RE: RE: Sedars are outSidon International Resources Corporation
Management’s Discussion and Analysis of Results of
Operations and Financial Condition of Sidon International Resources Corporation
For The Nine Month Ended January 31, 2011
(Expressed In Canadian Dollars)
This management discussion and analysis has been prepared as of March 31, 2011 and
should be read in conjunction with the unaudited interim consolidated financial statements
of the Company for the nine months ended January 31, 2011 and the subsequent
management discussion and analysis March 31, 2011. All dollar figures stated herein are
expressed in Canadian dollars, unless otherwise specified.
Description of Business:
Sidon International Resources Corporation is a publicly traded mineral exploration
company listed on the TSX Venture Exchange, Tier 2, trading under the symbol: SD.and
on the Frankfurt Exchange under the symbol SY7. The Company is primarily focused on
exploring mineral properties in Canada and the USA.
The Company is a junior exploration company involved in the acquisition and exploration
of precious metal mineral properties. The Company has an option agreement to acquire
an undivided 50% interest in the DEF1 claim in the Northwest Territories, Canada.
On October 11, 2007, The Company received approval from the TSX regarding the
agreements relating to the Dolly Varden properties located in Elko, Nevada and the
Saskatchewan Coal Mine in Canada.
In addition, the Company has also assembled a portfolio of properties comprised of
extremely promising Coal (final permits received), Copper and Potash (permits received)
properties with select Diamond, Gold and Base metal properties located in BC, Alberta
and Saskatchewan.
DEF 1 Claim, Northwest Territories, Canada:
On July 21, 2004, the Company entered into an Option Agreement (“Agreement”) to
acquire a 50% interest in the DEF 1 Claim (the “Property”) located in Drybones Bay,
Northwest Territories, Canada.
Under the terms of the Agreement, the Company would earn a 50% undivided interest in
the Property in consideration of a cash payment of $50,000 and 750,000 treasury shares
(deemed value of $52,500) and $400,000 of work expenditure commitment as follows:
Option Exercise Schedule
Issue
Shares
Payment Exploration
Expenditures
5 days following TSX Approval Date (March 15, 750,000 $50,000 -
2005)
On or before the first anniversary of the TSX
Approval Date
- - $ 50,000
On or before the second anniversary of the TSX
Approval Date
- - $150,000
On or before the third anniversary of the TSX
Approval Date
- - $200,000
Total 750,000 $50,000 $400,000
(1) Shares have been delivered and $50,000 paid.
The Property is subject to 1.5% gross over-ride royalty in perpetuity on the net appraised
value of all diamonds that are produced from the Property.
As at January 31, 2011, the Company has not met its exploration expenditure
commitment on the DEF1 project. This may result in a reduction of the earn-in-interest as
described in the option agreement.
Dolly Varden, Southwest Nevada
The Company has optioned a 51-per-cent interest in the North Dolly Varden claims,
southeast of Elko, Nevada. The Dolly Varden property is a copper gold skarn property
located just south of the old Kennecott Victoria mine that produced over two million tons
of high-grade copper in the 1960s.
The exclusive 51-per-cent interest of the right, title and interest are formed from the
MinQuest Claims and the Cardigan-West Claims.
Under the terms of the Agreement, the Company would earn a 51% undivided interest in
the Property in consideration of a cash payment of $200,000; 3,000,000 treasury shares
(deemed value of $435,000) and $850,000 of work expenditure commitment.
In 2008, the Company paid $200,000; and issued 2 million common shares with a
deemed value of $290,000.
In August 2010, the Company issued 1 million common shares with a deemed value of
$145,000.
All required expenditure payments have been made.
Option Exercise Schedule
Issue
Shares
Cash
Payment
Exploration
Expenditures
5 days following TSX Approval Date (October 11,
2007)
1,500,000 $ 125,000 US$ -
On or before the first anniversary of the TSX
Approval Date
500,000 25,000 100,000
On or before the second anniversary of the TSX
Approval Date
1,000,000 50,000 250,000
On or before the third anniversary of the TSX
Approval Date
- - 500,000
Total 3,000,000 $200,000 US$850,000
COAL AND POTASH
COAL
The Company has received a 'Comfort Letter' from the Government of Saskatchewan in
regards to the coal application submitted by the company in June 2008. The 'letter of
comfort' states that the Company has priority status on 100% of the applications
submitted.
In January 2009, the Company received 24 coal permits covering 18,432 hectares of coal
permits in Saskatchewan (approximately 45,546 acres) and in east-central Alberta in the
area of the recent Goldsource Mines Inc. coal discovery.
POTASH
The company has applied for a number of metallic mineral permits from the Department
of Alberta Energy, Mineral Development Division in Edmonton, Alberta in the Vermillion
area on the Saskatchewan-Alberta border, which includes the rights to subsurface
potash, totaling over 200,000 acres.
The potash minerals are found in the Prairie Evaporite section of the Middle Devonian Elk
Point Basin. The carnallite minerals lie on top of a thick 400 foot section of common salt
(halite). A thickness of twelve feet of carnallite was reported to be present and the pinkish
and greyish mineral, in all probability sylvite, occurs through the first 80 feet of the Prairie
Evaporite.
