The following Management’s Discussion and Analysis, with an approval date of August 29, 2013, should be read together with the unaudited financial statements for the quarter ended June 30, 2013, and related notes attached thereto, which are prepared in accordance with International Financial Reporting Standards (“IFRS”). All amounts are stated in Canadian dollars unless otherwise indicated.
Overview
The Company is in the resource exploration/development and production business. The Company has leased and acquired mineral rights to properties located near Port Hardy on Vancouver Island and near Powell River. These properties are industrial mineral properties containing cement feedstock materials and Kaolin as well as a strong potential for development of base and precious metal deposits optioned to Lumina Copper Corp. The Company has been continuously shipping product to a Seattle Cement Plant since October 2003.
The Company currently trades on the TSX Venture Exchange under the symbol ELT.
The following is a summary of significant events and transactions that occurred during 2013. Specifically:
· Expiry of 1,900,000 warrants on January 21, 2013 and 9,124,999 warrants on February 28, 2013 leaving a balance of Nil warrants outstanding.
· February 11, 2013 announced the acquisition of the Palace Claims which is a 218 hectare potential graphite property in Quebec.
· February 25, 2013 announced a potential gold property acquisition via online staking of 638 hectares near (Monster Lake) Chibougamau, Quebec.
· On March 1
st, 2013, the Company discontinued its 70/30 option agreement on the Golden Ridge Property with Auracle Resources Ltd. The terms of the agreement were payment of $25,000 cash, a re-imbursement of $50,000 for mineral exploration work and 200,000 shares which were not paid.
· On March 15
th, 2013 the TSX Venture Exchange accepted for filing a purchase agreement dated March 2, 2013 for 3 Monster property consisting of 10 mineral claims located near Chibougamau, Quebec. Total consideration was $5,000 and the issuance of two million common shares of the company.
· Barge load number 112 was shipped on April 19
th and barge number 113 was shipped on May 20
th, 2013.
Results of Operations
The Company has experienced 36 consecutive quarters of commercial production. The volume of chalky geyserite shipped in the second quarter of 2013 was 15,470 (2012 – 9,636) tonnes. In 2012, one shipment was made, and in 2013 there was two shipments made.
Costs of sales for the second quarter in 2013 were $267,113 (2012 - $269,831) which is comparable when compared to the period of 2012.
Administrative expenses during the quarter ended June 30, 2013 were $57,245, June 30, 2012 - $84,660, down $27,415 compared to the same quarter ended 2012. A decrease in the use and number of business consultants resulted in reduced fees of $17,500 for the quarter ended June 30, 2013. Management fees increased by $9,200 due to the President taking on increased management roles that used to be outsourced to consultants.
Liquidity & Solvency
The Company has financed its operations to date primarily through the issuance of common shares, exercise of stock options and the sale of chalky geyserite to cement companies. The Company continues to seek capital through various means including the issuance of equity and/or debt.
The financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to continue to deliver a satisfactory product, raise adequate financing and to lower production costs to realize overall corporate profitability in the future coupled with lower corporate expenses.
|
|
June 30, 2013 |
December 31, 2012 |
|
|
|
|
|
Working capital (deficiency) |
(1,121,517) |
(978,588) |
|
Deficit |
17,380,144 |
17,308,167 |
As at June 30, 2013 the Company held $65,906 (December 31, 2012 - $9,901) in cash assets and had a net loss for the quarter of $32,858 (December 31, 2011 - $714,741).
Net cash use from investing activities for the period ended June 30, 2013 was $22,898 compared to net cash used by investing activities of $23,620 during the period ended June 30, 2012. The small decrease is primarily due to an increase in exploration expenditures.
Financing activities during the period ended June 30, 2013 were only in relation to an increase in related party transactions of $61,701 and the issuance of shares for mineral property of $10,000.
Summary of Quarterly Results
http://www.electragoldltd.com/releases/current/ELT_MDA_2012_FINAL.PDF
The results above are consistent with the decreased shipments due to the economic slowdown of the US and Canadian cement markets. It is normal for the Company to experience net income in the third quarter as the bulk of the shipments for the geyserite usually occur in the late summer and early fall. The fourth quarter usually experiences the greatest loss for the year due to little or no revenue in combination with the write down of mineral properties if applicable.
Capital Resources
The Company does not have sufficient funds to meet its operational expenses for 2012 and cover anticipated administrative expenses throughout the year and will have to complete a financing during the year. In light of a valuation of the PEM 100 quarry completed in January 2010, the Company decided to write-off the asset in the amount of $1,159,798 due to the negligible value and drain on cash flow in 2009 and $380,264 in 2010. The Company has taken a further write down during the year ended December 31, 2012 in the amount of $86,849. It will continue the chalky geyserite production at its PEM100 Quarry site in Port Hardy with an effort to lower administrative and production expenses until a suitable arrangement can be found for the property. The Company is searching for alternative arrangements for the property to enhance shareholder value and reduce operating expenses.
