UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] Registration Statement pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
or
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-30464
IMA EXPLORATION INC.
(Exact name of Registrant as specified in its charter)
IMA EXPLORATION INC.
(Translation of Registrant's name into English)
BRITISH COLUMBIA
(Jurisdiction of incorporation or organization)
#709 - 837 WEST HASTINGS STREET, VANCOUVER, BRITISH COLUMBIA, V6C 3N6
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON SHARES, NO PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NOT APPLICABLE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of December 31, 2004.
43,816,207 COMMON SHARES AS OF DECEMBER 31, 2004
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark which financial statement item the registrant has elected
to follow. Item 17 X Item 18
----- -----
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GENERAL INFORMATION:
UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN ARE TO CANADIAN DOLLARS.
GLOSSARY OF TERMS:
ARGILLIC ALTERATION: Development of secondary clay minerals by
weathering or hydrothermal activity.
BRECCIA: A rock containing generally angular fragments of
itself or some other rock.
CATEO: In Argentina, a cateo is an exploration concession
granted for a period of up to 1,100 days. In areas
where field work seasons are limited, only the
available field season will be considered in
determining the 1,100 days. A cateo gives the
holder the exclusive right to explore the area,
subject to certain pre-existing rights of owners of
mines within the area and abutting owners of
cateos. Through the process of exploration, the
owner of the cateo may make and file
"manifestations" of discovery (see below) and
petition the mining authority for the granting of
mines (see below). A cateo may be up to 10,000
hectares in size. A single legal person may not
hold more than 20 cateos or 200,000 hectares of
cateos in any one province. When the cateo is
officially granted, a one time payment of about US
$0.35 ( Pesos $0.80 ) per hectare is required.
CLASTIC: Rock components consisting of fragments derived by
mechanical erosion of pre-existing rocks.
COLOR ANOMALY: An atypical or unusual color pattern visible on air
photos or satellite images of rock outcrop areas,
often caused by hydrothermal alteration.
G/T: grams per tonne
HYDROTHERMAL ALTERATION: Those chemical and mineral changes resulting from
the interaction of hot water solutions with
pre-existing solid mineral phases.
INTRUSIVE ROCKS: A body of rock, that while fluid, penetrated into
or between other rocks, but solidified before
reaching the surface.
KM: Kilometre
M: Meter
MAFIC: Dark colored, generally iron or magnesium rich,
rock or mineral.
MANIFESTATIONS: In Argentina, manifestations or "manifestaciones"
of discovery are official notices filed with the
mining authority indicating that the person filing
(who must be the owner of the cateo in an area
covered by a cateo) has made a discovery. The
filing and acceptance by the mining authority of
such a notice, constitutes the first step in
converting a discovery to a mine (see below). A
manifestation of discovery may cover one or more
claims in the case of either a vein or disseminated
deposit. The size of the manifestations and the
annual payments required of the owner is the same
as those for a mine.
MINE: In Argentina, a mine or "mina" is a real property
interest. It is a right of exploration granted on a
permanent basis after the completion of an official
survey for as long as the right is diligently
utilized and semi-annual payments of US$17.50
(Pesos $40) per claim are made. A mine may consist
of one or several claims or "pertinencias". In the
case of vein deposits, each claim is a maximum of
200 by 300 meters or six hectares; for disseminated
deposits, each claim is up to one square kilometer
or 100 hectares.
PORPHYRY: An igneous rock containing mineral crystals that
are visibly larger than other crystals of the same
or different composition.
PPM: parts per million
-2-
SATELLITE IMAGERY: Maps or images produced from data collected by
satellite displaying wavelength and intensity
variations of visible and infrared radiation
reflected from the Earth's surface.
SCREE: A slope of loose rock debris at the base of a steep
incline or cliff.
SEDIMENTARY ROCKS: Descriptive term for a rock formed of sediment,
namely solid material both mineral and organic,
deposited from suspension in a liquid.
STREAM SEDIMENT SAMPLE: A sample of fine sediment derived from the
mechanical action of the stream.
SKARN: A style of alteration characterized by iron and
magnesium bearing aluminosilicate materials such as
garnet and diopside.
SULFIDE: A compound of sulfur combined with one or more
metallic or semi-metallic elements.
VEINS: An occurrence of minerals, having been intruded
into another rock, forming tabular shaped bodies.
AG: Silver
AS: Arsenic
AU: Gold
BA: Barium
CO: Cobalt
CU: Copper
MO: Molybdenum
PB: Lead
SB: Antimony
ZN: Zinc
MINERALS
BIOTITE: An iron and magnesium bearing mica mineral.
CARBONATE: A mineral containing the radical CO3.
CHALCOPYRITE: A sulfide mineral containing copper and iron.
FELDSPAR: An aluminosilicate with variable amounts of
potassium, sodium and calcium.
HORNBLENDE: A complex hydrated aluminosilicate of magnesium,
iron and sodium.
MAGNETITE: A magnetic iron oxide mineral.
PYROXENE: An aluminosilicate of magnesium and iron.
PYRRHOTITE: A magnetic sulfide of iron.
ROCK TYPES
ANDESITE: A volcanic rock with the principal minerals being
plagioclase.
CONGLOMERATE: A clastic sedimentary rock containing rounded
fragments of gravel or pebble size.
DACITE: A volcanic or shallow intrusive rock with the
principal minerals being plagioclase, quartz and
one or more mafic constituents.
-3-
DIORITE: An intrusive rock composed essentially of sodic
plagioclase, hornblende, biotite, or pyroxene.
LIMESTONE: A sedimentary rock consisting chiefly of calcium
carbonate.
SANDSTONE: A clastic sedimentary rock composed largely of
sand-sized grains, principally quartz.
SHALE: A clastic sedimentary rock derived from very
fine-grained sediment (mud).
SILTSTONE: A clastic sedimentary rock similar to shale except
comprised of slightly coarser material (silt).
TUFF: A rock formed of compacted volcanic fragments,
generally smaller than 4mm in diameter.
-4-
PART I
ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
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Not applicable.
ITEM 3. KEY INFORMATION.
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Selected Financial Data
The selected financial data of IMA Exploration Inc. (the "Company") for the
years ended December 31, 2004, 2003 and 2002 was derived from the consolidated
financial statements of the Company which have been audited by
PricewaterhouseCoopers LLP, independent Chartered Accountants, as indicated in
their report which is included elsewhere in this annual report. The selected
financial data set forth for the years ended December 31, 2001 and 2000 are
derived from the Company's audited consolidated financial statements after
reflecting the carve out of Golden Arrow Resources Corporation, not included
herein.
The information in the following table was extracted from the consolidated
financial statements and related notes included herein and should be read in
conjunction with such financial statements and with the information appearing
under the heading "Item 5. Operating and Financial Review and Prospects".
Reference is made to Note 11 of the consolidated financial statements of the
Company included herein for a discussion of the material measurement differences
between Canadian Generally Accepted Accounting Principles ("Canadian GAAP") and
United States Generally Accepted Accounting Principles ("U.S. GAAP"), and their
effect on the Company's financial statements.
To date, the Company has not generated sufficient cashflow from operations to
fund ongoing operational requirements and cash commitments. The Company has
financed its operations principally through the sale of its equity securities.
The Company considers that it has adequate resources to meet property
commitments on its existing property holdings; however, at present, the Company
does not have sufficient funds to conduct exploration programs on all of its
existing properties and will need to obtain additional financing or joint
venture partners in order to initiate any such programs. See "Item 5. Operating
and Financial Review and Prospects".
CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
---------------------------------------------------
(CDN$ IN 000, EXCEPT PER SHARE DATA)
---------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
Revenue $0 $0 $0 $0 $0
General Corproate
Expenditures (4,084) (2,276) (330) (173) (387)
General Explroation
Expenditures (229) (227) (180) (110) (137)
Foreign Exchange
Gain (Loss) (195) (13) (2) 3 (3)
-5-
---------------------------------------------------
(CDN$ IN 000, EXCEPT PER SHARE DATA)
---------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
Interest and
Miscellaneous Income 102 67 27 97 157
Provision for
Marketable Securities (100) - - - -
Loss Allocated
to spin off assets (131) (969) (955) (699) (1,654)
Net Income (Loss) (4,655) (3,418) (1,440) (882) (2,024)
Earnings (Loss)
per share from
continuing operations (0.11) (0.08) (0.02) (0.01) (0.03)
Earnings (Loss) per share
Basic and Diluted (0.11) (0.11) (0.06) (0.06) (0.17)
Weighted Average Number
of Shares Outstanding 40,939 32,252 23,188 15,104 11, 939
Working Capital 5,053 4,747 1,431 733 1,435
Capital Assets 94 36 46 57 74
Mineral Properties 6,551 1,469 148 132 114
Spin-Off Assets - 6,749 6,903 5,369 3,866
Long-Term Debt - - - - -
Total Assets 12,222 13,419 8,637 6,407 5,678
Net Assets -
Shareholder's Equity 10,813 11,671 7,324 5,372 4,790
ADJUSTED TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Under U.S. GAAP the following financial information would be adjusted from
Canadian GAAP (references are made to Note 11 of the accompanying consolidated
audited financial statements):
-6-
---------------------------------------------------
(CDN$ IN 000, EXCEPT PER SHARE DATA)
---------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
CONSOLIDATED STATEMENT
OF OPERATIONS
Earnings (Loss) for the
year under Canadian GAAP $(4,655) $(3,418) $(1,440) $(882) $(2,024)
Mineral property and
deferred exploration costs
for the year, net of future
income tax and write down
of marketable securities (4,448) (1,813) (1,267) (1,321) (1,989)
Mineral property and
deferred exploration costs
written off during the
year which would have been
expensed in the year
incurred - 777 - 21 790
Stock-based compensation - (144) (102) - -
Earnings (Loss) for the
year under US GAAP before
comprehensive income
adjustments $(9,134) $(4,598) $(2,809) $(2,181) $(3,224)
Unrealized (loss) gains on
available-for-sale
securities (387) 434 55 - -
------- ------- ------- ------- -------
Comprehensive
Income (Loss) $(9,521) $(4,164) $(2,754) $(2,181) $(3,224)
======= ======= ======= ======= =======
-7-
---------------------------------------------------
(CDN$ IN 000, EXCEPT PER SHARE DATA)
---------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
Earnings (Loss) per
share under US GAAP $(0.22) $(0.14) $(0.12) $(0.14) $(0.26)
======= ======= ======= ======= =======
Diluted Earnings (Loss)
per share under US GAAP $(0.22) $(0.14) $(0.12) $(0.14) $(0.26)
======= ======= ======= ======= =======
------- ------- ------- ------- -------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP $10,813 $11,671 $7,324 $5,372 $4,790
Mineral property and
deferred exploration
costs expensed net of
future income tax (5,666) (6,884) (5,848) (4,581) (3,282)
Accumulated other
comprehensive income 84 489 54 - -
------- ------- ------- ------- -------
Balance per US GAAP $5,231 $5,277 $1,530 $790 $1,508
======= ======= ======= ======= =======
CONSOLIDATED STATEMENTS
OF CASH FLOWS
OPERATING ACTIVITIES
Cash (used) provided
per Canadian GAAP $(2,962) $(1,419) $(1,306) $(898) $(987)
Mineral properties and
deferred costs (4,578) (1,851) (1,267) (1,321) (1,989)
Cash used per US GAAP $(7,540) $(3,270) $(2,573) $(2,219) $(2,976)
INVESTING ACTIVITIES
Cash used per
Canadian GAAP $(4,510) $(1,873) $(1,278) $(1,312) $(2,004)
Mineral properties
and deferred costs 4,578 1,851 1,267 1,321 1,989
------- ------- ------- ------- -------
Cash provided (used)
per US GAAP $68 $(22) $(11) $9 $(15)
======= ======= ======= ======= =======
-8-
---------------------------------------------------
(CDN$ IN 000, EXCEPT PER SHARE DATA)
---------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
FINANCING ACTIVITIES
Cash provided per
Canadian and US GAAP $9,269 $6,278 $3,264 $1,463 $3,380
======= ======= ======= ======= =======
See Note 11 of the Company's consolidated financial statements.
Exchange Rate History
The noon rate of exchange on May 5, 2005, reported by the United States Federal
Reserve Bank of New York for the conversion of Canadian dollars into United
States dollars was CDN$.8033 (US$1.2448 = CDN$1.00).
The following table sets forth high and low exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the six-month period ended
April 30, 2005.
MONTH HIGH LOW
November 2004 .8493 .8155
December 2004 .8435 .8064
January 2005 .8346 .8050
February 2005 .8134 .7960
March 2005 .8060 .8024
April 2005 .8233 .7957
The following table sets forth the average exchange rate for one Canadian dollar
expressed in terms of one U.S. dollar for the past five fiscal years.
PERIOD AVERAGE
January 1, 2000 - December 31, 2000 0.6746
January 1, 2001 - December 31, 2001 0.6456
January 1, 2002 - December 31, 2002 0.6368
January 1, 2003 - December 31, 2003 0.7206
January 1, 2004 - December 31, 2004 0.7682
Exchange rates are based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.
Risk Factors
Due to the nature of the Company's business and the present stage of exploration
on its mineral resource properties, the following risk factors apply to the
Company's operations (see "Item 4. Information on the Company - History and
Development of the Company"):
LIQUIDITY AND CASH FLOW: As at the date of this annual report, the Company has
not generated any revenues from operations to fund ongoing operational
requirements and cash commitments. The Company has financed its operations
principally through the sale of its equity securities. As at May 5, 2005 the
Company had working capital of approximately $5,500,000. Management believes the
Company has adequate resources to maintain its ongoing operations and will
require additional financing for planned exploration and property acquisitions
for the remainder of fiscal 2005. See "Item 5. Operating and Financial Review
and Prospects - Liquidity and Capital Resources".
-9-
EXPLORATION STAGE COMPANY: An investment in a natural resources company involves
a high degree of risk. The degree of risk increases substantially where the
Company's properties are in the exploration stage.
ADDITIONAL FINANCING: The Company presently has sufficient financial resources
to meet property commitments on its existing property holdings. The Company at
present does not, however, have sufficient funds to conduct planned exploration
programs on all these properties and will need to obtain additional financing or
find joint venture partners in order to initiate any such programs.
The Company will continue to rely on successfully completing additional equity
financing and/or conducting joint venture arrangements to further exploration on
its properties. There can be no assurance that the Company will be successful in
obtaining the required financing or negotiating joint venture agreements. The
Company's management may elect to acquire new projects, at which time additional
equity financing may be required to fund overhead and maintain its interests in
current projects, or may decide to relinquish certain of its properties. These
decisions will be based on the results of ongoing exploration programs and the
response of equity markets to the projects and business plan. The failure to
obtain such financing or complete joint venture arrangements could result in the
loss or substantial dilution of the Company's interests (as existing or as
proposed to be acquired) in its properties as disclosed herein. The Company does
not have any definitive commitment or agreement concerning any investment,
strategic alliance or related effort, on any of the Company's material
properties. The Company may seek joint venture partners to provide funding for
further work on any or all of those other properties. Joint ventures may involve
significant risks and the Company may lose any investment it makes in a joint
venture. Any investments, strategic alliances or related efforts are accompanied
by risks such as:
1. the difficulty of identifying appropriate joint venture partners or
opportunities;
2. the time the Company's senior management must spend negotiating
agreements and monitoring joint venture activities;
3. the possibility that the Company may not be able to reach agreement on
definitive agreements, with potential joint venture partners;
4. potential regulatory issues applicable to the mineral exploration
business;
5. the investment of the Company's capital or properties and the loss of
control over the return of the Company's capital or assets;
6. the inability of management to capitalize on the growth opportunities
presented by joint ventures; and 7. the insolvency of any joint
venture partner.
There are no assurances that the Company would be successful in overcoming these
risks or any other problems encountered with joint ventures, strategic alliances
or related efforts.
EXPLORATION RISKS: Mineral exploration is highly speculative in nature, involves
many risks and frequently is nonproductive. There can be no assurance that the
Company's efforts to identify resources will be successful. Moreover,
substantial expenditures are required to establish resources through drilling,
to determine metallurgical processes to extract the metal from the ore and to
construct mining and processing facilities. During the time required to
establish resources, determine suitable metallurgical processes and construct
such mining and processing facilities, the economic feasibility of production
may change because of fluctuating prices. The Company would like to establish
resources.
PROJECT DELAY: The Company's minerals business is subject to the risk of
unanticipated delays in permitting its projects. Such delays may be caused by
fluctuations in commodity prices, mining risks, difficulty in arranging needed
financing, unanticipated permitting requirements or legal obstruction in the
permitting process by project opponents. In addition to adding to project
capital costs (and possibly operating costs), such delays, if protracted, could
result in a write-off of all or a portion of the carrying value of the delayed
project.
TITLE TO PROPERTIES: The validity of mining claims, which constitute a
significant portion of the Company's undeveloped property holdings, is often
uncertain and may be contested. Although the Company has attempted to acquire
satisfactory title to its undeveloped properties, the Company, in accordance
-10-
with mining industry practice, does not intend to obtain title opinions until a
decision is made to develop a property, with the attendant risk that some
titles, particularly titles to undeveloped properties, may be subject to contest
by other parties. Title to properties may be subject to litigation claims by
others. On March 5, 2004 Minera Aquiline Argentina SA, a subsidiary of Aquiline
Resources Inc. ("Aquiline"), commenced an action against the Company seeking
damages and a constructive trust over certain of the Company's properties in the
Navidad area. The Company believes the Aquiline legal action is without merit
and continues to vigorously defend itself. A Statement of Defence has been
filed. The trial has been set for October 11, 2005 in Vancouver, British
Columbia. As of the date of this annual report the outcome is not determinable.
See "Item 8. Financial Information - Legal Proceedings."
PRICE FLUCTUATIONS AND SHARE PRICE VOLATILITY: In recent years the securities
markets in Canada have experienced a high level of price and volume volatility
and the market price of securities of many companies, particularly junior
mineral exploration companies, like the Company, have experienced wide
fluctuations which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. In
particular, the per share price of the Company's common shares on the TSX
Venture Exchange (the "TSX-V") fluctuated from a high of $4.80 to a low of $1.73
during the 12-month period ending December 31, 2004. There can be no assurance
that continual fluctuations in price will not occur.
OPERATING HAZARDS AND RISKS: Mining operations involve many risks, which even a
combination of experience, knowledge and careful evaluation may not be able to
overcome. Operations in which the Company has a direct or indirect interest will
be subject to all the hazards and risks normally incidental to exploration for
metals, any of which could result in damage to or destruction of mines and other
producing facilities, damage to life and property, environmental damage and
possible legal liability for any or all damage. Although the Company maintains
liability insurance in an amount which it considers adequate, the nature of
these risks is such that liabilities could exceed policy limits, in which event
the Company could incur significant costs that could have a materially adverse
effect upon its financial condition.
INSURABLE RISKS AND LIMITATIONS OF INSURANCE: The Company maintains certain
insurance, however, such insurance is subject to numerous exclusions and
limitations. The Company maintains a Total Office Policy in Canadian dollars on
its principal offices. Generally, the Total Office Policy provides a 90%
coverage on office contents, up to $160,000, with a $500 deductible. In
addition, the policy provides general liability coverage of up to $5,000,000 for
personal injury, per occurrence and $2,000,000 for legal liability for any one
premises, with a $500 deductible. The Company also has insurance coverage of up
to $5,000,000 for non-owned automobile liability.
The Company maintains a Foreign Commercial General Liability policy in U.S.
dollars which provides US$5,000,000 coverage for bodily injury or property
damage per occurrence and coverage up to US$5,000,000 per offence for personal
injury or advertising injury (libel, slander, etc.). The policy has a general
aggregate limit for all claims during each consecutive policy period, except for
those resulting from product hazards or completed operations hazards, of
US$5,000,000. The policy has a US$5,000,000 aggregate limit for each consecutive
policy period, for bodily injury or property damage liability arising out of
completed operations and products. In addition, the Foreign Commercial General
Liability policy provides for coverage of up to US$10,000 in medical expenses,
per person, with a US$10,000 limit per accident, and up to US$100,000 for each
occurrence of tenants' fire legal liability. The policy does not apply to injury
or damages occurring within Canada, the United States (including its territories
and possessions), Puerto Rico, any countries or territories against which the
United States has an embargo, sanction or ban in effect, territorial waters of
any of the foregoing, the Gulf of Mexico, or international waters or airspace
when an injury or damage occurs in the course of travel or transportation to any
country or place included in the foregoing. The policy also does not cover
asbestos related claims or liability for bodily injury or property damages
arising out of the discharge, dispersal, release or escape of smoke, vapors,
soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials
or other irritants, contaminants or pollutants into or upon land, the
atmosphere, or any water-course or body of water. The policy also contains a
professional liability exclusion which applies to bodily injury or property
damage arising out of defects in maps, plans, designs or specifications
prepared, acquired or used by the Company or arising out of any act of
negligence, error, mistake or omission in rendering or failing to render
professional consulting or engineering services, whether performed by the
Company or other for whom the Company is responsible.
-11-
The Company maintains a Foreign Commercial Automobile Liability Insurance policy
on owned, leased, hired and non-owned automobiles with the following liability
limitations:
- $5,000,000 bodily injury liability for each person.
- $5,000,000 bodily injury liability for each occurrence.
- $5,000,000 property damage liability for each occurrence.
- $10,000 medical expense coverage, per person.
- $10,000 medical expense coverage, per accident.
The foregoing descriptions of the Company's insurance policies do not purport to
be complete and does not cover all of the exclusions to such policies.
In April 2005, the Company purchased an Executive and Organization Liability
insurance policy for the benefit of directors and officers. The aggregate limit
of liability is $5 million. The policy is renewable on a yearly basis.
MANAGEMENT: The Company is dependent on the services of Joseph Grosso, the
President and a director of the Company, Gerald G. Carlson, the Chairman of the
Company's Board of Directors, and Arthur Lang, the Company's Chief Financial
Officer. The loss of any of these people could have an adverse affect on the
Company. Joseph Grosso provides his services to the Company through Oxbow
International Marketing Corp. ("Oxbow"). Gerald G. Carlson provides his services
to the Company through KGE Management Ltd. All of the Company's other officers
are now employed by the Grosso Group Management Ltd. ("Grosso Group"). The
Company has entered into consulting agreements with Oxbow and KGE Management
Ltd. The Company does not maintain "key-man" insurance in respect of any of its
principals.
Grosso Group Management Ltd.
Effective January 1, 2005, the Company engaged the Grosso Group Management Ltd.
to provide services and facilities to the Company. As of the date of this Annual
Report, a formal agreement among the Company and the Grosso Group has not been
finalized. Until such time as the formal agreement has been finalized, the
Company and the Grosso Group intend to work under the terms of the proposed
Administration Services Agreement by and among the Company and the Grosso Group,
which is discussed below. It is anticipated that the formal agreement will have
an effective date of January 1, 2005.
The Grosso Group is a private company which will be owned by the Company, Golden
Arrow Resources Corporation, Amera Resources Corporation and Gold Point
Exploration Ltd., each of which will own one share. Pursuant to the terms of the
proposed Administration Services Agreement, the Grosso Group will provide its
shareholder companies with geological, corporate development, administrative,
and management services on a non-exclusive and on an "as needed" and "as
available" basis. The administration services for each shareholder company shall
include bookkeeping, accounting and services in connection with quarterly
filings, material change reports and other disclosure filings on SEDAR.
The Grosso Group will provide each shareholder company with:
1. the use of the Grosso Group's offices;
2. receptionist personnel;
3. office equipment; and
4. services of administration, accounting, purchasing,
secretarial and like support staff on an "as needed" and "as
available" basis.
Shareholder companies may appoint the Grosso Group to manage their work
programs. In such event, the Grosso Group will generally retain suppliers and
contracts in connection with each shareholder company's approved work programs
and will separately invoice such shareholder company for the third-party costs
and such invoice will include a handling charge as a percentage of the
third-party costs, such charge to be in accordance with industry standards and
reviewed for reasonableness from time to time, and which would be negotiated at
the time of such work program.
-12-
Each shareholder company will pay the Grosso Group a monthly fee for the Grosso
Group's services. The Grosso Group intends to allocate the costs of the staff
and related general and administrative expenses to its shareholder companies on
a full recovery basis. The fee will be based upon a pro-rationing of the Grosso
Group's costs, including its executive staff and other overhead, among each of
the shareholder companies, with regard to the expected average annual level of
services provided to each shareholder company. The staff of the Grosso Group
will record their daily activities in connection with each shareholder company
and they will retain a log for invoicing purposes. The fee is to be reviewed
from time to time and the basis may be changed by the Grosso Group in the event
the Grosso Group's costs change or the shareholder companies' use of the
services is in excess of historical experience or in the event a greater or
lesser number of shareholder companies are using the Grosso Group's services.
Each shareholder company has prepaid one month's initial estimated allocation of
the Grosso Group's fully recoverable costs, which for the Company amounted to
$60,000 (which as of the date of this report is the estimated initial monthly
allocation for the Company).
The Grosso Group has the right to request each of the shareholder companies to
allocate a reasonable number of shares in their incentive option plans to
employees of the Grosso Group based upon the general amount of time and value
added by such employees.
It is anticipated that the Administration Services Agreement may be terminated
by a shareholder company after January 1, 2007, upon 30 days' written notice to
the Grosso Group. Prior to January 1, 2007, if a shareholder company desires to
terminate the agreement in the first year, it will pay a termination fee equal
to one-year's basic administration charge and if a shareholder company desires
to terminate the agreement in the second year, it will pay a termination fee
equal to six-months' basic administration charge.
It is anticipated that upon termination of the Administration Services
Agreement, each of the shareholder companies will agree to resell its common
share back to the Grosso Group for $1.00 and the shareholder companies will not
be able to sell, transfer or otherwise dispose of or encumber such share during
the term of the Administration Services Agreement.
The Grosso Group's areas of experience encompass financing, marketing, property
acquisition, community relations, socioeconomic issues, regulatory compliance,
government relations, property exploration and investor relations. Additionally
the Grosso Group has a number of other support staff at its corporate office and
arrangements with contract providers of accounting and administrative services
at the country operations' offices in Argentina and Peru.
The members of the board of directors of the Grosso Group are appointed by the
shareholder companies, with each shareholder company appointing one of its
directors to serve as a director of the Grosso Group. As of May 5, 2005 it is
anticipated that the directors of the Grosso Group will be Nikolaos Cacos,
Joseph Grosso, Arthur Lang and Nick DeMare. Messrs. Lang and Grosso are officers
and directors of the Company. Mr. Lang is an officer of Amera Resources
Corporation and a director of Golden Arrow Resources Corporation. Mr. Grosso is
a director and officer of Amera Resources Corporation and a director and officer
of Golden Arrow Resources Corporation. Nikolaos Cacos is an officer of IMA, a
director and officer of Golden Arrow Resources Corporation and a director and
officer of Amera Resources Corporation. Nick DeMare is an officer and director
of Gold Point Exploration Ltd. Mr. DeMare indirectly owns 100% of Chase
Management Ltd., a company which provides consulting services to the Company and
other Grosso Group shareholder companies.
Each of the public company shareholders of the Grosso Group will have its own
separate board of directors (whose members include persons employed by the
Grosso Group); however, some directors will serve on multiple boards and on the
board of directors of companies which are not shareholders of the Grosso Group.
In connection with the formation and establishment of the Grosso Group, Mr. Nick
DeMare was issued the initial share of the Grosso Group and acted as the
President, Secretary and sole director of the Grosso Group. Effective February
6, 2004, Mr. DeMare transferred the sole outstanding share of the Grosso Group
to Joseph Grosso, the President and a director of the Company. Mr. DeMare also
resigned as a director and the President and Secretary of the Grosso Group
effective February 6, 2004 and Mr. Grosso was appointed as a director and the
President and Secretary of the Grosso Group. It is anticipated that Mr. Grosso
will return the sole outstanding share of the Grosso Group to the Grosso Group
for cancellation and one share will then be issued to the Company.
-13-
The Board of Directors of the Company will approve the formal agreement once
completed.
DEPENDENCE UPON OTHERS: The success of the Company's operations will depend upon
numerous factors, many of which are beyond the Company's control, including (i)
the ability of the Company to enter into strategic alliances through a
combination of one or more joint ventures, mergers or acquisition transactions,
(ii) the ability to discover and produce minerals; (iii) the ability to attract
and retain additional key personnel in investor relations, marketing, technical
support, and finance; and (iv) the ability and the operating resources to
develop and maintain the properties held by the Company. These and other factors
will require the use of outside suppliers as well as the talents and efforts of
the Company. There can be no assurance of success with any or all of these
factors on which the Company's operations will depend.
CONFLICTS OF INTEREST: Several of the Company's directors are also directors,
officers or shareholders of other companies. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which could place the Company in a
worse position than if no conflict existed. The directors of the Company are
required by law to act honestly and in good faith with a view to the best
interest of the Company and to disclose any interest which they many have in any
project or opportunity of the Company. However, each director has a similar
obligation to other companies for which such director serves as an officer or
director. The Company has no specific internal policy governing conflicts of
interest. See "Item 6. Directors, Senior Management and Employees - Directors
and Senior Management - Conflicts of Interest".
FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS: The projects in which the Company
has an interest are located in Argentina. Mineral exploration and mining
activities in Argentina may be affected in varying degrees by political
instability and government regulations relating to the mining industry. Any
changes in regulations or shifts in political conditions are beyond the control
of the Company and may adversely affect its business. The Company does not
maintain and does not intend to purchase political risk insurance. Operations
may be affected in varying degrees by government regulations with respect to
restrictions on production, price controls, export controls, income taxes,
expropriations of property, environmental legislation and mine safety. The
status of Argentina as a developing country may make it more difficult for the
Company to obtain any required exploration financing for its projects. The
effect of all of these factors cannot be accurately predicted. The Argentine
economy has experienced recessions in recent years and there can be no assurance
that their economy will recover from such recessions.
Argentina has recently experienced some economic and political instability.
Management believes the new democratic elected government is making progress in
the domestic economy and it is improving the image of the country
internationally. Additionally, management believes the economic crisis of
December 2001 has been overcome, and although the country defaulted on its
loans, it has worked out with the International Monetary Fund a bail-out loan
agreement. The Company maintains the majority of its funds in Canada and only
forwards sufficient funds to meet current obligations and overhead in Argentina.
The Company does not believe that any current currency restrictions which may be
imposed in Argentina will have any immediate impact on the Company's exploration
activities.
IMPACT OF GOVERNMENT REGULATIONS ON THE COMPANY'S BUSINESS: The projects in
which the Company has an interest are located in Argentina.
ARGENTINA
Mining Industry
Mineral companies are subject to both the Argentinean Mineral Code and the
Environmental Protection Mining Code. The Company believes it is in material
compliance with both the Argentinean Mineral Code and the Environmental
Protection Mining Code.
Mining Law in Argentina
In IM-11/19 Argentina; Economic Trends-Nov. 1999, the author stated:
-14-
Although some ambiguities in its interpretation have emerged, the 1993
Argentine Mining Code has created a favorable investment climate in
the sector. An influx of foreign capital is bringing major copper and
gold mines on line in Catamarca and Santa Cruz provinces, as well as
smaller projects elsewhere.
(Source: U.S. Department of Commerce - National Trade Data Bank, IM-11/19
Argentina; Economic Trends-Nov. 1999).
The right to explore a property (a "cateo") and the right to exploit (a "mina")
are granted by administrative or judicial authorities via concessions. Foreign
individuals and corporations may apply for and hold cateos and minas, at the
same level as local investors without differences of any nature. Cateos and
minas are freely transferable upon registration with the Provincial Mining
Registry where title to the cateo or mina was first registered. Upon the grant
of a legal concession of a cateo or a mine, parties have the right to explore
the land or to own the mine and the resources extracted therefrom.
Regulatory Environment
Management believes the present government is deeply committed to opening up the
economy, and there has been significant progress in reducing import duties and
export taxes. For decades local industry has been protected, and the transition
to greater international competitiveness will take some time.
Importers and exporters must be registered with Customs. Except for a very
limited list of items requiring the previous approval of the authorities, there
are no import restrictions. Import of pharmaceuticals, drugs, foodstuffs,
defense material, and some other items require the approval of the applicable
government authority. Import duties are being progressively reduced in
accordance with the free enterprise and free-trade policy being implemented by
the government in order to achieve greater international competitiveness. To
illustrate, duties currently range between zero and 20 percent. Restrictions on
exports are not generally imposed.
Political Environment and Economy
In recent years Argentina has experienced a number of changes to its government.
The current president, Nestor Kirchner, came to power in May 2003. The country
continues to struggle with its external debt. Negotiations continue with the IMF
and several of its other major creditors. The economic performance of the
country has been troubled and uncertain since the late 1990's. Management
believes there are currently some positive indications that the economic
situation is improving.
ENVIRONMENTAL REGULATIONS: The Company's operations are subject to environmental
regulations promulgated by government agencies from time to time. Environmental
legislation provides for restrictions and prohibitions on spills, releases or
emissions of various substances produced in association with certain mining
industry operations, such as seepage from tailings disposal areas, which would
result in environmental pollution. A breach of such legislation may result in
the imposition of fines and penalties. At present, the Company does not believe
that compliance with environmental legislation and regulations will have a
material affect on the Company's operations; however, any changes in
environmental legislation or regulations, or in the Company's business, may
cause compliance with such legislation and/or regulation to have a material
impact on the Company's operations. In addition, certain types of operations
require the submission and approval of environmental impact assessments.
Environmental legislation is evolving in a manner which means stricter
standards, and enforcement, fines and penalties for non-compliance are more
stringent. Environmental assessments of proposed projects carry a heightened
degree of responsibility for companies and directors, officers and employees.
The cost of compliance with changes in governmental regulations has a potential
to reduce the profitability of operations. The Company intends to ensure that it
complies fully with all environmental regulations relating to its operations in
Argentina.
The provincial government of Chubut Province, Argentina has enacted certain
anti-mining laws banning the use of cyanide and open-pit mining in metallic
extraction in the Province of Chubut. The provincial legislation is more
restrictive than current federal Argentinean mining laws. The Company has hired
a mining engineering consultant to oversee all environmental and socio-economic
-15-
studies and programs to ensure international best practices for the mining
industry are applied in the development of the Company's properties. Certain
authorities believe that the provincial legislation may be unconstitutional.
However, there can be no assurance that the provincial legislation will be
repealed.
CURRENCY FLUCTUATIONS: The Company's operations in Argentina and Canada make it
subject to foreign currency fluctuations and such fluctuation may adversely
affect the Company's financial position and results. Certain of the Company's
expenses are denominated in U.S. dollars. As such, the Company's principal
foreign exchange exposure is related to the conversion of the Canadian dollar
into U.S. dollars. The Canadian dollar varies under market conditions. Continued
fluctuation of the Canadian dollar against the U.S. dollar will continue to
affect the Company's operations and financial position. The Company's foreign
subsidiaries comprise a direct and integral extension of the Company's
operations. These subsidiaries are also entirely reliant upon the Company to
provide financing in order for them to continue their activities. Consequently,
the functional currency of these subsidiaries is considered by management to be
the Canadian dollar and accordingly exchange gains and losses are included in
net income. Management does not believe the Company is subject to material
exchange rate exposure from any fluctuation of the Argentine currency. The
Company does not engage in hedging activities. See "Item 5. Operating and
Financial Review and Prospects".
NO DIVIDENDS: The Company has not paid out any cash dividends to date and has no
plans to do so in the immediate future.
PENNY STOCK REGULATION: The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in "penny stocks". Generally, penny
stocks are equity securities with a price of less than US$5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system). Since the Company's shares are traded for less than US$5.00 per
share, the shares are subject to the SEC's penny stock rules. The Company's
shares will be subject to the penny stock rules until such time as (1) the
issuer's net tangible assets exceed US$5,000,000 during the issuer's first three
years of continuous operations or US$2,000,000 after the issuer's first three
years of continuous operations; or (2) the issuer has had average revenue of at
least US$6,000,000 for three years. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prescribed by the
SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer must obtain a written
acknowledgement from the purchaser that the purchaser has received the
disclosure document. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Such rules and regulations may make it difficult for holders
to sell the common stock of the Company, and they may be forced to hold it
indefinitely.
ENFORCEMENT OF LEGAL PROCESS: It may be difficult to bring and enforce suits
against the Company. The Company is incorporated in British Columbia. None of
the Company's directors are residents of the United States and all, or a
substantial portion, of their assets are located outside of the United States.
As a result, it may be difficult for U.S. holders of the Company's common shares
to effect service of process on these persons within the United States or to
enforce judgments obtained in the U.S. based on the civil liability provisions
of the U.S. federal securities laws against the Company or their officers and
directors. In addition, a shareholder should not assume that the courts of
Canada (i) would enforce judgments of U.S. courts obtained in actions against
the Company or their officers or directors predicated upon the civil liability
provisions of the U.S. federal securities laws or other laws of the United
States, or (ii) would enforce, in original actions, liabilities against the
Company or their officers or directors predicated upon the U.S. federal
securities laws or other laws of the United States.
However, U.S. laws would generally be enforced by a Canadian court provided that
those laws are not contrary to Canadian public policy, are not foreign penal
laws or laws that deal with taxation or the taking of property by a foreign
government and provided that they are in compliance with applicable Canadian
legislation regarding the limitation of actions. Also, a judgment obtained in a
U.S. court would generally be recognized by a Canadian court except, for
example:
-16-
1. where the U.S. court where the judgment was rendered had no
jurisdiction according to applicable Canadian law;
2. the judgment was subject to ordinary remedy (appeal, judicial review
and any other judicial proceeding which renders the judgment not final,
conclusive or enforceable under the laws of the applicable state) or
not final, conclusive or enforceable under the laws of the applicable
state;
3. the judgment was obtained by fraud or in any manner contrary to natural
justice or rendered in contravention of fundamental principles of
procedure;
4. a dispute between the same parties, based on the same subject matter
has given rise to a judgment rendered in a Canadian court or has been
decided in a third country and the judgment meets the necessary
conditions for recognition in a Canadian court;
5. the outcome of the judgment of the U.S. court was inconsistent with
Canadian public policy;
6. the judgment enforces obligations arising from foreign penal laws or
laws that deal with taxation or the taking of property by a foreign
government; or
7. there has not been compliance with applicable Canadian law dealing with
the limitation of actions.
ITEM 4. INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------
History and Development of the Company
Since 1996, the Company has been engaged, through its subsidiaries, in the
acquisition and exploration of mineral properties, with a primary focus in
Argentina and Peru. The Company was incorporated in British Columbia under the
Company Act (British Columbia, Canada) (the "Company Act") on September 17,
1979, as Gold Star Resources Ltd. On May 1, 1990, the Company filed an Altered
Memorandum to reflect its name change to EEC Marketing Corp. On January 13,
1992, the Company filed an Altered Memorandum to reflect its name change to
Amera Industries Corp. From its date of inception to January 31, 1992, the
Company was inactive. Between January 31, 1992 and August 31, 1994, the Company
was involved in the eyewear and optical products industry. Subsequently, the
Company again became inactive and began seeking a new business opportunity. The
Company filed another Altered Memorandum on February 9, 1995, to reflect its
name change to International Amera Industries Corp. On February 20, 1996, the
Company filed an Altered Memorandum, changing its name to IMA Resource
Corporation, and became engaged in the acquisition and exploration of mineral
properties.
In September of 1995 the Company formed IMPSA Resources Corporation ("IMPSA") in
order to pursue opportunities in Peru. At that time, exploration efforts by
other companies in Peru were beginning in earnest. Management believed Peru was
a favorable country for mineral exploration due to the country's geology and
strong mining culture. In addition, management believed that Peru was
under-explored.
Management believed the amount of capital necessary to fully exploit
opportunities in Peru was greater than what the Company sought to invest. Since
the Company had an ongoing exploration program in Argentina, the Company
initially limited the funding of its Peruvian projects to $250,000. The Company
established IMPSA and used the Company's $250,000 capital contribution to
establish an infrastructure and initiate property reviews. A number of
consultants were retained and detailed property assessments were initiated. The
Company determined that in order to further develop IMPSA, additional funding
would be required.
The Company initially received 500,000 common shares, or 30.76%, of the then
issued and outstanding common shares of IMPSA, for its $250,000 capital
contribution. As a result of issuing 375,000 shares to IMPSA's management and
key employees, and the completion of two private placements (resulting in the
issuance of a total of 1,528,000 common shares of IMPSA), the Company's initial
investment in IMPSA was diluted to 20.76%. However, in order to assure the
Company an ongoing interest in the assets of IMPSA, the Company retained a 20%
participating interest in IMPSA (BVI) and retained the right to maintain a 20%
ownership interest in IMPSA. During fiscal 1998, the Company increased its
investment in IMPSA by purchasing 990,963 shares, which increased the Company's
percentage ownership of IMPSA from 20.76% to 43.81%. In January 1999, the
Company acquired an additional 6,500,000 common shares of IMPSA, increasing its
equity interest from 43.81% to 80.69%. During 2001, the Company completed the
reorganization of its corporate structure to continue the funding of the
Company's Peruvian exploration activities. On August 20, 2001, the Company
entered into an agreement with IMPSA, its 80.69% owned subsidiary, to acquire
IMPSA's 80% interest in IMPSA (BVI) and IMPSA's advances to IMPSA (BVI), of
approximately US$1.536 million, in exchange for $850,000 plus a 2% fee on any
net revenue or proceeds from the disposition of certain properties held by IMPSA
-17-
(BVI). See "Item 4. Information on the Company - Organizational Structure." The
fee is limited to a maximum of $1,400,000. This transaction was approved by
IMPSA's shareholders on September 4, 2001. IMPSA used the cash proceeds to
retire its debt to the Company. Rio Tabaconas (formerly known as Tamborapa),
IMPSA's principal property, is for the most part an early stage exploration
property and involves a high degree of risk.
On April 3, 1996, the Company acquired IMA Holdings Corp. ("IHC"), a British
Columbia company. The acquisition of IHC by the Company resulted in the former
shareholders of IHC acquiring control of the Company. At the time of the
acquisition, the Company had two common directors with IHC. Generally accepted
accounting principles required the transaction to be treated for accounting
purposes as a reverse-takeover. In accounting for this transaction:
(i) IHC was deemed to be the purchaser and parent company for accounting
purposes. Accordingly, its net assets are included in the Company's
consolidated balance sheet at their historical book value; and
(ii) control of the net assets and business of the Company was acquired
effective April 3, 1996. The transaction was accounted for as a
purchase of the assets and liabilities of the Company by IHC at their
fair values.
IHC's primary asset was a 50% joint venture interest in Minas Argentinas
(Barbados) Inc. ("Minas Barbados"). Oro Belle Resources Corporation ("Oro
Belle"), a third party, held the remaining 50% interest in Minas Barbados. The
sole asset of Minas Barbados is its 100% interest in Minas Argentinas S.A.
("MASA"). MASA is an Argentine company whose main activity is exploration of
mineral properties in Argentina. During 1998, the Company held discussions with
Oro Belle and its majority shareholder, Viceroy, to restructure the arrangement
and facilitate the funding of future financial requirements of MASA.