Potash occurs over the upper 150 feet at Esterhazy and in the Saskatoon area. The
potash minerals are of the same composition and depositional sequence and depth as
the potash at Unity, Saskatchewan, the location of Canada's first Potash Mine. A possible
potash bed occurs at 2600 feet in the Prairie Evaporite which could be an extension of the
Unity deposit. The lower deposits are separate but occur at 3500 feet similar to the
Saskatoon deposits.
In December 2008, the Company received ten (10) metallic & industrial mineral permits
from the Alberta Energy Mineral Development & Strategic Resources Division.
The permits comprise a total area of 87,088 hectares located in the Vermilion region of
Alberta.
Stewart Mining Region of British Columbia
TSX Venture Exchange has accepted for filing an option agreement dated October 01,
2009 between Sidon International Resources Corporation (the ‘Company’) and 0862373
BC Ltd, whereby the Company will acquire acquire a 100% interest in six claim blocks
consisting of 2,668 hectares located in the Stewart Mining Region of British Columbia.
Total consideration consists of $50,000 in cash payments, 4,000,000 shares of the
Company, and $500,000 in work expenditures over a two year period.
In addition, there is a 3% net smelter return relating to the acquisition. The Company may
at any time purchase 1% of the net smelter return for $1,000,000 in order to reduce the
total net smelter return to 2%.
As of January 31, 2011, the $50,000 payment outstanding is included in accounts
payable.
Alberta
On August 31, 2009, the Company entered into an Option Agreement dated, and
amended on January 19, 2010 with MGK Consulting Inc., pursuant to which the Company
acquired 100% interest in 8 mineral claims located in Alberta. Total consideration consists
of $75,000 in cash payments, 3,000,000 shares of the Company, and $500,000 in work
expenditures ($250,000 in each of year 1 and 2 of the agreement).
In January 2010, the Company issued 3,000,000 shares with a deemed value of
$150,000 and paid $75,000.
MEG Gold Property, Tanzania
On May 10, 2010 an agreement was executed between Kokanee Placer Ltd (Laurence
Stephenson). and the Company. The Company has agreed to acquire an option to earn
an 80% interest in the MEG Gold Property located in the Morogoro Rural District of
Tanzania. In consideration, the Company will pay US$1,500,000 and issue 7,000,000
shares to Kokanee Placer Ltd. and spend US$1,500,000 on exploration of the property as
follows:
• US$350,000 cash and 3,000,000 shares within 5 days of Exchange acceptance;US$100,000 cash and US$350,000 of exploration within 90 days of Exchange
acceptance;
• US$350,000 cash and US$500,000 of exploration within 180 days of Exchangeacceptance;
• US$350,000 cash and 3,000,000 shares within 270 days of Exchange acceptance;and;
• US$350,000 cash, 1,000,000 shares and US$650,000 exploration by the secondanniversary of Exchange acceptance.
Upon earning its 80% interest the Company has the right to acquire a further 15% interest
in exploration and development expenditures by paying US$3,000,000 and issuing
3,000,000 shares to Kokanee and spending US$5,000,000 over 3 years.
The Company may convert the remaining 5% to a 3% NSR Royalty in favor of the
Morogoro Regional Mining Group Limited by paying an additional US$1,500,000.
If the Company exercises the option to acquire the additional 15% or 20% before the
thirtieth day following the second anniversary of the acceptance of the agreement, the
Company is not required to spend the additional US$5,000,000 in exploration
expenditures.
In July 2010, the Company issued 3,000,000 for an aggregate deemed consideration of
$195,000.
The Company anticipates that the capital requirements for the twelve months ending
January 31, 2012 will be as follows: (Canadian Dollars)
DEF 1
Property
Dolly
Varden
Property
Potash
&
Coal
mine
Stewart
Mining Alberta
MEG
Gold
Property
Total
Exploration Cost:
Consulting Fees $ 25,000 $ 35,000 $ 80,000 $25,000 $ 50,000 $100,000 $215,000
Drilling & Exploration Costs 125,000 500,000 200,000 100,000
80,000 450,000 1,455,000
Field Supplies, Maintenance &
Miscellaneous 35,000 120,000 100,000 40,000
50,000 150,000 495,000
Geological & Analysis 50,000 80,000 180,000 40,000 40,000 50,000 440,000
Property Maintenance 5,000 25,000 40,000 15,000 50,000 50,000 185,000
Travel & Accommodation 50,000 50,000 70,000 35,000 35,000 50,000 290,000
Total $ 290,000 $810,000 $670,000 $255,000 $305,000 $850,000 $3,080,000Overall Performance
• Capitalized mineral property costs incurred for the period ended January 31, 2011totaled $3,005,067 that included 3,000,000 shares issued for the Morogoro with a
deemed value of $195,000 and 1,000,000 shares issued for Dolly with a deemed
value of $145,000). (2010- $832,299)
• General and administrative expenses for the period ended January 31, 2011totaled $1,352,778 (2010 - $404,711), in which $1,045,983 (2010 - $151,249) was
stock based compensation.
