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Augusta Resource Corp – ‘40FR12B’ on 7/13/06 – ‘EX-99.8’

On:  Thursday, 7/13/06, at 5:59pm ET   ·   As of:  7/14/06   ·   Accession #:  1062993-6-2010   ·   File #:  1-32943

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/14/06  Augusta Resource Corp             40FR12B     7/13/06   61:4.7M                                   Newsfile Corp/FA

Registration of Securities of a Canadian Issuer — SEA’34 §12(b)   —   Form 40-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 40FR12B     Registration Statement                              HTML     69K 
 2: EX-99.1     Annual Information Form for the Year Ended          HTML    180K 
                          December 31, 2005                                      
11: EX-99.10    MD&A for the Six Months Ended June 30, 2005         HTML    120K 
12: EX-99.11    First Quarter Report                                HTML    144K 
13: EX-99.12    MD&A for the Three Months Ended March 31, 2005      HTML     80K 
14: EX-99.13    Management Information Circular                     HTML    129K 
15: EX-99.14    Form of Proxy                                       HTML     34K 
16: EX-99.15    Preliminary Assessment and Economic Evaluation      HTML    373K 
17: EX-99.16    Mineral Resource Estimate                           HTML    257K 
18: EX-99.17    News Release Dated June 30, 2006                    HTML     27K 
19: EX-99.18    Material Change Report Dated June 26, 2006          HTML     22K 
20: EX-99.19    Material Change Report Dated June 14, 2006          HTML     48K 
 3: EX-99.2     Annual Information Form for the Year Ended          HTML    254K 
                          December 31, 2004                                      
21: EX-99.20    Material Change Report Dated June 5, 2006           HTML     21K 
22: EX-99.21    Material Change Report Dated June 2, 2006           HTML     19K 
23: EX-99.22    Material Change Report Dated May 18, 2006           HTML     25K 
24: EX-99.23    Material Change Report Dated May 5, 2006            HTML     26K 
25: EX-99.24    Material Change Report Dated April 27, 2006         HTML     19K 
26: EX-99.25    Material Change Report Dated April 11, 2006         HTML     18K 
27: EX-99.26    Material Change Report Dated April 7, 2006          HTML     26K 
28: EX-99.27    Material Change Report Dated March 17, 2006         HTML     23K 
29: EX-99.28    Material Change Report Dated March 6, 2006          HTML     20K 
30: EX-99.29    Material Change Report Dated February 16, 2006      HTML     23K 
 4: EX-99.3     Audited Annual Financial Statements                 HTML    534K 
31: EX-99.30    Material Change Report Dated January 26, 2006       HTML     31K 
32: EX-99.31    Material Change Report Dated January 16, 2006       HTML     26K 
33: EX-99.32    Material Change Report Dated January 16, 2006       HTML     30K 
34: EX-99.33    Material Change Report Dated November 22, 2005      HTML     21K 
35: EX-99.34    Material Change Report Dated November 11, 2005      HTML     28K 
36: EX-99.35    Material Change Report Dated October 13, 2005       HTML     26K 
37: EX-99.36    Material Change Report Dated September 29, 2005     HTML     22K 
38: EX-99.37    Material Change Report Dated September 20, 2005     HTML     20K 
39: EX-99.38    News Release Dated September 9, 2005                HTML     18K 
40: EX-99.39    News Release Dated August 25, 2005                  HTML     21K 
 5: EX-99.4     MD&A for the Years Ended December 31, 2005 and      HTML    169K 
                          2004                                                   
41: EX-99.40    Material Change Report Dated August 25, 2005        HTML     18K 
42: EX-99.41    Material Change Report Dated July 12, 2005          HTML     23K 
43: EX-99.42    Material Change Report Dated July 5, 2005           HTML     20K 
44: EX-99.43    News Release Dated June 23, 2005                    HTML     20K 
45: EX-99.44    Material Change Report Dated June 14, 2005          HTML     20K 
46: EX-99.45    News Release Dated June 9, 2005                     HTML     19K 
47: EX-99.46    Material Change Report Dated June 8, 2005           HTML     27K 
48: EX-99.47    Material Change Report Dated May 13, 2005           HTML     23K 
49: EX-99.48    Material Change Report Dated May 13, 2005           HTML     22K 
50: EX-99.49    Material Change Report Dated March 29, 2005         HTML     21K 
 6: EX-99.5     First Quarter Report                                HTML    198K 
51: EX-99.50    Material Change Report Dated March 4, 2005          HTML     22K 
52: EX-99.51    News Release Dated March 4, 2005                    HTML     24K 
53: EX-99.52    News Release Dated March 1, 2005                    HTML     26K 
54: EX-99.53    News Release Dated February 17, 2005                HTML     18K 
55: EX-99.54    News Release Dated February 11, 2005                HTML     18K 
56: EX-99.55    News Release Dated February 8, 2005                 HTML     21K 
57: EX-99.56    Material Change Report Dated January 27, 2005       HTML     22K 
58: EX-99.57    Consent of Expert in Connection With the Paee       HTML     18K 
                          Report                                                 
59: EX-99.58    Consent of Expert in Connection With the Rosemont   HTML     18K 
                          Property Report                                        
60: EX-99.59    Auditor's Consent (Ernst & Young LLP)               HTML     17K 
 7: EX-99.6     MD&A for the Three Months Ended March 31, 2006      HTML     99K 
61: EX-99.60    Auditor's Consent (Deloitte & Touche LLP)           HTML     17K 
 8: EX-99.7     Third Quarter Report                                HTML    244K 
 9: EX-99.8     MD&A for the Nine Months Ended September 30, 2005   HTML    135K 
10: EX-99.9     Second Quarter Report                               HTML    239K 


