Document/Exhibit Description Pages Size
1: 40-F Annual Report by a Canadian Issuer 86 408K
2: EX-23 Exhibit 1 - Consent of Kpmg LLP 1 6K
3: EX-23 Exhibit 2 - Consent of Brent C. Jellicoe 1 6K
4: EX-23 Exhibit 3 - Consent of Daniel C. Leroux 1 6K
5: EX-31 Exhibit 31 - Section 302 Certification 2 13K
6: EX-32 Exhibit 32 - Section 906 Certification 1 7K
Microsoft Word 11.0.6359;
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 40-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005 Commission File Number 000-51592
------------------------
Shore Gold Inc.
(Exact name of Registrant as specified in its charter)
Canada 1400 Not Applicable
(Province or other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation
or Organization)
300, 224 -4th Avenue South
Saskatoon, Saskatchewan
Canada S7K 5M5
(306) 664-2202
(Address and telephone number of Registrants' principal executive offices)
CT Corporation System
111 Eighth Avenue
New York, NY 10011
(212) 894-8940
(Name, address (including zip code) and telephone number
(including area code) of agent for service in the United States)
---------------------------
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares, No Par Value
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
For annual reports, indicate by check mark the information filed with this Form:
[X] Annual information form [X] Audited annual financial statements
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by
this annual report.
The Registrant had 170,515,424 Common Shares
outstanding as at December 31, 2005
Indicate by check mark whether the Registrant by filing the
information contained in this Form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934 (the "Exchange Act"). If "Yes" is marked, indicate the filing number
assigned to the registrant in connection with such Rule.
Yes 82- No X
------- -------- -------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
DOCUMENTS FILED UNDER COVER OF THIS FORM
----------------------------------------
Document No. 1: Annual Information Form for the year ended December 31,
2005, dated March 27, 2006.
Document No. 2: Audited Financial Statements for the financial year ended
December 31, 2005, prepared in accordance with Canadian
generally accepted accounting principles, and reconciled to
United States generally accepted accounting principles in
accordance with Item 17 of Form 20-F.
Document No. 3: Management's Discussion and Analysis of Financial Condition
and Results of Operations for the financial year ended
December 31, 2005.
Document No. 1
SHORE GOLD INC.
ANNUAL INFORMATION FORM
For the Fiscal Year Ended December 31, 2005
March 27, 2006
[Enlarge/Download Table]
TABLE OF CONTENTS
PRELIMINARY NOTES.................................................................................................1
Effective Date of Information..................................................................................1
Financial Information..........................................................................................1
Documents Incorporated by Reference............................................................................2
Currency and Exchange Rates....................................................................................2
CORPORATE STRUCTURE...............................................................................................3
Name, Address and Incorporation................................................................................3
Intercorporate Relationships...................................................................................3
GENERAL DEVELOPMENT OF THE BUSINESS...............................................................................3
History........................................................................................................3
Past Three Years...............................................................................................4
Significant Acquisitions.......................................................................................4
Subsequent to December 31, 2005................................................................................5
DESCRIPTION OF THE BUSINESS.......................................................................................5
Summary........................................................................................................5
Company Principal Activity.....................................................................................6
Risk Factors...................................................................................................6
Exploration Stage Properties................................................................................6
Limited Experience with Development-Stage Mining Operations.................................................7
Future Exploration and Development Activities...............................................................7
Substantial Decommissioning and Reclamation Costs...........................................................7
Difficulty In Obtaining Future Financing....................................................................7
Key Personnel...............................................................................................8
Uninsured Risks.............................................................................................8
Regulatory Changes..........................................................................................8
Diamond Prices..............................................................................................8
Title Matters...............................................................................................8
Environmental Regulation, Permits and Licenses..............................................................9
Factors Beyond the Company's Control.......................................................................10
Principal Mineral Properties..................................................................................10
Star Kimberlite Property (Diamonds)........................................................................10
Amended and Restated Technical Report......................................................................10
Valuation..................................................................................................20
Recent Developments........................................................................................20
FALC JV Property (Diamonds)..................................................................................21
Summary of Exploration and Evaluation of Fort a la Corne Kimberlite Field, East-Central Saskatchewan.......21
Summary of Exploration and Evaluation of Fort a la Corne Kimberlite Field, East-Central Saskatchewan.......21
Recent Developments........................................................................................30
DIVIDENDS........................................................................................................30
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CAPITAL STRUCTURE................................................................................................31
MARKET FOR SECURITIES............................................................................................31
Trading Price and Volume......................................................................................31
DIRECTORS & OFFICERS.............................................................................................31
Cease Trade Orders, Bankruptcies, Penalties or Sanctions......................................................34
Conflicts of Interest.........................................................................................34
LEGAL PROCEEDINGS................................................................................................34
TRANSFER AGENT AND REGISTRAR.....................................................................................34
MATERIAL CONTRACTS...............................................................................................34
Voting Agreement..............................................................................................34
INTERESTS OF EXPERTS.............................................................................................35
AUDIT COMMITTEE..................................................................................................35
Audit Committee Charter.......................................................................................35
Composition of the Audit Committee............................................................................36
Relevant Education and Experience of Members of the Audit Committee...........................................36
Reliance on Certain Exemptions................................................................................36
Audit Committee Oversight.....................................................................................36
Pre-Approval Polices and Procedures...........................................................................36
Nature and Amount of Auditor's Fees...........................................................................37
ADDITIONAL INFORMATION...........................................................................................37
SCHEDULE 1.......................................................................................................38
PRELIMINARY NOTES
Effective Date of Information
Shore Gold Inc. ("Shore" or the "Company") has experienced significant changes
since its fiscal year-end of December 31, 2005 necessitating updated
information and as such, this Annual Information Form ("AIF") is dated March
27, 2006 and the information contained herein is current as of such date,
unless otherwise indicated.
This AIF is prepared in accordance with Form 51-102F2 to National Instrument
51-102, for the limited purpose of providing relevant background material
necessary for a proper understanding of the nature of the Company, its
operations, and prospects for the future.
Financial Information
All financial information in this AIF is prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP").
Caution Regarding Forward-Looking Statements
Certain statements contained in this AIF, and in certain documents incorporated
by reference herein, constitute forward-looking statements within the meaning
of certain securities laws, including the "safe harbour" provisions of the
Ontario Securities Act and the United States Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, among others,
statements with respect to Shore's objectives for the ensuing year, our medium
and long-term goals, and strategies to achieve those objectives and goals, as
well as statements with respect to our beliefs, plans, objectives,
expectations, anticipations, estimates and intentions. The words "may,"
"could," "should," "would," "suspect," "outlook," "believe," "plan,"
"anticipate," "estimate," "expect," "intend," and words and expressions of
similar import are intended to identify forward-looking statements. In
particular, statements regarding Shore's future operations, future exploration
and development activities or the anticipated results of Shore's
pre-feasibility study or other development plans, including statements
regarding ore grade forecasts, valuations and modeled values, contain
forward-looking statements.
All forward-looking statements and information are based on Shore's current
beliefs as well as assumptions made by and information currently available to
Shore concerning anticipated financial performance, business prospects,
strategies, regulatory developments, development plans, exploration,
development and mining activities and commitments. Although management
considers these assumptions to be reasonable based on information currently
available to it, they may prove to be incorrect.
By their very nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks exist that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. We caution readers not to place undue reliance on these statements as
a number of important factors could cause the actual results to differ
materially from the beliefs, plans, objectives, expectations, anticipations,
estimates and intentions expressed in such forward-looking statements. These
factors include, but are not limited to, developments in world diamond markets,
changes in diamond valuations, risks relating to fluctuations in the Canadian
dollar and other currencies relative to the US dollar, changes in exploration,
development or mining plans due
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to exploration results and changing budget priorities of Shore or its joint
venture partners; the effects of competition in the markets in which Shore
operates; the impact of changes in the laws and regulations regulating mining
exploration and development; judicial or regulatory judgments and legal
proceedings; operational and infrastructure risks and the additional risks
described in Shore's annual and interim MD&A and short form prospectus, and
Shore's anticipation of and success in managing the foregoing risks. See also
"Risk Factors" herein.
Shore cautions that the foregoing list of factors that may affect future
results is not exhaustive. When relying on our forward-looking statements to
make decisions with respect to Shore, investors and others should carefully
consider the foregoing factors and other uncertainties and potential events.
Shore does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by Shore or on our behalf.
Documents Incorporated by Reference
Information has been incorporated by reference in this AIF from documents filed
with securities commissions or similar authorities in Canada. Copies of the
documents incorporated herein by reference may be obtained on request without
charge from Shore's head office at Suite 300, 224 - 4th Avenue South,
Saskatoon, Saskatchewan S7K 5M5 (telephone: (306) 664-2202) or by accessing the
disclosure documents available through the Internet on the System for
Electronic Document Analysis and Retrieval ("SEDAR") which can be accessed at
www.sedar.com.
The following documents of the Company are specifically incorporated by
reference in this AIF
(a) the material change report dated March 20, 2006 in respect of
the valuation of diamond recoveries from the Company's Star
Kimberlite Property;
(b) the annual consolidated financial statements, together with
the accompanying report of the auditors, for the fiscal years
ended December 31, 2005, December 31, 2004 and December 31,
2003;
(c) management's discussion and analysis of financial condition
and results of operations for the fiscal years ended December
31, 2005 and December 31, 2004;
(d) the technical report prepared by ACA Howe International
Limited entitled "Amended and Restated Technical Review of
Shore Gold Inc. Diamond Exploration Project, Fort a la Corne,
Saskatchewan, Canada" dated December 15, 2005. See "Star
Kimberlite Property - Amended and Restated Technical Report";
(e) the technical report prepared by Brent C. Jellicoe, P.Geo,
entitled " Summary of Exploration and Evaluation of Fort a la
Corne Kimberlite Field, East-Central Saskatchewan" dated
November 9, 2005. See "Joint Venture Mineral Property-Summary
of Exploration and Evaluation of Fort a la Corne Kimberlite
Field"; and
(f) Form 51-102F4 Amended Business Acquisition report dated
November 21, 2005.
Currency and Exchange Rates
All dollar amounts in this AIF are expressed in Canadian dollars unless
otherwise indicated.
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CORPORATE STRUCTURE
Name, Address and Incorporation
Shore Gold Inc. ("Shore" or the "Company") has its head office at 300, 224-4th
Avenue S, Saskatoon, Saskatchewan, S7K 5M5 and its registered office at 4500,
855-2nd Street SW, Calgary, Alberta, T2P 4K7.
The Company was incorporated on April 29, 1985 under the Canada Business
Corporations Act as 143818 Canada Ltd. The articles of the Company were amended
on July 16, 1986 to reflect a name change to Shore Gold Fund Inc. and to
increase the maximum number of directors to twelve. On August 12, 1994, the
articles were amended to change the Company name to Shore Gold Inc. and on
December 23, 1996, the articles were further amended to permit current
directors to appoint additional directors between annual general meetings so
long as the number of additional directors does not exceed one third of the
number elected at the previous annual meeting of shareholders.
The common shares of the Company were listed for trading on the Alberta Stock
Exchange ("ASE") under the symbol "SGF" on February 10, 1987. On November 26,
1999, the Company began trading on the Canadian Venture Exchange (now known as
the TSX Venture Exchange ("TSX-V")), also under the symbol "SGF". On November
26, 2004, the Company began trading on the Toronto Stock Exchange ("TSX") under
the same symbol and concurrently ceased trading on the TSX-V.
Intercorporate Relationships
The Company has two wholly owned subsidiaries:
Shore Mining & Development Corp. ("SMDC"), which was incorporated on January
17, 2003 under the Business Corporations Act (Alberta). Assets acquired to be
used on exploration programs have been acquired through SMDC and leased to
either Shore or third parties at market rates. During 2005, all of SMDC's
assets were leased to Shore for use on its bulk sample program being carried
out on the Star Kimberlite Property (see "Description of Star Kimberlite
Property").
Kensington Resources Ltd. ("Kensington"), which was formed by amalgamation on
October 28, 2005 with 38802 Yukon Inc., a subsidiary of the Company, pursuant
to a plan of arrangement (the "Arrangement") involving the Company, Kensington
and the security holders of Kensington under the Business Corporations Act
(Yukon Territory). Kensington holds a 42.245% working interest in the adjacent
Fort a la Corne Joint Venture ("FALC JV"), the remaining Joint Venture partners
are De Beers Canada Exploration Inc. ("De Beers") (42.25%), Cameco Corporation
("Cameco") (5.51%) and UEM Inc. ("UEM") (10% carried).
GENERAL DEVELOPMENT OF THE BUSINESS
History
Shore is a Canadian-based company engaged in the acquisition, exploration and
development of mineral properties. Prior to 1993, the Company was engaged
primarily in gold exploration and development, and was a former gold producer
through its interest in the Jasper Gold Mine, which ceased production in
December 1991. In 1993 management changed with the appointment of Mr.
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Ken MacNeill to the board of directors and his appointment as Chief Executive
Officer. Between 1993 and 1995, the Company was still primarily engaged in gold
exploration, entering into an option agreement with Shane Resources Ltd. to
earn an interest in the Munro Lake gold property by funding exploration work.
In December 1995, the exploration emphasis of the Company switched to diamonds
with the acquisition of mineral claims in the Fort a la Corne area of
Saskatchewan. Although the Company has also acquired and worked on base and
precious metal properties since 1995, the majority of the exploration effort
since then has gone into diamonds.
Past Three Years
The Company's exploration activities continued to accelerate over the last
three years. Various exploration techniques on the Company's most advanced
diamond-bearing property (the Star Kimberlite Property) resulted in the
decision to move forward with an aggressive 25,000 tonne bulk sample program to
recover 3,000 carats of diamonds. This decision led to a number of equity
financings during 2001, 2002 and 2003 intended to raise sufficient capital to
proceed with this program. During 2002, work was carried out to obtain the
necessary permitting to proceed with this program. Further, additional
personnel resources were recruited to carry out the program. The bulk sample
program began in 2003, and included sinking a shaft, constructing a headframe
and hoist, and the construction of a 10 tonne per hour processing facility. The
processing plant was commissioned by February 2004, and by April 2004, the
Company had completed the sinking of the shaft down to a 250 meter depth.
Lateral drifting commenced in May 2004 and was completed by November 2004 when
approximately 25,000 tonnes of kimberlite had been extracted.
The first quarter of 2005 Shore announced that the first 25,000 tonne bulk
sample from the Star property had a modeled value of US $135 per carat. The
company also completed the largest financing in Company history for gross
proceeds of $116.6 million pursuant to which Newmont Mining Corporation of
Canada Limited ("Newmont") acquired a 9.9% interest in the Company. This
financing enabled Shore to announce during the second quarter the commencement
of a $44 million, 30 month pre-feasibility study; the largest work program
outlined for any of the Fort a la Corne kimberlites to date.
During the third quarter, Shore and Kensington(which holds a 42.245% working
interest in the adjacent FALC JV) announced their intentions to merge. On
October 28, 2005 the merger was finalized and Kensington became a wholly-owned
subsidiary of Shore. Subsequent to the merger, Shore entered into a voting
arrangement with Cameco and UEM with respect to the FALC JV property whereby
Cameco and UEM agreed to vote with Shore on all operating decisions (excluding
production decisions) to be made by the participants in the FALC JV over a term
up to seven years in duration.
On November 9, 2005 Shore announced that the Company had entered into an
agreement to issue 17.15 million common shares for gross proceeds of $120.1
million. Newmont participated in the financing to reestablish their 9.9%
interest in the combined Shore/Kensington entity.
Significant Acquisitions
The Corporation and Kensington entered into an Amended and Restated Combination
Agreement dated September 19, 2005 and effective as of August 14, 2005 (the
"Combination Agreement"). Pursuant to the Combination Agreement and the
Arrangement contemplated thereby, the Company acquired all of the issued and
outstanding common shares in the capital of Kensington ("Kensington
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Shares") in consideration for the issuance of 0.64 common shares of the Company
for each Kensington Share. The Arrangement was completed on October 28, 2005.
Pursuant to the Arrangement, the Company issued an aggregate of approximately
51,700,000 common shares in exchange for all of the issued and outstanding
Kensington Shares, and the Company is obligated to issue an additional
approximately 7,000,000 common shares pursuant to the exercise of options and
warrants that were issued to the former securityholders of Kensington in
exchange for Kensington options and warrants pursuant to the Arrangement.
Kensington holds a 42.245% interest, through the FALC JV, in the FALC Property.
By acquiring Kensington, Shore indirectly acquired $31 million in working
capital and the responsibility for Kensington's share of expenditures pursuant
to the FALC JV. The Corporation will participate in the development of the FALC
Property through the FALC JV. See the Amended Business Acquisition Report dated
November 21, 2005 for further information.
Subsequent to December 31, 2005
On March 20, 2006 Shore announced that a modeled value of US$173 per carat has
been determined for a 1,992.6 carat parcel of diamonds recovered from the Early
Joli Fou Kimberlite Breccia which represents a significant lithology in the
Star Kimberlite. As well as that a modeled value of US$130 per carat had been
determined for a weighted average of both sub-types of the Early Joli Fou
Kimberlite. The news release went on to describe details of the six highest
value diamonds reported on by WWW International Diamonds Consultants Limited.
On March 15, 2006 Mr. Harvey J. Bay was appointed Chief Operating Officer and
Mr. Pieter Du Plessis was appointed Vice President of Exploration.
On March 15, 2006 the Company announced commencement of core drilling on the
western part of the Star Kimberlite (Star West Project), within the Fort a la
Corne Joint Venture (FALC JV) claims.
As of February 22, 2006 the seventh set of diamond results from the additional
15,000 tonne bulk sample collected from the Star Kimberlite as part of the
pre-feasibility study had been recovered. The results continue to confirm the
positive diamond size distribution statistics for the Star Kimberlite.
DESCRIPTION OF THE BUSINESS
Summary
Historically, the Company has been engaged in the exploration for and the
development of precious metals and gems on its mineral properties. Since the
closure of the Jasper Mine gold operation in 1991, the Company has not earned
significant revenue and can be considered to be in the development stage with
respect to its current mineral property holdings, primarily the Star Kimberlite
Property located in Northern Saskatchewan. During 2004, the Company transferred
its gold properties into its wholly owned subsidiary, Wescan Goldfields
Inc.("Wescan") (previously Shore Resources Inc.) which then completed an
initial public offering, a distribution of part of the Wescan shares to Shore's
shareholders as a dividend-in-kind and listed its shares on the TSX-V. The
Company continues to hold 17% of the issued and outstanding shares of Wescan at
March 27,
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2006. Complete details with respect to this transaction are available
for viewing at www.sedar.com in Wescan's Long Form Prospectus dated August 30,
2004.
Company Principal Activity
The Company recently completed a 25,000 tonne bulk sample program on its Star
Kimberlite Property. Based on results thus far, the Company is conducting a
pre-feasibility study of the property in order to determine the project
viability under current economic conditions. This entails the collection of
additional exploration information, such as geological, geotechnical,
geometallurgical, geochemical, assaying and other relevant information to
delineate and define the Star kimberlite, with a sufficient level of
confidence, to estimate a Mineral Resource in accordance to National Instrument
43-101 and Canadian Institute of Mining, Metallurgy and Petroleum ("CIM")
standards. The data collection, interpretation, modeling and estimation is
being done in a phased manner and will be continuously reviewed on an ongoing
basis as new information becomes available. For more information regarding the
timing, steps and costs to reach commercial production refer to "Principal
Mineral Properties - Star Kimberlite Property (Diamonds) - Amended Restated
Technical Report"
The Company also began core drilling on the western part of the Star Kimberlite
(Star West Project), within the FALC JV claims. For more information regarding
this project, see "Recent Development" herein.
All aspects of the Company's field operations are subject to environmental
regulation and generally require approval by appropriate regulatory authorities
prior to commencement. Any failure to comply could result in fines and
penalties. With all projects at the exploration stage, the financial and
operational impact of environmental protection requirements is minimal.
Permitting for exploration-stage projects is not unduly time consuming nor
financially onerous. Should any projects advance to the test-mining or
feasibility stage, considerably more time and money would be involved in
satisfying environmental protection requirements.
Shore has seven employees based in its head office, ten consultants that manage
the operations of the Company on a daily basis and approximately seventy-two
site workers. The bulk sample was completed using mainly contractors and the
pre-feasibility program has two main contractors doing the bulk of the work.
Additional consultants are retained from time to time on a contract basis as
needed.
Risk Factors
In addition to other information contained in the Company's 2005 annual report,
the following risk factors should be considered in evaluating the Company.
Exploration Stage Properties
Shore's properties are in the exploration stage. All of Shore's mineral
properties are without a known body of commercial ore. The exploration,
development and production of precious metals and gems are capital-intensive
businesses, subject to the normal risks and capital expenditure requirements
associated with mining operations, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. While the rewards
can be substantial if commercial reserves of minerals or gems are found, there
can be no assurance that Shore's past or future exploration efforts will be
successful, that any production therefrom will be obtained or continued, or
that any such production which is attempted will be profitable.
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Limited Experience with Development-Stage Mining Operations
The Company has limited experience in placing resource properties into
production, and its ability to do so will be dependent upon using the services
of appropriately experienced personnel or entering into agreements with other
major resource companies that can provide such expertise. There can be no
assurance that the Company will have available to it the necessary expertise
when and if it places its resource properties into production.
Future Exploration and Development Activities
Exploration for and development of diamond properties involve significant
financial risks which even a combination of careful evaluation, experience and
knowledge may not eliminate. While the discovery of an ore body may result in
substantial rewards, few properties which are explored are ultimately developed
into producing mines. Major expenses may be required to establish reserves by
drilling, constructing mining and processing facilities at a site, developing
metallurgical processes and extracting diamonds from ore. Shore cannot ensure
that its current exploration and development programs will result in profitable
commercial mining operations. Also, substantial expenses may be incurred on
exploration projects which are subsequently abandoned due to poor exploration
results or the inability to define reserves which can be mined economically.
The economic feasibility of development projects is based upon many factors,
including the accuracy of reserve estimates; diamond recoveries; capital and
operating costs; government regulations relating to prices, taxes, royalties,
land tenure, land use, importing and exporting and environmental protection;
and diamond prices, which are highly volatile. Development projects are also
subject to the successful completion of feasibility studies, issuance of
necessary governmental permits and availability of adequate financing.
Development projects have no operating history upon which to base estimates of
future cash flow. Estimates of proven and probable reserves and cash operating
costs are, to a large extent, based upon detailed geological and engineering
analysis.
Substantial Decommissioning and Reclamation Costs
The Star Kimberlite Property and the FALC JV property are subject to
decommissioning and reclamation regulations. The costs of performing the
decommissioning and reclamation must be funded by Shore's operations. These
costs can be significant and are subject to change. Shore cannot predict what
level of decommissioning and reclamation may be required in the future by
regulators. If the Company is required to comply with significant additional
regulations or if the actual cost of future decommissioning and reclamation is
significantly higher than current estimates, this could have an adverse impact
on Shore's future cash flows, earnings, results of operations and financial
condition.
Difficulty In Obtaining Future Financing
The further development and exploration of mineral properties in which Shore
holds interests or which Shore acquires may depend upon Shore's ability to
obtain financing through joint ventures, debt financing, equity financing or
other means. There is no assurance that Shore will be successful in obtaining
required financing as and when needed. Volatile diamond markets may make it
difficult or impossible for the Company to obtain debt financing or equity
financing on favourable terms or at all. Failure to obtain additional financing
on a timely basis may cause the Company to postpone
-8-
development plans, forfeit rights in its properties or joint ventures or reduce
or terminate its operations. Reduced liquidity or difficulty in obtaining
future financing could have an adverse impact on Shore's future cash flows,
earnings, results of operations and financial condition.
Key Personnel
Recruiting and retaining qualified personnel is critical to Shore's success.
The number of persons skilled in acquisition, exploration and development of
mining properties is limited and competition for such persons is intense. As
Shore's business activities grow, Shore will require additional key financial,
administrative and mining personnel as well as additional operations staff.
Although the Company believes they will be successful in attracting, training
and retaining qualified personnel, there can be no assurance of such success.
If the Company is not successful in attracting and retaining qualified
personnel, the efficiency of Shore's operations could be affected, which could
have an adverse impact on the Company 's future cash flows, earnings, results
of operations and financial condition.
Uninsured Risks
Shore's exploration activities are subject to the risks normally inherent in
mineral exploration, including but not limited to environmental hazards,
industrial accidents, flooding, periodic or seasonal interruptions due to
climate and hazardous weather conditions and unusual or unexpected geological
formations. Such risks could result in damages, delays and possible legal
liability. The Company may become subject to liability for pollution and other
hazards against which it cannot insure or against which it may elect not to
insure due to high premium costs or other reasons. The payments for such
liabilities would reduce the funds available for exploration and development
activities and may have a material impact on Shore's financial position.
Regulatory Changes
Mining operations in Canada are subject to extensive regulation by provincial
and federal governments. The development of mines and related facilities is
contingent upon government approval, which must be obtained through statutory
review processes. Future changes in governments and regulation could adversely
affect mining in Canada.
Diamond Prices
The value of any future production from the Star Kimberlite Property and the
FALC Property will be significantly affected by changes in the worldwide market
price for diamonds. Diamond prices fluctuate and are affected by numerous
factors beyond the control of the Company, including the influence of the
world's largest diamond producer, De Beers, that largely controls the market
for rough diamonds. De Beers has the ability to influence diamond prices
through the control of sales volumes. In 2004 De Beers, through one or more
wholly owned subsidiary, sorted and valued approximately 45% of the annual
rough diamond production.
