UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of NOVEMBER, 2005.
Commission File Number: 001-32558
IMA EXPLORATION INC.
--------------------------------------------------------------------------------
(Translation of registrant's name into English)
#709 - 837 West Hastings Street, Vancouver, British Columbia, V6C 3N6, Canada
--------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
IMA EXPLORATION INC.
-------------------------------------
Date: NOVEMBER 14, 2005 /s/ Joseph Grosso
------------------------------ -------------------------------------
Joseph Grosso,
President & CEO
IMA EXPLORATION INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTMEBER 30, 2005 and 2004
(UNAUDITED - PREPARED BY MANAGEMENT)
MANAGEMENT'S COMMENTS ON UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements of IMA
Exploration Inc. for the nine months ended September 30, 2005 have been prepared
by management and are the responsibility of the Company's management. These
statements have not been reviewed by the Company's external auditors.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM CONSOLIDATED BALANCE SHEETS
(UNAUDITED - PREPARED BY MANAGEMENT)
SEPTEMBER 30, DECEMBER 31,
2005 2004
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 10,644,399 5,227,354
Amounts receivable and prepaids 458,242 162,802
Marketable securities (Note 4) 186,000 186,000
------------ ------------
11,288,641 5,576,156
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Note 5) 10,554 94,102
MINERAL PROPERTIES AND DEFERRED
COSTS (Notes 2 and 6) 12,136,052 6,551,598
------------ ------------
23,435,247 12,221,856
============ =============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 886,819 523,378
FUTURE INCOME TAX LIABILITIES 1,315,945 885,093
------------ ------------
2,202,764 1,408,471
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7) 50,424,964 36,982,307
CONTRIBUTED SURPLUS 5,274,445 3,428,382
DEFICIT (34,466,926) (29,597,304)
------------ ------------
21,232,483 10,813,385
------------ ------------
23,435,247 12,221,856
============ ============
APPROVED BY THE BOARD OF DIRECTORS
/s/ DAVID HORTON , Director
------------------------
/s/ ROBERT STUART ANGUS , Director
------------------------
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED - PREPARED BY MANAGEMENT)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2005 2004 2005 2004
$ $ $ $
EXPENSES
Administrative and management services 39,870 41,051 112,184 109,945
Corporate development and investor relations 137,022 42,683 432,493 140,425
Depreciation - 4,536 - 10,284
General exploration 32,210 70,817 127,276 185,853
Office and sundry 41,366 24,244 118,539 59,447
Printing 5,567 1,159 32,822 21,532
Professional fees 656,337 84,713 1,244,654 432,285
Rent, parking and storage 34,140 29,533 75,203 64,086
Salaries and employee benefits 168,056 135,468 431,661 295,986
Stock based compensation - - 1,800,000 1,871,360
Telephone and utilities 7,480 7,635 23,228 21,704
Transfer agent and regulatory fees 87,252 16,412 192,697 56,068
Travel and accommodation 68,343 63,700 214,332 139,469
Cost recoveries - (58,525) - (91,746)
------------ ------------ ------------ ------------
1,277,643 463,426 4,805,089 3,316,698
------------ ------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (1,277,643) (463,426) (4,805,089) (3,316,698)
------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME)
Provision on marketable securities - - - 132,000
Foreign exchange (14,619) 61,665 9,095 (41,039)
Gain on disposition of mineral property
and deferred costs - - - (313,801)
Reorganization costs - (7,986) - 341,603
Interest and other income (29,632) (24,543) (90,428) (76,134)
------------ ------------ ------------ ------------
(44,251) 29,136 (81,333) 42,629
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (1,233,392) (492,562) (4,723,756) (3,359,327)
Loss allocated to spin-off assets - - - (131,231)
------------ ------------ ------------ ------------
LOSS FOR THE PERIOD (1,233,392) (492,562) (4,723,756) (3,490,558)
DEFICIT - BEGINNING OF PERIOD (33,233,534) (20,575,359) (29,597,304) (17,577,363)
DISTRIBUTION OF EQUITY ON - - (145,866) -
SPIN-OFF OF ASSETS (Note 2)
------------ ------------ ------------ ------------
DEFICIT - END OF PERIOD (34,466,926) (21,067,921) (34,466,926) (21,067,921)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER COMMON
SHARE FROM CONTINUING OPERATIONS $(0.03) $(0.01) $(0.10) $(0.08)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.03) $(0.01) $(0.10) $(0.09)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 46,095,667 42,346,541 45,315,439 40,189,505
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - PREPARED BY MANAGEMENT)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2005 2004 2005 2004
$ $ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (1,233,392) (492,562) (4,723,756) (3,490,558)
