (refer note 12).
20. Future Income Taxes The estimated tax effect of the significant components within the Company’s future tax liability was as follows:
December 31 December 31 2008 2007
Future income tax assets Mineral properties $ – $ 1,876,000 Loss carry-forwards 48,432,765 23,428,000 Equipment 18,146,538 253,000 Other 9,213,242 4,276,000
Sub-total 75,792,545 29,833,000 Valuation allowance (33,464,849) (20,899,000)
Future income tax asset $ 42,327,697 $ 8,934,000
138 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
December 31 December 31 2008 2007
Future income tax liability Mineral property interests $ (54,903,967) $ (42,917,164) Senior secured debt (2,171,121) – Future income tax liability (57,075,089) (42,917,164)
Net future income tax liability $ 14,747,392 $ 33,983,164
Income tax expense differs from the amount that would result from applying the Canadian federal and provincial tax rates to earnings before income taxes. These differences result from the following items:
December 31 December 31 2008 2007
Combined Canadian federal and provincial statutory rate 31.0% 34.12%
Income tax at statutory rates $ (36,213,226) $ (19,899,108) Difference in foreign tax rates 377,774 1,224,142 Valuation allowance 4,500,522 7,558,472 Other non-deductible items, Canada 4,532,798 (660,948) Change due to foreign exchange (4,243,626) (357,470) Change in tax rate (218,366) 642,518 Benefit of unrealised foreign exchange gain (loss) not included in income (758,387) 303,426 Other 77,732 4,035,683
Future income tax recovery $ (31,944,779) $ (7,153,285)
At December 31, 2008, the Company had available losses for income tax purposes in Canada totalling approximately $9.2 million (2007 – $1.1 million), expiring in various years from 2009 to 2028. The Company has available resource tax pools in Canada of approximately $4.9 million (2007 – $4.8 million), which may be carried forward and utilised to reduce resource income.
Included in these resource tax pools is $3.1 million (2007 – $2.9 million) which is successored, and consequently can only be utilised against taxable income from specific mineral properties.
At December 31, 2008, the Company had a net operating loss carry-forward for United States income tax purposes of approximately $116.8 million (US$95.9 million) (2007 – $45.3 million (US$45.7 million)) which, if not utilised to reduce United States taxable income in future periods, expire through the year 2028. These available tax losses may only be applied to offset future taxable income from the Company’s current United States subsidiaries.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 139 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
20. Future Income Taxes (continued) Approximately $11 million (US$9 million) of the above United States losses are subject to limitation under Section 382. Accordingly, the Company’s ability to utilise these losses each year may be limited. Furthermore, additional ownership changes under Section 382 may have occurred, which may further limit the availability of net operating losses.
At December 31, 2008, the Company had available losses for income tax purposes in South Africa totalling approximately $7 million (ZAR52 million) and available unredeemed capital of approximately $101 million (ZAR770 million), which may be carried forward and utilised to reduce future resource income.
The future income tax liability arising from mineral properties is based substantially on South African Rand and United States Dollar-denominated assets and tax balances. These balances decreased mainly due to movement in recognised timing differences and foreign exchange movements. The Company also recognised future income tax liabilities of $10.7 million and $2.6 million from the acquisition of Rusaf and Puma respectively, which reflects temporary differences related to the accounting and tax values of the respective entities’ identifiable assets and liabilities.
21. Site Reclamation Obligations The provision for site closure and reclamation costs related to the Company’s mineral properties is as follows:
December 31 December 31 2008 2007
Balance, beginning of the year $ 1,416,964 $ 405,000 Accretion 38,086 37,466 Recognition of obligation acquired – Hollister – 722,304 Recognition of obligation acquired – Esmeralda 1,318,763 – Change in estimate 728,224 393,877 Foreign exchange 236,343 (141,683)
Balance, December 31 $ 3,738,380 $ 1,416,964
The components of the site reclamation obligation are as follows:
December 31 December 31 2008 2007
Burnstone property (note 21(a)) $ 706,363 $ 507,168 Hollister property (note 21(b)) 1,648,967 857,475 Esmeralda property (note 21(c)) 1,318,763 – Other properties 64,287 52,321
Balance, December 31 $ 3,738,380 $ 1,416,964
140 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
(a) Burnstone property The estimated amount of the reclamation costs to remove infrastructure, capping and backfilling of the decline and subsequent property rehabilitation including re-vegetation and fertilisation, adjusted for estimated inflation at 6.5% per year, is $0.85 million (ZAR6.5 million) and is expected to be spent over a period of approximately three years beginning in 2025. The credit-adjusted risk-free rate at which the estimated future cash flows have been discounted is 7.2%, to arrive at a Net Present Value of $706,363 (refer note 16(b)).
(b) Hollister property The estimated amount of the reclamation costs to remove infrastructure, capping and backfilling of the decline and subsequent property rehabilitation including re-vegetation and fertilisation, adjusted for estimated inflation at 2.5% per year, is $1.8 million (US$1.5 million) and is expected to be spent from 2015. The credit-adjusted risk-free rate at which the estimated future cash flows have been discounted is 3.75%, to arrive at a Net Present Value of $1.65 million (refer note 16(a)).
(c) Esmeralda property In terms of the Asset Purchase Agreement (refer note 16(e)), the Company also acquired the future reclamation liability over the Esmeralda property. The estimated amount of the reclamation costs to remove infrastructure and subsequent property rehabilitation is $1.3 million (US$1.1 million). The Esmeralda property is on care and maintenance status, with the mine and mill fully permitted for operations. As long as the property continues to be on care and maintenance status, no reclamation activities related to final site restoration are required.
22. Share Capital (a) Authorised share capital The Company’s authorised share capital consists of an unlimited number of common shares without par value.
(b) Share option plan The Company has a share option plan approved by the shareholders that allows it to grant options to a maximum number of eligible shares equalling a rolling percentage of up to 12.5% of the Company’s outstanding common shares, calculated from time to time, subject to regulatory terms and approval, to its Directors, employees, officers and consultants.
The exercise price of each option is set by the Board of Directors at the time of grant but cannot be less than the market price (less permissible discounts) on the Toronto Stock Exchange.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 141 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
22. Share Capital (continued) (b) Share option plan (continued) Pursuant to the option plan, if outstanding options are exercised, or expire, and/or the number of issued and outstanding common shares of the Company increases, then the options available to grant under the plan increase correspondingly. Options can have a maximum term of 10 years and typically terminate 30 days following the termination of the optionee’s employment or engagement, except in the case of retirement or death.
Vesting of options is at the discretion of the Board of Directors at the time the options are granted.