Title Matters
The Company has diligently investigated title to its claims in the Star
Kimberlite Property. De Beers as operator of the FALC JV, is responsible for
maintaining title to its claims on the FALC JV property. However, no assurance
can be given that title to these properties will not be challenged or
-9-
impugned in the future by third parties or governments. Title disputes could
have adverse consequences to the Company.
Environmental Regulation, Permits and Licenses
The Company's operations are subject to environmental regulations promulgated
by government agencies from time to time. Environmental legislation provides
for restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with certain mining industry operations,
such as seepage from tailings disposal areas, which would result in
environmental pollution. Such legislation also requires that mines be operated,
maintained, abandoned and reclaimed to the satisfaction of applicable
regulatory authorities. A breach of such legislation may result in imposition
of fines and penalties. In addition, certain types of operations require the
submission and approval of environmental impact assessments. Environmental
legislation is evolving in a manner that means stricter standards, and
enforcement, fines and penalties for non-compliance are more stringent.
Environmental assessments of proposed projects carry a heightened degree of
responsibility for companies and directors, officers and employees. The cost of
compliance with changes in governmental regulations has a potential to reduce
the profitability of operations. The Company intends to fully comply with all
environmental regulations.
The current or future operations of the Company, including development
activities and commencement of production on its properties, require permits
from various federal, provincial or territorial and local governmental
authorities and such operations are and will be governed by laws and
regulations governing prospecting, development, mining, production, exports,
taxes, labour standards, occupational health, waste disposal, toxic substances,
land use, environmental protection, mine safety and other matters.
Such operations and exploration activities are also subject to substantial
regulation under these laws by governmental agencies and may require that the
Company obtain permits from various governmental agencies. There can be no
assurance, however, that all permits which the Company may require for its
operations and exploration activities will be obtainable on reasonable terms or
on a timely basis or such laws and regulations would not have an adverse effect
on any mining project which the Company might undertake.
Failure to comply with applicable laws, regulations, and permitting
requirements may result in enforcement actions thereunder, including orders
issued by regulatory or judicial authorities causing operations to cease or be
curtailed and may include corrective measures requiring capital expenditures,
installation of additional equipment, or remedial actions. Parties engaged in
mining operations may be required to compensate those suffering loss or damage
by reason of mining activities and may have civil or criminal fines or
penalties imposed for violations of applicable laws or regulations and, in
particular, environmental laws.
Amendments to current laws, regulations and permits governing operations and
activities of mining companies, or more stringent implementation thereof, could
have a material adverse impact on the Company and cause increases in capital
expenditures or production costs or reduction in levels of production at
producing properties or require abandonment or delays in development of new
mining properties.
To the best of the Company's knowledge, it is operating in compliance with all
applicable rules and regulations.
-10-
Factors Beyond the Company's Control
There are also a number of factors beyond the Company's control. These factors
include government regulation, high levels of volatility in market prices,
availability of markets, availability of adequate transportation and refining
facilities and the imposition of new or amendments to existing taxes and
royalties. The effects of these factors cannot be accurately predicted.
Principal Mineral Properties
Shore holds interests in two principal mineral properties, the wholly owned
Star Kimberlite property and a 42.245% interest in the FALC JV property. To
satisfy the reporting requirement of National Instrument 51-102F2 with respect
to companies with mineral projects, the Company has opted, as allowed by the
instrument, to reproduce the summary from the technical reports on its material
properties.
Star Kimberlite Property (Diamonds)
Amended and Restated Technical Report
This Report amends and restates the Amended Technical Report dated March 16,
2005 entitled "Amended Technical Review of the Shore Gold Inc., Diamond
Exploration Program, Fort a la Corne, Saskatchewan Canada" prepared by A.C.A.
Howe International Limited and filed on SEDAR on March 16, 2005. The amendments
reflect the changes to the weight of the kimberlite processed in the Bulk
Sampling Program, and the resulting change in grade, as disclosed by Shore Gold
Inc. in its press release dated December 13, 2005 and in its material change
report dated December 15, 2005. Except for these corrections, which are
effective December 13, 2005, the effective date of this Amended and Restated
report is March 16, 2005.
EXECUTIVE SUMMARY
The Star Kimberlite is located within mineral disposition S-132039 in Section
18 of Township 49, Range 19, west of the 2nd Meridian whereby Township 49 is
located within the Regional Municipality of Torch River. This mineral
disposition is in turn located within claim block GC#45523, which comprises 45
contiguous mineral dispositions totaling 9,808 hectares. Shore owns a 100%
working interest in these claims. The initial 15 mineral dispositions (S-132025
to S-132039) were staked by a third party, who retains a 3% net profits
interest in the event the property goes into production. Shore has the option
to buy out this 3% net profits interest for CDN$1 million. Shore owns 100%
interest and 100% working interest in the additional remaining 30 claims of
claims in GC#45523. Shore owns 100% interest and 100% working interest in an
additional 129 claims in the immediate area, for a total of 174 claims covering
55,132 hectares. All claims are in good standing. The Star Kimberlite body and
associated mine, processing, coarse tailings, settling pond and camp
infrastructure is located within mineral disposition S-132039.
Shore's claim block GC#45523 has been legally surveyed in accordance to the
Saskatchewan Mineral Disposition Regulations of 1986, Part IV, Article
30(1)(d), which coincides with boundaries of the land survey system pursuant to
the Saskatchewan Land Surveys Act and / or with the boundaries of existing
surveyed land parcels. The perimeter of mineral disposition S-132039 was
surveyed using a Trimble System 4800 G.P.S. on July 18, 2002 by George,
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Nicholson, Franko & Associates Ltd. of Saskatoon, Saskatchewan as part of the
initial start-up work for the bulk sampling program.
The project area comprises rolling glacial topography with sandy river
sediments ranging from 360 metres to 450 metres above sea level. It is situated
some 60 kilometres east of Prince Albert, Saskatchewan, from where it is
readily accessible by paved highways, a grid gravel road system and an
extensive network of forestry roads, passable to four-wheel drive and
high-clearance two-wheel drive vehicles all year round. Much of the land has
been cleared for agriculture, the remainder being tree covered. A 14.4Kv power
line runs 9.6 kilometres south of the area and a 25Kv power line is located 21
kilometres to the east. A pool of mining personnel is available within the many
small towns in the area.
The climate of Saskatchewan ranges from warm dry summers with temperatures up
to 35(degree)C to cold dry winters with temperatures down to -35(degree)C.
Precipitation is limited to periodic showers and snowfall and averages 405
millimetres annually.
The property lies near the northeastern edge of the Phanerozoic Interior
Platform that extends from the Rocky Mountains in the west to the Precambrian
Canadian Shield to the northeast close to Lac La Ronge. The Phanerozoic cover
consists of basal Cambro-Ordovician dolomitic carbonate rocks and clastic
sediments succeeded by Cretaceous shales and sandstones. The latter comprise
four units, namely, in descending sequence, the Campanian Montana Group, the
Cenomanian Upper Colorado Group and the Albian Lower Colorado Group and
Mannville Group. Devonian carbonates and clastic sediments immediately underlie
the Cretaceous rocks. The entire area is overlain by Quaternary glacial
deposits ranging from 40 metres thick close to the Saskatchewan River up to 120
metres thick elsewhere.
In the Fort a la Corne area, a northwest-trending kimberlite province some 50
km long by 30 km wide has been identified. The major part of this province is
under investigation by a consortium of companies including Cameco, De Beers and
Kensington, collectively termed the "FALC JV". Some 69 kimberlitic bodies have
been drilled to date in the Fort a la Corne kimberlite province and are
distributed along at least three linear trends. The kimberlite horizons are in
the form of stacked, sub horizontal lenses or shallow zones of crater facies
kimberlite of large lateral extent. The majority of bodies drilled to date lie
just below the till/bedrock interface. The areas of the individual bodies range
from 2.7 to over 200 hectares, and their estimated tonnages range between 0.3
to 1 billion tonnes. Historical information released from the FALC JV reported
diamonds of up to 10.23 carats (and diamonds with values of up to US $390-450
per carat) in mini-bulk samples collected by reverse circulation ("RC")
drilling in two of the bodies while the size frequency analysis by De Beers
suggests that larger stones should be present.
Until Shore's recent discovery of a feeder pipe for the Star Kimberlite,
feeders for these kimberlitic bodies were thought to be either narrow dykes or
to have collapsed. Published maps indicate that the southeast extrapolations of
linear kimberlitic trends identified on the FALC JV converge on the Shore
property in the vicinity of this pipe, which may suggest that the main trends
represent radial feeder zones emanating from the vicinity of the Star
Kimberlite feeder pipe.
Shore acquired its largest claim block in early 1996 and commenced exploration
with a low altitude helicopter-borne magnetic survey totaling 614.5 line
kilometres. Several magnetic anomalies were identified and prioritised. Ground
magnetic surveying confirmed the presence of
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shallow, closed anomalies that could indicate kimberlites. Four anomalies were
selected for initial drill testing in 1996; one in the northeast of the survey
area and a major, complex zone in the northwest corner, now termed the Star
Kimberlite. All holes intersected kimberlite and 184 diamonds were recovered,
nine of which had at least one dimension greater than 0.5 millimetres and were
classified as macrodiamonds. The largest diamond had a maximum dimension of
1.62 millimetres. In 1997, two additional holes were drilled and caustic fusion
analysis of drill core returned a total stone count of 749, including 66
macrodiamonds at an average of 7.6 diamonds per 10 kilogrammes. Ninety one
percent (91%) of the stones were clear, with no inclusions and 81% exhibited
good crystal form. Some 2% of the stones exhibited colour, including a clear
yellow.
A second phase of core drilling commenced in January 2000 to further delineate
the diamondiferous Star Kimberlite. Although a significant amount of kimberlite
had been intersected from the previous core drilling campaigns, no deep feeder
zones had been encountered, though the drilling had intersected extensive, flat
lying, laterally continuous zones of pyroclastic kimberlite. Fifteen core holes
were drilled for a total of 3,259.9 metres, of which 1,082.1 metres proved
kimberlitic. The depth of the overburden averaged some 90 metres. The sequence
containing the kimberlite zones varied in thickness between 30.5 to 145.1
metres, including intra-kimberlite sediments.
Pyroclastic kimberlites were correlated over an area extending 1.5 km north
south and 1.0 km east west, confirming earlier interpretation from the 1996-97
drill programs. Every hole drilled intersected diamondiferous kimberlitic
sequences. It should be noted that the smallest sieve size used in the January
2000 processing was 0.15 millimetre, compared to the 1996-97 program, which
used a 0.08 millimetre sieve. Three hundred and twenty (320) diamonds were
recovered from 1,494.5 kilogrammes of core, of which 76 stones were classified
as macrodiamonds. Hole Star 16 (PQ) returned 203 diamonds from 750.9
kilogrammes of core of which 43 stones were classified as macrodiamonds. Ten of
the latter stones had at least one dimension greater than or equal to 1.0
millimetre. The largest stone recovered prior to the 2001 program was a
fragment, measured 2 millimetres and weighed just over 0.04 carats.
Based on the core drilling information as of 2001, the kimberlite zone remained
open-ended in all directions and geological interpretation indicated that a
major eruptive centre was possibly located in the west of the drilled
kimberlite zone. Howe was requested to examine all core and geophysical data
and prepared geological sections to assist future drilling. In east-west
geological sections the kimberlite could clearly be seen to be thickening
towards the west, strongly indicating proximity to a feeder zone pipe. As a
result seven additional holes were planned and drilled in November 2000 -
January 2001; four to explore the lateral extent of the kimberlite zone, one to
locate the feeder zone and the remaining to clarify geological interpretation.
All core holes achieved their objectives. Hole Star 20 was targeted on the
interpreted pipe and intersected kimberlite extending to a depth of just over
600 metres where large amounts of brecciated wall rock dolomite or large
xenoliths were encountered. Due to the drilling depth limitations of the core
rig, Star 20 was stopped in kimberlite at a depth of 626.97 metres. The
continuity and homogeneity of the intersection indicates that Star 20 was
drilled into a substantial pipe.
-13-
Core from holes Star 17, 18, 19 and 23 was split and half sent to Thunder Bay
Mineral Processing Laboratory for caustic fusion analyses. Subsequently, the NQ
core from Star 20 was also submitted for caustic fusion. A total sample of 626
kilogrammes of split kimberlite core from Star 20, taken over a continuous
interval of 311.6 metres from a depth of 87.6 metres below surface to 399.2
metres depth was processed. The sample from Star 20 returned a total of 46
macro diamonds with at least one dimension greater than 0.5 millimetres,
including 15 stones with at least one dimension equal to, or greater than 1.0
millimetre. These 46 macros accounted for approximately 87% of the weight of
diamonds recovered from the hole. The 15 macros greater than 1 millimetre
represented approximately 71% of the total weight of diamonds recovered from
this hole. The four largest stones recovered in hole Star 20 had dimensions of
1.49x1.41x1.29 millimetres, 1.52x1.25x1.15 millimetres, 1.49x1.33x0.94
millimetres and 1.46x1.27x0.96 millimetres.
In the holes drilled between November 2000 and January 2001, 84% of the weight
of diamonds recovered has been returned from stones larger than 0.5 millimetres
in at least one dimension, and those stones larger than 1.0 millimetre in at
least one dimension have represented approximately 60% of the total weight of
recovered diamonds.
Through successive diamond drill hole programs (up to 2001), the Star
Kimberlite has been drill delineated to cover a surface area of over 1.5 square
kilometres (or over 225 hectares); making it one of the largest diamondiferous
kimberlites discovered to date in the world. Based on the available 1996 - 2001
core drilling data obtained by Shore, a three-dimensional geological wireframe
model of the Star Kimberlite morphology was developed by Howe using
Micromine(R) mining software. Using an average in situ bulk density value of
2.60 g/cm(3) for kimberlite, the estimated potential tonnage of 300 million
tonnes of diamondiferous kimberlite (including the principal early and late
Joli Fou eruptive phases) was determined within Shore's GC#45523 claim block.
In July and August 2001 a series of small diameter holes were drilled to assist
the delineation of the Star Kimberlite feeder pipe discovered in the 2000-2001
drill campaign. Three holes (Star 24, 25 and 26) intersected the pipe at
various depths. Four holes were also drilled in other parts of the Star
Kimberlite as further exploration holes intersected significant amounts of
kimberlite. Core from Holes Star 25 and 26 were split and half sent to the
laboratory of Lakefield Research Limited ("Lakefield") in Ontario for caustic
fusion. Star 26 returned a stone with dimensions of 1.65x1.48x1.03 millimetres
and one interval from 255.11 metres to 258.22 metres which contained 34
diamonds with at least one dimension over 0.5 millimetres.
The surface topography of the Star Kimberlite interpreted from the drilling
clearly shows a raised cone/crater-like shape around the pipe. The
Mannville/Lower Colorado boundary appears at different levels within and
between a number of drill holes, reflecting the development of local structural
relief during or subsequent to the deposition of the kimberlites and Cretaceous
sediments possibly due to contemporaneous faulting and deflation of surfaces
above emptying volcanic chambers.
As the use of magnetic data to map kimberlite bodies and locate eruptive
centres has been an essential feature of exploration in the Fort a la Corne
region, Howe has examined Shore's airborne and ground magnetic geophysics in
conjunction with the drill core. The magnetic anomalies appear to reflect the
general topography and geology of only the upper portion of the kimberlite
delineated by the core drill programs to date. Reprocessing of the raw magnetic
total
-14-
field data by Howe reveals strong lineaments within and adjacent to the
kimberlite discoveries which correlate with many of the major drainage
features, indicating that the latter are controlled by geological structures.
Howe also selected fifteen kimberlite samples from the Shore drilling programs
for petrographic analysis. Results confirmed diatreme facies in the deeper part
of hole Star 20.
Based on the geological information collected to date via core drilling, it was
concluded that the Star Kimberlite is a major, laterally continuous zone with a
surface area in excess of 1.5 square kilometres. The Star Kimberlite is
interpreted to be in the form of stacked, sub horizontal lenses or shallow
zones of crater facies kimberlite and sub aerial pyroclastic fallout of large
lateral extent similar to those identified in the FALC JV area. The rocks were
originally classified as crater-facies pyroclastic kimberlite, though a number
of kimberlitic lithofacies may be distinguished according to grain size, style,
alteration, abundance and presence of olivine macrocrysts. These lithofacies
form into two broad groups; the first is in-situ, pyroclastic kimberlite and
the second is a reworked volcaniclastic kimberlite. The majority of the
reworked kimberlitic sediments are found above the main kimberlite horizon.
Detailed logging by Shore revealed at least six main lithofacies within these
two broad groups: macrocrystic kimberlite, altered very fine grained
pyroclastic kimberlite, altered fine grained kimberlite, kimberlitic mudstone,
reworked volcaniclastic kimberlite, and reworked volcanic kimberlites with a
fine-grained tuffaceous kimberlitic appearance. Detailed core drilling carried
out by Shore between 2001 and 2004 has located a deep feeder zone and fairly
extensive vent facies to the Star Kimberlite which was previously thought not
to exist in the Fort a la Corne area. Only one hole has returned less than 20
metres of continuous kimberlite and the body increases in thickness towards a
drill hole (Star 20), which intersected 496.48 metres of continuous
macrocrystic kimberlite. This is interpreted as a pipe, the first to be
discovered in the Fort a la Corne kimberlite field. While this feeder could be
responsible for most of the kimberlite delineated so far, parasitic eruptive
centres also could be located close to or within the Star Kimberlite. The Star
Kimberlite zone still remains open-ended in all directions. All diamond drill
holes within the Star Kimberlite have returned micro- and macrodiamonds.
The largest stone found up to this date in the Shore core holes was a 2
millimetre fragment, indicating that larger stones were present. Information
released from the FALC JV around this date confirmed the presence of high
quality stones in excess of three (3) carats in mini bulk samples collected by
large diameter RC drilling from two kimberlites and size frequency analysis by
De Beers suggested that even larger stones should be present.
After the completion of the 2001 core drilling program, Shore had delineated
the kimberlite pipe sufficiently to enable the siting of a single, large
diameter reverse circulation ("RC") test hole and subsequently a site for bulk
sampling of the Star Kimberlite utilizing a 4 metre diameter shaft and drifts
from this shaft.
Following the July-August 2001 phase of drilling, Shore was given the
opportunity to test-drill a large diameter (24 inch) RC hole, Star 31RC. Star
31RC was terminated in kimberlite at a depth of 295.60 metres as a result of
mechanical failure. This RC hole was located next to Star 26 which had
intersected 236 metres of kimberlite. This enabled the collection of a larger
sample than hitherto possible; the sample was processed under Shore supervision
at the De Beers facility in Alberta, in the presence of an independent observer
from Howe.
-15-
Kimberlite samples were collected in approximately three (3) metre intervals
and alternate bags were marked to go to both De Beers and Lakefield Research
Limited processing labs. Star 31RC intersected 192.37 metres of continuous
kimberlite giving approximately 90 tonnes of wet kimberlite from which 82.7
tonnes of dry kimberlite chips were recovered giving an average drill recovery
of 59% based on an assumed specific gravity of 2.5g/cm(3). Subsequent
investigation by Shore has indicated that the original specific gravity values
(i.e. insitu bulk density) were too high and the recovery was erroneously low.
De Beers' dense media separator ("DMS") plant produced a heavy mineral
concentrate of 394.50 kilogrammes.
De Beers recovered 85 diamonds caught in and above their standard Class 1
diamond sieve (approximately 1.1millimetre square mesh) and Lakefield recovered
98 diamonds caught in or above a 1.18 millimetre square mesh sieve. The two
largest stones were recovered by Lakefield (both of which are fragments)
weighed 0.638 and 0.402 carats. De Beers recovered one stone weighing 0.385
carats.
Detailed geological and diamond content analysis has subsequently been
conducted to assist in the geological and initial grade modeling of the Star
Kimberlite (by Shore and AMEC E & C Services Limited). Geophysical, geochemical
and geological studies started in 2002 in the form a Targeted Geoscience
Initiative program ("TGI"), run by the Geological Survey of Canada &
Saskatchewan Industry and Resources are currently ongoing. The results of
geochemical and geological studies by TGI, Shore and Howe has lead to the
classification of the Star Kimberlite into four (4) major eruptive time
constrained intervals the Cantuar, Pense, early and late Joli Fou of which the
early Joli Fou eruption is the most volumetrically significant. Environmental
studies had also been completed and the feasibility and methodology of bulk
sampling was examined, which indicated that the most cost effective method
would be to obtain the necessary tonnage from a vertical shaft and horizontal
drifts.
Environmental permits were received by Shore on November 28th 2002 and a
program to enable the bulk sampling of a portion of the Star Kimberlite from a
shaft and lateral drifts was commenced. Prior to the sinking of the shaft, a
vertical HQ (63.5 mm) diamond core hole Star 32 was drilled in October 2002 as
the pilot hole for the shaft.
The bulk sample program began in early 2003 with commencement of freeze hole
drilling for the shaft which was completed in mid-May 2003. By the beginning of
June 2003, all the buildings required by Shore and it's mining contractor -
Thyssen Mining Company ("TMCC") for the shaft sinking program were in place. A
successful freeze wall was established in the early part of July 2003 and the
pre-sink phase was completed in mid-July 2003 with temporary excavation
equipment. The head frame, hoists and suspension equipment were then erected
and the entire infrastructure required to complete the next phase of shaft
sinking was constructed by the end of July 2003.
Sinking in the glacial overburden continued down to approximately 89 metres at
which point the Cretaceous sediments were intersected. Sinking continued into
the Cretaceous sediments and kimberlite was intersected at approximately 107
metres below surface in the first week of October 2003. Sinking continued
through the kimberlite and at 132 metres, a new pilot hole (Star 33 - BQ) was
drilled from the shaft bottom to check the ground conditions and to check for
potential water. Sinking continued to a depth of 175 metres where a station was
established for the first proposed lateral development.
-16-
The station was completed in the third week of January 2004 and shaft sinking
recommenced. At this point, an underground core drill was lowered to the 175
metre station and underground exploration drilling commenced alongside
continual shaft sinking activities. The shaft continued down to a depth of
approximately 235 metres until mid March 2004 where the second lateral
developments station was established. The shaft had been sunk through
approximately 70 metres of the late Joli Fou and 75 metres of early Joli Fou
kimberlite with the transition at approximately 175 metres. Prior to
development of the 235 metre station, a pilot hole was drilled to investigate
ground conditions and provided geotechnical data required for the planning of
this lateral development. The second station was completed on the 25th of April
2004 and shaft sinking recommenced to a final depth of approximately 250
metres, reached on the 7th of May 2004. In conjunction with the final shaft
sinking, exploration drilling also commenced from the 235 metre station where
three (3) pilot drill holes were drilled prior to lateral development.
Underground drilling to date has provided essential geological and geotechnical
information in assisting in the planning and development of the underground
lateral drift developments that was not possible to be ascertained from surface
drilling. Shore has drilled eight (8) BQ size underground drill holes to date
totaling 550 metres. The drilling provided Shore with the necessary geological
information to establish significant lateral drift development from the 235
metre station.
In total, ten (10) individual kimberlite sample batches were created in the
development of the shaft in the kimberlite horizon from 107 metres to 250
metres below surface including the development of the 175 metre and 235 metre
levels, five (5) from the late Joli Fou and four (4) from the early Joli Fou.
These batches were designed to broadly correlate to distinctive geological
units identified from pilot holes Star 32 and Star 33 which identified the two
(2) major eruptive phases of the Star Kimberlite. The late Joli Fou kimberlite
consisted of very fine to medium grained layered matrix and clast supported
olivine dominated pyroclastic macrocrystic kimberlites. The early Joli Fou
consisted of medium to coarse grained largely clast supported olivine dominated
pyroclastic macrocrystic kimberlites and volcaniclastic kimberlite breccias.
Lateral drift development commenced on the completion of the underground
drilling program from the 235 metre station in May 2004. Lateral drift
development was completed in November 2004 when it was estimated that
approximately 25,000 tonnes of kimberlite had been mined. In total, 1,002
metres of underground development were completed from an extensive network of
25 individual drifts in the early Joli Fou kimberlite. In total, 74 individual
kimberlite sample batches were created in the development of the 235 metre
level. Shore and Howe geologists were also able to identify and map in detail
many distinctive kimberlite units throughout the 235 metre level following
individual flow units and geologically distinct kimberlite phases both massive
and layered in extent. The geological units encounter in the early Joli Fou
kimberlite at this level mirror those found in the shaft section of the early
Joli Fou, however, the freedom of access to the drift levels allowed more
detailed mapping than that possible in the shaft and geologists were able to
subdivided some of the major geological units, most notably within the
macrocrystic kimberlite units where at least 5 distinct macrocrystic kimberlite
types have been visually observed to date. Within the 235 metre level, there
are intervals of dominantly pyroclastic and volcaniclastic kimberlite breccias
and macrocrystic kimberlites forming discrete geological zones. Within these
zones all the different types of kimberlite units are found in varying
abundances. Geological control of the sampling has enabled some of these
kimberlite type units to be individually sampled with very little contamination
by other kimberlite types, the results of
-17-
which will provide invaluable diamond content data for modeling any variations
in diamond quality and abundance throughout the different phases of the early
Joli Fou kimberlite.