The discussion and analysis of our financial condition and results of operations is based on our annual financial statements, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Application of IFRS requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the revenues and expenses reported during the period. Changes in these estimates, judgments and assumptions will occur as a result of future events, and accordingly, actual results could differ from amounts estimated.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements to which the Company is committed as at June 30, 2013.
Related Party Transactions
a) The Company paid or accrued consulting fees of $4,500 (June 30, 2012 - $4,500) to a director and CFO of the Company, Ron Savelieff for CFO and consulting services.
b) The Company accrued geological fees and expenses of $62,956.36 (June 30, 2012 - $75,138), that are included in exploration costs and management fees of $20,300 (June 30, 2012 $12,600), to a company controlled by the Company’s President, Jo Shearer.
c) The Company paid directors’ fees performed by directors of $Nil (June 30, 2012 - $2,500).
d) Royalties totaling $6,175 (June 30, 2012 - $3,854) were accrued to a company controlled by the President, Jo Shearer.
e) Royalties totaling $9,217 (June 30, 2012 - $5,782) were paid or accrued to the spouse of a former director, Jackie Howich.
f) The Company incurred total costs of $117,546 to a company controlled by a former director, Jackie Howich during the quarter, these amounts are included in cost of sales, at June 30, 2013 accounts payable included $Nil due to this company.
Due to Related Parties
As at June 30, 2013, amounts due to directors, officers and companies with a common director or officer for royalties, fees and expenses aggregated $1,075,350 (December 31, 2012 - $897,856). Amounts due to related parties are unsecured and non-interest bearing with no fixed terms of repayment accordingly fair value is not readily determinable.
Transactions with related parties have been valued in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Proposed Transactions
The Company may be required to raise further capital in order to meet all financial obligations for future periods. The Company may raise the required capital through private placement offerings of its securities.
Critical Accounting Estimates
Management regularly assesses the mineral properties for impairment. During the six month period ended June 30, 2013 impairments of $25,353 (December 31, 2012 - $397,310) were recorded.
Share Data
As at August 29, 2013
Authorized share capital: Unlimited common shares without par value and unlimited number of class A preference shares without par value;
Shares issued and outstanding as at August 29, 2013: common shares 98,536,913;
As at August 29, 2013 the options outstanding are nil.
Subsequent Events
Subsequent to June 30, 2013:
· On July 18
th, 2013 Electra announced a barge shipment, purchase of a new Tridem truck, and staking of additional 2,000 hectares (100 claim cells) at the Goldledge Project near Kimberly.
· On July 26
th, 2013 Electra announced possession of a new 2013 Western Star truck and a short term loan of $30,000 from J.T. Shearer, President of Electra.
· On July 30
th, 2013 Electra announced approval of a 10:1 share consolidation at the AGM and a $150,000 loan from the President, Jo Shearer.
Outlook
The Company’s continuing focus will be on sustained production of chalky geyserite at the PEM100 Quarry in Port Hardy. The possible development of a docking port located on the west side of the island will contribute to the reduction of hauling cost for the product. The Company is also working with its major customer in pricing of the chalky geyserite to facilitate the sharing of administrative costs. Based on results of current production and new product development, the Company remains confident that production will be met for all outstanding orders.
Corporate Governance
The Company’s Board of Directors follows recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders.
The current Board of Directors is comprised of four individuals, two of whom are neither an officer nor employee of the Company and are unrelated and independent from Management. The audit committee is comprised of three directors, two of whom are not independent from management and one who is independent.
The audit committee fulfills its role of ensuring the integrity of the reported information through its review of the interim and audited financial statements prior to their submission to the Board of Directors for approval. The audit committee meets with management quarterly to review the financial statements including the MD&A and to discuss other financial, operating and internal control matters.
Controls and Procedures
In contrast to the certificate required under National Instrument 52-109 Certificate of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109, in particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of:
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Controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings, or other reports files or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
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A process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s IFRS.
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate.
Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency, and timeliness of interim and annual filings and other reports provided under securities legislation.
Caution Regarding Forward-looking Information
Statements in this report that are not historical facts are forward-looking statements involving known and unknown risks and uncertainties, which could cause actual results to vary considerably from these statements. Readers are cautioned not to put undue reliance on forward-looking statements.
Additional information related to the Company available for view on SEDAR at
www.sedar.com.