In May 1998, the Company entered into an arrangement (the "Plan of Arrangement")
with Viceroy Resource Corporation ("Viceroy") whereby the Company agreed to
exchange its 50% interest in Minas Barbados for 2,200,000 common shares of
Viceroy (the "Viceroy Shares"), at a price of $2.25 per Viceroy Share (being the
market value of the Viceroy Shares on the date of the transaction), a 1% net
smelter returns royalty interest (the "MASA NSR") in the mineral property
interests held by MASA, and the extinguishment of all debts owing by the Company
to MASA. No value was ascribed to the MASA NSR for the purpose of calculating
the total consideration received at the date of exchange.
The Company also restructured its share capital to facilitate the distribution
of 1,540,000 Viceroy Common Shares to the Company's shareholders. The
transaction was accomplished as follows:
i) each issued and outstanding common share of the Company was exchanged
for one Class A common share and one Class B preferred share (the
"Preferred Shares") of the Company;
ii) the holders of the Preferred Shares received 1,540,000 Viceroy Common
Shares, directly from Viceroy, in exchange for all of the Preferred
Shares;
iii) the Company relinquished its ownership interest in Minas Barbados to
Viceroy in exchange for the Preferred Shares, the MASA NSR, the
extinguishment of all debts to MASA and 660,000 Viceroy Shares. The
Preferred Shares were then canceled by the Company; and
iv) all options and warrants to purchase common shares of the Company
became exercisable to purchase Class A common shares on the same basis
as the common shares.
The transaction became effective July 7, 1998, upon filing an Altered
Memorandum, and the Company changed its name to IMA Exploration Inc. As a result
of the transaction, the Company consolidated its share capital on the basis of
four old shares for one new share.
On June 30, 1999, the shareholders of the Company passed a Special Resolution
approving a redesignation of the Class A Common Shares to common shares.
-18-
In August 1999, the Company completed a private placement with Barrick Gold
Corporation ("Barrick"). Barrick was granted an option to earn an interest in
either the Potrerillos or Rio de Taguas property. The funds were spent on the
drilling program on the Potrerillos property. Subsequent proceeds were spent on
further exploration of the Company's properties in the Valle de Cura region of
San Juan Province, Argentina from October 2000 to March 2001. As a result of the
private placement Barrick became the Company's largest shareholder. During
September 2003 Barrick reduced its shareholding to 1,000,000 shares.
The Company agreed to spend a minimum of $1,125,000 on its Valle de Cura
properties out of the proceeds from the Barrick private placement. As of
December 31, 2003 this requirement had been met. On December 15, 2003, Barrick
served notice that it would not be exercising the option and the Company has
begun pursuing other partners for the continued exploration of these drill ready
projects.
On March 29, 2004, the new British Columbia Business Corporations Act (the
"BCBCA") came into force in British Columbia and replaced the former Company
Act, which is the statute that previously governed the Company. See "Item 10.
Additional Information - Memorandum and Articles of Association."
On May 3, 2004, the Company announced its intention to proceed with a
reorganization of the Company which had the result of dividing its present
mineral resource assets between two separate public companies. Upon
implementation of the corporate reorganization, the Company would continue to
hold the Navidad silver-lead-copper project and certain other mineral properties
in central Chubut Province, Argentina, while the newly created public company
will hold the other resource assets of the Company.
Under the reorganization, the Company's most advanced project, the Navidad
silver-lead-copper project and certain other Navidad area properties in central
Chubut Province, Argentina (the "Navidad Properties") continued to be owned by
the Company, while the Company's non-Navidad mineral properties along with
$750,000 of operating cash and the joint venture agreements (including the
marketable securities) relating to the transferred properties (collectively the
"Transferred Assets") were be transferred to Golden Arrow Resource Corporation
("Golden Arrow"), a new public company formed to effect the reorganization.
Golden Arrow is committed to grass roots exploration while the Company retained
the Navidad project and focused on:
1. A significantly expanded drill program on the numerous targets within
Navidad;
2. More detailed regional exploration for Navidad style targets;
3. Pursuing a listing on major U.S. and Canadian stock exchanges;
4. Completing a bankable feasibility study on the Navidad project in a
timely fashion; and
5. Exploring the Navidad related properties directly or through joint
ventures.
However, there are no assurances that the Company will be able to successfully
complete any of the foregoing.
The reorganization was implemented by a Plan of Arrangement under the BCBCA. The
Company's shareholders and optionholders approved the Plan of Arrangement at the
Company's Annual General Meeting that was held on June 22, 2004. All other
approvals were subsequently received.
The common shares of Golden Arrow were distributed to shareholders of the
Company in proportion to their shareholdings in the Company on July 7, 2004 and
on the basis of one Golden Arrow share for every 10 shares of the Company held.
The reorganization was intended to enhance shareholder value by enabling each
company to focus on the development of its own properties, and by allowing
shareholders to hold an interest in Golden Arrow which reflects the value of the
Company's portfolio of exploration projects.
-19-
CURRENT CORPORATE STRUCTURE
----------------------------------
IMA Exploration Inc.
----------------------------------
|
|
100%
|
|
----------------------------------
IMA Holdings Corp.
----------------------------------
|
CANADA |
--------------------------------------------------------------------------------
|
100%
|
----------------------------------
IMA Latin America Inc.
----------------------------------
|
100%
|
----------------------------------
Inversiones Mineras Argentina Inc.
----------------------------------
|
BVI/BARBADOS |
--------------------------------------------------------------------------------
ARENTINA/PERU |
|
100%
|
----------------------------------
Inversiones Mineras Arentinas S.A.
----------------------------------
|
|
-----------------------
Navidad Area Properties
-----------------------
-20-
PRINCIPAL OFFICE
The current office and principal address of the Company is located at #709 - 837
West Hastings Street, Vancouver, British Columbia, V6C 3N6. The Company's
telephone number is (604) 687-1828.
ACQUISITION AND DISPOSITION OF MINERAL PROPERTY INTERESTS DURING THE THREE PRIOR
FISCAL YEARS
The Company has made additions to mineral properties and deferred costs of
$4,448.659, $1,069,228, and $5,090 and capital assets of $93,650, $21,875 and
$11,201 for the fiscal years ended December 31, 2004, 2003 and 2002,
respectively.
The Company has not made any write down to the value of its mineral properties
and deferred costs.
PLANNED EXPLORATION EXPENDITURES AND PROPERTY PAYMENTS
For the period from January 1 to May 5, 2005, the Company has made additions to
mineral properties and deferred costs of approximately $2,050,000. For the
balance of 2005, the Company expects to spend a further $4,000,000 on the
Navidad project. See "Item 4. Information on the Company - Properties, Plants
and Equipment - Principal Properties - Argentinean Properties and "Item 7. Major
Shareholders and Related Party Transactions - Related Party Transactions."
As of May 5, 2005, the Company does not have sufficient working capital to fund
all of its planned exploration work and property commitments and meet all of its
ongoing overhead obligations. The Company will continue to rely on successfully
completing additional equity financing and/or conducting joint venture
arrangements to conduct further exploration on its properties. There can be no
assurance that the Company will be successful in obtaining the required
financing or negotiating joint venture agreements. The failure to obtain such
financing or joint venture agreements could result in the loss of, or
substantial dilution of the Company's interest in its properties.
Business Overview
The Company is a natural resource company engaged in the business of acquisition
and exploration of mineral properties in Argentina. At present, the Company has
no producing properties and consequently has no current operating income or cash
flow. As of the date of this annual report, the Company is an exploration stage
company and has not generated any revenues from mining operations. There is no
assurance that a commercially viable mineral deposit exists on any of the
Company's properties. Further exploration and evaluation will be required before
a final determination as to the economic and legal feasibility of any of the
properties is determined.
On the properties in the Navidad area, accessibility and work may be limited
during the winter months.
GENERAL DEVELOPMENT OF THE COMPANY'S BUSINESS
The Company has been active in Peru and continues to be active in Argentina
since 1996 acquiring and exploring mineral properties.
In August 1999 the Company completed a private placement with Barrick. Barrick
was granted an option to earn an interest in either the Potrerillos or Rio de
Taguas property. The funds were spent on the drilling program on the Potrerillos
property. Subsequent proceeds were spent on further exploration of the Company's
properties in the Valle de Cura region of San Juan Province, Argentina from
October 2000 to March 2001. As a result of the private placement Barrick became
the Company's largest shareholder but has subsequently reduced its holdings.
-21-
The Company agreed to spend a minimum of $1,125,000 on its Valle de Cura
properties out of the proceeds from the Barrick private placement. As of
December 31, 2003 this requirement had been met. On December 15, 2003 Barrick
served notice that it would not be exercising the option.
In March 2001, the Company granted Rio Tinto Mining and Exploration Limited
("Rio Tinto") an option to acquire a majority interest in the Mogote property in
the Valle de Cura region of San Juan Province, Argentina. This agreement was
terminated by Rio Tinto in December 2001. In March 2003 (as amended September
30, 2003), the Company granted Amera Resources Corporation ("Amera") an option
to acquire a 51% interest, amended on April 8, 2004 to 75%, in the Mogote
property. See "Item 4. Information on the Company - Properties, Plants and
Equipment - Principal Properties - Argentinean Properties - San Juan Province
Properties - Northwest San Juan - Mogote Property" and "Item 7. Major
Shareholders and Related Party Transactions - Related Party Transactions."
In 2002, the Company began to acquire properties in Chubut Province, Argentina.
In 2003, the Company significantly increased its focus on activities in the
Chubut region. The Company has entered into a number of joint venture agreements
which resulted in the farm-out of several of its non-core properties.
In early 2003, the Company focused its efforts on its Navidad Area Properties in
Chubut Province located in southern Argentina. The preliminary results of its
initial exploration efforts were very encouraging. A Phase I drilling program
commenced in November, 2003 and was completed in late March 2004. A Phase II
drill program commenced in late May 2004 and was completed in September 2004.
Subsequent to completion of the Phase II program, a program of surface
exploration including prospecting, geological mapping, ground geophysics and
soil sampling was carried out. A Phase III drilling program commenced in
November, 2004 and, other than a break for Christmas, drilling continued to
March 7, 2005. Subsequently the Company has announced that the Phase III program
budget has been increased to include an additional 10,000 metres of drilling and
drilling resumed in April, 2005. The Phase I drill program at Navidad comprised
8,859.6 metres in 53 holes, 37 of which were drilled on Galena Hill. Phase II
drilling comprised 9,596.5 metres of diamond core drilling in 67 holes. Drilling
in the Phase II program focused on the Esperanza Trend, the Barite Hill target,
and on the Navidad Hill and Connector Zone targets. Phase III drilling to date
has comprised 9,526.2 metres in 54 holes for a project total of 27,982.3 metres
in 174 holes.
On May 3, 2004, the Company announced its intention to proceed with a
reorganization of the Company.
Under the reorganization, the Company's most advanced project, the Navidad
silver-lead-copper project and certain other Navidad area properties in central
Chubut Province, Argentina (the "Navidad Properties") continued to be owned by
the Company, while the Company's non-Navidad mineral properties along with
$750,000 of operating cash and the joint venture agreements (including the
marketable securities) relating to the transferred properties (collectively the
"Transferred Assets") were be transferred to Golden Arrow Resource Corporation
("Golden Arrow"), a new public company formed to effect the reorganization.
Golden Arrow is committed to grass roots exploration while the Company retained
the Navidad project and focused on:
1. A significantly expanded drill program on the numerous targets within
Navidad;
2. More detailed regional exploration for Navidad style targets;
3. Pursuing a listing on major U.S. and Canadian stock exchanges;
4. Completing a bankable feasibility study on the Navidad project in a
timely fashion; and
5. Exploring the Navidad related properties directly or through joint
ventures.
However, there are no assurances that the Company will be able to successfully
complete any of the foregoing.
The reorganization was implemented by a Plan of Arrangement under the BCBCA. The
Company's shareholders and optionholders approved the Plan of Arrangement at the
Company's Annual General Meeting that was held on June 22, 2004. All other
approvals were subsequently received.
The common shares of Golden Arrow were distributed to shareholders of the
Company in proportion to their shareholdings in the Company on July 7, 2004 and
on the basis of one Golden Arrow share for every 10 shares of the Company held.
The reorganization was intended to enhance shareholder value by enabling each
company to focus on the development of its own properties, and by allowing
shareholders to hold an interest in Golden Arrow which reflects the value of the
Company's portfolio of exploration projects.
-22-
GOVERNMENT REGULATIONS
The Company's operations are subject to certain governmental laws and
regulations. See "Item 3. Key Information - Risk Factors - Foreign Countries and
Regulatory Requirements", "Item 3. Key Information - Risk Factors - Impact of
Government Regulations on the Company's Business" and "Item 3. Key Information -
Risk Factors - Environmental Regulations."
Organizational Structure
The Company has one direct wholly-owned subsidiary, IMA Holdings Corp. ("IHC").
IHC has a direct wholly-owned subsidiary, IMA Latin America Inc. ("IMA Latin
America"), a British Virgin Islands company.
IMA Latin America has one direct wholly-owned subsidiary, Inversiones Mineras
Argentinas Inc., a Barbados company ("IMA Barbados"). IMA Barbados has one
direct wholly-owned subsidiary, Inversiones Mineras Argentinas S.A. ("IMA
Argentinas"), an Argentine company.
The Company's current corporate structure is depicted (above). See "Item 4.
Information on the Company - History and Development of the Company."
Unless otherwise indicated herein, the term "Company" means collectively the
Company and its subsidiaries.
Properties, Plants and Equipment
The Company's principal business is the acquisition and exploration of mineral
properties. As of the date of this annual report, all of the Company's
properties are without known reserves and the Company's operations are
exploratory in nature. See Item 4. Navidad Property - Estimated Resources.
PRINCIPAL PROPERTIES
NAVIDAD PROJECT
On February 3, 2003 the Company announced the discovery of high-grade
silver-lead mineralization on its 100% owned 10,000 hectare (24,700 acres)
Navidad Project in north central Chubut Province, Argentina. The mineralization
had been discovered by prospecting on December 10, 2002 and was a new discovery
as there were no recorded occurrences of silver mineralization in the area. This
was surprising due to the fact that high-grade, structurally-controlled
mineralization and the moderate-grade replacement style mineralization were
abundantly visible with lead and copper mineralization outcrops and subcrops
over a strike length of thousands of meters. There was no evidence of prior
prospecting or sampling activity anywhere despite the area being inhabited.
During the fiscal years ending December 31, 2004, 2003 and 2002 the Company had
capitalized and expensed costs on all of its properties as follows:
General Aggregate
Exploration Amount
Amount Expensed in Written-off In
Fiscal Year Ending Capitalized Fiscal Year Fiscal Year
December 31, 2002 $148,618 $180,321 $ Nil
December 31, 2003 $1,469,026 $226,956 $ Nil
December 31, 2004 $6,551,598 $228,961 $ Nil
-23-
[Argentina Property Map]
[GRAPHIC OMITTED][GRAPHIC OMITTED]
MAP OF ARGENITNA SHOWING THE LOCATION OF THE CITIES OF:
BUENOS AIRES
BARILOCHE
PUERTO MADRYN
WITH "STAR" SHOWING THE LOCATED OF THE NAVIDAD PROJECT IN CHUBUT PROVINCE
-24-
ARGENTINEAN PROPERTIES
Navidad Project
On February 3, 2003, the Company announced the discovery of high-grade
silver-lead-copper mineralization at its 100% owned 10,000 hectare (24,700
acres) Navidad Project in north central Chubut, Argentina. The mineralization
had been discovered by prospecting on December 10, 2002, and was a new discovery
as there were no recorded occurrences of silver mineralization in the area. This
was surprising due to the fact that high-grade, structurally-controlled
mineralization and the moderate-grade replacement style mineralization with
abundant visible lead and copper mineralization outcrops and subcrops over a
strike length of thousands of meters. There was no evidence of prior prospecting
or rock sampling activity despite the area being inhabited. Furthermore a fence
line passes through the central part of the outcropping high-grade
mineralization and blocks of rock containing obvious green copper oxides had
been used to prop up fence posts.
PROPERTY DESCRIPTION AND LOCATION
The Navidad Project comprises 10,000 hectares consisting of two individual
claims (manifestacions) in the Gastre Department of the Province of Chubut.
These two claims are underlain by the company's original claim (the Gan Cateo)
and cover the same area. The project is centered at approximately 42.415 decimal
degrees south latitude and 68.82 decimal degrees west longitude in the Campo
Inchauspe datum. The above point has been located in the field by professional
surveyors and has the coordinates 2,514,856.53 east and 5,304,454.84 north in
Gauss Kruger Campo Inchauspe zone 2 and was assigned the local grid coordinates
50,000E, 10,000N with an elevation of 1,218.18 m (Height Above Ellipsoid
WGS1984). The local grid is rotated 30 degrees to the east of Gauss Kruger
north.
Mineral Titles included in the Navidad Project:
--------------------------------------------------------------------------------
File
Number Year Date Type Name Hectares
--------------------------------------------------------------------------------
13984 2002 December 6, 2002 Cateo Gan 10,000
14340 2004 September 16, 2004 Manifestacion Navidad Este 5,000
14341 2004 September 16, 2004 Manifestacion Navidad Oeste 5,000
--------------------------------------------------------------------------------
Note: the project totals 10,000 hectares, claims 14340 and 14341 together cover
the same area as the original claim 13984.
ACCESSIBILITY AND INFRASTRUCTURE
The property is located in the north-central part of the Province of Chubut
within the prominent Gastre structural lineament in a somewhat uplifted area.
Maximum elevation within the Gan cateo is 1,460 m while the minimum elevation is
1,060 m. Relief is gentle with minor local exceptions.
Vegetation is sparse and comprises grasses and low brush. Trees are absent. The
climate is characterized as continental semi-arid with moderate temperatures in
summer often accompanied by high winds. Winters are cold with temperatures often
dipping below zero Celsius, but are generally not characterized by extended
sub-zero periods. Most of the precipitation falls in winter as both rain and
snow and, as such, conditions may not favor field work in the winter, but
depending on the year, work may be possible even during winter.
Access to the property is possible year around by two-wheel drive pick-up truck
except in very wet periods. Gastre is the nearest town some 40km to the west and
the town of Gan Gan is about the same distance to the east; both are along Route
4, a gravel highway. The nearest airport with scheduled service is in Esquel
four hours drive to the southwest by gravel road. To the north about two hours
drive, in the province of Rio Negro, is the town of Ingenerio Jacobacci which is
larger than Gastre and has much better services including banking. From
Ingenerio Jacobacci it is another three and a half hours to the west to
Bariloche, a city with multiple daily flights and a centre for tourism year
round. From Gastre to the Atlantic Coast it is approximately seven hours drive
virtually all on gravel roads. Along the coast infrastructure is much better
with paved, roads, ports and airports and larger population centers.
During normal road conditions the trip from Gastre to the Navidad Project is
about 30 minutes.
-25-
A high voltage power line running from the Futaleufu site to an aluminum smelter
at Puerto Madryn passes roughly 50km south of the Navidad Project. The
government has announced a contract tendered to construct a connection from this
power line to the national power grid at Choele Choel in Rio Negro to the north
in order to facilitate expansion of the aluminum smelter and other projects.
Construction of the connection will bring the Argentine national power grid with
easy reach of Navidad.
HISTORY
The Navidad Project has no known exploration history and there is no indication
that any of the surface showings were previously discovered or sampled. A
prospecting discovery of this type seems unthinkable in the exploration industry
in this day and age, especially within a few hundred meters of a provincial
highway, except for the lack of mining and prospecting tradition in Patagonia.
Proof of this lack of mining tradition is that the posts of the fence line that
passes through the central part of the outcropping high grade mineralization had
been propped up with blocks of rock containing obvious green copper oxides.
The only nearby sign of previous mining activity lies about 3km north west of
Navidad Hill where some barite veins were opened up by trenches presumably with
the idea of selling barite as an industrial mineral to the petroleum industry.
Sampling during the surface work showed these veins have very low values of
silver, copper and lead. Verbal reports suggest the trenching was done about 20
years ago.
Effectively the exploration history of Navidad Project began on December 10,
2002 with the discovery of outcropping mineralization by one of the Company's
geologists. Subsequent surface work comprised extensive geological mapping, rock
sampling, soil sampling and geophysics including magnetic, induced polarization
and gravity surveys.
REGIONAL AND LOCAL GEOLOGY
According to the preliminary map 4369-II at 1:250,000 scale of SEGEMAR, the
national geological service of Argentina, the Navidad Project mineralization is
mapped as part of the Upper Jurassic Canadon Asfalto Formation.
Province wide geological maps of Chubut by the same organization indicate that
the Canadon Asfalto is restricted to the central part of Chubut. The type
section of the formation is located along the Rio Chubut southwest of the
project area between Paso Sapo and Paso de Indios.
Much of the remainder of the Navidad Project is underlain by the Lonco Trapial
Formation of Lower Jurassic age and finally older, poorly age-defined basement
granitic rocks of Paleozoic age.
The Canadon Asfalto Formation comprises fine sandstones, limestones and
volcanics of continental and lacusterine environment. It appears significant
regional variations in composition and depositional environment are present
within the formation as currently defined. Both fossils and a K/Ar radiometric
age of 173 +/-4 Ma indicate a middle to upper Jurassic age.
The Lonco Trapial Formation, including Tacquetren Formation and other
equivalents, is more widely distributed in Chubut excluding the Andean portion.
The formation is volcanic dominant and appears to be the first phase of infill
of local grabens in the developing San Jorge Basin. Again, significant regional
variability in composition and depositional facies is indicated, with
compositions ranging from felsic to mafic.
Apparently one of the controlling features of the San Jorge Basin is the
long-lived, major structure known as the Gastre Fault. This fault is a wide,
northwest-trending zone of fracturing that appears to have controlled deposition
of rock units and then dismembered them from the Jurassic through the present.
Faulting related to the Gastre Fault is present in the Navidad Project area, but
the most striking structural elements in the area are a series of northwest
trending folds.
-26-
DIAMOND DRILLING PROGRAM
Connors Argentina S. A. ("Connors") of Mendoza Argentina commenced drilling on
November 26, 2003. Phase IIIa drilling was completed on March 7, 2005, Phase
IIIb drilling is currently ongoing. To the end of the Phase IIIa drill program,
27,982m have been drilled in 174 holes. During the life of the project the
average rate of drilling including moves and breakdowns has been 121.7 metres
per day.
All but 149 metres of the drilling has recovered HQ diameter (61mm) core, with
the remainder recovering NQ diameter core. The drill supplied by Connors
Argentina is containerized and mounted on a tracked undercarriage capable of
moving itself. Water for drilling was brought to the drilling sites by a water
truck of 9,000 liters that was subcontracted by Connors. The water was trucked
from several local sources under agreement with local surface land owners.
Down hole surveys of the holes were done using a Tropari and/or a Sperry Sun
instrument. In general the orientation of holes has little deviation because of
the relatively large diameter of the drill string and the relatively short
lengths of the holes.
Surveyed coordinates and orientations of Navidad drillholes:
Diamond Easting Northing Elevation Azimuth dip down
Drill GK faja 2 GK faja 2 (metres) (wrt GK) from Length
Hole Local E Local N Campo Inch Campo Inch HAE CI north) Vertical (metres)
NV03-01 50,000.6 10,005.0 2,514,819.5 5,304,458.8 1,219.5 210.0 -45.0 109.5
NV03-02 50,000.0 9,971.1 2,514,802.0 5,304,429.8 1,211.2 30.0 -45.0 154.5
NV03-03 51,160.5 9,660.1 2,515,651.6 5,303,580.3 1,178.4 210.0 -45.0 178.5
NV03-04 51,160.1 9,669.6 2,515,655.9 5,303,588.6 1,178.6 30.0 -45.0 285.0
NV03-05 51,160.1 9,802.1 2,515,722.2 5,303,703.3 1,176.6 30.0 -60.0 217.7
NV03-06 49,961.7 9,972.3 2,514,769.5 5,304,449.9 1,218.4 30.0 -45.0 136.2
NV03-07 49,919.7 9,965.9 2,514,729.9 5,304,465.4 1,222.2 30.0 -45.0 108.9
NV03-08 49,959.8 10,016.3 2,514,789.8 5,304,489.0 1,226.4 210.0 -45.0 146.0
NV03-09 49,919.9 10,027.4 2,514,760.8 5,304,518.6 1,231.4 210.0 -45.0 106.1
NV03-10 49,961.9 9,953.4 2,514,760.2 5,304,433.5 1,215.1 30.0 -45.0 150.7
NV03-11 49,625.2 10,040.0 2,514,511.9 5,304,676.8 1,209.2 120.0 -45.0 133.2
NV04-12 51,160.6 9,577.9 2,515,610.5 5,303,509.0 1,155.4 30.0 -65.0 220.0
NV04-13 50,876.5 10,015.0 2,515,583.1 5,304,029.5 1,179.4 30.0 -45.0 142.7
NV04-14 50,997.6 9,911.7 2,515,636.3 5,303,879.6 1,178.1 210.0 -70.0 158.0
NV04-15 51,159.8 9,910.5 2,515,776.1 5,303,797.4 1,167.0 30.0 -60.0 139.6
NV04-16 51,161.0 9,451.4 2,515,547.6 5,303,399.2 1,138.3 30.0 -55.0 250.5
NV04-17 50,998.8 9,614.4 2,515,488.6 5,303,621.4 1,156.7 30.0 -85.0 164.2
NV04-18 51,001.3 9,364.5 2,515,365.9 5,303,403.8 1,137.1 30.0 -55.0 274.7
NV04-19 51,001.9 9,826.2 2,515,597.2 5,303,803.4 1,181.7 210.0 -80.0 188.1
NV04-20 50,801.6 9,897.6 2,515,459.5 5,303,965.3 1,163.0 210.0 -70.0 70.9
NV04-21 50,997.6 9,948.5 2,515,654.7 5,303,911.4 1,174.2 30.0 -45.0 198.1
NV04-22 50,998.5 9,977.9 2,515,670.2 5,303,936.4 1,171.9 210.0 -75.0 193.8
NV04-23 51,000.7 9,713.6 2,515,540.0 5,303,706.4 1,177.3 210.0 -85.0 191.1
NV04-24 50,804.7 10,023.1 2,515,524.9 5,304,072.4 1,173.8 30.0 -50.0 145.6
NV04-25 51,204.1 9,014.3 2,515,366.4 5,302,999.1 1,140.0 210.0 -45.0 199.8
NV04-26 50,802.1 9,728.9 2,515,375.6 5,303,818.9 1,153.5 32.0 -75.0 134.0
NV04-27 50,100.7 9,719.0 2,514,763.2 5,304,161.1 1,164.0 30.0 -45.0 181.5
-27-
Diamond Easting Northing Elevation Azimuth dip down
Drill GK faja 2 GK faja 2 (metres) (wrt GK) from Length
Hole Local E Local N Campo Inch Campo Inch HAE CI north) Vertical (metres)
NV04-28 51,164.5 9,865.2 2,515,757.6 5,303,755.8 1,170.6 30.0 -60.0 158.0
NV04-29 51,299.1 9,847.6 2,515,865.4 5,303,673.3 1,157.6 210.0 -80.0 158.0
NV04-30 51,300.4 9,765.7 2,515,825.5 5,303,601.7 1,159.8 210.0 -80.0 209.0
NV04-31 51,160.7 9,666.8 2,515,655.1 5,303,585.9 1,178.5 30.0 -80.0 296.0
NV04-32 50,598.0 10,088.9 2,515,378.9 5,304,232.8 1,154.7 30.0 -45.0 154.5
NV04-33 50,598.4 10,016.4 2,515,343.0 5,304,169.8 1,154.8 210.0 -80.0 149.0
NV04-34 50,180.9 9,955.5 2,514,950.9 5,304,325.8 1,180.0 30.0 -45.0 228.2
NV04-35 51,199.5 9,251.1 2,515,480.9 5,303,206.5 1,134.2 30.0 -80.0 293.0
NV04-36 50,898.2 9,988.0 2,515,588.3 5,303,995.3 1,176.5 210.0 -80.0 77.0
NV04-37 50,899.9 9,914.7 2,515,553.2 5,303,931.0 1,173.8 210.0 -80.0 102.5
NV04-38 50,897.2 9,819.7 2,515,503.3 5,303,850.0 1,164.4 30.0 -80.0 107.0
NV04-39 50,400.2 9,982.9 2,515,154.5 5,304,239.9 1,157.1 210.0 -80.0 215.0
NV04-40 50,399.8 10,098.9 2,515,212.2 5,304,340.5 1,155.9 30.0 -45.0 127.2
NV04-41 51,080.8 9,943.4 2,515,724.2 5,303,865.4 1,174.9 30.0 -45.0 145.2
NV04-42 51,080.4 9,938.8 2,515,721.5 5,303,861.6 1,174.5 210.0 -80.0 187.9
NV04-43 51,080.4 9,853.2 2,515,678.7 5,303,787.4 1,180.3 210.0 -75.0 230.6
NV04-44 51,079.3 9,750.3 2,515,626.3 5,303,698.9 1,188.1 210.0 -75.0 232.9
NV04-45 51,230.9 9,861.1 2,515,813.0 5,303,719.1 1,164.0 210.0 -80.0 167.0
NV04-46 51,232.3 9,760.2 2,515,763.8 5,303,630.9 1,168.6 210.0 -80.0 239.0
NV04-47 51,236.7 9,681.0 2,515,728.1 5,303,560.2 1,176.6 30.0 -75.0 242.0
NV04-48 51,302.3 9,980.9 2,515,934.8 5,303,787.1 1,147.2 30.0 -45.0 67.5
NV04-49 51,301.0 9,915.2 2,515,900.8 5,303,730.8 1,150.5 30.0 -80.0 82.8
NV04-50 51,159.9 9,954.9 2,515,798.5 5,303,835.8 1,165.7 30.0 -80.0 113.0
NV04-51 51,159.1 9,971.9 2,515,806.2 5,303,850.9 1,165.5 30.0 -45.0 100.5
NV04-52 50,896.0 9,948.4 2,515,566.7 5,303,962.1 1,173.4 30.0 -45.0 100.5
NV04-53 50,796.8 9,954.7 2,515,483.9 5,304,017.1 1,169.2 30.0 -50.0 97.5
NV04-54 49,920 9,935 2,514,715 5,304,438 1,215 30.0 -50.0 190.5
NV04-55 50,000 9,906 2,514,770 5,304,374 1,197 30.0 -45.0 168.8
NV04-56 50,943 10,001 2,515,634 5,303,984 1,178 30.0 -45.0 142.5
NV04-57 51,118 9,812 2,515,691 5,303,733 1,181 210.0 -80.0 245.1
NV04-58 51,898 9,703 2,516,311 5,303,249 1,157 30.0 -80.0 173.1
NV04-59 51,900 9,612 2,516,268 5,303,169 1,142 33.0 -80.0 191.1
NV04-60 51,800 9,668 2,516,209 5,303,267 1,145 30.0 -80.0 131.1
NV04-61 51,203 8,927 2,515,322 5,302,924 1,149 210.0 -45.0 241.5
NV04-62 51,095 8,867 2,515,198 5,302,926 1,154 210.0 -45.0 223.5
NV04-63 50,392 8,749 2,514,530 5,303,175 1,175 150.0 -45.0 178.4
NV04-64 50,374 8,692 2,514,487 5,303,135 1,188 31.0 -45.0 235.3
NV04-65 49,919 9,851 2,514,672 5,304,366 1,192 30.0 -45.0 229.5
NV04-66 50,100 9,917 2,514,861 5,304,333 1,184 29.0 -45.0 181.5
NV04-67 50,247 9,936 2,514,998 5,304,276 1,171 30.0 -45.0 226.5
NV04-68 50,351 10,084 2,515,162 5,304,353 1,164 30.0 -45.0 178.5
NV04-69 49,862 9,967 2,514,681 5,304,495 1,227 30.0 -45.0 181.3
NV04-70 49,809 10,009 2,514,656 5,304,558 1,229 29.0 -45.0 190.3
NV04-71 49,860 9,904 2,514,647 5,304,442 1,208 30.0 -45.0 172.5
NV04-72 49,802 9,928 2,514,609 5,304,492 1,210 30.0 -45.0 223.2
NV04-73 49,802 9,814 2,514,552 5,304,393 1,184 29.0 -45.0 193.5
-28-
Diamond Easting Northing Elevation Azimuth dip down
Drill GK faja 2 GK faja 2 (metres) (wrt GK) from Length
Hole Local E Local N Campo Inch Campo Inch HAE CI north) Vertical (metres)
NV04-74 51,997 9,691 2,516,391 5,303,189 1,165 29.0 -80.0 158.0
NV04-75 52,198 9,674 2,516,557 5,303,073 1,163 29.0 -80.0 158.0
NV04-76 52,401 9,679 2,516,735 5,302,976 1,171 29.0 -80.0 152.0
NV04-77 50,400 9,053 2,514,689 5,303,435 1,151 211.0 -45.0 250.5
NV04-78 51,308 8,954 2,515,426 5,302,895 1,147 210.0 -45.0 100.5
NV04-79 51,100 8,929 2,515,233 5,302,977 1,146 210.0 -45.0 121.5
NV04-80 51,003 8,864 2,515,117 5,302,970 1,151 210.0 -45.0 100.5
NV04-81 50,405 8,802 2,514,568 5,303,215 1,166 150.0 -45.0 150.8
NV04-82 50,340 8,700 2,514,461 5,303,159 1,186 150.0 -45.0 151.0
NV04-83 49,760 10,004 2,514,611 5,304,578 1,221 29.0 -45.0 169.5
NV04-84 49,721 9,991 2,514,570 5,304,587 1,219 31.0 -45.0 213.0
NV04-85 49,660 10,001 2,514,522 5,304,626 1,213 30.0 -45.0 88.5
NV04-86 50,545 10,120 2,515,348 5,304,286 1,148 30.0 -45.0 169.5
NV04-87 50,651 10,052 2,515,407 5,304,175 1,160 30.0 -45.0 159.5
NV04-88 49,197 9,855 2,514,048 5,304,731 1,224 30.0 -80.0 192.3
NV04-89 49,760 9,813 2,514,515 5,304,413 1,184 30.0 -60.0 97.5
NV04-90 49,719 9,855 2,514,501 5,304,470 1,189 30.0 -45.0 106.5
NV04-91 52,345 9,652 2,516,673 5,302,980 1,165 80.0 -45.0 187.5
NV04-92 52,634 9,468 2,516,832 5,302,677 1,142 80.0 -65.0 163.9
NV04-93 51,604 9,576 2,515,994 5,303,285 1,134 30.0 -80.0 201.0
NV04-94 50,400 10,030 2,515,178 5,304,281 1,157 30.0 -45.0 175.5
NV04-95 50,250 9,894 2,514,980 5,304,238 1,167 30.0 -60.0 100.5
NV04-96 50,099 9,832 2,514,819 5,304,260 1,174 30.0 -45.0 100.5
NV04-97 49,920 9,801 2,514,647 5,304,322 1,181 30.0 -60.0 100.5
NV04-98 49,811 9,762 2,514,534 5,304,343 1,178 30.0 -60.0 76.7
NV04-99 49,661 9,838 2,514,442 5,304,484 1,188 30.0 -60.0 88.7
NV04-100 49,722 9,813 2,514,482 5,304,432 1,183 30.0 -60.0 130.7
NV04-101 49,660 9,756 2,514,400 5,304,413 1,182 30.0 -60.0 109.7
NV04-102 49,601 9,830 2,514,386 5,304,507 1,194 30.0 -60.0 122
NV04-103 49,658 9,940 2,514,490 5,304,574 1,204 30.0 -60.0 79.8
NV04-104 49,659 9,880 2,514,461 5,304,521 1,192 31.0 -60.0 100.3
NV04-105 50,300 10,112 2,515,132 5,304,402 1,176 30.0 -60.0 82.7
NV04-106 50,301 10,033 2,515,094 5,304,333 1,171 30.0 -60.0 88.7
NV04-107 50,475 10,123 2,515,289 5,304,323 1,148 30.0 -45.0 118.1
NV04-108 50,599 10,087 2,515,379 5,304,230 1,155 90.0 -45.0 145.5
NV04-109 49,921 10,044 2,514,770 5,304,532 1,231 210.0 -60.0 133.5
NV04-110 49,811 10,075 2,514,690 5,304,614 1,222 210.0 -45.0 100.5
NV04-111 49,809 10,009 2,514,655 5,304,558 1,229 210.0 -65.0 35.0
NV04-112 49,760 10,048 2,514,632 5,304,616 1,218 30.0 -45.0 85.5
NV04-113 49,721 10,038 2,514,593 5,304,627 1,213 30.0 -45.0 76.5
NV04-114 49,759 9,925 2,514,570 5,304,510 1,204 30.0 -60.0 62.1
NV04-115 49,719 9,924 2,514,536 5,304,530 1,204 29.0 -60.0 62.0
NV04-116 49,761 9,853 2,514,535 5,304,447 1,189 30.0 -60.0 70.7
NV04-117 49,700 9,885 2,514,500 5,304,505 1,196 120.0 -45.0 109.5
NV04-118 49,600 9,879 2,514,410 5,304,550 1,198 30.0 -60.0 80.0
NV04-119 49,600 9,934 2,514,437 5,304,598 1,201 30.0 -60.0 77.1
-29-
Diamond Easting Northing Elevation Azimuth dip down
Drill GK faja 2 GK faja 2 (metres) (wrt GK) from Length
Hole Local E Local N Campo Inch Campo Inch HAE CI north) Vertical (metres)
NV04-120 49,859 9,814 2,514,602 5,304,364 1,184 30.0 -60.0 95.0
NV04-121 49,401 9,786 2,514,191 5,304,569 1,203 210.0 -70.0 149.1
NV04-122 49,324 9,834 2,514,148 5,304,649 1,211 30.0 -70.0 253.5
NV04-123 49,324 9,827 2,514,145 5,304,643 1,210 210.0 -70.0 199.9
NV04-124 49,199 9,905 2,514,075 5,304,773 1,227 30.0 -80.0 209.3
NV04-125 49,197 9,803 2,514,023 5,304,686 1,220 30.0 -80.0 167.1
NV04-126 49,248 9,789 2,514,060 5,304,648 1,215 28.0 -50.0 283.5
NV04-127 50,471 10,083 2,515,266 5,304,291 1,150 30.0 -60.0 137.1
NV04-128 50,448 10,122 2,515,266 5,304,336 1,150 30.0 -60.0 109.6
NV04-129 50,500 10,119 2,515,309 5,304,307 1,146 30.0 -60.0 28.8
NV04-130 50,500 10,116 2,515,308 5,304,305 1,146 30.0 -62.0 106.8
NV04-131 50,578 10,109 2,515,372 5,304,260 1,152 90.0 -60.0 130.8
NV04-132 49,720 9,756 2,514,452 5,304,384 1,179 31.0 -60.0 127.8
NV04-133 49,797 9,732 2,514,506 5,304,325 1,175 30.0 -60.0 184.8
NV05-134 49,253 9,921 2,514,130 5,304,760 1,222 30.0 -70.0 281.0
NV05-135 49,250 9,986 2,514,160 5,304,818 1,224 30.0 -70.0 266.0
NV05-136 49,246 10,093 2,514,210 5,304,913 1,228 30.0 -70.0 251.0
NV05-137 49,200 9,957 2,514,102 5,304,817 1,229 30.0 -80.0 262.0
NV05-138 49,250 9,982 2,514,158 5,304,814 1,224 210.0 -56.0 250.0
NV05-139 49,699 9,876 2,514,493 5,304,498 1,194 31.0 -70.0 80.0
NV05-140 49,699 9,842 2,514,476 5,304,469 1,189 30.0 -60.0 80.0
NV05-141 49,738 9,877 2,514,529 5,304,479 1,193 31.0 -60.0 80.0
NV05-142 49,738 9,851 2,514,516 5,304,457 1,189 30.0 -60.0 77.0
NV05-143 49,320 10,018 2,514,237 5,304,810 1,217 210.0 -55.0 268.8
NV05-144 49,402 9,952 2,514,275 5,304,712 1,210 210.0 -65.0 260.1
NV05-145 49,402 9,902 2,514,249 5,304,669 1,208 211.0 -65.0 250.7
NV05-146 49,499 9,837 2,514,301 5,304,564 1,199 30.0 -60.0 199.8
NV05-147 49,497 9,808 2,514,285 5,304,540 1,194 30.0 -70.0 191.1
NV05-148 49,150 9,871 2,514,016 5,304,768 1,229 30.0 -80.0 170.1
NV05-149 49,148 9,920 2,514,038 5,304,812 1,234 30.0 -80.0 221.1
NV05-150 49,101 9,843 2,513,960 5,304,768 1,230 30.0 -80.0 188.1
NV05-151 49,101 9,893 2,513,984 5,304,812 1,234 30.0 -80.0 176.1
NV05-152 49,100 9,944 2,514,010 5,304,856 1,239 30.0 -80.0 221.1
NV05-153 50,596 10,229 2,515,447 5,304,355 1,143 271.0 -45.0 163.8
NV05-154 50,602 10,231 2,515,453 5,304,354 1,143 30.0 -45.0 190.8
NV05-155 50,660 10,172 2,515,474 5,304,273 1,149 90.0 -45.0 88.8
NV05-156 50,562 10,152 2,515,379 5,304,305 1,149 90.0 -60.0 110.1
NV05-157 49,856 9,772 2,514,578 5,304,330 1,178 30.0 -60.0 131.1
NV05-158 49,758 9,775 2,514,494 5,304,381 1,180 30.0 -60.0 104.1
NV05-159 49,922 9,762 2,514,631 5,304,288 1,175 29.0 -60.0 137.5
NV05-160 50,000 9,836 2,514,735 5,304,313 1,182 30.0 -60.0 128.2
NV05-161 49,762 9,887 2,514,554 5,304,476 1,195 30.0 -60.0 83.1
NV05-162 49,360 10,015 2,514,269 5,304,788 1,214 210.0 -55.0 274.8
NV05-163 49,453 9,832 2,514,259 5,304,583 1,197 30.0 -70.0 215.1
NV05-164 49,548 9,819 2,514,335 5,304,524 1,194 30.0 -70.0 195.6
NV05-165 49,548 9,873 2,514,361 5,304,571 1,202 30.0 -70.0 170.1
-30-
Diamond Easting Northing Elevation Azimuth dip down
Drill GK faja 2 GK faja 2 (metres) (wrt GK) from Length
Hole Local E Local N Campo Inch Campo Inch HAE CI north) Vertical (metres)
NV05-166 49,503 9,917 2,514,345 5,304,632 1,206 30.0 -65.0 146.1
NV05-167 49,100 9,945 2,514,010 5,304,857 1,239 210.0 -60.0 158.1
NV05-168 49,100 10,007 2,514,041 5,304,911 1,236 210.0 -60.0 167.1
NV05-169 49,048 9,887 2,513,936 5,304,833 1,234 30.0 -80.0 129.0
NV05-170 49,051 9,938 2,513,964 5,304,876 1,237 30.0 -80.0 143.4
NV05-171 49,053 9,978 2,513,985 5,304,909 1,238 210.0 -70.0 134.1
NV05-172 49,321 9,861 2,514,159 5,304,674 1,212 30.0 -60.0 281.1
NV05-173 49,285 9,972 2,514,184 5,304,788 1,221 210.0 -80.0 248.4
NV05-174 49,361 9,963 2,514,245 5,304,742 1,214 210.0 -55.0 263.1
Total Metres Drilled: 27,981.5
========
Core designated for sampling is cut with an electric-powered table saw with a
diamond tipped blade. The core was sawn in half and one half was sampled and the
remainder was stored in the core box. In a few areas the core was broken or
rubbley and could not be sawn. In such cases the recovered material was sampled
by spoon and if necessary was split with a knife or chisel. Rarely, due to hard
core or problems with the saw, core was split with a mechanical splitter.