• The Company raised $3,598,341 (2010 - $967,958) in cash through issuingshares, and the exercise of warrants and options for the period ended January 31,
2011. Cash used in operations was $427,640 (2010 -$235,389) and cash used in
investing activities was $2,666,367 (2010 -$832,299). The Company maintains a
positive cash position and is expected to be able to continue operations for the
coming year.
Market Trends
In 2011 & 2010 the price of gold increased, continuing an overall up-trend. The average
price of gold was $1,436 and 1,093 per ounce on March 25, 2011 and 2010, respectively.
Selected Annual Information
The following selected financial data should be read in conjunction with the company’s
financial statements:
Year Ended Year Ended Year Ended
Apr. 30, 2010 Apr. 30, 2009 Apr. 30, 2008
(restated) (restated) (restated)
Financial Results
Interest & Other Income $ Nil $ Nil $ Nil
Operating Expenses 676,520 585,704 640,515
Net Loss 676,520 585,704 640,515
Loss per Share (0.01) (0.01) (0.02)
Weighted average number of outstanding
shares 62,945,517 43,406,921 34,074,730
Total Assets 3,600,906 2,363,935 2,105,360
Working Capital (Deficiency) (restated) (1,012,517) (947,446) (699,902)
Mineral Properties 3,509,303 2,324,924 2,026,453
Long-Term Liabilities $ Nil $ Nil $ Nil
Total Liabilities (restated) 1,087,655 962,679 744,373
Share Capital 7,780,052 6,298,345 5,492,720
(Deficit) (restated) (5,695,749) (4,961,037) (4,368,333)
Restatement Details:
April 30, 2010
As Previously
Reported
$
Adjustment
$ Notes
April 30, 2010
As Restated
$
Consolidated Balance Sheets
Working Capital (Deficiency) (849,325) (163,192) (a),(b) &(c) (1,012,517)Total Liabilities 924,463 163,192 a),(b) &(c) 1,087,655(Deficit) (5,532,557) (163,192) a),(b) &(c) (5,695,749)April 30, 2009
As Previously
Reported
$
Adjustment
$ Notes
April 30, 2009
As Restated
$
Consolidated Balance Sheets
Working Capital (Deficiency) (842,446) (105,000) (a) & (b) (947,446)Total Liabilities 857,679 105,000 (a) & (b) 962,679(Deficit) (4,856,037) (105,000) (a) & (b) (4,961,037)April 30, 2008
As Previously
Reported
$
Adjustment
$ Notes
April 30, 2008
As Restated
$
Consolidated Balance Sheets
Working Capital (Deficiency) (601,902) (98,000) (a) (699,902)Total Liabilities 646,373 98,000 (a) 744,373(Deficit) (4,270,333) (98,000) (a) (4,368,333)
RESTATEMENT ADJUSTMENTS RELATING TO FLOW THROUGH SHARES
In the 2006 calendar year, the Company issued flow through shares for proceeds of
$675,850 resulting in an obligation and commitment to spend the proceeds on Canadian
exploration and development. The Company has renounced these expenditures to the
investors and spent $138,018 of the flow through share proceeds on exploration and
development, leaving a remaining balance of $537,832 to be spent. When issuing flow
through shares the Company is required to incur the applicable amount of eligible
expenses within a prescribed period of time (December 2007) and renounce the
expenditures in prescribed form as required by Canada Revenue Agency.
The Company did not incur all of the required expenditures within the prescribed period
and has not filed all the applicable forms required under the flow through share program
administered by Canada Revenue Agency. As a result the Company has incurred
additional tax under Part XII.6 of the Income Tax Act, penalties and interest in current and
prior periods for which the Company has not previously accrued. As a result of the
foregoing, the Company has recorded the following additional liability and corresponding
corrections:
a) Recorded a liability of $98,000 as at April 30, 2008 with a corresponding adjustment to
deficit for tax under Part XII.6 of the Income Tax Act, penalties and interest
b) Recorded an additional liability of $7,000 as at April 30, 2009 (bringing the total liability
to $105,000) for additional interest charges on unpaid amounts
c) Record an additional liability of $58,192 as at April 30, 2010 (bringing the total liability
to $246,000 as the Company had already accrued $82,808) for additional penalties
and interest charges on unpaid amounts
d) Reclassified previously recorded penalties and interest from office, rent and
miscellaneous to interest and penalties from flow through shares on the consolidated
statement of operations for the year ended April 30, 2010
Results of Operations
The total loss for period end January 31, 2011 was $1,352,778 (2010 - $404,711). During
the last nine months, the Company recorded $1,045,983 stock based compensation
expense on stock option granted to two directors. These were recorded in consulting and
management fees as described below.
During the period ended January 31, 2011, the Company paid $810,844 (in which
$732,219 was paid by stock based compensation) for consulting fees (2010 - $120,625).
During the period ended January 31, 2011, the Company recorded $359,636 (in which
$313,764 was paid through stock based compensation) for management fees (2010 -
$169,635).
The increase of operational expenses related to filing and transfer agent fees and investor
relations expense.
During the period ended January 31, 2011, a total of $9,480 interest and penalties was
accrued on the flow through share.
Filing and transfer agent fees increased by 124% compared to last year. These expenses
related to the Company completing a private placement of 15.3 million units and 11.4
million financing, shares issuance for property acquisitions, warrants and options
exercised.