Mapping is still being carried out underground in the form of a full
reconciliation of the geology throughout the whole 235 metre level and further
work is being carried out to refine the geological model.
Occurring concurrent with the underground mine development, an area was also
cleared in the first half of 2003 for the erection of the processing plant.
Bateman Mineral (Pty) Ltd. ("Bateman") provided a modular ten (10) tonne per
hour diamond recovery plant that arrived in Canada on August the 28th 2003. The
foundations for the plant were completed in the middle of November. In
October-December 2003, a Cover-All building was constructed over the plant to
facilitate its use in the Saskatchewan winter months along with a settling pond
for the plant and mine water discharge. Commissioning of the plant began in
early January 2004 under the supervision of Bateman, who also undertook the
task of training Shore's plant operators. The plant started receiving
kimberlite in late January 2004 and was deemed fully commissioned and handed
over to Shore to run in the later part of February 2004.
Shore's Bateman process plant consists of a 30 tonne per hour crushing circuit,
a 10 tonne per hour Dense Media Separation ("DMS") circuit which consists of a
250 millimetre diameter separating cyclone and a recovery plant consisting of a
Flow Sort(R) X-Ray diamond sorting machine and a grease table. All kimberlite
material was stored in individual batch sample piles within the dedicated
storage facility areas. Individual sample batches were designed ultimately to
provide representative samples of the different geological units encountered
while wherever possible keeping individual sample batches similar sizes.
As of February 28, 2005, a total of 3,498.84 carats of commercial sized
diamonds >0.85 millimetre were recovered from a total of 21,453.76 dry tonnes
of kimberlite material processed through Shore's batch sampling process plant.
Diamond concentrate samples from batch samples 65 to 74, recovered from
1,471.02 dry tonnes of kimberlite are currently being processed by SGS
Lakefield Research Limited ("SGS Lakefield") for final diamond recovery. Based
on the diamond recovery results obtained from SGS Lakefield as of February 28,
2005, the following diamond statistics are as follows:
o The average "run of mine grade" obtained from the processed batches to
date is 16.3 cpht at a 1.18mm bottom cut off.
Of the 29,608 stones recovered from the bulk sampling program (to date):
Stone size:
Over 98.7 % of the total stones recovered are >1.18 millimetre square mesh of
which:
o 33 stones exceed five (5) carats, representing 7.4% of the total carat
weight;
o 174 stones exceed two (2) carats, representing 19.4% of the total
weight;
o 485 stones exceed one (1) carat representing 31.6% of the total carat
weight; and,
o 1088 stones exceed 0.5 carats, representing 43.5% of the total carat
weight.
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Colour:
o 72.0 % of the total stones recovered are classified as White;
o 12.6 % of the total stones recovered are classified as Off-White;
o 9.9 % of the total stones recovered are classified as Grey
o 0.6 % of the stones recovered are classified as Yellow
o 4.9 % of the stones recovered are classified as Other (pink, amber,
etc.)
During the first quarter of 2005, Shore commissioned four independent groups of
diamond valuators based in Antwerp, Belgium to carry-out a valuation on an
initial 3,050 carat diamond parcel recovered from its completed bulk sampling
program on the Star Kimberlite. The 3,050 carat diamond parcel was examined by
the following four companies:
1. R. Steinmetz and Sons N.V.;
2. WWW International Diamond Consultants Limited ("WWW");
3. Rio Tinto Diamonds N.V., and;
4. BHP Billiton Diamonds (Belgium) N.V.
On February 23, 2005, Shore announced that the sample value of US$110 per carat
is the average price of the valuations provided by the four companies and is
based on the actual price that a diamond producer will currently receive for
this parcel in Antwerp, Belguim.
WWW carried out a diamond modeled value analysis in order to determine the
modeled value for the initial 3,050 carat parcel recovered from the Star
Kimberlite. WWW, who with their aboriginal partners Aboriginal Diamonds Group
Limited through Diamonds International Canada Ltd. are the valuators to the
Federal Government of Canada for the Canadian diamond mines in the Northwest
Territories. The modeled value is determined using statistical methods to
estimate the average value of diamonds that will be recovered from a future
mine on the Star Kimberlite. The difference between the sample value and the
modeled value results from under sampling of the top end (+5 carat) of the
diamond size frequency distribution of the completed bulk sample. WWW stated
that the average modeled value of US$135 lies between a "minimum" of US$110 and
a "high" of US$162. WWW also reported that it is unlikely that the average
price will be lower than US$110 per carat based on current prices and that a
"high" modeled value of US$162 is reasonable considering the potential value of
the larger diamonds in the Star Kimberlite.
The diamond results from the shaft indicate that the overall diamond grade of
the late Joli Fou kimberlite is lower than that of the early Joli Fou
kimberlite. The results also demonstrate that the diamond grades in the late
Joli Fou kimberlite are more erratic than those of the early Joli Fou. Although
the overall grade of the late Joli Fou kimberlite is relatively low, there are
intervals within the late Joli Fou that contain reasonable diamond grades. It
must also be noted that from drill hole information and geological modeling
carried out by Shore and Howe, the early Joli Fou appears to make up
approximately 80% by volume (or approximately 240 million tonnes of kimberlite
based on the 2001 geological wireframe model) of the total Joli Fou eruptive
sequence on the Star Kimberlite.
The diamond results from the 235 metre level indicate that there are variations
of grade (10 carats per hundred tonnes "cpht" to over 30 cpht) within the early
Joli Fou kimberlite that appear to be broadly associated to different
geological units. Most notable are the highest grades that are associated to
the volcaniclastic kimberlite breccias where grades have exceeded 30 cpht in
many
-19-
of the sample batches. Grades exceeding 20 cpht are also located in
macrocrystic kimberlites and many of the lowest grades are associated to
batches containing heavy internal dilution due to sedimentary xenoliths and
reefs. Detailed analysis is still being carried out in investigating the
kimberlite types and associated grades.
Concurrent with the bulk sample program, Shore continued exploration in 2004
with a new regional GeoTEM (electromagnetic) geophysical survey. In May 2004,
Shore contracted Fugro Airborne Surveys Limited ("Fugro") to fly a regional
GeoTEM airborne survey over the core group of claims (GC#45523) surrounding the
Star Kimberlite and those surrounding the major part of the Fort a la Corne
kimberlite field. In total 1,231 line kilometres were completed. The analysis
of the GeoTEM data has shown that all the known kimberlites within the Shore
survey area are identifiable by this airborne geophysical tool and over a
number of kimberlites the GeoTEM maps out a resistive body with a larger
surface area than may be inferred from the magnetic data.
The analysis of the GeoTEM data which detects resistive bodies (i.e. potential
kimberlites) set amongst conductive sediments and / or overburden identified a
number of potential targets located outside Shore's core group of claims
GC#45523. A number of these targets may also be associated with small and
subtle magnetic anomalies which may also be sourced within the glacial cover
and/or the sedimentary sequence. This association with often very weak magnetic
anomalies gives the targets further credibility.
Shore continued diamond drill exploration in October-November 2004 with the
results of the GeoTEM survey assisting in the location of the drill holes. In
total, eight (8) vertical NQ diamond core drill holes totaling 1,737.35 metres
were drilled.
Based on the technical data and encouraging diamond results obtained to date
from its underground kimberlite bulk sampling program and diamond valuation, it
is Howe's opinion, that the Star Kimberlite project warrants additional work,
and Howe fully concurs with the 2005 exploration program that Shore plans to
execute.
Shore proposes to carry-out a pre-feasibility study of the Star Kimberlite in
order to determine the project viability under current economic conditions.
This will entail the collection of additional exploration information, such as
geological, geotechnical, geometallurgical, geochemical, assaying and other
relevant information to delineate and define the Star Kimberlite, with a
sufficient level of confidence, to estimate a Mineral Resource in accordance to
National Instrument 43-101 and Canadian Institute of Mining, Metallurgy and
Petroleum ("CIM") standards. The data collection, interpretation, modeling and
estimation will be done in a phased manner and will be continuously reviewed on
an ongoing basis as new information comes to light.
In order to estimate the Mineral Resource, underground drilling will be
undertaken to further define the geological characteristics of the Early Joli
Fou kimberlite. The underground drilling will be followed by additional
underground development to increase the total recovered carats from the early
Joli Fou kimberlite to at least 6,000 carats for increased confidence in the
value and grade.
Concurrently to the underground development, a surface diamond core drilling
and large diameter drilling program will be undertaken. The core drilling is
planned on a grid pattern to
-20-
delineate and define the Star Kimberlite in three dimensions and to establish
the geological continuity away from the existing shaft area. The drilling will
be phased with the first phase estimated to require up to 29,000 metres of core
drilling. Where the assessment of Phase 1 results indicates geological
complexity or lack of continuity, requiring additional information, in-fill
drilling will be done during a second phase.
Up to 17,000 metres of large diameter drilling ("LDD") is planned, concurrently
with the core drilling, to sample the kimberlite in a grid based, 3-D manner.
The LDD samples will be compared to the shaft and cross cut bulk samples, in
the same geological facies, to allow accurate grade estimation to take place
from the LDD mini bulk samples. The overall objective of the LDD campaign is to
establish the kimberlite grade in a 3-D spatial fashion away from the shaft
area.
Once the Mineral Resource has been estimated, qualifying factors such as the
proposed mining method, metallurgy, geotechnical, hydrological, environmental,
location, marketing, legal, revenue, costs, capital and social, will be used to
convert the economically mineable part of the Indicated or Measured Mineral
Resource to a Mineral Reserve as part of the pre-feasibility study.
The pre-feasibility study will include a financial and risk analysis and to
this end, a desktop engineering study and environmental baseline study will
commence shortly.
The cost for completing the proposed pre-feasibility study is estimated at $43
million and will take approximately three (3) years to complete (i.e. 2007).
Valuation
On February 23, 2005, Shore announced that a modeled value of US$135 per carat
had been determined from the 3,050 carat parcel of diamonds recovered from the
Star Kimberlite Property. On March 22, 2006, Shore announced that a modeled
value of US$173 per carat has been determined for a 1,992.6 carat parcel of
diamonds recovered from the Early Joli Fou Kimberlite Breccia. The average of
the valuations provided by the three companies for the total parcel was US$102
per carat and is based on the actual price that a producer would currently
receive for this parcel in Antwerp, Belgium. See "Recent Developments" below.
Recent Developments
On March 22, 2006, Shore announced that a modeled value of US$173 per carat has
been determined for a 1,992.6 carat parcel of diamonds recovered from the Early
Joli Fou Kimberlite Breccia which represents a significant lithology in the
Star Kimberlite. The modeled value was determined by WWW International Diamond
Consultants Limited (WWW), who together with their aboriginal partners ADG
through Diamonds International Canada (DICAN), are the valuators to the Federal
Government of Canada for the Canadian diamond mines in the NWT and Nunavut.
Shore commissioned a valuation study in February 2006 whereby a total parcel of
5,949.88 carats of diamonds from the Star Diamond Project was examined by three
companies: R. Steinmetz and Sons N.V., Rio Tinto Diamonds N.V. and WWW
International Diamond Consultants Limited. The average of the valuations
provided by the three companies for the total parcel was US$102 per carat and
is based on the actual price that a producer would currently receive for this
parcel in Antwerp, Belgium.
-21-
Underground bulk sampling and pre-feasibility study core drilling have
identified five principal kimberlite phases within the Star Kimberlite:
Cantuar, Pense, Early Joli Fou, Mid Joli Fou and Late Joli Fou. Exploration to
date indicates that the Early Joli Fou (EJF) Kimberlite is the dominant phase,
accounting for between 60 and 80 percent of the Star Kimberlite. The EJF
includes two dominant lithologies (sub-types): EJF-Pyroclastic Kimberlite and
EJF-Kimberlite Breccia, which occur as alternating units throughout the EJF.
Significant tonnages of both of these EJF lithologies have been collected as
part of the initial 25,000 tonne and pre-feasibility 15,000 tonne bulk samples.
WWW have estimated modeled values for the EJF-Kimberlite Breccia and
EJF-Pyroclastic Kimberlite, respectively. The EJF Total values are calculated
assuming that the EJF-Kimberlite Breccia accounts for approximately 30 percent
of the EJF which is consistent with detailed drilling results. The results are
as follows:
[Download Table]
--------------------------------- ----------- --------- ---------- ----------
Kimberlite Sub-Type Carats Model Minimum High
--------------------------------- ----------- --------- ---------- ----------
EJF-Kimberlite Breccia 1,992.60 US$173 US$147 US$218
--------------------------------- ----------- --------- ---------- ----------
EJF-Pyroclastic Kimberlite 2,999.08 US$112 US$95 US$133
--------------------------------- ----------- --------- ---------- ----------
EJF Total (70%EJF-PK & 30%EJF-KB) 4,991.68 US$130 US$111 US$159
--------------------------------- ----------- --------- ---------- ----------
The modeled value is determined using statistical methods to estimate the
average value of diamonds that will be recovered from potential future
production from the Star Kimberlite based on the valuation of the 5,949.88
carat parcel at current diamond prices. The difference between the actual
sample value and the modeled value results from under sampling of the top end
(plus 5 carat) of the diamond size frequency distribution by the current bulk
sample. The EJF Kimberlite Breccia modeled value of US$173 lies between a
"minimum" of US$147 and a "high" of US$218. Three of the six highest value
diamonds have been recovered from the EJF Kimberlite Breccia.
FALC JV Property (Diamonds)
Summary of Exploration and Evaluation of Fort a la Corne Kimberlite Field,
East-Central Saskatchewan
This Report updates the Technical Report dated September 8, 2005 entitled
"Summary of Exploration and Evaluation of Fort a la Corne Kimberlite Field,
East-Central Saskatchewan" prepared by Mr. Brent Jellicoe and filed on SEDAR on
September 22, 2005. The effective date of this report is November 9, 2005.
Summary of Exploration and Evaluation of Fort a la Corne Kimberlite Field,
East-Central Saskatchewan
The Fort a la Corne (FALC) Project is located in central Saskatchewan and is
contained within NTS map sheet 73H. The project is composed of legally surveyed
claim blocks covering much of the main trend of kimberlites with an area of
20,368 hectares that is located approximately 65 kilometres east of Prince
Albert and extending northward from the Saskatchewan River to a few kilometres
-22-
north of Shipman. An additional smaller claim (also legally surveyed) with an
area of 2,176 hectares covers magnetic anomalies near Snowden, located some 90
kilometres northeast of Prince Albert.
The Fort a la Corne Project is a Joint Venture (FALC JV) among Kensington
Resources Ltd., a wholly-owned subsidiary of Shore Gold Inc. (42.245%), De
Beers Canada Inc. (formerly Monopros Limited) (42.245%), Cameco Corporation
(5.51%) and UEM Inc. (10%). Cameco Corporation and Cogema Ltd. hold UEM's North
American interests. Neither UEM nor Cameco elected to fund exploration in 1999
or 2000, although Cameco did fund to their percentage interest in the FalC-JV
during subsequent programs. UEM retains a 10% free carried interest in the
project. Monopros Limited replaced Uranerz as operator of the FalC-JV in
December 1998. At the end of November 2002, participating interests (PI's) in
the FalC-JV were and remain as follows:
Kensington Resources Ltd. ................................42.245%
De Beers Canada Inc. (operator)...........................42.245%
Cameco Corporation.........................................5.510%
UEM Inc. (carried)........................................10.000%
The Fort a la Corne Project consists of 52 drill-confirmed kimberlite bodies
located in the main northwesterly trend with an additional 11 drill-confirmed
kimberlites in a satellite cluster located 25 kilometres to the northeast. The
Fort a la Corne kimberlite field is distinctive in that it contains many of the
world's largest kimberlite bodies that have been remarkably well-preserved
since emplacement during Cretaceous time some 100 million years ago. The
kimberlite bodies range in size from 3 to >250 hectares with early estimates of
individual mass as high as 675 million tonnes. In excess of 349 drillholes have
either penetrated kimberlite or have been terminated above a reasonable
expectation of kimberlite. In general, the kimberlites are composed of crater
facies, volcaniclastic Type 1 kimberlite with irregular "champagne-glass" to
disc-shaped forms, typically described as thicker in the middle and attenuating
towards the margins. The areal outlines and estimated masses of the kimberlites
are based on geophysical modeling of ground magnetic data and drillhole
intersections based on an outside 30 metre thickness cut-off. The architecture
of the kimberlite bodies ranges from simple to complex in terms of number of
discrete units or layers and occurrence and coalescence of proximal eruptive
centres. The overall horizontal to sub-horizontal attitude of the kimberlite
units changes with proximity to eruptive centres where more vertical kimberlite
phase relationships are present. FALC kimberlites are overlain by an average of
100 metres of overburden including glacial deposits and ancient shaly
mudstones. Kimberlite bodies range in thickness from a few centimetres to
quasi-tabular lenses up to 200 metres thick. Occasionally, intervals of
kimberlite from 300 to 600 metres thick have been intersected by drillholes
located near, or within, the vertically-oriented feeder vents of the body.
Some targets have become the focus of more detailed exploratory and evaluation
work during the life of the project (e.g., kimberlite bodies 120, 122, 140,
141, 145, 148, 169). Throughout the project, various drilling methods ranging
from small diameter core to large diameter reverse circulation drilling have
been utilized, while sampling protocols have evolved from single sample per
drillhole to interval testing with resolution as fine as several metres. In
addition to testing for diamond content, a series of geophysical surveys,
geochemical, and petrologic studies have contributed to understanding the
architecture and emplacement history of the kimberlites.
Typically, diamonds are distributed sporadically throughout a kimberlite body
or specific layer. Not all bodies or layers are mineralized as this depends on
several factors including source rock and emplacement history of the
kimberlite. Diamond recovery from FALC kimberlite samples show 70% of the
kimberlites are diamond-bearing, and 50% are macrodiamond-bearing (based on
recovery of stones >0.85 millimetres in one dimension). These figures indicate
Fort a la Corne to be the largest macrodiamond-bearing kimberlite field in the
world. This is a result of natural processes inherent to volcanic eruptions and
the occurrence of mixing and homogenization of the erupting magma or
volcaniclastic material. Diamonds are not usually localized unless there has
been post-eruptive resedimentation and sorting of the kimberlite.
-23-
In general, the project objective is to delineate mineable diamond resources
from high-priority kimberlite bodies in a methodical and step-wise approach.
All exploration efforts during 1989-1999 contributed to characterizing the
size, shape, internal structure and diamond content of the kimberlites. This
work provided the basis of which key targets could be identified for continued
work towards proving an economic resource. At the beginning of 2000, the De
Beers' Mineral Resource Evaluation Department (MINRED) reviewed all available
macrodiamond and microdiamond data and re-prioritized the kimberlites. Priority
targets 122 and 141 were selected for bulk sampling by large-diameter (24-inch)
reverse circulation drilling in the 2000 program. Results included the recovery
of 212 macrodiamonds from body 122, while body 141 yielded 275 macrodiamonds.
De Beers employed a statistical treatment of the results from the samples to
estimate macrodiamond grades (using a one millimetre cutoff size) between 8 and
13 carats per 100 tonne (cpht) for body 122, and 19 cpht for body 141. In
addition, the 2000 drill program recovered sufficient stones to permit
preliminary revenue modeling. Modeled dollar per carat values take into account
the expected diamond size distribution from any potential, future production
scenario. Modeled in situ value estimates were expressed by utilizing
conservative, best fit and optimistic models. Values ranged from $US 90/carat
to $US 178/carat (>1.5 millimetres) corresponding to in situ gross value
estimates from $US 16/tonne to $US 32/tonne for the 141 body. Similar modeling
for stones greater than 1.5 millimetres for 122 yielded model values between
$US 144 and 147/carat with gross value estimates between $US 11 and 18/tonne.
Encouraged by the results from the 2000 program, the FALC-JV approved a $4.79
million, two phase 2001 program with the main goal of obtaining additional
carats from body 141 to improve confidence in average diamond value modeling.
In 2001, 16 core holes and 10 24-inch large diameter holes (LDD) (nine in body
141 and one in body 150) were completed. A total of 890 theoretical tonnes of
kimberlite were sampled by the large diameter rig. Results from the 2001
sampling program recovered an additional 45.6 carats of diamonds including a
3.335 carat stone. Based on this additional sample set, modeled grade estimated
for the 141 kimberlite were recast and ranged from 5 to 12 cpht (>1.5
millimetres). Actual average parcel diamond values for the 2001 stones were
posted at $US 52.60/carat, reflecting a substantial increase from $US
33.67/carat for the 2000 stones. Based on the additional diamonds recovered
from the 2001 program and the recognition of multiple-kimberlite phases within
kimberlite bodies an updated modeled revenue curve and diamond size
distribution for 140/141 was developed. This, in turn, yielded updated dollar
per carat value estimates. This gave modeled values for macrodiamonds from 141
that ranged from $US 20 to $US 220/carat. Consequently, ore value estimates
were updated at a range between $US 1 and $US 26/tonne.
Valuation of the 2000/2001 diamonds was conducted during November 2002 by WWW
International Diamond Consultants Ltd. (WWW). WWW indicated an overall average
value based on its open market price book some 15-20% higher than that listed
by De Beers for the same diamond parcels. The De Beers valuations were made
utilizing the Diamond Trading Company (DTC, the diamond marketing company of De
Beers) June 2002 price book. The single large stone measuring 3.335 carats was
given a value of $US 450/carat, compared to $US 390/carat attributed by De
Beers. WWW also pointed out the technical difficulties of putting a realistic
market value on a relatively small geological sample.
Detailed core logging of the 140/141 kimberlite revealed distinct kimberlite
units or phases, the recognition of which has aided in the appreciation of
variable diamond recoveries throughout boreholes. Accordingly, the 2002 program
involved drilling 25 NQ core holes to develop a better understanding of the
kimberlite geology. Based on this improved understanding, eight large diameter
mini-bulk drill holes were completed to provide additional carats to increase
confidence in grade forecasts, valuation and revenue modeling. Three 36-inch
LDDH holes were drilled in close-proximity in the 141 portion of the body where
higher stone recoveries were expected. Five 24-inch LDDH holes were drilled in
poorly sampled portions of the kimberlite, mostly in the 140 portion of the
complex.
-24-
Results from the 2002 LDD mini-bulk sampling of the 140/141 kimberlite complex
included a total of 669 diamonds recovered from a sieve size of 1.5
millimetres. The stones had an aggregate weight of 93.76 carats. Importantly,
the 24-inch LDDH holes recovered a number of large stones from the 140 portion
of the kimberlite. These stones included a 10.23 carat stone with two
dimensions of 14 and 10.5 millimetres along with stones weighing 3.61, 2.59,
2.57, and 1.82 carats. Breakdown of the kimberlite into phases revealed
discrete differences in grade. Grades from a `mega-graded bed' unit from the
141 body, sampled by three closely spaced 36-inch diameter LDD drill holes, had
a consistent recovered grade of about 6.6 cpht. In contrast, a distinctive
breccia phase intersected in two drill holes in the 140 portion of the 140/141
complex had recovered grades of 9.5 and 17.0 cpht respectfully, with an
increase in the proportion of larger diamonds compared to the other phases.
The average borehole sample grades ranged from 2.86-17.03 cpht, while grade
forecasts based on statistical extrapolation of combined micro- and
macrodiamond recoveries show a range of averages per kimberlite phase from 5 to
15 cpht. Corresponding modeled value figures derived from average grades and
actual values ranged from $US 67 to $US 97/carat. The kimberlite breccia phase
which had only been intersected in two 24-inch LDD drill holes in 2002, and
thus has a relatively small sample size, had the highest modeled grades of 15
cpht and a modeled value of $US 97/carat.
A considerable expansion of exploratory work was implemented in 2003 with the
drilling of 49 HQ coreholes (diameter of 2.5-inchs or 63.5 millimetres) over
four different bodies. The southern and western parts of 140/141 were targeted
with 10 coreholes to test kimberlite phases with perceived higher grades. The
remainder of the program drilling was divided between kimberlites 122, 148, and
150. In each body the core was logged in detail to identify discrete phases and
contacts to guide sampling for diamond recovery using caustic dissolution
methods. Diamond recoveries for kimberlites 148, 140/141, and 122 totaled 3,545
stones (2,059, 1,159, and 327, respectively). Diamond abundances for 148 and
140/141 were both exceptionally high compared to historical results for those
bodies, and for the kimberlite field as a whole. In addition to caustic
recoveries, a single white, clear 0.77 carat octahedroid macrodiamond was
encountered while splitting core from the top of kimberlite in drillhole
140-34. This stone was not incorporated in the stone counts or dataset utilized
for grade forecasts. Rather it stands alone as further proof for the large
stone potential of the 140/141 kimberlite.
In June of 2004 the FALC-JV had a significant revision to its strategy of
investigating the Fort a la Corne kimberlites. In the past, programs focused on
assessing individual kimberlites as a whole. This approach eventually led to
the recognition of discrete phases within the kimberlites having higher-grade
and value potential. To this end, the new strategy considers the economic
potential of combined resources within higher-grade units within closely spaced
kimberlites.