The continuity of share purchase options is as follows:
Contractual Weighted Weighted Average Average Remaining Exercise Price Number of Options Life (Years)
Balance, December 31, 2006 $1.87 9,340,000 2.47 Granted $2.70 6,024,000 Exercised $1.69 (3,015,830) Forfeited $2.19 (630,000)
Balance, December 31, 2007 $2.32 11,718,170 2.37 Granted $3.09 9,913,503 Exercised $2.07 (2,250,386) Expired $1.62 (1,090,000) Forfeited $2.62 (1,048,891)
Balance, December 31, 2008 $2.82 17,242,396 2.30
142 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Options outstanding at December 31, 2008 are as follows:
Number of Options Number of Options Expiry Date Exercise Price Outstanding Exercisable
March 31, 2009 $2.07 739,668 739,668 March 31, 2009 $2.45 100,000 100,000 April 30, 2009 $2.07 45,000 45,000 April 30, 2009 $2.45 228,500 228,500 April 18, 2010 $2.68 1,873,167 1,287,501 December 31, 2010 $1.14 400,000 400,000 April 30, 2011 $2.45 1,255,000 1,255,000 November 8, 2011 $2.45 90,000 90,000 April 18, 2012 $2.68 1,332,000 888,000 July 5, 2010 $2.77 453,334 280,001 August 22, 2010 $2.10 305,000 203,333 September 4, 2010 $2.24 100,000 50,000 September 11, 2010 $2.54 175,000 116,667 November 9, 2010 $3.12 633,334 430,000 February 4, 2011 $3.00 2,312,227 754,443 February 18, 2011 $2.95 50,000 16,667 March 18, 2011 $3.57 470,000 156,667 April 10, 2011 $3.60 2,145,000 715,000 May 21, 2011 $3.47 476,666 170,000 August 18, 2011 $2.78 1,200,000 400,000 April 10, 2013 $3.60 1,603,500 534,500 May 21, 2013 $3.60 110,000 36,667 October 30, 2011 $1.50 1,145,000 –
Total 17,242,396 8,897,614
Average option price $2.82 $2.72
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 143 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
22. Share Capital (continued) (b) Share option plan (continued)
Weighted Average Weighted Range of Exercise Price Exercise Number of Average Remaining – Outstanding Options Price Options Contractual Life (Years)
$1.00 - $1.24 $1.14 400,000 2.00 $1.50 - $1.74 $1.50 1,145,000 2.83 $2.00 - $2.24 $2.09 1,189,668 0.73 $2.25 - $2.49 $2.45 1,673,500 1.96 $2.50 - $2.99 $2.71 5,083,501 2.18 $3.00 - $3.49 $3.09 3,422,227 2.09 $3.50 - $3.99 $3.60 4,328,500 3.07
Total $2.82 17,242,396 2.30
Weighted Range of Exercise Price Average – Exercisable Options Exercise Price Number of Options
$1.00 - $1.24 $1.14 400,000 $2.00 - $2.24 $2.08 1,038,001 $2.25 - $2.49 $2.45 1,673,500 $2.50 - $2.99 $2.70 2,988,836 $3.00 - $3.49 $3.10 1,354,443 $3.50 - $3.99 $3.60 1,442,834
Total $2.72 8,897,614
The exercise prices of all share purchase options granted were at or above the market price at the grant date. The options have been valued using an option pricing model with the assumptions noted below. The estimated fair value of options granted for the years ended December 31, 2008 and 2007, have been included in the consolidated statements of operations, as follows:
Years ended December 31 2008 2007
Exploration and pre-development $ 1,329,300 $ 1,175,261 Operations and administration 9,082,504 4,458,015
Total compensation cost recognised, credited to contributed surplus $ 10,411,804 $ 5,633,276
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The weighted-average assumptions used to estimate the fair value of options vesting during the respective years were as follows:
Years ended December 31 2008 2007
Risk-free interest rate 3.52% 4% Expected life 3.4 years 3.5 years Expected volatility 62% 57% Expected dividends Nil Nil
(c) Share purchase warrants The continuity of share purchase warrants during the year is as follows:
December 31, 2008 Outstanding Outstanding Exercise December December Expiry Dates Price 31, 2007 Issued Exercised Expired 31, 2008
July 18, 2008 (note 22(c)(i)) ZAR12.90 998,890 – (998,890) – – April 20, 2009 (note 22(c)(ii)) $3.50 28,750,000 – – – 28,750,000 September 30, 2010 (note 22(c)(iii)) ZAR20.78 1,684,312 – – – 1,684,312 December 12, 2011 (note 22(c)(iv)) $1.80 – 18,746,000 – – 18,746,000
31,433,202 18,746,000 (998,890) – 49,180,312
December 31, 2007 Outstanding Outstanding Exercise December December Expiry Dates Price 31, 2006 Issued Exercised Expired 31, 2007
May 18, 2007 $2.60 672,000 – (598,385) (73,615) – July 18, 2008 US$1.801 2,000,000 – (1,001,110) – 998,890 April 20, 2009 $3.50 – 28,750,000 – – 28,750,000 September 30, 2010 ZAR20.78 – 1,684,312 – – 1,684,312
2,672,000 30,434,312 (1,599,495) (73,615) 31,433,202
Note 1: In February 2007, the exercise price of the warrants expiring July 18, 2008 was changed to ZAR12.90.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
22. Share Capital (continued) (c) Share purchase warrants (continued) (i) Burnstone June 2006 settlement agreement In July 2006, the Company issued 2,000,000 warrants to the former Southgold shareholders, pursuant to a settlement agreement dated May 26, 2006. The warrants were exercisable at US$1.80 for two years from the date of issuance and were subject to an accelerated expiry provision under certain circumstances. It was resolved by way of Board resolution, passed on February 15, 2007, to allow the exercise price to be in ZAR. The warrants were exercisable at ZAR12.90 per warrant.
The fair value of the share purchase warrants were estimated using a Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 4%; expected life of two years; expected volatility of 56% and nil dividends.
(ii) April 2007 Public offering On April 19, 2007, the Company completed an offering of 57,500,000 units at a price of $2.60 per unit. Each unit consisted of one common share and one-half of a common share purchase warrant of the Company. The common shares and warrants comprising the units have separated immediately upon the closing of the transaction.
Each whole purchase warrant entitles the holder thereof to purchase one common share of the Company at a price of $3.50 per share until April 20, 2009. The 28,750,000 warrants have been recorded with an estimated fair value of $16,210,226 (using expected volatility of 56.9%, risk-free interest rate of 4%, dividends of nil, a share price of $2.48 and remaining life of approximately two years).
(iii) October 2007 Black Economic Empowerment transaction In terms of the October 2007 BEE transaction, the Company provided a total of 1,684,312 Great Basin Gold warrants. Investec, who provided a portion of the financing for the investment by Tranter Gold in Southgold, was granted 1,263,234 warrants, and Tranter Gold received 421,078. Each warrant is convertible into one Great Basin Gold common share at $3.00 (ZAR20.78) on or before October 1, 2010. The warrants are subject to Great Basin Gold having the right to require exercise of the warrants if the market price equals or exceeds $7.00 (ZAR45.72).
On the date of the transaction, the estimated fair value of the warrants was estimated at $1.2 million (ZAR8 million). The fair value was calculated using an option pricing model and based upon the following assumptions: expected volatility of 62.74%; risk-free rate of 8.93% and dividends of nil.
146 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
(iv) Senior Secured Notes - warrants On December 12, 2008, the Company completed the issuance of 51,500 Senior Secured Notes at a price of US$1,000 per note for gross proceeds of US$51,500,000. Each note also granted its holder 350 warrants. Each warrant entitles the holder thereof to subscribe to one common share of the Company at a price of $1.80 per share over a 36-month term and has no mandatory conversion by the holder.
These warrants are subject to anti-dilution rights, including certain anti-dilution rights triggered by the issuance of common shares at a price less than the exercise price, but have a minimum exercise price of $1.11 per common share (refer note 26(c)).
The Company also granted 721,000 warrants, subject to the same terms as set out above, to the agent. The number of these warrants was calculated at 4% of the 18,025,000 warrants issued to the note holders. The fair value was calculated using an option pricing model and based upon the following assumptions: expected volatility of 82.60%; risk-free rate of 3.10% and dividends of nil.
Based on the above valuation and adjusted for apportioned transaction costs, the relative fair value of the 18,746,000 warrants was estimated at $6.6 million (US$5.3 million) (refer note 19(b)).