During the period ended January 31, 2011, the Company retained a consulting firm to
provide investor relations services to the company. This increased the investor relations
fees by approximately $9,000.
Professional fees increased by 166%. This increase was incurred through legal activity on
property acquisitions and private placements.
Capitalized mineral property costs:
Capitalized deferred exploration costs incurred during the period ended January 31, 2011
totaled $3,005,067 that included 3,000,000 shares issued for the Morogoro with a
deemed value of $195,000 and 1,000,000 shares issued for Dolly with a deemed value of
$145,000). (2010- $832,299)
Dolly
Varden
Property
Tanzania
Morogoro
Total
Acquisition Costs:
Additions: $ 145,000 $ 1,010,225 $ 1,155,225
Balance, January 31, 2011 145,000 1,010,225 1,155,225
Exploration Cost:
Additions:
Consulting Fees - 346,700 346,700
Drilling & Exploration Costs - 513,532 513,532
Field Crew - 347,500 347,500
Field Supplies, Maintenance &
Miscellaneous - 297,378 297,378
Geological & Analysis - - -
IT Support - - -
Property Maintenance - 244,700 244,700
Travel & Accommodation - 100,032 100,032
- 1,849,842 1,849,842
Balance, January 31, 2011 145,000 1,849,842 1,994,842
Additional Resource Properties and
Deferred Exploration Costs as of
January 31, 2011
$ 145,000 $ 2,860,067 $ 3,005,067
During the third quarter, the Company was starting the drilling program on the Company's
MEG Property southeast of Morogoro in east-central Tanzania.
The Company retained a contractor, AFGF (Tanzania) Ltd. for $346,700 to conduct the
first 6 holes drilling program. The drilling program has been started, for which incurred
$513,532 and $347,500 of drilling costs and field crew costs.
The program confirmed of the anticline association with the gold mineralization was
indicated in the first 2 drill holes (MLAFD 001 and 002) that were drilled between 75-100
m and 150 m, respectively, southeast of the workings and intersected the south limb of
the anticline mineralization.
Selected Quarterly Results
The following financial information has been derived from various audited and interim
financial statements, prepared in accordance with Canadian generally accepted
accounting principles (“GAAP”). While these statements follow the same accounting
policies and methods of application as the January 31, 2011 financial statements, they do
not contain all the information presented in the annual audited financial statements and
should, therefore, be read in conjunction with same.
3 Month 3 Month 3 Month 3 Month 3 Month 3 Month 3 Month 3 Month
Ended Ended Ended Ended Ended Ended Ended Ended
Jan 31,
2011
Oct 31,
2010
Jul 31,
2010
Apr 30,
2010
Jan 31,
2010
Oct 31,
2009
Jul 31,
2009
Apr 30,
2009
(Restated) (Restated)
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Financial Results
Interest & Other Income $ Nil $ Nil $ Nil $ Nil $ Nil $ Nil $ Nil $ Nil
Operating Expenses $109,927 $526,719 $716,132 $271,809 $84,020 $105,607 $215,084 $354,675
Restated - - - $58,192 $7,000
Total restated operating
expenses $109,927 $526,719 $716,132 $330,001 $84,020 $105,607 $215,084 $361,675
Recovery of future income
tax assets - - - - - - - -
Net Loss (income) and
comprehensive loss $109,927 $526,719 $716,132 $330,001 $84,020 $105,607 $215,084 $361,675
Loss per Share $(0.001) $(0.006) $(0.009) $(0.001) $(0.001) $(0.002) $(0.004) $(0.008)
The Company does not derive revenue from its operations. Its primary focus is in the
acquisition and exploration of resource properties.
The Loss for the accounting period has fluctuated widely, depending on the Company’s
activity level. Some periodic items may or may not have been incurred in each period,
including stock based compensation, write-downs, and other intermittent items.
The major increase in the net loss was write-down costs for the Harrison Lake property in
the amount of $267,500 – this was recorded in the 4th quarter of fiscal year 2009.In the 1st quarter ended July 31, 2009, the major increases of the net loss were due tostock based compensation expenses of $151,249.
In the 4th quarter ended April 30, 2010, the major increases of the net loss were asfollowing:
The Company paid Geofin Geological & Financial consulting firm (Laurence Stephenson)
$100,000 for general mining expenses, consultation and a preliminary property study for
property(s) in Tanzania.
The Company accrued approximately $83,000 (Restated - $141,000)) in office rent and
miscellaneous expenses for interest charged on the unspent balance of the flow through
share proceeds for exploration and development renounced effective December 2006.
During the 1st quarter ended July 31, 2010, the major increase in the net loss was due tostock based compensation expenses of $627,528.
During the 2nd quarter ended October 31, 2010, the major increase in the net loss wasdue to stock based compensation expenses of $418,445.