Exploratory work was implemented in 2004 with the drilling of 39 HQ coreholes
over six different bodies and five geophysical anomalies. Microdiamond
recoveries from the six targeted kimberlites included some of the highest stone
counts (stone/10 kilograms) recovered from the Fort a la Corne kimberlites. In
each body the core was logged in detail to identify discrete phases and
contacts to guide sampling for microdiamond recovery using caustic dissolution
methods. Eight coreholes on 120 provided a total of 962 microdiamonds which
were recovered from 643.4 kilograms of kimberlite core, while eight coreholes
completed on 147 produced a total of 2,429 microdiamonds from 515.20 kilograms
of core. Five coreholes on 121 revealed 326 microdiamonds from 295.25 kilograms
of core, with three coreholes on 221 providing 168 microdiamonds from 195.08
kilograms of core. Four HQ coreholes (04-140-41, 42, 43, 50) were completed on
the 140 portion of the 140/141 kimberlite in order to provide geological
control for five large diameter drillholes completed in the south central
portion of the 140/141 kimberlite body testing the diamond potential of an
oscillating kimberlite breccia unit. A total of 658 microdiamonds were
recovered from 496 kilograms of core. Similar to 2003 results, the "breccia
beds" yielded the better stone abundances. Four HQ coreholes were completed on
122 in order to provide geological control for five large-diameter drillholes
completed in the south central portion of the 122 kimberlite body. Sampling of
the 2004 pilot holes resulted in the recovery of 212 microdiamonds from 309.44
kilograms of kimberlite.
-25-
The average microdiamond abundance for all 122 samples from 2004 is 6.9 stones
per 10 kilograms. Selected 2003 coreholes were re-sampled to provide additional
material for diamond recoveries utilizing caustic dissolution methods.
Additional kimberlite samples totaling 464 kilograms from eight 2003 coreholes
located across the body were submitted for diamond recovery utilizing caustic
dissolution methods. A total of 269 additional microdiamonds were recovered for
use in grade forecasting of specific kimberlite zones.
Five geophysical anomalies were tested with the objective of identifying new,
low to non-magnetic kimberlite bodies in the Fort a la Corne area. Kimberlite
was not intersected in most of the holes targeted on the anomalies, although
approximately 27 metres of kimberlite was intersected in a subtle magnetic
anomaly located directly north of Kimberlite 147. More work is required on
integration and modeling of geophysical survey data.
As part of the 2004 program, five large diameter mini-bulk sampling holes were
targeted on the south part of Kimberlite 122 (MPK - South Kimberlite Unit) in
order to expand the parcel of diamonds from this body so that confidence levels
in grade and revenue estimates could be increased. The total estimated mass of
kimberlite excavated from body 122 was 739.2 tonnes, of which 318.1 tonnes of
material greater than 1.5 millimetres in size was retained for macrodiamond
recoveries. All five drillholes primarily sampled the main, massive to bedded
pyroclastic kimberlite unit (MPK). A total of 248 macrodiamonds weighing 28.81
carats, including 23 stones larger than 0.25 carats, were recovered from three
36-inch (914 millimetres) diameter drillholes (two holes failed before reaching
kimberlite). The recovery of many stones larger than 0.25 carats plus two
larger than one carat supports the model of a larger stone population in 122.
Five LDD mini-bulk sampling holes were targeted on the oscillating breccia beds
unit located in the south part of 140/141 in order to expand the parcel of
diamonds from this body so that confidence levels in grade and revenue
estimates could be increased. The total estimated mass of kimberlite excavated
from body 140/141 in 2004 was 792.216 tonnes, of which 494.066 tonnes of
material greater than 1.5 millimetres in size was retained for macrodiamond
recoveries. All five drillholes primarily sampled the oscillating pyroclastic
breccia group (OPKBGP). Total macrodiamond recovery was 553 stones with a
combined weight of 83.20 carats. Individual sample grades ranged from 1.68 cpht
to 69.15 cpht, the latter grade being markedly influenced by recovery of the
10.23 carat stone. Drillhole grades range from 7.05 to 12.20 cpht. Two large
macrodiamonds weighing 10.53 carats and a 4.09 carats and 58 other stones
larger than 0.25 carats were added to the inventory of large macrodiamonds
recovered from the 140/141 breccia beds during the 2004 program. These larger
stones and historical recoveries including diamonds weighing: 1.0, 1.16, 1.18,
1.26, 1.32, 1.39, 1.48, 1.5, 1.8, 2.57, 2.59, and 3.61 carats contribute
significantly to the evidence supporting a large stone distribution in the
oscillating breccia unit.
Also in 2004, the FALC-JV released a preliminary summary of information from a
detailed MRM report (De Beers' Mineral Resource Management Department) based on
geological modeling and grade forecasting for kimberlites 140/141, 148 and 122.
Taken as a whole the high-interest zones in these three kimberlite have an
average grade of 10 cpht (>1.5 millimetres) and an estimated tonnage of 369
million tonnes. In detail, the combined units of higher interest in 140/141
have an estimated mass of 134 million tonnes at a modeled average grade of 11
cpht with an estimated average value of US$ 115/carat. Likewise, the higher
grade part of 122 has a combined tonnage of 79 million tonnes at an average
grade of 13 cpht.
Consideration of the longer term view for the Fort a la Corne Project has
provided the Joint Venture Partners with a clear perspective on the way
forward. Predicted supply, demand, and price trends for rough diamonds into the
next decade provide a rationale for accelerating the present rate of work on
the project in order to be well positioned with respect to the favourable
forecasts. In late 2004, an overview perspective of the Fort a la Corne
Project, from present day to an assumed eventual mining operation, was examined
and a time-line developed. The current phase of the project was denoted as the
Advanced Exploration and Evaluation Study (AE&E) and was estimated to require
three years in order to complete. The overall time-line for the Fort a la Corne
Project is considered to be aggressive, being driven by the
-26-
need to favourably position the commencement of mining operations in relation
to the long term rough diamond supply and demand predictions. A 2005 budget of
CDN$25.6M applies to the period from 22 February 2005 to 15 December 2005.
Results from the historical programs have shown that the Fort a la Corne
kimberlites contain higher-grade zones. As such, it is possible that
higher-grade units from a number of kimberlites, when considered collectively,
may form a resource which can be profitably mined. At present, some 35 million
carats distributed over 369 tonnes and three different kimberlites have been
identified at a deposit level of confidence. The project strategy has now been
revised to focus on the higher-grade units within proximally-located priority
kimberlite bodies and to consider them in combination. This approach has the
advantage of considerably increasing the size of the potential resource and may
permit significant economy of scale to be achieved for a large scale mining
operation.
The AE&E Program scope of work includes the following lines of investigation:
o Project Administration
o Resource (drilling and sampling program)
o Geotechnical/Geohydrological
o Mining
o Metallurgy
o Infrastructure
o Waste Management
o Socio-Economic
o Environmental & Permitting
o Government Liaison.
In general, the geological drilling program will be complete in 2005 and
delineation drilling will begin late in 2005. To support this, the bulk of
geotechnical and geohydrology work will be done in 2005.
Delineation drilling, mini-bulk and supplemental bulk sampling will follow in
years 2006 through early 2008. Geological and delineation drilling will provide
geological models and microdiamond data for the targeted kimberlites. These
results will be compared against the criteria established in the revised
conceptual study, following which a decision to proceed will be taken. In the
mini-bulk and supplemental large diameter drillhole (LDD) programs, samples
will be treated and diamonds recovered and valued. The geological model will be
updated at the end of each component of work. An MRM report will first be
prepared based on the geological drilling results, then updated as new data
become available throughout the rest of the drill program.
Alongside the resource drilling program, both geotechnical domain and physical
properties models will be developed and mine geotechnical criteria prepared.
Work is planned to construct both geohydrology and water chemistry models, as
well as perform geohydrology pumps tests to finalize the geohydrology criteria
and prepare preliminary dewatering criteria. The majority of this work is
planned to be undertaken once the initial geological and delineation drilling
programs have identified the priority targets to advance through to the
components of the AE&E.
The AE&E Plan seeks to delineate a total of at least 70 million carats in the
ground from the higher-grade units within the larger kimberlites (greater than
20 hectares) in the south-central cluster. Twenty primary kimberlite targets
have been identified to date, most within a radius of five kilometres in the
southern cluster of kimberlites. Four of the twenty targets were investigated
by evaluation and delineation drilling programs during 2000-2003, namely
kimberlites 122, 140/141, 148 and 150. One of the four, kimberlite 150, was
determined to be of no further interest. Two kimberlites, 122 and 140/141, were
determined to be of significant interest, and mini-bulk sampling was conducted
on them as part of the 2004 Exploration Program. Three more bodies including
120, 147 and 121/221 were drilled in the 2004 work program. The
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remaining bodies of interest are in the process of being tested with up to 10
coreholes each to determine the existence of higher-grade units.
A notable and relevant aspect of diamond resource evaluation at Fort a la Corne
is that most historical microdiamond recovery, all current macrodiamond
recovery, and all diamond content interpretation is conducted by De Beers or
corporate affiliates/subsidiaries of De Beers Consolidated Mines Limited of
South Africa. De Beers is the operator of the project and a senior
participating partner of the FALC-JV Project. Hence, all analytical work,
diamond recovery, and interpretive diamond evaluation is done "within arm's
reach", although Kensington Resources Ltd. frequently monitors, audits, and
reviews procedures and results utilizing both affiliated and independent
consultants.
The following points represent the major conclusions from exploration and
evaluation work conducted since 1989. The author considers the facts and
information contained herein to be accurate, representative, and complete. In
light of the status of this project - that there is no properly defined
Inferred Resource or better - most of the conclusions given below are factual
in nature and there is a minimum of purely interpretative or speculative
opinions. Rather, the opinions of the author are embodied within the project
and program recommendations that follow this section.
o 49 of the 69 tested (71%) bodies are diamondiferous (microdiamonds or
macrodiamonds).
o 34 of the 69 (49%) kimberlites tested contain macrodiamonds. This
frequency is exceptional compared to other kimberlite fields.
o A total of 2,774 macrodiamonds (minimum size of 0.85 millimetres in one
dimension) with a cumulative weight of 347.45 carats were recovered
during exploration programs conducted from 1989 to 2004; over 10,000
microdiamonds have been recovered from all kimberlites to mid 2005.
o Kimberlite body grades based on macrodiamond recovery alone range up to
7.7 cpht; these values are considered to be significantly understated due
to the limited amount of minibulk sample from each body.
o Grade estimates for individual bulk samples range up to 114.44 cpht;
sample intervals range from 12 to 194 metres.
o Grades forecasts for commercial size stones modeled by De Beers range up
to 16 cpht based on size distributions of combined microdiamonds and
macrodiamonds. A total of 17 kimberlite bodies with sufficient diamond
recoveries were prioritized in 2000. The best five of these bodies have
been the target of various stages of advanced exploration efforts during
the last 5 years, and 17 bodies within the south central cluster are
currently under investigation in the first phase of the AE&E program.
o Ongoing acquisition of large minibulk samples from prioritized bodies
permits preliminary revenue modeling and evaluation of the economic
potential of select Fort a la Corne diamondiferous kimberlites.
o Modeled average macrodiamond values determined by De Beers for kimberlite
ore from Kimberlite 122 range from $US 133 to 147 per carat; best fit to
optimistic modeled revenue values range from $US 11 to 18 per tonne.
These grades, values, and revenue figures are based on recovery of
approximately 23.3 carats from the 122 body to date.
o Based on 2000 data only, modeled average macrodiamond values determined
by De Beers for kimberlite ore from body 141 ranged from $US 148 to 179
per carat; best fit to optimistic modeled revenue values range from $US
28 to 33 per tonne. Modeled stone values and projected revenue ranges for
Kimberlites 122 and 141 have low confidence levels because of
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low numbers of diamonds included in the evaluation.
o The largest stone recovered to date is a high value, yellow, stone
weighing 10.53 carats; another high value diamond weighs 3.34 carats and
has a value of $US 580/carat as determined by De Beers and WWW
International Diamond Consultants Ltd.; other large stones recovered
include ones weighing 10.23, 4.09, and 3.61 carats in size.
o Interpretation of 2001 to 2002 data indicates that grades for specific
parts of the 141 body are variable depending on diamond distribution and
continuity of lithological facies, and that a greater degree of testing
is required to substantiate grade forecasts over the entire body, and to
permit higher levels of confidence in calculation of average of diamond
value; evaluation of small parcels of commercial-size stones shows
preliminary indications (considered low confidence until larger parcels
are evaluated) that the average value of diamonds from Kimberlite 140/141
range from $US 67 to 97 per carat and modeled revenue figures range up to
$US 14.65 per tonne depending on the phase (or type) of kimberlite.
Further work is ongoing to delineate all discrete kimberlite phases in
this body and to model estimated stone distributions and revenue per
tonne.
o Kimberlite body areas range from 2.7 to 250 hectares, typically based on
a 30 metre thickness cut-off.
o The estimated mass of individual kimberlite bodies, based on geophysical
modeling, ranges from 3 million to 675 million tonnes. The integration of
140 and 141 indicates a combined mass of 500+ million tonnes as derived
from GEMCOM 3D digital modeling based on core drilling in 2001 and 2002
with a minimum thickness threshold of 50 metres.
o Age of emplacement of the various kimberlites occurred within the
interval from approximately 90-112 Ma, during Cretaceous time. The
kimberlites range from simple mono-eruptive bodies to multi-eruptive,
multi-vent bodies characterized by complex stacking and interlayering of
multi-temporal kimberlite units. Ongoing studies of larger bodies
indicate discernible vertical and geographic (areal) zonation of
kimberlite units and diamond distribution.
o Two of four high priority, potentially economic kimberlites (bodies
140/141, and 148,) are located within a two mile radius in the central
portion of the Fort a la Corne trend; the total macro-diamondiferous
kimberlite mass in this same radius (12 bodies), is some 3.6 billion
tonnes. The other prioritized kimberlite, body 122, is located
approximately five kilometres to the west.
o The Fort a la Corne Kimberlite Field has the largest concentration of
diamondiferous kimberlite in the world; the total modeled mass for the
entire field is estimated at upwards of 9 billion tonnes. Kimberlite
140/141, with an estimated mass of >500 million tonnes, is the largest
macrodiamond-bearing kimberlite in the world.
o Fort a la Corne kimberlites are best categorized as very large tonnage,
lower grade diamond deposits overall, but with zones of higher grade
potential.
o Overall, the kimberlites remain insufficiently tested in consideration of
their large size. Only three bodies have minibulk testing for
macrodiamonds to a level greater than 100 tonnes. Considerable effort was
expended and significant costs were incurred simply to reconnoiter the
majority of kimberlite bodies in this field during the first 10 years of
the project. Since most of the minibulk sampling efforts in the past were
directed to testing to some degree, each of the 69 targets, many of the
larger bodies have very limited coverage in an areal sense. Furthermore,
vertical zonation has not been adequately tested in most of the existing
drillholes due to large sampling intervals. Due to the prevalence of the
"nugget effect" in kimberlites, average macrodiamond grades are expected
to closely approach forecasted grade levels as sample tonnage increases.
-29-
o Evaluation work continues on Kimberlites 140/141, 122, and other high
interest bodies in order to better understand the location, extent and,
continuity of high grade zones, to determine an understanding of diamond
distribution and diamond grade for mineable resources, to upgrade
confidence in determination of the average value of diamonds (in $/carat)
and, to determine the economic value of the body as represented by
potential revenue calculations for a diamond deposit given as an in-situ
diamond value in $ per tonne (as per CIM recommendations) compared to
best initial estimates of capital and operating expenses.
o The current components of drilling and sampling within the AE&E Plan
involves core drilling programs on the main part of the bodies to
increase the understanding of the geology (geometry and architecture) of
the body and to identify higher potential zones. Higher grade zones are
then delineated in order to calculate a potentially mineable tonnage.
This is then followed by identifying a subset of coreholes that are
suitable targets for minibulk sampling in order to test diamond
distribution and to provide a representative sample of kimberlites from
all prospective phases and across the vertical and areal extent of the
kimberlite bodies. A final inventory of some 100 to 300 carats will
enable determination of a high confidence grade forecast and a moderate
level of confidence in the average value of commercial sized stones. The
bulk sample information coupled with the grid drilling and sampling
information should be adequate for at least a determination of inferred
resource over a significant part of the bodies. All lines of
investigation from the AE&E will then be integrated and evaluated in
order to prioritize the potentially economic targets and to reach a
decision as to whether or not to proceed with a full pre-feasibility
study as the next phase of work.
o Additional work is required to satisfy two main goals for each of the
priority kimberlite bodies. The AE&E encompasses a planned 43 months
schedule of work to advance the project to a major decision on
pre-feasibility stage work. The plan is results driven and incorporates a
methodical, step-wise approach in the evaluation of 17 candidate
kimberlite bodies for higher-grade units that have potential to be
economically mined. The overall goal of the plan is to identify at least
70 million carats of commercial-sized stones in-ground in order to reach
a critical decision based on delineation of Inferred Resources on several
kimberlite bodies by 2008. The AE&E plan identified firm objectives and
schedules to reach this goal.
o The main objective for Kensington in this project is to delineate an
economic diamond resource at Fort a la Corne using a methodical stepwise
approach.
On the basis of the information herein and the experience and expertise of the
author, the following recommendations for the Fort a la Corne Diamond Project
are made to the owners and management of Kensington Resources Ltd.:
o The Fort a la Corne Diamond Field has shown strong, incontrovertible
evidence supporting the presence of kimberlite bodies hosting potentially
economic diamond mineralization. Furthermore, prospective kimberlites are
characterized by high average diamond values, very large tonnages, and
the presence of coarse diamond populations. The information to date
definitely indicates the need for substantial exploration and evaluation
work to delineate the extent, magnitude of tonnage, grade, value, and
mining potential of prospective kimberlite bodies and zones in the
south-central part of the main kimberlite trend.
o The FalC Diamond Project should proceed according to the AE&E Plan as
outlined in the FalC Technical Report (and other more specific documents
detailing the plan), but with the following modifications:
o The time line for the plan should be accelerated wherever
possible, while maintaining the integrity of the data and
information collection, to define an Inferred Resource on the
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property and to reach a decision point for pre-feasibility stage
activities. Acceleration of the program could come about by
increasing the magnitude of field operations and work force
engaged in core description, sampling, assay, and data
management. Acceleration also could come about by significantly
overlapping the four components of field activities (core
drilling and mini-bulk sampling) and not relying on an inflexible
step-wise approach that relies on completion of each component
before starting the next. The current situation at FalC is
amenable to this because several high-priority kimberlite bodies
are at more advanced stages of evaluation and that the plan is
operated on a "best bodies first" basis.
o Bulk Sampling should be added to the AE&E Plan as part of the
continuum of evaluation required take prospective bodies or high
grade zones to a Feasibility-stage decision. Similarly to the
point made above, suitably prospective bodies could be advanced
to bulk sampling while core drilling and mini-bulk sampling are
underway on neighbouring bodies.
o The postulated total FalC-JV budget of CND $91,347,436 for the AE&E
program activities as defined by De Beers, the project operator, for the
time period from February 2005 through the second quarter of 2008 should
be accepted as a reasonable expenditure dedicated to defining a NI 43-101
compliant Inferred Resource at Fort a la Corne. Kensington's share of
this expenditure would be CND $46,792,758 (46.94% funding interest).
Reports and diamond results received from De Beers for the project are reviewed
and utilized by Shore Gold Inc. under the supervision of Brent C. Jellicoe,
P.Geo., who is the recognized Qualified Person for the Company in regard to
this project.
Recent Developments
On March 15, 2006 Shore announced the commencement of core drilling on the
western part of the Star Kimberlite (Star West Project), within the FALC JV
claims. A drill contract has been executed between Encore Coring and Drilling
Inc. of Calgary and De Beers on behalf of the FALC JV for this core drilling
program. This drill program will be completed to the same specification with,
PQ core (75 millimetre diameter) drilled on a complementary grid pattern to
that completed as part of the pre-feasibility study on the Star Kimberlite
utilising petroleum drill rigs that have been modified to drill kimberlite.
Shore geologists will have full access to the core in order to accurately apply
the same quantitative logging methods to this FALC JV kimberlite as are used on
the Star Diamond Project. Downhole geophysical logging will be completed on all
core holes and geotechnical measurements will be made on core samples. Whole
rock geochemistry samples will be collected from all kimberlite types
represented within each core. These geochemistry samples play a pivotal role in
the definitive identification of the five principal kimberlite eruptive phases
seen in the Star Kimberlite, namely: Cantuar, Pense, Early, Mid and Late Joli
Fou. Ore dressing test work will be conducted on selected boreholes and core in
the same manner and laboratory as was used on the Star Diamond Project. The aim
of the core drilling is to define the volume and map the internal structure of
the kimberlite within the Star West Project. The full extent and budget for the
2006 FALC-JV exploration program is still to be finalized between the Joint
Venture partners.
DIVIDENDS
The Company has not declared a dividend in the past 3 years other than the
dividend-in-kind associated with the transfer of the Company's gold property
holdings to Wescan whereby the Company distributed one Wescan share for every
10 Shore shares held by qualifying shareholders of
-31-
record on September 10, 2004. A number of Shore shareholders either did not
elect to receive or did not qualify under existing regulations to receive a
dividend-in-kind and received a cash dividend instead. This resulted in the
Company issuing a cash dividend to those shareholders equal to $0.10 for every
ten share of Shore held for a total cash dividend of $192,080. Until such time
as the Company begins to generate revenues and income, the Company does not
anticipate declaring any further dividends. Complete details of the dividend in
kind are available for viewing at www.sedar.com in Wescan's Long Form
Prospectus dated August 30, 2004.
CAPITAL STRUCTURE
The authorized share capital of the Company consists of an unlimited number of
common shares. The common shares of the Company are entitled to dividends pro
rata as and when declared by the Board of Directors; to one vote per share at
meetings of the shareholders of Shore Gold Inc. and, upon dissolution or any
other distribution of assets, to receive pro rata such assets of the Company as
are distributable to the holders of common shares.
MARKET FOR SECURITIES
Trading Price and Volume
The Company's common shares commenced trading on the TSX on November 26, 2004
under the trading symbol "SGF". Prior thereto, the Company's common shares were
traded on the TSX Venture Exchange. The price range and volume for the months
January to December 2005 inclusive are as follows. Specifically:
------------------------- -------------------- --------------------
Month Price Range Volume
Low - High
------------------------- -------------------- --------------------
January $2.71-3.70 14,181,200
------------------------- -------------------- --------------------
February 3.14-6.15 29,823,100
------------------------- -------------------- --------------------
March 4.73-7.50 29,126,200
------------------------- -------------------- --------------------
April 3.80-5.80 8,825,700
------------------------- -------------------- --------------------
May 3.95-5.25 6,183,600
------------------------- -------------------- --------------------
June 4.35-5.22 4,048,400
------------------------- -------------------- --------------------
July 4.40-5.00 2,335,300
------------------------- -------------------- --------------------
August 4.45-5.72 9,329,100
------------------------- -------------------- --------------------
September 4.86-6.85 10,427,300
------------------------- -------------------- --------------------
October 6.00-7.47 12,919,400
------------------------- -------------------- --------------------
November 6.52-7.75 21,941,100
------------------------- -------------------- --------------------
December 6.84-8.35 19,386,300
------------------------- -------------------- --------------------
DIRECTORS & OFFICERS
The following table sets forth the names of the directors and officers of the
Company together with their respective province and country of residence,
position held, number of common shares beneficially owned, date of appointment
and principal occupations during the five preceding years.
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[Enlarge/Download Table]
Common
Shares
Name and Place of Principal Occupation or Beneficially Date of
Residence Office Held Employment for last 5 years Owned Appointment
-------------------- ---------------- ---------------------------- ------------- -------------------
Kenneth E. MacNeill Chief Executive CEO and President of Shore 2,543,722 (5) CEO & Director - June
Saskatchewan, Officer, Gold Inc.; CEO of Wescan 30, 1993. President -
Canada President and a Goldfields Inc. (a base and September 11, 2003.
Director precious metals exploration
company); and President of
MacNeill Brothers Oil & Gas
Ltd. (a private holding
company).
Harvey J. Bay Chief Operating CFO of Shore Gold Inc. since 100,000 CFO - November 4,
Saskatchewan, Officer, Chief November 4, 2002; COO of 2002. Director - May
Canada Financial Shore Gold Inc. CFO of 15, 2003. COO - March
Officer and a Wescan Goldfields Inc. (a 15, 2006
Director base and precious metals
exploration company) since
April 2, 2004; President of
Baywatch Industries Inc. (a
private holding company).
George H. Read Senior Vice Geological Consultant - Nil September 11, 2003.
British Columbia, President- January 1998 to March 1999;
Canada Exploration Project Manager -
SouthernEra Resources
Limited from April 1999 to
January 2000; VP-Exploration
- Canabrava Diamond
Corporation from February
2001 to May 2002; President
- Canabrava Diamond
Corporation from June 2002
to August 2003 and VP -
Exploration for Shore Gold
Inc. from September 2003 to
present.
Pieter Du Plessis Vice Geological Consultant Jan Nil March 15, 2006
Saskatchewan, President- 2005 to present- Previously
Canada Exploration employed by De Beers for
fifteen years on diamond
exploration and mining
projects in Botswana and
Namibia. His last position
with De Beers was Mineral
Resources Manager at Jwaneng
Diamond Mine- responsible
for production control in
addition to all geological,
geotechnical, hydrological,
mine survey and mineral
resource integration work
completed at Jwaneng.
George Sanders Vice Registered Representative - 5,000 September 11, 2003.