(d) Contributed surplus The components of contributed surplus are:
December 31 December 31 2008 2007
Fair value of warrants issued which expired unexercised $ 238,668 $ 238,668 Fair value of warrants and options available to Rusaf shareholders (note 22(d)(i)) 1,763,476 – Fair value of Rusaf warrants exercised, credit to share capital (note 22(d)(i)) (8,409) – Accumulated stock-based compensation 25,111,066 14,699,262 Share purchase options exercised, credited to share capital (5,505,280) (3,428,828)
Total contributed surplus $ 21,599,521 $ 11,509,102
(i) Warrants and options available to former Rusaf shareholders The fair value of $1,763,476 estimated for the 1,062,033 future Great Basin Gold shares to be issued was calculated using the Black-Scholes option pricing model based on a risk-free interest rate of 2.99%, expected life between one month and four years and 59% volatility and was recorded as contributed surplus.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 147 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
22. Share Capital (continued) (d) Contributed surplus (continued) The continuity of these warrants since acquisition is set out below:
Outstanding Outstanding Exercise April 1 December 31 Expiry Dates Price 2008 Exercised Expired 2008
April 11, 2008 $0.25 48,706 (22,041) (26,665) – September 6, 2008 $0.75 27,037 (13,333) (13,704) – September 15, 2008 $0.75 42,222 – (42,222) – March 16, 2009 $0.75 93,333 – – 93,333 May 17, 2009 $0.75 8,518 – – 8,518
Balance, December 31, 2008 219,816 (35,374) (82,591) 101,851
Fair value $ 107,909 ($ 8,409) ($ 35,269) $ 64,231
The continuity of these options since acquisition is set out below:
Outstanding Outstanding Exercise April 1 December 31 Expiry Dates Price 2008 Exercised Expired 2008
December 31, 2010 $0.25 19,999 – – 19,999 December 31, 2010 $0.40 144,443 – – 144,443 June 1, 2012 $0.60 677,776 – – 677,776
Balance, December 31, 2008 842,218 – – 842,218
Fair value $ 1,655,567 – – $ 1,655,567
(e) Share issuance, February 2008 – CWM On February 4, 2008, the Company issued 10,000 shares to CWM in terms of the earn-in agreement on the Ganes Creek property. The shares have been valued at their quoted price of $2.97 per share on the date of issuance and the value was recorded as mineral properties (refer note 16(g)(i)).
(f) Share issuance, April 2008 – acquisition Rusaf Gold Limited On April 1, 2008, the Company issued 6,613,636 shares to the former shareholders of Rusaf Gold Limited. The shares have been valued at their quoted price of $3.46 per share on the date of issuance and the value was recorded as mineral properties. Share issue costs of $95,379 were incurred (refer note 16(c)).
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(g) Share issuance, July 2008 – Rusaf Gold Limited warrants exercised On July 22, 2008, the Company issued 22,041 shares to the former shareholders of Rusaf Gold Limited. The shares have been valued at their quoted price of $3.49 per share on the date of issuance at $76,923 and the value was recorded as mineral properties (refer note 16(c)).
(h) Share issuance, July 2008 -– Puma On July 31, 2008, the Company concluded an acquisition whereby it issued 1,862,354 Great Basin Gold common shares as consideration for the purchase price of Puma. The shares were valued at the closing price of $3.57 on July 31, 2008, for a total value of $6,648,604 (refer note 16(d)).
23. Additional Cash Flow Information Supplementary information:
December 31 December 31 2008 2007
Interest paid $ 53,418 $ – Taxation paid $ – $ –
Non-cash financing and investing activities: Fair value of stock options transferred to share capital on options exercised from contributed surplus $ 2,076,452 $ 2,005,064 Fair value of warrants issued with Senior Secured Notes $ 6,616,856 $ – Fair value of warrants issued with short form prospectus offering $ – $ 16,210,226 Warrants issued pursuant to BEE transaction $ – $ 1,178,815 Common shares issued for property settlement $ 29,648,274 $ 19,666,931 Increase in mineral property for future income taxes $ 13,235,669 $ 19,968,802
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 149 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
24. Segment Disclosure The Company operates in a single reportable operating segment, the exploration and development of mineral properties. Geographic information is as follows:
Assets December 31 December 31 2008 2007
Canada Assets other than mineral property interests $ 22,610,226 $ 56,796,521 Mineral property interests 1 1 Tanzania Assets other than mineral property interests 1,551,261 – Mineral property interests 36,466,782 – United States Assets other than mineral property interests 27,542,387 5,890,010 Mineral property interests 92,505,493 95,156,279 South Africa Assets other than mineral property interests 53,637,952 48,212,597 Mineral property interests 130,886,380 123,257,650
Balance, December 31 $ 365,200,482 $ 329,313,058
Revenue December 31 December 31 2008 2007
United States Ore sales $ 24,716,323 $ –
During 2008 the Company generated gross revenue of $24,716,323 (US$23,162,143) from its Hollister operation. The ore was sold to Newmont Mining Corporation under the terms of various toll milling agreements.
25. Contingencies and Commitments (a) Guarantee The Company, through its subsidiaries, N5C Resource Inc., N6C Resources Inc. and Rodeo Creek Gold Inc., signed a loan guarantee agreement pursuant to the conclusion of the transaction with Tranter Burnstone.
On October 1, 2007, Tranter Burnstone borrowed $29 million (R200 million) from Investec to settle a portion of the purchase consideration of $38 million (ZAR260 million) for the 812 Southgold shares. The security for the loan comprised, amongst other items, a loan guarantee which requires N5C Resources Inc., N6C Resources Inc. or Rodeo Creek Gold Inc., in the event of default by
150 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
Tranter Burnstone on any of its interest payments to Investec, at any time for the first four years, to lend not more than $11.6 million (ZAR80 million) to Tranter Burnstone in order to settle such repayment obligations.
(b) Restricted cash The loan agreement with Investec requires Tranter Burnstone to deposit cash into a margin call account if the underlying value of the shares held by Tranter in Great Basin Gold is less than the outstanding loan and accrued interest. The decrease in the share price of the Company since September 2008 triggered the requirement for a cash deposit into the margin account.
The Company, through its subsidiary Southgold, advanced $3.3 million (ZAR25 million) on October 10, 2008 and $0.8 million (ZAR6 million) on October 21, 2008 on Tranter Burnstone’s behalf to Investec Limited (“Investec”) to fund the short fall in a margin call account relating to a 2007 loan agreement between Tranter Burnstone and Investec. The funds deposited into this account accrue interest at an average rate of 11% per annum.
Tranter Burnstone defaulted on depositing the remaining cash requirement to the margin account, and the Company has been advised that Investec served Tranter with a notice of default in December 2008. The refund of the Company’s cash deposited into the margin account is currently under discussion with Investec. The release of the funds deposited by the Company is contingent upon the share price of the Company exceeding the stated trigger price (ZAR15.98 per share for 10 days’ trading) and the approval for the full re-instatement of the facilities by the Investec Credit Committee. Accordingly, the amount recoverable from this deposit may change by a material amount when this contingency is resolved.
26. Subsequent Events Subsequent to December 31, 2008 (a) Stock options granted Directors, employees and certain consultants were allowed to cancel certain unexercised employee and non-employee stock options and receive new options equal to 50% of the cancelled options at an exercise price of $1.25 and vesting period of 24 months. The allocation of these options was concluded on January 12, 2009.