Liquidity and Capital Resources
The Company does not have any cash flow from operations. The Company receives
funds for use in its operations primarily from issuing common shares in the Company and
from funds advanced by Directors. At January 31, 2011 the Company had cash of
$12,979 (Jan 2010 - $4,842). The Company has a working deficiency of $411,924 (Jan
2010: $954,767 (Jan 2010: $1,059,767 (restated))
On July 20, 2010, a total of 15,300,000 units were issued at
.05 per unit for gross
proceeds of $765,000. Each unit comprises one common share of the company and one
share purchase warrant exercisable into one common share in the capital of the company
for two years at the exercise price of 10 cents per share on or before the first anniversary
of the date of the issuance of the warrant, and 15 cents thereafter until expiry. In
connection with this private placement, the Company paid $3,250 in cash and issued
65,000 shares at
.075 per share with a deemed value of $4,875 as a finder’s fee.
On September 21, 2010, a total of 11,400,000 units were issued at
.10 per unit for
gross proceeds of $1,140,000. Each unit comprises one common share of the company
and one share purchase warrant exercisable into one common share in the capital of the
company for two years at the exercise price of 15 cents per share on or before the first
anniversary of the date of the issuance of the warrant, and 20 cents thereafter until expiry.
In connection with this private placement, the Company paid $8,000 in cash and issued
50,000 shares at
.10 per share with a deemed value of $5,000 as a finder’s fee.
During the nine months ended January 31, 2011, a total of 10,350,000 warrants were
exercised at
.05 for gross proceeds of $517,500 and a total of 4,050,000 warrants were
exercised at
.10 for gross proceeds of $405,000.
During the nine months ended January 31, 2011, a total of 8,000,000 options were
exercised at
.10 for gross proceeds of $800,000 and a total of 3,549,500 options were
exercised at
.12 for cash proceeds of $354,450, and $71,490 was charged to due to
related party. A total of $1,045,983 of contributed surplus was reclassified to common
shares.
On May 10, 2010, the Company issued 3,000,000 shares at
.065 per share, a total
deemed value of $195,000 to acquire a beneficial interest in claims located in the
Morogoro Regional Mining District of the United Republic of Tanzania.
On August 10, 2010, the Company issued 1,000,000 shares at
.145 per share, a total
deemed value of $145,000 to the acquisition cost of Dolly property.
On February 17, 2011, a total of 2,000,000 warrants were exercised at
.10 for gross
proceeds of $200,000.
On February 23, 2011, a total of 892,857 units were issued at
.14 per unit for gross
proceeds of $125,000. Each unit comprises one common share of the company and one
share purchase warrant exercisable into one common share in the capital of the company
for five years at the exercise price of 15 cents per share.
The Company’s working capital requirements vary with its activity level. Financial
instruments are all or substantially held in cash or cash equivalence.
There has been no material changes in the Company’s contractual obligations or mineral
property option payments during the period that are outside the ordinary course of the
Company’s business.
Risk and Uncertainties
Mineral exploration and development involves a high degree of uncertainty and risk. The
Company is active in acquisition and exploration of properties and concessions that have
not yet been determined to contain economic mineralization. In addition, certain
jurisdictions in which the Company operates can be subject to environmental and politcal
disturbance, which may affect the Company’s mineral tenure and access.
Although the Company endeavours to work utilizing Best Management Practices,
changes to environmental regulations can negatively affect the Company’s ability to
access, explore and develop its properties.
Off-Balance Sheet Items
The Company does not have any off-balance sheet items.
Related Party Transactions
As at January 31, 2011 and April 30, 2010, the balance in due to related parties
comprises the following:
(a) The amounts owing to officers and directors are unsecured, non-interest bearing and
due on demand.
In the normal course of operations, the Company has entered into certain related party
transactions, which have been measured at the respective exchange amounts, being the
consideration established and agreed by the related parties.
The Company had the following transactions with parties related:
2011 2010
Consulting fees (b) $ 782,542 $ 120,624
Management fees (c) 359,636 124,636
Rent (d) 13,820 14,703
Office expenses (e) 8,544 5,770
Travel and promotion (f) 393 754
$ 1,164,935 $ 266,487
(b) The Company has an agreement with a director to provide consulting services for a
fee of $5,000 per month. During the nine months ended in January, 2011, the
Company paid $45,000, an additional financial consulting fee of $5,323 and 7,549,500
stock options (note 8d) valued as $732,219 for the consulting services (2010:
$120,624).
(c) The Company has an agreement with another director to provide management and
administrative services for a fee of $5,000 USD per month. During the nine months
ended in January, 2011, the Company paid $45,872 plus 4,000,000 stock options
(note 8d) valued at $313,764 for the management and administrative services. (2010:
$124,636).
January 31, 2011 April 30, 2010
Officers and Directors (a) $ 80,951 $ $ 695,852
$ 80,951 $ $ 695,852
(d) The Company has a rental agreement with a director to provide office space for a fee
of $1,500 USD per month. During the nine months ended in January, 2011, the
Company paid $13,820 for rent (2010: $14,730).
(e) During the nine months ended in January, 2011, the Company reimbursed the
Company’s CEO $8,544 for various office expenses (2010: $5,770).
(f) During the nine months ended in January, 2011, the Company reimbursed to the
Company CEO of $393 for travel to the mining site and general administration
purpose (2010: $754)
(g) A total of 8,000,000 options were exercised at
.10 for gross proceeds of $800,000
and a total of 3,549,500 options were exercised at
.12 for a cash proceeds of
$354,450, and $71,490 was charged to due to related party.