Net loss allocated to spin-off assets - - - (131,231)
------------ ------------ ------------ ------------
Net loss from continuing operations (1,233,392) (492,562) (4,723,756) (3,359,327)
Items not affecting cash
Depreciation - 4,536 - 10,284
Stock-based compensation - - 1,800,000 1,871,360
Provision on marketable securities - - - 132,000
Gain on disposition of mineral properties and - - - (313,801)
deferred costs
------------ ------------ ------------ ------------
(1,233,392) (488,026) (2,923,756) (1,659,484)
Change in non-cash working capital balances (335,079) 217,450 161,178 325,963
------------ ------------ ------------ ------------
(1,568,471) (270,576) (2,762,578) (1,333,521)
Cash used in spin-off operations - (105,594) - (89,593)
------------ ------------ ------------ ------------
(1,568,471) (376,170) (2,762,578) (1,423,114)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties and (1,823,131) (1,051,919) (5,153,602) (3,892,742)
deferred costs
Net mineral properties and marketable securities - - - (155,077)
cash flow related to spin-off assets
Purchase of equipment (1,371) - (9,629) (84,875)
------------ ------------ ------------ ------------
(1,824,502) (1,051,919) (5,163,231) (4,132,694)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 10,000,020 1,440,493 14,215,165 9,116,392
Share issue costs (726,445) - (726,445) (411,237)
Portion of warrants paid to Golden Arrow (103,059) (103,059)
Capital Contribution to Golden Arrow (750,000) (750,000)
------------ ------------ ------------ ------------
9,273,575 587,434 13,488,720 7,852,096
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,880,602 (840,655) 5,562,911 2,296,288
CASH TRANSFERRED TO GOLDEN
ARROW (Note 2) - - (145,866) -
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,880,602 (840,655) 5,417,045 2,296,288
CASH AND CASH EQUIVALENTS
- BEGINNING OF PERIOD 4,763,797 7,559,277 5,227,354 4,422,334
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS
- END OF PERIOD 10,644,399 6,718,622 10,644,399 6,718,622
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED - PREPARED BY MANAGEMENT)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2005 2004 2005 2004
$ $ $ $
CASH AND CASH EQUIVALENTS
COMPRISED OF:
Cash 644,399 1,918,622 644,399 1,918,622
Term deposits 10,000,000 4,800,000 10,000,000 4,800,000
------------ ------------ ------------ ------------
10,644,399 6,718,622 10,644,399 6,718,622
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
NAVIDAD
NAVIDAD AREAS IVA TAX TOTAL
$ $ $ $
Balance, beginning of period 5,770,968 112,694 667,936 6,551,598
------------ ------------ ------------ ------------
Expenditures during the period
Assays 262,484 - - 262,484
Communications 11,270 - - 11,270
Drilling 1,963,918 - - 1,963,918
Engineering 30,270 - - 30,270
Environmental 254,368 - - 254,368
Geophysics 170,045 170,045
Metallurgy 326,768 - - 326,768
Office and other 82,200 - - 82,200
Petrography 9,446 9,446
Salaries and Contractors 548,419 - - 548,418
Supplies and Equipment 236,966 - - 236,966
Transportation 219,184 - - 219,184
Project Development 458,284 - - 458,284
IVA Tax - - 579,980 579,980
------------ ------------ ------------ ------------
4,573,622 - 579,980 5,153,602
------------ ------------ ------------ ------------
Future income tax 430,852 - - 430,852
------------ ------------ ------------ ------------
Balance, end of period 10,775,442 112,694 1,247,916 12,136,052
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
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 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:
$
Cash and cash equivalents 1,166,055
Marketable securities and other current
assets and liabilities 548,841
Mineral properties and deferred cost and equipment 6,874,960
Future income tax liabilities (1,079,112)
------------
7,510,744
============
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
3. SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements of the Company have been
prepared by management in accordance with Canadian generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. The
consolidated financial statements have, in management's opinion, been
properly prepared using careful judgement with reasonable limits of
materiality. These interim consolidated financial statements should be
read in conjunction with the most recent annual consolidated financial
statements. The significant accounting policies follow that of the most
recently reported annual consolidated financial statements.
4. MARKETABLE SECURITIES
SEPTEMBER 30, 2005 DECEMBER 31, 2004
---------------------------- ----------------------------
RECORDED FAIR RECORDED FAIR
VALUE VALUE VALUE VALUE
$ $ $ $
Tinka Resources Limited
- 300,000 common shares 96,000 127,500 96,000 180,000
Consolidated Pacific Bay Minerals Ltd.