The Company also granted new options in terms of its share option plan during February 2009.
Subsequent to the above cancellation, replacement and issuance of stock options, the Company had 16,469,632 options outstanding at an average exercise price of $1.66 and 2,057,669 options that are exercisable at an average price of $2.24.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 151 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
26. Subsequent Events (continued) (b) Capital raising (i) Equity line In December 2008, the Company entered into an equity line agreement with an affiliate of Investec. The agreement provided that the Company could sell to Investec over the term of the agreement up to $4 million of common shares in tranches at a price which was to be calculated as 95% of prevailing market with a floor price of $1.12 per common share. The agreement terminated on February 7, 2009 and the Company issued an aggregate of 2,846,800 common shares to Investec at an average price of $1.38 per share.
(ii) Public offering The Company completed a public offering on March 13, 2009 whereby it issued 100,000,000 units (the “Units”) at a price of $1.30 per Unit (the “Offering Price”). Each Unit consists of one common share (each, a “Common Share”) in the capital of the Company and one-half of one common share purchase warrant (each whole common share purchase warrant, a “Warrant”) of Great Basin Gold. Each Warrant will entitle the holder thereof to purchase one Common Share (a “Warrant Share”) at a price of $1.60 at any time before 5:00p.m. (Vancouver time) on October 15, 2010.
The Company has granted to the Underwriters an over-allotment option to acquire additional Common Shares in an aggregate amount of up to 15% of the aggregate number of Common Shares sold pursuant to the Offering. This Over-Allotment Option, if exercised, would result in total gross proceeds from the offering of up to $149,500,000.
(c) Senior Secured Notes The Equity offering that closed on March 13, 2009 triggered the anti-dilution protection on the warrants issued in respect of the Senior Secured Notes. The exercise price of these warrants was adjusted to $1.25 (from $1.80) per common share and the number of common shares which may be acquired increased to 26,994,240 common shares (including agent’s warrants (refer note 22(c)(iv)).
27. Reconciliation with United States Generally Accepted Accounting Principles Great Basin Gold Ltd (“the Company”) prepares its consolidated financial statements in accordance with Canadian GAAP which principles differ in certain respects from those applicable in the United States (“US GAAP”) and from practices prescribed by the SEC. Had the Company applied US GAAP, certain items on the statements of operations, deficit and balance sheets would have been reported as follows:
152 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
As at As at December 31 December 31 Consolidated Balance Sheets 2008 2007
Total assets under Canadian GAAP $ 365,200,482 $ 329,313,058 Adjustments under US GAAP Investments (note 27(b)(i)) – –
Total assets under US GAAP $ 365,200,482 $ 329,313,058
Total liabilities under Canadian GAAP $ 107,992,527 $ 41,521,472 Adjustments under US GAAP Recognise warrants issued for property as liability (note 27(b)(ii)) – 545,893 Recognise warrants issued for BEE as liability (note 27(b)(iii)) 1,178,815 1,178,815 Mark-to-market adjustment on warrants (note 27(b)(iii)) – 382,895 Mark-to-market adjustment on warrants – BEE (note 27(b)(iii)) (235,638) (179,540)
Total liabilities under US GAAP $ 108,935,704 $ 43,449,535
Share capital, warrants, contributed surplus and accumulated other comprehensive income under Canadian GAAP $ 474,475,066 $ 420,186,619 Adjustments under US GAAP: Stock-based compensation (note 27(a)) 2,658,000 2,658,000 Warrants exercised in prior periods (3,695,159) ( 3,695,159) Recognise warrants issued for property as liability (note 27(b)(ii)) – (545,893) Recognise warrants issued for BEE as liability (note 27(b)(iii)) (1,178,815) (1,178,815)
Share capital and contributed surplus under US GAAP $ 472,259,092 $ 417,424,752
Consolidated Statements of Operations
Deficit under Canadian GAAP $ (217,267,111) $ (132,395,033) Reverse translation adjustment on adoption of financial instruments (note 27(b)(i)) – 64,811 Adjustments under US GAAP: Stock-based compensation (note 27(a)) (2,658,000) (2,658,000) Investments (note 27(b)(i)) – – Mark-to-market adjustment on warrants (note 27(b)) – (447,706) Mark-to-market adjustment on warrants exercised in prior periods 3,695,159 3,695,159 Mark-to-market adjustment on warrants – BEE (note 27(b)(iii)) 235,638 179,540
Deficit under US GAAP $ (215,994,314) $ (131,561,229)
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 153 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
27. Reconciliation with United States Generally Accepted Accounting Principles (continued)
As at As at December 31 December 31 Consolidated Statements of Operations 2008 2007
Loss for the year under Canadian GAAP $ (84,872,078) $ (51,167,666) Mark-to-market adjustment on warrants (note 27(b)) 438,993 (342,166)
Loss for the year, US GAAP $ (84,433,085) $ (51,509,832) Other comprehensive (loss) income under Canadian GAAP (389,869) 538,061
Comprehensive loss $ (84,822,954) $ (50,971,771)
Basic and diluted loss per share for the year under US GAAP (note 4(j)) $ (0.40) $ (0.31)
There are no differences between Canadian GAAP and US GAAP in the calculation of basic and diluted loss per share for the years ended December 31, 2008 and 2007.
There are no material differences between Canadian GAAP and US GAAP in the consolidated statements of cash flows for the years ended December 31, 2008 and 2007.
(a) Stock-based compensation In the year ended December 31, 2003 the Company adopted the fair value-based method of accounting for employee stock-based compensation as prescribed by FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). The Company adopted the fair value method on a prospective basis from January 1, 2003, as permitted by FASB Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, and amendment of FASB Statement No. 123. The prospective adoption of this new US GAAP policy creates no differences with the Company’s stock-based compensation expense as reported under Canadian GAAP.
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), ““Share-Based Payment” (“SFAS 123(R)”, which is a revision of SFAS 123. SFAS 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Generally, the approach in SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognised in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. As the Company currently uses the fair value method to account for all stock option grants, this statement did not have any material impact on the financial statements when it was adopted on January 1, 2006.
Prior to 2003 under US GAAP, the Company accounted for its employee stock option plan under
154 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery
the principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and other Interpretations. No compensation expense was recognised under APB 25 because the exercise price of the Company’s employee stock options equalled the market price of the underlying stock on the date of the grant.
For the years ended December 31, 2008, 2007 and 2006, there were no differences in stock- based compensation expense in respect of employee and non-employee share options which would be required to be charged to operations under both Canadian and US GAAP.
As SFAS 123 was adopted on a prospective basis, there is a historical difference of $2,658,000 in contributed surplus and deficit, relating to the period prior to adoption. In terms of this Statement the cumulative effect of initially applying this Statement, if any, is recognised as of the required effective date. Under Canadian GAAP no provision was made for the recognition of the cumulative effect upon adoption of CICA 3870.
(b) Fair value of financial instruments (i) Available-for-sale securities US GAAP requires investments classified as available-for-sale securities to be recorded at fair value in accordance with SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). Unrealised gains and losses are recorded in a separate component of shareholders’ equity with the year-over-year change, net of the related tax effect, recorded as other comprehensive income (loss), except for declines in fair value that are determined to be other than temporary. These declines in value are charged to the statement of operations, which is similar to Canadian GAAP.
US GAAP requires a company to present comprehensive income (loss) in accordance with SFAS 130, “Reporting Comprehensive Income”, which establishes standards for reporting and display of comprehensive income (loss), its components and accumulated balances. Comprehensive income (loss) comprises net income (loss) and all changes to shareholders’ equity – except those resulting from investments by owners and distributions to owners.