EX-99.8   —   MD&A for the Nine Months Ended September 30, 2005


This Exhibit is an HTML Document rendered as filed.  [ Alternative Formats ]



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  Filed by Automated Filing Services Inc. (604) 609-0244 - Augusta Resource Corporation - Exhibit 8  
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MANAGEMENT DISCUSSION AND ANALYSIS

Form 51-102F1

 

 

 

 

For the Period Ending

September 30, 2005

(Restated)


1.1      Date of Information

As discussed herein this Management’s Discussion and Analysis (“MD&A”) has been amended to give effect to the restatement as described in “Restatement” below and in “Restatement” in Note 2 of the restated consolidated financial statements for the three and nine months ended September 30, 2005. Apart from revisions resulting from the restatement this MD&A does not reflect events subsequent to November 23, 2005..

1.2      Overall Performance and Results of Operations

General

The following restated MD&A of Augusta Resource Corporation, (the “Company”) should be read in conjunction with the accompanying unaudited restated interim financial statements for the nine months ended September 30, 2005 and with the audited financial statements for the years ended December 31, 2004 and 2003, all of which are available at the SEDAR website at www.sedar.com.

All financial information in this MD&A is prepared in accordance with Canadian generally accepted accounting principles.

Restatement

During the preparation of the Form 40-F filing document, a requirement of an American Stock and Options Exchange (AMEX) listing the Company is pursuing, the Company discovered non-cash errors relating to its financial statements for the first quarter ended March 31, 2006 as well as for each quarter of 2005. In the previously released financial statements the Company had not properly accounted for the convertible debenture issued on June 1, 2005. CICA Handbook Section 3860 requires that the proceeds received from the issuance of convertible debt be allocated between its equity and debt components. The Company had treated all the proceeds as debt. Further, upon review of the option pricing model (Black-Scholes) used for valuing stock options and warrants issued during 2005, the Company concluded that the time period used to calculate the volatility assumption required adjustment. Refer to the Consolidated Financial Statements Note 2 for more details.

Additional third quarter adjustments (which were properly reflected in the year end consolidated financial statements) relate primarily to the change in the discount rate for the debt incurred in the Mount Hamilton acquisition from 4% to 15% and the recording of the tax gross-up, (see Note 7 to the restated Consolidated Financial Statements for the three and nine months ended September 30, 2005).

Forward-Looking Statements

Certain statements contained in the following Management’s Discussion and Analysis constitute forward-looking statements. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance of achievements of the Company to be materially different from actual future results and achievements expressed or implied by such forward-looking statements, which speak only as of


the date the statements were made, and readers are also advised to consider such forward-looking statements while considering the risks set forth below.

Description of Business

The Company is engaged in the exploration and development of mineral properties located in Pima County, Arizona; White Pine County, Nevada; Grant County, New Mexico; and in the Coronation Diamond District in Nunavut, Canada. These properties are in the exploratory and development stages and are thus non-producing and consequently do not generate any operating income or cash flows from operations. The Company depends on equity capital to finance its activities.

Overview of Performance

Property in Pima County, Arizona

On June 1, 2005, the Company announced that it had entered into an Option Agreement, to purchase 100% of the Rosemont Ranch copper deposits in Pima County, Arizona. The property is approximately 50km southeast of Tucson, situated near a number of large porphyry type producing copper mines operated by Phelps Dodge and Asarco.

The Company has the right to purchase a 100% working interest in the property (which includes patented and unpatented claims, fee land and surface grazing rights) subject to a 3% NSR, for cash payment of US $20,800,000 payable over a three year period. The Company does not retain a liability to make the payments, but it would surrender any claims to the property. The Company has made the first payment of $6,666,666 USD.

The Company commenced drilling on the Rosemont deposit in August 2005, to carry out a program of confirmation and in-fill drilling initially totalling 3,000 metres in size, designed to verify the historic resources and to develop an updated modern resource estimate. On September 19, 2005 the Company announced plans to extend the drilling program to approximately 10,000 metres in order to test down dip extensions to the main Rosemont open pit copper/molybdenum/silver deposit and add new measured and indicated resources. All drilling and assaying is being done under a strict QA/QC protocol that includes independent lab analysis on sawn diamond drill core.

The deposit outcrops at its western edge and follows the orientation of the host rocks, dipping beneath arkosic rocks to the east. Previous closely spaced drilling programs have defined the shallow, western portion of the deposit, but have left the eastern, deeper extension less well defined.

On October 13, 2005 the Company announced assay results for the first three holes, which test the down-dip extension and include the following:

Drill Hole From (m) To (m) Interval (m) Cu% Mo% Ag g/t
AR-2000 172.5 186.0 13.5 0.35 0.005 2.8
AR-2000 204.0 228.0 24.0 0.33 0.016 3.1
AR-2000* 239.7 462.0 222.3 0.96 0.011 12.8
AR-2001 219.0 235.5 16.5 0.48 0.015 3.2
AR-2001 266.4 478.5 212.1 0.77 0.018 5.7
AR-2002 232.5 488.1 255.6 0.57 0.015 5.0

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*Results from the 222.3 metre interval of drill hole AR-2000 include 21.6 metre of 1.97% Cu, 0.002% Mo and 23.5 g/t Ag and an additional 10.3 metres of 1.94% Cu, 0.012% Mo and 28.3 g/t Ag.