Alex Stewart (Assayers) Argentina S.A. ("Alex Stewart") of Mendoza, Argentina
was the primary lab for all drill core samples. All samples are weighed on
receipt in the sample bag prior to drying and this weight is reported with the
analytical data. Sample preparation comprised drying at 90(degree) C for up to
40 hours, followed by crushing of the entire sample to #10 mesh. Next the sample
was split down to 1.5 kg with a riffle splitter for pulverization to 85% passing
#200 mesh. Between each sample the crusher and the pulverizor were cleaned with
barren quartz.
All drill core samples were submitted for 30 gram fire-assay for silver with
gravimetric finish and also a fire assay for Au (with AAS finish). The lab is
required to report all sample weights used in fire assays.
In addition, all samples were analyzed by Alex Stewart's ICP-ORE technique which
uses a strong multi-acid attack on a sample size of 0.2 grams. The method has
been optimized to handle a wide range or concentrations of base and other
metals, but with some sacrifice in the higher than normal detection limits for
typical ICP analyses. Elements included in the package are Ag, As, Bi, Ca, Cd,
Co, Cu, Fe, Hg, Mg, Mn, Mo, Ni, P, Pb, S, Sb, Tl and Zn. Extensive testing was
undertaken by the Company on the ICP-ORE technique that confirmed its
suitability for the Navidad mineralization. That testing included a precision
test on 30 samples as well as a blind duplicate pulp test on 32 samples both
with satisfactory results. Furthermore, ICP-ORE was used in characterization of
the in-house standards developed (see below) and was found to correlate well
with methods used by other labs. In fact all of the ICP-ORE results for Cu and
Pb lay within the two standard deviation limit and hence were used in the
definition of the accepted values for the standards.
QUALITY CONTROL
A comprehensive quality control and quality assurance program for analyses of
drill core was put in place well prior to the start of drilling. This program
comprises controls including blind certified standards, blanks, core duplicates
and a secondary laboratory. The primary laboratory for all drilling samples was
Alex Stewart and the secondary lab was ALS-Chemex La Serena and/or Vancouver. In
each set of 42 samples sent to the primary lab a blind high-grade, low-grade,
blank and duplicate core sample were included in randomized positions.
In addition to the above, a systematic program of reanalysis of pulps by a
second independent lab has been used throughout the program. Randomly
pre-selected samples are sent from the primary laboratory and they include
blanks and standards. Two samples from each set of 42 samples, or 4.8% percent
of the pulps are therefore being checked. At the time of this writing results
were available for 726 duplicates.
The purpose of this work is to confirm the reproducibility of the analytical
method at a second lab.
-31-
Results of the control by the secondary lab and through the inclusion of blanks,
standards, and duplicates confirm the high quality of the data generated in the
drilling program.
CHAIN OF CUSTODY
Core is delivered to the core shack by the drill contractor or picked-up by the
Company's employees and stored in the core shack in Gastre. The core shack is
kept under lock and key when the Company's employees are not present.
Core cutting is supervised by the geologist logging core who ensures that the
sequence of blanks, duplicates and standards is followed. Cut core is placed
into clean new transparent plastic sample bags into which two pre-printed custom
sample tickets are placed. The lab uses one of these for the pulp bag and one
for the reject bag. A third sample ticket is stapled into the core tray along
with the meterage represented by the sample. The fourth and final sample ticket
remains in the sample tag book with the hole numbers and meterages filled in.
Once samples have been cut and bagged the bags are double sealed with two
zip-strips. The first ordinary zip strip will close the bag around the neck of
the bag under as much tension as it will support. A second, custom printed
zip-strip seal with the Company's name and the matching sample number to the
sample ticket inside will be affixed to the bag above the zip-strip under
tension. The numbered seal will pierce the bag above the neck of the bag where
it is sealed by the first zip strip so as to make it impossible to slip the
ordinary zip-strip over the neck of the back. The lab is required to notify the
Company if the samples do not arrive with the Company seals intact. All seals
are being stored by the assay lab to present as proof of use.
Sealed sample bags are placed in rice sacks in sequence for shipment to the lab.
A record of all samples shipped is kept by the geologist sending the sample
shipment. Samples are transported by a company contracted to transport samples
directly from the core shack in Gastre to the assay laboratory in Mendoza (some
1,500km). They are not allowed to carry other cargo or make other stops.
GENERAL GEOLOGICAL UNDERSTANDING
Drilling of the Navidad Hill, Galena Hill, Calcite Hill and intervening areas
has greatly increased the geological understanding of the main geological units
and their relationships. Most of this information was gained by drilling along
the Navidad Trend (Barite Hill to Calcite Hill), but advances have also been
made at Esperanza and at the Argenta Trend.
Stratigraphy at the Navidad property is comprised of three primary sedimentary
and volcanic units which vary in thickness and composition but can generally be
traced across the property. The lowermost unit is comprised of epiclastic,
volcaniclastic and volcanic rocks that are virtually always unmineralized and
unaltered where they have been tested to date. This is overlain by a volcanic
cycle comprising trachyandesitic volcanic rocks, generally with quartz eyes,
that is altered and mineralized with silver, lead, and to a lesser degree
copper. The trachyandesite sequence comprises massive flows, amygdaloidal flows,
flow breccias and volcaniclastic breccias. This unit varies in stratigraphic
thickness from a few metres to well over 200 metres. The trachyandesite is in
turn overlain by pelitic mudstones and limestones of which the lowermost portion
may be highly mineralized with silver, lead, and often zinc. On the southwestern
portions of the property (Loma de la Plata and the Argenta trend) the upper unit
is dominated by coarse grained, poorly sorted sandstones and conglomerates that
are composed predominantly of granitic rock interpreted to be derived from the
Paleozoic granites which form the regional basement rocks in the area.
The contact between the lower volcanic cycle and the latite cycle is of great
interest due to the dramatic change between unaltered and unmineralized rocks
below and high mineralized rocks above, particularly in the Galena Hill and
Barite Hill areas. The upper part of the lower cycle is generally reddish as if
affected by a lateritic weathering. On some sections such as 51,160E, the
contact is quite planar whereas on others it is quite irregular, possible due to
faulting or paleotopography. In some cases a dark grey, soft material with an
unusual texture and structure of partings and slip surfaces is present below the
latites on the contact. This is interpreted as a paleosol.
-32-
GALENA HILL DRILLING RESULTS
Results of the drilling at Galena Hill have been very positive. The amount and
continuity and grade of the mineralization in the subsurface exceeded even the
expectations that existed based on the surface work.
The geometry of the mineralization, a gently-dipping, exposed to
shallowly-buried zone of significant thickness suggests potential for bulk
mining. Hence in determining how to select the mineralized intercepts for
tabulation and data manipulation is was decided to use a minimum of
approximately 50 g/t silver irrespective of the copper, lead and zinc grades.
The minimum grade was not strictly applied to the selection of the intercepts as
samples with sub-fifty gram per tonne silver values were permitted for several
samples in some instances. In some cases where there were long intercepts of
mineralization somewhat below 50 g/t silver, but where there were significant
lead values these intercepts were also listed below. At this time definitive
"cut-off" grade can not be established since metallurgical and engineering
parameters have not been determined. For the purpose of the resource estimates
discussed below, a 50 g/t silver equivalent cut-off grade was used. The
following intercepts reflect the potential of Galena Hill in a bulk mining
scenario. Some higher grade intercept are also shown. These higher grades tend
to occur at or near the upper contact of the latite sequence with the overlying
mudstones, or even in the lower part of the mudstones.
In total, 39 drill holes have been drilled into the Galena Hill deposit. These
holes outline a silver-lead deposit ranging in vertical thickness from about 10
to 115 metres with horizontal dimensions of approximately 400 by 500 metres at
generally greater than 50 g/t silver. The top of the mineralized body is exposed
at surface in some areas and in other areas is covered by as much as 40 metres
of barren sedimentary cap rock. The shape and aspect of the mineralized body
suggests that it could be bulk mineable. Grade distributions show a zone of
high-grade silver values with lesser copper and relatively low lead values along
the northeastern boundary of the deposit; this area is interpreted to be the
source or feeder zone for mineralizing fluids which created the deposit. Moving
to the southwest from this feeder zone, lead:silver ratios increase and are
interpreted as more distal portions of the deposit.
-33-
MINERALIZED INTERCEPTS FROM DRILLHOLES AT THE GALENA HILL DEPOSIT
--------------------------------------------------------------------------------------------------------
Composite Vertical g/t % % %
Inclin- From To Length Thickness Silver Copper Lead Zinc
DDH ation metres metres metres metres LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------
NV03-03 -45 3.00 178.50 175.50 124.61 26.2 0.00 1.35 0.04
including 3.00 128.30 125.30 88.96 33.0 0.00 1.68 0.05
including 72.50 107.50 35.00 24.85 49.9 0.01 3.47 0.06
including 86.20 95.45 9.25 6.57 76.8 0.01 5.43 0.06
NV03-04 -45 2.80 266.70 263.90 187.37 74.1 0.00 2.04 0.08
including 2.80 203.00 200.20 142.14 92.3 0.00 2.49 0.11
including 39.60 176.45 136.85 97.16 117.3 0.00 2.99 0.14
including 39.60 121.25 81.65 57.97 141.5 0.00 3.15 0.14
including 39.60 94.70 55.10 39.12 164.3 0.00 2.97 0.10
including 65.00 94.70 29.70 21.09 189.5 0.00 3.06 0.10
including 65.00 83.50 18.50 13.14 241.2 0.00 3.40 0.10
NV03-05 -60 43.30 126.25 82.95 72.17 229.2 0.01 4.24 0.20
including 46.70 113.25 66.55 57.90 271.8 0.01 4.82 0.20
including 46.70 55.90 9.20 8.00 578.9 0.04 6.82 0.36
including 89.00 107.25 18.25 15.88 503.0 0.01 11.19 0.36
NV04-12 -65 18.80 27.80 9.00 8.19 41.6 0.00 8.01 2.56
including 27.80 35.45 7.65 6.96 70.8 0.00 9.60 0.54
combined 18.80 35.45 16.65 15.15 55.0 0.00 8.74 1.64
within 18.80 60.60 41.80 38.04 35.5 0.00 4.46 0.68
NV04-13 -45 20.00 64.70 44.70 31.74 223.4 0.16 0.56 0.09
NV04-14 -70 27.70 142.80 115.10 109.35 453.6 0.08 5.26 0.50
including 27.70 75.10 47.40 45.03 775.6 0.17 6.42 0.92
including 32.70 50.70 18.00 17.10 1421.2 0.42 5.24 1.69
NV04-15 -60 46.55 115.65 69.10 60.12 113.5 0.02 1.46 0.13
including 47.05 55.55 8.50 7.40 461.7 0.08 6.54 0.49
NV04-16 -55 63.45 72.45 9.00 7.56 34.2 0.00 2.47 0.07
NV04-17 -85 21.20 40.20 19.00 18.81 96.7 0.01 7.79 0.70
including 30.20 40.20 10.00 9.90 161.6 0.02 12.98 0.42
NV04-18 -55 232.0 244.00 12.00 9.96 70.1 0.06 0.40 0.01
NV04-19 -80 24.00 90.50 66.50 65.17 100.3 0.00 2.74 0.14
including 25.10 37.10 12.00 11.76 165.2 0.02 3.20 0.34
including 49.35 57.75 8.40 8.23 177.4 0.02 4.22 0.14
including 74.00 81.55 7.55 7.40 174.0 0.00 4.69 0.11
-34-
--------------------------------------------------------------------------------------------------------
Composite Vertical g/t % % %
Inclin- From To Length Thickness Silver Copper Lead Zinc
DDH ation metres metres metres metres LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------
NV04-20 -70 35.50 40.60 5.10 4.79 54.8 0.02 1.82 0.03
NV04-21 -45 42.45 126.00 83.55 56.81 321.7 0.23 0.47 0.21
including 49.95 70.50 20.55 13.97 703.0 0.47 0.54 0.40
NV04-22 -75 38.65 101.65 63.00 61.11 418.4 0.15 1.82 0.32
including 42.50 55.60 13.10 12.71 923.3 0.26 1.70 0.56
NV04-23 -85 48.40 71.20 22.80 22.57 26.3 0.00 0.47 0.02
NV04-24 -50 3.00 5.65 2.65 1.88 917.9 0.28 1.13 0.18
NV04-26 -75 none 0.00
NV04-28 -60 45.70 134.75 89.05 77.47 120.4 0.01 1.77 0.32
including 45.70 67.75 22.05 19.18 23.0 -0.01 0.65 0.90
including 67.75 134.75 67.00 58.29 152.5 0.01 2.14 0.12
including 68.10 71.55 3.45 3.00 760.9 0.05 10.96 0.60
NV04-29 -80 28.50 38.65 10.15 9.95 71.8 0.00 1.84 0.05
NV04-30 -80 44.80 52.70 7.90 7.74 47.8 0.00 1.11 0.04
NV04-31 -80 3.05 23.85 20.80 20.38 51.7 0.00 1.25 0.05
and 47.35 78.45 31.10 30.48 71.0 0.00 2.62 0.31
including 73.85 75.95 2.10 2.06 618.6 -0.01 18.82 3.58
NV04-36 -80 8.00 57.90 49.90 48.90 179.1 0.08 1.21 0.17
including 35.30 49.30 14.00 13.72 209.5 0.10 0.97 0.15
NV04-37 -80 12.80 89.10 76.30 74.77 139.4 0.04 1.28 0.12
including 13.80 17.70 3.90 3.82 597.4 0.02 7.23 0.58
NV04-38 -80 20.70 61.20 40.50 39.69 104.5 0.04 0.40 0.10
including 34.10 52.55 18.45 18.08 166.8 0.07 0.15 0.13
NV04-41 -45 58.10 129.00 70.90 50.34 78.5 0.08 0.33 0.20
NV04-42 -80 48.35 161.55 113.20 110.94 150.8 0.03 1.98 0.11
including 67.90 121.90 54.00 52.92 239.1 0.04 3.04 0.16
including 148.90 161.55 12.65 12.40 121.6 0.04 1.74 0.11
NV04-43 -75 44.20 127.25 83.05 81.39 153.2 0.01 5.48 0.90
including 44.20 89.00 44.80 43.90 216.9 0.01 6.81 1.06
NV04-44 -75 13.35 103.90 90.55 88.74 177.8 0.01 5.33 0.22
including 13.35 28.90 15.55 15.24 445.3 0.02 8.77 0.14
NV04-45 -80 43.00 69.85 26.85 26.31 355.4 0.00 5.34 0.33
including 43.00 51.05 8.05 7.89 958.4 0.01 15.31 0.87
NV04-46 -80 30.40 167.00 136.60 133.87 30.9 0.00 1.06 0.05
including 30.40 65.00 34.60 33.91 61.8 0.00 1.51 0.06
-35-
--------------------------------------------------------------------------------------------------------
Composite Vertical g/t % % %
Inclin- From To Length Thickness Silver Copper Lead Zinc
DDH ation metres metres metres metres LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------
NV04-47 -75 12.90 131.00 118.10 113.38 36.6 0.00 2.06 0.13
including 84.50 116.00 31.50 30.24 59.5 0.00 4.31 0.25
NV04-48 -45 16.50 32.85 16.35 11.61 30.6 0.00 0.53 0.18
including 26.70 31.80 5.10 3.62 49.7 0.01 0.54 0.25
NV04-49 -80 63.45 82.80 19.35 18.96 31.6 0.00 0.38 0.05
NV04-50 -80 20.80 101.00 80.20 78.60 254.7 0.14 0.93 0.19
including 20.80 65.00 44.20 43.32 391.0 0.23 0.44 0.26
NV04-51 -45 64.50 81.85 17.35 12.32 185.9 0.05 2.37 0.46
NV04-52 -45 16.50 62.55 46.05 32.70 270.6 0.10 0.62 0.21
NV04-53 -50 15.70 30.80 15.10 10.72 52.0 0.04 0.72 0.85
NV04-56 -45 19.30 127.75 108.45 76.69 102.0 0.08 0.09 0.08
including 22.50 64.50 42.00 26.70 164.0 0.09 0.12 0.08
NV04-57 -80 35.90 170.50 134.60 132.56 181.0 0.01 4.71 0.39
including 39.40 61.25 21.85 21.52 718.0 0.03 10.62 0.57
Notes:
1. All length weighted average (LWA) results are "uncut"
2. Vertical thicknesses are calculated considering the dip of the drill holes
and assuming flat lying body.
NAVIDAD HILL DRILLING RESULTS
Fifty-three drill holes have been completed to date at Navidad Hill and have
been very successful in delineating silver-copper-lead mineralization. Two
distinct styles of mineralization have been intersected, the first comprises
structurally-controlled, sub-vertical, tabular breccia bodies often containing
very high grade silver (up to ~10,000 g/t over short intervals) and the second
is a stratigraphically controlled body that occurs on the northwest flank of
Navidad hill at or near the contact between trachyandesite volcanic rocks and
the overlying mudstones and intercalated volcanic tuffs.
Drilling on the structurally controlled mineralization confirmed that the dip of
the structures is near vertical and two somewhat unexpected aspects were
encountered: firstly, significant amounts of clay alteration (argillic) are
present; secondly, in between the known structures there are many areas with
minor veins and stockwork veinlets. High silver grades were intersected in some
of the structures in the drill holes (see table below); however, in general the
grades in the drill holes are significantly less than the average grades of the
structures on surface which were often in the range of 5,000 to 20,000 grams per
tonne silver. This combination of the features suggests that Navidad Hill should
be considered a bulk target rather than as individual high-grade vein targets.
Like Galena Hill, intercepts have been calculated at a 50 g/t silver minimum
grade again somewhat loosely applied at this early stage. Assuming vertical dips
the true width of the mineralized intercept ranges from about 34 to 101m in
width. Despite the high base metal grades of the individual structures in the
detailed surface sampling and in the core samples the grades of copper and lead
over the width of the bulk zone are generally less than 0.3%. This marks a
significant difference from the central part of the Galena Hill deposit.
-36-
The stratigraphically-controlled mineralization at Navidad Hill occurs on the
northwest flank of the hill and is covered by 15 to 30 metres of overlying
unmineralized rock. Drill hole NV04-90 intersected this style of mineralization
with what is to date the best mineralized intercept recovered from the property
(35.8m of 2,850 g/t silver and 3.62% lead). Mineralization occurs in the form of
a blanket or gently dipping tabular body that is located at or near the contact
between the trachyandesite and overlying rocks. Metal-bearing minerals include
galena, stromeyerite, chalcopyrite, tetrahedrite, pyrite, sphalerite,
chalcocite, Fe-Cu oxides and other oxide species. In several locations, clastic
sulphides are noted in the core that are interpreted to indicate transportation
of the sulphide-bearing material after it's deposition. This strongly supports
the syn-volcanic, syn-sedimentary timing for mineralization that is interpreted.
Mineralized Intercepts from the Navidad Hill Drilling
-------------------------------------------------------------------------------------------------------------
Composite g/t % % %
From To Length Silver Copper Lead Zinc
DDH DIP (metres) (metres) (metres) (LWA) (LWA) (LWA) (LWA)
-------------------------------------------------------------------------------------------------------------
NV03-01 -45 3.05 61.45 58.40 111 0.22 0.06 0.07
including 10.10 31.35 21.25 233 0.35 0.09 0.11
including 10.10 17.50 7.40 536 0.81 0.07 0.14
including 15.70 16.50 0.80 2,678 3.07 0.30 0.24
NV03-02 -45 2.50 50.50 48.00 98 0.15 0.06 0.05
5.50 6.45 0.95 858 8.07 0.26 0.02
including 17.60 25.00 7.40 227 0.25 0.16 0.09
including 40.40 41.45 1.05 1,320 0.82 0.28 0.14
NV03-07 -45 3.00 86.65 83.65 247 0.32 0.27 0.05
including 3.00 40.75 37.75 475 0.54 0.35 0.07
including 3.00 6.90 3.90 1,998 0.92 0.32 0.07
including 30.85 33.25 2.40 2,130 3.34 0.60 0.09
NV03-08 -45 2.50 146.00 143.50 146 0.21 0.20 0.04
including 2.50 71.10 68.60 275 0.35 0.40 0.06
including 26.10 40.15 14.05 1,084 1.25 1.69 0.11
including 26.10 28.40 2.30 2,661 1.64 2.63 0.16
including 35.45 37.20 1.75 3,043 4.31 0.86 0.11
NV03-09 -45 2.50 84.30 81.80 125 0.12 0.10 0.04
including 21.00 21.70 0.70 5,068 0.36 1.41 0.04
including 65.25 66.20 0.95 1,441 1.62 0.86 0.07
NV03-10 -45 3.50 78.50 75.00 111 0.23 0.05 0.04
including 3.50 9.40 5.90 670 1.25 0.09 0.06
NV03-11 -45 1.52 12.10 10.58 98 0.53 0.02 0.12
NV04-54 -50 3.05 107.40 104.35 125 0.20 0.07 0.04
including 3.05 38.50 35.45 295 0.51 0.19 0.08
NV04-55 -45 3.00 63.60 60.60 27 0.07 0.04 0.05
including 38.05 43.40 5.35 73 0.35 0.03 0.07
NV04-65 -45 4.50 23.87 19.37 81 0.07 0.25 0.11
and 23.87 130.50 106.63 18 0.05 0.02 0.03
NV04-69 -45 3.00 103.95 100.95 53 0.07 0.07 0.04
including 29.43 34.69 5.26 78 0.22 0.08 0.04
including 63.83 66.05 2.22 232 0.02 0.02 0.01
-37-
-------------------------------------------------------------------------------------------------------------
Composite g/t % % %
From To Length Silver Copper Lead Zinc
DDH DIP (metres) (metres) (metres) (LWA) (LWA) (LWA) (LWA)
-------------------------------------------------------------------------------------------------------------
NV04-70 -45 3.00 87.75 84.75 83 0.09 0.04 0.04
including 58.30 62.85 4.55 421 0.23 0.06 0.04
including 81.10 87.75 6.65 175 0.12 0.03 0.03
NV04-71 -45 3.00 88.50 85.50 57 0.12 0.03 0.04
including 69.50 88.50 19.00 149 0.15 0.02 0.02
including 78.15 85.50 7.35 265 0.21 0.05 0.03
-38-
-------------------------------------------------------------------------------------------------------------
Composite g/t % % %
From To Length Silver Copper Lead Zinc
DDH DIP (metres) (metres) (metres) (LWA) (LWA) (LWA) (LWA)
-------------------------------------------------------------------------------------------------------------
NV04-72 -45 3.00 53.85 50.85 26 0.07 0.06 0.06
45.01 53.85 8.84 46 0.04 0.04 0.02
NV04-73 -45 3.00 36.40 33.40 94 0.04 0.80 0.48
including 28.50 36.40 7.90 292 0.17 1.19 0.13
and 58.00 59.40 1.40 3,975 0.88 0.16 0.07
NV04-83 -45 4.50 88.00 83.50 97 0.15 0.04 0.06
including 53.00 61.91 8.91 211 0.25 0.04 0.05
including 79.50 88.00 8.50 237 0.12 0.03 0.00
NV04-84 -45 13.90 55.50 41.60 56 0.17 0.02 0.05
including 22.20 23.53 1.33 98 0.26 0.02 0.07
and 77.00 81.97 4.97 57 0.17 0.00 -0.01
NV04-85 -45 4.50 28.80 24.30 142 0.21 0.06 0.11
including 4.50 8.20 3.70 689 0.68 0.14 0.11
NV04-89 -60 17.70 28.60 10.90 109 0.13 0.89 0.15
NV04-90 -45 16.50 52.33 35.83 2,850 0.90 3.62 0.20
including 33.00 46.45 13.45 7,321 2.12 6.56 0.19
including 33.00 40.26 7.26 11,995 2.32 10.45 0.19
NV04-97 -60 7.50 39.24 31.74 105 0.01 2.43 0.24
including 25.50 39.24 13.74 148 0.03 5.28 0.23
NV04-98 -60 40.93 67.70 26.77 185 0.20 2.30 0.09
NV04-99 -60 44.60 74.58 29.98 188 0.14 1.80 0.08
including 44.60 61.70 17.10 280 0.16 3.05 0.09
NV04-100 -60 23.45 65.19 41.74 390 0.22 2.61 0.09
including 40.60 49.70 9.10 718 0.32 5.97 0.12
NV04-101 -60 none
NV04-102 -60 47.78 63.59 15.81 116 0.09 1.78 0.27
including 56.00 63.59 7.59 191 0.17 0.87 0.11
NV04-103 -60 11.02 16.80 5.78 63 0.05 0.21 0.33
NV04-104 -60 38.45 51.60 13.15 1,489 0.09 0.80 0.09
NV04-109 -60 3.00 105.06 102.06 73 0.13 0.15 0.04
including 3.00 50.07 47.07 88 0.13 0.12 0.05
including 20.66 50.07 29.41 111 0.14 0.11 0.04
NV04-110 -45 3.00 64.50 61.50 128 0.17 0.27 0.05
including 3.00 21.46 18.46 312 0.43 0.77 0.07
including 16.12 21.46 5.34 1,006 1.39 2.59 0.18
NV04-111 -65 3.00 35.00 32.00 28 0.05 0.06 0.07
-39-
-------------------------------------------------------------------------------------------------------------
Composite g/t % % %
From To Length Silver Copper Lead Zinc
DDH DIP (metres) (metres) (metres) (LWA) (LWA) (LWA) (LWA)
-------------------------------------------------------------------------------------------------------------
NV04-112 -45 6.00 64.68 58.68 208 0.22 0.35 0.06
including 6.00 16.26 10.26 375 0.71 0.67 0.17
including 28.87 43.65 14.78 324 0.26 0.83 0.03
NV04-113 -45 4.50 28.75 24.25 60 0.46 0.03 0.04
including 4.50 10.50 6.00 109 0.87 0.03 0.04
NV04-114 -60 5.56 39.28 33.72 57 0.09 0.39 0.12
6.50 12.75 6.25 83 0.16 0.51 0.17
NV04-115 -60 8.00 18.05 10.05 151 0.04 0.35 0.13
NV04-116 -60 15.00 45.40 30.40 243 0.32 2.04 0.11
including 15.00 36.42 21.42 322 0.39 2.85 0.13
NV04-117 -45 25.50 53.65 28.15 1115 0.45 0.98 0.13
including 42.04 48.01 5.97 4579 1.82 2.47 0.14
NV04-118 -60 44.00 51.62 7.62 155 0.09 0.79 0.11
NV04-119 -60 44.10 55.30 11.20 92 0.03 1.00 0.35
NV04-120 -60 7.12 65.65 58.53 47 0.07 0.22 0.25
including 26.00 31.24 5.24 84 0.04 0.43 0.18
and 62.80 65.65 2.85 242 0.23 0.30 0.05
NV04-132 -60 49.55 56.75 7.20 31 0.05 0.86 0.31
and 96.71 101.00 4.29 62 0.10 0.50 0.04
NV04-133 -60 94.80 105.32 10.52 80 0.14 0.38 0.03
and 153.97 172.80 18.83 113 0.13 0.11 0.04
including 163.80 167.70 3.90 450 0.30 0.36 0.11
NV05-139 -70 26.00 43.84 17.84 1036.80 2.00 0.82 0.12
including 36.20 42.90 6.70 2373.20 4.98 0.43 0.08
NV05-140 -60 29.00 61.71 32.71 85 0.09 0.62 0.09
including 29.00 41.56 12.56 171 0.14 1.52 0.12
NV05-141 -60 8.00 34.45 26.45 148.52 0.07 0.72 0.25
including 19.15 24.13 4.98 410.85 0.13 1.31 0.16
NV05-142 -60 11.00 45.45 34.45 1220 1.04 1.64 0.18
including 23.00 43.22 20.22 1979 1.67 1.39 0.15
NV05-157 -60 14.10 63.88 49.78 53 0.06 1.20 0.19
including 14.10 37.56 23.46 70 0.03 2.48 0.40
NV05-158 -60 35.10 68.10 33.00 90 0.09 0.51 0.30
including 47.10 65.10 18.00 147 0.15 0.75 0.07
NV05-159 -60 14.10 92.94 78.84 52 0.06 0.34 0.15
including 14.10 50.92 36.82 65 0.05 0.51 0.30
NV05-160 -60 29.15 33.26 4.11 623 0.33 1.12 0.14
NV05-161 -60 3.05 21.16 18.11 44 0.05 0.44 0.14
Notes
1. All length weighted average (LWA) results are "uncut"
-40-
CALCITE HILL DRILLING RESULTS
Thirty-six drill holes have been completed to date on Calcite Hill and have
demonstrated the presence of a significant mineralized body. Mineralization
encountered at Calcite Hill is predominantly hosted within trachyandesite
volcanic rock and to a lesser degree within mudstone which overlies the volcanic
rock. The volumetrically most important style of mineralization consists of
calcite-barite veinlets and breccias with argentite-acanthite, native silver and
lesser galena and chalcopyrite. In general, this style of mineralization
contains high silver grades with minor amounts of lead and copper. In the upper
portions of the host volcanic unit, and in the overlying mudstone,
mineralization tends to be lead-rich and consists predominantly of
medium-grained galena with moderate silver values. Mineralization at Calcite
Hill has now been defined over a strike length of 500m and varies in horizontal
width from approximately 50 to 150 metres and vertical thickness from 10 to 110
metres. At the time of writing Phase III drilling is continuing to expand the
size of known mineralization at Calcite Hill, the ultimate size and grade of the
mineralized body is as yet unknown.
Mineralized Intercepts from Calcite Hill Drilling
-------------------------------------------------------------------------------------------------------------
Composite g/t % % %
From To Length Silver Copper Lead Zinc
DDH DIP (metres) (metres) (metres) (LWA) (LWA) (LWA) (LWA)
-------------------------------------------------------------------------------------------------------------
NV04-88 -80 70.30 142.63 72.33 202 0.05 3.45 0.12
including 81.61 142.63 61.02 226 0.05 2.87 0.01
including 70.30 110.92 40.62 89 0.02 5.95 0.21
including 110.92 123.36 12.44 672 0.14 0.50 0.01
NV04-121 -70 None
NV04-122 -70 152.27 199.83 40.78 70 0.08 0.23 0.01
including 179.61 199.83 20.22 102 0.13 0.29 0.02
NV04-123 -70 None
NV04-124 -80 72.45 195.05 122.60 195 0.09 0.74 0.01
including 72.45 104.00 31.55 476 0.13 2.46 0.03
and 86.22 87.67 1.45 5,761 0.75 4.05 0.03
including 116.50 127.76 11.26 308 0.17 0.13 0.01
including 145.70 149.82 4.12 129 0.06 0.12 0.00
including 176.47 180.71 4.24 500 0.27 0.63 0.05
NV04-125 -80 None
NV04-126 -50 87.40 283.50 196.10 113 0.05 0.44 0.11
including 87.40 187.66 100.26 156 0.05 0.83 0.21
including 120.72 187.66 66.94 228 0.07 0.61 0.00
ends in mineral 270.17 283.50 13.33 232 0.06 -0.01 0.00
NV05-134 -70 71.10 106.01 34.91 60 0.05 0.55 0.04
including 90.11 106.01 15.90 102 0.09 0.04 0.00
NV05-135 -70 54.43 84.87 30.44 43 0.06 0.89 0.02
including 54.43 65.27 10.84 82 0.12 2.44 0.07
and 110.57 110.81 0.24 2,954 0.28 -0.01 0.02
and 222.39 224.88 2.49 367 0.11 0.14 0.00
NV05-136 -70 None
NV05-137 -80 60.59 73.05 12.46 13 0.00 1.45 0.02
-41-
-------------------------------------------------------------------------------------------------------------
Composite g/t % % %
From To Length Silver Copper Lead Zinc
DDH DIP (metres) (metres) (metres) (LWA) (LWA) (LWA) (LWA)
-------------------------------------------------------------------------------------------------------------
NV05-138 -56 87.74 211.00 123.26 139 0.09 1.07 0.01
including 155.50 160.00 4.50 654 0.31 0.42 0.00
and 192.50 211.00 18.50 387 0.13 0.15 0.01
NV05-143 -55 82.30 211.39 129.09 125 0.05 0.16 0.00
including 82.30 88.04 5.74 117 0.07 2.64 0.02
and 116.30 126.56 10.26 1257 0.35 0.18 0.02
combined 82.30 128.86 46.56 300 0.10 0.39 0.02
and 190.31 200.45 10.14 157 0.14 0.06 0.00
NV05-144 -65 69.27 82.62 13.35 19 0.00 0.80 0.37
NV05-145 -65 68.54 76.60 8.06 16 0.00 1.12 0.52
NV05-146 -60 55.50 83.39 27.89 34 0.06 0.32 0.17
including 71.35 83.39 12.04 59 0.14 -0.01 0.04
and 150.68 153.70 3.02 297 0.10 0.41 0.03
NV05-147 -70 74.10 87.72 13.62 37 0.07 0.06 0.02
and 163.37 170.10 6.73 43 0.10 0.07 0.03
NV05-148 -80 77.87 160.85 82.98 209 0.08 1.23 0.01
including 115.81 120.40 4.59 1197 0.23 1.16 0.01
NV05-149 -80 70.97 195.17 124.20 135 0.09 0.29 0.02
including 90.66 131.30 40.64 229 0.09 0.21 0.01
NV05-150 -80 70.17 75.53 5.36 35 -0.01 0.75 0.08
and 83.69 92.18 8.49 38 0.02 1.81 0.00
NV05-151 -80 60.24 140.46 80.22 246 0.09 0.78 0.03
including 77.10 140.46 63.36 309 0.12 0.56 0.03
including 107.10 132.43 25.33 476 0.21 0.17 0.03
NV05-152 -80 68.10 119.40 51.30 89 0.13 0.31 0.02
including 76.04 81.96 5.92 249 0.57 0.82 0.02
and 117.22 119.40 2.18 1218 0.54 0.02 0.07
NV05-162 -55 86.53 118.80 32.27 176 0.15 0.13 0.00
including 112.67 118.80 6.13 721 0.35 0.12 0.00
NV05-163 -70 64.80 80.33 15.53 149 0.08 1.17 0.10
NV05-164 -70 75.10 95.76 20.66 24 0.14 0.03 0.01
and 139.97 143.75 3.78 76 0.25 0.13 0.04
NV05-165 -70 45.49 96.05 50.56 102 0.21 0.92 0.04
including 58.77 72.32 13.55 240 0.21 0.71 0.04
NV05-166 -65 46.60 108.22 61.62 44 0.11 0.18 0.04
including 46.60 59.10 12.50 92 0.14 0.61 0.10
and 89.10 108.22 19.12 55 0.13 0.14 0.02
NV05-167 -60 83.94 113.55 29.61 236 0.06 5.38 0.05
including 83.94 88.80 4.86 1251 0.36 9.19 0.09
and 99.66 113.55 13.89 60 0.01 7.87 0.06
NV05-168 -60 86.10 87.70 1.60 53 0.11 3.60 0.02
and 113.10 164.10 51.00 168 0.26 0.04 0.03
including 128.95 142.32 13.37 333 0.58 0.01 0.08
-42-
-------------------------------------------------------------------------------------------------------------
Composite g/t % % %
From To Length Silver Copper Lead Zinc
DDH DIP (metres) (metres) (metres) (LWA) (LWA) (LWA) (LWA)
-------------------------------------------------------------------------------------------------------------
NV05-169 -80 80.45 107.40 26.95 48 0.01 0.89 0.06
NV05-170 -80 83.52 134.40 50.88 124 0.18 1.93 0.03
including 83.52 110.21 26.69 183 0.19 3.66 0.05
and 117.76 134.40 16.64 83 0.24 0.02 0.02
NV05-171 -70 89.65 133.52 43.87 171 0.16 2.82 0.04
including 95.50 113.85 18.35 220 0.21 5.11 0.05
NV05-172 -60 89.10 101.29 12.19 67 0.05 1.07 0.07
NV05-173 -80 69.31 80.80 11.49 127 0.05 0.96 0.03
and 204.50 220.33 15.83 50 0.06 -0.01 -0.01
NV05-174 -55 84.53 129.50 44.97 35 0.03 1.41 0.28
including 111.50 129.50 18.00 57 0.07 0.70 0.00
Notes
1. All length weighted average (LWA) results are "uncut"
OTHER AREAS DRILLING RESULTS
A number of drill holes have been completed in areas such as the Connector Zone,
Barite Hill, Esperanza Zone and stratigraphic holes outside of named zones.
Significant results from these holes and their locations are shown in the table
below.
Mineralized Intercepts from Drilling Other Targets
----------------------------------------------------------------------------------------------------------------------------
COMPOSITE G/T % % %
FROM TO LENGTH SILVER COPPER LEAD ZINC
DDH LOCATION DIP (METRES) (METRES) (METRES) (LWA) (LWA) (LWA) (LWA)
----------------------------------------------------------------------------------------------------------------------------
NV04-27 recce -45 7.00 7.73 0.73 61 0.01 0.56 2.25
and 66.90 68.10 1.20 377 0.01 0.10 0.05
NV04-32 Connector -45 46.50 96.05 49.55 78 0.04 0.14 0.03
NV04-33 Connector -80 None
NV04-34 Connector -45 10.50 29.20 18.70 75 0.01 0.70 0.05
NV04-35 recce -80 None
NV04-39 Connector -80 None
NV04-40 Connector -45 43.20 91.20 48.00 108 0.04 0.22 0.16
including 67.20 88.20 21.00 160 0.08 0.19 0.09
NV04-58 Barite Hill -80 12.80 41.00 28.20 37 0.00 0.80 0.10
NV04-59 Barite Hill -80 148.70 152.40 3.70 23 -0.01 0.51 0.60
NV04-60 Barite Hill -80 None
NV04-61 Esperanza -45 52.50 55.50 3.00 353 0.03 0.17 0.00
NV04-62 Esperanza -45 7.20 9.90 2.70 831 0.09 0.56 0.00
-43-
----------------------------------------------------------------------------------------------------------------------------
COMPOSITE G/T % % %
FROM TO LENGTH SILVER COPPER LEAD ZINC
DDH LOCATION DIP (METRES) (METRES) (METRES) (LWA) (LWA) (LWA) (LWA)
----------------------------------------------------------------------------------------------------------------------------
NV04-63 Esperanza -45 31.60 77.40 45.80 94 0.01 0.25 0.03
including 31.60 38.95 7.35 162 0.01 0.23 0.04
including 33.55 37.50 3.95 246 0.01 0.28 0.04
and 42.80 77.40 34.60 89 0.01 0.27 0.03
including 66.50 70.50 4.00 185 0.01 0.39 0.08
NV04-64 Esperanza -45 6.00 28.30 22.30 25 0.00 0.21 0.02
and 69.20 102.10 32.90 47 0.03 0.16 0.02
including 69.20 70.60 1.40 101 0.00 0.37 0.02
including 96.65 102.10 5.45 153 0.17 0.02 0.03
and 140.10 144.00 3.90 47 0.03 0.85 0.04
NV04-66 Connector -45 None
NV04-67 Connector -45 50.84 63.70 12.86 145 0.04 1.03 0.03
NV04-68 Connector -45 52.20 81.75 29.55 98 0.03 0.40 0.11
NV04-74 Barite Hill -80 29.00 37.16 8.16 29 0.01 0.41 0.08
NV04-75 Barite Hill -80 53.93 55.52 1.59 63 0.01 0.69 0.18
NV04-76 Barite Hill -80 10.10 32.20 22.10 34 0.02 0.63 0.21
and 100.50 122.20 21.70 88 0.03 0.26 0.09
including 106.10 114.47 8.37 191 0.08 0.33 0.13
NV04-77 recce -45 None
NV04-79 Esperanza -45 34.72 47.28 12.56 513 0.09 0.06 0.01
NV04-80 Esperanza -45 4.50 8.05 3.55 258 0.10 0.51 0.03
NV04-81 Esperanza -45 58.20 62.48 4.28 41 0.01 0.04 0.03
and 86.87 99.76 12.89 23 0.02 0.04 0.03
NV04-82 Esperanza -45 6.00 58.55 52.55 57 0.00 0.35 0.01
including 34.50 58.55 24.05 95 0.00 0.28 0.00
and 102.15 109.30 7.15 149 0.02 1.61 0.35
NV04-86 Connector -45 34.63 101.18 66.55 46 0.03 0.15 0.10
including 47.80 49.02 1.22 104 0.05 0.53 0.08
NV04-87 Connector -45 22.40 24.06 1.66 129 0.10 0.80 0.08
and 52.02 52.80 0.78 654 1.45 0.13 0.26
and 66.25 76.50 10.25 25 0.04 0.02 0.04
NV04-91 Barite Hill -45 3.00 16.50 13.50 12 0.00 0.48 0.17
and 123.50 153.95 30.45 13 0.00 0.28 0.14
NV04-92 Barite Hill -65 None
NV04-93 recce -80 93.68 94.81 1.13 42 0.00 6.73 0.61
and 137.93 147.00 9.07 11 0.05 1.44 0.04
NV04-94 Connector -45 103.32 116.39 13.07 43 0.00 0.08 0.10
NV04-95 Connector -60 49.08 64.80 15.72 55 0.00 0.53 0.03
NV04-96 Connector -45 None
NV04-105 Connector -60 33.43 46.70 13.27 545 0.14 1.78 0.11
NV04-106 Connector Zone -60 45.80 70.70 24.90 147 0.04 0.69 0.11
including 65.56 67.70 2.14 1196 0.33 1.63 0.41
-44-
----------------------------------------------------------------------------------------------------------------------------
COMPOSITE G/T % % %
FROM TO LENGTH SILVER COPPER LEAD ZINC
DDH LOCATION DIP (METRES) (METRES) (METRES) (LWA) (LWA) (LWA) (LWA)
----------------------------------------------------------------------------------------------------------------------------
NV04-107 Connector -45 52.90 99.56 46.66 334 0.31 0.94 0.33
including 71.60 97.10 25.50 548 0.55 0.91 0.33
NV04-108 Connector -45 31.50 70.50 39.00 485 0.10 0.26 0.05
including 54.07 70.50 16.43 1028 0.19 0.54 0.08
NV04-127 Connector Zone -60 97.08 111.39 14.31 56 0.01 0.44 0.05
NV04-128 Connector -60 54.60 80.09 25.49 58 0.04 0.54 0.26
NV04-129 Connector -60 none - did not reach target
NV04-130 Connector Zone -62 38.56 41.04 2.48 111 0.02 2.39 0.79
and 66.33 78.46 12.13 33 0.00 2.18 0.09
NV04-131 Connector -60 10.33 91.45 81.12 61 0.05 0.25 0.10
including 60.57 67.80 7.23 152 0.07 0.29 0.04
including 79.22 91.45 12.23 126 0.07 0.30 0.05
NV05-153 Connector Zone -45 0 88.80 88.80 107 0.10 0.11 0.04
including 0 7.36 7.36 226 0.22 0.18 0.12
and 37.48 88.80 51.32 124 0.10 0.12 0.04
NV04-154 Connector Zone -45 3.05 31.80 28.75 148 0.13 0.15 0.05
NV05-155 Connector Zone -45 0 9.10 9.10 105 0.09 0.03 0.06
NV05-156 Connector Zone -60 8.73 75.99 67.26 63 0.03 0.14 0.08
including 8.73 13.80 5.07 53 0.02 0.88 0.68
and 29.1 75.99 46.89 83 0.04 0.11 0.03
Notes
1. All length weighted average (LWA) results are "uncut".
ESTIMATED RESOURCES
Two resource estimations have been completed on deposits at the Navidad Project.