As at December 31, 2006, the fair value of the Company’s available-for-sale securities increased by $64,811, which resulted in an adjustment to recognise the unrealised holding gain of the same amount in other comprehensive income.
Effective January 1, 2007, the Company adopted Financial Instruments – Recognition and Measurement (Section 3855), the new accounting standard issued by CICA relating to financial instruments. This standard sets out criteria for the recognition and measurement of financial instruments for fiscal years beginning on or after October 1, 2006.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 155 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
27. Reconciliation with United States Generally Accepted Accounting Principles (continued) (b) Fair value of financial instruments (continued) (i) Available-for-sale securities (continued) This standard requires all financial instruments within its scope, including derivatives, to be included on a Company’s balance sheet and measured either at fair value or, in certain circumstances when fair value may not be considered most relevant, at cost or amortised cost. Changes in fair value are to be recognised in the statements of operations or comprehensive income, depending on the classification of the related instruments.
As required by the transitional provisions of these new standards, these standards have been adopted on a prospective basis with no restatement to prior period financial statements. All financial assets and liabilities are recognised when the entity becomes a party to the contract creating the asset or liability. As such, any of the Company’s outstanding financial assets and liabilities at the effective date of adoption are recognised and measured in accordance with the new requirements as if these requirements had always been in effect. Any changes to the fair values of assets and liabilities prior to January 1, 2007 are recognised by adjusting opening deficit or opening accumulated other comprehensive income. The adjustment to opening accumulated other comprehensive income was $64,811.
Under US GAAP, warrants issued by the Company that are denominated in currencies other than Canadian Dollars would be accounted for as a derivative liability pursuant to SFAS 133.
(ii) Warrants issued – 2006 During 2006, the Company issued 2,000,000 such warrants and assigned the issued warrants a value of $1,093,000. At December 31, 2006, the fair value of these warrants was estimated at $1,019,000, resulting in a mark-to-market gain of $74,000 that would have been recorded under US GAAP. During the 2007 year, 1,001,110 of the warrants were exercised.
The fair value of the remaining warrants was estimated at $928,788 as at December 31, 2007, resulting in a mark-to-market loss of $382,895 that would have been recognised under US GAAP. The remainder of these warrants were exercised during the year ending December 31, 2008.
Under Canadian GAAP, the fair value of the warrants was recognised under equity in 2006. During 2007 1,001,110 warrants were exercised and $547,107 fair value was reallocated to contributed surplus. The remaining 998,890 warrants were exercised during 2008 and fair value of $545,893 was re-allocated to contributed surplus.
(iii) Warrants issued – 2007 During 2007, the Company issued 1,684,312 such warrants upon the conclusion of the
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BEE transaction and assigned the issued warrants a value of $1,178,815. At December 31, 2007, the fair value of these warrants was estimated at $999,275, resulting in a mark-to- market adjustment of $179,540 recognised under US GAAP. At December 31, 2008 the fair value of these warrants was estimated at $943,177, resulting in a mark-to-market adjustment of $438,993 recognised under US GAAP. Under Canadian GAAP the warrants were recognised at fair value with no fair value adjustment required on December 31, 2008.
(c) Other (i) Amounts receivable The following additional information would be presented if these consolidated financial statements were presented in accordance with US GAAP with respect to amounts receivable:
December 31 December 31 2008 2007
General and value-added sales taxes $ 1,415,918 $ 604,109 Trade debtors 1,812,550 – Other receivables 189,226 1,894,669 Deposit 1,523,256 1,239,125
Total $ 4,940,950 $ 3,737,903
(ii) Amounts payable and accrued liabilities The following additional information would be presented if these consolidated financial statements were presented in accordance with US GAAP with respect to amounts payable and accrued liabilities:
December 31 December 31 2008 2007
Accounts payable $ 12,250,484 $ 1,395,828 Accrued liabilities Burnstone 7,099,680 740,686 Hollister 4,277,431 470,958 Other 784,221 3,095,774 Annual bonuses 1,864,746 396,000
Total $ 26,276,562 $ 6,099,246
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 157 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
27. Reconciliation with United States Generally Accepted Accounting Principles (continued) (c) Other (continued) (iii) Rusaf equity accounting Under Canadian GAAP the investment in Rusaf Gold Ltd was equity accounted for from July 20, 2007 when the Company obtained significant influence (note 15). Under US GAAP the acquisition is classified as a stepped acquisition. The Company is required to apply the equity method from the day of the first investment, being June 28, 2007.
Due to the short time frame between the first and second tranche and a review of the monthly expenses for Rusaf, it was concluded that the impact of the movement in the equity reserves for Rusaf during the period on the consolidated accounts of the Company would be immaterial. Therefore no adjustment was made under US GAAP.
(d) FASB Interpretation No. 48 – Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (Accounting for Income Taxes) (FIN 48) In June 2006, the Financial Accounting Standards Board (FASB) issued FIN 48 to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold which a tax position is required to meet before being recognised in the financial statements.
FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was effective for fiscal years beginning after December 15, 2006.
The Company adopted the provisions of FIN 48 on January 1, 2007, which did not have a material impact on the consolidated financial position or results of operations, and reported no unrecognised tax benefits for the year ending December 31, 2007. For December 31, 2008, there were no increases or decreases in unrecognised tax benefits as a result of tax positions taken in a prior year.
There were also no increases or decreases in unrecognised tax benefits from tax positions taken in the current year. As a result, there are no unrecognised tax benefits as at December 31, 2008.
As there were no unrecognised tax benefits at December 31, 2008 there are also no unrecognised tax benefits that could affect the effective tax rate if recognised.
No interest and penalties were recognised on the statement of operations or the statement of financial position. The Company’s policy is to recognise accrued interest and penalties related to unrecognised tax benefits in operating expenses.
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The Company is subject to taxes in Canada, United States, South Africa, Tanzania and Russia. The following tax years remain subject to examination as of December 31, 2008 by major tax jurisdiction:
Canada 2001 to present United Sates 1998 to present South Africa 2002 to present Tanzania 1996 to present Russia 2006 to present
(e) Additional disclosures The Company meets the definition of a development stage enterprise under SFAS 7, “Accounting and Reporting by Development Stage Enterprises” (“SFAS 7”) and under AcG “Enterprises in the development stage” in Canadian GAAP. Pursuant to the rules and regulations of the SEC, a mining company in the exploration stage should not refer to itself as a development stage company in its financial statements, even though such Company should comply with SFAS 7.
Under SFAS 7, the Company is required to provide additional disclosures from its date of inception, or the date the Company was re-activated to undertake development stage activities.