On November 10, 2005 the company reported the results of an additional 1139.3 meters. These additional drill intersections compare favorably to the historic resource results completed by Anamax and Asarco. The additional drill results are illustrated in the following table:

Drill Hole From (m) To (m) Interval (m) Cu% Mo% Ag g/t
AR-2003 248.4 513.6 265.2 0.81 0.028 8.1
AR-2004 118.1 365.8 247.7 0.47 0.008 10.5
AR-2004 434.3 529.1  94.8 0.69 0.022 9.9

The property contains three known potentially open-pit mineable copper/molybdenum skarn deposits on patented mining claims. Over 70,713.6 meters of diamond drilling has been conducted outlining approximately 5 billion pounds of Copper within a historical estimate of 400,705,100 tons of 0.64% Cu, 0.018% Mo and 0.25 ounces per ton silver. The Company is completing the work necessary to verify the classification of the resource and is not treating the resource figure as a NI 43-101 defined resource verified by a Qualified Person at this time and therefore the resource figures should not be relied upon by investors.

The Company’s 2005 drill program is being conducted to finalize the identification of measured and indicated resources in the main zone (where a future pit would start) and to develop measured and indicated resources down-dip in order to provide the resource base for a larger pit. A first priority in the design of the infill drilling is to reduce the amount of waste or inferred resources that may be categorized as such simply due to insufficient drill-hole density. The elimination of such areas is expected to minimize the strip ratio in the design of a future pit. Augusta Resource Corporation remains on track to produce a pre-feasibility study and associated Technical Report filing in the first quarter of 2006. Washington Group International Inc. has been retained to lead the pre-feasibility study and Stantec Consulting has been retained to develop the environmental, hydrological, closure and permitting plans, schedules and cost estimates.

Total project expenditures to complete the exploration, pre-feasibility and related technical study are expected to range from $1.7 million to $2.5 million, depending on the final number of diamond drill holes in the ultimate program.

As of the end of the Q3 2005 project expenditures on this work program have totalled $1,121,231, with $1,018,436 expended during the third quarter.

Properties in White Pine County, Nevada

On December 2, 2004, the Company announced the signing of an agreement to acquire a 100% interest in the Mount Hamilton Gold Project, located in White Pine County, Nevada. The Company purchased the Mount Hamilton Gold Project by purchasing 100% of the shares of DHI Minerals Ltd., which owned 100% of DHI Minerals (U.S.) Ltd., the holder of the property. The terms of the acquisition include the payment of $3,000,000 USD payable in cash over two years (Net present value of $3,103,438), 3,750,000 common shares at $0.16 USD per share, fair value of $720,000 and 3,750,000 warrants to purchase common shares with an exercise price of $0.16 USD per share for a period of two years, fair value of $465,163. Under the terms of the acquisition the Company assumed the underlying Net Smelter Royalty (“NSR”) and minimum

4


advance royalty payments to Centennial Minerals Company, LLC. Prior to commercial production, $100,000 USD per annum commencing on November 19, 2005 and continuing until November 19, 2010 when the annual payment amount increases to $300,000 USD per annum. Upon commencement of commercial production, a base rate of 3% NSR is payable, subject to an increase whenever the price of gold is greater than $400 USD per ounce. The NSR shall increase by one half of one percent for each $50 USD increment to a maximum of 8% NSR. The Company has the option to purchase up to one and one half percentage points of the NSR for $2,000,000 USD.

Effective May 6, 2005, the Company acquired 100% of the outstanding common shares of DHI Minerals Ltd. The purchase method was used to account for this transaction and the entire purchase consideration of $4,337,601 was allocated to the mining property acquired.

The project is located approximately 45 miles east of Eureka, Nevada and 50 miles west of Ely, Nevada and is accessible from Highway 50 over good all-weather gravel roads. The White Pine Mining District has a long history of silver and gold mining, dating back to the first gold discovery in 1865.

Mount Hamilton has multiple exploration targets including surface bulk mineralization as well as high-grade vein style mineralization. Six separate high priority areas have been identified. An extensive amount of exploration and drilling information on these areas is included in the acquisition.

On January 26, 2005, the Company announced the signing of agreements to acquire the Shell Deposit in White Pine County, Nevada. The Shell Deposit, located nearby the Mount Hamilton property, was subject to past exploration programs, with results indicating that the property hosted molybdenum and gold mineralization. The Company is acquiring a 100% working interest, subject to an underlying Net Smelter Royalty ranging from 0.5% - 4.5%, for cash payment of $120,000 US, and annual advance royalty payments commencing at $80,000 US on first anniversary increasing by $20,000 per year until production commences.

The Company plans to drill approximately 3,000 metres of diamond core to verify previously discovered mineralized bodies and explore their extensions. Permit applications are in place for this drilling program and approval is expected in the first quarter of 2006. Data acquisition and compilation from earlier exploration programs is underway. Total Phase I program budget is estimated at $600,000 and is planned for completion in 2006.