The first was released on May 25, 2004 and estimated an Indicated Resource of
63.6 million tonnes at 101 g/t silver and 1.76% lead at the Galena Hill deposit.
The second estimate was publicly released on December 1, 2004 and increased the
project total Indicated Resources to 80.8 million tonnes at 103 g/t silver and
1.45% lead by including the Navidad Hill and Connector zones. Both resource
estimations were completed by Snowden Mining Industry Consultants, 43-101
compliant reports documenting these estimates have been filed with the
appropriate regulatory bodies and are publicly available on the SEDAR website.
Navidad Project Indicated Resources using a 50g/t silver equivalent cut-off:
----------------------------------------------------------------------------------------------------------
INDICATED RESOURCES CONTAINED CONTAINED
(50g/t silver TONNES SILVER LEAD COPPER ZINC SILVER LEAD
equivalent cut-off) (MILLIONS) (G/T) (%) (%) (%) (M OZS) (1,000 TONNES)
----------------------------------------------------------------------------------------------------------
NAVIDAD HILL
Indicated 15.17 115 0.35 0.12 0.09 56.1 53
Inferred 3.37 97 0.74 0.09 0.16 10.5 25
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----------------------------------------------------------------------------------------------------------
INDICATED RESOURCES CONTAINED CONTAINED
(50g/t silver TONNES SILVER LEAD COPPER ZINC SILVER LEAD
equivalent cut-off) (MILLIONS) (G/T) (%) (%) (%) (M OZS) (1,000 TONNES)
----------------------------------------------------------------------------------------------------------
CONNECTOR ZONE
Indicated 2.05 74 0.27 0.03 0.09 4.9 6
Inferred 6.50 100 0.2 0.04 0.1 20.9 13
GALENA HILL
Indicated 63.58 101 1.76 0.03 0.24 207.4 1,118
Inferred 5.79 43 0.56 0.01 0.08 8.0 32
NAVIDAD PROJECT TOTAL
Indicated 80.80 103 1.45 0.05 0.21 267.5 1,177
Inferred 15.66 78 0.45 0.04 0.11 39.3 70
Note:Silver equivalent was calculated using US$5.50/oz silver, $0.30/lb lead,
$1.10/lb copper, and $0.40/lb zinc. (AgEq = Ag + (%Pb*10,000/242.5) +
(%Cu*10,000/66.1) + (%Zn*10,000/181.9).
PLANNED FUTURE WORK
Phase III drilling is currently planned to encompass an additional 10,000m which
will be completed in June or July, 2005. The primary focus of this drilling will
be continuing to delineate mineralization at Calcite Hill, however there are
also drill holes planned at Galena Hill and `stratigraphic' or `recce' holes
planned elsewhere on the property.
A resource estimate on the portions of Calcite Hill that have been drilled to
date is planned for May and June, 2005. Any resources determined at Calcite Hill
will be additional to those described above from the Galena Hill, Navidad Hill,
and Connector zones.
Additional surface prospecting, mapping, geochemical sampling, and geophysics
may be carried out as deemed appropriate by the Company's Exploration Team.
Navidad Area Properties (Other than the Navidad Project)
The following properties are 100% owned by the Company unless stated otherwise.
TAQUETREN PROPERTY
The Taquetren claim (File Number: 14015/03; 10,000 hectares) is located directly
east of the Rio Chubut, approximately 70 kilometres to the southwest of Navidad.
The area is mapped as being underlain by Jurassic Canadon Asphalto and Lonco
Trapial Formation volcanic and sedimentary rocks similar to those that host the
Navidad discovery. Very preliminary prospecting and stream sediment sampling has
shown anomalous values of antimony; no source has yet been located for this
anomaly. Regional mapping and terrain analysis shows an important northwest
trending structure to bisect the Taquetren property; this orientation is similar
to structures that control mineralization at the Navidad Project.
REGALO PROPERTY
The Regalo property is located 25 kilometres north-northwest of Cerro Condor and
90 kilometres south-southwest of the Navidad project. The Regalo claim (File
Number: 14016/03; 10,000 hectares) covers ground mapped as prospective Jurassic
Canadon Asphalto and Lonco Trapial Formation rocks and includes several
regionally-important northwest trending structures. Preliminary stream-sediment
sampling has returned highly anomalous gold values. Gold values from nine stream
sediment samples, along 6 kilometres of one drainage (and adjoining
tributaries), range in value from 0.134 to 0.831 ppm. The Company has entered
into an option agreement dated August 12, 2003 with Consolidated Pacific Bay
Minerals Ltd. ("Consolidated Pacific Bay") whereby Consolidated Pacific Bay can
acquire up to a 70% interest in the Regalo mineral claim through the issuance of
900,000 shares of Consolidated Pacific Bay to the Company, and work expenditures
totalling US$625,000 over three years. Consolidated Pacific Bay must issue all
900,000 shares (which have been issued, with a deemed value of $180,000) and
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expend US$50,000 on the property by August 12, 2004, in order to earn a 51%
interest in the claims. A further 19% interest in the claims can be earned by
Pacific Bay if it completes a feasibility study and finances the property to
production. A second cateo (Regalo II) has been staked to the north of the
primary Regalo claim, adding another 10,000 hectares to the property subject to
the Company's agreement with Consolidated Pacific Bay. On May 16, 2005,
Consolidated Pacific Bay will liberate 4,000 hectares. These 4,000 hectares have
already been covered by the Company through a recent manifestation.
NOEL PROPERTY
The Noel claim (File Number: 14036/03; 9,406 hectares) is adjacent to the Regalo
and Trucha claims and also contains a significant, multi-sample, gold-in-stream
sediment anomaly. Government maps show the claim to be underlain primarily by
Canadon Asphalto Formation sedimentary and volcanic rocks, with overlying
Cretaceous sandstone along the eastern side of the claim. Five stream sediment
samples taken from two drainages over approximately 5 kilometres range in value
from 0.114 to 1.570 ppm gold. The apparent source area for these extremely
anomalous values is has not been prospected to date and is considered a
high-priority target for follow-up work.
TRUCHA PROPERTY
The Trucha claim (File Number: 14014/03; 9,915 hectares) is contiguous with the
Regalo and Noel claims and also includes a stream sediment sample highly
anomalous in gold (single sample, 0.556 ppm Au). Regional mapping shows the
claim to be underlain by prospective Jurassic Canadon Asphalto and Lonco Trapial
Formation rocks, cut by several regional-scale structures. In conjunction with
evaluation of the Noel claims, the Trucha claim requires detailed prospecting to
identify the source of gold producing the high stream-sediment values.
MARA PROPERTY
The Mara claim (File Number: 14018/03; 9,945 hectares) is located approximately
95 kilometres to the south-southwest of Navidad. Regional mapping shows the
property to be underlain by Jurassic Canadon Asphalto and Lonco Trapial
Formation rocks, which unconformably overly granitic basement rocks. Several
mapped and interpreted northwest-trending structures are present on the property
and are considered to be prospective for both Navidad-style mineralization and
traditional low-sulphidation gold veins. No fieldwork has been carried out to
date on the property.
CONDOR AND ALAMO PROPERTIES
The Condor claim (File Number: 14017/03; 6,000 hectares) and Alamo claim (file
number: 14032/03; 10,000 hectares) are located directly south of the
Regalo/Noel/Trucha claims and were staked based on prospective stratigraphy,
structure and the presence of known barite occurrences. The known barite
together with Navidad-age stratigraphy and similar structure makes these claims
highly prospective for Navidad-style mineralization. No fieldwork has been
completed on these claims to date; management believes a first-pass evaluation
is warranted. 4,000 hectares were liberated last year.
NINA AND CARLOTA PROPERTIES
The Nina claim (file number: 14018/03; 10,000 hectares) and Carlota claim (file
number: 14034/03; 10,000 hectares) are located 40 kilometres southeast of Paso
De Indios and were staked based on the presence of prospective Canadon Asphalto
stratigraphy and regional northwest trending structures. No fieldwork has been
completed to date on these claims; management believes a first-pass evaluation
is warranted. Both cateos will be liberating 4,000 hectares each on May 16, 2005
as required by Argentian Mining laws.
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PAMPA 3 PROPERTY
The Pampa 3 claim (File Number: 14004/03; 2,500 hectares) is located adjacent to
the Navidad Project, along trend and immediately to the southeast. Although
predominantly covered with recent alluvium, it is interpreted to be underlain by
the Canadon Asphalto Formation limestone and volcaniclastic rocks which host
mineralization at Navidad. Work to date has been minimal with only two
stream-sediment samples collected, both of which drain areas peripheral to the
claim. In January, 2005, the Company liberated 250 hectares under this cateo.
These 250 hectares were subsequently recovered by a manifestation covering the
whole cateo; file #14446/04.
COLONIA PROPERTY
The Colonia claim (File Number: 14005/03; 6,000 hectares) covers a large area of
highly prospective ground directly along strike from the Navidad discovery. Most
of the 10,000 hectare claim is underlain by prospective Canadon Asphalto
Formation rocks. Preliminary stream-sediment sampling has defined highly
anomalous values of antimony, an important "pathfinder" element at the Navidad
discovery. Minor prospecting (four rock samples collected) has not yet unveiled
the source of these stream-sediment values, management believes significant
additional work is warranted. The Company liberated 4,000 hectares in this cateo
last year.
JULIE PROPERTY
The Julie claim (File Number: 14035/03; 5,675 hectares) is approximately 30
kilometres southease of the Navidad project and lies at the regional contact
between granitic rocks that underlie the prospective Jurassic stratigraphy, and
Jurassic volcanic rocks. Several important LandSat-interpreted structures are
present on this claim; regional structure has been shown to be of critical
importance at the Navidad discovery. Preliminary stream-sediment sampling shows
anomalous values of copper and antimony, although management believes it is
strongly warranted, no significant follow-up work has been done.
SIERRA 1 PROPERTY
The Sierra 1 claim (File Number: 14006/03; 9,996 hectares) covers a large area
of prospective Canadon Asphalto Formation rocks and the underlying volcanic
rocks and a portion of the granitic basement. It is located immediately to the
east of the Julie Property. Significant areas of LandSat-interpreted alteration
are present in the northeastern portion of the claim, the imagery shows patterns
very similar to those seen in the area of the Navidad discovery. Preliminary
stream-sediment sampling has shown anomalous copper values, these results have
yet to be followed up on.
SIERRA 2 PROPERTY
The Sierra 2 claim (File Number: 14007/03; 10,000 hectares) covers an area of
complex geology in the hinge zone of a regional-scale anticline and is located
immediately south of the Sierra 1 property in the Navidad area. Mapped rock
units include the Canadon Asphalto Formation and overlying Cretaceous sandstone.
Essentially no work has been done in the central portions of this claim as the
local land owners could not be contacted to gain permission for entry onto their
land.
Mina Yanquetreu is a small abandoned barite mine in the central portions of the
claim. This occurrence is highly encouraging as both strataform (exhalative) and
vein-controlled barite is intimately associated with the Navidad system.
Management believes this area is considered highly prospective and warrants a
significant early-stage exploration program.
SIERRA 3 PROPERTY
The Sierra 3 claim (File Number: 14008/03; 9,999 hectares) covers the
southwestern portions of mapped Canadon Asphalto Formation rocks in the Navidad
area. Also present on the claim are Jurassic volcanic rocks and underlying
granitic basement. Major LandSat-interpreted structures are present as are
possible zones of alteration. Preliminary stream-sediment sampling has returned
strongly anomalous copper values. No follow-up prospecting or rock sampling has
been undertaken to date. Management believes the Sierra 3 claim is considered
highly prospective and warrants considerable follow-up work. In October 2004,
4,000 hectares were liberated. These 4,000 hectares were subsequently recovered
through a manifestation; file #14369/04 "Sierra".
-48-
PRINCIPAL OFFICE
The Company's principal office is located at #709 - 837 West Hastings Street,
Vancouver, British Columbia, V6C 3N6. The Company leases a portion of its office
space from Beauregard Holdings Corp. ("Beauregard"). See "Item 7. Major
Shareholders and Related Party Transactions - Related Party Transactions".
On September 1, 2002 the Company started to share office facilities, capital
assets and personnel with Amera. During the fiscal year ended December 31, 2003,
the Company received $35,110 (2002 - $6,000) from Amera. On July 7, 2004 Golden
Arrow began sharing the office facilities, capital assets and personnel. During
the fiscal year ended December 31, 2004, the Company received $66,390 from Amera
and $57,000 from Golden Arrow. See "Item 7.
Major Shareholders and Related Party Transactions - Related Party Transactions."
Other Assets
MARKETABLE SECURITIES
The Company has entered into option and sale agreements on certain of its
non-core mineral property holdings in which the Company received common shares
of publicly-traded companies as partial consideration. As at December 31, 2004
the Company held 300,000 shares of Tinka Resources and 900,000 shares of
Consolidated Pacific Bay with a quoted market value of $270,000. As at December
31, 2003 the Company held 600,000 shares of Amera Resources Corporation with a
quoted market value of $546,000 and 500,000 shares of Ballad Gold & Silver Ltd.
with a quoted market value of $325,000 which were transferred to Golden Arrow.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2004, 2003 and 2002 should be read in
conjunction with the consolidated financial statements of the Company and
related notes included therein.
Critical Accounting Policies
Reference should be made to significant accounting policies contained in Note 3
of the December 31, 2004 consolidated financial statements of the Company
attached hereto. These accounting policies can have a significant impact of the
financial performance and financial position of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
consolidated financial statements attached hereto, direct costs related to the
acquisition and exploration of mineral properties held or controlled by it have
been capitalized on an individual property basis. It is the Company's policy to
expense any exploration associated costs not related to specific projects or
properties. Management periodically reviews the recoverability of the
capitalized mineral properties. Management takes into consideration various
information including, but not limited to, results of exploration activities
conducted to date, estimated future metal prices, and reports and opinions of
outside geologists, mine engineers and consultants. When it is determined that a
project or property will be abandoned then the costs are written-off, or if its
carrying value has been impaired, then the costs are written down to fair value.
-49-
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. See "Item 3. Key Information - Risk Factors."
The Company's consolidated financial statements were prepared on a going concern
basis which assumes that it will be able to realize assets and discharge
liabilities in the normal course of business.
The Company's consolidated financial statements are in Canadian dollars (CDN$)
and are prepared in accordance with Canadian GAAP, the application of which, in
the case of the Company, conforms in all material respects for the periods
presented with U.S. GAAP except for the measurement differences referred to in
Note 11 of the consolidated financial statements of the Company included herein.
The noon rate of exchange on May 5, 2005, reported by the United States Federal
Reserve Bank of New York for the conversion of Canadian dollars into United
States dollars was CDN$.8033 (US$1.2448 = CDN$1.00). The effects of inflation
and price changes have not had a material impact on the Company's income or net
sales revenues during the past three years.
The Company and its subsidiaries' functional currency is the Canadian dollar.
The majority of the Company's cash deposits and accounts are in Canadian funds.
The Canadian dollar varies under market conditions, the continued fluctuation of
the Canadian dollar against the U.S. dollar will continue to affect the
Company's operations and financial position. See "Item 3. Key Information - Risk
Factors - Currency Fluctuations".
Overview
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in Argentina. At
this stage the Company has no producing properties and, consequently, has no
current operating income or cash flow.
The Company's accounting policy under Canadian GAAP is to defer all direct costs
related to the acquisition, exploration and development of mineral properties
held or controlled by the Company on an individual property basis until
viability of a property is determined. Under US GAAP, the costs would be
expensed. General exploration costs are expensed as incurred. When a property is
placed in commercial production, such deferred costs are depleted using the
units-of-production method. Management of the Company periodically reviews the
recoverability of the capitalized mineral properties. Management takes into
consideration various information including, but not limited to, results of
exploration activities conducted to date, estimated future metal prices, and
reports and opinions of outside geologists, mine engineers and consultants. When
it is determined that a project or property will be abandoned or its carrying
value has been impaired, a write down to fair value is taken for any expected
loss on the project or property. At December 31, 2004, the Company had
capitalized $6,551,598 (2003 -$1,469,026, 2002 -$148,618) on its Argentine
properties.
During the year ended December 31, 2002, the Company completed the following
four private placements:
i) 637,000 units at a price of $0.38 for cash proceeds of $222,695,
net of share issue costs of $19,365. Each unit consisted of one
common share of the Company and one warrant. Two warrants
entitled the holder to purchase an additional common share for
the exercise price of $0.45 on or before March 31, 2003. In
addition, agents warrants were issued to purchase 63,700 common
shares at a price of $0.45 on or before March 31, 2003.
ii) 1,777,778 units at a price of $0.45 per unit for cash proceeds
of $686,132, net of share issue costs of $118,868. Each unit
consisted of one common share of the Company and one warrant.
Two warrants entitled the holder to purchase an additional
common share at a price of $0.54 per share on or before April 9,
2003. In addition, the Company issued 11,111 shares to the
agents, at a price of $0.45 per share. The agents also received
agents warrants to purchase 355,556 common shares at a price of
$0.54 per share on or before April 9, 2003.
-50-
iii) 1,722,222 units at a price of $0.45 per unit, for cash proceeds
of $751,000, net of share issue costs of $24,000. Each unit
consisted of one common share of the Company and one warrant.
Each warrant entitled the holder to purchase an additional
common share of the Company at a price of $0.53 per share on or
before May 23, 2003 and $0.60 per share on or before May 23,
2004. The agents also received agents warrants to purchase
66,666 common shares at a price of $0.53 per share on or before
May 23, 2003. Certain directors have purchased 191,111 units.
iv) 1,554,915 units at a price of $0.47 for cash proceeds of
$698,987, net of share issue costs of $31,823. Each unit
consisted of one common share of the Company and one warrant.
Each warrant entitles the holder to purchase an additional
common share of the Company at a price of $0.55 per share on or
before September 27, 2003 and $0.60 on or before September 27,
2004. The agents also received agents warrants to purchase
37,496 common shares at a price of $0.50 per share on or before
September 27, 2003. Certain directors have purchased 325,000
units total benefit was $9,700.
During the year ended December 31, 2003, the Company completed a brokered
private placement for 2,900,000 units at a price of $0.90 per unit, for cash
proceeds of $2,421,150, net of share issue costs of $188,850 which closed in
April 2003. Each unit consisted of one common share and one-half
non-transferable common share purchase warrant. One whole warrant entitles the
holder to purchase one common share for the exercise price of $1.10 per share on
or before April 28, 2004. In addition, options and warrants were exercised which
resulted in cash proceeds of $3,931,624 to the Company during the year.
During the year ended December 31, 2004, the Company completed a brokered
private placement of 1,500,000 units at $3.10 per unit, for proceeds of
$4,307,500 net of costs of $411,237. Each unit consisted of one common share and
one half common share purchase warrant. Each full warrant entitled the holder to
purchase one additional common share for one year at $3.70 per share.
Underwriters were paid a commission of 6% cash and 200,000 compensation options.
The compensation options were exercisable at a price of $3.25 per compensation
option, for a period of twelve months, into one share and one half warrant with
the warrants having the same terms as described above. The underwriters'
compensation options were exercisable for a period of twelve months. This
financing closed February 23, 2004. From January 1, 2005 to May 5, 2005 the
aggregate amount the Company received from the exercise of warrants and options
was $4,215,145.
During the year ended December 31, 2002, the Company issued 2,085,361 common
shares on the exercise of warrants and agents warrants for $837,512. During the
year ended December 31, 2003, the Company issued 5,074,996 common shares on the
exercise of warrants and agents warrants for $3,035,765. As of December 31,
2003, the Company had reserved 6,042,448 common shares for issuance upon the
exercise of outstanding warrants. As of December 31, 2004, the Company had
reserved 1,422,017 common shares for issuance upon the exercise of outstanding
warrants. As at May 5, 2005, there are no warrants outstanding.
Cash on hand at May 5, 2005 was approximately $5,500,000. During the nine month
period from March 31, 2005 to December 31, 2005, the Company plans to expend
$2,000,000 on the continuation of the Phase III drilling program at the Navidad
project.
Results of Operations
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2004, 2003 and 2002 should be read in
conjunction with the consolidated financial statements of the Company attached
hereto and related notes included therein.
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
The Company reported a consolidated loss of $4,655,063 ($0.11 per share) in
2004, an increase of $1,236,645 from the loss of $3,418,418 ($0.11 per share) in
2003. The increase in the loss in 2004, compared to 2003, was due to a number of
factors of which $1,148,400 can be attributed to operating expenses and $88,245
to other expense items.
-51-
The Company's prior period financial statements have been reclassified to
reflect the reorganization in accordance with Canadian GAAP. The net assets
transferred to Golden Arrow are described as "Spin-Off Assets Transferred" and
the allocated expenses are described as "Loss Allocated to Spin-Off Assets" in
the consolidated financial statements. This reclassification did not change
previously reported total losses. The allocation of certain expenses was
calculated on the basis of the ratio of the specific assets transferred to
assets retained. The following discussion of the 2004 expenses compared to the
2003 expenses is based on expenses as originally reported.
The Company's 2004 operating expenses were $4,312,616 an increase of $1,148,400
from the $3,164,216 originally reported for 2003. $661,175 of the 2003 operating
expense has been reclassified as "Loss Allocated to Spin-Off Assets" which
relate to the assets transferred to Golden Arrow. In 2004 $131,232 was allocated
to the Loss from Spin-Off Assets compared to $969,175 in 2003. The allocation
was calculated on the basis of the ratio of the specific assets transferred to
assets retained. Certain "Other Income and Expense" items have been allocated to
spin-off assets on the basis of the nature of the income or expense. In 2004
expenses increased as a result of increased activity at the Navidad project and
the support required at the corporate office.
Professional fees increased $597,017 to $894,780 in 2004, primarily due to legal
costs incurred in connection with the Aquiline legal action as well as increased
costs of compliance. During 2004 the Company recorded a non-cash expense of
$1,972,860 for stock based compensation for stock options granted to its
employees and directors, an increase of $485,625 from 2003. Other notable
changes in the operating expenses are: (i) Salaries increased $113,998 due to
staff increases (in 2004 the Company had an average of seven people on its
payroll compared to three in 2003); (ii) Travel increased $97,641due to travel
to conferences as well as to South America; (iii) Cost recoveries (for shared
administrative costs and rent) from Amera and Golden Arrow increased by
$114,161; (iv) Corporate development and investor relations decreased $62,026,
as 2003 was a more active year in which the Company developed investor
awareness.
In 2004 the Company recorded a gain of $328,346 on the optioning of certain
properties to other mining exploration companies (plus $433,960 of gains
relating to the Spin-Off Assets) compared to $481,779 in total in 2003. In 2004
a write-down of $99,762 (2003 - $nil) for the carrying value of marketable
securities was recognized. Reorganization costs of $346,103 were recorded in
2004. An expense of $195,285 for foreign exchange was recorded in 2004 compared
to $25,916 in 2003. The foreign exchange adjustment is as a result of the
continued strength of the Canadian dollar compared to the US dollar in which the
majority of the inter-company transactions are denominated; when the
inter-company accounts are eliminated the difference is charged to foreign
exchange. Interest and other income was $101,589 in 2004, an increase of $35,028
from 2003, primarily as a result of an increase of funds on deposit.
On March 5, 2004 Minera Aquiline Argentina SA, a subsidiary of Aquiline
Resources Inc. commenced an action against the Company seeking damages and a
constructive trust over the Navidad Area Properties. See "Item 8. Financial
Information - Legal Proceedings." The Company believes the Aquiline legal action
is without merit and continues to vigorously defend itself. A Statement of
Defence has been filed. The trial has been set for October 11, 2005 in
Vancouver, British Columbia. As of the date of this annual report the outcome is
not determinable.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
The Company reported a consolidated loss of $3,418,418 ($0.11 per share) in
2003, an increase of $1,978,312 from the loss of $1,440,106 ($0.06 per share) in
2002. The loss from continuing operations, $2,503,041, increased $1,963,906
primarily as a result of the cost for Stock Based Compensation which increased
$1,457,729 in 2003 compared to 2002. Loss allocated to Spin-off assets was
little changed in 2003 ($969,175) compared to 2002 ($954,775).
In early 2003 the Company focused its efforts on its Navidad Project in Chubut
Province located in southern Argentina. The preliminary results of its initial
exploration efforts were very encouraging. Phase I of a drilling program
commenced in November 2003 and continued into March 2004. A second phase is
scheduled to commence in May 2004. Management believes that the Navidad Project
is worthy of its primary interest and accordingly has focused the majority of
its available resources on this project and expects to continue to do so.
-52-
The Company's 2003 operating expenses were $2,503,041, an increase of $1,993,061
from 2002. A significant portion of the increase for 2003 is attributed to the
Company's application of the fair value method of accounting for stock options
granted to its employees and directors. As permitted, the Company has elected
prospective application, effective January 1, 2003. Previously options granted
to the Company's directors and employees were only disclosed on a pro forma
basis in the notes to the Company's consolidated financial statements. During
2003 the Company recorded a non-cash compensation expense of $1,487,235 relating
to stock options granted to the Company's employees, directors and consultants.
In 2002, the Company recorded an expense of $29,506 for stock options granted to
its consultants. Much of the balance of the increase in the operating expenses
can be attributed to the Navidad Project program: (1) Administrative and
Management Services increased $68,365 (2) Corporate development and investor
relations increased $116,325; (3) General exploration increased $46,638; (4)
Travel increased $33,659. The increase of $159,117 in professional fees is
primarily due to legal costs incurred in connection with the Aquiline legal
action.
Interest and other income was $66,561 in 2003, an increase of $39,976 from
2002, primarily as a result of an increase of funds on deposit.
In 2003 the Company received cash proceeds of $6,467,245 from the sale of common
shares less costs of $188,850. The Company's total assets increased from
$7,432,489 at December 31, 2002 to $13,419,876 at December 31, 2003. The
Company's cash position at December 31, 2003 was $4,422,334 an increase of
$2,986,210 from December 31, 2002.
On May 3, 2004 the Company announced a proposed corporate reorganization. The
effect of the reorganization will be to transfer the Transferred Assets to
Golden Arrow. The Company will retain the Navidad Properties and will be
responsible for the Company's accounts payable. The Company's shareholders will
receive Golden Arrow common shares which will result in an identical percentage
ownership by the Company's shareholders before and after the reorganization. See
"Item 4. Information on the Company - History and Development of the Company."
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
The Company reported a consolidated loss of $1,440,106 ($0.06 per share) in
2002, an increase of $558,231 from the loss of $881,875 ($0.06 per share) in
2001. The loss from continuing operations, $485,331, increased $302,600 compared
to 2001 ($182,731). Loss allocated to Spin-off assets increased $255,631in 2003
($954,775) compared to 2002 ($699,144).
As a result of adopting the new section of the Canadian Institute of Chartered
Accountants' Handbook Section 3870 effective January 1, 2002 the Company has
recognized compensation expense of $29,506 for stock options granted to
consultants which is included in the increased operating expenditures.
There were increases in to the following expenses of continuing operations: (1)
General exploration - $70,446 as a result of an aggressive examination of
grassroots properties mainly in the Patagonia region; (2) Corporate development
- $41,066 which relates to the ongoing North America and European market
awareness program; (3) Stock based compensation - $29,506 for stock options
granted to consultants, as required by the CICA Handbook Section 3870 effective
January 1, 2002.
Interest and miscellaneous income reported for 2002 was $26,585 a decrease of
$70,695 from $97,280 reported in 2001 as a result of lower interest rates paid
on funds on deposit.
The Company's total assets increased from $5,487,374 at December 31, 2001 to
$7,432,489 at December 31, 2002. The increase is attributed to the equity
financing conducted by the Company through four private placements and exercise
of warrants and stock options issuing 7,958,387 common shares for proceeds of
$3,458,382 before deducting share issue costs of $194,056.
Liquidity and Capital Resources
The Company's cash position at December 31, 2004 was $5,227,354, an increase of
$805,020 from December 31, 2003. Total assets decreased from $13,419,876 at
December 31, 2003 to $12,221,856 at December 31, 2004. This decrease resulted
from the transfer of net assets of $7,364,878 to Golden Arrow on the
-53-
reorganization of the Company offset by the increases in cash balance and
Navidad carrying value. During the year ended December 31, 2004 the Company
completed a brokered private placement of 1,500,000 units at $3.10 per unit, for
proceeds of $4,238,763, net of $339,000 agent's commission and $72,237 of
related issue costs. See "Item 5. Operating and Financial Review and Prospects -
Overview."
The Company has capitalized expenditures of approximately $2,050,000 for the
period ending May 5, 2005 on the Navidad Project.
As at May 5, 2005 the Company had working capital of approximately $5,500,000.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently does not have sufficient working capital to fund all of
its planned exploration work and property commitments. An extension of the Phase
III budget for the Navidad Project has been approved in the amount of
$2,000,000. The Company will continue to rely on successfully completing
additional equity financing and/or conducting joint venture arrangements to
further exploration on its properties. There can be no assurance that the
Company will be successful in obtaining the required financing or negotiating
joint venture agreements. The failure to obtain such financing or joint venture
agreements could result in the loss of or substantial dilution of its interest
in its properties.
The Company's management may elect to acquire new projects, at which time
additional equity financing may be required to fund overhead and maintain its
interests in current projects, or may decide to relinquish certain of its
properties. These decisions will be based on the results of ongoing exploration
programs and the response of equity markets to the projects and business plan.
During the period from January 1, 2005 through December 31, 2005, it is
anticipated that the Company will have obligations totaling $720,000 for monthly
payments to the Grosso Group.
The Company does not know of any trends, demands, commitments, events or
uncertainties that will result in, or that are reasonably likely to result in,
its liquidity either materially increasing or decreasing at present or in the
foreseeable future. Material increases or decreases in liquidity are
substantially determined by the success or failure of the exploration programs
or the acquisition of projects.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
Off-Balance Sheet Arrangements
The Company does not have any material off balance sheet arrangements that have
or are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
Tabular Disclosure of Contractual Obligations
-----------------------------------------------------------------------
Payments Due by Period
-----------------------------------------------------------------------
Less than 1 More than 5
Total Year 1-3 Years 3-5 Years Years
-----------------------------------------------------------------------
Contractual Obligations $Nil $Nil $Nil $Nil $Nil
Long-term Debt Obligations $Nil $Nil $Nil $Nil $Nil
Capital (Finance) Lease Obligations $Nil $Nil $Nil $Nil $Nil
Operating Lease Obligations $Nil $Nil $Nil $Nil $Nil
Purchase Obligations $Nil $Nil $Nil $Nil $Nil
Other Long-Term Liabilities Reflected in
the Company's Balance Sheet under the
GAAP of the Primary Financial Statements $Nil $Nil $Nil $Nil $Nil
----------- ----------- ----------- ----------- -----------
Total $Nil $Nil $Nil $Nil $Nil
=========== =========== =========== =========== ===========
-54-
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
--------------------------------------------------------------------------------
Directors and Senior Management
The name, positions held with the Company and principal occupation of each
director, officer and executive officer of the Company within the five years
preceding the date of this annual report are as follows:
--------------------------------------------------------------------------------------------------------------------
NAME, AGE AND POSITION(1) PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
FIVE YEARS DIRECTOR/OFFICER
--------------------------------------------------------------------------------------------------------------------
GERALD G. CARLSON President and Director of Copper Chairman since February 15, 1999.
Chairman and Director Ridge Exploration Inc., a public Director since February 15, 1999.
Age 59 British Columbia mineral exploration
company from March 2002 to present.
President of Nevada Star Resources
Corp, from March 5, 2002 to present.
President and CEO of LaTeko
Resources Ltd. from December 1996 to
February 2002.
--------------------------------------------------------------------------------------------------------------------
JOSEPH GROSSO Director and officer of the Company President since February 1990.
President, Chief Executive Officer and since February 1990. President of Chief Executive Officer since
Director Oxbow International Marketing Corp., February 1990.
Age 67 a private British Columbia company. Director since February 1990.
--------------------------------------------------------------------------------------------------------------------
ARTHUR LANG Chief Financial Officer of the Chief Financial Officer since April
Chief Financial Officer, Company since April 2, 2004. 2, 2004.
and Director Consultant providing financial Vice-President since April 2, 2004.
Age 61 management services to various Director since April 2, 2004.
clients from 1999 to April 2004
through Arthur G Lang Inc., a
private British Columbia company.
--------------------------------------------------------------------------------------------------------------------
NIKOLAOS CACOS Corporate Secretary since 1998. Secretary since June 25, 1998.
Corporate Secretary President, CEO and director of
Age 38 Amera Resources Corporation, a
private British Columbia company,
since April 2000. Director and
Corporate Secretary of Golden Arrow
Resources Corporation.
--------------------------------------------------------------------------------------------------------------------
SEAN HURD Investor relations manager for the Vice President, Investor Relations
Vice President, Investor Relations Company from June 2002 to present. since March 2005.
Age 38 Investor relations for Senate Capital
from February 1996 to May 2002.
--------------------------------------------------------------------------------------------------------------------
ROBERT STUART (TOOKIE) ANGUS Director of the Company from May Director since May 2003
Director 2003 to present. Managing Director,
Age 56 Mergers and Acquisitions, Endeavour
Financial Ltd., November 2003 to
present. Partner in law firm, Fasken
Martineau DuMoulin LLP from February
2001 to October 2003. Partner in
law firm, Stikeman Elliott from 1998
to 2001.
--------------------------------------------------------------------------------------------------------------------
-55-
--------------------------------------------------------------------------------------------------------------------
NAME, AGE AND POSITION(1) PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
FIVE YEARS DIRECTOR/OFFICER
--------------------------------------------------------------------------------------------------------------------
CHET IDZISZEK Director of the Company from May Director since May 2003
Director 2003 to present. President, CEO and
Age 57 director of Madison Enterprises
Corp. from 1993 to present.
President, CEO and director of
Adrian Resources Ltd. from June 1990
to present.
--------------------------------------------------------------------------------------------------------------------
DAVID TERRY Director of the Company from May Director since May 2004
Director 2004 to present. Vice President for
Age 40 the Company since June 2004 to
present. Vice President, Exploration
for Amera Resources Corporation from
March 2004 to present. Regional
geologist with the British Columbia
Ministry of Energy and Mines in
Cranbrook, British Columbia from May
2001 to March 2004. Project Geologist
with Boldien Limited prior to May
2001.
--------------------------------------------------------------------------------------------------------------------
DAVID HORTON Senior Vice-President of Canaccord Director since June 2004
Director Capital Corporation from 1996 to
Age 69 present.
--------------------------------------------------------------------------------------------------------------------
JUAN CARLOS BERRETTA Vice President, South American Officer since April 2005
Vice President, South American Corporate Development.
Corporate Development Property Manager for the Company
Age 64 since 1994.
--------------------------------------------------------------------------------------------------------------------
AUGUSTO BAERTL President of Cia. Minera Antamina Director since March 2005
Director (Of subsidiary) from 1997 to 2001 and Executive
Age 62 Chairman from 2001 to 2002. Chief
Executive Officer of Gestora de
Negocios e Inversiones S.A. from
August 2003 to present.
--------------------------------------------------------------------------------------------------------------------
(1) Officers and Directors of the Company may also serve as directors of other
companies. See "Conflicts of Interest" below.
There are no family relationships between any directors or executive officers of
the Company. With the exception of the agreement with Endeavour Financial Ltd.
relating to Mr. Angus' appointment to the board of directors, to the best of the
Company's knowledge, there are no known arrangements or understandings with any
major shareholders, customers, suppliers or others, pursuant to which any of the
Company's officers or directors was selected as an officer or director of the
Company. See "Item 7. Major Shareholders and Related Party Transactions -
Related Party Transactions."
CONFLICTS OF INTEREST
There are no existing or potential conflicts of interest among the Company, its
directors, officers or promoters as a result of their outside business interests
with the exception that certain of the Company's directors, officers and
promoters serve as directors, officers and promoters of other companies, and,
therefore, it is possible that a conflict may arise between their duties as a
director, officer or promoter of the Company and their duties as a director or
officer of such other companies.
The directors and officers of the Company are aware of the existence of laws
governing accountability of directors and officers for corporate opportunity and
requiring disclosures by directors of conflicts of interest and the Company will
rely upon such laws in respect of any directors' and officers' conflicts of
interest or in respect of any breaches of duty by any of its directors or
officers. All such conflicts will be disclosed by such directors or officers in
accordance with the BCBCA, and they will govern themselves in respect thereof to
the best of their ability in accordance with the obligations imposed upon them
by law.
-56-
All of the Company's directors are also directors, officers or shareholders of
other companies that are engaged in the business of acquiring, developing and
exploiting natural resource properties including properties in countries where
the Company is conducting its operations. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which place the Company in a worse
position than if no conflict existed. The directors of the Company are required
by law to act honestly and in good faith with a view to the best interest of the
Company and to disclose any interest which they may have in any project or
opportunity of the Company. However, each director has a similar obligation to
other companies for which such director serves as an officer or director. The
Company has no specific internal policy governing conflicts of interest.
The following table identifies the name of each director of the Company and any
company, which is a reporting issuer in Canada or the United States, and for
which such director currently serves as an officer or director:
--------------------------------------------------------------------------------------------------------------------
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
--------------------------------------------------------------------------------------------------------------------
Gerald G. Carlson Copper Ridge Explorations President & Director Feb/99 to present
Nevada Star Resources Corp. President & Director Feb/02 to present
Dentonia Resources Ltd. Director Feb/94 to present
Fairfield Minerals Ltd. Director Jul/98 to present
Orphan Bay Resources Inc. Director Nov/00 to present
--------------------------------------------------------------------------------------------------------------------
Nikolaos Cacos Amera Resources Corporation President & Director Apr/00 to present
Golden Arrow Resources Corporation Director & Secretary Jul/04 to present
--------------------------------------------------------------------------------------------------------------------
Arthur Lang Golden Arrow Resources Corporation Director & CFO Jul/04 to present
Amera Resources Corporation CFO Mar/05 to present
--------------------------------------------------------------------------------------------------------------------
Joseph Grosso Amera Resources Corporation Chairman & Director Feb/04 to present
Golden Arrow Resources Corporation Chairman, President,
CEO & Director Jul/04 to present
--------------------------------------------------------------------------------------------------------------------
Sean Hurd Golden Arrow Resources Corporation Director July/04 to present
Vice-Pres, Investor
Relations Mar/05 to present
--------------------------------------------------------------------------------------------------------------------
Robert Stuart (Tookie) Angus CMQ Resources Inc. Director Dec/03 to present
MCK Mining Corp. Director Dec/03 to present
Nevsun Resources Ltd. Director Jan/03 to present
Canico Resource Corp. Director Sept/02 to present
Plutonic Capital Inc. Director June/99 to present
First Quantum Minerals Ltd. Director Dec/97 to present
Blackstone Ventures Inc. Director Sept/97 to present
Adrian Resources Ltd. Director July/03 to present
Dynasty Gold Corp. Secretary & Director Oct/99 to present
Bema Gold Corporation Director June/92 to present
--------------------------------------------------------------------------------------------------------------------
Chet Idziszek Adrian Resources Ltd. Chairman, CEO,
President & Director June/90 to present
Madison Enterprises Corp. Chairman, CEO,
President & Director Nov/93 to present
Lund Gold Ltd. CEO, President &
Director May/97 to present
Oromin Explorations Ltd. President & Director Feb/94 to present
The Havana Group Inc. Director Aug/02 to present
-57-
--------------------------------------------------------------------------------------------------------------------
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
--------------------------------------------------------------------------------------------------------------------
David Terry Amera Resources Corporation Vice-Pres Exploration Mar/04 to present
Golden Arrow Resources Corporation Director, Vice-Pres,
Exploration Jul/04 to present
--------------------------------------------------------------------------------------------------------------------
David Horton Golden Arrow Resources Corporation Director July/04 to present
--------------------------------------------------------------------------------------------------------------------
Compensation
During the fiscal year ended December 31, 2004, the directors and officers of
the Company, as a group, had received or charged the Company a total of $476,226
(2003 - $330,600; 2002 - $136,276) for services rendered by the directors and
officers or companies owned by the individuals.
The Company is required, under applicable securities legislation in Canada, to
disclose to its shareholders details of compensation paid to its directors and
officers. The following fairly reflects all material information regarding
compensation paid by the Company to its directors and officers, which
information has been disclosed to the Company's shareholders in accordance with
applicable Canadian law.
EXECUTIVE COMPENSATION
"Named Executive Officers" means the Chief Executive Officer of the Company,
regardless of the amount of compensation of that individual, and each of the
Company's four most highly compensated executive officers, other than the Chief
Executive Officer, who were serving as executive officers at the end of the most
recent fiscal year and whose total salary and bonus amounted to $100,000 or
more. In addition, disclosure is also required for any individual whose total
salary and bonus during the most recent fiscal year was at least $100,000,
whether or not they were an executive officer at the end of the most recent
fiscal year.
During the year ended December 31, 2004, the Company had one Named Executive
Officer: Joseph Grosso, President and Chief Executive Officer (the "Named
Executive Officer"). The following table sets forth all annual and long-term
compensation awarded, paid to or earned by the Company's Named Executive
Officers during the financial years ended December 31, 2002, 2003 and 2004.
Summary Compensation Table
---------------------------------------
LONG TERM COMPENSATION
------------------------------ ---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ---------------------------- ------- ---------
OTHER RESTRICTED
------------------ ANNUAL SECURITIES SHARES OR ALL OTHER
NAME AND ---- COMPEN- UNDER OPTIONS/ RESTRICTED LTIP COMPEN-
PRINCIPAL POSITION YEAR(1) SALARY BONUS SATION SARS GRANTED SHARE UNITS PAYOUTS SATION
($) ($) ($) (#)(2) (#) ($) ($)
------------------ ---- ------------------------------ ---------------------------- ------- ---------
Joseph Grosso 2004 102,000 Nil Nil 150,000 Nil Nil Nil
President and CEO 2003 102,000 Nil Nil 200,000 Nil Nil Nil
2002 102,000 Nil Nil 500,000 Nil Nil Nil
------------------ ---- ------------------------------ ---------------------------- ------- ---------
(1) Fiscal years ended December 31, 2004, 2003 and 2002.
(2) See "Options and Stock Appreciation Rights".
-58-
LONG TERM INCENTIVE PLAN AWARDS
Long Term Incentive Plan Awards ("LTIP") means any plan providing compensation
intended to serve as an incentive for performance to occur over a period longer
than one fiscal year whether performance is measured by reference to financial
performance of the Company or an affiliate of the Company, or the price of
shares of the Company but does not include option or stock appreciation rights
plans or plans for compensation through restricted shares or units. The Company
has not granted any LTIP's to the Named Executive Officer during the most
recently completed fiscal year.
OPTIONS AND STOCK APPRECIATION RIGHTS
Stock Appreciation Rights ("SAR's") means a right, granted by an issuer or any
of its subsidiaries as compensation for services rendered or in connection with
office or employment, to receive a payment of cash or an issue or transfer of
securities based wholly or in part on changes in the trading price of the shares
of the Company. No SAR's were granted to or exercised by the Named Executive
Officers or directors during the most recently completed fiscal year.