Consolidated summarised statements of operations and deficit and cash flows from January 1, 1998 (the date the Company was considered to be re-activated to undertake development stage activities), to December 31, 2008 are presented as follows:
Period from Consolidated statements of operations and deficit January 1, 1998 (Unaudited) to December 31, 2008
Mineral property exploration and reclamation $ (179,838,946) General and administration, salaries, professional fees, and other (69,729,679) Other income 44,694,065
Net loss for the period January 1, 1998 to December 31, 2007, being the deficit accumulated during the exploration stage (204,874,560)
Opening deficit accumulated during the development stage, January 1, 1998 (11,119,754)
Ending deficit accumulated during the development stage, December 31, 2008 $ (215,994,314)
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 159 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
27. Reconciliation with United States Generally Accepted Accounting Principles (continued) (e) Additional disclosures (continued)
Consolidated statements of cash flows Period from January 1, 1998 (Unaudited) to December 31, 2008
Operating activities $ (188,421,690) Investing activities (139,118,484) Financing activities 356,632,936
Increase in cash and cash equivalents 29,092,762 Cash and cash equivalents – January 1, 1998 1,922,206 Acquired through business acquisitions 4,512,119 Foreign exchange (1,977,969)
Cash and cash equivalents – December 31, 2008 $ 33,549,118
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Consolidated statements of change in equity (Unaudited) Common Shares Accumulated other Total Issue Number of Contributed Retained Comprehensive Shareholders’ Price Shares Amount Warrants Surplus Deficit Income Equity $$ $ $ $ $ $
Balance, January 1, 1998 14,161,171 22,790,760 – – (11,119,754) – 11,671,006
Escrow shares 0.01 750,000 7,500 – – – – 7,500 Exercise of options 1.28 41,875 53,600 – – – – 53,600 Private placement 2.00 1,704,600 2,983,088 – – – – 2,983,088 For mineral property interests 1.43 162,500 232,624 – – – – 232,624 Loan guarantee 2.05 98,125 201,156 – – – – 201,156 Loss for the year – – – – – (6,819,118) – (6,819,118) Stock-based compensation – – – – 372,000 – – 372,000
Balance, December 31, 1998 16,918,271 26,268,728 – 372,000 (17,938,872) – 8,701,856
Exercise of warrants 1.16 1,834,600 2,126,428 – – – – 2,126,428 Exercise of options 1.17 1,276,800 1,488,069 – – – – 1,488,069 Private placement 1.30 4,864,335 6,011,841 – – – – 6,011,841 For donations 2.50 4,000 10,000 – – – – 10,000 For mineral property interests 1.28 2,825,000 3,606,250 – – – – 3,606,250 Loss for the year – – – – – (6,313,029) – (6,313,029) Stock-based compensation – – – – 1,385,000 – – 1,385,000
Balance, December 31, 1999 27,723,006 39,511,316 – 1,757,000 (24,251,901) – 17,016,415
Exercise of warrants 1.31 5,312,331 6,983,902 – – – – 6,983,902 Exercise of options 1.30 146,800 190,297 – – – – 190,297 Private placement 2.00 5,000,000 9,299,145 – – – – 9,299,145 Loss for the year – – – – – (11,346,645) – (11,346,645) Stock based compensation – – – – 41,000 – – 41,000
Balance, December 31, 2000 38,182,137 55,984,660 – 1,798,000 (35,598,546) – 22,184,114
Share issuance costs – – (31,245) – – – – (31,245) Loss for the year – – – – – (9,924,906) – (9,924,906) Stock-based compensation – – – – 860,000 – – 860,000
Balance, December 31, 2001 38,182,137 55,953,415 – 2,658,000 (45,523,452) – 13,087,963
Exercise of warrants 1.00 2,257,000 2,257,000 – – – – 2,257,000 Exercise of options 0.96 679,900 656,018 – – – – 656,018 Private placement 1.50 5,742,327 7,891,385 – – – – 7,891,385
Warrants issued for mineral property – – – 295,000 – – – 295,000 Stock-based compensation – – – – 374,627 – – 374,627 Loss for the year – – – – – (4,792,089) – (4,792,089)
Balance, December 31, 2002 46,861,364 66,757,818 295,000 3,032,627 (50,315,541) – 19,769,904
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 161 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
27. Reconciliation with United States Generally Accepted Accounting Principles (continued) (e) Additional disclosures (continued) Consolidated statements of change in equity (Unaudited) (continued) Common Shares Accumulated other Total Issue Number of Contributed Retained Comprehensive Shareholders’ Price Shares Amount Warrants Surplus Deficit Income Equity $$ $ $ $ $ $
Balance, December 31, 2002 (brought forward) 46,861,364 66,757,818 295,000 3,032,627 (50,315,541) – 19,769,904
Exercise of warrants 1.51 6,541,943 7,683,994 – – – – 7,683,994 Exercise of options 1.43 3,636,600 5,204,175 – – – – 5,204,175 Private placement 1.80 5,600,000 9,416,731 – – – – 9,416,731
Shares issued for mineral property 1.38 10,000,000 13,800,000 – – – – 13,800,000
Fair value of stock options exercised – – 430,000 – (430,000) – – – Loss for the year – – – – – (13,043,469) – (13,043,469) Stock-based compensation – – – – 2,131,739 – – 2,131,739 Exercise of warrants – fair value – – 7,019,962 – – – – 7,019,962
Balance, December 31, 2003 72,639,907 110,312,680 295,000 4,734,366 (63,359,010) – 51,983,036
Exercise of warrants 1.81 2,137,772 3,785,490 – – – – 3,785,490 Exercise of options 1.16 835,700 969,580 – – – – 969,580
Shares issued for mineral property 2.98 11,000,000 32,780,000 – – – – 32,780,000
Fair value of stock options exercised – – 239,915 – (239,915) – – – Loss for the year – – – – – (3,695,616) – (3,695,616) Warrants expired unexercised – – – (221,250) 221,250 – – – Exercise of warrants – fair value – – 73,750 (73,750) – – – – Stock-based compensation – – – – 2,473,354 – – 2,473,354
Balance, December 31, 2004 86,613,379 148,161,415 – 7,189,055 (67,054,626) – 88,295,844
Exercise of warrrants 0.91 5,500,000 5,018,062 – – – – 5,018,062 Exercise of options 0.96 1,572,000 1,509,120 – – – – 1,509,120 Exercise of warrants – fair value – – 2,844,879 – – – – 2,844,879 Stock-based compensation – – – – 476,156 – – 476,156 Loss for the year – – – – – (1,518,771) – (1,518,771)
Balance, December 31, 2005 93,685,379 157,533,476 – 7,665,211 (68,573,397) – 96,625,290
Exercise of options 1.49 1,193,000 1 ,782,510 – – – – 1,782,510
Shares issued for cash net of issue costs 2.25 11,200,000 23,058,915 – – – – 23,058,915
Private placement net of issue costs 2.25 3,333,334 7,033,683 – – – – 7,033,683
Shares issued for mineral property 1.90 4,000,000 7,600,000 – – – – 7,600,000
Fair value of stock options exercised – – 753,849 – (753,849) – – – Compensation warrants – – – 159,000 – – – 159,000 Stock-based compensation – – – – 3,610,110 – – 3,610,110 Loss for the year – – – – – (11,478,000) – (11,478,000)
Balance, December 31, 2006 113,411,713 197,762,433 159,000 10,521,472 (80,051,397) – 128,391,508
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Common Shares Accumulated other Total Issue Number of Contributed RetainedComprehensive Shareholders’ Price Shares Amount Warrants Surplus Deficit Income Equity $ $ $ $ $ $ $
Balance, December 31, 2006 (brought forward) 113,411,713 197,762,433 159,000 10,521,472 (80,051,397) – 128,391,508
Adoption of accounting policy – – – – – – 64,811 64,811 Exercise of options 1.69 3,015,830 5,111,184 – – – – 5,111,184
Shares issued for cash net of issue costs 2.11 57,500,000 121,427,869 – – – – 121,427,869
Shares issued for Hecla Ventures Corp. 2.48 7,930,214 19,666,931 – – – – 19,666,931
Shares issued for Tranter Burnstone Pty Ltd 1.82 19,938,650 36,323,195 – – – – 36,323,195 Share purchase warrants exercised 2.16 1,599,495 3,459,187 – – – – 3,459,187 Fair value of stock options exercised – – 2,005,064 – (2,005,064) – – – Compensation warrants exercised – – 141,582 (141,582) – – – – Compensation warrants expired – – – (17,418) 17,418 – – – Fair value of warrants exercised – – 547,107 – – – – 547,107