British Columbia, President-Corporate Canaccord Capital Corp. (an
Canada Development investment dealer) from July
1997 to May 2001;
Exploration/Financial
Consultant from May 2001 to
present, VP - Corporate
Development for Shore Gold
Inc. from September 2003 to
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[Enlarge/Download Table]
Common
Shares
Name and Place of Principal Occupation or Beneficially Date of
Residence Office Held Employment for last 5 years Owned Appointment
-------------------- ---------------- ---------------------------- ------------- -------------------
present and President of
Wescan Goldfields Inc. (a
base and precious metals
exploration company) since
April 2, 2004.
Ronald G. Walker (3)(4) Director President, Great Canadian Nil December 15, 1994.
British Columbia, Dollar Store Franchising
Canada Ltd. (a franchiser of retail
stores)
A. Neil McMillan (2) Director CEO of Claude Resources Inc. 124,855 (6) June 18, 2003
Saskatchewan, since March 2004 and
Canada President of Claude
Resources Inc. (a gold
mining and exploration
company)
Arnie E. Hillier (2)(3)(4) Director Retired since February 2004. 40,000 June 18, 2003
Saskatchewan, CEO & CFO of Claude
Canada Resources Inc.
Robert A. McCallum(4) Director Former President & CEO of 88,800 October 28, 2005
British Kensington Resources Ltd.
Columbia, Professional consulting
Canada engineer and President of
Robert A. McCallum Inc. from
1999 to present; Director of
Miramar Mining Corporation
from 1999 to 2002.
James Rothwell(2) Director, Former Chairman & 103,066 October 28, 2005
Washington, Chairman non-executive Director of
United States of Kensington Resources Ltd.
America Corporate Director,
President and CEO of Dia Met
Minerals Ltd. From 2000 to
2001; President of BHP
Diamonds, Inc. from 1997 to
2000.
W.E. Stanley(3) Director Former Director of 10,000 October 28, 2005
British Columbia, Kensington Resources Ltd.;
Canada Retired mining engineer and
industry consultant. Adjunct
Professor at the University
of British Columbia
Department of Mining and
Mineral Process Engineering
from 1999 to present;
Director of Miramar Mining
Corporation from 1995 to
present.
Garnet M. Schulhauser Secretary Partner, Bennett Jones LLP 40,000 January 7, 2004
Alberta, Canada (Barristers and Solicitors)
(1) The information as to shares beneficially owned, not being within the
knowledge of the Company, has been obtained from the SEDI website.
Information is provided as of March 27, 2006.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Corporate Governance Committee.
(5) MacNeill Brothers Oil & Gas Ltd. (a private company controlled by Mr.
MacNeill) held 1,354,100 of these shares. Mr. MacNeill holds the
remaining 1,189,622 shares directly or in his RRSP account.
(6) Ms. Susan McMillan held 20,000 of these shares. Mr. McMillan holds the
remaining 104,855.
(7) The term of office of each of the present directors expires at the
Annual General Meeting or when a successor is duly elected or
appointed.
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Cease Trade Orders, Bankruptcies, Penalties or Sanctions
On February 23, 2001, the British Columbia Securities Commission issued orders
that Mr. Kenneth E. MacNeill and Mr. Ronald G. Walker cease trading in the
securities of the Company until such time as duly completed insider reports
were filed. Such orders were revoked on March 1, 2001.
Conflicts of Interest
Certain directors of the Company are directors and/or officers of other
companies engaged in the mining industry, which may give rise to conflicts of
interest. In accordance with the Canada Business Corporations Act, directors
who have a material interest in any person who is a party to a material
contract or a proposed material contract with the Company are required, subject
to certain exceptions, to disclose that interest and abstain from voting on any
resolution to approve that contract. In addition, the directors are required to
act honestly and in good faith with a view to the best interests of the
Company.
LEGAL PROCEEDINGS
On February 6, 2006, De Beers issued a statement of claim in the Court of
Queen's Bench for Saskatchewan which named Shore, Kensington, which is a
wholly-owned subsidiary of Shore, Cameco and UEM as defendants. The claim is
for a declaration that the Voting Agreement dated October 31, 2005 among Shore,
Cameco and UEM ("Voting Agreement") (which is described under "Material
Contracts") is void, for an injunction restraining Shore from interfering with
the independent exercise of votes by Cameco or UEM under the FALC JV Agreement
and restraining Cameco and UEM from accepting voting instructions from Shore,
and for damages against Shore for interference with economic relations and
inducing breach of contract.
The Defendants are contesting the claim and a hearing on the merits was held on
March 16, 2006, with a decision expected to be released in April of 2006.
TRANSFER AGENT AND REGISTRAR
The Company has two transfer agents, the principal agent and registrar is
Valiant Trust Company located at 310, 606 - 4th Street SW, Calgary, Alberta,
T2P 1T1. Computershare has been retained as transfer agent during the period
the former Kensington tradable warrants are outstanding. Computershare is
located at 100 University Avenue, 11th Floor, Toronto, ON M5J 2Y1.
MATERIAL CONTRACTS
Voting Agreement
On October 31, 2005, Shore entered into a voting agreement with Cameco and UEM
relating to the FALC JV Voting Agreement. Pursuant to the Voting Agreement,
Cameco and UEM have agreed to vote with Shore on all operational decisions
(excluding production decisions), over a term of up to seven years in duration,
to be made by the participants in the FALC JV, being Kensington (42.245%),
Cameco (5.51%), UEM (10%, carried) and De Beers (42.245%), in exchange for a
cash payment of $10 million from the Corporation.
On March 2, 2006, the Voting Agreement was assigned by Shore to Kensington.
-35-
INTERESTS OF EXPERTS
Daniel C. Leroux of ACA Howe International Limited prepared an amended and
restated technical report on the Company's Star Kimberlite Property dated
December 15, 2005. To management's knowledge, neither Mr. Leroux or ACA Howe
International Limited have any registered or beneficial interests, direct or
indirect, in any securities or other property of the Company (or of any of its
associates or affiliates).
Brent C. Jellicoe, P.Geo formerly of Kensington prepared a technical report on
the Company's Fort a la Corne Diamond Project dated November 9, 2005. To
management's knowledge, Mr. Jellicoe does not have any registered or beneficial
interests, direct or indirect, in any securities or other property of the
Company (or of any of its associates or affiliates).
The first 3,050 carat parcel of diamonds was valued by each of R. Steinmetz and
Sons N.V., WWW International Diamond Consultants, Rio Tinto Diamonds N.V. and
BHP Billiton Diamonds (Belgium) N.V. and each has provided the Company with a
detailed report on the valuation of the 3,050 carat diamond parcel. R.
Steinmetz and Sons N.V. is a member of the Steinmetz Diamond Group of Companies
(the "Steinmetz Group") which, through Magma Diamond Resources Ltd., owns an
8.8% interest in Shore. Shore has previously agreed that Magma Diamond
Resources Ltd. ("Magma"), together with the Steinmetz Group, will have a right
to negotiate with Shore for the marketing of future diamond production on
competitive commercial terms. In the event that an agreement cannot be reached,
Magma will, for a period of two years from the start of commercial production,
have the right to purchase a percentage of the run-of-mine production
equivalent to its equity holding in Shore at that time on the same terms and
conditions acceptable to Shore offered by a third party. To management's
knowledge, none of WWW International Diamond Consultants, Rio Tinto Diamonds
N.V. or BHP Billition Diamonds (Belgium) N.V. have any registered or beneficial
interests, direct or indirect, in any securities or other property of the
Company (or of any of its associates or affiliates).
Shore commissioned a valuation study in February 2006 whereby a total parcel of
5,949.88 carats of diamonds from the Star Diamond Project was examined by three
companies: R. Steinmetz and Sons N.V., Rio Tinto Diamonds N.V. and WWW
International Diamond Consultants Limited.
KPMG LLP has provided an auditors' report in respect of the consolidated
financial statements of the Company for the years ended December 31, 2005, 2004
and 2003. In connection with the audit of the Company's annual financial
statements for the year ended December 31, 2005, the auditors confirmed that
they are independent within the meaning of the rules of professional conduct of
the Institute of Charter Accountants of Saskatchewan.
AUDIT COMMITTEE
Audit Committee Charter
Attached as Schedule 1 is the charter for the Company's Audit Committee
-36-
Composition of the Audit Committee
Members of the Audit Committee are Arnie E. Hillier (Chair), A. Neil McMillan,
and James R. Rothwell.
Relevant Education and Experience of Members of the Audit Committee
Arnie Hillier is a member of the Saskatchewan Institute of Chartered
Accountants. He has over 24 years of financial experience in the resources
industry. Mr. Hillier is the past CEO and CFO of Claude Resources Inc. and was
in a senior financial capacity at Saskatchewan Mining and Development
Corporation (the predecessor of Cameco Corporation). Mr. Hillier is a director
of Claude Resources Inc., Wescan Goldfields Inc. and Pacific and Western Credit
Corp.
A. Neil McMillan graduated from the University of Saskatchewan with a Bachelor
of Arts Degree. He has over 10 years of experience in the resources industry.
Mr. McMillan is the CEO and President of Claude Resources Inc. Prior to joining
Claude in 1995, Mr. McMillan was a registered representative and an executive
with RBC Dominion Securities. Mr. McMillan sits on the audit committee of
Cameco Corporation, is a former director of Philom Bios Inc. and is a former
Director of the Atomic Energy Corp. of Canada.
James R. Rothwell graduated from Stanford University with a Degree in Economics
and also an MBA. Mr. Rothwell has over 30 years of experience in the resources
industry including the position of President with BHP Diamonds from 1997 to
2000. Mr. Rothwell is the past President and CEO of Dia Met Minerals Ltd. from
2000 to 2001.
Reliance on Certain Exemptions
The Company's Audit Committee has not relied on any of the exemptions under
Multilateral Instrument 52-110 during the most recently completed financial
year.
Audit Committee Oversight
The Company's Board of Directors adopted all recommendations by the Audit
Committee with respect to the nomination and compensation of the external
auditor.
Pre-Approval Polices and Procedures
The Audit Committee has adopted a formal policy requiring the pre-approval of
all audit and non-audit related services to be provided by the Company's
principal auditor, KPMG LLP, prior to the commencement of the engagement,
subject to the following:
o Annually, the Audit Committee will review a list of audit, audit
related, recurring tax and other non-audit services and recommend
pre-approval of those services for the upcoming year. Any additional
requests will be addressed on a case-by-case specific engagement
basis.
o For engagements not on the pre-approved list, the Audit Committee has
delegated to the Chair of the Committee the authority to pre-approve
individual non-audit service engagements with expected costs of up to
$20,000 subject to reporting to the Audit Committee, at its next
scheduled meeting.
-37-
o For engagements not on the pre-approved list and with expected costs
greater than $20,000, the entire Audit Committee must approve this
service.
Nature and Amount of Auditor's Fees
The following table sets out the fees billed to the Company by KPMG LLP and its
affiliates for professional services in each of the years ended December 31,
2004 and 2005. During these years, KPMG LLP was the Company's only external
auditor.
Year ended December 31,
Category 2004 2005
$ $
---------------------------------------------------------------------------
Audit Fees (1) 23,300 128,953
Audit-Related Fees (2) 975 42,164
Tax Fees (3) 6,400 21,430
All Other Fees Nil Nil
(1) For professional services rendered by KPMG LLP for the audit of the
Company's consolidated financial statements that are normally provided by
KPMG LLP in connection with statutory and regulatory filings and for the
Company's Short Form Prospectus.
(2) For assurance and related services by KPMG LLP including consultations
concerning financial accounting and reporting, and business acquisition.
(3) For professional services rendered by KPMG LLP for tax compliance, tax
advice and tax planning, including tax planning
ADDITIONAL INFORMATION
Additional information relating to the Company may be found on SEDAR at
www.sedar.com.
Additional information, including directors' and officers' remuneration and
indebtedness, principal holders of the Company's securities, and securities
authorized for issuance under equity compensation plans is contained in Shore's
Information Circular for its Annual General Meeting of the Shareholders to be
held June 15, 2006. As well, additional financial information is provided in
the Company's audited comparative financial statements and MD&A for its most
recently completed financial year, and may be obtained upon request from
Shore's head office, or may be viewed on the Company's website
(www.shoregold.com) or the SEDAR website (www.sedar.com).
-38-
SCHEDULE 1
SHORE GOLD INC.
AUDIT COMMITTEE CHARTER
INTRODUCTION
This charter (the "Charter") has been adopted to govern the
composition, mandate responsibilities and authority of the Audit Committee (the
"Committee") of the Board of Directors (the "Board") of Shore Gold Inc. (the
"Company").
COMPOSITION AND PROCEDURES
1. The Committee shall be appointed by the Board and shall be composed of
at least three directors, each of whom is "independent" and
"financially literate" as required by Multilateral Instrument 52-110
(the "Instrument") of the Canadian Securities Administrators.
2. The Board will appoint the chair of the Committee and the Committee
from among their members shall appoint the secretary of the Committee.
3. The quorum for meetings shall be a majority of the members of the
Committee, present in person or by telephone or other
telecommunication device that permits all persons participating in the
meeting to speak and to hear each other.
4. Meetings of the Committee shall be conducted as follows:
(a) The Committee shall meet at least four times annually at such
times and locations as may be requested by the chair of the
Committee. Notice of meetings to the members shall be the
same as set out in the by-laws of the Company for meetings of
the Board. The Auditors or any member of the Committee may
request a meeting of the Committee; and
(b) Management representatives may be invited to attend all
meetings (except private sessions with the Auditors).
PRIMARY RESPONSIBILITIES OF THE COMMITTEE
The primary responsibilities of the Committee are:
5. To recommend to the Board:
(a) The external auditor (the "Auditors") to be nominated for
appointment by the shareholders of the Company for the
purpose of preparing or issuing the auditor's report or
performing other audit, review or attest services for the
Company; and
(b) The compensation of the Auditors.
-39-
6. To be directly responsible for overseeing the work of the Auditors in
preparing or issuing the auditor's report on the Company's annual
consolidated financial statements or performing other audit, review or
attest services for the Company including the resolution of
disagreements between management of the Company and the Auditors
regarding financial reporting.
7. To pre-approve, as required by the Instrument and subject to the
exemptions in the Instrument, all non-audit services to be provided to
the Company by the Auditors. The Committee may, in accordance with the
requirements of the Instrument, delegate to one or more members of the
Committee the authority to pre-approve non-audit services to be
provided by the Auditors, provided that all such pre-approvals of
non-audit services shall be presented to the Committee at its first
scheduled meeting following such pre-approval. The Committee is
authorized, at its option, to satisfy the pre-approval requirements
for non-audit services in accordance with section 2.6 of the
Instrument.
8. To review:
(a) the Company's unaudited quarterly consolidated financial
statements for the first, second and third quarters of the
Company's fiscal year ("quarterly statements") and the
Company's audited annual consolidated financial statements
("annual statements");
(b) the Management's Discussion and Analysis ("MD&A") prepared in
conjunction with the quarterly and annual statements; and
(c) all press releases to be issued by the Company with respect
to its annual and quarterly earnings and press releases on
other material financial reporting matters.
9. To satisfy itself that adequate procedures are adopted by the Company
for the review of the Company's public disclosure of financial
information extracted or derived from the Company's financial
statements other than the public disclosure referred to in section 4
above and to regularly assess the adequacy of such procedures.
10. To establish and oversee the maintenance of procedures for:
(a) the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting
controls or auditing matters; and
(b) the confidential anonymous submission by employees of the
Company and its subsidiaries of concerns regarding
questionable accounting or auditing matters.
11. To review and approve the Company's and it's subsidiaries' hiring
policies regarding partners, employees and former partners and
employees of the current and former Auditors of the Company and its
subsidiaries.
AUTHORITY OF THE COMMITTEE
Subject to prior consultation with the Chief Executive Officer or the
Chief Financial Officer (except in circumstances where the Committee as a whole
deems such consultation as impeding their authority), the Committee is
authorized to:
-40-
1. engage independent counsel and other advisors it determines necessary
to carry out the Committee's duties and responsibilities;
2. set and require the Company to pay the compensation and charged
expenses for any advisors engaged by the Committee; and
3. communicate directly with the internal audit staff of the Company and
its subsidiaries (if any) and the Auditors.
ADDITIONAL RESPONSIBLITIES AND DUTIES OF THE COMMITTEE
Auditors
1. The Committee shall ensure that the Company requires and instructs the
Auditors to report directly to the Committee.
2. The Committee is responsible for ensuring the independence of the
Auditors. On an annual basis, the Committee shall obtain a formal
written statement from the Auditors delineating all relationships
between the Auditors and the Company and confirming the independence
of the Auditors. This written statement shall be obtained in
conjunction with the audit of the annual financial statements after
each fiscal year end.
Review of Annual Financial Statements
The Committee shall review the annual financial statements and related
MD & A of the Company prior to their public release and shall report the
results of its review to the Board and make recommendations to the Board with
respect to Board approval of the financial statements and related MD & A. At
the Committee meeting at which the Company's annual financial statements are to
be reviewed, the Committee shall meet, in person, with representatives of the
Auditors and with the Company's management to assess and understand the annual
financial statements and the results of the audit including, but not limited
to:
o that the Company's system of internal controls and financial reporting
systems are adequate to produce fair and complete disclosure of its
financial results;
o that the Company's reporting is complete and fairly presents its
financial condition in accordance with generally accepted accounting
principles;
o that accounting judgments and estimates used by management are
reasonable and do not constitute earnings management;
o that risk management policies are in place to identify and reduce
significant financial and business risks; and
o that the Company has in place a system to ensure compliance with
applicable laws, regulations and policies.
Review of Quarterly Financial Statements
The Committee shall review the interim quarterly financial statements
and related MD & A of the Company prior to their public release and shall
report the results of its review to the
-41-
Board and make recommendations to the Board with respect to Board approval of
the quarterly statements and related MD & A unless the Board has delegated to
the Committee the authority to approve the quarterly statements and related MD
&A, in which case the Committee shall also approve the quarterly statements and
related MD & A. The review by the Company shall be substantially completed
prior to the issuance of a press release respecting the quarterly financial
results. The Committee shall meet with the Company's management to assess and
understand the interim quarterly financial statements and to discuss the
results of their preparation and review.
Other Responsibilities and Duties
1. As part of the quarterly and annual reviews described above, the
Committee will:
o meet with management in the absence of the Auditors for the
annual review;
o meet with the Auditors in the absence of management for the
annual review;
o review with management and the Auditors any proposed changes
in major accounting policies, the presentation and impact of
significant risks and uncertainties, and key estimates and
judgments of management that may be material to financial
reporting;
o review with management and the Auditors any significant
financial reporting issues discussed during the fiscal period
and the method of resolution;
o review any problems experienced by the Auditors in performing
the annual audit, including any restrictions imposed by
management or significant accounting issues on which there
was a disagreement with management;
o obtain an explanation from management of all significant
variances between comparative reporting periods;
o review the post-audit or management letter, containing the
recommendations of the Auditors, and management's response
and subsequent follow up to matters raised by the Auditors;
o review any evaluation of internal controls by the Auditors,
together with management's response;
o review and reassess the Charter for adequacy at least
annually and make changes as it deems necessary; and
2. In addition to the quarterly and annual reviews, the Committee will:
o prior to the commencement of each annual audit, meet with the
Auditors to review the Auditors' audit plan for the ensuing
audit;
o review with management and the Auditors all material
accounting and financial issues affecting the Company not
dealt with in annual and quarterly reviews; and
o review annually and recommend changes to the Company's code
of conduct.
3. The Committee shall perform such other duties as may be required by
the Board or as may be delegated to the Committee by the Board.
Document No. 2
Management's Responsibility for Consolidated Financial Statements
-----------------------------------------------------------------
The accompanying consolidated financial statements of Shore Gold Inc. are the
responsibility of management and have been approved by the Board of Directors.
Management in conformity with Canadian generally accepted accounting principles
has prepared the consolidated financial statements. The consolidated financial
statements include some amounts that are based on best estimates and judgements.
The management of the Company, in furtherance of the integrity and objectivity
of data in the consolidated financial statements, has developed and maintains a
system of internal accounting controls. Management believes the internal
accounting controls provide reasonable assurance that financial records are
reliable and form a proper basis for preparation of consolidated financial
statements and that assets are properly accounted for and safeguarded. The
internal accounting control process includes management's communication to
employees of policies that govern ethical business conduct.
The Board of Directors carries out its responsibility for the consolidated
financial statements in this annual report principally through its audit
committee, consisting entirely of outside directors. The audit committee reviews
the Company's annual consolidated financial statements and recommends their
approval to the Board of Directors. The shareholders' auditors have full access
to the audit committee, with and without management being present.
The shareholders' auditors, KPMG LLP, Chartered Accountants, in accordance with
Canadian generally accepted auditing standards, have examined these consolidated
financial statements and their independent professional opinion on the fairness
of the consolidated financial statements is attached.
/s/ Harvey J. Bay
------------------------
Harvey J. Bay, CMA
Chief Financial Officer
Saskatoon, Canada
March 27, 2006
[KPMG LOGO KPMG LLP Telephone (306) 934-6200
GRAPHIC Chartered Accountants Fax (306) 934-6233
OMITTED] 600 - 128 Fourth Avenue South Internetwww.kpmg.ca
Saskatoon SK S7K 1M8
AUDITORS' REPORT
----------------
To the Shareholders of Shore Gold Inc.:
We have audited the consolidated balance sheets of Shore Gold Inc. as at
December 31, 2005 and the consolidated statements of loss and deficit and cash
flows for each of the years in the three year period ended December 31, 2005.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2005
and 2004 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 2005 in accordance with
Canadian generally accepted accounting principles.
/s/ KPMG LLP
Chartered Accountants
Saskatoon, Canada
March 27, 2006
[Enlarge/Download Table]
Shore Gold Inc.
(A Development Stage Entity)
Consolidated Balance Sheets
December 31, December 31,
2005 2004
(in thousands) (in thousands)
------------------- ------------------
Assets
Current assets:
Cash and cash equivalents $ 261,677 $ 28,684
Receivables 5,160 928
Prepaids 588 3
------------------- ------------------
267,425 29,615
Mineral properties (note 3) 507,288 33,422
Investment in Wescan Goldfields Inc. (note 5) 1,212 337
Property and equipment (note 6) 827 93
------------------- ------------------
$ 776,752 $ 63,467
=================== ==================
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities (note 7) $ 14,777 $ 1,966
Future income tax liability (note 11) 147,649 -
Shareholders equity:
Share capital (note 8) 600,447 68,181
Contributed surplus (note 8(j)) 31,024 1,974
Deficit (17,145) (8,654)
------------------- ------------------
614,326 61,501
------------------- ------------------
Commitments and Contingencies (note 13) $ 776,752 $ 63,467
=================== ==================
On behalf of the Board:
/s/ Arnie E. Hillier /s/ A. Neil McMillan
-------------------- --------------------
Arnie E. Hillier A. Neil McMillan
Director Director
[Enlarge/Download Table]
Shore Gold Inc.
(A Development Stage Entity)
Consolidated Statements of Loss and Deficit
2005 2004 2003
(in thousands) (in thousands) (in thousands)
----------------- ------------------- -----------------
Revenue
Interest $ 3,367 $ 232 $ 102
----------------- ------------------- -----------------
Expenses
Administration 7,743 926 469
Consulting & professional fees 2,713 595 565
Corporate development 1,835 464 221
----------------- ------------------- -----------------
12,291 1,985 1,255
----------------- ------------------- -----------------
Loss before the undernoted items (8,924) (1,753) (1,153)
Share of loss in Wescan Goldfields Inc. (note 5) (74) (29) -
Gain on dilution of interest in Wescan Goldfields Inc. (note 5) 947 349 -
Amortization (63) (21) (19)
Income taxes (note 11) (377) (20) (23)
----------------- ------------------- -----------------
Net loss (8,491) (1,474) (1,195)
Deficit, beginning of year as previously reported (8,654) (6,140) (4,945)
Effect of change in accounting policy (note 8(h)) - (841) -
Dividends - 199 -
----------------- ------------------- -----------------
$ (17,145) $ (8,654) $ (6,140)
Deficit, end of year ================= =================== =================
Net loss per share
Basic and diluted (note 9) (0.08) (0.03) (0.03)
Weighted average number of shares outstanding 101,502 54,369 36,794
[Enlarge/Download Table]
Shore Gold Inc.
(A Development Stage Entity)
Consolidated Statements of Cash Flows
2005 2004 2003
(in thousands) (in thousands) (in thousands)
----------------- ----------------- -------------------
Cash provided by (used in):
Operations:
Net loss $ (8,491) $ (1,474) $ (1,195)
Non cash items:
Amortization 63 21 19
Gain on dilution of interest in Wescan Goldfields Inc. (947) (349) -
Share of loss in Wescan Goldfields Inc. 74 29 -
Fair value of stock options expensed 9,030 147 -
Future income taxes 254 - -
Net change in non-cash operating working capital items:
Prepaids (585) (2) 11
Payables and accrued liabilities 272 (70) (89)
----------------- ----------------- -------------------
(330) (1,698) (1,254)
Investing:
Mineral properties (51,465) (18,591) (10,352)
Recovery of investment in Wescan Goldfields Inc. - 247 -
Cash acquired on Kensington Resources Ltd. merger 35,537 - -
Kensington merger costs (8,585) - -
Property and equipment (615) (32) (43)
Net change in non-cash investing working capital items:
Receivables (4,196) 56 (926)
Payables and accrued liabilities 7,905 268 1,724
----------------- ----------------- -------------------
(21,419) (18,052) (9,597)
Financing:
Issue of common shares (net of issue costs) 254,742 44,215 9,646
Dividends - (192) -
----------------- ----------------- -------------------
254,742 44,023 9,646
----------------- ----------------- -------------------
Increase in cash and cash equivalents 232,993 24,273 (1,205)
Cash and cash equivalents, beginning of year 28,684 4,411 5,616
----------------- ----------------- -------------------
$ 261,677 $ 28,684 $ 4,411
Cash and cash equivalents, end of year ================= ================= ===================
SHORE GOLD INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (years ended December 31, 2005, 2004
and 2003) (In thousands of Canadian dollars except per share amounts or as
otherwise noted)
1. Nature of operations
Shore Gold Inc. was incorporated under the Canada Business Corporations Act on
April 29, 1985. Shore Gold Inc. and its subsidiaries (collectively, "Shore" or
"the Company") are engaged primarily in the exploration for and the development,
mining and sale of precious metals and gems. Substantially all of the Company's
efforts are devoted to the exploration and development of its mineral
properties. The Company has not earned significant revenue and is therefore,
considered to be in the development stage with respect to its current mineral
property holdings.