OPTION GRANTS
The following table sets forth stock options granted by the Company during the
financial year ended December 31, 2004 to the Named Executive Officers of the
Company:
Market Value
% of Total Options of Securities
Securities Under Granted in Exercise or Underlying Options
Name Options Granted Financial Year(1) Base Price(2) on Date of Grant Expiration Date
(#) ($/Security) ($/Security)
Joseph Grosso 150,000 10.47% $3.10 $2.85 March 24, 2009
(1) Percentage of all options granted during the financial year.
(2) The exercise price of stock options was set according to the rules of the
TSX-V. The exercise price of stock options may only be adjusted in the
event that specified events cause dilution of the Company's share capital.
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all exercises of stock options by the
Named Executive Officers during the most recently completed fiscal year and the
fiscal year-end value of unexercised options on an aggregated basis:
Value of Unexercised
Securities Unexercised Options In-the-Money Options
Name Acquired on Aggregate Value at Fiscal Year-End Fiscal Year-End(2)
Exercise(1) Realized Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($) (#) ($)
Joseph Grosso Nil Nil 150,000/Nil $138,000 / N/A
(1) All options are exercisable to acquire the Company's Common Shares.
(2) Value of unexercised in-the-money options calculated using the closing
price of the Company's Common Shares on the TSX-V on December 31, 2004,
$4.02, less the exercise price per share of in-the-money stock options.
PENSION PLAN
The Company does not provide retirement benefits for directors or executive
officers.
TERMINATION OF EMPLOYMENT, CHANGES IN RESPONSIBILITY AND EMPLOYMENT CONTRACTS
The Company has no plans or arrangements in respect of remuneration received or
that may be received by the Named Executive Officers in the Company's most
recently completed fiscal year or current fiscal year in respect of compensating
such officers in the event of termination of employment (as a result of
resignation, retirement, change of control, etc.) or a change in
responsibilities following a change of control, where the value of such
compensation exceeds $100,000, except as disclosed in "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
-59-
COMPENSATION OF DIRECTORS
There are no arrangements under which directors were compensated by the Company
during the most recently completed financial year ended December 31, 2004 for
their services in their capacity as directors.
During the last completed financial year ending December 31, 2004, the Company
paid a total of $374,226 to its directors who are not Named Executive Officers,
as a group, for salaries and professional services rendered. See also "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts."
Option Grants
The following table sets forth information concerning stock options granted to
directors, as a group, who are not Named Executive Officers during the most
recently completed fiscal year:
% of Total Market Value
Securities Options Granted of Securities
Under Options in Exercise or Underlying Options
Name Granted(1) Financial Year(2) Base Price(3) on Date of Grant Expiration Date
(#) ($/Security) ($/Security)
Directors as a group
who are not Named
Executive Officers 550,000 37% $3.10 $2.85 March 24, 2009
(1) All options are for the Company's Common Shares.
(2) Percentage of all options granted in the period.
(3) The exercise price of the option is set at not less than the market value
of the Company's Common Shares on the date of grant, less a discount
allowed by the TSX-V. The exercise price may be adjusted under certain
circumstances, subject to regulatory acceptance.
Aggregated Option Exercises and Option Values
The following table sets forth details of all securities acquired, the aggregate
value realized and the fiscal year end number and value of unexercised
options/SARs held by directors, as a group, who are not Named Executive
Officers:
Value of Unexercised
Securities Unexercised Options In-the-Money Options
Name Acquired on Aggregate Value at Fiscal Year-End Fiscal Year-End(2)
Exercise(1) Realized Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($) (#) ($)
Directors, as a
group, who are not
Named Executive
Officers Nil Nil 550,000/N/A $506,000/N/A
(1) All options are exercisable to acquire the Company Common Shares.
(2) Value of unexercised in-the-money options calculated using the closing
price of the Company's Common Shares on the TSX-V on December 31, 2004,
$4.02, less the exercise price per share of in-the-money stock options.
PROPOSED COMPENSATION
The Company has no bonus, profit sharing or similar plans in place pursuant to
which cash or non-cash compensation is proposed to be paid or distributed to the
Named Executive Officers in the current or subsequent fiscal years.
-60-
MANAGEMENT CONTRACTS
GROSSO GROUP MANAGEMENT LTD.
Effective January 1, 2005, the Company engaged the Grosso Group Management Ltd.
to provide services and facilities to the Company. As of the date of this Annual
Report, a formal agreement among the Company and the Grosso Group has not been
finalized. Until such time as the formal agreement has been finalized, the
Company and the Grosso Group intend to work under the terms of the proposed
Administration Services Agreement by and among the Company and the Grosso Group,
which is discussed below. It is anticipated that the formal agreement will have
an effective date of January 1, 2005.
The Grosso Group is a private company which will be owned by the Company, Golden
Arrow, Amera and Gold Point Exploration Ltd., each of which will own one share.
Pursuant to the terms of the proposed Administration Services Agreement, the
Grosso Group will provide its shareholder companies with geological, corporate
development, administrative, and management services on a non-exclusive and on
an "as needed" and "as available" basis. The administration services for each
shareholder company shall include bookkeeping, accounting and services in
connection with quarterly filings, material change reports and other disclosure
filings on SEDAR.
The Grosso Group will provide each shareholder company with:
1. the use of the Grosso Group's offices;
2. receptionist personnel;
3. office equipment; and
4. services of administration, accounting, purchasing, secretarial
and like support staff on an "as needed" and "as available"
basis.
Shareholder companies may appoint the Grosso Group to manage their work
programs. In such event, the Grosso Group will generally retain suppliers and
contracts in connection with each shareholder company's approved work programs
and will separately invoice such shareholder company for the third-party costs
and such invoice will include a handling charge as a percentage of the
third-party costs, such charge to be in accordance with industry standards and
reviewed for reasonableness from time to time, and which would be negotiated at
the time of such work program.
Each shareholder company will pay the Grosso Group a monthly fee for the Grosso
Group's services. The Grosso Group intends to allocate the costs of the staff
and related general and administrative expenses to its shareholder companies on
a full recovery basis. The fee will be based upon a pro-rationing of the Grosso
Group's costs, including its executive staff and other overhead, among each of
the shareholder companies, with regard to the expected average annual level of
services provided to each shareholder company. The staff of the Grosso Group
will record their daily activities in connection with each shareholder company
and they will retain a log for invoicing purposes. The fee is to be reviewed
from time to time and the basis may be changed by the Grosso Group in the event
the Grosso Group's costs change or the shareholder companies' use of the
services is in excess of historical experience or in the event a greater or
lesser number of shareholder companies are using the Grosso Group's services.
Each shareholder company has prepaid one month's initial estimated allocation of
the Grosso Group's fully recoverable costs, which for the Company amounted to
$60,000 (which as of the date of this Annual Report is the estimated initial
monthly allocation for the Company).
The Grosso Group has the right to request each of the shareholder companies to
allocate a reasonable number of shares in their incentive option plans to
employees of the Grosso Group based upon the general amount of time and value
added by such employees.
It is anticipated that the Administration Services Agreement may be terminated
by a shareholder company after January 1, 2007, upon 30 days' written notice to
the Grosso Group. Prior to January 1, 2007, if a shareholder company desires to
terminate the agreement in the first year, it will pay a termination fee equal
to one-year's basic administration charge and if a shareholder company desires
to terminate the agreement in the second year, it will pay a termination fee
equal to six-months' basic administration charge.
It is anticipated that upon termination of the Administration Services
Agreement, each of the shareholder companies will agree to resell its common
share back to the Grosso Group for $1.00 and the shareholder companies will not
be able to sell, transfer or otherwise dispose of or encumber such share during
the term of the Administration Services Agreement.
-61-
The Grosso Group's areas of experience encompass financing, marketing, property
acquisition, community relations, socioeconomic issues, regulatory compliance,
government relations, property exploration and investor relations. Additionally
the Grosso Group has a number of other support staff at its corporate office and
arrangements with contract providers of accounting and administrative services
at the country operations' offices in Argentina and Peru.
The members of the board of directors of the Grosso Group are appointed by the
shareholder companies, with each shareholder company appointing one of its
directors to serve as a director of the Grosso Group. As of May 5, 2005 it is
anticipated that the directors of the Grosso Group will be Nikolaos Cacos,
Joseph Grosso, Arthur Lang and Nick DeMare. Messrs. Lang and Grosso are officers
and directors of the Company. Mr. Lang is an officer and director of Golden
Arrow and an officer of Amera. Mr. Grosso is an officer and director of Golden
Arrow and of Amera. Nikolaos Cacos is an officer of IMA, a director and officer
of Golden Arrow and a director and officer of Amera. Nick DeMare is an officer
and director of Gold Point Exploration Ltd. Mr. DeMare indirectly owns 100% of
Chase Management Ltd., a company which provides consulting services to the
Company and other Grosso Group shareholder companies.
Each of the public company shareholders of the Grosso Group will have its own
separate board of directors (whose members include persons employed by the
Grosso Group); however, some directors will serve on multiple boards and on the
board of directors of companies which are not shareholders of the Grosso Group.
In connection with the formation and establishment of the Grosso Group, Mr. Nick
DeMare was issued the initial share of the Grosso Group and acted as the
President, Secretary and sole director of the Grosso Group. Effective February
6, 2004, Mr. DeMare transferred the sole outstanding share of the Grosso Group
to Joseph Grosso, the Chairman and a director and principal shareholder of the
Company. Mr. DeMare also resigned as a director and the President and Secretary
of the Grosso Group effective February 6, 2004 and Mr. Grosso was appointed as a
director and the President and Secretary of the Grosso Group. It is anticipated
that Mr. Grosso will return the sole outstanding share of the Grosso Group to
the Grosso Group for cancellation and one share will then be issued to the
Company.
The Board of Directors of the Company will approve the formal agreement once
completed.
JOSEPH GROSSO
By agreement, made effective as of July 1, 1999, Oxbow International Marketing
Corp., a private company owned by Joseph Grosso, is paid a consulting fee of
$8,500 per month for making available the services of Joseph Grosso as President
and Chief Executive Officer of the Company. During the fiscal year ended
December 31, 2004, Oxbow was paid $102,000.
Pursuant to the terms of the agreement, in the event the agreement is terminated
by the Company as a result of Mr. Grosso's death or permanent disability or by
Mr. Grosso as a result of a material breach or default by the Company, Oxbow is
entitled to: (i) any monthly compensation due to the date of termination, (ii)
options as determined by the board of directors, (iii) an additional $6,500 per
month of compensation, payable from July 1, 1999 through the date of
termination, (iv) twelve months of Mr. Grosso's monthly compensation (which may
be adjusted annually), and (v) a bonus payment of $78,000.
In the event the agreement is terminated by the Company without cause or as a
result of a change of control, Oxbow is entitled to (i) any monthly compensation
due to the date of termination, (ii) options as determined by the board of
directors, (iii) an additional $6,500 per month of compensation, payable from
July 1, 1999 through the date of termination, (iv) three years of Mr. Grosso's
monthly compensation (which may be adjusted annually), and (v) a bonus payment
of $234,000.
NIKOLAOS CACOS
By agreement dated January 1, 1996, as amended December 10, 1996 and August 22,
2001, Nikolaos Cacos, an officer and director of the Company, was paid $5,500
per month for professional services rendered. Mr. Cacos received a retainer of
$4,500 per month until December 1, 2001. Thereafter, the rate was increased by
$1,000. On January 5, 2004 this contract was amended to reduce the fee paid to
$1,375 per month. During the fiscal year ended December 31, 2004, Mr. Cacos was
paid $17,600 (2003 - $66,000; 2002 - $66,000). Mr. Cacos resigned as a director
of the Company in October 2004. On January 1, 2005 Mr. Cacos's contract with the
Company was cancelled and replaced with a contract with the Grosso Group.
-62-
SEAN HURD
By agreement dated June 11, 2001, as extended, Sean Hurd, a former director of
the Company, was paid $4,000 per month for professional services rendered.
During the fiscal year ended December 31, 2004, Mr. Hurd was paid $73,800 (2003
- $48,000; 2002 - $52,050). Mr. Hurd resigned as a director in October 2004. In
January 2005, Mr. Hurd became an employee of the Grosso Group.
GERALD CARLSON
By agreement dated February 15, 2001, between the Company and KGE Management
Ltd., a private company owned by Gerald Carlson, Chairman of the Company, Mr.
Carlson was paid a consulting fee of $36,000 per year, plus $550 per day if
services are rendered for more than five days per month, through KGE Management
Ltd. The agreement expired January 14, 2001 and was renewed until June 18, 2003.
By mutual agreement on October 3, 2002, the fee was changed to $2,000 per month
plus $550 per day if services were rendered for more than four days per month.
During the fiscal year ended December 31, 2004, the Company paid $34,749 to KGE
Management Ltd. (2003 - $41,400; 2002 - $33,000). On April 1, 2004 a new
agreement was executed providing for a monthly retainer of $2,000 per month plus
a fee of $600 per day for additional days in excess of 3 days per month. Mr.
Carlson is required to provide a minimum of eight days of service per month.
This agreement expired March 31, 2005 and has been renewed for six months with
the same terms.
In the event of a change of management of the Company as a result of a takeover
of the Company, Mr. Carlson is entitled to be paid two times the monthly
retainer for the remaining months outstanding under the agreement.
ARTHUR LANG
By agreement dated April 23, 2004, Arthur Lang, the Chief Financial Officer and
a director of the Company, is paid a salary of $80,000 per year for professional
services rendered. Mr. Lang is also reimbursed for certain monthly club dues.
During the fiscal year ended December 31, 2004, Mr. Lang was paid $58,671. Mr.
Lang became an employee of the Grosso Group in January 2005.
DAVID TERRY
Mr. Terry, an officer and a director of the Company, had a consulting agreement
with Amera dated February 16, 2004, amended June 1, 2004, which called for
monthly payments of $10,000. The Company had agreed to reimburse Amera for 50%
of these fees. In the fiscal year ended December 31, 2004 the Company paid
$43,000 as a result of this arrangement. On January 1, 2005 Mr. Terry's
agreement with Amera was replaced by a similar agreement with the Grosso Group.
CORPORATE CEASE TRADE ORDERS OR BANKRUPTCIES
Other than as disclosed herein, no director or officer of the Company is or has
been, within the preceding 10 years, a director or officer of any other issuer
that, while that person was acting in that capacity:
(a) was the subject of a cease trade order or similar order or an order
that denied the other issuer access to any exemptions for a period of
more than 30 consecutive days, or
(b) became bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement, or compromise with creditors or had a
receiver, receiver manager or trustee appointed to hold its assets.
-63-
PENALTIES OR SANCTIONS
No director or officer of the Company is or has, within the past 10 years:
(a) been subject to any penalties or sanctions imposed by a court relating
to Canadian securities legislation or Canadian securities regulatory
authority or has entered into a settlement agreement with a Canadian
securities regulatory authority, or
(b) been subject to any other penalties or sanctions imposed by a court or
regulatory body that would be likely to be considered important to a
reasonable investor making an investment decision.
INDIVIDUAL BANKRUPTCIES
No director or officer of the Company is or has, within the preceding 10 years,
become bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency or been subject to or instituted any proceedings, arrangement, or
compromise with creditors or had a receiver, receiver manager or trustee
appointed to hold the assets of that individual.
Board Practices
REMUNERATION COMMITTEE
The board of directors of the Company has adopted procedures to ensure that all
employment, consulting or other compensation agreements between the Company and
any director or senior officer of the Company or between any associate or
affiliate of the Company and any director or senior officer are considered and
approved by the disinterested members of the board of directors or a committee
of independent directors.
The board of directors appoints a Remuneration Committee as is needed.
AUDIT COMMITTEE
The Company's Audit Committee must be comprised of at least three directors, the
majority of whom are not employees, control persons or members of the management
of the Company or any of its associates or affiliates. As of the date of this
report, Messrs. Horton, Angus, Idziszek and Lang are members of the Audit
Committee. The board of directors of the Company, after each annual
shareholder's meeting must appoint or re-appoint an audit committee.
The Audit Committee must review the annual financial statements of the Company
before they are approved by the board of directors of the Company. The board of
directors of the Company must review, and if considered appropriate, approve the
annual financial statements of the Company before presentation to the
shareholders of the Company. In addition, the Audit Committee is responsible
for:
- Retaining the external auditors and communicating to them that they
are ultimately accountable to the Committee and the Board as the
representatives of the shareholders;
- Reviewing the external audit plan and the results of the audit,
approves all audit engagement fees and terms and pre-approves all
non-audit services to be performed by the external auditor;
- Reviewing the Company's financial statements and related management's
discussion and analysis of financial and operating results; and
- Having direct communication channels with the Company's auditors.
The Audit Committee's mandate requires that all of the members be financially
literate and at least one member have accounting or related financial management
expertise. The mandate of the Committee empowers it to retain legal, accounting
and other advisors.
The Audit Committee's Charter is attached as an Exhibit.
-64-
Employees
As of December 31, 2004, the Company had nine full-time employees and three
part-time employees in the area of management and administration compared with
nine full-time employees and two part-time employees in the areas of management
and administration at December 31, 2003 compared to eight full-time employees
and two part-time employees in the area of management and administration at
December 31, 2002. Exploration activities are conducted by consultants, laborers
and technicians hired for the duration of the exploration program.
Share Ownership
As of May 5, 2005, the Company had 45,479,724 shares outstanding. The following
table sets forth details of all employee share ownership and includes
information regarding the date of expiration or any options or warrants held by
each employee; the exercise price of the particular option or warrant held; the
total number of options and warrants held by each employee; the total number of
shares held by each employee; and each employee's percentage of ownership:
The following table sets forth certain information regarding ownership of the
Company's shares by the Company's officers and directors as of May 5, 2005.
--------------------------------------------------------------------------------------------------------------------
SHARES AND RIGHTS
BENEFICIALLY OWNED OR
TITLE OF CLASS NAME CONTROLLED (1) PERCENT OF CLASS(1)
--------------------------------------------------------------------------------------------------------------------
Common Stock Joseph Grosso 1,765,175(2) 3.88%
Common Stock Nikolaos Cacos 243,151(3) 0.53%
Common Stock Sean Hurd 285,000(4) 0.63%
Common Stock Gerald Carlson 402,500(5) 0.88%
Common Stock David Terry 132,000(6) 0.29%
Common Stock Chet Idziszek 420,900(7) 0.39%
Common Stock Robert Stuart (Tookie) Angus 220,000(8) 0.92%
Common Stock Arthur Lang 125,000(9) 0.27%
Common Stock Augusto Baertl 150,000(10) 0.33%
Common Stock Juan Carlos Berretta 100,000(11) 0.22%
Common Stock David Horton 130,000(12) 0.28%
Common Stock Officers and Directors (as a group, 3,973,726(13) 8.74%
11persons)
(1) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options , these
additional shares are deemed to be outstanding for the purpose of computing
the percentage of common stock owned by such persons, but are not deemed to
be outstanding for the purpose of computing the percentage owned by any
other person. Based on 45,479,724 shares of common stock outstanding as of
May 5, 2005.
(2) Includes the following shares, options and warrants held by Mr. Grosso,
Evelyn Grosso (Mr. Grosso's wife) and Mr. Grosso's private companies:
(a) 1,021,11346,013 shares held by Mr. Grosso;
(b) 7,500 shares held by Beauregard (50%);
(c) 27,564 shares held by Mr. Grosso's wife (50%);
(d) 348,448 shares held by Oxbow (50%);
(e) 9,612 shares held by Threadco (50%); and
(f) 547,500 Options held by Mr. Grosso to acquire 547,500 shares.
See "Item 6. Directors, Senior Management and Employees - Options, Warrants
and Other Rights to Acquire Securities - Stock Options."
(3) Includes 13,151 shares held by Mr. Cacos and 230,000 options held by Mr.
Cacos to acquire an additional 230,000 shares. See "Item 6. Directors,
Senior Management and Employees - Options, Warrants and Other Rights to
Acquire Securities - Stock Options."
-65-
(4) Includes 285,000 options held by Mr. Hurd to acquire an additional 285,000
shares. See "Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."
(5) Includes 47,500 shares held by KGE Management Ltd., a private company owned
by Mr. Carlson and options held by Mr. Carlson to acquire an additional
355,000 shares. See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock Options."
(6) Includes 2,000 shares held by Mr. Terry and options held by Mr. Terry to
acquire an additional 130,000 shares. See "Item 6. Directors, Senior
Management and Employees - Options, Warrants and Other Rights to Acquire
Securities - Stock Options."
(7) Includes 175,900 shares held by Mr. Idziszek and options held by Mr.
Idziszek to acquire an additional 245,000 shares. See "Item 6. Directors,
Senior Management and Employees - Options, Warrants and Other Rights to
Acquire Securities - Stock Options."
(8) Includes options held by Mr. Angus to acquire 220,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(9) Includes options held by Mr. Lang to acquire 125,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(10) Includes options held by Mr. Baertl to acquire 150,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(11) Includes options held by Mr. Berretta to acquire 100,000 shares. See "Item
6. Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(12) Includes options held by Mr. Horton to acquire 130,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(13) Includes the shares, options, and warrants set forth in footnotes 2 through
14 above. See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock Options."
Options, Warrants and Other Rights to Acquire Securities
As of May 5, 2005, the Company had granted a number of stock options, issued a
number of warrants and entered into a number of agreements pursuant to which up
to 4,456,000 common shares of the Company may be issued. The following is a
brief summary of these stock options and warrants currently outstanding and
agreements.
STOCK OPTIONS
The TSX-V requires all TSX-V listed companies to adopt stock options plans, and
such plans must contain certain provisions. At the annual and extraordinary
general meeting of shareholders of the Company held on June 26, 2003, the
shareholders approved the Company's stock option plan (the "Stock Option Plan").
At the annual and extraordinary general meeting of shareholders of the Company
held on June 24, 2004, shareholders approved by ordinary resolution to make a
total of 10% of the issued and outstanding shares of IMA available for issuance
thereunder. The purpose of the Stock Option Plan is to provide incentive to the
Company's employees, officers, directors, and consultants responsible for the
continued success of the Company. The following is a summary of the Stock Option
Plan.
ADMINISTRATION OF THE STOCK OPTION PLAN
The Stock Option Plan provides that it will be administered by the Company's
board of directors (the "Board"), or by a stock option committee (the
"Committee") of the Company's Board consisting of not less than 2 of its
members. The Stock Option Plan is currently administered by the Board.
DESCRIPTION OF STOCK OPTION PLAN
The effective date (the "Effective Date") of the Stock Option Plan is June 2,
2003, the date the Board of Directors approved the Stock Option Plan, and it
will terminate ten years from the Effective Date.
The Stock Option Plan provides that options may be granted to any employee,
officer, director or consultant of the Company or a subsidiary of the Company.
-66-
The options issued pursuant to the Stock Option Plan will be exercisable at a
price not less than the market value of the Company's common shares at the time
the option is granted. "Market Value" means:
(a) for each organized trading facility on which the common share are
listed, Market Value will be the closing trading price of the common
shares on the day immediately preceding the grant date less any
discounts permitted by the applicable regulatory authorities;
(b) if the Company's common shares are listed on more than one organized
trading facility, the Market Value shall be the Market Value as
determined in accordance with subparagraph (a) above for the primary
organized trading facility on which the common shares are listed, as
determined by the Board (or a committee thereof), subject to any
adjustments as may be required to secure all necessary regulatory
approvals;
(c) if the Company's common shares are listed on one or more organized
trading facilities but have not traded during the ten trading days
immediately preceding the grant date, then the Market Value will be
determined by the Board (or a committee thereof), subject to any
adjustments as may be required to secure all necessary regulatory
approvals; and
(d) if the Company's common shares are not listed for trading on a stock
exchange or over the counter market, the value which is determined by
the Board (or a committee thereof) to be the fair value of the
Company's common shares, taking into consideration all factors that the
Board (or a committee thereof) deems appropriate, including, without
limitation, recent sale and offer prices of the Company shares in
private transactions negotiated at arms' length.
Options under the Stock Option Plan will be granted for a term not to exceed 10
years from the date of their grant, provided that if the Company is then a "Tier
2" company listed on the TSX-V, the term of the option will be not more than
five years.
Options under the Stock Option Plan will be subject to such vesting schedule as
the Committee may determine. In the event that an option is to be terminated
prior to expiry of its term due to certain corporate events, all options then
outstanding shall become immediately exercisable for 10 days after notice
thereof, notwithstanding the original vesting schedule.
Options will also be non-assignable and non-transferable, provided that they
will be exercisable by an optionee's legal heirs, personal representatives or
guardians for up to 12 months following the death or termination of an optionee
due to disability, or up to 12 months following the death of an employee if the
employee dies within 12 months of termination due to disability. All such
options will continue to vest in accordance with their original vesting
schedule.
The maximum number of common shares to be reserved for issuance under the Stock
Option Plan, including options currently outstanding, will not exceed 10% of the
number of common shares of the Company issued and outstanding on the applicable
date of grant.
If a material alteration in the capital structure of the Company occurs as a
result of a recapitalization, stock split, reverse stock split, stock dividend,
or otherwise, the Committee shall make adjustments to the Stock Option Plan and
to the options then outstanding under it as the Committee determines to be
appropriate and equitable under the circumstances, unless the Committee
determines that it is not practical or feasible to do so, in which event the
options granted under the Stock Option Plan will terminate as set forth above.
The TSX-V requires all TSX-V listed companies who have adopted stock option
plans which reserve a maximum of 10% of the number of common shares of the
Company issued and outstanding on the applicable date of grant, to obtain
shareholder approval to the Stock Option Plan on an annual basis.
As of May 5, 2005, the Company has 4,456,000 non-transferable incentive stock
options to purchase common shares outstanding to the following persons:
-67-
----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
Nikolas Cacos Officer 70,000 $1.87 Aug. 27/08 $1.87
110,000 $3.10 Mar. 24/09 $3.10
50,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Joseph Grosso Director 47,500 $0.50 Sept. 23/07 $0.50
200,000 $1.87 Aug. 27/08 $1.87
150,000 $3.10 Mar. 24/09 $3.10
150,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Sean Hurd Officer 100,000 $1.87 Aug. 27/08 $1.87
130,000 $3.10 Mar. 24/09 $3.10
60,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Gerald Carlson Director 200,000 $0.40 Jul. 19/06 $0.40
50,000 $1.87 Aug. 27/08 $1.87
85,000 $3.10 Mar. 24/09 $3.10
20,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Nick DeMare Consultant 25,000 $0.84 Mar. 07/08 $0.84
50,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Evelyn Grosso(2) Consultant 67,500 $0.50 Sept. 23/07 $0.50
75,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
A. Sanchez Consultant 5,000 $0.40 Jul. 19/06 $0.40
15,000 $0.84 Mar. 07/08 $0.84
----------------------------------------------------------------------------------------------------------------
Keith Patterson Consultant 50,000 $0.84 Mar. 07/08 $0.84
25,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
David Terry Director 50,000 $3.10 Mar. 24/09 $3.10
80,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Chet Idziszek Director 150,000 $0.90 May 30/08 $0.90
75,000 $3.10 Mar. 24/09 $3.10
20,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
J. C. Berretta Officer 25,000 $3.10 Mar. 24/09 $3.10
75,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
William Lee(3) Consultant 75,000 $1.87 Aug. 27/08 $1.87
30,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
Robert Stuart (Tookie) Director 150,000 $0.90 May 30/08 $0.90
Angus 40,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Diane Reeves Consultant 60,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
-68-
----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
Jeanne Denee Consultant 10,000 $3.10 Mar. 24/09 $3.10
5,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Claudia Sandoval Consultant 10,000 $3.10 Mar. 24/09 $3.10
15,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Carlos D'Amico Officer (of 220,000 $1.87 Aug. 27/08 $1.87
subsidiary-exempted 75,000 $3.10 Mar. 24/09 $3.10
from reporting)
----------------------------------------------------------------------------------------------------------------
Carlos Timossi Consultant 75,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
Steve Phillips Consultant 300,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
Joanne Faccin Consultant 10,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
Marianna De Simone Director (of 59,500 $0.50 May 02/07 $0.50
subsidiary-exempted 80,000 $3.10 Mar. 24/09 $3.10
from reporting)
----------------------------------------------------------------------------------------------------------------
I. Chiarantano Director(of 59,500 $0.50 May 02/07 $0.50
subsidiary-exempted
from reporting)
----------------------------------------------------------------------------------------------------------------
David J. Horton Director 100,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Arthur Lang Director 50,000 $3.10 Mar. 24/09 $3.10
75,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Gordon James Consultant 7,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
R. Aragon Director(of 50,000 $1.87 Aug. 27/08 $1.87
subsidiary-exempted
from reporting)
----------------------------------------------------------------------------------------------------------------
A. Colucci Consultant 120,000 $1.87 Aug. 27/08 $1.87
----------------------------------------------------------------------------------------------------------------
L. Salley Consultant 15,000 $1.87 Aug. 27/08 $1.87
----------------------------------------------------------------------------------------------------------------
P. Hedblom Consultant 30,000 $1.87 Aug. 27/08 $1.87
----------------------------------------------------------------------------------------------------------------
J. Wong Consultant 25,000 $1.87 Aug. 27/08 $1.87
----------------------------------------------------------------------------------------------------------------
Larry Roth Consultant 50,000 $4.20 Dec. 1/09 $4.02
----------------------------------------------------------------------------------------------------------------
Darren Tindale Consultant 5,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Florian Riedl Consultant 30,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Augusto Beartl Director 150,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Ian Thomson Consultant 10,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
Mar Bergstrom Consultant 25,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
-69-
----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
Robert Robertson Consultant 10,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
TOTAL 4,456,000
=========
----------------------------------------------------------------------------------------------------------------
Officers and directors,
as a group (11
persons)(4) 2,522,500
=========
----------------------------------------------------------------------------------------------------------------
(1) Pursuant to the rules of the TSX-V, the Company has issued stock
options to employees, directors, officers and consultants.
(2) Evelyn Grosso is the wife of Joseph Grosso.
(3) The Company granted Mr. Lee options to acquire common shares during his
tenure as director. Mr. Lee resigned as an office and director of the
Company effective April 2, 2004 and currently remains as a consultant
to the Company.
(4) Includes options held by Joseph Grosso's wife, Evelyn Grosso.
Warrants and Other Commitments
As of May 5, 2005, there were no non-transferable common share purchase warrants
exercisable.
As of May 5, 2005, the Company's officers and directors, as a group, including
entities controlled or under significant influence of officers and directors of
the Company, did not hold any warrants to purchase the Company's common shares.
There are no assurances that the options, warrants or other rights described
above will be exercised in whole or in part.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------
Principal Holders of Voting Securities
To the best of the Company's knowledge there are no persons who beneficially
own, directly or indirectly, or exercise control or direction, over more than 5%
of the issued and outstanding common shares of the Company other than that which
is described below.
CHANGES IN OWNERSHIP BY MAJOR SHAREHOLDERS
In August 1999, Barrick Gold Corporation ("Barrick") acquired, through a private
placement, 1.5 million units at a price of $1.00 per unit. Each unit consists of
one common share in the capital stock of the Company and one non-transferable
share purchase warrant, entitling Barrick to purchase an additional common share
for a period of one year at a price of $1.50 per share. On April 19, 2000,
Barrick exercised warrants at $1.50 to purchase an additional 350,000 shares of
the Company. On August 16, 2000, Barrick exercised its remaining warrants to buy
1,150,000 common shares of the Company. As of April 30, 2003 Barrick owned
3,000,000 common shares of the Company (9.22%). To the best of the Company's
knowledge, subsequent to April 30, 2003, Barrick sold common shares of the
Company and is no longer a major shareholder.
On April 28, 2003, Prudent Bear Funds, Inc. advised the Company that it had
acquired control and direction, through Prudent Bear Fund, a mutual fund
controlled by it, over 818,500 of the Company's common shares. This resulted in
Prudent Bear Funds, Inc. having ownership of and control over a total of
3,209,637 common shares together with warrants to purchase an additional 754,137
common shares. As of April 30, 2003, if such warrants were exercised Prudent
Bear Funds, Inc. would have control and direction of 3,963,774 common shares of
the Company (12.18%). To the best of the Company's knowledge, as of December 31,
2004, Prudent Bear Funds Inc. had control and direction of 492,960 common shares
of the Company (1.12%).
-70-
On April 30, 2005, Sprott Asset Management Inc. advised the Company it had
acquired control and direction over 3,743,732 of the Company's common shares
(8.23% based on 45,479,724 outstanding shares at April 30, 2005).
SHARES HELD IN THE UNITED STATES
As of May 5, 2005, there were approximately 70 registered holders of the
Company's shares in the United States, with combined holdings of 5,865,259
shares (12.90% of the 45,479,724 outstanding shares at May 5, 2005).
CHANGE OF CONTROL
As of May 5, 2005, there were no arrangements known to the Company which may, at
a subsequent date, result in a change of control of the Company.
CONTROL BY OTHERS
To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by another corporation, any foreign government,
or any other natural or legal person, severally or jointly.
Related Party Transactions
Other than as disclosed below, from January 1, 2003 through May 5, 2005, the
Company did not enter into any transactions or loans between the Company and any
(a) enterprises that directly or indirectly through one or more intermediaries,
control or are controlled by, or are under common control with the Company; (b)
associates; (c) individuals owning, directly or indirectly, an interest in the
voting power of the Company that gives them significant influence over the
Company, and close members of any such individual's family; (d) key management
personnel and close members of such individuals' families; or (e) enterprises in
which a substantial interest in the voting power is owned, directly or
indirectly by any person described in (c) or (d) or over which such a person is
able to exercise significant influence.
1. The Company shared office facilities, capital assets and personnel with
Amera. Joseph Grosso, Nikolaos Cacos, Arthur Lang and David Terry,
officers and/or directors of the Company, are officers, directors
and/or employees of Amera. During the fiscal year ended December 31,
2004 the Company received $66,390 (2003 - $35,110; 2002 - $6,000).
2. The Company leases a portion of its office space from Beauregard, a
private company owned by Mr. Grosso's wife, Mrs. Evelina Grosso. The
Company commenced occupation of the office premises in January 1999.
The term of the lease was for three years and had been extended for
another two years. On January 1, 2004 the Company and Beauregard
executed a lease for a term of three years with an option to renew for
a further two years with minimum annual lease payments of $52,200, plus
operating costs. In addition, the Company is responsible for all
leasehold improvements. During the fiscal year ended December 31, 2004,
the Company incurred $33,822 for leasehold improvements conducted on
the office premises. The Company made no leasehold improvement
expenditures in 2003. During the fiscal year ended December 31, 2004,
the Company paid rent in the amount of $74,870(2003 - $60,924; 2002 -
$60,924). On March 1, 2005 the Company and Beauregard executed a lease
for additional premises for a term of one year and ten months with an
option to renew for a further two years with minimum annual lease
payments of $38,100, plus operating costs. The Company expects that it
will sublease the premises to the Grosso Group. - See "Item 4.
Information on the Company - Properties, Plants and Equipment -
Principal Office".
3. The Company has executed an agreement with Oxbow, pursuant to which Mr.
Grosso, an officer and director of the Company, provides services to
the Company. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts". During the fiscal year ended
December 31, 2004, Oxbow was paid $102,000 (2003 - $102,000; 2002 -
$102,000).
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4. The Company has entered into an agreement with Nikolaos Cacos, an
officer and former director of the Company, pursuant to which Mr. Cacos
provides services to the Company. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts." During
the fiscal year ended December 31, 2004, Mr. Cacos was paid $17,600
(2003 - $66,000; 2002 - $66,000). Effective January 1, 2005 Mr. Cacos'
contract with the Company was replaced by a new agreement between the
Grosso Group and Mr. Cacos.
5. The Company's officers and directors have been granted incentive stock
options enabling them to purchase common shares of the Company. See
"Item 6. Directors, Senior Management and Employees - Share Ownership".
6. The Company has entered into an agreement with KGE Management Ltd.,
pursuant to which Gerald G. Carlson, an officer and director of the
Company, provides services to the Company. See "Item 6. Directors,
Senior Management and Employees - Compensation - Management Contracts."
During the fiscal year ended December 31, 2004, Mr. Carlson, through
KGE, was paid $34,749 (2003 - $41,400; 2002 - $33,000).
7. The Company has entered into an agreement with Mr. Sean Hurd, an
officer and former director of the Company, pursuant to which Mr. Hurd
provides services to the Company. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts." During
the year ended December 31, 2004, Mr. Hurd was paid $73,800 (2003 -
48,000; 2002 - $52,050). Effective January 2005 Mr. Hurd became an
employee of the Grosso Group.
8. On December 16, 2003 and November 16, 2004, the Company entered into an
agreement with Endeavour Financial Ltd. a company of which Mr. Angus, a
director of the Company, is a shareholder. A monthly fee of US$5,000
for services is payable under this agreement for a minimum period of
one year. The agreement includes a provision for a nominee from
Endeavour to be nominated to the board and for fees to be paid to
Endeavour, in addition to the monthly fee, in the event of certain
specified transactions. See "Item 6. Directors, Senior Management and
Employees - Directors and Senior Management."
9. The Company has agreed to issue options to David Terry, an officer and
director of the Company, and to reimburse Amera for a portion of Mr.
Terry's salary for services provided to the Company. Mr. Terry has a
consulting agreement with Amera dated February 16, 2004, amended June
1, 2004, which called for monthly payments of $10,000. The Company had
agreed to reimburse Amera for 50% of these fees. In the fiscal year
ended December 31, 2004 the Company paid $43,000 as a result of this
arrangement. On January 1, 2005 Mr. Terry's agreement with Amera was
replaced by a similar agreement with the Grosso Group. See "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts."
10. The Company has entered into an agreement dated April 23, 2004, with
Mr. Lang, Chief Financial Officer and a director of the Company,
pursuant to which Mr. Lang provides services to the Company. During the
year ended December 31, 2004, Mr. Lang was paid $58,671. See "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts Effective January 1, 2005 Mr. Lang became an employee of the
Grosso Group.
11. The Company has entered into an Arrangement Agreement with Golden Arrow
pursuant to which the Company transferred certain assets to Golden
Arrow as part of a reorganization of the Company. See "Item 4.
Information on the Company - History and Development of the Company."
The Company intends to enter into an indemnity agreement, for any costs
or losses incurred by Golden Arrow in respect of the legal action
commenced by a Minera Aquiline Argentina S.A. against the Company. See
"Item 8. Financial Information - Legal Proceedings."
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ITEM 8. FINANCIAL INFORMATION.
--------------------------------------------------------------------------------
Consolidated Statements and Other Financial Information
FINANCIAL STATEMENTS
DESCRIPTION PAGE
Consolidated Financial Statements for the Years Ended
December 31, 2004, 2003 and 2002. F-1
Significant Changes
There are no significant changes to report between the year end December 31,
2004 and the date of this annual report.
Legal Proceedings
In March 2004, Minera Aquiline Argentina S.A., a wholly-owned subsidiary of
Aquiline Resources Inc., commenced a legal proceeding against the Company
asserting that the Company unlawfully used confidential information, and is
seeking damages and a constructive trust over the Navidad Area Properties. The
Company believes the Aquiline legal action is without merit and continues to
vigorously defend itself. A trial date has been scheduled for October 2005. At
this date the outcome is not determinable. The Company has not made any
provision for costs for which it might become liable in what management
considers the unlikely event of an adverse judgment.
The Company has provided Golden Arrow with an indemnity for any costs or losses
incurred by Golden Arrow in respect of the legal action commenced by Aquiline
against the Company.
Dividend Policy
The Company has not paid any dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate future. Any decision to
pay dividends on its common shares in the future will be made by the board of
directors on the Company on the basis of earnings, financial requirements and
other such conditions that may exist at that time.
ITEM 9. THE OFFER AND LISTING.
--------------------------------------------------------------------------------
Price History
The Company's common shares are listed on the TSX-V. From April 15, 1996 to
November 28, 1999, the Company's shares were listed on the Vancouver Stock
Exchange (the "VSE"). Effective November 29, 1999, the VSE and the Alberta Stock
Exchange (the "ASE") merged and began operations as the Canadian Venture
Exchange or CDNX. On August 1, 2001, the CDNX was acquired by the Toronto Stock
Exchange and became known as the TSX-V. The Company is classified as a Tier I
company on the TSX-V and trades under the symbol "IMR". Companies which satisfy
the minimum initial listing requirements of the TSX-V are designated as Tier II
companies and are subject to listing requirements which are stricter than those
for companies which are designated as Tier I companies.
The following table lists the volume of trading and high and low sales prices on
the TSX-V (or predecessor), for shares of the Company's common stock for the
last five fiscal years, each quarterly period during the last two fiscal years
and each month from December 2004 through April 2005.
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TSX VENTURE EXCHANGE (OR PREDECESSOR) STOCK TRADING ACTIVITY
SALES PRICE
----------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2004 37,174,800 $4.80 $1.73
December 31, 2003 49,855,800 $2.54 $0.49
December 31, 2002 17,608,424 $0.94 $0.34
December 31, 2001 5,564,250 $0.62 $0.27
December 31, 2000 4,330,674 $1.15 $0.30
SALES PRICE
----------------------------
QUARTER ENDED VOLUME HIGH LOW
March 31, 2005 6,402,850 $4.45 $3.40
December 31, 2004 9,181,100 $4.80 $3.22
September 30, 2004 4,560,500 $3.39 $2.00
June 30, 2004 7,886,600 $3.57 $1.93
March 31, 2004 15,546,600 $3.81 $1.73
December 31, 2003 14,206,200 $2.37 $1.42
September 30, 2003 12,946,600 $2.54 $1.32
June 30, 2003 9,170,600 $1.65 $0.78
March 31, 2003 13,712,400 $1.06 $0.49
SALES PRICE
----------------------------
MONTH ENDED VOLUME HIGH LOW
April 30, 2005 1,432,928 $4.00 $3.11
March 31, 2005 1,721,150 $4.45 $3.50
February 28, 2005 2,577,000 $4.08 $3.40
January 31, 2005 2,104,700 $4.24 $3.66
December 31, 2004 1,654,300 $4.68 $3.50
OVER-THE-COUNTER BULLETIN BOARD STOCK TRADING ACTIVITY
As of October 8, 2002, the Company's shares received clearance for trading on
the OTC Bulletin Board operated by the National Association of Securities
Dealers in the United States. The Company currently trades on the OTC Bulletin
Board under the symbol "IMXPF". The following tables set forth the market price
ranges and the aggregate volume of trading of the common shares of the Company
on the OTC Bulletin Board system for the periods indicated:
BID PRICE (US$)
----------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2004 20,132,331 $4.05 $1.31
December 31, 2003 6,964,497 $1.89 $0.36
December 31, 2002 97,497 $0.36 $0.22
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BID PRICE (US$)
----------------------------
QUARTER ENDED VOLUME HIGH LOW
March 31, 2005 4,066,314 $3,86 $2.72
December 31, 2004 5,394,824 $4.05 $2.53
September 30, 2004 3,302,327 $2.68 $1.48
June 30, 2004 2,636,425 $2.70 $1.40
March 31, 2004 8,798,755 $2.93 $1.31
December 31, 2003 3,376,297 $1.78 $1.01
September 30, 2003 1,743,800 $1.89 $0.97
June 30, 2003 983,900 $1.25 $0.52
March 31, 2003 860,500 $0.75 $0.36
December 31, 2002 72,497 $0.33 $0.22
September 30, 2002 25,000 $0.36 $0.29
BID PRICE (US$)
----------------------------
MONTH ENDED VOLUME HIGH LOW
April 30, 2005 997,058 $3.23 $2.45
March 31, 2005 1,712,600 $3.68 $2.85
February 28, 20054 1,565,799 $3.34 $2.72
January 31, 2005 787,915 $3.54 $2.95
December 31, 2004 1,414,948 $3.80 $2.84
ITEM 10. ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------
Memorandum and Articles of Association
The Company was incorporated under the Company Act (British Columbia) on
September 17, 1979, as Gold Star Resources Ltd. The Company's Incorporation
Number is 197061. On May 1, 1990, the Company filed an Altered Memorandum to
reflect its name change to EEC Marketing Corp. On January 13, 1992, the Company
filed an Altered Memorandum to reflect its name change to Amera Industries Corp.