As of the end of the Q3 2005 project expenditures on the Mount Hamilton property was $139,497, with $31,832 incurred during the three month period ended September 30, 2005. Total project expenditures on the Shell property were $12,789 to date with no work completed in the third quarter.

Property in Grant County, New Mexico

On March 1, 2005, the Company announced the signing of an agreement to acquire the Lone Mountain project in New Mexico. The Property is approximately 5 miles from the town of Silver City, New Mexico, 9 miles southwest of Phelps Dodge’s Chino mine and 5 miles northwest of Phelps Dodge’s Hurley smelter. The Company can acquire a 100% working interest, subject to an underlying Net Smelter Royalty ranging from 2.0% - 3.0%, minimum exploration commitments of $4,850,000 USD, $500,000 USD to be completed by February 11, 2006, and payments of US$1,000,000 cash and 325,000 common shares over a 3-year period. In addition,

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until the property is in commercial production, the Company will make payments of US$400,000 cash and 100,000 common shares on the fourth and each subsequent anniversary. The Company has the option to purchase half of the NSR for $2,000,000 USD. The agreement is effective on May 11, 2005. The Company has paid $100,000 USD and issued 50,000 common shares to date.

A Phase 1 drilling program of approximately 3,000 metres of diamond core is anticipated to verify and extend deep, relatively high-grade Cu-Zn mineralization. The permit applications have been submitted and the negotiation for surface drilling access rights are currently being negotiated with private landowners.

Virtually all of the data from previous programs has been acquired and an electronic database and updated geological model have been completed. Scoping level studies will commence upon completion of the Phase 1 drill program and are expected to be completed by May 2006. Total Phase I program budget and scoping study is estimated at $1,000,000.

As of the end of the Q3 2005 project expenditures on this work program have totalled $38,630, with $11,131 expended during the quarter.

Properties in the Coronation Diamond District, Nunavut, Canada

The Company has four separate option agreements with 4763 NWT Ltd. (“NWT”) to acquire working interests (“WI”) of 10% and 20% for four properties located in the Coronation Diamond District in Nunavut, Canada, which aggregate about 487,300 acres in the region.

The property agreements for the four properties require the Company to pay NWT cash amounts totaling $231,573. The terms of these agreements also require the Company to issue common shares to NWT totalling 116,670 common shares, of which 58,335 shares are to be issued within 10 days of the Approval Date, and 58,335 shares by the first anniversary date of the initial share issuance. NWT has optioned 85% and 70% WI, respectively, in each of the four properties to various third party exploration companies (“Primary Optionees”), with the balance of the 5% and 10% WI, respectively, to be retained by NWT. The Primary Optionees earn their interests by completing work expenditures over a 3 to 4 year period, whereby the Company will in effect have carried interests in these properties pending the Primary Optionees earning their 85% and 70% WI. The Company has agreed to assume responsibility for NWT’s work expenditures relative to NWT’s 5% and 10% WI in these properties for an amount up to the work expenditures to be completed by the Primary Optionees on each of these four properties to earn their 85% and 70% WI, respectively.

As at September 30, 2005, the financial statements show Mining Properties Costs of $247,907 and Deferred Exploration Expenses of $3,594 related to these properties. The Company has issued 33,334 shares at a deemed price of $0.11 per share and 58,335 shares at a deemed price of $0.28 per share, and accrued an amount of $55,000 to NWT included in accounts payable, which is to be settled by the issuance of shares of the Company, subject to regulatory approval. The Company has no plans to conduct any work on these properties, pending receipt of reports of work performed by the Primary Optionees.

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As at September 30, 2005, the Company’s capitalized costs on its mining assets were as follows:

    Mining Properties Cost     Deferred Exploration Expenses  
Mining assets:   2005     2004     2005     2004  
                         
 Rosemont property $  8,439,226   $  -   $  1,121,231   $  -  
                         
 Mt. Hamilton property   6,574,757     37,157     139,497     16,191  
                         
 Lone Mountain property   271,236     -     38,630     -  
                         
 Shell property   -     -     12,789     -  
                         
 Coronation Diamond District properties   247,907     247,907     3,594     3,594  
                         
  $  15,533,126   $  285,064   $  1,315,741   $  19,785  
                         
Mining properties:   2005     2004              
                         
 Balance, beginning of year $  285,064   $  544,706              
                         
     Acquisition costs   13,048,062     37,157              
                         
     Acquisition tax gross-up   2,200,000     -              
                         
     Write-offs   -     (296,799 )            
                         
 Balance at September 30, 2005 and December 31, 2004 $  15,533,126   $  285,064              
                         
Deferred exploration expenses:   2005     2004              
                         
 Balance, beginning of year $  19,785   $  174,549              
                         
     Geologists, consultants and professional services   1,295,956     57,591              
                         
     Write-offs   -     (212,355 )            
                         
 Balance at September 30, 2005 and December 31, 2004 $  1,315,741   $  19,785              

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Results of Operations

Comparison of the nine-month period ending September 30, 2005 and 2004 (restated)

                INCREASE/  
    2005     2004     (DECREASE)  
                   