Critical Accounting Estimates
By definition the Company is a venture issuer and as such utilizes limited critical
accounting estimation. The Company’s recoverability of the recorded value of its mineral
property costs is dependent upon many factors beyond the Company’s control. The
Company is engaged in an industry that is dependent on a number of conditions including
property tenure, environmental and permitting risks, legal and political risks and the
Company’s ability to obtain necessary financing to maintain, explore and develop its
mineral properties.
The preparation of financial statements in conformity with Canadian Generally Accepted
Accounting Principles requires management to establish accounting policies and to make
estimates that affect both the amount and timing of the recording of assets, liabilities and
expenses. Some of these estimates require judgment about matters that are inherently
uncertain. Note 2 to the consolidated financial statements for the year ended April 30,
2010 includes a summary of the significant accounting policies adopted by the Company.
The following policy is considered to be the critical accounting policies as they involve the
use of significant estimates.
Mineral properties and deferred costs
Mineral property acquisition costs and related exploration and exploration overhead
expenditures are capitalized in the accounts of the Company. The Company defers these
costs until the property is placed into production, abandoned, sold or it is determined that
there has been an impairment and the carrying values may not be recovered. At that
time, the deferred costs are amortized on a unit-of-production basis, or written-down, as
appropriate. Costs applicable to abandoned properties are charged to operations in the
year of abandonment. The carrying values of these properties are periodically assessed
by management and if management determines that the carrying values may not be
recovered, the unrecoverable amounts are written off against operations in the year such
determination is made. The amounts shown for mineral properties and deferred costs
represent costs incurred to date, less write-downs, and do not necessarily reflect present
or future values.
Changes in Accounting Policy
Recent pronouncements in accounting standards (not yet adopted)
In January 2009, the Accounting Standards Board ("AcSB") issued CICA Handbook
Section 1582, “Business Combinations”, which replaces Section 1581, “Business
Combinations”. The AcSB also issued Section 1601, “Consolidated Financial
Statements”, and Section 1602, “Non-Controlling Interests”, which replace Section 1600,
“Consolidated Financial Statements”. These new sections are based on the International
Accounting Standards Board’s (“IASB”) International Financial Reporting Standard 3,
“Business Combinations”. These new standards replace the existing guidance on
business combinations and consolidated financial statements.
These new standards require that most assets acquired and liabilities assumed, including
contingent liabilities, to be measured at fair value and all acquisition costs to be
expensed. These new standards also require non-controlling interests to be recognized
as a separate component of equity and net earnings to be calculated without a deduction
for non-controlling interests. The objective of these new standards is to harmonize
Canadian accounting for business combinations with the international and U.S.
accounting standards. The new standards are to be applied prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after January 1, 2011, with earlier application permitted.
Assets and liabilities that arose from business combinations whose acquisition dates
preceded the application of the new standards will not be adjusted upon application of
these new standards. The Non-Controlling Interests standard should be applied
retrospectively except for certain items. The Company does not expect that the adoption
of this standard will have a material impact on its consolidated financial statements.
International financial reporting standards
In January 2006, the CICA Accounting Standards Board ("AcSB") adopted a strategic
plan for the direction of accounting standards in Canada. As part of that plan, accounting
standards in Canada for public companies will converge with International Financial
Reporting Standards ("IFRS"). On February 13, 2008, the AcSB confirmed that the
standards will become effective for all publicly accountable enterprises in interim and
annual consolidated financial statements for fiscal years beginning on or after January 1,
2011. The Company continues to monitor and assess the impact of convergence of
Canadian GAAP and IFRS.
FINANCIAL INSTRUMENT
Financial instruments
All financial instruments are classified into one of the following five categories: held-fortrading,
held-to-maturity, loans and receivables, available-for-sale financial assets or
other financial liabilities. All financial instruments are originally measured at fair value,
subsequent measurement depends upon the initial classification. The Company
classifies its financial instruments as follows:
• Cash and cash equivalents are classified as “held-for-trading” and are measured atfair value with any changes in fair value recognized in earnings of the period.
• Other receivables and due from related party are classified as “loans andreceivables” and are measured at amortized cost which management has
determined approximates their fair value due to their short-term nature.
• Accounts payable and accrued liabilities and due to related parties are classified as“other financial liabilities” and are measured at amortized costs which management
has determined approximates fair value due to their short term nature.
Effective May 2009, the Company has adopted the updated recommendations of CICA
Handbook Section 3862, “Financial Instruments – Disclosures” to include additional
disclosure requirements about fair value measurement for financial instruments and
liquidity risk disclosures. These amendments require a three level hierarchy that reflects
the significance of the inputs used in making the fair value measurements. Fair values of
assets and liabilities included in Level 1 are determined by reference to quoted prices in
active markets for identical assets and liabilities. Assets and liabilities in Level 2 include
valuations using inputs other than quoted prices for which all significant outputs are
observable, either directly or indirectly. Level 3 valuations are based on inputs that are
unobservable and significant to the overall fair value measurement. The adoption of this
new standard has had no impact on the reported results of the Company.