- 900,000 common shares 90,000 117,000 90,000 90,000
------------ ------------ ------------ ------------
186,000 244,500 186,000 270,000
============ ============ ============ ============
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.
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
SEPTEMBER 30, DECEMBER 31,
2005 2004
$ $
Office equipment and computers 10,764 231,724
Leasehold improvements - 96,634
10,764 328,358
------------ ------------
Less accumulated depreciation (210) (234,256)
------------ -------------
10,554 94,102
============ ============
On May 6, 2005, on the signing of an administrative services agreement,
the Company transferred the equipment and leasehold improvements to
Grosso Group Management Ltd. (the "Grosso Group") at their carrying
values as of December 31, 2004.
As of September 30, 2005 the Company has included in Accounts
Receivable $93,177 due from the Grosso Group for these assets.
See Note 8 (b)
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
6. MINERAL PROPERTIES AND DEFERRED COSTS
(a) The Company has either staked, fully paid or holds options to
acquire 100% working interests in mineral properties, located
in Chubut Province in Argentina.
(b) 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 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.
See also Note 2.
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
7. SHARE CAPITAL
Authorized: unlimited common shares without par value
100,000,000 preferred shares without par value
Issued: SEPTEMBER 30, 2005 DECEMBER 31, 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 43,816,207 36,982,307 36,381,452 27,707,597
------------ ------------ ------------ ------------
Issued during the period for:
Private placements 3,333,340 10,000,020 1,500,000 4,650,000
Exercise of warrants 1,485,517 3,638,145 5,371,285 4,275,149
Exercise of options 178,000 577,000 441,650 597,910
Exercise of agent's option - - 121,820 184,838
Less: Share issue costs - (903,778) - (552,273)
Contributed surplus reallocated
on exercise of options - 131,270 - 226,630
Proceeds collected and paid on
behalf of Golden Arrow shares - - - (107,544)
------------ ------------ ------------ ------------
4,996,857 13,442,657 7,434,755 9,274,710
------------ ------------ ------------ ------------
Balance, end of period 48,813,064 50,424,964 43,816,207 36,982,307
============ ============ ============ ============
(a) During the nine months ended September 30, 2005, the Company
completed a brokered private placement for 3,333,340 units at
$3.00 per unit, for proceeds of $9,273,575, net of $600,001
agent's commission and $126,444 of related issue costs. Each
unit consisted of one common share and one half common share
purchase warrant. Each full warrant entitles the holder
thereof to purchase one additional common share in the capital
of the Company at a price of $3.45 per share until September
14, 2009. In addition to the cash commission the underwriters
have been paid a commission of 7% (233,334) underwriter's
warrants. Each underwriter's warrant is exercisable for one
share at a price of $3.25, for a period of twenty four months,
expiring on September 12, 2007. The underwriter's warrants
were valued using the Black-Sholes Pricing Model. The warrants
at $0.76 per warrant for a total value of $177,333 have been
recorded as share issue costs with a corresponding increase to
contributed surplus. At September 30, 2005, no underwriter's
warrants had been exercised.
(b) Stock Options
During the nine months ended September 30, 2005, the Company
granted 900,000 stock options.
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 period:
Risk-free interest rate 3.32%
Estimated volatility 77%
Expected life 2.5 years
Expected dividend yield 0%
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
7. SHARE CAPITAL (continued)
The weighted average fair value per share of stock options,
calculated using the Black-Scholes option pricing model,
granted during the period was $2.00 per share.
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.
A summary of the Company's outstanding stock options at
September 30, 2005, and the changes for the nine months ended
September 30, 2005, is presented below:
OPTIONS WEIGHTED
OUTSTANDING AVERAGE
AND EXERCISE
EXERCISABLE PRICE
$
Balance, beginning of period 3,736,500 2.15
Granted 900,000 4.16
Exercised (178,000) 3.24
Expired (37,500) 3.92
------------
Balance, end of period 4,421,000 2.50
============
Stock options outstanding and exercisable at September 30,
2005, are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
205,000 0.40 July 19, 2006
119,000 0.50 May 2, 2007
115,000 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
1,372,000 3.10 March 24, 2009
50,000 4.20 December 01, 2009
865,000 4.16 March 16, 2010
----------
4,421,000
==========
(c) Warrants
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at September 30, 2005, and the changes for the
nine months ended September 30, 2005, is as follows:
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
7. SHARE CAPITAL (continued)
NUMBER
Balance, beginning of period 1,254,017
Granted 2,152,004
Exercised (1,485,517)
Expired (20,500)
------------
Balance, end of period 1,900,004
============
Common shares reserved pursuant to warrants and agent warrants
outstanding at September 30, 2005 are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
233,334 3.25 September 12, 2007
1,666,670 3.45 September 14, 2009
-----------
1,900,004
===========
The Company paid a portion of the proceeds received from the
exercise of warrants which were outstanding as of July 7,
2004, to Golden Arrow. Golden Arrow issued one common share of
its share capital on the exercise of every ten shares pursuant
to the exercise of the Company's warrants. None of these
warrants are outstanding as of September 30, 2005.