EXPENSES                  
 Accounting and audit $  -   $  (500 ) $  500  
 Amortization   748     -     748  
 Administration   22,500     22,500     -  
 Consulting and communication   42,173     -     42,173  
 Debt issue costs   180,712     -     180,712  
 Filing and regulatory   106,914     13,672     93,242  
 Fiscal and advisory services   22,460     -     22,460  
 Foreign exchange (gain)   (237,828 )   1,413     (239,241 )
 Interest and finance charges   1,335,412     1,677     1,333,735  
 Investor relations   36,725     -     36,725  
 Legal fees   3,884     59,199     (55,315 )
 Office and sundry   188,110     3,295     184,815  
 Recruitment fees   45,174     -     45,174  
 Salaries and benefits   392,327     131,407     260,920  
 Stock based compensation   681,530     22,815     658,715  
 Travel   35,037     3,509     31,528  
                   
 Loss from operations   (2,855,878 )   (258,987 )   2,596,891  
 Interest and other income   36,441     -     (36,441 )
 Gain from settlement of debt   8,847     -     (8,847 )
 Write-off of mining assets   -     (509,154 )   (509,154 )
                   
LOSS FOR THE PERIOD $  (2,810,590 ) $  (768,141 ) $  2,042,449  

Operating loss before other items for the nine-month period ending September 30, 2005 was $2,855,878. This was $2,596,891 higher than the loss of $258,987 for the same period ending September 30, 2004, as the company was relatively inactive for the period 2004. In the previous period, management was continually searching for and negotiating prospective property acquisitions. These efforts began to show results in final quarter of 2004 and during the nine-month period ended September 30, 2005. The largest differences were an increase of $658,715 in stock based compensation expense as a result of 2,910,000 stock options being issued to corporate directors, officers and employees during the period as well a $1,333,735 increase in interest expense following the acquisition of Mount Hamilton and the issuance of the convertible debenture. These increases accounts for 77% of the increase in the operating loss before other items.

Amortization of $748 was recorded during the period due to the establishment of an office in Denver, Colorado and the purchase of computer hardware.

As a result of increased operational activity during the period consulting and communication fees have increased to $42,173 from $nil the previous period. Consultants were used for various operational and administrative requirements during the period.

Filing and regulatory expenses during the period ending September 30, 2005 were $106,914, which is an increase of $93,242 over $13,672 incurred to September 30, 2004. This increase is the result of the acquisitions of the three properties located in the U.S. and the completion of four

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private placements and a convertible debenture generating an aggregate of $16,480,921 for the Company.

Fiscal and advisory services during the period ending September 30, 2005 were $22,460 over $nil during the period ending September 30, 2004. This increase is the result of share issuances during the period for the various private placements and options and warrants exercised.

The foreign exchange gain of $237,828 during the period ended September 30, 2005 is a recovery of $239,241 over the foreign exchange loss during the period ended September 30, 2004. This recovery resulted from an $205,824 unrealized foreign exchange gain on the $2,500,000 USD notes payable, reflecting the significant drop in the USD exchange rate at September 30, 2005.

Interest and finance charges at September 30, 2005 are $1,335,412 an increase of $1,333,735 over $1,677 during the period ended September 30, 2004. This increase is the result of the accretion of interest expense on the convertible debenture ($980,597) as well as the accrual of $180,000 (at 9%) interest due on the $6,000,000 convertible debenture issued by the Company and $173,289 in discount interest based on an interest rate of 15% on the $2,500,000 USD notes payable.

Legal fees for the period ended September 30, 2005 are $3,884 compared to $59,199 for the period ended September 30, 2004 a decrease of $55,315. The 2004 expense was due to work primarily associated with properties in Nunavut, Canada during the period December 1, 2000 to April 29, 2003 and while supposedly invoiced in September 2003 the Company had no record of receiving same. This matter was brought to the Company’s attention in July 2004.

Investor relations increased to $36,725 during the period ended September 30, 2005 from $nil in the prior period. These expenditures were incurred to provide investors with information on the Company’s increased operations and activities. On September 27, 2005 the Company announced the appointment of Roth Investor Relations to conduct investor relations activities in North America.

Office and sundry expenses for the period ended September 30, 2005 are $188,110 compared to $3,295 for the period ended September 30, 2004, an increase of $184,815. The costs are higher as a result of the opening of the office in Denver, Colorado, as well as the absorption of 50% of common facility expenses for the Vancouver office such as rent, communication, and miscellaneous office expenses that was wholly absorbed in 2004 by a related company with common directors and officers.

Recruitment fees for the period ended September 30, 2005 were incurred for the search for a candidate for the President and CEO’s position.

Salaries and benefits have increased by $260,920, which is primarily due to the addition of the new President & CEO and VP Exploration positions based in Colorado. Both persons commenced their engagement in April 2005. An administrative/secretarial person has also been engaged for this office. Additionally, the Company appointed a VP Projects and Environment on September 29, 2005, which will increase the salaries and benefits for the ensuing periods.

Travel has increased to $35,037 for the period ended September 30, 2005 from $3,509 for the period ended September 30, 2004, an increase of $31,528. This increase is the result of additional personnel and new travel requirements with operations now based in the US and Canada.

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The increased in interest income to $36,441 during the period resulted from substantial increased bank balances from equity funds raised during the period and the investment of these funds in guaranteed investment certificates.