On February 9, 1995, the Company filed an Altered Memorandum to reflect its name
change to International Amera Industries Corp. On February 20, 1996, the Company
filed an Altered Memorandum to reflect its name change to IMA Resource
Corporation. Effective July 7, 1998, the Company underwent a statutory plan of
arrangement (the "Arrangement") with Viceroy Resource Corporation ("Viceroy"),
changed its name to IMA Exploration Inc., consolidated its share capital on the
basis of four old shares for one new share and filed an Altered Memorandum to
give effect to the foregoing. See "Item 4. Information on the Company".
The Company's objects and purposes are not set forth in or prescribed by its
Articles or Memorandum. The Company is in the business of the acquisition,
exploration and development of mineral properties, mainly in Argentina.
AMENDMENT OF NOTICE OF ARTICLES
On March 29, 2004, the new British Columbia Business Corporations Act came into
force in British Columbia and replaced the former Company Act, which is the
statute that previously governed the Company. Under the BCBCA, the Company has
two years within which to transition ("Transition") itself under the new
statute. In accordance with the BCBCA, the Company cannot complete the
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Arrangement or amend its Articles or Notice of Articles until the Transition to
the BCBCA is completed. The Board of Directors (the "Board") of the Company
approved the Transition of the Company under the BCBCA on April 29, 2004. The
Company filed a transition application with the Registrar of Companies British
Columbia and completed the Transition on May 4, 2004.
Concurrent with the completion of the Transition, the Company was required, in
accordance with the BCBCA, to incorporate certain provisions known as the
"Pre-Existing Company Provisions" (the "Pre-Existing Company Provisions") into
its Notice of Articles, which replaced the existing Memorandum of the Company.
The Pre-Existing Company Provisions provide the Company with certain default
provisions in case certain provisions which are required to be included in the
Articles under the BCBCA are not included in the Company's Articles.
In order to bring the Company's Articles in line with the BCBCA, the Company
intends to delete and replace its Articles in their entirety. The new Articles,
will among other things, incorporate and amend certain of the information
required by the Pre-Existing Company Provisions. In accordance with the BCBCA,
the Company cannot alter its Articles in relation to any matter that is included
in the Pre-Existing Company Provisions until the Company has removed the
application of the Pre-Existing Company Provisions by special resolution of the
shareholders of the Company.
Accordingly, the shareholders passed a special resolution removing the
application of the Pre-Existing Company Provisions at a meeting held on June 24,
2004.
ADOPTION OF NEW ARTICLES
The Board has determined that it is in the best interests of the Company to
adopt new articles (the "New Articles") to replace its existing Articles (the
"Existing Articles"). Management believes the language used in the Existing
Articles of the Company is no longer appropriate and there are a number of
references to provisions in the former Company Act (the "Former Act") which no
longer exists. The New Articles also incorporate many key provisions of the
BCBCA that should reinforce the importance of certain sections of the BCBCA
including disclosing conflicts of interest, indemnification, fiduciary duties
and other obligations that are imposed on the Board.
Set forth below is a discussion of the changes proposed under the New Articles.
These proposed changes to the New Articles include a discussion of substantive
changes included in the New Articles and changes included that are as a result
of changes under the BCBCA. The New Articles incorporate a number of
non-substantive changes, including the use of the new terminology adopted under
the BCBCA. For example, "members" are now "shareholders" and "register of
members" is now "central securities register" under the BCBCA. Many of these
terminology and wording changes are not discussed in detail here, as they
reflect statutory requirements that the Company cannot alter or amend.
The following is a discussion of the substantive changes proposed in the New
Articles.
BORROWING POWERS
Under the Existing Articles, the Company may borrow money, issue debt and
mortgage, pledge, or give security on the undertaking, or on the whole or any
part of the property and assets, of the Company (both present and future).
However, under the BCBCA, companies are now also permitted, without restriction,
to guarantee repayment of money by any other person or the performance of any
obligation of any other person. This change reflects the modernization of
corporate legislation to effectively respond to increasingly complex financial
transactions that companies may enter into in the course of their business. As a
result, the New Articles propose that the Company also be able to guarantee the
repayment of money by any other person or the performance of any obligation of
any other person. Management believes that it is in the best interests of the
Company to allow for such a guarantee to permit the Company the maximum
flexibility in possible future financial transactions, recognizing the duties
directors have to ensure that the guarantee must always be in the best interest
of the Company and its shareholders.
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DIRECTORS AUTHORITY TO SET AUDITOR'S REMUNERATION
Under the BCBCA, the Company is, subject to shareholder approval, permitted to
include in the New Articles authorization for the directors to set the
remuneration paid to the auditors of the Company. The Former Act required the
shareholders to set the remuneration or the shareholders to authorize, on an
annual basis, the directors to set the remuneration. Historically, shareholders
of the Company have always authorized the directors to appoint the auditors and
to set the auditor's remuneration. As a result, the inclusion of the authority
for directors to set the auditor's remuneration in the New Articles merely
codifies existing practice. More importantly, however, this change also codifies
new corporate governance rules and regulations relating to audit committees and
the appointment and remuneration of auditors.
SPECIAL MAJORITY FOR RESOLUTIONS
Under the Former Act, the majority of votes required to pass a special
resolution at a general meeting was three-quarters of the votes cast on a
resolution. Under the BCBCA, the Company is authorized to determine whether a
special resolution requires two-thirds or three-quarters of the votes cast on a
resolution. The Existing Articles did not state what the majority was for a
special resolution, as this matter was dealt with under the Former Act. The New
Articles propose that a special resolution require a majority of two-thirds of
the votes cast on a resolution. This threshold is consistent with the threshold
in most other Canadian corporate law statutes such as the Canada Business
Corporations Act.
SHARE ISSUANCES
Under the Former Act, the maximum discount or commission payable on the issuance
of a share of the Company was 25%. Under the BCBCA the Company is, subject to
shareholder approval, now permitted to avoid setting a numerical maximum for a
discount or commission payable on the issuance of a share but rather limit any
discount or commission by a test of reasonableness. The New Articles provide
that the Company be permitted to pay or offer the commission or discount as
permitted in the BCBCA. Management of the Company believes that the 25% maximum
limit should not be set out in the New Articles as such a limit does not
consider factual circumstances nor apply a test of reasonableness. By limiting
the discount or commission amounts payable by the test of reasonableness,
exercised by directors with a duty to act in the best interest of the Company,
the Company is provided greater flexibility in possible future transactions. In
addition, since the Company is a public company, it is subject to the
requirements of the TSX-V on share issuances and discounts and commissions,
which requirements are generally far more stringent than the Former Act
provisions.
The following are changes to the provisions contained in the BCBCA which have an
effect on provisions contained in the Existing Articles:
OFFICERS
Under the Existing Articles, the Company was required to have a least a
President and Secretary as officers, and there had to be separate individuals
holding those positions. In addition, the President was required to be director
of the Company. These were requirements under the Former Act. However, under the
BCBCA, those requirements no longer exist, and as a result, it is proposed that
the New Articles remove these requirements. Management and the board of
directors believe that by removing these restrictions the Company is better able
to meet its corporate governance obligations as to membership of the board of
directors.
PUBLICATION OF ADVANCE NOTICE OF MEETING
Under the Existing Articles, the Company was required to publish an advance
notice of a general meeting of shareholders at which directors are to be elected
in the manner required under the Former Act. Under the BCBCA, the Company is no
longer required to publish notice of general meetings, and recent changes to
securities legislation in Canada requires that all public companies, including
the Company, post advance notice of a general meeting on www.sedar.com in
advance of the record date for the meeting. As a result, it is proposed that the
New Articles remove the requirement to publish advance notice of the meeting.
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SHARE CERTIFICATES
Under the Existing Articles, a shareholder is entitled to a share certificate
representing the number of shares of the Company he or she holds. Under the
BCBCA, a shareholder is now entitled to a share certificate representing the
number of shares of the Company he or she holds or a written acknowledgement of
the shareholder's right to obtain such a share certificate. As a result, the New
Articles have been amended to provide for this additional right. The addition of
the ability to issue a written acknowledgement is very useful for public
companies such as the Company, since it permits flexibility in corporate and
securities transmissions.
DISCLOSURE OF INTEREST OF DIRECTORS
Under the BCBCA, the provisions relating to the disclosure of interests by
directors have been revised and updated. As directors of the Company are bound
by these provisions, the New Articles have deleted reference to the old
disclosure of interest provisions and refer to the provisions contained in the
BCBCA.
INDEMNITY PROVISION
Under the Former Act, the Company could only indemnify directors where it
obtained prior court approval, except in certain limited circumstances. The
Existing Articles provided for the Company to indemnify directors, subject to
the requirements of the Former Act. Under the BCBCA, the Company is now
permitted to indemnify a past or present director or officer of the Company
without obtaining prior court approval in respect of an "eligible proceeding".
An "eligible proceeding" includes any legal proceeding relating to the
activities of the individual as a director or officer of the Company. However,
under the BCBCA, the Company will be prohibited from paying an indemnity if:
(a) the party did not act honestly and in good faith with a view
to the best interests of the Company;
(b) the proceeding was not a civil proceeding and the party did
not have reasonable grounds for believing that his or her
conduct was lawful; and
(c) the proceeding is brought against the party by the Company or
an associated corporation.
As a result, the New Articles propose to allow the Company to indemnify
directors, officers, employees and agents, subject to the limits imposed under
the BCBCA. Management believes that it is in the best interests of the Company
to allow the indemnification of directors, officers, employees and agents,
subject to the limits and conditions of the BCBCA.
The directors, officers, employees and agents have entered into Indemnity
Agreements, as allowed under the new Articles of the Company.
AUTHORIZED SHARE CAPITAL
Under the Former Act, the Company was required to set a maximum number for its
authorized share capital and such number was required to be contained in the
Company's memorandum. Under the BCBCA there are no maximum number restrictions
and, due to the elimination of the memorandum under the BCBCA, such authorized
share capital must be contained in a company's Notice of Articles. In order to
provide the Company with greater flexibility to proceed with equity financings,
management altered its authorized share capital from 200,000,000 shares divided
into 100,000,000 common shares and 100,000,000 preferred shares to an unlimited
number of common shares and 100,000,000 preferred shares.
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HOLDING OF ANNUAL MEETINGS
Under the Former Act, annual meetings were required to be held within 13 months
of the last annual meeting. The BCBCA allows for annual meetings to be held once
in each calendar year and not more than 15 months after the last annual meeting
and accordingly, the Company's New Articles reflect this provision.
QUORUM FOR SHAREHOLDER MEETING
The current Articles allow for quorum to be two persons who are, or who
represent by proxy, shareholders who, in the aggregate, hold at least 5% of the
issued shares entitled to be voted at the meeting.
ALTERATIONS TO CONSTATING DOCUMENT
In accordance with the BCBCA, the New Articles update the type of alterations
that can be made to the Company's constating documents, and disclose the type of
resolution that is required to make such amendments.
Accordingly, the shareholders of the Company passed all of the above changes to
the Company's Articles at its shareholder's meeting held on June 24, 2004.
SUMMARY OF MATERIAL PROVISIONS
The following is a summary of certain material provisions of the Company's
Articles of Association and Memorandum (as currently in effect and as proposed
to be amended) and certain provisions of the BCBCA, applicable to the Company:
A. DIRECTOR'S POWER TO VOTE ON A PROPOSAL, ARRANGEMENT OR CONTRACT IN
WHICH THE DIRECTOR IS MATERIALLY INTERESTED.
Under the BCBCA, subject to certain exceptions, a director or senior
officer of the Company must disclose any material interest that he
personally has, or that he as a director or senior officer of another
corporation has in a contract or transaction that is material to the
Company and which the Company has entered into or proposes to enter
into.
A director or senior officer of the Company does not hold a disclosable
interest in a contract or transaction if:
1. the situation that would otherwise
constitute a disclosable interest arose
before the coming into force of the BCBCA,
or the interest was disclosed and approved
under, or was not required to be disclosed
under legislation that applied to the
Company before the coming into effect of the
BCBCA;
2. both the Company and the other party to the
contract or transaction are wholly owned
subsidiaries of the same corporation;
3. the Company is a wholly owned subsidiary of
the other party to the contract or
transaction;
4. the other party to the contract or
transaction is a wholly owned subsidiary of
the Company ; or
5. the director or senior officer is the sole
shareholder of the Company or of a
corporation of which the Company is a wholly
owned subsidiary.
A director or senior officer of the Company does not hold a disclosable
interest in a contract or transaction merely because:
1. the contract or transaction is an
arrangement by way of a security granted by
the Company for money loaned to, or
obligations undertaken by, the director or
senior officer, or a person in whom the
director or senior officer has a material
interest, for the benefit of the Company or
an affiliate of the Company;
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2. the contract or transaction relates to an
indemnity or insurance under the BCBCA;
3. the contract or transaction relates to the
remuneration of the director or senior
officer, or a person in whom the director or
senior officer, employee or agent of the
Company or of an affiliate of the Company;
4. the contract or transaction relates to a
loan to the Company, and the director or
senior officer, or a person win whom the
director or senior officer has a material
interest, is or is to be a guarantor of some
or all of the loan; or
5. the contract or transaction has been or will
be made with or for the benefit of a
corporation that is affiliated with the
Company and the director or senior officer
is also a director or senior officer of that
corporation or an affiliate of that
corporation.
A director or senior officer who holds such a material interest must
disclose such interest in writing. The disclosure must be evidenced in
writing in a consent resolution, the minutes of a meeting or any other
record deposited with the Company's record office. A director who has a
disclosable interest in a contract or transaction is not entitled to
vote of any directors' resolution to approve that contract or
transaction, but may be counted in the quorum at the directors' meeting
at which such vote is taken.
The current Articles of the Company were passed by the shareholders at
the Company's annual general meeting on June 24, 2004.
B. DIRECTOR'S POWER, IN THE ABSENCE OF AN INDEPENDENT QUORUM, TO VOTE
COMPENSATION TO THEMSELVES OR ANY MEMBERS OF THEIR BODY.
The compensation of the directors is decided by the directors unless
the Board of Directors requests approval of the compensation from the
shareholders. If the issuance of compensation to the directors is
decided by the directors, a quorum is the majority of the directors in
office.
C. BORROWING POWERS EXERCISABLE BY THE DIRECTORS AND HOW SUCH BORROWING
POWERS MAY BE VARIED.
The Company, if authorized by the directors, may:
1. borrow money in the manner and amount, on
the security, from the sources and on the
terms and conditions that they consider
appropriate;
2. issue bonds, debentures and other debt
obligations either outright or as security
for any liability or obligation of the
Company or any other person and at such
discounts or premiums and on such other
terms as they consider appropriate;
3. guarantee the repayment of money by any
other person or the performance of any
obligation of any other person; and
4. mortgage, charge, whether by way of specific
or floating charge, grant a security
interest in, or give other security on, the
whole or any part of the present and future
assets and undertaking of the Company.
The borrowing powers may be varied by amendment to the
Articles of the Company which requires approval of the
shareholders of the Company by special resolution.
D. RETIREMENT AND NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT
REQUIREMENT.
There are no such provisions applicable to the Company under
the Notice of Articles, Articles (as existing or the new
proposed Articles) or the BCBCA.
E. NUMBER OF SHARES REQUIRED FOR A DIRECTOR'S QUALIFICATION.
A director of the Company is not required to hold a share in
the capital of the Company as qualification for his office.
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DESCRIPTION OF SHARE CAPITAL
The authorized capital of the Company consists of an unlimited number of common
shares without par value and 100,000,000 Preferred shares without par value, of
which 18,283,053 have been designated as Preferred Shares, Series I. A complete
description is contained in the Company's Altered Memorandum and Articles.
COMMON SHARES
A total of 45,479,724 common shares were issued and outstanding as of May 5,
2005. All of the common shares are fully paid and not subject to any future call
or assessment. All of the common shares of the Company rank equally as to voting
rights, participation in a distribution of the assets of the Company on a
liquidation, dissolution or winding-up of the Company and the entitlement to
dividends. The holders of the common shares are entitled to receive notice of
all shareholder meetings and to attend and vote at such meetings. Each common
share carries with it the right to one vote. The common shares do not have
preemptive or conversion rights. In addition, there are no sinking fund or
redemption provisions applicable to the common shares or any provisions
discriminating against any existing or prospective holders of such securities as
a result of a shareholder owning a substantial number of shares. The Company has
proposed to the shareholders to amend the Company's Articles to increase the
number of authorized common shares to an unlimited number of common shares
without par value.
PREFERRED SHARES
The Company is authorized to issue up to 100,000,000 preferred shares in one or
more series. The preferred shares are entitled to priority over the common
shares with respect to the payment of dividends and distribution in the event of
the dissolution, liquidation or winding-up of the Company. The holders of
preferred shares as a class shall not be entitled as such to receive notice of,
to attend or to vote at any meeting of the shareholders of the Company, other
than at a meeting of holders of Preferred Shares. As of May 5 2005, there were
18,283,053 Preferred Shares, Series I, outstanding. There are no sinking fund or
redemption provisions or any provisions discriminating against any existing or
prospective holders of such securities as a result of a shareholder owning a
substantial number of shares applicable to the preferred shares.
PREFERRED SHARES, SERIES I
The Company is authorized to issue 100,000,000 preferred shares of which
18,283,053 have been designated as Preferred Shares, Series I (the "Series I
Shares"). The holders of Series I Shares are not entitled to receive notice of,
attend or vote at any meeting of the shareholders of the Company, other than at
a meeting of holders of Preferred Shares, Series I. The holders of Series I
Shares are entitled to receive, if, as and when declared by the board of
directors of the Company, non-cumulative dividends. Upon dissolution,
liquidation or winding-up of the Company, the holders of Series I Shares are
entitled to receive an amount equal to the redemption amount, which is
determined by dividing $3,495,800 by the number of Series I Shares issued,
together with all declared and unpaid dividends thereon. The Series I Shares may
be redeemed at the option of the Company or the holder of the Series I Shares.
Upon redemption of the Series I Shares, the Company shall pay to the holder of
the Series I Shares the Redemption Amount together with all declared and unpaid
dividends thereon. As of May 5, 2005, there are 18,283,053 Series I Shares
outstanding. There are no sinking fund or redemption provisions or any
provisions discriminating against any existing or prospective holders of such
securities as a result of a shareholder owning a substantial number of shares
applicable to the Series I Shares. The Series I Shares are not subject to
further capital calls or assessments.
CHANGES TO RIGHTS AND RESTRICTIONS OF SHARES
If the Company wishes to change the rights and restrictions of the common
shares, preferred shares or the Series I Shares, the Company must obtain the
approval of 3/4 of the holders of the common shares, preferred shares and the
Series I Shares. Under the BCBCA and the proposed amendments to the Company's
Articles, if the Company wishes to change the rights and restrictions of the
common shares, preferred shares or the Series I Shares, the Company must obtain
the approval of 2/3 of the holders of the common shares, preferred shares and
the Series I Shares.
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DIVIDEND RECORD
The Company has not paid any dividends on its common shares and has no policy
with respect to the payment of dividends.
OWNERSHIP OF SECURITIES AND CHANGE OF CONTROL
There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on the
securities imposed by foreign law or by the constituent documents of the
Company.
Any person who beneficially owns or controls, directly or indirectly, more than
10% of the Company's voting shares is considered an insider, and must file an
insider report with the British Columbia, Alberta and Ontario Securities
Commissions within ten days of becoming an insider disclosing any direct or
indirect beneficial ownership of, or control over direction over securities of
the Company. In addition, if the Company itself holds any of its own securities,
the Company must disclose such ownership.
There are no provisions in the Company's Memorandum and Articles of Association
or Bylaws that would have an effect of delaying, deferring or preventing a
change in control of the Company operating only with respect to a merger,
acquisition or corporate restructuring involving the Company or its
subsidiaries.
MEETINGS OF THE SHAREHOLDERS
ANNUAL AND GENERAL MEETINGS
Pursuant to the Company's existing Articles, the Company must hold its annual
general meeting once in every calendar year (being not more than 15 months from
the last annual general meeting) at such time and place to be determined by the
Directors of the Company. The Company must publish an advance notice in the
manner required by the Company Act of any general meeting at which Directors are
to be elected. The Company must give shareholders not less than 21 days' notice
of any general meeting of the shareholders.
Under BCBCA and the proposed changes to the Company's Articles, the Company's
annual general meeting is to be held once in each calendar year and not more
than 15 months after the previous meeting. No advance notice will be required to
be published at a meeting where directors are to be elected. The Company must
give shareholders not less than 21 days' notice of any general meeting of the
shareholders.
The Directors may fix in advance a date, which is no fewer than 35 days or no
more than 60 days prior to the date of the meeting. All the holders of common
shares as at that date are entitled to attend and vote at a general meeting.
DIFFERENCES FROM REQUIREMENTS IN THE UNITED STATES
Except for the Company's quorum requirements, certain requirements related to
related party transactions and the requirement for notice of shareholder
meetings, discussed above, there are no significant differences in the law
applicable to the Company, in the areas outlined above, in Canada versus the
United States. In most states in the United States, a quorum must consist of a
majority of the shares entitled to vote. Some states allow for a reduction of
the quorum requirements to less than a majority of the shares entitled to vote.
Having a lower quorum threshold may allow a minority of the shareholders to make
decisions about the Company, its management and operations. In addition, most
states in the United States require that a notice of meeting be mailed to
shareholders prior to the meeting date. Additionally, in the United States, a
director may not be able to vote on the approval of any transaction in which the
director has a interest.
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Material Contracts
The following are material contracts to which the Company is a party:
1. The Company has executed an agreement with Oxbow, pursuant to which Mr.
Grosso, an officer and director of the Company, provides services to
the Company. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts" and "Item 7. Major Shareholders
and Related Party Transactions - Related Party Transactions."
2. The Company has entered into an agreement with KGE Management Ltd.,
pursuant to which Gerald G. Carlson, an officer and director of the
Company, provides services to the Company. See "Item 6. Directors,
Senior Management and Employees - Compensation - Management Contracts"
and "Item 7. Major Shareholders and Related Party Transactions -
Related Party Transactions."
3. Lease agreements between the Company and Beauregard dated January 1,
2004 and March 1, 2005, regarding the Company's office premises. See
"Item 7. Major Shareholders and Related Party Transactions - Related
Party Transactions."
4. In November 2004, the Company entered into an agreement with Endeavour
Financial Ltd. a company with which Mr. Angus, a director of the
Company is associated. A monthly fee of US$5,000 for services is
payable under this agreement for a minimum period of one year. See
"Item 7. Major Shareholders and Related Party Transactions - Related
Party Transactions."
5. The Company has entered into an Arrangement Agreement with Golden Arrow
pursuant to which the Company transferred certain assets to Golden
Arrow as part of a reorganization of the Company. See "Item 4.
Information on the Company - History and Development of the Company."
6. The Company has entered into an indemnity agreement, for any costs or
losses that may be incurred by Golden Arrow in respect of the legal
action commenced by Aquiline against the Company. See "Item 8.
Financial Information - Legal Proceedings."
7. Option Agreement dated August 12, 2003 between with Consolidated
Pacific Bay Minerals Ltd. relating to the Regalo mineral claim. See
"Item 4. Information on the Company - Properties, Plants and Equipment
- Principal Properties - Argentinean Properties - Navidad Area
Properties (Other than the Navidad Project) - Regalo Property."
8. The Company entered into a Management Services Agreement dated March
22, 2005 with IMA Latin America Inc., the Company's wholly owned BVI
subsidiary and Gestora de Negocios E Inversiones S.A. ("Gestora") to
retain Gestora to provide certain management, consulting and advisory
services of Mr. Augusto Baertl ("Baertl") for the development of the
Navidad project. A Confidentiality Agreement between the Grosso Group
Management Ltd. and Gestora was also entered into. A Director/Officer
Agreement between IMA Latin America Inc. and Baertl was also entered
into as well as an Indemnity Agreement between the Company and Baertl.
9. Effective January 1, 2005, the Company engaged the Grosso Group
Management Ltd. to provide services and facilities to the Company. As
of the date of this Annual Report, a formal agreement among the Company
and the Grosso Group has not been finalized. Until such time as the
formal agreement has been finalized, the Company and the Grosso Group
intend to work under the terms of the proposed Administration Services
Agreement by and among the Company and the Grosso Group. It is
anticipated that the formal agreement will have an effective date of
January 1, 2005.
Exchange Controls
There are no governmental laws, decrees, or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends, or other payments to non-resident holders of the Company's
Common Stock. Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (10% if the shareholder is a
corporation owning at least 10% of the outstanding Common Stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States. See "Item 10. Additional Information - Taxation".
-83-
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations specific to the rights of non-Canadians to hold or vote the Common
Stock of the Company under the laws of Canada or the Province of British
Columbia or in the charter documents of the Company.
Management of the Company considers that the following general summary is
materially complete and fairly describes those provisions of the Act pertinent
to an investment by an American investor in the Company.
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold levels or the business activity of which is
related to Canada's cultural heritage or national identity, to either notify, or
file an application for review with, Investment Canada, the federal agency
created by the Investment Canada Act.
The notification procedure involves a brief statement of information about the
investment of a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the
Act:
(a) an investment to establish a new Canadian business; and
(b) an investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
An investment is reviewable under the Act if there is an acquisition by a
non-Canadian of a Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:
(a) for non-WTO Investors, the threshold is $5,000,000 for a direct
acquisition and over $50,000,000 for an indirect acquisition. The
$5,000,000 threshold will apply however for an indirect acquisition of
the asset value of the Canadian business being acquired exceeds 50% of
the asset value of the global transaction;
(b) except as specified in paragraph (c) below, a threshold is calculated
for reviewable direct acquisitions by or from WTO Investors. The
threshold for 2004 is $237,000,000. Pursuant to Canada's international
commitments, indirect acquisitions by or from WTO Investors are not
reviewable; and
(c) the limits set out in paragraph (a) apply to all investors for
acquisitions of a Canadian business that:
(i) engages in the production of uranium and owns an interest in a
producing uranium property in Canada;
(ii) provides any financial services;
(iii) provides any transportation service; or
(iv) is a cultural business.
-84-
WTO Investor as defined in the Act means:
(a) an individual, other than a Canadian, who is a national of a WTO Member
or who has the right of permanent residence in relation to that WTO
Member;
(b) a government of a WTO Member, whether federal, state or local, or an
agency thereof;
(c) an entity that is not a Canadian-controlled entity, and that is a WTO
investor-controlled entity, as determined in accordance with the Act;
(d) a corporation or limited partnership:
(i) that is not a Canadian-controlled entity, as determined
pursuant to the Act;
(ii) that is not a WTO investor within the meaning of the Act;
(iii) of which less than a majority of its voting interests are
owned by WTO investors;
(iv) that is not controlled in fact through the ownership of its
voting interests; and
(v) of which two thirds of the members of its board of directors,
or of which two thirds of its general partners, as the case
may be, are any combination of Canadians and WTO investors;
(e) a trust:
(i) that is not a Canadian-controlled entity, as determined
pursuant to the Act;
(ii) that is not a WTO investor within the meaning of the Act;
(iii) that is not controlled in fact through the ownership of its
voting interests, and
(iv) of which two thirds of its trustees are any combination of
Canadians and WTO investors, or
(f) any other form of business organization specified by the regulations
that is controlled by a WTO investor.
WTO Member as defined in the Act means a member of the World Trade Organization.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its Canadian parent or grandparent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian parent or grandparent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of actual or de jure
voting control of a Canadian corporation or through the acquisition of
substantially all of the assets of the Canadian business. No change of voting
control will be deemed to have occurred if less than one-third of the voting
control of a Canadian corporation is acquired by an investor.
The Act specifically exempts certain transactions from either notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting interests by any person in the ordinary course of that
person's business as a trader or dealer in securities.
Taxation
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES
Management of the Company considers that the following discussion describes the
material Canadian federal income tax consequences applicable to a holder of
Common Stock of the Company who is a resident of the United States and who is
not a resident of Canada and who does not use or hold, and is not deemed to use
or hold, his shares of Common Stock of the Company in connection with carrying
on a business in Canada (a "non-resident shareholder").
-85-
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administrative and assessing policies of Revenue Canada,
Taxation and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This description is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action.
DIVIDENDS
Dividends paid on the common stock of the Company to a non-resident will be
subject to withholding tax. The Canada-U.S. Income Tax Convention (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a corporation resident in Canada (such as the Company) to
residents of the United States, and also provides for a further reduction of
this rate to 5% where the beneficial owner of the dividends is a corporation
which is a resident of the United States which owns at least 10% of the voting
shares of the corporation paying the dividend. . In the event of the Company
declaring and paying dividends it would withhold any applicable taxes.
CAPITAL GAINS
In general, a non-resident of Canada is not subject to tax under the ITA with
respect to a capital gain realized upon the disposition of a share of a
corporation resident in Canada that is listed on a prescribed stock exchange.
For purposes of the ITA, the Company is listed on a prescribed stock exchange.
Non-residents of Canada who dispose of shares of the Company will be subject to
income tax in Canada with respect to capital gains if:
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at
arm's length; or
(c) the non-resident holder and persons with whom the non-resident
holder did not deal with at arm's length,
owned not less than 25% of the issued shares of any class or series of the
Company at any time during the five-year period preceding the disposition. In
the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless the value of such
shares is derived principally from real property situated in Canada. However, in
such a case, certain transitional relief under the Treaty may be available.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal income
tax consequences, under current law, applicable to a U.S. Holder (as defined
below) of the Company's common stock. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, nonresident alien individuals or foreign
corporations, or shareholders owning common stock representing 10% of the vote
and value of the Company. In addition, this discussion does not cover any state,
local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial of recently proposed legislation which, if enacted, could
be applied, possibly on a retroactive basis, at any time. Holders and
prospective holders of the Company's Common Stock should consult their own tax
advisors about the federal, state, local and foreign tax consequences of
purchasing, owning and disposing of shares of Common Stock of the Company.
-86-
U.S. HOLDERS
As used herein, a "U.S. Holder" is defined as (i) citizens or residents of the
U.S., or any state thereof, (ii) a corporation or other entity created or
organized under the laws of the U.S., or any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of source or that is otherwise subject to U.S. federal income tax on
a net income basis in respect of the common stock, or (iv) a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust, whose ownership of common stock is not
effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.
DISTRIBUTIONS ON SHARES OF COMMON STOCK
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the Company's common stock are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States federal income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common stock and thereafter as gain from the sale or
exchange of such shares. Preferential tax rates for long-term capital gains are
applicable to a U.S. Holder which is an individual, estate or trust. There are
currently no preferential tax rates for long-term capital gains for a U.S.
Holder which is a corporation. Dividends paid on the Company's common stock will
not generally be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Company's common stock may be entitled, at
the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year.
Subject to certain limitations, Canadian taxes withheld will be eligible for
credit against the U.S. Holder's United States federal income taxes. Under the
Code, the limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. Dividends paid by the
Company generally will be either "passive" income or "financial services"
income, depending on the particular U.S. Holder's circumstances. Foreign tax
credits allowable with respect to each class of income cannot exceed the U.S.
federal income tax otherwise payable with respect to such class of income. The
consequences of the separate limitations will depend on the nature and sources
of each U.S. Holder's income and the deductions appropriately allocated or
apportioned thereto. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of common stock should consult their own tax advisors
regarding their individual circumstances.
DISPOSITION OF SHARES OF COMMON STOCK
A U.S. Holder will recognize gain or loss upon the sale of shares of common
stock equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received; and (ii) the shareholder's tax basis
in the common stock. This gain or loss will be capital gain or loss if the
shares are a capital asset in the hands of the U.S. Holder, and such gain or
loss will be long-term capital gain or loss if the U.S. Holder has held the
common stock for more than one year. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for a
particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders who are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
-87-
OTHER CONSIDERATIONS
The Company has not determined whether it meets the definition of a "passive
foreign investment company" (a "PFIC"). It is unlikely that the Company meets
the definition of a "foreign personal holding company" (a "FPHC") or a
"controlled foreign corporation" (a "CFC") under current U.S. law.
If more than 50% of the voting power or value of the Company were owned
(actually or constructively) by U.S. Holders who each owned (actually or
constructively) 10% or more of the voting power of the Company's common shares
("10% Shareholders"), then the Company would become a CFC and each 10%
Shareholder would be required to include in its taxable income as a constructive
dividend an amount equal to its share of certain undistributed income of the
Company. If (1) more than 50% of the voting power or value of the Company's
common shares were owned (actually or constructively) by five or fewer
individuals who are citizens or residents of the United States and (2) 60% or
more of the Company's income consisted of certain interest, dividend or other
enumerated types of income, then the Company would be a FPHC. If the Company
were a FPHC, then each U.S. Holder (regardless of the amount of the Company's
Common Shares owned by such U.S. Holder) would be required to include in its
taxable income as a constructive dividend its share of the Company's
undistributed income of specific types.
If 75% or more of the Company's annual gross income has ever consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC. Please note that the
application of the PFIC provisions of the Code to mining companies is somewhat
unclear.
If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest charge together with tax calculated at maximum tax rates on certain
"excess distributions" (defined to include gain on the sale of stock) unless
such U.S. Holder made an election either to (1) include in his or her taxable
income certain undistributed amounts of the Company's income or (2) mark to
market his or her Company common shares at the end of each taxable year as set
forth in Section 1296 of the Internal Revenue Code of 1986, as amended. The
elections require certain conditions be met such as filing on or before the due
date, as extended, for filing the shareholder's income tax return for the first
taxable year to which the election will apply.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S. Holders of the Company's shares. Under Treasury regulations
currently in effect, non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct taxpayer identification number to the payor in the required
manner, (2) is notified by the IRS that it has failed to report payments of
interest or dividends properly or (3) fails, under certain circumstances, to
certify that it has been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
Documents on Display
Documents concerning the Company and referred to in this report may be inspected
at the Company's principal office, located at #709 - 837West Hastings Street,
Vancouver, British Columbia, V6C 3N6.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------
As of the date of this report, the Company does not have any material market
risk sensitive financial instruments.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------
Not applicable.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES.
--------------------------------------------------------------------------------
An evaluation was performed under the supervision and with the participation of
the Company's management, including Mr. Grosso, the Company's chief executive
officer, and Mr. Lang, the Company's chief financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") as of December 31, 2004 Based upon
that evaluation, Messrs. Grosso and Lang, concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms.
During the fiscal year ended December 31, 2004, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
--------------------------------------------------------------------------------
The Board of Directors has determined that the Company has at least one audit
committee financial expert, Mr. David Horton, who serves on the Company's audit
committee.
ITEM 16B. CODE OF ETHICS.
--------------------------------------------------------------------------------
CODE OF BUSINESS CONDUCT AND ETHICS AND WHISTLE-BLOWER POLICY AND PROCEDURES
Introduction
Pursuant to applicable United States securities laws and the United States
Securities and Exchange Commission ("SEC"), our Audit Committee has adopted a
Code of Business Conduct and Ethics to provide principles for the purpose of
promoting:
- Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- Full, fair, accurate, timely, and understandable disclosure in reports
and documents that we file with, or submit to, the Securities and
Exchange Commission and in other public communications;
- Compliance with applicable governmental laws, rules and regulations;
- The prompt internal reporting of violations of our Code of Business
Conduct and Ethics; and
- Accountability for adherence to our Code of Business Conduct and
Ethics.
REPORTING RESPONSIBILITY
It is the responsibility of all directors, officers and employees to comply with
the Code and to report violations or suspected violations in accordance with
this Whistleblower Policy. In our Code of Business Conduct and Ethics these
individuals are referred to as "you".
Violations or suspected violations may be submitted on a confidential basis by
the complainant or may be submitted anonymously. Reports of violations or
suspected violations will be kept confidential to the extent possible,
consistent with the need to conduct an adequate investigation.
-89-
NO RETALIATION
No director, officer or employee who in good faith reports a violation of the
Code shall suffer harassment, retaliation or adverse employment consequence. An
employee who retaliates against someone who has reported a violation in good
faith is subject to discipline up to and including termination of employment.
This Whistleblower Policy is intended to encourage and enable employees and
others to raise serious concerns within the Corporation rather than seeking
resolution outside the Corporation.
REPORTING VIOLATIONS
The Code addresses the Corporation's open door policy and suggests that
employees share their questions, concerns, suggestions or complaints with
someone who can address them properly.
In most cases, an employee's supervisor is in the best position to address an
area of concern. However, if you are not comfortable speaking with your
supervisor or you are not satisfied with your supervisor's response, you are
encouraged to speak with anyone in management whom you are comfortable in
approaching.
Supervisors and managers are required to report suspected violations of the Code
of Conduct to the Company's Compliance Officer, who has specific and exclusive
responsibility to investigate all reported violations. For suspected fraud or
securities law violations, or when you are not satisfied or uncomfortable with
following the Corporation's open door policy, individuals should contact the
Corporation's Compliance Officer directly.
COMPLIANCE OFFICER
The Corporation's Compliance Officer is appointed by the board of directors, and
is responsible for investigating and resolving all reported complaints and
allegations concerning violations of the Code and, at his discretion, shall
advise the President and CEO, the CFO and/or the Audit Committee. The Compliance
Officer has direct access to the Audit Committee of the board of directors and
is required to report to the Committee at least annually on his compliance
activity.
In order to protect your anonymity, and to ensure proper record keeping as
required by regulations, our Company uses an external reporting agency which is
the sole link to the Compliance Officer.
THE COMPANY'S COMPLIANCE OFFICER CAN BE REACHED VIA EMAIL AT
GROSSOGROUP@WHISTLEBLOWERSECURITY.COM, VIA TELEPHONE AT 1-866-921-6714 OR VIA
THE INTERNET LOCATED AT HTTP://WWW.WHISTLEBLOWERSECURITY.COM.
The Compliance Officer will notify the sender and acknowledge receipt of the
reported violation or suspected violation within five business days. All reports
will be promptly investigated and appropriate corrective action will be taken if
warranted by the investigation.
Your Responsibilities
1. You shall act with honesty and integrity in the performance of
your duties, shall comply with all laws, rules and regulations
of federal, provincial, state and local governments and other
private and public regulatory agencies that affect the conduct
of our business and our financial reporting.
-90-
2. You are responsible for full, fair, accurate, timely and
understandable disclosure in the reports and documents that we
file with, or submit to, any Canadian Exchange or Securities
Commission and the Securities and Exchange Commission and in
our other public communications. Accordingly, each of you is
responsible for promptly bringing to the attention of The
Compliance Officer any material information of which you may
become aware that affects our disclosure in our public
filings.
3. You shall promptly bring to the attention of The Compliance
Officer any information you may have concerning evidence of a
material violation of the securities or other laws, rules or
regulations applicable to us and the operation of our business
or any violation of this Code of Business Conduct and Ethics.
In either event, any reporting is confidential and you are
protected from retaliation.
4. You shall promptly bring to the attention of The Compliance
Officer any information you may have concerning (a)
significant deficiencies in the design or operation of
internal controls which could adversely affect our ability to
record, process, summarize and report financial data of (b)
any fraud, whether or not material, that involves management
or other employees who have a significant role in our
financial reporting, disclosures or internal controls.
5. You must avoid any personal activity or association that could
appear to influence your judgment or affect our best
interests. You shall promptly bring to the attention of your
manager or the Compliance Officer any information you may have
concerning any actual or apparent conflicts of interest
between personal and professional relationships, involving any
management or other employees who have a significant role in
our financial reporting, disclosures or internal controls.
VIOLATIONS AND WAIVERS
The Compliance Officer determines if a special meeting of the Audit Committee is
required and shall provide information about the complaint to all members of the
Audit Committee at its next regularly scheduled meeting. The Chairman of the
Audit Committee shall advise the Board of Directors in writing of all violations
of this Code of Business Conduct and Ethics reported to him.
Anyone filing a complaint concerning a violation or suspected violation of the
Code must be acting in good faith and have reasonable grounds for believing the
information disclosed indicates a violation of the Code. Any allegations that
prove not to be substantiated and which prove to have been made maliciously or
knowingly to be false will be viewed as a serious disciplinary offense.
No waivers of any provision of this Code of Business Conduct and Ethics may be
made except by the Audit Committee. Only the Audit Committee may amend this Code
of Business Conduct and Ethics. Any waiver or amendment shall be reported as
required by law or regulation.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
--------------------------------------------------------------------------------
Audit Fees
For the fiscal year ended December 31, 2004, the Company's principal accountant
is expected to bill approximately $35,000, and for the fiscal year ended
December 31, 2003, the Company's principal accountant billed approximately
$30,000 for the audit of the Company's annual financial statements or services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years.
Audit Related Fees
For the fiscal years ended December 31, 2004 and 2003, the Company's principal
accountant is expected to bill $13,650 and billed $16,000, respectively, for
assurance and related services that were reasonably related to the performance
of the audit or review of the Company's financial statements outside of those
fees disclosed above under "Audit Fees"
-91-
Tax Fees
For the fiscal years ended December 31, 2004 and 2003, the Company's principal
accountant is expected to bill $100,000 and billed $28,000, respectively, for
tax compliance, tax advice and tax planning services.
Pre-Approval Policies and Procedures
Generally, in the past, prior to engaging the Company's auditors to perform a
particular service, the Company's audit committee has, when possible, obtained
an estimate for the services to be performed. The audit committee in accordance
with procedures for the Company approved all of the services described above.
Additionally, the auditors have been engaged to perform services by
non-independent directors of the Company (who are members of the audit
committee) pursuant to pre-approval policies and procedures established by the
audit committee (which are detailed as to the particular service) and the audit
committee has been informed of any such engagement and service.
Since January 1, 2005, the Company's auditors have not billed the Company for
audit related services in connection with the reorganization.
Beginning July 1, 2004, the Company's audit committee intends to obtain
estimates for services to be performed, prior to engaging the Company's auditor
to perform any audit or non-audit related services, including those set forth
above. The audit committee will also allow the engagement of the auditor, by a
non-independent member of the board of directors, to render services pursuant to
pre-approval policies and procedures established by the audit committee (which
are detailed as to the particular service), provided the audit committee is
informed of any such engagement and service. The audit committee may delegate to
one of its members, who is also an independent director of the Company, the
ability to approve such services on behalf of the audit committee. Any approval
by such director shall be ratified by the audit committee at its next scheduled
meeting.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS.
--------------------------------------------------------------------------------
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
See pages F-1 though F-38
ITEM 18. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
Not applicable.
-92-
ITEM 19. EXHIBITS.