8. RELATED PARTY TRANSACTIONS
(a) During the nine months ended September 30, 2005, the Company
paid $173,588 to directors and officers or companies
controlled by directors and officers of the Company, for
accounting, management and consulting services provided.
(b) Effective January 1, 2005 the Company engaged the Grosso Group
to provide services and facilities to the Company. On May 6,
2005 an administrative services agreement among the Company
and the Grosso Group was finalized. The Grosso Group is a
private company owned by the Company, Golden Arrow, Amera
Resources Corporation and Gold Point Energy Ltd., each of
which owns one share. The Grosso Group provides its
shareholder companies with geological, corporate development,
administrative and management services on a cost recovery
basis. During the nine months ended September 30, 2005, the
Company paid $568,314 (plus deposit of $205,000) to the Grosso
Group.
(c) The Company has agreements with a company controlled by the
wife of the President of the Company for the rental of office
premises. Effective January 1, 2005 the Company subleased the
office premises to the Grosso Group.
(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
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
8. RELATED PARTY TRANSACTIONS (continued)
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
September 30, 2005, the amount under the agreement would be
$1,027,500.
Other related party transactions are disclosed elsewhere in these
interim consolidated financial statements.
9. 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 the nine months ended September 30,
2005.
The Company's total assets are segmented geographically as follows:
SEPTEMBER 30, 2005
--------------------------------------------
CORPORATE ARGENTINA TOTAL
$ $ $
Current assets 11,151,459 137,182 11,288,641
Equipment - 10,554 10,554
Mineral properties and
deferred costs - 12,136,052 12,136,052
------------ ------------ ------------
11,151,459 12,283,788 23,435,247
============ ============ ============
DECEMBER 31, 2004
--------------------------------------------
CORPORATE ARGENTINA 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
============ ============ ============
10. 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 has been advised by its lawyers that the Company
has a high probability of success at trial. On September 29, 2005 the
Company made an offer to Aquiline to settle the litigation. The Board
of Directors decided to make the offer due to the inherent risks of
litigation, to minimize the significant legal costs and most
importantly to allow the Company to continue with its business plan to
develop Navidad and unlock the true value of the Company which has been
significantly impaired by this legal action. The offer was summarily
rejected within 24 hours and the action continued on to trial. The
trial commenced on October 11, 2005 and is ongoing. At this date the
outcome is not determinable. The Company has not made any
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
10. CONTINGENCY (continued)
provision for costs for which it might become liable in what management
considers the unlikely event of an adverse judgment. The Company
continues to expense the legal and related costs of defending the
action as they are incurred and has not made a provision for the future
costs that will be incurred or their potential recovery from the
plaintiff.
11. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash financing activities were conducted by the Company as follows:
2005 2004
$ $
Investing activity
Proceeds on disposition of mineral
properties - 327,000
Acquisition of marketable securities - (327,000)
------------ ------------
- -
============ ============
Financing activity
Share issue costs (177,333) -
Contributed surplus 177,333 (93,140)
Shares issued on exercise of options - 93,140
------------ ------------
- -
============ ============
IMA EXPLORATION INC.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
INTRODUCTION
The following management discussion and analysis and financial review, prepared
as of November 14, 2005, should be read in conjunction with the Company's
consolidated interim financial statements for the nine months ended September
30, 2005 and audited annual 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. The ongoing exploration programs have returned excellent results.
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 has
been advised by its lawyers that the Company has a high probability of success
at trial. On September 29, 2005 the Company made an offer to Aquiline to settle
the litigation. The Board of Directors decided to make the offer due to the
inherent risks of litigation, to minimize the significant legal costs and most
importantly to allow the Company to continue with its business plan to develop
Navidad and unlock the true value of the Company which has been significantly
impaired by this legal action. The offer was summarily rejected within 24 hours
and the action continued on to trial. The trial commenced on October 11, 2005
and is ongoing. As of Nov.14, 2005 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
continues to expense the legal and related costs of defending the action as they
are incurred and has not made a provision for the future costs that will be
incurred or their potential recovery from the plaintiff.