Warrants issued persuant to share issuance – – – 16,210,226 – – – 16,210,226 Stock-based compensation – – – – 5,633,276 – – 5,633,276 Loss for the year – – – – – (51,509,832) – (51,509,832)
Fair value adjustment – financial instruments – – – – – – 538,061 538,061 Mark-to-market fair value adjustment – – – – – – –
Balance, December 31, 2007 203,395,902 386,444,552 16,210,226 14,167,102 (131,561,229) 602,872 285,863,523
Fair value of options exercised – 2,076,452 – (2,076,452) – – – Fair value of warrants exercised – 545,894 – – – 545,894 Share purchase options exercised 2.07 2,250,386 4,655,242 – – – – 4,655,242 Shares issued to CW Properties LLC, February 2008 2.97 10,000 29,700 – – – – 29,700 Shares issued for Rusaf Gold Limited, April 2008 3.45 6,613,636 22,787,802 – – – – 22,787,802 Shares issued for Rusaf Gold Limited, July 2008 3.49 22,041 76,923 – – – – 76,923 Shares issued for Puma Gold (Pty) Ltd, July 2008 3.57 1,862,354 6,648,604 – – – – 6,648,604 Rusaf share purchase warrants exercised, October 2008 1.38 13,333 1 8,409 18,409 Share purchase warrants exercised 1.68 998,890 1,677,909 – – – – 1,677,909 Warrants issued persuant to Senior Secured Notes 6,616,856 – – – 6,616,856 Stock-based compensation – – – 10,411,804 – – 10,411,804 Options and warrants issued on acquisition of Rusaf Gold Limited – – – 1,755,067 – – 1,755,067 Loss for the period – – – (84,433,085) – (84,433,085) Unrealised (loss) gain on available-for-sale financial instruments – – – – – (2,701,256) (2,701,256) Accumulated unrealised loss on foreign exchange translation of self-sustaining foreign operations – – – – – 2,311,387 2,311,387
Balance, December 31, 2008 215,166,542 424,961,487 22,827,082 24,257,521 (215,994,314) 213,003 256,264,779
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 163 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Expressed in Canadian Dollars, unless otherwise stated)
27. Reconciliation with United States Generally Accepted Accounting Principles (continued) (f) New US GAAP pronouncements issued but not yet adopted (i) Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Revised 2007 Business Combinations The FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Revised 2007 Business Combinations. This Statement replaces FASB Statement No. 141, Business Combinations (“SFAS141(R)”). SFAS141(R) improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement establishes principles and requirements for how the acquirer recognises and measures the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquisition; recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase and; determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of SFAS141(R) cannot be determined until such time as the Company completes a business combination.
(ii) Statement of Financial Accounting Standards (“SFAS”) No. 161 Disclosures about Derivative Instruments and Hedging Activities The FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 161 Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). FAS 161 revises disclosure requirements for derivative instruments and hedging activities and is effective for financial statements issued for years beginning after November 15, 2008 and interim periods within those years. The Company is currently evaluating the impact of the adoption of this Standard on the Company’s results of operations and financial position.
(iii) Staff position (“FSP”) No. 133-1 and FIN45-4 The FASB issued Staff position (“FSP”) No. 133-1 and FIN45-4 on Disclosures about credit derivatives and certain guarantees and clarification of the effective date of FAS 161. It amends FAS 133, Accounting for Derivative Instruments and Hedging Activities to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. Amends FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Other, to require an additional disclosure about the current status of the payment/performance risk of a guarantee. It also clarifies the effective date of FAS 161, Disclosures about Derivative Instruments and Hedging Activities. The Company is currently evaluating the impact of the adoption of this Standard on the Company’s results of operations and financial position.
164 l GREAT BASIN GOLD l ANNUAL REPORT 2008 SHAREHOLDER INFORMATION
12-MONTH SUMMARY AS AT 31 DECEMBER 2008 TSX NYSE JSE
High (Mar 14, 2008) $ 3.82 US$ 3.85 ZAR 3,05 Low (Oct 24, 2008) $ 0.91 US$ 0.73 ZAR 1,18 Average Daily Volume 669,190 639,999 6,691
Shares out: 215,166,542
Institution Position %
Tranter Gold (BEE) 19,938,65 9,3 Van Eck Associates 9,393,173 4,4 Mackenzie Financial Corporation 7,501,200 3,5 RBC Asset Man. 6,988,975 3,3 Libra Advisors LLC 6,778,580 3,2 Och-Ziff Capital Man. 6,027,636 2,8 Fidelity Man. & Research 6,029,000 2,8 Investec Asset Management (Pty) Ltd 5,212,222 2,4 CPP Invest Board 4,116,987 1,9 Tocqueville Asset Man. LP 3,864,137 1,8 Newgate Capital Man. LLC 3,949,595 1,8 Carmignac Gestion 3,940,000 1,8 Natcan Invest Man. Inc. 2,885,200 1,3 Evergreen Invest Man. Co. LLC 2,764,700 1,3 US Global Invest Inc. 2,700,000 1,3 DWS Investments 2,321,650 1,1 ERA Resources Gmbh 2,180,000 1,0 Deutsche Invest Management Americas 2,118,500 1,0 American Century Inv. Man. 2,074,037 1,0 Capital Guardian Trust Co. 1,934,400 0.9
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 165 GLOSSARY
CONVERSION FACTORS
TERMS
RESOURCE CATEGORY (CLASSIFICATION) DEFINITIONS
166 GREAT BASIN GOLD l ANNUAL REPORT 2008 l GLOSSARY
CONVERSION FACTORS Conversion of metric units into imperial equivalents is as follows:
Metric Units Multiply by Imperial Units Hectares 2.471 = acres Metres 3.281 = feet Kilometres 0.621 = miles (5,280 feet) Grams 0.032 = troy ounces Tonnes 1.102 = short tons (2,000lbs) grams/tonne 0.029 = troy ounces/ton
TERMS In this Annual Report, the following terms have the meanings set forth herein:
2009 Burnstone a technical report entitled “Revised Technical Report Update of the June Report 21, 2007 Technical Report (Optimised Feasibility Study), Inclusive of Updated Mineral Resource and Reserve Estimates for the Burnstone Gold Project” dated February 27, 2009, prepared by Johan Oelofse, Pr. Eng., FSAIMM, Deon van der Heever, Pr. Sc. Nat. and Phil Bentley, Pr. Sci. Nat., filed on SEDAR on March 4, 2009 2009 Hollister a technical report entitled “Revised Technical Report on the Mineral Report Resources and Reserves at Hollister Development Block Gold Project”, dated February 27, 2009, prepared by Johan Oelofse, Pr. Eng., FSAIMM, Phil Bentley, Pr. Sci. Nat, and Deon van der Heever, Pr. Sci. Nat, filed on SEDAR on March 4, 2009 Au Eq the combined grade of gold, silver and other metals expressed as a gold equivalent BEE Black Economic Empowerment, a reference to South African legislative initiatives designed to help redress past injustices to historically disadvantaged persons BLM Bureau of Land Management CICA Canadian Institute of Chartered Accountants cmg/t centimetre grams per tonne CSA Canadian Securities Administrators CSI Corporate Social Investment CSR Corporate Social Responsibility DME Department of Minerals & Energy of South Africa EIS Environmental Impact Study
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 167 GLOSSARY