Comparison of the three-month period ending September 30, 2005 and 2004 (restated)

                INCREASE/  
    2005     2004     (DECREASE )  
                   
EXPENSES                  
 Accounting and audit $  -   $  -   $  -  
 Amortization   748     -     748  
 Administration   7,500     7,500     -  
 Consulting and communication   3,421     -     3,421  
 Debt issue costs   135,534     -     135,534  
 Filing and regulatory   (7,932 )   993     (8,925 )
 Fiscal and advisory services   5,437     -     5,437  
 Foreign exchange (gain)   (240,268 )   (328 )   (239,940 )
 Interest and finance charges   991,785     (3,614 )   995,399  
 Investor relations   3,489     -     3,489  
 Legal fees   (1,367 )   59,199     (60,566 )
 Office and sundry   57,396     -     57,396  
 Recruitment fees   -     -     -  
 Salaries and benefits   180,900     43,750     137,150  
 Stock based compensation   336,005     22,815     313,190  
 Travel   14,867     (2 )   14,869  
                   
 Loss from operations   (1,487,515 )   (130,313 )   1,357,202  
 Interest and other income   29,021     -     (29,021 )
    -              
LOSS FOR THE PERIOD $  (1,458,494 ) $  (130,313 ) $  1,328,181  

Operating loss before other items for the three-month period ending September 30, 2005 was $1,487,515. This was $1,357,202 higher than the loss of $130,313 for the same three-month period ending September 30, 2004, as the company was relatively inactive for the period 2004. In the previous period, management had not had significant results for its negotiations on prospective property acquisitions. These acquisitions have resulted in substantial increased operations in the three-month period ended September 30, 2005. The most significant expenses during the three month period were an increase of $313,190 in stock based compensation expense as a result of 2,235,000 stock options being issued to corporate directors, officers and employees during the period. In addition interest and finance charges were $995,399 higher reflecting the debt obligation established with the purchase of the Mount Hamilton property and the issuance of the convertible debenture. These increases accounts for 96% of the increase in the operating loss before other items.

Amortization of $748 was recorded during the quarter due to the establishment of an office in Denver, Colorado and the purchase of computer hardware.

As a result of increased activity during the three-month period ending September 30, 2005 consulting and communication fees have increased to $3,421 from $nil the previous period. Consultants were used for various operational and administrative requirements during the period

10


Filing and regulatory expenses during the three-month period ending September 30, 2005 were ($7,932), which is a decrease of $8,925 over $993 incurred to September 30, 2004. This decrease is the result of the capitalization of certain filing fees from the June 30, 2005 quarter for the acquisition of DHI Minerals Inc. and the refund on the overpayment of certain regulatory fees.

Fiscal and advisory services during the three-month period ending September 30, 2005 were $5,437 over $nil during the period ending September 30, 2004. This increase is the result of share issuances during the period for exercise of warrants exercised.

The foreign exchange gain of $240,268 during the three-month period ended September 30, 2005 is an increase of $239,240 over the foreign exchange gain during the three-month period ended September 30, 2004. This recovery resulted from a $205,824 unrealized foreign exchange gain on the $2,500,000 USD notes payable relative to the Mount Hamilton acquisition, and the significant drop in the USD exchange rate at September 30, 2005.

Interest and finance charges for the three-month period ended September 30, 2005 are $991,785 an increase of $995,399 over the three-month period ended September 30, 2004. This increase is the result of the accretion of interest expense on the convertible debenture of $757,651 as well as the accrual of $135,000 (at 9%) interest due on the $6,000,000 convertible debenture issued by the Company and $98,291 in discount interest based upon an interest rate of 15% on the $2,500,000 USD notes payable.

Legal fees for the three-month period ended September 30, 2005 are a recovery of ($1,367) compared to $59,199 for the period ended September 30, 2004 a decrease of $60,566. The 2004 expense was due to work primarily associated with properties in Nunavut, Canada during the period December 1, 2000 to April 29, 2003 and while supposedly invoiced in September 2003 the Company had no record of receiving same. This matter was brought to the Company’s attention in July 2004. The recovery of fees during the three-month period ending September 30, 2005 relate to the capitalization of fees.

Investor relations increased to $3,489 during the three-month period ended September 30, 2005 from $nil in the prior period. These expenditures were incurred to provide investors with information on the Company’s increased operations and activities. On September 27, 2005 the Company announced the appointment of Roth Investor Relations to conduct investor relations activities in North America.

Office and sundry expenses for the three-month period ended September 30, 2005 are $57,396 compared to $nil for the three-month period ended September 30, 2004. The costs are higher as a result of the opening of the US office in Denver, Colorado, as well as the absorption of 50% of common facility expenses for the Vancouver office such as rent, communication, and miscellaneous office expenses that was wholly absorbed in 2004 by a related company with common directors and officers.

Salaries and benefits have increased by $137,150, which is primarily due to the addition of the new President & CEO and VP Exploration positions based in Colorado. Both persons commenced their engagement in April 2005. An administrative/secretarial person has also been engaged for this office. Additionally, the Company appointed a VP Projects and Environment on September 29, 2005, which will increase the salaries and benefits for ensuing periods.

Travel has increased to $14,867 for the three-month period ended September 30, 2005 from a recovery of $2 for the three-month period ended September 30, 2004, an increase of $14,869.

11


This increase is the result of additional personnel and new travel requirements with operations now based in the US and Canada.

The increase in interest income to $29,021 during the period resulted from substantial increased bank balances from equity funds raised during the period and the investment of these funds in guaranteed investment certificates.