2. Significant accounting policies:
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles and, except as disclosed in
note 15, conform in all material respect with accounting principles generally
accepted in the United States. Generally accepted accounting principles require
that management make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of revenues and
expenses during the year. Areas of significance requiring the use of management
estimates relate to the determination of the recoverability of capitalized
mineral exploration costs and the determination of future income tax assets and
liabilities. Actual recovered amounts could differ from those estimates.
A summary of significant accounting policies is as follows:
Consolidation principles
------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Interests in joint ventures are accounted for by the
proportionate consolidation method.
Cash and cash equivalents
-------------------------
Cash and cash equivalents includes cash, cash-in-trust and short-term
investments that, on acquisition, have a term to maturity of three months or
less. Cash-in-trust includes amounts in trust with transfer agents or legal
firms where there are no restrictions on its use.
Mineral properties
------------------
Subject to compliance with Provincial Mineral Regulations, the Company holds the
right to explore for and develop mineral resources on various Crown property
dispositions within the Province of Saskatchewan. These rights are classified as
mineral properties for financial statement purposes.
All costs related to the acquisition, exploration and development of mineral
properties are capitalized. Upon commencement of commercial production from a
property, the related accumulated costs are amortized using the unit of
production method over estimated recoverable reserves. Interest on debt
associated with the acquisition of mineral properties is capitalized until
commencement of commercial production. There have been no interest costs
capitalized to date. Management periodically assesses carrying values of
non-producing properties and if management determines that the carrying values
cannot be recovered or the carrying values are related to properties that are
allowed to lapse, the unrecoverable amounts are expensed.
1
The recoverability of the carried amounts of mineral properties is dependent on
the existence of economically recoverable reserves, the ability to obtain the
necessary financing to establish the existence of reserves and to complete the
development of such reserves and the success of future operations. The Company
has not yet determined whether any of its mineral properties contain
economically recoverable reserves. Amounts capitalized as mineral properties
represent costs incurred to date, less write-downs and recoveries, and does not
necessarily reflect present or future values.
When options are granted on mineral properties or properties are sold, proceeds
are credited to the cost of the property. If no future capital expenditures are
required and proceeds exceed costs, the excess proceeds are reported as a gain.
Investments
-----------
Investments in companies over which the Company has the ability to exercise
significant influence are accounted for by the equity method. Under this method,
the Company includes its proportionate equity interest of earnings (losses) of
such companies.
Property and equipment
----------------------
Property and equipment purchases are recorded at cost and are amortized using
the declining balance method except for leasehold improvements, which are
amortized on a straight-line basis over a term equal to the remaining life of
the current lease agreement plus one renewal term. Annual amortization rates are
as follows:
Automotive equipment 30%
Computer equipment 30%
Computer software 100%
Furniture and equipment 20%
Future income taxes
-------------------
Future income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
basis. Future income tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are to be recovered or settled. The effect
on future income tax assets and liabilities of a change in rates is recognized
in earnings in the period which includes the enactment date. Future income tax
assets and liabilities are recorded in the financial statements if realization
is considered more likely than not. The valuation of future income taxes is
adjusted, if necessary, by the use of a valuation allowance to reflect the
estimated recoverable amount.
Flow-through shares
-------------------
The Company finances a portion of its exploration activities through the issue
of flow-through shares. The Company renounces the deductions to investors and
accordingly records share issue costs related to the future tax liability of the
temporary difference arising from the renunciation. As a result, share capital
is reduced and future income tax liabilities are increased by the estimated tax
benefits when renounced by the Company to the investors, except to the extent
that the Company has unused tax benefits on loss carryfowards and tax pools in
excess of book values available for deduction against which a valuation
allowance has been provided. In these circumstances, the future tax liability
reduces the valuation allowance, if any, and the reduction is recognized in
earnings.
2
Per share amounts
-----------------
Basic per share amounts are calculated using the weighted average number of
shares outstanding during the period. Diluted per share amounts are calculated
based on the treasury-stock method, which assumes that any proceeds received on
exercise of options and warrants would be used to purchase common shares at the
average market price during the period. The weighted average number of shares
outstanding is then adjusted by the net change.
Stock-based compensation
------------------------
The Company has a share option plan that is described in note 8(g).
Options granted under the share option plan on or after January 1, 2002 are
accounted for using the fair-value method. Under this method, the fair value of
stock options granted is measured at estimated fair value at the grant date and
recognized over the vesting period. In accordance with the section 3870,
"Accounting for Stock-Based Compensation and Other Stock-Based Payments, the
Company elected to retroactively adopt this standard effective January 1, 2004
without restatement of prior periods. Consideration received on the exercise of
stock options is recorded as share capital and the related contributed surplus
on options granted after January 1, 2002 is transferred to share capital.
Previously, no compensation expense was recognized when stock options were
granted to employees, officers and directors ("Grantees") and any consideration
paid by Grantees upon exercise of these stock options was credited to share
capital.
3. Mineral properties
Mineral properties is made up of the following:
[Enlarge/Download Table]
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Other
Star Fort a la Diamond
Property Corne Properties Gold
(a) Propety (b) (c) Properties Total
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Balance, December 31, 2003 $ 14,627 $ - $ 103 $ 271 $ 15,001
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Expenditures during 2004
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Acquisition & staking 5 - - - 5
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Exploration:
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Personnel 1,527 - - - 1,527
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Recording fees & permits 78 - - - 78
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Drilling 13,662 - - - 13,662
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Equipment 2,209 2,209
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Geophysical 28 - - - 28
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Sampling/assaying 632 - - - 632
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Field/project supplies 384 - - - 384
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Travel 167 - - - 167
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Disposal of mineral properties (271) (271)
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Balance, December 31, 2004 $ 33,319 $ - $ 103 $ - $ 33,422
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Expenditures during 2005
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Acquisition & staking (note 4) 402 418,814 - - 419,216
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Intangibles (d) - 10,037 - - 10,037
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Exploration:
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Personnel 7,641 28 - - 7,669
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Recording fees & permits 47 65 - - 112
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Drilling/Pre-feasibility 31,619 2,568 - - 34,187
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Equipment 1,516 - - - 1,516
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Geophysical - - - - -
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Sampling/assaying 561 - - - 561
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Field/project supplies 186 - - - 186
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Travel 382 - - - 382
---------------------------------------- ----------- ------------ ------------ ----------- ------------
Balance, December 31, 2005 $ 75,673 $ 431,512 $ 103 $ - $ 507,288
---------------------------------------- ----------- ------------ ------------ ----------- ------------
3
The Company has not yet determined whether any of its mineral properties
contain economically recoverable reserves. Amounts capitalized as mineral
properties represent costs incurred to date, less write-downs and
recoveries, and does not necessarily reflect present or future values.
a) Star Property
-------------
At December 31, 2005 the Company holds a 100% interest in the Star
Property, consisting of certain mineral dispositions located in the Fort a
la Corne kimberlite field approximately 60 kilometers east of Prince
Albert, Saskatchewan. The majority of expenditures incurred by the Company
over the past two years have been on exploring this property, including
bulk sampling and the commencement of a pre-feasibility study.
b) Fort a la Corne Property
------------------------
The Company, through it's wholly owned subsidiary, Kensington Resources
Ltd. ("Kensington") holds a 42.245% interest in certain mineral claims in
the Fort a la Corne area of Saskatchewan. Other interests in the property
are as follows: De Beers Canada Inc. ("De Beers")(42.245%), UEM
Inc.("UEM")(10% carried) and Cameco Corporation ("Cameco")(5.51%).
c) Other Diamond Properties
------------------------
At December 31, 2005 the Company holds a 100% interest in two additional
diamond properties located northwest of the Fort a la Corne kimberlite
field area known as the Foxford/Birchbark and Weirdale properties.
d) Intangibles
-----------
Shore entered into a voting arrangement with Cameco and UEM relating to the
Fort a la Corne Property. Pursuant to this arrangement, these parties have
agreed to vote with Shore on all operating decisions over a term up to
seven years in exchange for a cash payment of $10 million by Shore.
The voting arrangement became effective October 31, 2005 and expires
October 31, 2012. The cost of the arrangement is being amortized over its
estimated useful life of 7 years with amortization calculated on a
straight-line basis and is capitalized to mineral properties. A summary is
as follows:
---------------------------------------------------------------------------
Cost of voting arrangement, including acquisition costs $10,282
Less: amount amortized to mineral properties 245
---------------------------------------------------------------------------
$10,037
===========================================================================
4. Merger with Kensington Resources Ltd.
On August 15, 2005 Shore and Kensington announced the signing of a
definitive agreement (the "Combination Agreement") to merge the two
companies. On October 21, 2005, the shareholders of Kensington approved the
Plan of Arrangement ("the Plan") as contemplated in the Combination
Agreement. On October 28, 2005 the Supreme Court of the Yukon Territory
approved the merger between Shore and Kensington.
Pursuant to the Combination Agreement and the Plan of Arrangement, Shore
issued an aggregate of 51,706,786 common shares, representing 0.64 common
shares for each issued and outstanding common share of Kensington to the
former shareholders of Kensington as at October 28, 2005. An additional
6,879,962 common shares were reserved for issuance pursuant to options,
warrants and broker warrants held by the former security holders of
Kensington.
4
The purchase price, based on the fair value of common shares, options, and
warrants issued by Shore on October 28, 2005 at a value determined as the
average share price of Shore shares two days before and after August 15,
2005, the date the merger was agreed to and announced, is $291.7 million
plus merger costs of $8.6 million. The merger was accounted for using the
purchase method with Shore being identified as the acquirer. The results of
operations of Kensington are included in Shore's consolidated financial
statements from the effective date of the merger. The allocation of the
purchase price is summarized below:
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------
Net assets acquired:
Working capital, including cash of $35,537 $ 30,919
Property and equipment 182
Mineral properties 418,814
Future income tax liabilities (149,611)
----------------------------------------------------------------------------------------------------
Total net assets acquired $ 300,304
====================================================================================================
Purchase price financed by:
Common shares of Shore (51,706,786 shares at $5.25) $ 271,461
Fair value of Shore options issued to Kensington option holders (1) 11,584
Fair value of Shore warrants and broker warrants issued to Kensington warrant
and broker warrant holders (2) 8,674
Transaction costs 8,585
----------------------------------------------------------------------------------------------------
Total purchase price $ 300,304
====================================================================================================
(1) On October 28, 2005 Kensington had outstanding 4,610,000 options that
were exchanged for Shore options at a rate of 0.64:1. The options were
valued using the Black-Scholes option-pricing model with the following
assumptions: volatility of 68%, risk-free rate of return of 4%,
expected dividend of 0%, and expected term of 3.5 years
(2) On October 28, 2005 Kensington had 6,139,940 warrants and broker
warrants outstanding that were exchanged for Shore warrants, which
entitled the holder to 0.64 shares of Shore shares upon exercise. The
warrants were valued using the Black-Scholes option-pricing model with
the following assumptions: volatility of 86%, risk-free rate of return
4%, expected dividend of 0%, and expected term of 0.8 years.
5. Investment in Wescan Goldfields Inc.
During 2004, the Company transferred its ownership interests in all its
gold properties to its then wholly owned subsidiary Wescan Goldfields Inc.
("Wescan") in exchange for 12,000,000 common shares of Wescan. Subsequent
to the acquisition of the gold properties, Wescan filed an Initial Public
Offering ("IPO"). The IPO also qualified for distribution of a
dividend-in-kind of a portion of the Company's common shares in Wescan to
the Company's shareholders of record as of September 10, 2004. This
resulted in the Company distributing 3,529,995 of its Wescan shares to its
shareholders on the basis of one Wescan share for every ten Shore shares
held as of September 10, 2004. A number of Shore shareholders either did
not elect to receive or did not qualify under existing regulations to
receive a dividend-in-kind and received a cash dividend instead. This
resulted in the Company issuing a cash dividend to those shareholders equal
to $0.10 for every ten shares of Shore held for a total cash dividend of
$192,080. A portion of these shares has been escrowed and is scheduled for
release to the Company over three years. During 2005, Shore's ownership was
diluted down to 18.1% (2004 - 27.3%) as a result of various private
placements and option and warrant exercises. The dilution resulted in a
gain of $947,397.
At December 31, 2005, Shore or its wholly owed subsidiaries held 8,474,086
(2004 - 8,470,105) shares of Wescan. During the year Shore's weighted
average investment in Wescan was 23.4%. Shore has accounted for its
interest in Wescan on an equity basis. As at December 31, 2005, 60% of
these shares were held in Escrow and scheduled for release over the next 24
months.
5
The investment in Wescan Goldfields Inc. consists of the following:
--------------------------------------------------------------------------
Initial investment on transfer of gold properties $ 271
Share of losses to date of initial public offering (247)
--------------------------------------------------------------------------
Investment immediately prior to initial public offering $ 24
Dividend -in-kind (7)
Gain on dilution in equity investment 349
Share of losses (29)
--------------------------------------------------------------------------
Balance at December 31, 2004 $ 337
Fair value of Wescan shares held by Kensington Resources
Ltd. upon amalgamation 2
Gain on dilution in equity investment 947
Share of losses (74)
--------------------------------------------------------------------------
Balance at December 31, 2005 $ 1,212
==========================================================================
Wescan Goldfields Inc. is publicly traded on the TSX Venture exchange. The
trading value of the Company's equity interest in Wescan Goldfields Inc. at
December 31, 2005 is $8,389,000 (2004 - $2,372,000).
6. Property and equipment
Property and equipment is made up of the following:
[Enlarge/Download Table]
---------------------------------------------------------------------------------------
2005 2004
Accumulated Net Book Net Book
Cost Amortization Value Value
---------------------------------------------------------------------------------------
Automotive equipment $38 $ 6 $32 $-
Computer equipment 112 48 64 19
Computer software 7 3 4 -
Furniture & equipment 382 45 337 27
Leasehold improvements 433 43 390 47
---------------------------------------------------------------------------------------
$972 $145 $827 $93
=======================================================================================
7. Accounts payable and accrued liabilities
At December 31, accounts payable and accrued liabilities consisted of the
following:
[Enlarge/Download Table]
2005 2004
----------------------------------------------------------------------------------------
Trade payables $6,035 $1,278
Accrued liabilities 1,520 688
Property cash calls accrued 7,222 -
----------------------------------------------------------------------------------------
$14,777 $1,966
========================================================================================
8. Share capital
Authorized
----------
The authorized share capital of the Company consists of unlimited common
shares.
The common shares of the Company are entitled to dividends pro-rated and
when declared by the Board of Directors; to one vote per share at meetings
of the shareholders of Shore Gold Inc. and, upon dissolution or any other
distribution of assets, to receive pro-rated such assets of the Company as
are distributable to the holders of the common shares.
6
[Enlarge/Download Table]
Issued and outstanding (in thousands)
2005 2004
------------------------------------ ---------------------------------
Common Common
Shares Warrants Amount Shares Warrants Amount
--------------------------------------------------------------------------------------------------------
Balance, beginning of year 68,539 9,333 $68,181 43,138 5,175 $24,713
Common shares issued (a) - - 6,470 3,235 11,000
Common shares issued (b) - - 12,564 6,282 27,640
Common shares issued (c) 21,200 116,600 - -
Common shares issued (note 4) 51,707 5,434 271,461 - -
Common shares issued (d) 17,150 120,050 - -
Warrants exercised/expired (e) 9,333 (9,333) 23,683 5,258 (5,359) 7,000
Broker warrants exercised (f) 1,443 4,609 775 1,479
Options exercised (g) 1,143 3,936 334 682
Issue costs - (8,073) - (4,333)
--------------------------------------------------------------------------------------------------------
Balance, end of year 170,515 5,434 $600,447 68,539 9,333 $68,181
========================================================================================================
a) Common shares
-------------
During 2004, the Company issued 6,470,589 units for gross proceeds of
$11,000,001. Each unit consisted of one common share in the capital of the
Company and one-half common share purchase warrant. Each whole common share
purchase warrant entitled the holder to acquire one common share at an
exercise price of $2.10 for a period of 12 months from the closing date.
b) Common shares
-------------
During 2004, the Company issued 12,563,673 units for gross proceeds of
$27,640,081. Each unit consisted of one common share in the capital of the
Company and one-half common share purchase warrant. Each whole common share
purchase warrant entitled the holder to acquire one common share at an
exercise price of $2.75 for a period of 12 months from the closing date.
c) Common shares
-------------
During March of 2005 the Company issued, through a public offering,
21,200,000 shares for gross proceeds of $116,600,000.
d) Common shares
-------------
During November of 2005 the Company issued, through a public offering,
17,150,000 shares for gross proceeds of $120,050,000.
e) Warrants
--------
On certain issues of common shares, the Company attached warrants to the
common shares entitling the holder to acquire additional common shares of
the Company. A summary of the outstanding warrants (in thousands) is as
follows:
Average
Warrants Price
--------------------------------------------------------------------------
Balance - December 31, 2003 5,175 1.31
Granted 9,517 2.53
Exercised/expired (5,359) 1.33
--------------------------------------------------------------------------
Balance - December 31, 2004 9,333 2.54
Granted - -
Issued on Kensington merger 5,434 2.43
Exercised (9,333) 2.54
--------------------------------------------------------------------------
Balance - December 31, 2005 5,434 $2.43
==========================================================================
7
As part of the merger between the Company and Kensington each outstanding
warrant of Kensington became a warrant of the Company. At October 28, 2005
there were 5,434,358 warrants of Kensington which entitled the holder to
0.64 shares of Shore for a total of 3,477,989 shares of Shore being issued
upon exercise.
As at December 31, 2005 the warrants outstanding (in thousands) were as
follows:
Number Exercise Price Expiry date
---------------------------------------------------------------------
5,029 2.50 May 6, 2006
405 1.55 March 24, 2006
---------------------------------------------------------------------
5,434 2.43
=====================================================================
f) Broker warrants and broker unit warrants
----------------------------------------
On certain issuances of common shares, the Company granted either broker
unit warrants or broker warrants as partial consideration to the agent for
services associated to such share issues. A summary of the outstanding
broker warrants (in thousands) is as follows:
[Enlarge/Download Table]
Broker Average Underlying Average
Warrants Price Warrants Price
---------------------------------------------------------------------------------------
Balance - December 31, 2003 775 $1.53 226 $2.10
Granted 795 2.20 398 2.75
Exercised (775) 1.53 - -
---------------------------------------------------------------------------------------
Balance - December 31, 2004 795 2.20 624 2.51
Granted - - - -
Issued on Kensington merger 348 3.28 104 3.91
Exercised (819) 2.20 (624) 2.51
---------------------------------------------------------------------------------------
Balance - December 31, 2005 324 $3.28 104 $3.91
=======================================================================================
As part of the merger with Kensington each outstanding broker warrant of
Kensington became a broker warrant of the Company. At October 28, 2005
there were 543,579 broker warrants and attached underlying warrants of
162,000 of Kensington which entitled the holder to 347,890 and 103,680
shares of Shore being issued upon exercise, respectively. Kensington broker
warrants and underlying warrants expire May 6, 2006.
The broker warrants issued in 2004 were fair valued using the Black-Scholes
option-pricing model at $1,366,977 (2003 - $92,814).
g) Share option plan
-----------------
The Company has established a share option plan whereby options may be
granted to directors, officers, consultants and employees to purchase
common shares of the Company. On February 2, 2005, the Company amended its
stock option plan so that the maximum number of common shares issuable
under the plan was changed from a fixed maximum to a rolling maximum of 10%
of the issued and outstanding shares. As at December 31, 2005, the number
of shares reserved under the plan is 14,613,400. Options granted have an
exercise price of not less than the closing price quoted on the Toronto
Stock Exchange for the common shares of Shore on the trading day prior to
the date on which the option is granted. Options granted vest immediately
and have varying expiration dates between 4 and 5 years from the date of
the grant of the options.
During 2005, the Company granted 3,696,000 (2004 - 800,000) options to
officers, directors, consultants and employees. The fair value of these
options was determined using the Black-Scholes option-pricing model with
the following assumptions:
8
2005 2004 2003
---------------------------------------------------------------------------
Number of options granted (in thousands) 3,696 800 1,925
Average strike price $5.74 $1.96 $0.90
Expected dividend - - -
Expected volatility 62.18% 61.10% 56.30%
Risk-free interest rate 4.05% 3.49% 3.93%
Expected life of options 5.00 4.93 3.38
Weighted average grant date fair values $12,565 $248 $784
The fair value of the options granted and vested during 2005, using the
Black-Scholes option-pricing model was $12,565,389 (2004 - $247,680). Of
this amount, $3,535,467 (2004 - $100,620) was capitalized as an addition to
mineral properties and $9,029,922 (2004 - $147,060) was expensed with a
corresponding increase of $12,565,389 (2004- $247,680) to contributed
surplus.
For options outstanding (in thousands) at December 31, 2005, 2004 and 2003,
weighted average exercise prices are as follows:
Average
Options Price
---------------------------------------------------------------------------
Balance December 31, 2002 1,550 $0.47
Granted 1,925 0.90
Exercised (1,543) 0.55
---------------------------------------------------------------------------
Balance December 31, 2003 1,932 $0.84
Granted 800 1.96
Exercised (334) 0.81
---------------------------------------------------------------------------
Balance December 31, 2004 2,398 $1.22
Granted 3,696 5.74
Issued on Kensington merger 2,950 1.70
Exercised (1,143) 1.20
---------------------------------------------------------------------------
Balance December 31, 2005 7,901 $3.52
===========================================================================
For options outstanding (in thousands) at December 31, 2005, all of which
are exercisable, the range of exercise prices; weighted average exercise
price and the weighted average remaining contractual life is as follows:
Options
Option Price Outstanding Weighted Average Weighted Average
Per Share December 31, 2005 Exercise Price Remaining Life
---------------------------------------------------------------------------
$0.00 - 0.99 850 $0.78 1.87 years
$1.00 - 1.99 2,175 1.37 2.16 years
$2.00 - 2.99 823 2.12 3.36 years
$3.00 - 3.99 1,207 3.09 3.76 years
$4.00 - 4.99 701 4.58 4.50 years
$5.00 - 5.99 120 5.46 4.62 years
$6.00 - 6.99 40 6.34 4.79 years
$7.00 - 7.99 1,985 7.33 4.86 years
---------------------------------------------------------------------------
7,901 $3.52 3.44 years
===========================================================================
h) Change in accounting policy
---------------------------
Effective January 1, 2004, CICA Handbook Section 3870 was revised,
requiring that a fair value based method of accounting be applied to direct
awards of stock. The revision permitted to use the fair value method of
accounting for direct awards of stock issued after January 1, 2002. In
accordance with the section, the Company elected to retroactively adopt
this standard effective January 1, 2004 without restatement of prior
periods.
9
For the year ended December 31, 2003, the Company's pro forma expense
attributable to stock options was $738,075 and pro forma net loss for the
year was $1,933,426 and basic and diluted loss per share was $0.05. During
2003, the Company also granted stock options to certain contractors with a
fair-value as determined using the Black-Scholes model of $46,169. This
amount was capitalized as an addition to mineral properties
The cumulative effect of the change in accounting policy, adopted January
1, 2004 with respect to accounting for stock-based compensation was as
follows:
Year Amount
--------------------------------------------------------------------------
2002 $103
2003 738
--------------------------------------------------------------------------
Amount charged to 2004 opening deficit $841
==========================================================================
i) Shareholder protection rights plan
----------------------------------
The directors of the Company approved a shareholder protection rights plan
("Rights Plan") on January 19, 2005. In the event a bid to acquire control
of the Company is made, the Rights Plan is designed to give the directors
of the Company time to consider alternatives to allow shareholders to
receive full and fair value for their shares. In the event that a bid,
other than a permitted bid, is made, shareholders become entitled to
exercise rights to acquire common shares of the Company at 50 percent of
market value. This would significantly dilute the value of the bidder's
holdings.
j) Contributed surplus
-------------------
The fair-value of certain stock options, warrants and broker warrants have
been valued using the Black-Scholes option-pricing model. The fair-value on
the grant of these securities is added to contributed surplus. Upon
exercise, the corresponding amount of contributed surplus related to the
security is removed from contributed surplus and added to share capital. A
summary of the contributed surplus activity is as follows:
[Enlarge/Download Table]
2005 2004
---------------------------------------------------------------------------------------
Balance - beginning of year $ 1,974 $ 750
Fair value of options granted 12,565 248
Fair value of broker warrants granted - 1,367
Fair value of options from Kensington merger 11,584 -
Fair value of warrants and broker warrants from Kensington
merger 8,674 -
Less: contributed surplus related to options exercised (2,556) (97)
Less: contributed surplus related to warrants exercised (51) -
Less: contributed surplus related to broker warrants exercised (1,166) (294)
---------------------------------------------------------------------------------------
Balance - end of year $31,024 $1,974
=======================================================================================
9. Per share amounts
Basic loss per common share is computed by dividing net loss applicable to
common shares by the weighted average number of common shares issued and
outstanding for the relevant period. Diluted loss per common share is
computed by dividing net loss applicable to common shares by the sum of the
weighted average number of common shares issued and outstanding and all
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued. The calculation of loss per share
amounts is based on the following:
10
[Enlarge/Download Table]
2005 2004 2003
---------------------------------------------------------------------------------------
Numerator:
Loss applicable to common shares $ 8,491 $1,474 $1,195
Denominator:
Weighted average common shares outstanding 101,502 54,369 36,794
---------------------------------------------------------------------------------------
Basic and diluted loss per common share $ 0.08 $ 0.03 $ 0.03
=======================================================================================
Excluded from the calculation of diluted loss per common share were the
effects of outstanding options and warrants as the effect on basic loss per
share would be anti-dilutive.