Epithermal Deposit a type of deposit formed at low temperature (50-200oC), usually within one kilometre of the earth’s surface, often as structurally controlled veins Ga billion years GAAP Generally Accepted Accounting Practices g/t grams per ton ha hectares HDB Hollister Development Block, a portion of the Hollister property in Nevada HDSA Historically Disadvantaged South African, a category of person intended to benefit from BEE laws HVC Hecla Ventures Corp. (the Company purchased HVC and hence HVC’s 50% earn-in right into the HDB in 2007) IRR Internal Rate of Return – the discount rate that would have to be applied to the projected future cash flows from an asset to make the Net Present Value of the asset worth zero JIBAR Johannesburg inter-banking borrowing rate JSE Johannesburg Securities Exchange Limited, one of the three stock exchanges on which our common shares are listed LHS long-hole stoping LOM Life-of-Mine Ma million years MEGA Mpumalanga Economic Growth Agency Mineral Symbols Mineral symbols which may be used herein are: Ag – Silver; As – Arsenic; Au – Gold; Cu – Copper; Hg – Mercury; Mo – Molybdenum; Pb – Lead; Sb – Antimony; Se – Selenium; Zn – Zinc MPRDA Mineral and Petroleum Resources Development Act, 2002 (RSA) NDEP Nevada Division of Environmental Protection NI 43-101 National Instrument 43-101 – the national securities law instrument in Canada, regarding standards of disclosure for mineral projects NPV Net Present Value – the current value of the discounted projected future cash flows from an asset at an assumed % discount rate and a form of proxy value for the asset NYSE Alternext New York Stock Exchange Alternext (formerly American Stock Exchange), one of the three stock exchanges on which our common shares are listed oz/ton troy ounces per ton
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Paleoplacer or an ancient surficial deposit that was formed by mechanical concentration Witwatersrand of heavy mineral particles, such as gold, from weathered debris which has since been covered by younger rocks and is no longer visible on Gold Deposit surface. The Witwatersrand Basin in South Africa hosts the most well known examples of this type of gold deposit RIB Rapid Infiltration Basin RSA Republic of South Africa SAICA South African Institute of Chartered Accountants SEC United States Securities and Exchange Commission Sulphide A compound of sulphur with another element, typically a metallic element or compound ton (imperial) 2,000 pounds tonne or “t” (metric) 1,102 tons TSX Toronto Stock Exchange, one of the three stock exchanges on which our common shares are listed VWAP Volume-Weighted Average Price WIS Waste Information System ZAR or R South African Rand
RESOURCE CATEGORY (CLASSIFICATION) and geological understanding of the deposit. DEFINITIONS The discussion of mineral deposit classifications The categories, from lowest confidence to in this AIF adheres to the resource/reserve highest confidence, are inferred resource, definitions and classification criteria developed indicated resource and measured resource. by the Canadian Institute of Mining and Reserves are similarly sub-divided by order of Metallurgy in 2005. confidence into probable (lowest) and proven (highest). These classifications can be more Estimated mineral resources fall into two broad particularly described as follows: categories, dependent on whether their economic viability has been established, A “Mineral Resource” is a concentration or namely: “resources” (economic viability not occurrence of diamonds, natural solid inorganic established) and ore “reserves” (viable economic material, or natural solid fossilised organic production is feasible). material, including base and precious metals, coal, and industrial minerals in or on the Earth’s Resources are sub-divided into categories crust, in such form and quantity and of such a depending on the confidence level of the grade or quality that it has reasonable prospects estimate based on level of detail of sampling for economic extraction.
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 169 GLOSSARY
The location, quantity, grade, geological grade or quality can be estimated on the basis characteristics and continuity of a Mineral of geological evidence and limited sampling Resource are known, estimated or interpreted from and geological and grade continuity reasonably specific geological evidence and knowledge. assumed, but not verified.
An “Inferred Mineral Resource” is that part The estimate is based on limited information of a Mineral Resource for which quantity and and sampling, gathered through appropriate
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techniques from locations such as outcrops, the appropriate application of technical and trenches, pits, workings and drill holes. economic parameters, to support mine An “Indicated Mineral Resource” is that planning and evaluation of the economic part of a Mineral Resource for which viability of the deposit. quantity, grade or quality, densities, shape and physical characteristics can be estimated The estimate is based on detailed and reliable with a level of confidence sufficient to allow exploration and testing information, gathered
GREAT BASIN GOLD l ANNUAL REPORT 2008 l 171 GLOSSARY
through appropriate techniques from locations and allowances for losses that may occur when such as outcrops, trenches, pits, workings and the material is mined. drill holes that are spaced sufficiently closely for geological and grade continuity to be A “Probable Mineral Reserve” is the reasonably assumed. economically mineable part of an Indicated and, in some circumstances, a Measured A “Measured Mineral Resource” is that part Mineral Resource demonstrated by at least a of a Mineral Resource for which quantity, Preliminary Feasibility Study. grade or quality, densities, shape and physical characteristics are so well established that they This Study must include adequate information on can be estimated with The estimate is based on mining, processing, metallurgical, economic and detailed and reliable exploration, sampling and other relevant factors that demonstrate, at the testing information gathered through appropriate time of reporting, that economic extraction can techniques from locations such as outcrops, be justified. The US Securities and Exchange trenches, pits, workings and drill holes that Commission require permits in hand or imminent are spaced sufficiently closely to confirm both to classify mineralised material as reserves. geological and grade continuity. A “Proven Mineral Reserve” is the A “Mineral Reserve” is the economically economically mineable part of a Measured mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Mineral Resource, demonstrated by at least a Preliminary Feasibility Study. Preliminary Feasibility Study. This Study must include adequate information This Study must include adequate information on on mining, processing, metallurgical, economic mining, processing, metallurgical, economic and and other relevant factors that demonstrate, at other relevant factors that demonstrate, at the the time of reporting, that economic extraction time of reporting, that economic extraction can is justified. The US Securities and Exchange be justified. Commission requires permits to be in-hand or imminent to classify mineralised material as A Mineral Reserve includes diluting materials (ore) reserves.
172 l GREAT BASIN GOLD l ANNUAL REPORT 2008 Responsible Delivery Contacts:
Great Basin Gold Limited, ANALYST COVERAGE Incorporated in Canada Barnard Jacobs Mellet Reg No: 436691 Imaru Casanova
VANCOUVER OFFICE BMO Capital Markets 1108 - 1030 West Georgia Street Andrew Breichmanas Vancouver BC, Canada, V6E2Y3 Telephone: +1 (604) 633 9113 Nedcor Securities Fax: +1 (604) 633 0190 Christian Siebert
CORPORATE OFFICE Raymond James Ground Floor, 138 West Street Brad Humphrey Sandown, South Africa PO Box 78182, Sandton, 2146 RBC Capital Markets Telephone: +27 (0) 11 301 1800 Leon Esterhuizen Fax: +27 (0) 11 301 1840
INVESTOR RELATIONS NORTH AMERICA Michael Curlook Telephone: +1 (888) 633 9332 / (604) 633 9113 Email: [email protected]
SOUTH AFRICA Tsholo Serunye Telephone: +27 (0) 11 301 1800 E-mail: [email protected]
BREAKSTONE GROUP US INVESTOR AND MEDIA RELATIONS Barbara Cano Telephone: +1 (646) 452 2334 E-mail: [email protected]
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