1.3      Select Annual Information

    2004     2003     2002  
Total Revenue   nil     nil     nil  
Total net loss   (866,057 )   (298,933 )   (520,877 )
Total net loss and diluted net loss per share   (0.06 )   (0.04 )   (0.10 )
Total assets   1,365,194     722,175     537,506  
Total long-term financial liabilities   32,997     32,353     30,901  
Cash dividends declared per share   nil     nil     nil  

1.4      Summary of Quarterly Results

Selected financial information for each of the eight most recently completed quarters of fiscal 2005, 2004 and 2003 are as follows, the 2005 quarters have been restated:

                Net loss per share  
    Revenue     Net Loss     basic & diluted  
Sep 2005   Nil     1,458,494   $  0.04  
Jun 2005   Nil     861,062   $  0.03  
Mar 2005   Nil     491,034   $  0.02  
Dec 2004   Nil     97,916   $  0.01  
Sep 2004   Nil     130,313   $  0.01  
Jun 2004   Nil     577,324   $  0.07  
Mar 2004   Nil     60,504   $  0.01  
Dec 2003   Nil     21,482   $  0.01  

1.5      Liquidity

The Company’s mineral exploration and development activities have provided the Company with no sources of income and a history of losses, working capital deficiencies and deficit positions. However, given the nature of its business, the results of operations as reflected in the net losses and losses per share do not provide meaningful interpretation of the Company’s performance and valuation.

12


The Company’s working capital deficit as at September 30, 2005 was $719,982 compared with working capital of $502,874 as at December 31, 2004. The Company raised $16,480,921 through private placements, convertible debentures and warrant and option exercise. The Company invested $8,594,461 of this directly into three property acquisitions in the US and expended $1,065,478 on exploration costs. The Company’s cash position as at September 30, 2005 was $5,487,009 in comparison to $989,799 as of December 31, 2004, an increase of $4,497,210.

The Company has $6,966,572 due in debt obligations as of September 30, 2005 compared to $56,285 due on December 31, 2004, an increase of $6,910,287. These obligations have been incurred to purchase the Mount Hamilton property and for the $6,000,000 convertible debenture utilized for the initial payments for the Rosemont property. The amount due for the Mount Hamilton purchase is $1,500,000 USD and is expected to be funded through additional equity financing. On June 1, 2005 the Company issued a convertible debenture for $6,000,000. The debenture has a one-year term and is convertible into 2,181,818 common shares of the Company at a price of $2.75 per share. The debenture bears an interest rate of 9% annually and can be repaid in either cash or shares at the option of the Company. In connection with the debenture, the Company issued to the investor 363,363 common shares of the Company at a deemed price of $2.805 per common share, which had a hold period that expired on October 2, 2005. The Company also paid a fee in the amount of 6% cash and 218,181 warrants to Northern Securities Inc. in connection with the transaction. Each warrant is exercisable to acquire one common share at $2.75 per warrant for a period of one year expiring on June 14, 2006. The warrants have a hold period expiring on October 15, 2005. (See Note 9 of the restated financial statements for additional details on the convertible debenture.

On November 18, 2005 the Company announced that it has re-negotiated the terms of its convertible debenture to allow for repayment in the form of cash and stock, as opposed to cash or stock. The Company retired $3,000,000 of the convertible debenture plus interest by payment of $1,620,000 in cash and the issuance of 1,500,000 common shares valued at $1.10 per share. In consideration for the debenture holder amending the terms of the debenture the Company will issue 750,000 warrants with an exercise price of $1.44 expiring in one year. The Company has the right to force conversion of the warrants if the Company’s shares trade over $2.00 for a period of 30 days. The issuances of the warrants are subject to regulatory approval.

1.6      Capital Resources

The Company’s primary capital assets are mineral properties, which are discussed in detail in section 1.2 Overall Performance. The Company has entered into several option agreements, which provide for exploration acquisitions and expenses to be incurred, however, these are option agreements and the Company is not committed to completing these expenditures.

On March 3, 2005, the Company closed the private placement for 3,500,000 units at $0.30 per unit for proceeds of $1,050,000. Each unit is comprised of one common share and one half of a non-transferable share purchase warrant. One whole share purchase warrant entitles the holder to acquire one common share at a price of $0.45 for a period of one year expiring on March 3, 2006. A finder’s fee of $73,500 was paid for this placement.

On April 15, 2005, the Company closed two private placements. One private placement was for 1,954,250 units for gross proceeds of $1,954,250. Each unit is comprised of one common share and one half share purchase warrant, with each full warrant entitling the subscriber to purchase an additional common share for $1.25 for a period of one year. Upon closing, 977,125 warrants

13


were issued with an expiration date of April 15, 2006. Finder’s fees of $118,947.50 cash and 30,015 broker’s warrants on the same terms as those issued under the placement were paid.

The other private placement was for 1,544,250 units for gross proceeds of $3,088,500. Each unit is comprised of one common share and one half share purchase warrant, with each full warrant entitling the subscriber to purchase an additional common share for $2.50 for a period of one year. Upon closing, 772,125 warrants were issued with an expiration date of April 15, 2006. Finder’s fees of $186,795 cash and 60,030 broker’s warrants on the same terms as those issued under the placement were paid.

On June 29, 2005, the Company closed a brokered private placement of 2,000,000 units at $2.50 per unit for gross proceeds of $5,000,000. Each unit is comprised of one common share and one warrant. Each warrant entitles the holder to purchase one common share at a price of $3.00 for a period of two years expiring on June 29, 2007. Finder’s fees of $350,000 cash and 200,000 broker’s warrants on the same terms as those under the private placement were paid.