--------------------------------------------------------------------------------
Exhibits
EXHIBIT
NUMBER EXHIBIT
1.1 Notice of Articles(8)
1.2 Articles (1)
4.1 Share Purchase Agreement Between Shareholders and 389863 B.C. Ltd. (1)
4.2 Arrangement Agreement Between Viceroy Resource Corporation and IMA Resource
Corporation (1)
4.3 Consulting Services Agreement Between Oxbow International Marketing Corp. and IMA
Resource Corporation (1)
4.4 Employment Agreement with William Lee (1)
4.5 Consulting Services Agreement Between Nikolaos Cacos and IMA Resource Corporation(1)
4.6 Consulting Agreement Between KGE Management Ltd. and IMA Exploration Inc. dated
April 1, 2004(8)
4.7 Consulting Agreement Between Lindsay R. Bottomer and IMA Exploration Inc. (1)
4.8 Exploration and Option Agreement with Barrick Exploraciones Argentina S.A. (1)
4.9 Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio Lirio
representing Lir-Fer Construcciones S.R.L. (1)
4.10 Option Agreement with Lirio and Lir-Fer Construcciones S.R.L. (1)
4.11 Option Agreement with Oscar Garcia and others (1)
4.12 Purchase Agreement with Modesto Enrique Arasena (1)
4.13 Option Agreement with Hugo Arturo Bosque (1)
4.14 Option Agreement with Guillermo Munoz, Lydia Gonzalez, Ricardo Sanchez and
Antonio Monteleone (1)
4.15 Option Agreement with Jorge Ernesto Rodriguez and Gerardo Javier Rodriguez (1)
4.16 Option Agreement with Jorge Ernesto Rodriguez and Raul Alberto Garcia (1)
4.17 Purchase Agreement with Victor Ronchietto (1)
4.18 Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova JJ de
Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ
de Piura (1)
4.19 Amendment to Option Agreement with Hugo Arturo Bosque (2)
4.20 Amendment to Purchase Agreement with Victor Ronchietto (2)
4.21 Option Agreement with Dionisio Ramos (2)
4.22 Amendment to Consulting Services Agreement Between Oxbow International Marketing
Corp. and IMA Resource Corporation (2)
4.23 Amendment to consulting Agreement between IMA Exploration Inc. and Nikolaos Cacos(3)
4.24 Agreement between the Company and Sean Hurd dated June 2, 2002 (3)
4.25 Option Agreement between Nestor Arturo and IMA S.A. (3)
4.26 Amendment to Option Agreement with Guillermo Munoz, Lydia Gonzalez, Ricardo
Sanchez and Antonio Monteleone (3)
4.27 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura (3)
-93-
EXHIBIT
NUMBER EXHIBIT
4.28 Option Agreement with Rio Tinto Mining and Exploration Limited (4)
4.29 Amendment to Exploration and Option Agreement with Barrick Exploraciones
Argentina S.A. (4)
4.30 Consulting Agreement between the Company and Lindsay Bottomer dated April 1,2002(4)
4.31 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. (4)
4.32 Amendment to Option Agreement with Juan Demetrio Lirio and Lir-Fer Construcciones
S.R.L. (4)
4.33 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura (4)
4.34 Amendment to Option Agreement between Nestor Arturo and IMA S.A. (4)
4.35 Consulting Agreement Between KGE Management Ltd. and IMA Exploration Inc. (4)
4.36 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. (5)
4.37 Amendment to Option Agreement with Juan Demetrio Lirio and Lir-Fer Construcciones
S.R.L. (5)
4.38 Amendment to Option Agreement between Nestor Arturo and IMA S.A. (5)
4.39 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura (5)
4.40 Short Form Offering Document (5)
4.41 Amendment to Consulting Services Agreement Between Oxbow International Marketing
Corp. and IMA Resource Corporation (5)
4.43 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration
Inc. (5)
4.44 Amendment to Agreement between the Company and Sean Hurd (5)
4.45 Amendment to Exploration and Option Agreement with Barrick Exploraciones
Argentina S.A. dated March 26, 2003. (6)
4.46 Letter of Intent dated March 6, 2003 with Amera Resources Corporation (6)
4.47 Letter Agreement with Amera Resources Corporation re: reimbursement of office
expenses (6)
4.48 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura dated December 23, 2002 (6)
4.49 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. dated July 10, 2002 (6)
4.50 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. dated December 27, 2002 (6)
-94-
EXHIBIT
NUMBER EXHIBIT
4.51 Amendment to Consulting Services Agreement Between Oxbow International Marketing
Corp. and IMA Resource Corporation dated July 15, 2002 (6)
4.52 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration
Inc. dated June 14, 2002 (6)
4.53 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration
Inc. dated October 3, 2002 (6)
4.54 Amendment to Agreement between the Company and Sean Hurd dated June 10, 2002 (6)
4.55 Amendment to Consulting Services Agreement Between Oxbow International Marketing
Corp. and IMA Resource Corporation dated April 17, 2003 (6)
4.56 Arrangement Agreement between IMA Exploration Inc., IMA Holdings Corp. and Golden
Arrow Resources Corporation dated May 14, 2004 (7)
4.57 Amendment to consulting Agreement with Nikolaos Cacos dated January 5, 2004(8)
4.58 Amendment to Agreement with Sean Hurd dated January 5, 2004(8)
4.59 Financial Advisory Services Agreement with Endeavour Financial Ltd. (8)
4.60 Agreement between the Company and Amera Resources Corporation dated March 6, 2003
relating to the Lago Pico, Loma Alta and Nueva Ruta properties(8)
4.61 Amendment to Letter of Intent with Amera Resources Corporation dated September 30, 2003(8)
4.62 Amendment to Letter of Intent with Amera Resources Corporation dated April 8,2004(8)
4.63 Letter Agreement with Beauregard Holdings Corp. dated February 5, 2004 regarding
office lease(8)
4.64 Option Agreement dated September 22, 2003, between the Company and Cloudbreak
Resources Ltd.(8)
4.65 Option Agreement dated August 12, 2003 between the Company and Consolidated
Pacific Bay Minerals Ltd.(8)
4.66 Option agreement dated June 11, 2003, between the Company and Ballad Gold &
Silver Ltd. (formerly Ballad Ventures Ltd.)(8)
4.67 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura dated August 15, 2003.(8)
4.68 Letter Agreement with Arthur Lang dated April 23, 2004(8)
4.69 Administration Services Agreement dated January 1, 2005
4.70 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration
Inc. dated April 1, 2005
4.71 Indemnity Agreement provided to Golden Arrow Resources Corporation
4.72 Arrangement Agreement by and among the Company, Golden Arrow Resources
Corporation and IMA Holdings Corp. dated May 14, 2004
4.73 Auditor Consent Letter
4.74 Audit Committee Charter
-95-
EXHIBIT
NUMBER EXHIBIT
8.1 List of Subsidiaries(8)
12.1 Certification of Joseph Grosso Pursuant to Rule 13a-14(a)
12.2 Certification of Arthur Lang Pursuant to Rule 13a-14(a)
13.1 Certification of Joseph Grosso Pursuant to 18 U.S.C. Section 1350
13.2 Certification of Arthur Lang Pursuant to 18 U.S.C. Section 1350
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F, filed with the Commission on January 6, 2000. File
number 0-30464.
(2) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F/A Amendment No. 1 filed July 14, 2000. File Number
0-30464.
(3) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F/A Amendment No. 2 filed September 15, 2000. File Number
0-30464.
(4) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 8, 2001. File Number 0-30464.
(5) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 8, 2002. File Number 0-30464.
(6) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 16, 2003. File Number 0-30464.
(7) Previously filed as with the Company's Report on Form 6-K filed June
18, 2004. File Number 0-30464.
(8) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed June 23, 2004. File Number 0-30464.
-96-
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
IMA EXPLORATION INC.
(Registrant)
/s/ Arthur Lang
-------------------------------------------------
Arthur Lang, Chief Financial Officer and Director
Date: May 5, 2005
-------------------------------------------
-97-
F-1
--------------------------------------------------------------------------------
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2004, 2003 AND 2002
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
F-2
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of the Company have been
prepared by management in accordance with accounting principles generally
accepted in Canada and reconciled to accounting principles generally accepted in
the United States as set out in Note 11, and contain estimates based on
management's judgement. Management maintains an appropriate system of internal
controls to provide reasonable assurance that transactions are authorized,
assets safeguarded, and proper records maintained.
The Audit Committee of the Board of Directors has met with the Company's
independent auditors to review the scope and results of the annual audit, and to
review the financial statements and related financial reporting matters prior to
submitting the financial statements to the Board for approval.
The Company's independent auditors, PricewaterhouseCoopers LLP, are appointed by
the shareholders to conduct an audit in accordance with generally accepted
auditing standards in Canada and the Public Company Accounting Oversight Board
(United States), and their report follows.
/s/ Joseph Grosso /s/ Art Lang
Joseph Grosso Art Lang
President Chief Financial Officer
April 21, 2005
F-3
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
IMA EXPLORATION INC.
We have audited the consolidated balance sheets of IMA EXPLORATION INC. as at
December 31, 2004 and December 31, 2003 and the consolidated statements of
operations and deficit and cash flows for the years ended December 31, 2004,
2003 and 2002. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2004
and 2003 and the results of its operations and its cash flows for the years
ended December 31, 2004, 2003 and 2002 in accordance with Canadian generally
accepted accounting principles.
/s/ PriceWaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
April 21, 2005
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there are
changes in accounting principles that have a material effect on the
comparability of the company's financial statements, such as the change
described in note 3 to the financial statements. Our report to the shareholders
dated April 21, 2005 is expressed in accordance with Canadian reporting
standards which do not require a reference to such a change in accounting
principles in the auditors' report when the change is properly accounted for and
adequately disclosed in the financial statements.
/s/ PriceWaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
April 21, 2005
F-4
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
2004 2003
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 5,227,354 4,422,334
Amounts receivable and prepaids 162,802 174,938
Marketable securities (Note 4) 186,000 -
Spin-off assets transferred (Notes 2 and 4) - 568,199
------------ ------------
5,576,156 5,165,471
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Note 5) 94,102 36,186
MINERAL PROPERTIES AND
DEFERRED COSTS (Notes 2, 3 and 9) 6,551,598 1,469,026
SPIN-OFF ASSETS TRANSFERRED (Note 2) - 6,749,193
------------ ------------
12,221,856 13,419,876
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 523,378 418,234
------------ ------------
FUTURE INCOME TAX LIABILITIES (Note 9) 885,093 251,180
SPIN-OFF LIABILITIES TRANSFERED (Note 2) - 1,079,112
------------ ------------
1,408,471 1,748,526
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7) 36,982,307 27,707,597
CONTRIBUTED SURPLUS (Note 7) 3,428,382 1,541,116
DEFICIT (29,597,304) (17,577,363)
------------ ------------
10,813,385 11,671,350
------------ ------------
12,221,856 13,419,876
============ ============
NATURE OF OPERATIONS (Note 1)
CONTINGENCY (Note 6)
COMMITMENTS (Note 8)
SUBSEQUENT EVENTS (Note 13)
APPROVED BY THE BOARD
/s/ David Horton , Director
-----------------
/s/ R.S. Angus , Director
-----------------
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
2004 2003 2002
$ $ $
EXPENSES
Administrative and management services 240,084 119,921 51,556
Bank charges and interest 10,318 10,319 10,492
Corporate development and investor relations 290,680 173,693 57,368
Depreciation 26,665 13,257 5,239
General exploration 228,961 226,956 180,321
Office and sundry 70,695 28,542 8,011
Printing 27,307 22,844 5,131
Professional fees 894,780 198,876 39,759
Rent, parking and storage 90,629 35,552 16,625
Salaries and employee benefits 313,409 98,202 45,099
Stock based compensation (Note 7) 1,972,860 1,487,235 29,506
Telephone and utilities 34,165 18,681 7,906
Transfer agent and regulatory fees 57,743 34,078 35,831
Travel and accommodation 203,591 52,175 18,516
Cost recoveries (Note 8) (149,271) (17,290) (1,380)
------------ ------------ ------------
4,312,616 2,503,041 509,980
------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (4,312,616) (2,503,041) (509,980)
------------ ------------ ------------
OTHER EXPENSE (INCOME)
Foreign exchange 195,285 12,763 1,936
Reorganization costs (Note 2) 346,103 -
Interest and other income (101,589) (66,561) (26,585)
Gain on options and disposition of mineral properties (328,346) - -
Write-down of marketable securities 99,762 - -
------------ ------------ ------------
211,215 (53,798) (24,649)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (4,523,831) (2,449,243) (485,331)
Loss allocated to spin-off assets (Note 2) 131,232 969,175 954,775
------------ ------------ ------------
LOSS FOR THE YEAR (4,655,063) (3,418,418) (1,440,106)
DEFICIT - BEGINNING OF YEAR (17,577,363) (14,158,945) (12,718,839)
DISTRIBUTION OF EQUITY ON SPIN-OFF OF
ASSETS TO GOLDENARROW (Note 2) (7,364,878) - -
------------ ------------ ------------
DEFICIT - END OF YEAR (29,597,304) (17,577,363) (14,158,945)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE
FROM CONTINUNG OPERATIONS $(0.11) $(0.08) $(0.02)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.11) $(0.11) $(0.06)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDI G 40,939,580 32,251,753 23,188,485
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
2004 2003 2002
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (4,655,063) (3,418,418) (1,440,106)
Net loss allocated to spin-off assets 131,232 969,175 954,775
------------ ------------ ------------
Net loss from continuing operations (4,523,831) (2,449,243) (485,331)
Items not affecting cash
Depreciation 26,665 13,257 5,239
Stock based compensation 1,972,860 1,487,235 29,506
Gain on options and disposition of mineral properties (328,346) - -
Write-down of marketable securities 99,762 - -
------------ ------------ ------------
(2,752,890) (948,751) (450,586)
Change in non-cash working capital balances 74,785 182,698 (17,137)
------------ ------------ ------------
(2,678,105) (766,053) (467,723)
Cash used in spin-off operations (283,629) (653,496) (838,488)
------------ ------------ ------------
(2,961,734) (1,419,549) (1,306,211)
------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties and deferred costs (4,448,659) (1,069,228) (5,090)
Net mineral properties and marketable securities
cash flow related to spin-off assets 32,592 (781,533) (1,261,465)
Purchase of equipment (93,650) (21,875) (11,201)
------------ ------------ ------------
(4,509,717) (1,872,636) (1,277,756)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 9,707,897 6,467,245 3,453,382
Share issuance costs (411,237) (188,850) (189,056)
------------ ------------ ------------
9,296,660 6,278,395 3,264,326
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,825,209 2,986,210 680,359
CASH TRANSFERRED TO GOLDEN ARROW (Note 2) (1,020,189) - -
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 805,020 2,986,210 680,359
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 4,422,334 1,436,124 755,765
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR 5,227,354 4,422,334 1,436,124
============ ============ ============
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
CASH 927,354 1,622,334 631,255
TERM DEPOSITS 4,300,000 2,800,000 804,869
------------ ------------ ------------
5,227,354 4,422,334 1,436,124
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2004
(EXPRESSED IN CANADIAN DOLLARS)
GOLDEN ARROW
NAVIDAD SUBTOTAL RELATED
NAVIDAD AREAS IVA TAX NAVIDAD PROPERTIES TOTAL
$ $ $ $ $ $
Balance, beginning of year 1,253,391 16,178 199,457 1,469,026 6,744,907 8,213,933
------------- ------------ ------------ ------------ ------------ ------------
Expenditures during the year
Assays 567,364 - - 567,364 1,702 569,066
Contractors - surveying 994,912 2,949 - 997,861 2,339 1,000,200
Contractors - environmental 252,201 - - 252,201 65,166 317,367
Drilling 1,663,984 - - 1,663,984 - 1,663,984
Communications 13,729 - - 13,729 - 13,729
Supplies 147,422 529 - 147,951 - 147,951
Statutory fees and taxes 2,094 19,129 - 21,223 - 21,223
Travel 51,583 - - 51,583 - 51,583
Office 170,780 3,657 - 174,437 11,753 186,190
Other - - - - 37,045 37,045
Option payments 19,595 70,252 - 89,847 12,048 101,895
IVA Tax - - 468,479 468,479 - 468,479
------------- ------------ ------------ ------------ ------------ ------------
3,883,664 96,516 468,479 4,448,659 130,053 4,578,712
------------- ------------ ------------ ------------ ------------ ------------
Balance, before transfer 5,137,055 112,694 667,936 5,917,685 6,874,960 12,792,645
Future income tax (Note 9) 633,913 - - 633,913 - 633,913
Property transfer to Golden Arrow - - - - (6,874,960) (6,874,960)
------------- ------------ ------------ ------------ ------------ ------------
Balance, end of year 5,770,968 112,694 667,936 6,551,598 - 6,551,598
============= ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2003
(EXPRESSED IN CANADIAN DOLLARS)
GOLDEN ARROW
NAVIDAD SUBTOTAL RELATED
NAVIDAD AREAS IVA TAX NAVIDAD PROPERTIES TOTAL
$ $ $ $ $ $
Balance, beginning of year 5,090 - 143,528 148,618 6,707,184 6,855,802
------------- ------------ ------------ ------------ ------------ ------------
Expenditures during the year
Assays 62,232 - - 62,232 36,911 99,143
Contractors - surveying 113,518 - - 113,518 19,751 133,269
Contractors - environmental 40,664 - - 40,664 105,145 145,809
Drilling 222,259 - - 222,259 191,923 414,182
Geological 467,569 - - 467,569 245,659 713,228
Statutory fees and taxes 2,900 16,178 - 19,078 132,963 152,041
Travel 37,369 - - 37,369 48,824 86,193
Office 10,791 - - 10,791 147,065 157,856
Other 39,819 - - 39,819 37,651 77,470
Option payments - - - - 147,348 147,348
IVA Tax - - 55,929 55,929 - 55,929
------------- ------------ ------------ ------------ ------------ ------------
997,121 16,178 55,929 1,069,228 1,113,240 2,182,468
------------- ------------ ------------ ------------ ------------ ------------
Balance, before adjustments 1,002,211 16,178 199,457 1,217,846 7,820,424 9,038,270
Future income tax (Note 9) 251,180 - - 251,180 71,037 322,217
Cost recoveries - - - - (346,947) (346,947)
Write-off mineral properties - - - - (776,626) (776,626)
Proceeds on sale of mineral
properties - - - - (22,981) (22,981)
------------- ------------ ------------ ------------ ------------ ------------
Balance, end of year 1,253,391 16,178 199,457 1,469,026 6,744,907 8,213,933
============= ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in
Argentina. The Company presently has no proven or probable reserves and
on the basis of information to date, it has not yet determined whether
these properties contain economically recoverable ore reserves.
Consequently the Company considers itself to be an exploration stage
company. The amounts shown as mineral properties and deferred costs
represent costs incurred to date, less amounts amortized and/or written
off, and do not necessarily represent present or future values. The
underlying value of the mineral properties and deferred costs is
entirely dependent on the existence of economically recoverable
reserves, securing and maintaining title and beneficial interest in the
properties, the ability of the Company to obtain the necessary
financing to complete development, and future profitable production.
The Company considers that it has adequate resources to maintain its
core operations for the next fiscal year but currently does not have
sufficient working capital to fund all of its planned exploration and
development work. The Company will continue to rely on successfully
completing additional equity financing.
2. SPIN-OFF OF ASSETS
On July 7, 2004, the Company completed a corporate restructuring plan
(the "Reorganization") which resulted in dividing the Company's assets
and liabilities into two separate companies. Following the
Reorganization the Company continued to hold the Navidad project, while
all other mineral property interests, certain marketable securities and
cash were spun-off to Golden Arrow Resources Corporation ("Golden
Arrow"), a newly created company. The Navidad Property, located in the
province of Chubut Argentina, was staked by the Company in late 2002
and continues to be the focus of the Company's activities. The
Reorganization of the Company was accomplished by way of a statutory
plan of arrangement. The shareholders of the Company were issued shares
in Golden Arrow on the basis of one Golden Arrow share for ten shares
of the Company. On completion of the Reorganization, the Company
transferred to Golden Arrow:
i) all of the Company's investment in its mineral properties,
excluding the Navidad and Navidad Area properties and related
future income tax liabilities;
ii) the assets and liabilities of IMPSA Resources (BVI) Inc.,
Inversiones Mineras Argentinas Holdings (BVI) Inc., both
wholly-owned subsidiaries of the Company, and IMPSA Resources
Corporation, an 80.69% owned subsidiary of the Company;
iii) certain marketable securities at their recorded values; iv)
cash and cash equivalents
The aggregate carrying amount of the net assets transferred from the
Company to Golden Arrow is as follows:
DECEMBER 31,
2004 2003
$ $
Cash and cash equivalents 1,020,189 31,908
Marketable securities and other current
assets and liabilities 548,841 536,291
Mineral properties and deferred cost
and equipment 6,874,960 6,749,193
Future income tax liabilities (1,079,112) (1,079,112)
------------ ------------
7,364,878 6,238,280
============ ============
F-10
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
2. SPIN-OFF OF ASSETS (continued)
The Company's Statement of Loss and Deficit includes an allocation of
General and Administrative Expenses as Loss allocated to spin-off
assets. The allocation was calculated on the basis of the ratio of the
specific assets transferred to assets retained. Certain "Other Income
and Expense" items have been allocated to spin-off assets on the basis
of the nature of the income or expense.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The significant measurement differences between
those principles and those that would be applied under United States
generally accepted accounting principles ("US GAAP") as they affect the
Company are disclosed in Note 11.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
period. Significant areas requiring the use of management estimates
relate to the determination of environmental obligations and assessment
of mineral properties and deferred cost carrying values. Actual results
may differ from these estimates.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and all its subsidiaries, all of which are wholly owned. The
Company's principal subsidiary is Inversiones Mineras Argentinas S.A..
All inter-company transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments
maturing within 90 days of initial investment.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost or market.
MINERAL PROPERTIES AND DEFERRED COSTS
Direct costs related to the acquisition and exploration of mineral
properties held or controlled by the Company are deferred on an
individual property basis until the viability of a property is
determined. Administration costs and general exploration costs are
expensed as incurred. When a property is placed in commercial
production, deferred costs will be depleted using the
units-of-production method. Management of the Company periodically
reviews the recoverability of the capitalized mineral properties.
Management takes into consideration various information including, but
not limited to, results of exploration activities conducted to date,
estimated future
F-11
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
metal prices, and reports and opinions of outside geologists, mine
engineers and consultants. When it is determined that a project or
property will be abandoned then the costs are written-off, or if its
carrying value has been impaired, then the costs are written down to
fair value.
The Company accounts for foreign value added taxes paid as part of
mineral properties and deferred costs. The recovery of these taxes will
commence on the beginning of foreign commercial operations. Should
these amounts be recovered they would be treated as a reduction in
carrying costs of mineral properties and deferred costs.
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not
guarantee the Company's title. Such properties may be subject to prior
agreements or transfers and title may be affected by undetected
defects.
From time to time, the Company acquires or disposes of properties
pursuant to the terms of option agreements. Options are exercisable
entirely at the discretion of the optionee and, accordingly, are
recorded as mineral property costs or recoveries when the payments are
made or received. After costs are recovered the balance of the payments
are recorded as a gain on option or disposition of mineral property.
EQUIPMENT
Equipment, which comprises leasehold improvements and office furniture
and equipment, is recorded at cost less accumulated depreciation
calculated using the straight-line method over their estimated useful
lives of five years.
ASSET RETIREMENT OBLIGATIONS
The fair value of a liability for an asset retirement obligation is
recognized when a reasonable estimate of fair value can be made. The
asset retirement obligation is recorded initially at fair value as a
liability with a corresponding increase to the carrying amount of the
related long-lived asset. In subsequent periods, the liability is
adjusted for the accretion of discount and any changes in the amount or
timing of the underlying cash flows. The related asset is adjusted only
as a result of changes in the amount or timing of the underlying cash
flows. The capitalized asset retirement cost is depreciated on the same
basis as the related asset; discount accretion is included in
determining the results of operations. As at December 31, 2004, the
Company does not have any asset retirement obligations.
LONG-LIVED ASSETS IMPAIRMENT
Long-lived assets are reviewed for impairment when events or changes in
circumstances suggest their carrying value has become impaired.
Management considers assets to be impaired if the carrying value
exceeds the estimated undiscounted future projected cash flows to
result from the use of the asset and its eventual disposition. If
impairment is deemed to exist, the assets will be written down to fair
value. Fair value is generally determined using a discounted cash flow
analysis.
F-12
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign operations are integrated and are translated
using the temporal method. Under this method, the Company translates
monetary assets and liabilities denominated in foreign currencies at
period-end rates. Non-monetary assets and liabilities are translated at
historical rates. Revenues and expenses are translated at average rates
in effect during the period except for depreciation and amortization
which are translated at historical rates. The resulting gains or losses
are reflected in operating results in the period of translation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and
cash equivalents and amounts receivable. The Company limits its
exposure to credit loss by placing its cash and cash-equivalents with
major financial institutions.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting of
cash and cash equivalents, amounts receivable and accounts payable and
accrued liabilities approximate their carrying values due to the
short-term nature of those instruments. As of December 31, 2004, the
market value of marketable securities was $270,000 (2003 - $1,032,546).
INCOME TAXES
The Company uses the liability method of accounting for future income
taxes. Under this method of tax allocation, future income tax
liabilities and assets are recognized for the estimated tax
consequences attributable to differences between the amounts reported
in the consolidated financial statements and their respective tax
bases, using substantively enacted tax rates and laws that are expected
to be in effect in the periods in which the future income tax assets or
liabilities are expected to be settled or realized. The effect of a
change in income tax rates on future income tax liabilities and assets
is recognized in income in the period that the change occurs. Potential
future income tax assets are not recognized, as they are not considered
likely to be realized.
LOSS PER SHARE
Loss per share is calculated based on the weighted average number of
common shares issued and outstanding during the year. The effect of
potential issuances of shares under options and warrants would be
anti-dilutive and therefore basic and diluted losses per share are the
same. Information regarding securities that could potentially dilute
basic earnings per share in the future is presented in Note 7.
STOCK BASED COMPENSATION
Effective January 1, 2003, the Company prospectively adopted the
requirements of CICA Handbook Section 3870. Stock-based compensation is
accounted for at fair value as determined by the Black-Scholes option
pricing model using amounts that are believed to approximate the
volatility of the trading price of the Company's stock, the expected
lives of awards of stock-based compensation, the fair value of the
Company's stock and the risk-free interest rate. The estimated fair
value of awards of stock-based compensation is charged to expense as
awards vest, with offsetting amounts recognized as contributed surplus.
F-13
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
COMPARATIVE FIGURES
Certain of the 2003 and 2002 fiscal year figures have been reclassified
to conform with the presentation used in fiscal 2004.
4. MARKETABLE SECURITIES
2004 2003
---------------------------- ----------------------------
QUOTED QUOTED
RECORDED MARKET RECORDED MARKET
VALUE VALUE VALUE VALUE
$ $ $ $
---------------------------- ----------------------------
Tinka Resources - 300,000 common shares 96,000 180,000 - -
Cons Pacific Bay Minerals - 900,000 common shares 90,000 90,000 - -
Ballad Gold & Silver Ltd. - 500,000 common shares - - 250,000 325,000
Amera Resources Corp. - 600,000 common shares - - 270,000 546,000
Other - - 23,460 161,546
------------ ------------ ------------ ------------
186,000 270,000 543,460 1,032,546
============
Less amounts allocated to spin-off assets transferred - - (543,460)
------------ ------------ ------------
186,000 270,000 -
============ ============ ============
The Company has entered into option and sale agreements on certain of
its non-core mineral property holdings in which the Company received
common shares of publicly-traded companies as partial consideration.
All securities associated with option and sale agreements for all
properties, other than Navidad and Navidad area properties were
transferred to Golden Arrow with a recorded value of $543,460 at
December 31, 2003 (see Note 2).
5. EQUIPMENT AND LEASHOLD IMPROVEMENTS
2004 2003
------------ ------------
$ $
Office equipment and computers 231,724 179,425
Leasehold improvements 96,634 62,812
------------ ------------
328,358 242,237
Less: Accumulated depreciation (234,256) (206,051)
------------ ------------
94,102 36,186
============ ============
F-14
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
6. CONTINGENCY
In March 2004, Aquiline Resources Inc. ("Aquiline") commenced an action
against the Company, seeking a constructive trust over the Navidad
properties and damages. The Company believes the Aquiline legal action
is without merit and continues to vigorously defend itself. A trial
date has been scheduled for October 2005. At this date the outcome is
not determinable. The Company has not made any provision for costs for
which it might become liable in what management considers the unlikely
event of an adverse judgment.
7. SHARE CAPITAL
Authorized - unlimited common shares without par value
- 100,000,000 preferred shares without par value
Issued - common shares
NUMBER $
------------ ------------
Balance, December 31, 2001 18,592,219 18,090,497
Private placements 5,703,026 2,552,870
Exercise of options 170,000 68,000
Exercise of warrants 2,085,361 837,512
Less share issue costs - (194,056)
------------ ------------
Balance, December 31, 2002 26,550,606 21,354,823
Private placement 2,900,000 2,610,000
Exercise of options 1,855,850 895,859
Exercise of warrants 4,969,066 2,940,428
Exercise of agent's options 105,930 95,337
Less share issue costs - (188,850)
------------ ------------
Balance, December 31, 2003 36,381,452 27,707,597
Private placements 1,500,000 4,650,000
Exercise of options 441,650 597,910
Exercise of agents' options 121,820 184,838
Contributed surplus reallocated
on exercise of options - 226,630
Exercise of warrants 5,371,285 4,275,149
Proceeds collected and paid on behalf
of Golden Arrow shares - (107,544)
Less share issue costs - (552,273)
------------ ------------
Balance, December 31, 2004 43,816,207 36,982,307
============ ============
(a) During fiscal 2004, the Company completed a brokered private
placement of 1,500,000 units at $3.10 per unit for proceeds of
$4,238,763, net of $339,000 agent's commission and $72,237 of
related issue costs. Each unit consisted of one common share
and one half non-transferable share purchase warrant. Each
whole warrant entitles the holder to purchase a common share
for $3.70 per share on or before February 23, 2005. The
Company also issued 200,000 compensation options to the agent
to acquire 200,000 shares at $3.25 per share and 100,000
warrants at $3.70 per share on or before February 23, 2005.
The compensation options granted were valued at $0.705 per
option using the Black-Scholes Option Pricing Model, for a
total value of $141,036, which has been recorded as share
issue costs with a corresponding increase to contributed
surplus. At December 31, 2004, a total of 32,000 compensation
options had been exercised. The balance of 168,000
compensation options were exercised subsequent to the
year-end.
F-15
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
7. SHARE CAPITAL (continued)
(b) During fiscal 2003, the Company completed a brokered private
placement for 2,900,000 units at a price of $0.90 per unit,
for cash proceeds of $2,421,150, net of share issue costs of
$188,850. Each unit consisted of one common share of the
Company and one-half non-transferable common share purchase
warrant. One whole warrant entitles the holder to purchase one
common share for the exercise price of $1.10 per share on or
before April 28, 2004. Certain officers and directors of the
Company purchased 445,000 units of the private placement.
(c) During fiscal 2002, the Company completed the following
private placements:
i) 637,000 units at a price of $0.38 for cash proceeds of
$222,695, net of share issue costs of $19,365. Each
unit consisted of one common share of the Company and
one warrant. Two warrants entitled the holder to
purchase an additional common share for the exercise
price of $0.45 on or before March 31, 2003. The Company
also issued agents warrants to purchase 63,700 common
shares at a price of $0.45 on or before March 31, 2003;
ii) 1,777,778 units at a price of $0.45 per unit for cash
proceeds of $686,132, net of share issue costs of
$118,868. Each unit consisted of one common share of
the Company and one warrant. Two warrants entitled the
holder to purchase an additional common share at a
price of $0.54 per share on or before April 9, 2003.
The Company also issued 11,111 shares to the agents, at
a price of $0.45 per share. The Company also issued
agents warrants to purchase 355,556 common shares at a
price of $0.54 per share on or before April 9, 2003;
iii) 1,722,222 units at a price of $0.45 per unit, for cash
proceeds of $751,000 net of share issue costs of
$24,000. Each unit consisted of one common share of the
Company and one warrant. Each warrant entitled the
holder to purchase an additional common share of the
Company at a price of $0.53 per share on or before May
23, 2003 and $0.60 per share on or before May 23, 2004.
Certain directors purchased 191,111 units. The Company
also issued agents warrants to purchase 66,666 common
shares at a price of $0.53 per share on or before May
23, 2003; and
iv) 1,554,915 units at a price of $0.47 for cash proceeds
of $698,987, net of share issue costs of $31,823. Each
unit consisted of one common share of the Company and
one warrant. Each warrant entitled the holder to
purchase an additional common share of the Company at a
price of $0.55 per share on or before September 27,
2003 and $0.60 on or before September 27, 2004. Certain
directors purchased 325,000 units. The Company also
issued agents warrants to purchase 37,496 common shares
at a price of $0.50 per share on or before September
27, 2003.
v) In connection with the financing, the Company granted
the agent an option to purchase 195,750 units on the
same basis and terms as the private placement. The
agent has exercised options to purchase 195,750 units,
for $176,175 cash.
(d) Stock options and stock based compensation
The Company grants stock options in accordance with the
policies of the TSX Venture Exchange ("TSXV"). The stock
options vest over periods that vary from three months to one
year. A summary of the Company's outstanding options at
December 31, 2004, 2003 and 2002 and the changes for the years
ending on those dates is presented below:
F-16
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
7. SHARE CAPITAL (continued)
---------------------------- ---------------------------- ----------------------------
2004 2003 2002
---------------------------- ---------------------------- ----------------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AVERAGE OUTSTANDING AVERAGE OUTSTANDING AVERAGE
AND EXERCISE AND EXERCISE AND EXERCISE
EXERCISABLE PRICE EXERCISABLE PRICE EXERCISABLE PRICE
$ $ $
---------------------------- ---------------------------- ----------------------------
Balance,
Beginning of year 2,528,150 1.32 2,465,500 0.44 1,635,500 0.40
Granted 1,512,000 3.14 1,918,500 1.60 1,050,000 0.50
Exercised (441,650) 1.14 (1,855,850) 0.44 (170,000) 0.40
Cancelled (30,000) 3.10 - - (50,000) 0.40
------------ ------------ ------------
Balance,
End of year 3,568,500 2.10 2,528,150 1.32 2,465,500 0.44
============ ============ ============
Stock options outstanding and exercisable at December 31, 2004
are as follows:
-------------------------------------------------------------
NUMBER EXERCISE PRICE EXPIRY DATE
$
-------------------------------------------------------------
205,000 0.40 July 19, 2006
119,000 0.50 May 2, 2007
117,500 0.50 September 23, 2007
90,000 0.84 March 7, 2008
300,000 0.90 May 30, 2008
1,305,000 1.87 August 27, 2008
1,382,000 3.10 March 24, 2009
50,000 4.20 December 01, 2009
----------
3,568,500
==========
During fiscal 2004, the Company granted 1,512,000 stock
options (2003 - 1,918,500: 2002 - 1,050,000). The fair value
of stock options granted is estimated on the dates of grants
using the Black-Scholes Option Pricing Model with the
following assumptions used for the grants made during the
year:
2004 2003 2002
Risk-free interest rate 2.38% 3.76% - 4.16% 3.89% - 4.25%
Estimated volatility 77% 74% - 78 % 73% - 87%
Expected life 2.5 years 2.5 years 2.5 years
Expected dividend yield 0% 0% 0%
The weighted average fair value per share of stock options,
calculated using the Black-Scholes Option Pricing Model,
granted during the year was $1.28 per share (2003 - $0.63,
2002 - $0.26). Option pricing models require the use of
estimates and assumptions including the expected volatility.
Changes in the underlying assumptions can materially affect
the fair value estimates and, therefore, existing models do
not necessarily provide reliable measure of the fair value of
the Company's stock options.
F-17
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
7. SHARE CAPITAL (continued)
During fiscal 2002, the Company granted 540,000 stock options
to its employees and directors and applied the intrinsic value
based method of accounting. Had the Company followed the fair
value based method of accounting in fiscal 2002, the Company
would have recorded an additional compensation expense of
$140,840 in respect of its employees and directors' stock
options. Pro-forma loss and loss per share information
determined under the fair value method in fiscal 2002 are as
follows:
$
Net loss for fiscal 2002
- as reported (1,440,106)
- compensation expense (140,840)
------------
- pro-forma (1,580,946)
============
Basic and diluted loss per share
- as reported (0.06)
- pro-forma (0.07)
(e) Warrants
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at December 31, 2004, 2003 and 2002 and the
changes for the years ending on those dates is as follows:
2004 2003 2002
------------ ------------ ------------
Balance, beginning of year 6,042,448 9,511,550 6,588,967
Issued 810,909 1,502,965 5,007,944
Exercised (5,371,285) (4,969,066) (2,085,361)
Cancelled (38,955) - -
Expired (21,100) (3,001) -
------------ ------------ ------------
Balance, end of year 1,422,017 6,042,448 9,511,550
============ ============ ============
Common shares reserved pursuant to warrants and agent warrants
outstanding at December 31, 2004 are as follows:
-------------------------------------------------------------
NUMBER EXERCISE PRICE EXPIRY DATE
$
-------------------------------------------------------------
663,667 0.90 March 16, 2005
758,350 3.70 February 23, 2005
-----------
1,422,017
===========
F-18
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
8. RELATED PARTY TRANSACTIONS
(a) During fiscal 2004, the Company paid $476,226 (2003 -
$330,600; 2002 - $136,276) to directors and officers or
companies controlled by directors and officers of the Company,
for accounting, management and consulting services provided.
(b) The Company has agreements with a company controlled by the
wife of the President of the Company for the rental of office
premises. During fiscal 2004, the Company paid $74,870 (2003 -
$60,924; 2002 - $60,924) for rent.
(c) The Company shares its office facilities with Amera Resources
Corporation "Amera" and Golden Arrow. All three companies are
public companies with common management. During fiscal 2004,
the Company received $66,390 (2003 - $35,110; 2002 - $6,000)
from Amera and $57,000 (2003 and 2002 - $Nil) from Golden
Arrow for shared rent and administration costs.
(d) The President of the Company provides his services on a
full-time basis under a contract with a private company
controlled by the President. The President is paid an annual
amount of $102,000. The contract also provides that, in the
event the services are terminated without cause or upon a
change in control of the Company, a termination payment would
include a bonus of $6,500 per month, retroactive to July 1,
1999, plus an additional three years of compensation at
$15,000 per month. If the termination had occurred on December
31, 2004, the amount under the agreement would be $969,000.
(e) Other related party transactions are disclosed elsewhere in
these consolidated financial statements.
9. INCOME TAXES
The recovery of income taxes shown in the consolidated statements of
operations and deficit differs from the amounts obtained by applying
statutory rates to the loss before provision for income taxes due to
the following:
2004 2003 2002
$ $ $
Statutory tax rate 35.62% 37.62% 39.62%
============ ============ ============
Loss for the year (4,655,063) (3,418,418) (1,440,106)
============ ============ ============
Provision for income taxes based on
statutory Canadian combined federal
and provincial income tax rates (1,658,133) (1,286,009) (570,570)
Differences in foreign tax rates (114,390) (383,116) (4,234)
Losses for which an income tax benefit
has not been recognized 1,722,523 1,669,125 574,804
------------ ------------ ------------
- - -
============ ============ ============
F-19
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
9. INCOME TAXES (continued)
The significant components of the Company's future tax assets are as
follows:
2004 2003
$ $
Future income tax assets
Financing costs 192,369 116,985
Operating loss carryforward 3,594,455 4,051,130
------------ ------------
3,786,824 4,168,115
Valuation allowance for future tax assets (3,786,824) (4,168,115)
------------ ------------
- -
============ ============
Future Income Tax Liabilities
For certain acquisitions and other payments for mineral property
interests, the Company records a future income tax liability and a
corresponding adjustment to the related asset carrying amount. During
the year ended December 31, 2004, the Company recorded a future income
tax liability of $633,913 (2003 - $251,180) and a corresponding
adjustment to mineral properties.
2004 2003
$ $
Future income tax liabilities 885,093 251,180
============ ============
The Company has Canadian non-capital loss carryforwards of $9,998,489
that may be available for tax purposes. The losses expire as follows:
EXPIRY DATE $
2005 1,173,356
2006 1,255,915
2007 1,261,932
2008 841,160
2009 1,317,729
2010 1,545,964
2014 2,602,433
------------
9,998,489
============
F-20
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
10. SEGMENTED INFORMATION
The Company is involved in mineral exploration and development
activities, which are conducted principally in Argentina. The Company
is in the exploration stage and, accordingly, has no reportable segment
revenues or operating results for each of fiscal 2004, 2003 and 2002.
The Company's total assets are segmented geographically as follows:
------------------------------------------------------------
2004
------------------------------------------------------------
CORPORATE ARGENTINA PERU TOTAL
$ $ $ $
------------------------------------------------------------
Current assets 5,438,079 138,077 - 5,576,156
Equipment 93,177 925 - 94,102
Mineral properties and deferred costs - 6,551,598 - 6,551,598
------------ ------------ ------------ ------------
5,531,256 6,690,600 - 12,221,856
============ ============ ============ ============
------------------------------------------------------------
2003
------------------------------------------------------------
CORPORATE ARGENTINA PERU TOTAL
$ $ $ $
------------------------------------------------------------
Current assets 5,075,092 65,637 24,742 5,165,471
Equipment 28,974 7,032 4,466 40,472
Mineral properties and deferred costs - 4,406,421 3,807,512 8,213,933
------------ ------------ ------------ ------------
5,104,066 4,479,090 3,836,720 13,419,876
============ ============ ============ ============
F-21
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared
in accordance with Canadian GAAP, which differ in certain material
respects from US GAAP.