10. Related party transactions
During the year ended December 31, 2005, management and consulting fees of
$887,334 (2004 - $668,020; 2003 - $1,188,797) were paid to directors,
officers and companies controlled by common directors; of these fees,
$233,583 (2004 - $239,660; 2003 - $141,917) was capitalized as additions to
mineral properties; $387,084 (2004 - $215,480; 2003 - $120,000) was
included as administration expense, and $266,667 (2004 - $212,880; 2003 -
$188,805) was included as consulting and professional fees expense. The
fair-value of stock-based compensation related to directors and officers of
the Company during the year ended December 31, 2005 was $6,167,510 (2004 -
$178,020; 2003 -$566,955).
The above transactions were in the normal course of operations and are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties. The fair-value of
stock-based compensation was determined using the Black-Scholes model.
11. Income taxes
The significant components of future income tax assets and liabilities at
December 31, 2005 and 2004 are as follows:
[Enlarge/Download Table]
2005 2004
--------------------------------------------------------------------------------------------
Future income tax assets
Non-capital loss carry forwards $ 5,839 $ 2,492
Share issue costs 4,669 1,112
--------------------------------------------------------------------------------------------
Future income tax assets before valuation allowance 10,508 3,604
Future income tax liabilities
Investments $ (187) $ (26)
Mineral properties (157,970) (2,442)
--------------------------------------------------------------------------------------------
Future income tax liabilities (158,157) (2,468)
Net future income tax asset (liability) before valuation allowance (147,649) 1,136
Less: valuation allowance - (1,136)
--------------------------------------------------------------------------------------------
Net future income tax asset (liability) $ (147,649) $ -
============================================================================================
11
The provision for income taxes differs from the amount computed by applying
the combined expected federal and provincial income tax rate to earnings
before income taxes. The reasons for these differences are as follows:
2005 2004 2003
---------------------------------------------------------------------------
Loss before income taxes $8,114 $1,454 $1,172
Combined federal and provincial tax rate 43% 44% 45%
---------------------------------------------------------------------------
Expected tax recovery (3,489) (640) (527)
Increase (decrease) in taxes resulting from:
Non-deductible stock option expenses 3,883 65 -
Other non-deductible amounts 53 24 3
Tax effect on dilution gain (204) (77) -
Tax benefits of losses not recognized - (314) -
Effect of change in effective tax rates 11 - -
Change in valuation allowance - 942 (524)
---------------------------------------------------------------------------
Future income tax expense 254 - -
Large corporations tax 123 20 23
---------------------------------------------------------------------------
Provision for income taxes $ 377 $ 20 $ 23
===========================================================================
During the year the Company paid $47,000 (2004 - $ 20,000; 2003 - $0) in
large corporations taxes.
At December 31, 2005, the Company had operating losses for income tax
purposes approximating $14,920,000 that are available to reduce taxes in
future years and expire over the period to the year 2012.
12. Financial instruments
Financial instruments are initially recorded at cost. The fair values of
cash and cash equivalents, receivables and payables and accrued liabilities
approximate their recorded amounts due to their short-term nature.
13. Commitments and Contingencies
i. Commitments
-----------
The Company, through its wholly owned subsidiary Kensington, is committed
to spend $10,000,190 of qualifying Canadian Exploration Expenses as defined
by the Canadian Income Tax Act prior to December 31, 2006.
As at December 31, 2005, the Company is committed to operating leases for
office space and various equipment as follows:
Year
-------------------------------------------------------------------------
2006 $ 513
2007 179
2008 185
2009 187
2010 166
Thereafter 613
-------------------------------------------------------------------------
Total $1,843
=========================================================================
ii. Contingencies
-------------
On February 6, 2006, De Beers issued a statement of claim in the Court
of Queen's Bench for Saskatchewan which named Shore, Kensington (which
is a wholly-owned subsidiary of Shore),
12
Cameco and UEM as defendants. The claim is for a declaration that the
voting arrangement dated October 31, 2005 among Shore, Cameco and UEM is
void and is seeking an injunction restraining Shore from interfering with
the independent exercise of votes by Cameco or UEM under the operating
agreement; restraining Cameco and UEM from accepting voting instructions
from Shore and for damages against Shore for interference with economic
relations and inducing breach of contract.
The defendants are contesting the claim and a hearing on the merits was
held on March 16, 2006 with a decision expected to be released in April of
2006.
Management is of the opinion, after review with legal counsel, that the
claim is without merit and that the outcome of this action will not have a
material financial impact on the financial position, results of operations
and cash flows of the Company.
14. Comparative Figures
Certain prior years' balances have been reclassified to conform to the
current financial statement presentation.
15. Differences from United States accounting principles
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada. The Company
monitors differences between generally accepted accounting principles
("GAAP") in Canada and the United States ("U.S."), none of which have a
material effect on the financial statements except as summarized below:
a) Balance Sheet
-------------
[Enlarge/Download Table]
2005 2004
--------------------------------------------------------------------------------------------------------
Mineral properties - Canadian GAAP $ 507,288 $ 33,422
Cumulative exploration expenditures expensed under U.S. GAAP (i) (82,062) (28,373)
Adjustment to purchase price on Kensington merger (ii) (36,553) -
--------------------------------------------------------------------------------------------------------
Mineral properties - U.S. GAAP $ 388,673 $ 5,049
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Investment in Wescan Goldfields Inc. - Canadian GAAP $ 1,212 $ 337
Increase in share of losses due to cumulative exploration
expenditures being expensed under U.S. GAAP (ii) (236) (5)
--------------------------------------------------------------------------------------------------------
Investment in Wescan Goldfields Inc. - U.S. GAAP $ 976 $ 332
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Future income tax liability - Canadian GAAP $ 147,649 $ -
Adjustment to purchase price on Kensington merger (ii) (36,553) -
Future income tax recovery (i) (9,800) -
--------------------------------------------------------------------------------------------------------
Future income tax liability - U.S. GAAP $ 101,296 $ -
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Share capital - Canadian GAAP $ 600,447 $ 68,181
Cumulative adjustment for flow-through share premiums (iii) (473) (473)
--------------------------------------------------------------------------------------------------------
Share capital - U.S. GAAP $ 599,974 $ 67,708
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Contributed Surplus - Canadian GAAP $ 31,024 $ 1,974
Reverse effect of change in accounting policy (v) (841) (841)
--------------------------------------------------------------------------------------------------------
Contributed Surplus - U.S. GAAP $ 30,183 $ 1,133
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Deficit - Canadian GAAP $ 17,145 $ 8,654
Cumulative exploration expenditures (i) 82,062 28,373
Future income tax recovery (i) (9,800) -
Cumulative increase in equity loss (iii) 236 5
Cumulative future income tax expense (recovery) on
renunciation of flow-through shares (iii) (473) (473)
Reverse effect of change in accounting policy (v) (841) (841)
--------------------------------------------------------------------------------------------------------
Deficit - U.S. GAAP $ 88,329 $ 35,718
--------------------------------------------------------------------------------------------------------
Shareholder's Equity - U.S. GAAP $ 541,828 $ 33,123
--------------------------------------------------------------------------------------------------------
13
b) Statement of Loss
-----------------
[Enlarge/Download Table]
2005 2004 2003
----------------------------------------------------------------------------------------------------
Net loss - under Canadian GAAP $ (8,491) $ (1,474) $ (1,195)
Exploration expenditures (i) (53,689) (16,144) (7,580)
Future income tax recovery (i) 9,800 - -
Increase in equity loss (iii) (231) (5) -
Renunciation of tax deductions on flow-through shares(iv) - 66 245
----------------------------------------------------------------------------------------------------
Net loss per share under U.S. GAAP $ (52,611) $(17,557) $ (8,530)
----------------------------------------------------------------------------------------------------
Comprehensive loss under U.S. GAAP $ (52,611) $(17,557) $ (8,530)
----------------------------------------------------------------------------------------------------
Loss per share under U.S. GAAP
Basic and diluted $ 0.52 $ 0.32 $ 0.23
----------------------------------------------------------------------------------------------------
i) Mineral property exploration expenditures
-----------------------------------------
Mineral property exploration expenditures are capitalized in accordance
with Canadian GAAP. For U.S. GAAP purposes, the Company expenses, as
incurred, exploration expenditures relating to unproven mineral
properties. When proven and probable reserves are determined for a
property and a final feasibility study determines the economic
recoverability of these reserves, subsequent development costs of the
property are capitalized.
The tax benefit on the post Kensington merger exploration expenditures
that have been expensed under U.S. GAAP result in a recovery of taxes
and a corresponding reduction to future income tax liability.
ii) Adjustment to purchase price on Kensington Merger
-------------------------------------------------
For U.S. GAAP purposes, the tax benefit resulting from the write-off of
exploration expenditures pursuant to U.S. GAAP has been reduced by a
valuation allowance. Since the acquisition of Kensington will allow the
benefit of the tax asset to be realized, the valuation allowance is
reduced and the mining interests were adjusted in the purchase
equation.
iii) Equity loss
-----------
Under Canadian GAAP, the Company has accounted for its interest in
Wescan Goldfields Inc. ("Wescan") on an equity basis. For U.S. GAAP
purposes, Wescan would be required to expense all exploration
expenditures related to unproven mineral properties as incurred. This
adjustment would increase the Company's share of Wescan losses under
U.S. GAAP.
iv) Flow-through share premiums
---------------------------
Under U.S. GAAP, the difference between the issue price of flow-through
shares and the fair value of the shares at the date of issuance is
recorded as a liability with a corresponding reduction to share
capital. To the extent that the Company has available tax pools for
which a full valuation allowance has been provided, the premiums are
recognized in earnings as a reduction in the valuation allowance at the
time of renunciation of the tax pools.
v) Stock-based compensation
------------------------
Statement of Financial Accounting Standards ("FAS") No. 123, Accounting
for Stock-based Compensation establishes financial accounting and
reporting standards for stock-based employee compensation plans. This
statement defines a fair-value based method of accounting for employee
stock options, but also allows an entity to measure compensation costs
related to stock-based compensation plans using the intrinsic value
method with pro-forma disclosure of the impact of using the fair-value
method. The latter application was allowed under Canadian GAAP prior to
January 1, 2004 after which the Company adopted the
14
fair-value method of accounting for employee compensation plans under
Canadian GAAP. Pursuant to the transitional rules, a company that
adopted this accounting treatment effective January 1, 2004 may
retroactively adopt this standard without restatement of prior periods
back to January 1, 2002. The effect of the change in policy on the
balance sheet at January 1, 2004 was to increase the Company's deficit
by $841,000.
For U.S. GAAP purposes the Company applied the modified prospective
method of adopting FAS No. 123 as permitted by FAS No. 148 Accounting
for Stock Based Compensation - Transition and Disclosure and Amendment
FAS 123, as of January 1, 2004. Since the Company's options vested in
the year of option grant there was no impact on 2004 earnings (loss)
for options granted prior to 2004 and therefore, the stock compensation
expense for 2003 and 2002 recorded under Canadian GAAP to opening
deficit is reversed.
vi) New accounting pronouncements
-----------------------------
In December, 2004, FAS No. 123 (revised), "Share-Based Payment", was
issued. This statement requires an entity to recognize the grant date
fair value of stock options and other equity-based compensation issued
to employees. In the income statement, FAS No. 123 (revised) eliminates
the ability to account for share-based compensation transactions using
the intrinsic value method in APB No. 25. The Company will adopt FAS
No. 123 (revised) in 2006 in accordance with the appropriate transition
options and adoption period prescribed in the statement. The Company
does not expect that the adoption of this standard will have a material
impact on the consolidated financial statements.
In December, 2004 the FASB issued FAS. No. 153, "Exchanges on
Non-monetary Assets, an amendment of APB Opinion 29". This statement
amends Opinion 29 to eliminate the exception for non-monetary exchanges
of similar productive assets and replaces it with a general exception
for exchanges of non-monetary assets that do not have commercial
substance. A non-monetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as
a result of the exchange. The Statement is effective for fiscal periods
beginning after June 15, 2005. Management does not expect the adoption
of this Statement to have a material effect on the Company's
consolidated financial position and results of operations.
In May, 2005, the FASB issued FAS No. 154, "Accounting Changes and
Error Corrections, a Replacement of APB Opinion No. 20 and FAS No. 3".
FAS No. 154 requires retrospective application of changes in accounting
principle to prior periods' financial statements, rather than the use
of the cumulative effect of a change in accounting principle, unless
impracticable. If impracticable to determine the impact on prior
periods, then the new accounting principle should be applied to the
balances of assets and liabilities as the beginning of the earliest
period for which retrospective application is practicable, with a
corresponding adjustment to equity, unless impracticable for all
periods presented, in which case prospective treatment would be
applied. FAS No. 154 applies to all voluntary changes in accounting
principle as well as those required by the issuance of new accounting
pronouncements if no specific transition guidance is provided. FAS No.
154 does not change the previously issued guidance for reporting a
change in accounting estimate or correction of an error. FAS No. 154
becomes effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. The Company does not
expect this policy to have a material impact on the consolidated
financial statements. The Company will adopt FAS No. 154 on January 1,
2006.
15
Document No. 3
MANAGEMENT'S DISCUSSION & ANALYSIS
The following Management Discussion and Analysis is prepared as of March 27,
2006 and should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2005. Shore Gold Inc. ("Shore" or
"the Company") prepares its financial statements in accordance with Canadian
generally accepted accounting principles ("GAAP"). All amounts are reported in
Canadian dollars unless otherwise indicated. The financial statements have been
reconciled to US GAAP and the reconciliation can be found in note 15 of the
annual consolidated financial statements.
Overview
During 2005, the Company's exploration efforts continued to be focused on the
Fort a la Corne area of central Saskatchewan where its 100% owned Star Diamond
Property continues to produce encouraging results. Together with the recently
acquired participating interest in the FALC Property, the Company has favorably
positioned itself to consider a number of potential scenarios regarding the
economics associated with the future development of the entire region.
This past year, Shore focused its attention on advancing its primary
exploration asset (the Star Diamond Property) as well as on expanding its
holdings in the Fort a la Corne region through the staking of additional claims
as well as through the merger with Kensington Resources Ltd. ("Kensington")
through which the Company acquired a 42.245% interest in what has become known
as the FALC Property. The FALC Property is adjacent to the Star Diamond
Property and is known to contain in excess of 70 kimberlitic bodies. The
Company also completed two significant financings during 2005 and subsequently
has seen its market capitalization increase form a little under $200M just over
a year ago to more than $1.2B as at March 27, 2006.
During the first quarter of 2005, Shore announced that a valuation report
associated to the first 25,000 tonne bulk sample from the Star Diamond Property
had resulted in a modeled value of US$135 per carat. This outcome prompted the
Company to announce a $44 million, 30 month pre-feasibility study on the Star
Diamond Property, the largest work program outlined for any of the Fort a la
Corne kimberlites to date. The pre-feasibility program started in May 2005 and
significant progress has been made against the plan thus far. The results of a
second valuation report that included diamonds recovered from a further 15,000
tonne bulk sample that forms part of the $44 million pre-feasibility study were
released in March 2006. The second valuation exercise revalued the diamonds
originally valued from the previous year together with the diamonds recovered
from the additional bulk sample material and was successful in meeting its
objective of increasing confidence in the modeled diamond values. The most
recent valuation report separated the diamond values between kimberlite types
identified during the course of the original bulk sample and the additional
15,000 tonne sample. The kimberlite types identified during the bulk sample
process included Early; Mid and Late Joli Fou, Cantuar and Pense. The Early
Joli Fou was further broken down into two sub-types (Kimberlite Breccia &
Pyroclastic). Of particular note was the 1,992.6 carats retrieved from the
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Early Joli Fou Kimberlite Breccia which had a modeled value of US$173 per
carat. This compares to a modeled value of US$112 for the Early Joli Fou
Pyroclastic kimberlite. The Early Joli Fou Kimberlite represents a significant
lithology in the Star Diamond Property and the combined modeled value of the
two Early Joli Fou sub-types was US$130 per carat.
Based on forecasted programs and budgets for each of the Star Diamond Project
and the FALC Property, the two financings completed in 2005 have generated
sufficient cash to more than finance all pre-feasibility studies currently
contemplated on the Star Diamond and FALC Properties. The first of these
financings was completed in March 2005 whereby the Company issued 21.2 million
shares realizing gross proceeds of $116.6 million. The second financing of the
year in November raised $120.1 million through the issuance of 17.2 million
common shares. Newmont Mining Corporation of Canada Limited ("Newmont")
acquired a 9.9% interest in the Company by participating in the first financing
and participated in the second financing as well to retain their 9.9% interest.
Merger
On August 15, 2005, Shore and Kensington announced their intentions to merge.
The proposed arrangement, which was finalized on October 28, 2005, created a
consolidated company that has a significant interest in most of the currently
known Fort a la Corne kimberlites. Upon completion of the merger, the
consolidated company holds a 100% interest in the Star Kimberlite and a 42.245%
interest in the FALC Property. As at March 27, 2006, Shore's land holdings in
the Fort a la Corne forest comprises a total of 434 mineral claims totaling
187,593 hectares and the land holdings held by the FALC JV consists of 121
claims totaling 22,544 hectares.
The merger was followed by a press release on October 31, 2005 announcing that
Shore had entered into a voting arrangement with Cameco Corporation ("Cameco")
and UEM Inc. ("UEM") relating to the FALC Property whereby Cameco and UEM have
agreed to vote with Shore on all operating decisions (excluding production
decisions) to be made by the participants in the FALC JV over a term up to
seven years in duration in exchange for $10 million. On February 6, 2006, De
Beers issued a statement of claim in the Court of Queen's Bench for
Saskatchewan which named Shore, Kensington, Cameco and UEM as defendants. The
claim is for a declaration that the voting agreement among Shore, Cameco and
UEM is void, for an injunction restraining Shore from interfering with the
independent exercise of votes by Cameco or UEM under the FALC JV Agreement and
restraining Cameco and UEM from accepting voting instructions from Shore, and
for damages against Shore for interference with economic relations and inducing
breach of contract.
The named defendants are contesting the claim and arguments by all parties were
heard in The Court of Queen's Bench in Saskatoon, Saskatchewan on March 16,
2006. A decision is expected in April of 2006.
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Management is of the opinion, after review with legal counsel, that the claim
is without merit and that the outcome of this action will not have a material
financial impact on the financial position, results of operations and cash
flows of the Company.
Star Diamond Property Pre-feasibility Program
Shore's management was able to aggressively pursue its pre-feasibility study
announced in May 2005. The announced $44 million, thirty-month, pre-feasibility
study includes the extraction of an additional 15,000 tonnes of kimberlite from
the existing underground workings as well as 21,000 metres of PQ drilling from
surface and 17,000 metres of mini-bulk sampling large diameter (1.2 metre)
drilling ("LDD"). The large diameter drilling is estimated to recover an
additional 10,000 tonnes of kimberlite. The aim of the pre-feasibility study is
to define a National Instrument 43-101 compliant Mineral Reserve for the Star
Diamond Property.
Shore has made significant progress with respect to this study. As of March 27,
2006 a total of 15,000 tonnes has been extracted and the valuation of diamonds
recovered was released in March 2006. In addition, 21,000 metres of PQ core and
3,300 metres of the LDD drilling had been completed. The LDD aspect of the
program has presented some difficulties as poor ground conditions in marine
mudstones as well as deeper overburden further away from the shaft has slowed
progress and may lead the Company to reevaluate some of the originally planned
holes for which data may be extractable from information gained from the PQ
drilling program.
During the fourth quarter, the Company announced that a Cantuar Kimberlite
feeder vent had been intercepted during the core drilling program. The Cantuar
Kimberlite is the earliest known kimberlite eruptive phase on the Star Diamond
Property. From the positive results encountered to date, the Company is
anticipating expanding its pre-feasibility to include a third phase that would
see more bulk sampling from the existing underground workings of up to a
maximum of 65,000 tonnes including kimberlite from the Cantuar, Pense and Mid
Joli Fou Kimberlites. The third phase will also see an additional 19,000 meters
of PQ core drilling of in-fill drilling. Certain aspects of the third phase of
the pre-feasibility study are awaiting the appropriate exploration permits.
FALC JV Advanced Exploration and Evaluation Plan
In the fourth quarter of 2004, the FALC JV partners approved an Advanced
Exploration and Evaluation Plan (the "AE & E Plan"). This plan described an
accelerated work program covering approximately 3.5 years that was designed to
advance the project to a pre-feasibility decision in 2008.
The first year of the AE&E Plan was budgeted at $25.6 million, of which
Kensington would be required to fund approximately $12 million and consisted
primarily of geological drilling to establish the presence of potentially
higher grade units within 14 kimberlites. By December 31, 2005, a total of $13
million, of which Kensington's share was approximately $6.1 million had been
incurred on the program. The actual
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expenditures during 2005 were primarily spent on certain of the core drilling
originally contemplated by the AE & E plan.
During December 2005, Kensington presented an exploration program to the FALC
JV partners. Agreement on the full scope of the proposed work has not yet been
reached, but on March 15, 2006, Shore announced an additional drill program had
commenced on the western part of the Star Kimberlite on the FALC Property,
which is referred to as "Star West". The FALC JV will be responsible for the
costs associated with the program of which Kensington will fund its share.
Selected Annual Information
Selected financial information of the Company for each of the last 3 fiscal
years is summarized as follows:
[Enlarge/Download Table]
------------------------------ ------------------------- ------------------------- -------------------------
2005 2004 2003
$ $ $
------------------------------ ------------------------- ------------------------- -------------------------
Revenues (000's) 3,367 232 102
------------------------------ ------------------------- ------------------------- -------------------------
Net loss (000's) 8,491 1,474 1,195
------------------------------ ------------------------- ------------------------- -------------------------
Net loss per share (1) 0.08 0.03 0.03
------------------------------ ------------------------- ------------------------- -------------------------
Total assets (000's) 776,752 63,467 20,479
------------------------------ ------------------------- ------------------------- -------------------------
Working capital (2) (000's) 252,648 27,649 3,629
------------------------------ ------------------------- ------------------------- -------------------------
(1) Basic and diluted.
(2) Before net change in non-cash working capital items.
Over the past year the Company has focused on growth and expansion. The
completion of two public offerings for gross proceeds of $237 million as well
as the merger with Kensington (that was measured at fair-value), has caused
total assets to increase by more than 1,000%. The merger with Kensington, which
was accounted for using the purchase method resulted in the mineral properties
increasing by $419 million and added $31 million in other assets, which
predominately related to cash that Kensington held after completing a financing
in May 2005.
The company plans to utilize its working capital exploring and developing its
100% owned Star Kimberlite property and its 42.245% interest in the FALC
Property. Until such time as the Company requires the cash to fund planned
exploration programs, surplus cash will continue to be invested in relatively
risk-free, short-term instruments intended to maximize return while being
readily available for ongoing costs of the operation. As such, the Company has
seen a dramatic increase in revenue from interest income compared to the two
prior years.
The Company's net loss rose compared to the prior two years and is
predominately related to the expense associated with the fair-value of stock
based compensation of $9 million. The Company's cash expenses rose by
approximately $1.4 million compared to the prior year and are indicative of the
growth experienced by the Company. Finally, the Company experienced a dilution
gain on the dilution of its equity holdings in Wescan
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Goldfields Inc. ("Wescan") as the result of Wescan initiating equity financings
to fund exploration programs. The resulting dilution of the Company's interest
created a gain of approximately $1 million.
Results of Operations
For the year ended December 31, 2005, the Company recorded a net loss of $8.5
million or $0.08 per share compared to a net loss of $1.5 million, or $0.03 per
share for 2004. The major differences between the year ended December 31, 2004
and 2005 is predominately related to the fair-value of stock options expensed
of approximately $9.0 million (2004 - $147,000) as well as a general increases
in all categories of expenses. The increase in expenses, both cash and
non-cash, have been significantly offset by a $3.2 million increase in interest
income as a result of the Company having surplus cash invested after completing
two financings during 2005.
Revenues
For the year ended December 31, 2005 the Company reported interest revenue of
$3.4 million as compared to $0.2 million for the year ended December 31, 2004.