Fair Value Measurement
CICA 3862 “Financial Instruments – Disclosures”, requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair
value. CICA 3862 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. CICA 3862 prioritizes the inputs
into three levels that may be used to measure fair value:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical unrestricted assets or liabilities.
Level 2 – Inputs that are observable, either directly or indirectly, but do not qualify as
Level 1 inputs (i.e. quoted prices for similar assets or liabilities).
Level 3 – Prices or valuation techniques that are not based on observable market data
and require inputs that are both significant to the fair value measurement and
unobservable.
The fair values of the Company’s financial assets and liabilities as of January 31, 2011
were calculated as follows:
Quoted Prices
in Active Markets
Significant
Other
Significant
Unobservable
for
Identical Assets
(Level 1)
Observable
Inputs
(Level 2)
Inputs
(Level 3)
Financial Assets:
Cash 12,979
Other receivables 16,620
Due from related parties 20,000
Financial liabilities:
Accounts payable and accrued
liabilities
380,572
Due to related parties 80,951
The Company believes that the recorded value of accounts payable, loan payable and
notes payable approximate their current fair values because of their nature and relatively
short maturity dates or durations.
The carrying value of cash, other receivables, due from related party, account payable
and accrued liabilities and due to related parties approximate their fair value because of
their short term nature.
Risk Disclosures
The Company’s financial instruments are exposed to foreign currency risk, credit risk,
liquidity risk and commodity price risk.
Foreign currency risk
The Company does conduct some of its business in US dollars and is therefore exposed
to variations in the foreign exchange rate. The Company does not use foreign currency
hedges to manage this risk.
Credit risk
Credit risk reflects the risk that the Company may be unable to recover contractual
receivables. The Company does not have significant receivables and no one account
represents a concentration of credit risk. The Company employs established credit
approval practices to further mitigate this risk.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market interest rates. As the Company’s cash is
currently held in non-interest bearing bank account, management considers the interest
rate risk to be minimal.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations
as they come due or can do so only at excessive cost. The Company has significant
financial liabilities outstanding including accounts payable and accrued liabilities and loan
payable. The Company is exposed to the risk that it may not have sufficient liquid assets
and meet its commitments associated with these financial liabilities.
The Company’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, without incurring
unacceptable losses or risking damage to the Company’s reputation. To the extent that
the Company does not believe it has sufficient liquidity to meet these obligations,
management will consider securing additional funds through equity transactions. The
Company manages its liquidity risk by continuously monitoring forecast and actual gross
profit and cash flows from operations.
Commodity Price Risk
The ability of the Company to finance the exploration and development of its properties
and the future profitability of the Company is directly related to the market price of the
primary minerals identified in its mineral properties. Mineral prices fluctuate on a daily
basis and are affected by a number of factors beyond the Company’s control. A
sustained, significant decline in the prices of the primary minerals could have a negative
impact on the Company’s ability to raise additional capital. Sensitivity to price risk is
remote since the Company has not established any reserves or production.
Stock-based compensation
The Company grants options in accordance with the policies of TSX Venture Exchange.
Effective April 1, 2003, the Company adopted on a prospective basis the new CICA
Handbook Section 3870 “Stock-Based Compensation and Other Stock Based Payments”,
which recommends a fair value-based methodology for measuring compensation costs.
All stock options granted are accounted for as a capital transaction at the time of grant
and are reflected as contributed surplus in the shareholders’ equity. The fair value of
options granted is estimated at the date of grant using a Black-Scholes option pricing
model incorporating assumptions regarding risk-free interest rates, dividend yield,
volatility factor of the expected market price of the Company’s stock, and a weighted
average expected life of the options. The estimated fair value of the options is recorded
over the options’ vesting period; any consideration paid on the amounts attributable to
stock options is credited to share capital.
On April 30, 2007, the Company granted a total of 3,144,382 stock options. The Company
recorded stock-based compensation expense totaling $155,212 on account of these stock
options in 2008. The fair value of the options granted was estimated at the date of
granting using the Black-Scholes option pricing model with the following assumptions: risk
free interest rate of 3.13%, dividend yield of 0%, volatility factor of 231%, and a life of 5
years.
On May 1, 2009, the Company granted a total of 4,375,488 stock options to two directors
at the exercisable price of
.10 per share for a five year term. The fair value of the
options granted was estimated at the date of granting using the Black-Scholes option
pricing model with the following assumptions: risk free interest rate of 2.071%, dividend
yield of 0%, volatility factor of 238%, and a life of 5 years. A total amount of $151,249 was
contributed to Contributed surplus.
Flow-through Shares
In March 2004, the CICA issued Emerging Issue Committee Abstract No. 146, “Flowthrough
Shares” and the Company has adopted the recommendation for flow-through
shares issued after March 19, 2004, whereby the Company recognizes the tax effect
related to the renounced deductions as a reduction of income tax expense in the
statement of operations and the shareholders’ equity, on the date that the Company files
the renouncement documents with the tax authority to renounce the tax credits
associated with the expenditures, provided there is reasonable assurance that the
expenditures will be made. As a result, in fiscal year 2005, the Company recorded a
recovery of a future income tax asset with a corresponding reduction to share capital of
$17,850 with respect to flow-through shares issued totaling $50,000.