The effects of significant measurement differences between Canadian
GAAP and US GAAP for certain items on the consolidated balance sheets,
statements of operations and deficit and statements of cash flows are
as follows:
--------------------------------------------
2004 2003 2002
$ $ $
--------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Loss for the year under Canadian GAAP (4,655,063) (3,418,418) (1,440,106)
Mineral properties and deferred costs for the year (i) (5,212,625) (2,134,757) (1,551,841)
Future income tax recovery (i) 633,913 322,217 285,286
Write down of marketable securities 99,762 - -
Mineral properties and deferred costs written off -
during the year which would have been
expensed in the year incurred (i) 776,626 -
Stock-based compensation (iii) - (144,000) (102,150)
------------ ------------ ------------
Loss for the year under US GAAP (9,134,013) (4,598,332) (2,808,811)
Unrealized gains (losses) on available-for-
sale securities (ii) (387,160) 434,346 54,740
------------ ------------ ------------
Comprehensive loss (iv) (9,521,173) (4,163,986) (2,754,071)
============ ============ ============
Basic and diluted loss per share under US GAAP (0.22) (0.14) (0.12)
============ ============ ============
Weighted average number of common shares outstanding 40,939,580 32,251,753 23,188,485
============ ============ ============
----------------------------
2004 2003
$ $
----------------------------
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP 10,813,385 11,671,350
Mineral properties and deferred costs expensed (i) (6,551,598) (8,213,933)
Future income tax recovery (i) 885,093 1,330,292
Accumulated other comprehensive income (ii) 84,000 489,086
------------ ------------
Balance per US GAAP 5,230,880 5,276,795
============ ============
F-22
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
----------------------------
2004 2003
$ $
----------------------------
MINERAL PROPERTIES AND DEFERRED COSTS
Balance per Canadian GAAP 6,551,598 8,213,933
Mineral properties and deferred costs
expensed under US GAAP (i) (6,551,598) (8,213,933)
------------ ------------
Balance per US GAAP - -
============ ============
----------------------------
2004 2003
$ $
----------------------------
FUTURE INCOME TAX LIABILITY
Balance per Canadian GAAP 885,093 1,330,292
Future income tax recovery (i) (885,093) (1,330,292)
------------ ------------
Balance per US GAAP - -
============ ============
--------------------------------------------
2004 2003 2002
$ $ $
--------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP (2,961,734) (1,419,549) (1,306,211)
Mineral properties and deferred costs (i) (4,578,712) (1,850,761) (1,266,555)
------------ ------------ ------------
Cash used per US GAAP (7,540,446) (3,270,310) (2,572,766)
============ ============ ============
INVESTING ACTIVITIES
Cash used per Canadian GAAP (4,509,717) (1,872,636) (1,277,756)
Mineral properties and deferred costs (i) 4,578,712 1,850,761 1,266,555
------------ ------------ ------------
Cash used per US GAAP 68,995 (21,875) (11,201)
============ ============ ============
i) Mineral Properties and Deferred Costs
Mineral properties and deferred costs are accounted for in
accordance with Canadian GAAP as disclosed in Note 3. For US
GAAP purposes, the Company expenses acquisition and
exploration costs relating to unproven mineral properties as
incurred and in addition has a related future income tax
recovery. When proven and probable reserves are determined for
a property, subsequent exploration and development costs of
the property are capitalized. The capitalized costs of such
properties would then be assessed, on a periodic basis, to
determine whether the carrying value can be recovered on an
F-23
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
undiscounted cash flow basis. If the carrying value cannot be
recovered on this basis, the mineral properties would be
written down to fair value determined using discounted cash
flows.
ii) Investments
The Company's marketable securities are classified as
available-for-sale investments under US GAAP and carried at
the lower of cost and market value for Canadian GAAP purposes.
Such investments are not held principally for the purpose of
selling in the near term and, for US GAAP purposes, must have
holding gains and losses reported as a separate component of
shareholders'equity until realized or until an other than
temporary impairment in value occurs.
iii) Accounting for Stock-Based Compensation
For US GAAP purposes, the Company accounted for stock-based
employee compensation arrangements using the intrinsic value
method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees"
until December 31, 2003.Under US GAAP, when stock options are
cancelled and immediately reissued at a revised price (the
"Repricing"), these options are accounted for as variable
compensation from the date of the Repricing. Under this
method, following the repricing date, compensation expense is
recognized when the quoted market value of the Company's
common shares exceeds the amended exercise price. Should the
quoted market value subsequently decrease, a recovery of a
portion, or all of the previously recognized compensation
expense, will be recognized.
During fiscal 2004, for US GAAP purposes, the Company has
adopted the fair based method of accounting for stock-based
compensation on a modified prospective basis in accordance
with FAS 148. This application is consistent with the early
application of CICA 3870 under Canadian GAAP (Note 3).
Accordingly, effective January 1, 2004, there is no difference
on accounting for stock-based compensation under Canadian and
US GAAP.
iv) Comprehensive Income
US GAAP requires disclosure of comprehensive income (loss)
which is intended to reflect all other changes in equity
except those resulting from contributions by and payments to
owners.
v) Spin-Off of Assets to Golden Arrow
Under Canadian GAAP a spin-off of assets is accounted for and
disclosed in accordance with CICA Handbook Section 3475
"Disposal of Long-Lived Assets and Discontinued Operations".
Under US GAAP, such a spin-off would be accounted for and
disclosed as a dividend in kind and would not require separate
carve-out of results in the statements of operations and cash
flows nor separate balance sheet classification.
F-24
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
vi) Recent Accounting Pronouncements
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board or
"FASB" issued Interpretation No. 46, Consolidation of Variable
Interest Entities, and an Interpretation of Accounting
Research Bulletin No. 51 ("FIN 46"). FIN 46 establishes
accounting guidance for consolidation of variable interest
entities by the primary beneficiary. FIN 46 applies to any
business enterprise, public or private, that has a controlling
interest, contractual relationship or other business
relationship with a variable interest entity. In December
2003, the FASB issued Interpretation No. 46R ("FIN 46 R")
which supersedes FIN 46 and is effective for all Variable
Interest Entities ("VIEs") created after February 1, 2003 at
the end of the first interim or annual reporting period ending
December 15, 2003. FIN 46 R is applicable to all VIEs created
prior to February 1, 2003 by public entities at the end of the
first interim or annual reporting period ending after March
15, 2004. The Company has determined that it has no VIEs.
In June 2003, the CICA issued a new accounting guideline
ACG-15, "Consolidation of Variable Interest Entities" which is
effective for interim and annual periods beginning on or after
November 1, 2004. ACG-15 harmonizes the accounting treatment
for variable interest entities with the US GAAP treatment
under FIN 46R.
Exchanges of Non-Monetary Assets
In December 2004, the FASB issued Statement No. 153 ("SFAS
153") "Exchanges of Non-monetary Assets". SFAS 153 replaces
guidance previously issued under APB Opinion No. 29,
"Accounting for Non-monetary Transactions", which was based on
the principle that exchanges of non-monetary assets should be
measured based on the fair value of the assets exchanged. The
guidance in that Opinion, however, included certain exceptions
to that principle. SFAS 153 amends Opinion 29 to eliminate the
exception for non-monetary exchanges of similar productive
assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance.
A non-monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly
as a result of the exchange. SFAS 153 is effective for
non-monetary exchanges occurring in fiscal periods beginning
after June 15, 2005. The Company will comply with this
guidance for any non-monetary transactions after the effective
date for U.S. GAAP purposes.
Whether Mineral Rights are Tangible or Intangible Assets
Effective for reporting periods beginning after April 29,
2004, the EITF released Issue 04-2, "Whether Mineral Rights
are Tangible or Intangible Assets". The consensus was that
mineral rights acquired on a business combination are tangible
assets and should be recorded as a separate component of
property, plant and equipment either on the face of the
financial statements or in the notes. The Company has not been
involved to date in a business combination but will comply
with the Issue in the future as required.
F-25
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
Mining Assets: Impairment and Business Combinations
Effective for reporting periods beginning after March 31,
2004, the EITF released Issue No. 04-3, "Mining Assets:
Impairment and Business Combinations". The EITF reached
consensus that an entity should include value beyond proven
and probable reserves in the value allocated to mining assets
in a purchase price allocation to the extent a market
participant would include such value in determining the fair
market value of the asset. The EITF also reached consensus
that an entity should include the effects of anticipated
changes in market prices of minerals when determining the fair
market value of mining assets in a purchase price equation in
a manner consistent with expectations of the marketplace.
An entity should also include cash flows associated with value
beyond proven and probable reserves in estimates of future
cash flows for determining if a mining asset is impaired under
SFAS 144. An entity should also anticipate fluctuations in
market prices when determining these cash flows.
The Company will comply with this Issue for any future
business combinations and impairment reviews.
Financial Instruments
On January 27, 2005, the CICA issued Section 3855 of the
Handbook titled "Financial Instruments - Recognition and
Measurement". It expands Handbook section 3860, "Financial
Instruments - Disclosure and Presentation" by prescribing when
a financial instrument is to be recognized on the balance
sheet and at what amount. It also specifies how financial
instrument gains and losses are to be presented. All financial
instruments will be required to be classified into various
categories. Held to maturity investments loans and receivables
are measured at amortized cost with amortization of premium or
discounts and losses and impairment included in current period
interest income or expense. Held for trading financial assets
and liabilities are measured at fair market value with all
gains and losses included in net income in the period in which
they arise. All available for sale financial assets are
measured at fair market value with revaluation gains and
losses included in other comprehensive income until the asset
is removed from the balance sheet except that other than
temporary losses due to impairment are included in net income.
All other financial liabilities are to be carried at amortized
cost. This new Handbook section will bring Canadian GAAP more
in line with U.S. GAAP. The mandatory effective date is for
fiscal years beginning on or after October 1, 2006, with
optional early recognition for fiscal years beginning on or
after December 31, 2004. At present, the Company's most
significant financial instruments are cash, accounts
receivable and accounts payable. This new section requires
little difference in accounting for these financial
instruments from current standards.
Hedge Accounting
New Handbook Section 3865, "Hedges" provides alternative
treatments to Handbook Section 3855 for entities which choose
to designate qualifying transactions as hedges for accounting
purposes. The effective date of this section is for fiscal
years beginning on or after October 1, 2006, with optional
early recognition for fiscal years beginning on or after
December 31, 2004.
The Company does not currently have any hedging relationships.
F-26
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
Comprehensive Income
New Handbook Section 1530, "Comprehensive Income", introduces
a new requirement to temporarily present certain gains and
losses outside of income. Section 1530 defines comprehensive
income as a change in value of net assets that is not due to
owner activities. Assets that are classified as available for
sale will have revaluation gains and losses included in other
comprehensive income until the asset is removed from the
balance sheet.
At present, the Company has investments in shares of arm's
length corporations that may be classified as available for
sale investments. The Company would be required to recognize
unrealized gains and losses on these securities and include
these amounts in comprehensive income. The effective date of
this section is for fiscal years beginning on or after October
1, 2006, with optional early recognition for fiscal years
beginning on or after December 31, 2004. Implementation of
this section will more closely align Canadian GAAP with U.S.
GAAP.
12. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the
Company as follows:
--------------------------------------------
2004 2003 2002
$ $ $
--------------------------------------------
Investing activities
Proceeds on disposition of mineral properties (252,000) (272,982) -
Acquisition of marketable securities 252,000 272,982 -
------------ ------------ ------------
- - -
============ ============ ============
Financing activities
Finder's fees payable - - (5,000)
Shares issued for payment of finder's fees - - 5,000
Shares issued on exercise of options 204,070 74,379 -
Contributed surplus (204,070) (74,379) -
------------ ------------ ------------
- - -
============ ============ ============
F-27
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
13. SUBSEQUENT EVENTS
a) Subsequent to December 31, 2004, the Company:
(i) granted 900,000 stock options for $4.16 per share to
its directors, employees and consultants for a period
of five years; and
(ii) issued 1,663,517 common shares for $4,267,345 on the
exercises of stock options and warrants.
b) Effective January 1, 2005, the Company engaged Grosso Group
Management Ltd., ("Grosso Group") to provide services and
facilities to the Company. As of April 21, 2005, a formal
agreement among the Company and the Grosso Group has not been
finalized. Until such time as the formal agreement has been
finalized, the Company and the Grosso Group intend to work
under the terms of the proposed Administration Services
Agreement by and among the Company and the Grosso Group. It is
anticipated that the formal agreement will have an effective
date of January 1, 2005. The Grosso Group is a private company
which will be owned by the Company, Golden Arrow, Amera and
Gold Point Exploration Ltd., each of which will own one share.
The Grosso Group will provide its shareholder companies with
geological, corporate development, administrative and
management services.
F-28
IMA EXPLORATION INC.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2004
INTRODUCTION
The following management discussion and analysis and financial review, prepared
as of April 21, 2005, should be read in conjunction with the Company's
consolidated financial statements and related notes. The consolidated financial
statements have been prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"). Except as otherwise disclosed all
dollar figures in this report are stated in Canadian dollars. Additional
information relevant to the Company can be found on the SEDAR website at
www.sedar.com.
FORWARD LOOKING STATEMENTS
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different than those
expressed or implied. The Company disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in Argentina. At
present, the Company has no producing properties and consequently has no current
operating income or cash flow. As of this date the Company is an exploration
stage company and has not generated any revenues. The Company is entirely
dependent on the equity market for its source of funds. There is no assurance
that a commercially viable mineral deposit exists on any of the properties.
Further evaluation and exploration will be required before the economic
viability of any of the properties is determined.
During the year ended December 31, 2004 the Company completed its
reorganization, which had the effect of transferring all the non-Navidad mineral
properties and related assets to a new corporation, Golden Arrow Resources
Corporation ("Golden Arrow"). The reorganization allowed the Company to focus
all its efforts and resources on the Navidad project located in Chubut Province,
Argentina. A Phase I drilling program commenced in November 2003 and continued
into March 2004. Phase II commenced in May 2004 and was completed in September
2004. Phase III commenced in November 2004 and is ongoing. These drilling
programs have returned excellent results. In March 2005 the Company engaged the
services of Augusto Baertl of Lima Peru to determine the economic feasibility of
the Navidad Project, through a contract with Mr. Baertl's company, Gestora de
Negocios e Inversiones SA. The Company expects that, with Mr. Baertl's
assistance, a pre-feasibility study will be undertaken as a first step in the
determination of the economic viability of Navidad. Mr. Baertl's mandate is a
continuing one whose objective is ultimately the achievement of commercial
production.
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action against
the Company seeking a constructive trust over the Navidad properties and
damages. The Company believes the Aquiline legal action is without merit and
continues to vigorously defend itself. A trial date has been scheduled for
October 2005. At this date the outcome is not determinable. The Company has not
made any provision for costs for which it might become liable in what management
considers the unlikely event of an adverse judgement.
PROPERTIES UPDATE
All mineral properties held by the Company, with the exception of the Navidad
property and the Navidad area properties discussed below, were transferred to
Golden Arrow in July 2004 on completion of the Company's reorganization.
-1-
F-29
NAVIDAD
On February 3, 2003 the Company announced the discovery of high-grade
silver-lead-copper mineralization at its 100% owned 10,000 hectare (24,700
acres) Navidad property in north central Chubut Province, Argentina. A Phase I
drilling program commenced in November, 2003 and was completed in late March
2004. A Phase II drill program commenced in late May 2004 and was completed in
September 2004. Subsequent to completion of the Phase II program, a program of
surface exploration including prospecting, geological mapping, ground geophysics
and soil sampling was commenced. A Phase III drilling program commenced in
November 2004 and, other than a break for Christmas, drilling continued to March
7, 2005. Subsequently the Company has announced that the Phase III program
budget has been increased to include an additional 10,000 metres of drilling and
drilling will resume in mid April 2005. In addition to its active exploration
program, the Company has an ongoing program of environmental baseline data
collection in the project area.
On May 25, 2004 the Company announced results of a resource estimation carried
out for the Galena Hill deposit and portions of the adjacent connector zone by
Snowden Mining Consultants Inc. The resource estimation for the Galena Hill
deposit, the first systematically drilled target on the Navidad property,
outlined an Indicated Resource of 207 million ounces of silver and 1.1 million
tonnes of lead at a 50 g/t silver equivalent cut-off grade (63.6 M tonnes at 101
g/t Silver and 1.76% lead). This resource includes a higher-grade core
containing117 million ounces of silver and 495,047 tonnes of lead at a 300 g/t
silver equivalent cut-off grade (13.2 M tonnes at 277 g/t silver and 3.76%
lead). Inferred Resources at Galena Hill total 36 million ounces of silver and
56,776 tonnes of lead at a 50 g/t silver equivalent cut-off grade (16.9 M tonnes
at 67 g/t silver and 0.3% lead).
Subsequent to the Phase II drill program, on December 1, 2004, the Company
announced the results of an updated resource estimate by Snowden Mining Industry
Consultants Inc. including the Navidad Hill and Connector Zone deposits. This
increased the overall project Indicated Resources by 61 million ounces of
contained silver using a 50 g/t silver equivalent cut-off grade. Resources
estimated to date on the project are presented in the table below.
--------------------------------------------------------------------------------
CONTAINED CONTAINED
TONNES SILVER SILVER LEAD SILVER LEAD
(m) (g/t) (oz/t) (%) (million (1,000
ounces) tonnes)
--------------------------------------------------------------------------------
GALENA HILL
Indicated 63.6 101 2.95 1.76 207 1,118
Inferred 5.8 43 1.26 0.56 8 33
--------------------------------------------------------------------------------
NAVIDAD HILL
Indicated 15.2 115 3.36 0.35 56 52
Inferred 3.4 97 2.83 0.74 11 25
--------------------------------------------------------------------------------
CONNECTOR ZONE
Indicated 2.1 74 2.16 0.27 5 6
Inferred 6.5 100 2.92 0.20 21 13
--------------------------------------------------------------------------------
PROJECT TOTAL
RESOURCES
Indicated 80.8 103 3.01 1.45 268 1,176
Inferred 15.7 78 2.28 0.45 39 71
--------------------------------------------------------------------------------
* Estimated using a 50 g/t silver equivalent cut-off grade
Detailed review of the geological interpretation and block model shows that the
Navidad Hill deposit and the Connector Zone remain open and insufficiently drill
tested in several areas. The Phase III drill program currently underway will
more fully test the boundaries of the Navidad Hill zone, with the intent to
increase the Indicated Resource at Navidad Hill and the Connector Zone.
The Phase I drill program at Navidad comprised 8,859.6 metres in 53 holes, 37 of
which were drilled on Galena Hill. Phase II drilling comprised 9,596.5 metres of
diamond core drilling in 67 holes. Drilling in the Phase II program focused on
the Esperanza Trend, the Barite Hill target, and on the Navidad Hill and
Connector Zone targets. Phase III drilling to date has comprised 9,526.2 metres
in 54 holes for a project total of 27,982.3 metres in 174 holes. Results from
the Phase III drilling have been described in news releases dated January 13,
March 4 and March 22, 2005. The Phase III drill program has focussed on drilling
in the Calcite Hill area and expansion and infill drilling on the Navidad Hill
and Connector Zone areas.
-2-
F-30
Galena Hill
The Galena Hill Deposit is hosted primarily within gently dipping
trachyandesitic volcanic breccias with a matrix of galena, pyrite, calcite, and
barite. These breccias are interpreted to have formed primarily by multiple
hydrothermal fluid pulses. Calcareous mudstones overlie the mineralized volcanic
breccias; these generally contain significant silver, lead and zinc values
within one to five metres of the volcanic-mudstone contact. Sulphides occur in
the mudstone both as crosscutting veinlets and as strataform beds suggesting a
syn-depositional timing for the mineralization event. The Galena Hill deposit
measures approximately 450 by 500 metres in plan view (at 50 g/t AgEq cut-off)
and is up to 125 metres thick in its centre. A total of 39 drillholes have been
completed to date to delineate the Galena Hill resource. Highlights from Phase I
drilling on Galena Hill include 115 metres of 497 g/t silver and 5.71% lead in
Drill Hole 14 and 63.0 metres of 418.4 g/t silver, including 20.6m of 703.0 g/t
silver, in Drill Hole 22.
Navidad Hill
A total of 53 drill holes have been completed to date at Navidad Hill. In
addition to the structurally controlled mineralization located on top of Navidad
Hill, near-surface stratigraphically controlled silver mineralization has now
been identified along the southwest and southeast flanks of Navidad Hill.
Intercepts of structurally controlled, near vertical mineralized bodies on the
top of Navidad Hill include hole NV04-110 which intersected 61.5 metres of 128
grams per tonne silver, including 5.34 metres of 1,006 grams per tonne silver.
Highlights of stratigraphically-controlled mineralization on the western flank
of the Navidad volcanic dome include the exceptional intercept from Drill Hole
NV04-90 that returned 35.8 metres of 2,850 grams per tonne (83.2 ounces per ton)
silver including 7.3 metres of 11,995 grams per tonne (350.3 ounces per ton)
silver starting from 16.5 metres depth. Drill Hole 90 was drilled at an
inclination of -45(degree) towards the northeast on the western flank of Navidad
Hill, approximately 275 metres northwest of Drill Holes 1 and 2 and in an area
of little or no outcrop. Bonanza-grade mineralization in Drill Hole 90 contains
semi-massive silver-copper-lead sulphides and/or sulphosalts. In several
locations native silver occurs as fine veinlets and grains up to 5 millimetres
in size. Further intercepts in the area include 28.15 metres of 1,115 grams per
tonne silver (32.6 ounces per ton) including 5.97 metres of 4,579 grams per
tonne (133.7 ounces per ton) in Drill Hole 117 and 58.68 metres of 208 grams per
tonne silver (6.1 ounces per ton) in Drill Hole 112.
Phase III drilling in the area of Drill Hole 90 included Drill Holes 139 to 142
which were completed to provide more detailed information on this zone of very
high-grade silver mineralization. Of these, Drill Holes 139 (17.8 metres of
1,037 g/t silver) and 142 (34.5 metres of 1,220 g/t silver) intersected
significantly higher grade than that predicted by the Snowden resource block
model. Drill Holes 157 to 161 were collared along the southern boundary of the
known resource at Navidad Hill and demonstrate that mineralization continues
beyond the limits of the Indicated portion of current resource estimation.
Connector Zone
At the Connector Zone 24 drill holes have been completed to date. Drilling has
demonstrated that both structurally and stratigraphically controlled high-grade
silver mineralization occurs in this area, as at Navidad Hill. In the
northwestern part of the Connector Zone (Drill Holes 40, 68, 105, 106, and 107),
the control on mineralization appears to be stratigraphic with the
mineralization occurring in the same stratigraphic position as at the Galena
Hill deposit and on the flank of Navidad Hill (Drill Hole 90). Highlights from
this mineralization style include 46.7 metres of 334 grams per tonne silver from
hole 107 and 13.3 metres of 545 grams per tonne silver from hole 105. In the
southeastern Connector Zone (Drill Holes 32, 86, 87, 108, 131, 153, 154, 155.
and 156), the controls on mineralization and the stratigraphic correlations are
less clear. Drill Hole 108 was drilled towards the east to cross a northerly
trending structural zone partially exposed on surface and intersected an
impressive 485 grams per tonne silver over 39.0 metres.
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F-31
Phase III drilling at the Connector Zone (holes 153-156) has intersected silver
mineralization over long intervals outside of the current Indicated Resource.
Results include 88.8 metres of 107 g/t silver in Drill Hole 153 and 28.8m of 148
g/t silver in Drill Hole 154; both intercepts start at surface. Mineralization
in Drill Holes 153 and 154 is open to expansion to the north and northwest. Both
step-out and infill drilling is required in this area and an updated resource
estimate will be undertaken when this is completed.
Calcite Hill
Near the end of the Phase II program a single hole, NV04-88, was drilled to test
favourable stratigraphy on the edge of Calcite Hill in an area where there are
few indications of mineralization or geochemical anomalies at surface. The hole
intersected 72.3 metres averaging 202 grams per tonne silver and 3.45% lead from
70.3 to 142.6 metres depth and included a higher-grade interval containing 12.4
metres averaging 672 grams per tonne silver. Drill Holes 88 was located
approximately 400 metres west of the nearest holes on Navidad Hill. The major
Calcite Hill silver-lead soil anomaly is located a further 340 metres to the
northwest of Drill Hole 88. The mineralization in NV04-88 comprises galena,
calcite and barite with minor amounts of native silver and argentinte-acanthite
(native silver had not been observed in any of the drill core from the Navidad
Project prior to Drill Hole 88).
Phase III drilling has now defined a mineralized zone approximately 275 metres
long by 100 metres wide by 50 to 120 metres deep at Calcite Hill. Highlights
from Phase III drilling at Calcite Hill include: 122.6 metres of 195 g/t silver
in Drill Hole 124; 196.1 metres of 113 g/t silver in Drill Hole 126; 123.6
metres of 139 g/t silver in Drill Hole 138; 46.6 metres of 300 g/t silver
including 10.3 metres of 1,257 g/t silver in Drill Hole 143; 83.0 metres of 209
g/t silver in Drill Hole 148; and 80.2 metres of 246 g/t silver including 25.3m
of 476 g/t silver in Drill Hole 151.
Mineralization encountered to date at Calcite Hill is predominantly hosted
within trachyandesite volcanic rock and to a lesser degree within mudstone which
overlies the volcanic rock. The volumetrically most important style of
mineralization consists of calcite-barite veinlets and breccias with
argentite-acanthite, native silver and lesser galena and chalcopyrite. In
general, this style of mineralization contains high silver grades with minor
amounts of lead and copper. In the upper portions of the host volcanic unit, and
in the overlying mudstone, mineralization tends to be lead-rich and consists
predominantly of medium-grained galena with moderate silver values. The Calcite
Hill soil anomaly extends for 1.4 km to the northwest of current drilling. A
resource estimate has not yet been done for Calcite Hill.
Esperanza Trend
A total of 10 drill holes have been completed to date in two areas along the 6
kilometre Esperanza Trend. Highlights include 2.7 metres of 831 grams per tonne
silver in Drill Hole 62 and 2.6 metres of 513 grams per tonne silver in Drill
Hole 79. Interestingly, Drill Hole 79 shows signs of the mineralization being
stratigraphically rather than structurally controlled as had been interpreted to
date in this area. Drill Hole 63 intersected 45.8 metres of 94 grams per tonne
silver, including 4.0 metres of 246 grams per tonne silver, 800 metres to the
northwest. In the same area, Drill Hole 82 intersected 54.6 metres of 64 grams
per tonne silver, including 26.1 metres of 106 grams per tonne silver and also
6.0 metres of 140 grams per tonne silver. These results confirm the high grades
and potential for a significant structurally and/or stratigraphically controlled
zone at Esperanza. Significantly more drilling will be required to evaluate the
6-kilometre Esperanza Trend.
Barite Hill
A total of 8 holes were completed at Barite Hill in Phase II. Although many of
these holes contain significant near surface intersections of galena matrix
breccia similar in style to that at Galena Hill, they have generally lower
silver and lead values. The most significant intercept was from Drill Hole
NV04-76 that cut 22.1 metres of galena matrix breccia averaging 34 grams per
tonne silver and 0.63% lead in the upper part of the hole and then intersected a
different style of mineralization deeper in the hole that contained 21.7 metres
of 88 grams per tonne silver including 8.4 metres of 191 grams per tonne silver.
This deeper mineralization is associated with calcite veining within a
fine-grained muddy sedimentary rock and is characterized by high silver to base
metal ratios.
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F-32
Loma de la Plata
The surface exploration program launched September 2004 resulted in the
discovery of the Loma de la Plata Zone, approximately 4 kilometres west of the
Galena Hill deposit, through grid soil sampling. At Loma de la Plata, an area of
approximately 400 x 400 metres has been systematically sampled with twelve lines
of continuous and semi-continuous channel samples; these sample lines range in
length from 12.5 to 135.9 metres. Highlights of channel samples include:
Line LP-1: 40.1 metres of 740 g/t silver
Line LP-3: 42.9 metres of 684 g/t silver
Line LP-4: 135.9 metres of 159 g/t silver
Line LP-7: 48.5 metres of 315 g/t silver
Line LP-2: 103.3 metres of 290 g/t silver
Line LP-9: 49.5 metres of 410 g/t silver
Line LP-10: 56.0 metres of 452 g/t silver
The Loma de la Plata zone is hosted within quartz-eye phyric trachyandesite
volcanic rocks that dip to the northeast at 15 to 45 degrees. Mineralization
occurs in micro-veinlets and breccia zones and consists primarily of minor
galena and copper oxides with common native silver. Preliminary geological
assessment indicates that the zone is hosted by a similar sequence of volcanic
and sedimentary rocks, in a similar stratigraphic position, to those that host
the Galena Hill deposit. The possibility of leaching, or alternatively
concentration, of silver values at or near surface cannot be determined from the
data available and drilling will be required to constrain this. No drilling has
been carried out on the Loma de la Plata zone to date.
Sector Zeta
At Sector Zeta, approximately 5 kilometres west of the Galena Hill Deposit,
seven sample lines ranging in length from 6.7 to 60.0 metres have been completed
covering an area of approximately 80 by 100 metres. Highlights of the Sector
Zeta results include:
Line Z-5: 8.0 metres of 105 g/t Silver and 1.14% Copper
Line Z-6: 12.0 metres of 112 g/t Silver and 1.13% Copper
Line Z-7: 12.0 metres of 133 g/t Silver and 3.27% Copper
Mineralization at Sector Zeta predominantly consists of green copper oxides
within argillicly altered latite volcanic rocks that are often brecciated. The
Company's geologists interpret that the volcanic rocks which host mineralization
here are part of the same volcanic unit that hosts mineralization at Galena and
Navidad Hills and also at Loma de la Plata. At present, the orientation of the
mineralized zone at Sector Zeta is unknown; drill data will be needed to
unambiguously define the geometry and size of the mineralization. The
possibility of leaching, or alternatively, concentration of silver and copper
values at or near surface, particularly at Sector Zeta in the case of copper,
cannot be determined from the data available to date and drilling will be
required; no drilling has been carried out in the Sector Zeta area.
Argenta Trend
On January 21, 2005 the Company released the results from a large expansion to
the soil sample grid and follow-up prospecting which uncovered a series of new
mineralized zones to the southeast of Loma de la Plata. The newly named "Argenta
Trend" includes Sector Zeta and Loma de la Plata and extends approximately six
kilometres to the southeast, parallel with the Esperanza and Navidad Trends.
A total of 1,366 new soil samples (including blanks and duplicates) were
collected at 50 metre intervals on lines spaced 200 metres apart and cover an
area of over 1,300 hectares to the south of the previous grid. The Argenta Trend
is highlighted by anomalous silver, lead and zinc values with subordinate and
sporadic anomalous copper. Prospecting and geological mapping along the Argenta
Trend has found several new zones of silver-lead, lead-silver, and silver-copper
mineralization. Results have been reported for 32 rock chip and grab samples
which range from below detection to high-grade silver, lead, and copper.
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F-33
Highlights include eight samples containing over 100 g/t silver (up to 290 g/t
silver), ten samples with over 10% lead (up to 29.7% lead), and two samples with
over 1% copper (up to 1.42%).
NAVIDAD AREA PROPERTIES
The Company has 18 exploration properties in Chubut Province in addition to
Navidad, several of which are the subject of joint venture agreements.
Regalo
Work by Consolidated Pacific Bay Minerals Ltd. ("Pacific Bay") on the Regalo
Property, currently under option from the Company, has identified highly
anomalous gold in soils and silt samples over a large area. In Pacific Bay's
January 12, 2005 news release, they report that in one zone, "Yastekt South",
the strong gold anomalies are consistent over almost one square kilometre. The
Yastekt South anomaly comprises 98 soil analyses that average 299 ppb gold.
Normal, "background" gold values in the area are less than 5 ppb. Two of the 98
soil analyses returned values in excess of 3 grams per tonne gold. Pacific Bay
is exploring the property for epithermal gold deposits and is planning to carry
out a trenching program on the property in the near future.
Other parties to the joint venture agreements in the Navidad area have agreed
not to seek TSXV approval for the agreements until certain legal and political
uncertainties can be resolved. Accordingly the Company did not complete the
terms of the agreements in 2004.
SELECTED ANNUAL FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the
audited consolidated financial statements and notes thereto. The information has
been prepared in accordance with Canadian GAAP.
---------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------
2004 2003 2002
$ $ $
---------------------------------------
Total Assets 12,221,856 13,419,876 8,636,895
Long Term Financial Liabilities Nil Nil Nil
Total Revenues Nil Nil Nil
General and Administrative Expenses 4,312,616 2,503,041 509,980
Loss from Continuing Operations (4,523,831) (2,449,243) (485,331)
Loss per Common Share from
Continuing Operations (0.11) (0.08) (0.02)
Loss allocated to Spin-Off Assets (131,232) (969,175) (954,775)
Net Loss (4,655,063) (3,418,418) (1,440,106)
Net Loss per Common Share Basic
and Diluted (0.11) (0.11) (0.06)
---------------------------------------
Total assets decreased $1,198,021 from December 31, 2004 and 2003 as a result of
the transfer of assets to Golden Arrow offset by corresponding increases in the
Company's cash balance and in the Navidad property carrying value. The increase
between 2003 and 2002 was a result of the increase in the Company's cash balance
and property additions. General and adminstrative expenses have increased due to
the increases in the activity level related to continued exploration at the
Navidad project and the necessary support required.
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F-34
SELECTED QUARTERLY FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the
unaudited consolidated interim financial statements of the Company. The
information has been prepared in accordance with Canadian GAAP.
---------------------------------------------------- ----------------------------------------------------
2004 2003
---------------------------------------------------- ----------------------------------------------------
DEC. 31 SEP. 3 JUN. 30 MAR. 31 DEC. 31 SEP. 30 JUN. 30 MAR. 31
$ $ $ $ $ $ $ $
---------------------------------------------------- ----------------------------------------------------
Revenues Nil Nil Nil Nil Nil Nil Nil Nil
Loss from Continuing
Operations (1,164,504) (492,562) (466,021) (2,400,744) (1,436,078) (586,158) (243,728) (183,279)
Loss per Common Share
from Continuing
Operations (0.03) (0.01) (0.01) (0.06) (0.04) (0.02) (0.01) (0.01)
Income (Loss)
Allocated to
Spin-off Assets Nil (Nil) (355,252) 224,020 (702,420) 22,656 (163,658) (125,753)
Net Loss (1,164,955) (492,562) (821,273) (2,176,273) (2,138,498) (563,502) (407,386) (309,032)
Net Loss per Common
Share Basic
and Diluted (0.02) (0.01) (0.02) (0.06) (0.07) (0.02) (0.01) (0.01)
---------------------------------------------------- ----------------------------------------------------
In the quarter ended December 31, 2004 the Company recorded stock-based
compensation of $101,150 compared to $1,141,415 in the comparable 2003 period.
Legal costs were substantially greater in the current period compared to the
previous year.
SUMMARY OF FINANCIAL RESULTS
The Company reported a consolidated loss of $4,655,063 ($0.11 per share) in
2004, an increase of $1,236,645 from the loss of $3,418,418 ($0.11 per share) in
2003. The increase in the loss in 2004, compared to 2003, was due to a number of
factors of which $1,148,400 can be attributed to operating expenses and $88,245
to other expense items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow are
described as "Spin-Off Assets Transferred" and the allocated expenses are
described as "Loss Allocated to Spin-Off Assets" in the consolidated financial
statements. This reclassification did not change previously reported total
losses. The allocation of expenses was calculated on the basis of the ratio of
the specific assets transferred to assets retained. The following discussion of
the 2004 expenses compared to the 2003 expenses is based on expenses as
originally reported.
RESULTS OF OPERATIONS
The Company's 2004 operating expenses were $4,312,616 an increase of $1,148,400
from the $3,164,216 originally reported for 2003. $661,175 of the 2003 operating
expense has been reclassified as "Loss Allocated to Spin-Off Assets" which
relate to the assets transferred to Golden Arrow. In 2004 $131,232 was allocated
to the Loss from Spin-Off Assets compared to $969,175 in 2003. The allocation
was calculated on the basis of the ratio of the specific assets transferred to
assets retained. Certain "Other Income and Expense" items have been allocated to
spin-off assets on the basis of the nature of the income or expense. In 2004
expenses increased as a result of increased activity at the Navidad project and
the support required at the corporate office.
Professional fees increased $597,017 to $894,780 in 2004, primarily due to legal
costs incurred in connection with the Aquiline legal action as well as increased
costs of compliance. During 2004 the Company recorded a non-cash expense of
$1,972,860 for stock based compensation for stock options granted to its
employees and directors, an increase of $485,625 from 2003. Other notable
changes in the operating expenses are: (i) Salaries increased $113,998 due to
staff increases (in 2004 the Company had an average of seven people on its
payroll compared to three in 2003); (ii) Travel increased $97,641due to travel
to conferences as well as to South America; (iii) Cost recoveries (for shared
administrative costs and rent) from Amera Resources Corporation and Golden Arrow
increased by $114,161; (iv) Corporate development and investor relations
decreased $62,026, as 2003 was a more active year in which the Company developed
investor awareness.
-7-
F-35
In 2004 the Company recorded a gain of $328,346 on the optioning of certain
properties to other mining exploration companies (plus $433,960 of gains
relating to the Spin-Off Assets) compared to $481,779 in total in 2003. In 2004
a write-down of $99,762 (2003 - $nil) for the carrying value of marketable
securities was recognized. Reorganization costs of $346,103 were recorded in
2004. An expense of $195,285 for foreign exchange was recorded in 2004 compared
to $25,916 in 2003. The foreign exchange adjustment is as a result of the
continued strength of the Canadian dollar compared to the US dollar in which the
majority of the inter-company transactions are denominated; when the
inter-company accounts are eliminated the difference is charged to foreign
exchange. The Company wrote down the value of its mineral properties and
deferred costs by $776,626 in 2003. In 2004 there were no write offs of mineral
properties and deferred costs. Interest and other income was $101,589 in 2004,
an increase of $35,028 from 2003, primarily as a result of an increase of funds
on deposit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at December 31, 2004 was $5,227,354, an increase of
$805,020 from December 31, 2003. Total assets decreased from $13,419,876 at
December 31, 2003 to $12,221,856 at December 31, 2004. This decrease in assets
resulted from the transfer of $7,364,878 net assets to Golden Arrow on the
reorganization of the Company offset by the increases in cash balance and
Navidad carrying value. During the year ended December 31, 2004 the Company
completed a brokered private placement for 1,500,000 units at $3.10 per unit,
for proceeds of $4,238,763, net of $339,000 agent's commission and $72,237 of
related issue costs.
In addition during 2004, options and warrants were exercised which resulted in
cash proceeds of $5,057,897 during the year. The Company paid $107,544 to Golden
Arrow from the exercise of warrants that resulted in the issue of Golden Arrow's
shares as required by the terms of the reorganization.
The Company has received $4,267,345 from the exercise of warrants and options
from January 1 to April 21, 2005. As at April 21, 2005 the Company had working
capital of approximately $6,500,000.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently does not have sufficient working capital to fund all of
its planned exploration and development work. The expanded work for Phase III of
the Navidad project has been approved in the amount of $2,000,000. The Company
will continue to rely on successfully completing additional equity financing to
further exploration and development of Navidad. There can be no assurance that
the Company will be successful in obtaining the required financing. The failure
to obtain such financing could result in the loss of or substantial dilution of
its interest in its properties.
The Company does not know of any trends, demand, commitments, events or
uncertainties that will result in, or that are reasonably likely to result in,
its liquidity either materially increasing or decreasing at present or in the
foreseeable future. Material increases or decreases in liquidity are
substantially determined by the success or failure of the exploration programs.
Effective January 1, 2005, the Company engaged Grosso Group Management Ltd.,
("Grosso Group") to provide services and facilities to the Company. As of April
21, 2005, a formal agreement among the Company and the Grosso Group has not been
finalized. Until such time as the formal agreement has been finalized, the
Company and the Grosso Group intend to work under the terms of the proposed
Administration Services Agreement by and among the Company and the Grosso Group.
This is not expected to result in a significant change to the Company's costs.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
OPERATING CASH FLOW
Cash outflow from operating activities in 2004 was $2,961,734, compared to cash
outflow in 2003 of $1,419,549 as a result of increases in activities.
-8-
F-36
FINANCING ACTIVITIES
In 2004 the Company received $9,707,897 from the sale of common shares, less
costs of $411,237 and $107,544 paid to Golden Arrow, compared to $6,467,245,
less costs of $188,850, in 2003.
INVESTING ACTIVITIES
Investing activities required cash of $4,509,717 in 2004 (2003 - $1,872,636),
these investing activities were for additions to the Navidad properties in
Argentina and $93,650 (2003 - $21,875) for equipment.
RELATED PARTY TRANSACTIONS
During fiscal 2004, the Company paid $476,226 (2003 - $330,600; 2002 - $136,276)
to directors and officers or companies controlled by directors and officers of
the Company, for accounting, management and consulting services provided. The
Company has agreements with a company controlled by the wife of the President of
the Company for the rental of office premises. During fiscal 2004, the Company
paid $74,870 (2003 - $60,924; 2002 - $60,924) for rent. The President of the
Company provides his services on a full-time basis under a contract with a
private company controlled by the President. The President is paid an annual
amount of $102,000. The contract also provides that, in the event the services
are terminated without cause or upon a change in control of the Company, a
termination payment would include a bonus of $6,500 per month, retroactive to
July 1, 1999, plus an additional three years of compensation at $15,000 per
month. If the termination had occurred on December 31, 2004, the amount under
the agreement would be $969,000.
CRITICAL ACCOUNTING POLICIES
Reference should be made to the Company's significant accounting policies
contained in Note 3 of the Company's consolidated financial statements for the
year ended December 31, 2004. These accounting policies can have a significant
impact of the financial performance and financial position of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
annual consolidated financial statements, direct costs related to the
acquisition and exploration of mineral properties held or controlled by the
Company have been capitalized on an individual property basis. For certain
acquisitions and related payments for mineral property interests, the Company
records a future income tax liability and a corresponding adjustment to the
related asset carrying amount. It is the Company's policy to expense any
exploration associated costs not related to specific projects or properties.
Management of the Company periodically reviews the recoverability of the
capitalized mineral properties. Management takes into consideration various
information including, but not limited to, results of exploration activities
conducted to date, estimated future metal prices, and reports and opinions of
outside geologists, mine engineers and consultants. When it is determined that a
project or property will be abandoned or its carrying value has been impaired, a
provision is made for any expected loss on the project or property. In 2004 no
impairment of long-lived assets was identified. In 2003 a write down of $776,626
was recorded to reflect Barrick's notice that they would not be exercising their
option on either of certain properties and allocated to the Loss from Spin-Off
Assets.
-9-
F-37
FINANCIAL INSTRUMENTS
The Company's financial instruments consisting of cash and cash equivalents,
amounts receivable, marketable securities and accounts payable and accrued
liabilities approximate their carrying values due to the short-term nature of
those instruments.
RISK FACTORS
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. Exploration for mineral resources involves a high degree of risk. The
cost of conducting programs may be substantial and the likelihood of success is
difficult to assess.
Metal Price Risk: The Company's portfolio of properties have exposure to
predominantly silver and lead. The prices of these metals, especially silver,
greatly affect the value of the Company and the potential value of its
properties and investments.
Financial Markets: The Company is dependent on the equity markets as its sole
source of operating working capital and the Company's capital resources are
largely determined by the strength of the junior resource markets and by the
status of the Company's projects in relation to these markets, and its ability
to compete for the investor support of its projects.
Political Risk: Exploration is presently carried out in Argentina. This exposes
the Company to risks that may not otherwise be experienced if all operations
were domestic. Political risks may adversely affect the Company's existing
assets and operations. Real and perceived political risk in some countries may
also affect the Company's ability to finance exploration programs and attract
joint venture partners, and future mine development opportunities.
Currency Risk: Business is transacted by the Company in a number of currencies.
Fluctuations in exchange rates may have a significant effect on the cash flows
of the Company. Future changes in exchange rates could materially affect the
Company's results in either a positive or negative direction.
Environmental Risk: The Company seeks to operate within environmental protection
standards that meet or exceed existing requirements in the countries in which
the Company operates. Present or future laws and regulations, however, may
affect the Company's operations. Future environmental costs may increase due to
changing requirements or costs associated with exploration and the developing,
operating and closing of mines. Programs may also be delayed or prohibited in
some areas. Although minimal at this time, site restoration costs are a
component of exploration expenses.
Title Risk: Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not guarantee the
Company's title. Such properties may be subject to prior agreements or transfers
and title may be affected by undetected defects.
SHARE DATA INFORMATION
As of April 21, 2005 there were 45,479,724 common shares and 4,456,000 stock
options outstanding.
INVESTOR RELATIONS
The Company currently does not engage any outside investor relations consultant.
Mr. Sean Hurd is the Company's Vice-President, Investor Relations and
coordinates investor relations' activities.
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