The $3.2 million increase in revenue in 2005 is significantly larger than the
interest revenue from 2004 and is the result of investing surplus cash on hand
after the completion of two equity financings during 2005 as well as interest
rates improving over 2004 levels.
Expenses
Total operating costs for the year ended December 31, 2005 equaled $12.3
million compared to $2.0 million for the year ended December 31, 2004. This
represents an increase of $10.3 million or 515%. This increase can generally be
explained due to the fair-value of stock-based compensation that was expensed
during the year from the issuance of stock options. The fair-value of the
options expensed during the year was $9.0 million (2004 - $147,000). Once the
effect of accounting for stock-based compensation is removed, the specific
categories of expenses become more comparable period over period. The following
discussion relates to the expense variances, and removes the effect of
stock-based compensation for comparative purposes.
Administration expense increased from $0.9 million for 2004 to $1.5 million for
2005. The $0.6 million increase or 67% in administration expense is primarily
due to wages and benefits for additional support personnel required for the
increased activity of the Company. Consulting and professional fees increased
from $0.5 million for 2004 to $0.9 million or 80% for 2005. The increase in
fees is primarily due to legal fees associated with pre-feasibility due
diligence, contract negotiations, amendments to the Company's corporate
governance practices/policies, implementing the shareholder rights plan and
amending the stock option plan, as well as professional fees surrounding
various tax matters. Corporate development costs increased from $0.4 million
for 2004 to $0.8 million for 2005. This represents a 100% increase and is the
result of increased
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marketing efforts with respect to two equity financings. Finally, income tax
expense went from almost nil in 2004 to $0.4 million for 2005. The provision
for income tax is made up of approximately $0.1 million for large corporations
tax and $0.3 million for future income taxes. The increase in large corporation
tax is the result of the financings, the merger and exploration expenditures
that added a significant amount to the Company's taxable capital. The future
income tax expense predominately relates to the taxable temporary difference
arising from the dilution gain on the equity investment in Wescan.
Investing
In addition to the business combination adding approximately $419 million to
mineral properties, the Company also incurred another $42.3 in mineral property
additions related to the Star property and accrued another $2.4 million for the
Company's percentage share of costs related to the FALC Property post merger.
The expenditures on the Star property related to the completion of the 25,000
tonne bulk sample during the first quarter and activity surrounding the $44.0
million pre-feasibility study. Out of the $42.3 million in additions to the
Star property, approximately $3.5 million (2004 - $0.1 million) represents
non-cash expenses related to the fair-value of stock-based compensation to
consultants, contractors, and employees working directly on the property. In
addition to the $44.7 million incurred on exploration activities for the
consolidated Company, Shore entered into a voting agreement with Cameco and UEM
for a cost of $10 million plus $0.3 million in professional and consulting fees
to structure the deal. In 2004, the Company had mineral property additions
totaling $18.7 million and the additions predominately related to the first
25,000 tonne bulk sample from the Star Kimberlite.
Financing
During 2005, the Company completed two public offerings, the first of which
occurred in March whereby 21.2 million common shares were issued for gross
proceeds of $116.6 million. The second offering occurred in November and saw
the Company issue an additional 17.2 million shares for gross proceeds of
$120.1 million.
To finance the business combination between Shore and Kensington, Shore issued
an aggregate of 51,706,786 common shares, representing 0.64 common shares for
each issued and outstanding common share of Kensington to the former
shareholders of Kensington as at October 28, 2005. An additional 6,879,962
common shares were reserved for issuance pursuant to options, warrants and
broker warrants held by the former security holders of Kensington. The fair
value of the common shares, options, and warrants issued on October 28, 2005
was approximately $291.7 million. Kensington's net identifiable assets at the
time of the merger approximated $31 million and included $35 million in cash
that will be used to fund exploration programs on the FALC Property.
The exercise of 11.9 million options and warrants during the year resulted in
additional cash flow from financing activities of $28.4 million.
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After paying for the Company's operating and investing activities, the
Company's net increase to its cash position was $233 million. This increase
coupled with the $29 million of cash on hand at the beginning of the year
resulted in a $262 million cash position at December 31, 2005.
Summary of Quarterly Results
[Enlarge/Download Table]
-------------------------------- ------------------------------------- -------------------------------------
2005 2004
-------------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
$ $ $ $ $ $ $ $
-------------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Revenues (1) (000's) 1,469 805 810 283 121 29 44 37
-------------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Net loss (2) (000's) 5,551 1,159 180 1,599 246 202 567 460
-------------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Net loss/share (3) 0.05 0.01 0.00 0.02 0.01 0.00 0.01 0.01
-------------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Shares outstanding (4) (000's) 170,515 100,951 94,395 93,682 68,539 67,282 50,523 50,280
-------------------------------- --------- -------- --------- -------- --------- -------- --------- --------
(1) The increase in revenue in the last three quarters of 2005 is the result
of having increased cash balances from the closing of equity financings in
the first and fourth quarter of 2005.
(2) The 1st, 3rd and 4th quarters of 2005 saw marked increases in operating
costs primarily associated with the fair-value of stock-based compensation
granted during the quarter.
(3) Basic and diluted.
(4) The Company completed a public offering on March 22, 2005 resulting in the
issuance of 21.2 million shares from treasury. To culminate the merger
between the Company and Kensington, the Company issued an aggregate of
51.7 million common shares, representing 0.64 common shares for each
issued and outstanding common share of Kensington to the former
shareholders of Kensington as at October 28, 2005. The Company completed
its second public offering of the year by issuing 17.2 million common
shares on November 29, 2005. Other changes in the number of shares
outstanding are the result of warrant and option exercises.
Liquidity
The Company does not currently operate any producing properties and,, as such,
is dependent upon the issuance of new equity to finance its ongoing obligations
and advance its exploration properties. The Company's working capital at
December 31, 2005 is $253 million and is sufficient to cover all currently
contemplated exploration programs for the Star Property and FALC Property.
Until the Company's surplus cash is required to fund exploration or development
activities it is being invested in relatively risk-free, short-term instruments
with maturities not exceeding 3 months. Based on budgeted expenditure levels,
the Company will earn interest income during 2006 that should generate a
positive cash flow from operating activities.
As part of a larger financing in May 2005, Kensington raised $10 million of
flow-through financing to assist in their portion of the AE & E Plan on the
FALC Property. To the end of December, Kensington's portion of expenditures
related to the AE & E Plan was approximately $7 million, with the remaining $3
million to be incurred by the end of fiscal 2006.
To maintain its interest in the FALC Property, the Company is committed to fund
its share of FALC Property costs. As at March 27, 2006, the FALC JV partners
have not agreed upon a final budget regarding the exploration of the property;
however, with
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working capital in excess of $250 million at December 31, 2005,
the Company does not envision any issues meeting commitments.
The Company's contractual obligations are as follows:
[Enlarge/Download Table]
(Canadian dollars in thousands)
---------------------------------------- ------------------------------------------------------------------
Payment due by period
---------------------------------------- ------------ ------------- ------------ ------------ -------------
Total Less than 1 1 to 3 3 to 5 Thereafter
year years years
---------------------------------------- ------------ ------------- ------------ ------------ -------------
Lease of Premises $1,495 $ 172 $ 544 $ 307 $ 472
---------------------------------------- ------------ ------------- ------------ ------------ -------------
Operating Lease Obligations 348 341 7 - -
---------------------------------------- ------------ ------------- ------------ ------------ -------------
Flow-Through Funding 3,000 3,000 - - -
---------------------------------------- ------------ ------------- ------------ ------------ -------------
Total $4,843 $ 3,513 $ 551 $ 307 $ 472
---------------------------------------- ------------ ------------- ------------ ------------ -------------
During 2006, the Company is required to spend $368,000 to maintain all mineral
property claims currently held by Shore. Claims management on the FALC Property
is the responsibility of De Beers (the Operator). Shore will fund its share of
any costs associated with keeping the FALC Property claims in good standing.
Capital Resources
As at December 31, 2005, the Company had working capital of $252.6 million as
compared to $27.6 million at December 31, 2004 and $3.6 million at December 31,
2003. The Company received approximately $28.4 million from the exercise of
options and warrants since December 31, 2004. As at March 27, 2006, the Company
had a total of 172,452,640 common shares issued and outstanding.
The major change in the total issued and outstanding shares of the Company is
the result of the completion of the merger between Shore and Kensington which
caused 51,706,786 shares of Shore to be issued for all the outstanding shares
of Kensington. In addition, the Company issued 5,434,363 warrants and 705,579
broker warrants, all of which are the result of the Kensington warrants and
broker warrants outstanding at the time of the merger and are exchangeable for
Shore shares at a conversion rate of 0.64. As at March 27, 2006, there were
4,880,900 warrants and 207,701 broker warrants outstanding resulting from the
business combination. Should all the warrants and broker warrants be exercised,
the Company would be required to issue 3,256,704 common shares for gross
proceeds of $12.6 million.
As at March 27, 2006 there were 6,636,760 stock options outstanding and in the
event all options are exercised, the Company would receive an additional $25.6
million in proceeds.
Related Party Transactions
During the year ended December 31, 2005, management and consulting fees of
$887,334 (2004 - $668,020; 2003 - $1,188,797) were paid to directors, officers
and companies controlled by common directors; of these fees, $233,583 (2004 -
$239,660; 2003 - $141,917) was capitalized as additions to mineral properties;
$387,084 (2004 - $215,480; 2003 - $120,000) was included as administration
expense, and $266,667 (2004
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- $212,880; 2003 - $188,805) was included as consulting and professional fees
expense. The fair-value of stock-based compensation related to directors and
officers of the Company during the year ended December 31, 2005 was $6,167,510
(2004 - $178,020; 2003 -$566,955).
The above transactions were in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established and
agreed to by the related parties. The fair-value of stock-based compensation
was determined using the Black-Scholes model.
Fourth Quarter Results
The fourth quarter saw significant activity with respect to the Company. The
merger announced between Shore and Kensington was finalized and added over $300
million to the consolidated Company's net equity.
For the quarter ended December 31, 2005, the Company recorded a net loss of
$5.6 million or $0.05 per share compared to a net loss of $0.2 million, or
$0.01 per share for the same period in 2004. The major differences between the
quarter ended December 31, 2004 and 2005 is predominately related to the
fair-value of stock options expensed of approximately $6.2 million (2004 - nil)
as well as a general increases in all categories of expenses.
The Company generated $1.5 million in interest revenue during the fourth
quarter compared to $0.1 million for the corresponding period in 2004.
All categories of expenses have seen increases when compared to the fourth
quarter of the year before. Total expenses, when the effect of the fair-value
of stock based compensation is removed, went from $0.5 million in the fourth
quarter of 2004 to $1.1 million in the fourth quarter of 2005. These levels of
expenses are consistent with the growth the company has seen over the past 12
months.
During the fourth quarter the Company incurred $18.9 million in mineral
property additions related to the Star Diamond Property and accrued another
$2.4 million for the Company's share of costs related to the FALC Property post
merger. Shore also entered into a voting agreement with Cameco and UEM for a
cost of $10 million.
During November, the Company completed a public offering whereby 17.2 million
shares were issued for gross proceeds of $120.1 million.
Critical Accounting Estimates
Shore's consolidated financial statements are prepared in conformity with
Canadian generally accepted accounting principles ("GAAP"). The accounting
policies for the purposes of Canadian GAAP are described in note 2 to the
consolidated financial statements.
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Management considers the following polices to be the most critical in
understanding the judgments that are involved in preparing the Company's
consolidated financial statements and the uncertainties that could impact its
results of operations, financial condition and cash flows.
Mineral properties
All costs related to the acquisition, exploration and development of mineral
properties are capitalized. Upon commencement of commercial production, the
related accumulated costs are amortized against future income of the project
using the unit of production method over estimated recoverable reserves.
Management periodically assesses carrying values of non-producing properties
and if management determines that the carrying values cannot be recovered or
the carrying values are related to properties that are allowed to lapse, the
unrecoverable amounts are expensed.
The recoverability of the carried amounts of mineral properties is dependent on
the existence of economically recoverable reserves, the ability to obtain the
necessary financing to complete the development of such reserves and the
success of future operations. The Company has not yet determined whether any of
its mineral properties contain economically recoverable reserves. Amounts
capitalized as mineral properties represent costs incurred to date, less
write-downs and recoveries, and does not necessarily reflect present or future
values.
When options are granted on mineral properties or properties are sold, proceeds
are credited to the cost of the property. If no future capital expenditure is
required and proceeds exceed costs, the excess proceeds are reported as a gain.
Stock based compensation plans
Options granted under the share option plan on or after January 1, 2002 are
accounted for using the fair-value of the options on the date of grant, which
is determined by using an option-pricing model. The fair value estimate of the
options is dependent on the assumptions of the expected term, volatility,
risk-free rate of return and expected dividend yield which may be imprecise and
depend partly on statistical inferences drawn from past experience. The
estimated value of options can vary dramatically depending on the assumptions
used and the actual value of the options may be materially different from the
estimated value. Regardless of the actual value of the options or changes that
may occur in any of the factors used in estimating the fair value, the expense
recorded for stock compensation will not be adjusted.
New accounting pronouncements
Financial Instruments - Recognition and Measurement
In January 2005, the CICA released new Handbook Section 3855, "Financial
Instruments - Recognition and Measurement", effective for annual and interim
periods beginning on or after October 1, 2006. This new section establishes
standards for the recognition and measurement of all financial instruments,
provides a characteristics-based definition of a derivative financial
instrument, provides criteria to be used to determine when a financial
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instrument should be recognized, and provides criteria to be used when a
financial instrument is to be extinguished. The Company has not yet determined
the affect these new standards will have on its financial position and results
of operations.
Comprehensive Income and Equity
In January 2005, the CICA released new Handbook Section 1530, "Comprehensive
Income", and section 3251, "Equity", effective for annual and interim periods
beginning on or after October 1, 2006. Section 1530 established standards for
reporting comprehensive income. These standards require that an enterprise
present comprehensive income and its components, in a separate financial
statement that is displayed with the same prominence as other financial
statements. Section 3251 establishes standards for the presentation of equity
and changes in equity during the reporting period. The requirements in Section
3251 are in addition to Section 1530. The Company has not yet determined the
affect these new standards will have on its financial position and results of
operations.
Disclosure Controls and Procedures
Disclosure controls and procedures, as defined by Multilateral Instrument
52-109, were evaluated by the Chief Executive Officer and Chief Financial
Officer as at the end of December 31, 2005 and they have determined that such
disclosure controls and procedures were effective.
Outlook
As at March 27, 2006, the Company had approximately $247 million in cash and
cash equivalents. This will be used to complete the pre-feasibility study
announced in May 2005 and to undertake further programs on the Star Property
once they are defined. The funds will also be used to fund the exploration and
development of the FALC Property. The pre-feasibility study of the Star Diamond
Property will be conducted in order to determine the project viability under
current economic conditions. This will entail the collection of additional
exploration information, such as geological, geotechnical, geometallurgical,
geochemical, assaying and other relevant information to delineate and define
the Star Kimberlite, with a sufficient level of confidence, to estimate a
Mineral Resource conforming to National Instrument 43-101 and Canadian
Institute of Mining, Metallurgy and Petroleum ("CIM") standards.
The balance of cash and cash equivalents will be used to fund various other
exploration activities, acquisition and exploration of additional diamond
properties as opportunities warrant and general corporate matters.
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Caution regarding Forward-looking Information
From time to time, Shore makes written or oral forward-looking statements
within the meaning of certain securities laws, including the "safe harbour"
provisions of the Ontario Securities Act and the United States Private
Securities Litigation Reform Act of 1995. Shore may make such statements in
press releases, in other filings with Canadian regulators or the United States
Securities and Exchange Commission, in reports to shareholders or in other
communications. These forward-looking statements include, among others,
statements with respect to Shore's objectives for the ensuing year, our medium
and long-term goals, and strategies to achieve those objectives and goals, as
well as statements with respect to our beliefs, plans, objectives,
expectations, anticipations, estimates and intentions. The words "may,"
"could," "should," "would," "suspect," "outlook," "believe," "plan,"
"anticipate," "estimate," "expect," "intend," and words and expressions of
similar import are intended to identify forward-looking statements. In
particular, statements regarding Shore's future operations, future exploration
and development activities or the anticipated results of Shore's
pre-feasibility study or other development plans contain forward-looking
statements.
All forward-looking statements and information are based on Shore's current
beliefs as well as assumptions made by and information currently available to
Shore concerning anticipated financial performance, business prospects,
strategies, regulatory developments, development plans, exploration,
development and mining activities and commitments. Although management
considers these assumptions to be reasonable based on information currently
available to it, they may prove to be incorrect.
By their very nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks exist that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. We caution readers not to place undue reliance on these statements as
a number of important factors could cause the actual results to differ
materially from the beliefs, plans, objectives, expectations, anticipations,
estimates and intentions expressed in such forward-looking statements. These
factors include, but are not limited to, developments in world diamond markets,
changes in diamond valuations, risks relating to fluctuations in the Canadian
dollar and other currencies relative to the US dollar, changes in exploration,
development or mining plans due to exploration results and changing budget
priorities of Shore or its joint venture partners; the effects of competition
in the markets in which Shore operates; the impact of changes in the laws and
regulations regulating mining exploration and development; judicial or
regulatory judgments and legal proceedings; operational and infrastructure
risks and the additional risks described in Shore's most recently filed Annual
Information Form, annual and interim MD&A and short form prospectus, and
Shore's anticipation of and success in managing the foregoing risks.
Shore cautions that the foregoing list of factors that may affect future
results is not exhaustive. When relying on our forward-looking statements to
make decisions with respect to Shore, investors and others should carefully
consider the foregoing factors and other uncertainties and potential events.
Shore does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by Shore or on our behalf.
Additional Information
Additional information related to the Company, including the latest available
Annual Information Form, is available on SEDAR at www.sedar.com
Cautionary Note to United States Investors
------------------------------------------
All references to resource estimates incorporated by reference in this Annual
Report on Form 40-F have been prepared in accordance with Canadian National
Instrument 43-101 and the Canadian Institute of Mining, Metallurgy and
Petroleum Classification System. These standards differ significantly from the
requirements of the Securities and Exchange Commission (the "Commission"), and
resource information incorporated by reference herein may not be comparable to
similar information concerning U.S. companies.
Without limiting the foregoing, this Annual Report on Form 40-F, including the
documents incorporated by reference herein, uses the terms "measured",
"indicated" and "inferred" resources. United States investors are advised that,
while such terms are recognized and required by Canadian securities laws, the
Commission does not recognize them. Under United States standards,
mineralization may not be classified as a "reserve" unless the determination
has been made that the mineralization could be economically and legally
produced or extracted at the time the reserve determination is made. United
States investors are cautioned not to assume that all or any part of measured
or indicated resources will ever be converted into reserves. Further, "inferred
resources" have a great amount of uncertainty as to their existence and as to
whether they can be mined legally or economically. It cannot be assumed that
all or any part of the "inferred resources" will ever be upgraded to a higher
category. Therefore, United States investors are also cautioned not to assume
that all or any part of the inferred resources exist, or that they can be mined
legally or economically. Accordingly, information concerning descriptions of
mineralization and resources contained in this Annual Report on Form 40-F or in
the documents incorporated by reference, may not be comparable to information
made public by United States companies subject to the reporting and disclosure
requirements of the SEC.
Unless stated otherwise or the context otherwise requires, all references to
dollar amounts are references to Canadian dollars.
A. Disclosure Controls and Procedures
Disclosure controls and procedures are defined by the Commission as those
controls and other procedures that are designed to ensure that information
required to be disclosed by Shore Gold Inc. (the "Registrant") in reports filed
or submitted by it under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the Commission's rules and forms. The Registrant's Chief Executive Officer
and Chief Financial Officer have evaluated the Registrant's disclosure controls
and procedures as of the end of the period covered by this Annual Report on
Form 40-F and have determined that such disclosure controls and procedures are
effective.
B. Changes in Internal Control Over Financial Reporting
Since the most recent evaluation of the Registrant's internal control over
financial reporting, there has not been any significant change in the
Registrant's internal control over financial reporting or in other factors that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
C. Notice of Pension Fund Blackout Period
The Registrant was not required by Rule 104 of Regulation BTR to send any
notice to any of its directors or executive officers during the fiscal year
ended December 31, 2005.
D. Audit Committee Financial Expert
The Registrant's Board of Directors has determined that Mr. Arnie Hillier is an
audit committee financial expert within the meaning of General Instruction
B(8)(a) of Form 40-F. Mr. Arnie Hillier is an independent director within the
meaning of the rules and regulations of the American Stock Exchange.
The Commission has indicated that the designation of a person as an audit
committee financial expert does not make such person an "expert" for any
purpose, impose any duties, obligations or liabilities on such person that are
greater than those imposed on members of the audit committee and the board of
directors who do not carry this designation or affect the duties, obligations
or liability of any other member of the audit committee or board of directors.
E. Code of Ethics
The Registrant has adopted a code of ethics that applies to all directors,
officers and employees. The Registrant will provide a copy of the code of
ethics without charge to any person that requests a copy by contacting Mr.
Harvey Bay, at the address on the cover of this Form 40-F.
F. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed or to be billed by KPMG LLP, the Registrant's
principal accountants (the "Outside Auditors"), for the fiscal years ended
December 31, 2005 and 2004 for professional services rendered by the Outside
Auditors for the audit of the Registrant's annual financial statements or
services that are normally provided by the Outside Auditors in connection with
statutory and regulatory filings or engagements for such years were $128,953
and $23,300, respectively.
Audit-Related Fees
The aggregate fees billed by the Outside Auditors for the fiscal years ended
December 31, 2005 and 2004 for assurance and related services rendered by it
that are reasonably related to the performance of the audit or review of the
Registrant's financial statements and are not reported above as audit fees were
$42,164 and $975, respectively. Professional services provided in 2005 included
review of interim financial statements and preparation of business acquisition
report.
Tax Fees
The aggregate fees billed by the Outside Auditors for the fiscal years ended
December 31, 2005 and 2004 for professional services rendered by it for tax
compliance, tax advice, tax planning and other services were $21,430 and
$6,400, respectively. Tax services provided included Large Corporations Tax,
Saskatchewan Capital Tax and Provincial Sales Tax advisory.
All Other Fees
The aggregate fees billed by the Outside Auditors for the fiscal years ended
December 31, 2005 and 2004 for products and services provided by the Outsider
Auditors, other than the services reported in the preceding three paragraphs,
were $0 and $0, respectively.
Audit Committee Pre-Approval Policies
All audit and non-audit services performed by the Registrant's auditor are
pre-approved by the audit committee of the Registrant.
G. Off-Balance Sheet Arrangements
The Registrant is not a party to any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on its financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
H. Tabular Disclosure of Contractual Obligations
Refer to Document No. 3, page 8 of the Management's Discussion and Analysis for
the year ended December 31, 2005 filed with the Commission herein.
I. Critical Accounting Policies
A discussion of the Registrant's critical accounting policies can be found in
its Management's Discussion and Analysis for the year ended December 31, 2005
filed with the Commission as Document 3 herein.
J. Identification of the Audit Committee
Members of the Audit Committee are Arnie E. Hillier (Chair), A. Neil McMillan,
and James R. Rothwell Each member of the Audit Committee is independent and
financially literate.
Arnie Hillier is a member of the Saskatchewan Institute of Chartered
Accountants. He has over 24 years of financial experience in the resources
industry. Mr. Hillier is the past CEO and CFO of Claude Resources Inc. and was
in a senior financial capacity at Saskatchewan Mining and Development
Corporation (the predecessor of Cameco Corporation). Mr. Hillier is a director
of Claude Resources Inc., Wescan Goldfields Inc. and Pacific and Western Credit
Corp.
A. Neil McMillan graduated from the University of Saskatchewan with a Bachelor
of Arts Degree. He has over 10 years of experience in the resources industry.
Mr. McMillan is the CEO and President of Claude Resources Inc. Prior to joining
Claude in 1995, Mr. McMillan was a registered representative and an executive
with RBC Dominion Securities. Mr. McMillan sits on the audit committee of
Cameco Corporation, is a former director of Philom Bios Inc. and is a former
Director of the Atomic Energy Corp. of Canada.
James R. Rothwell graduated from Stanford University with a Degree in Economics
and also an MBA. Mr. Rothwell has over 30 years of experience in the resources
industry including the position of President with BHP Diamonds from 1997 to
2000. Mr. Rothwell is the past President and CEO of Dia Met Minerals Ltd. from
2000 to 2001.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
A. Undertaking
The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to the securities in relation to which the obligation to file an
annual report on Form 40-F arises or transactions in said securities.
B. Consent to Service of Process
The Registrant is filing with the Commission a Form F-X in connection with the
filing of this Annual Report.
SIGNATURE
Pursuant to the requirements of the Exchange Act, the Registrant
certifies that it meets all of the requirements for filing on Form 40-F and has
duly caused this annual report to be signed on its behalf by the undersigned,
thereto duly authorized.
SHORE GOLD INC.
By: /s/ KENNETH E. MACNEILL
------------------------------------
Name: Kenneth E. MacNeill
Title: President and Chief Executive
Officer
Dated: March 30, 2006
EXHIBIT INDEX
Number Document
------ --------
1. Consent of KPMG LLP.
2. Consent of Brent C. Jellicoe.
3. Consent of Daniel C. Leroux.
31. Certifications of CEO and CFO pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32. Certification of CEO and CFO pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Dates Referenced Herein and Documents Incorporated by Reference
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