In the fiscal year 2007, the Company issued 4,239,001 common shares on a flow through
basis for gross proceeds of $675,850; which were fully renounced in the period. The
renunciation resulted in a future tax recovery of $230,465 and a charge against share
capital.
Industry Trends & Risk Factors
The Company operates within the context of the exploration, development and mining
industry. This industry involves substantial risk and is considered a highly cyclical
industry. The Company’s current focus is primarily on the exploration of prospective gold
and base metals properties and the development of such properties to a feasibility or prefeasibility
phase, and is therefore highly dependent on the raising of risk or venture capital
by way of equity issuances to fund exploration activities. Complex factors and competitive
forces including commodity trends, inflation, interest rates, supply and demand of metals
and minerals, as well as economic cycles and their respective expansion or contraction
periods influence the business of the Issuer. Furthermore, the Industry is especially
dependant on the price of precious and base metals in the global commodities market.
Strong precious and base metals prices make it substantially easier for the Issuer to raise
funds by way of equity in the capital markets. During the past financial year the price of
gold and copper has been strong. If this strengthening commodity trend continues, the
Company anticipates that it will be able successfully raise equity to fund all of the
exploration and development activities over the foreseeable future. In addition, the prices
of commodities such as copper, zinc and molybdenum have increased based on the
increasing demand for minerals from Asia, specifically China that is experiencing robust
growth. This atmosphere bodes well for the future outlook of the Company as it currently
depends on equity financing.
Outstanding Share Data at March 31, 2011:
a) Authorized Capital – unlimited common shares without par value
b) Issued and Outstanding Capital: 136,937,725 shares outstanding
Outstanding shares as of January 31, 2011 134,044,868
Warrants exercised at
.10 2,000,000
Private Place at
.14 892,857
Total outstanding as March 31, 2011 136,937,725
c) Stock Options Outstanding at March 31, 2011:
Expiry
Price
($)
Average
Remaining
Life (years)
Outstanding
May 01, 2010 Granted Exercised Expired
Outstanding
March 31, 2011
July 13, 2015 0.1 4.70 - 8,000,000 (8,000,000) - -
Sept 28, 2015 0.12 4.91 - 3,549,500 (3,549,500) - -
- 11,549,500 (11,549,500) - -
d) Share Purchase Warrants Outstanding at March 31, 2011:
Expiry Price($)
Outstanding
May 01, 210 Granted Exercised Expired
Outstanding
March 31, 2011
Jan. 13, 2014 0.05/0.10 (i) 1,250,000 - - - 1,250,000
Aug. 26, 2014 0.05/0.10 (i) 10,350,000 - (10,350,000) - -
April 28, 2012 0.10/0.15(ii) - 15,300,000 (5,900,000) - 9,400,000
Aug. 26, 2012 01.5/0.20(iii) - 11,400,000 - - 11,400,000
Feb 23, 2016 0.15 - 892,857 - - 892,857
11,600,000 27,592,857 (16,250,000) - 22,942,857
(i) The exercise price of these warrants is
.05 in the first year and
.10 for remaining four years
(ii) The exercise price of these warrants is
.10 in the first year and
.15 for the remaining second year.
(iii) The exercise price of these warrants is
.15 in the first year and
.20 for the remaining second year.
Subsequent Events
a) On February 17, 2011, a total of 2,000,000 warrants were exercised at
.10 for gross
proceeds of $200,000.
b) On February 23, 2011, a total of 892,857 units were issued at
.14 per unit for gross
proceeds of $125,000. Each unit comprises one common share of the company and
one share purchase warrant exercisable into one common share in the capital of the
company for five years at the exercise price of 15 cents per share.
c) The Company is required to file restatement adjustments relating to flow through
shares for their audited financials dated April 2010, and subsequent quarterlies dated
July 2010 and October 2010. The restatement adjustments covering these periods
have been inserted into this quarterly filing to reflect the changes required. During
early April the company will be re-filing restated adjustments on the financials for April
2010 and the subsequent two quarters.
Outlook
Financing efforts will be continued for the near future.
Disclosure Controls
Management has designed disclosure controls and procedures, or has caused them to be
designed under its supervision, to provide reasonable assurance that material information
relating to the Company, is made known to management by others within the Company,
particularly during the period in which the annual filings are being prepared.
Management has also designed such internal controls over financial reporting, or caused
it to be designed under management’s supervision, to provide reasonable assurance
regarding the reliability of financial period ended January 31, 2011 in accordance with
Canadian generally accepted accounting principles (“GAAP”). Canadian GAAP hasbecome very complex and, as a venture issuer, the Company has limited personnel and
resources. Therefore, despite management’s efforts, there is a risk that interim financial
statements may not conform to Canadian GAAP.
There has been no change in the Company’s disclosure controls and procedures or in the
Company’s internal control over financial reporting that occurred during the most recently
completed quarter that has materially affected, or is reasonably likely to materially affect,
the Company’s disclosure controls and procedures or internal control over financial
reporting.
Addition Information
Additional information related to the Company is available on SEDAR’s website at
‘www.sedar.com’.
Date: March 31, 2011