The Company historically has relied upon equity subscriptions to satisfy its capital requirements. The Company will continue to depend upon equity capital to finance its activities. There are no assurances that capital requirements will be met by this means of financing as inherent risks are attached therein including commodity prices, financial market conditions, and general economic factors. Management continues with its efforts to secure additional financing arrangements for the Company and the support of its creditors.

1.7      Off Balance-Sheet Arrangements

The Company does not utilize off-balance sheet arrangements.

1.8      Transactions with Related Parties

As of September 30, 2005, the Company incurred expenses of $22,500 (2004 - $22,500) for administrative services provided by a company in which Richard W. Warke, Chairman and a Director of the Company has a 25% interest. Administration services include services related to the general operations of the Company, day-to-day administrative office services (eg. facsimile capabilities and internet services), other administrative services which the Company may reasonably require from time to time, and rental of office equipment and furnishings.

As of September 30, 2005, the Company incurred salaries of $112,500 (2004 - $75,000) to Richard W. Warke, Chairman of the Company, $123,289 (2004 – $nil) to Gil Clausen, President and CEO and $56,250 (2004 - $56,250) to Donald B. Clark, Director. Also, as of September 30, 2005, included in accounts payable and accrued liabilities is an amount of $56,250 (2004 - $nil) due to Mr. Clark for salaries accrued in the current year.

At September 30, 2005, included in accounts receivable is an amount of $4,349 (2004 – $nil) due from Sargold Resource Corporation, a related company with common directors as a result of a cost sharing arrangement for office rent and operating expenses.

At September 30, 2005 included in prepaid is $12,367 (2004 - $37,567) in advances for expenses to Richard W. Warke, Chairman.

14


1.9      Proposed Transactions

There are no transactions that will materially affect the performance of the Company.

1.10    Critical Accounting Estimates

Not applicable.

1.11    Changes in Accounting Policies including Initial Adoption

Effective January 1, 2004, the Company adopted the CICA Handbook Section 3870, “Stock-based Compensation and Other Stock-based Payments”, which requires fair value accounting for all stock options issued during the year. Compensation expense for options granted is determined based on the estimated fair values of the stock options at the time of grant, the cost of which is recognized over the vesting periods of the respective options. This change in accounting policy was applied retroactively without restatement of prior periods. On January 1, 2004, the company increased the deficit by $32,500 and increased contributed surplus by $32,500.

1.12    Financial Instruments and Other Instruments

The carrying values of cash, accounts receivable, marketable securities, accounts payable and accrued liabilities, loans, notes and advances and convertible debenture as reflected in the balance sheet approximate their fair values. The company has no significant concentrations of credit risk.

1.13    Commitments

The office lease in Canada commenced April 1, 2003 and ends February 27, 2006. The office lease in Colorado started June 1, 2005 and ends May 31, 2008. The future minimum lease payments are as follows:

Year      
2006 $  68,222  
2007   58,288  
2008   39,607  
Total $  166,117  

1.14    Share Capital information

As at the date of this report the Company had an unlimited number of common shares authorized for issuance, with 37,409,093 issued and outstanding. The Company had 3,326,833 outstanding stock options with 766,833 vested and available for exercise. The Company also had 16,430,643 in outstanding warrants available to be exercised. From September 30, 2005 to the date of this report no options were exercised and 186,625 warrants were exercised for total proceeds of $113,681.

In addition, the Company will issue 1,500,000 common shares valued at $1.10 per share on December 1, 2005 in exchange for partial conversion of the convertible debenture. $3,000,000 of the convertible debenture remains and is convertible into 1,090,909 of common shares at a price

15


of $2.75 per share. The debenture bears an interest rate of 9% annually and can be repaid with cash and shares at the option of the Company.

The Company will issued an additional 750,000 warrants with an exercise price of $1.44 expiring in one year, as consideration for the debenture holder amending the terms of the debenture. The issuance of the warrants is subject to regulatory approval and has not been included in total warrants outstanding as of the report date.

1.15    Subsequent Events

On November 18, 2005 the Company announced that it has re-negotiated the terms of its convertible debenture to allow for repayment in the form of cash and stock, as opposed to cash or stock. The Company retired $3,000,000 of the convertible debenture plus interest by payment of $1,620,000 in cash and the issuance of 1,500,000 common shares valued at $1.10 per share. In consideration for the debenture holder amending the terms of the debenture the Company will issue 750,000 warrants with an exercise price of $1.44 expiring in one year. The Company has the right to force conversion of the warrants if the Company’s shares trade over $2.00 for a period of 30 days. The issuances of the warrants are subject to regulatory approval.

16



Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘40FR12B’ Filing    Date    Other Filings
11/19/10
5/31/08
6/29/07
Filed as of:7/14/06F-X
Filed on:7/13/06F-X
6/14/06
4/15/06
3/31/06
3/3/06
2/27/06
2/11/06
12/1/05
11/23/05
11/19/05
11/18/05
11/10/05
10/15/05
10/13/05
10/2/05
9/30/05
9/29/05
9/27/05
9/19/05
6/30/05
6/29/05
6/1/05
5/11/05
5/6/05
4/15/05
3/3/05
3/1/05
1/26/05
12/31/04
12/2/04
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1/1/04
12/31/03
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