Effective January 1, 2005, the Company engaged Grosso Group Management Ltd.,
("Grosso Group") to provide services and facilities to the Company. On May 6,
2005, an administrative services agreement was finalized and executed by the
Company and the Grosso Group. The Grosso Group is a private company which is
owned by the Company, Golden Arrow, Amera Resources Corporation ("Amera") and
Gold Point Energy Corp., each of which own one share. The Grosso Group provides
its shareholder companies with geological, corporate development, administrative
and management services. The Grosso Group staff is available to the shareholder
companies on a cost recovery basis without the expense of full time personnel.
The shareholder companies pay monthly fees to the Grosso Group. The fee is based
upon a reasonable pro-rating of the Grosso Group's costs including its staff and
-1-
overhead costs among each shareholder company with regard to the mutually agreed
average annual level of services provided to each shareholder company.
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 scoping 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.
PROPERTIES UPDATE
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. Phase III drilling commenced in November 2004 and was completed
in September 2005. In addition to its active exploration program, the Company
has an ongoing program of environmental baseline data collection in the project
area. The Company intends to continue expanding the silver and lead resources at
Navidad by systematically drill testing exploration targets as well as expanding
and better defining areas where resources have been defined.
On June 16, 2005 the Company announced the results of an updated resource
estimation carried out by Snowden Mining Industry Consultants Inc. ("Snowden"),
which included Indicated and Inferred Resources at Calcite Hill. IMA has now
defined continuous silver resources over a 2.3 kilometre strike length along the
Navidad Trend in the Galena Hill, Connector Zone, Navidad Hill and Calcite Hill
deposits. Inferred and indicated resources estimated to date on the Navidad
Project are presented in the table below:
NAVIDAD PROJECT INDICATED RESOURCES AT 50G/T SILVER EQUIVALENT CUT-OFF (1):
--------------------------------------------------------------------------------
CONTAINED CONTAINED
SILVER LEAD
DEPOSIT TONNES SILVER LEAD (million (thousand
(millions) (g/t) (%) ozs) tonnes)
--------------------------------------------------------------------------------
Galena Hill 63.6 101 1.76 207.3 1,117.8
Connector 2.1 74 0.27 4.9 5.6
Navidad Hill 15.2 115 0.35 56.3 52.4
Calcite Hill 12.0 83 0.75 32.2 90.5
--------------------------------------------------------------------------------
TOTAL INDICATED RESOURCE 92.8 101 1.36 300.7 1,266.4
--------------------------------------------------------------------------------
NAVIDAD PROJECT INFERRED RESOURCES AT 50 G/T SILVER EQUIVALENT CUT-OFF (1):
--------------------------------------------------------------------------------
CONTAINED CONTAINED
SILVER LEAD
DEPOSIT TONNES SILVER LEAD (million (thousand
(millions) (g/t) (%) ozs) tonnes)
--------------------------------------------------------------------------------
Galena Hill 5.8 43 0.56 7.9 32.6
Connector 6.5 100 0.20 20.9 12.9
Navidad Hill 2.9 103 0.77 9.6 22.5
Calcite Hill 0.05 28 0.66 0.05 0.35
--------------------------------------------------------------------------------
TOTAL INFERRED RESOURCE 15.2 78 0.45 38.4 68.3
--------------------------------------------------------------------------------
Notes:
1. Silver equivalent 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). No attempt has been made to adjust
these relative values by accounting for metallurgical recoveries as
insufficient or no information is available to do so. Metal prices have
been left unchanged from the prior estimate at Galena Hill in May 2004 in
order to simplify comparisons to the prior estimate.
2. The Galena Hill, Navidad Hill and Connector Zone Indicated Resources remain
unchanged from the Phase I and II resource estimations released on May 25,
2004 and December 1, 2004 except for restating of the Navidad Hill Resource
where a small change was made at the common border with the Calcite Hill
resource.
3. Strict quality control and quality assurance procedures have been observed
at all stages of data collection leading to this resource. Please see IMA's
website (www.imaexploration.com) for a detailed overview of these
procedures.
-2-
4. Resource categories (Indicated and Inferred) used here and the preparation
of this resource estimate conform to Industry Best Practices standards as
set out by National Instrument 43-101 "Standards of disclosure for mineral
projects" and those of the 2000 Canadian Institute of Mining, Metallurgy,
and Petroleum (the "CIM") "Standards on Mineral Resources and Reserves".
5. A National Instrument 43-101 Technical Report documenting the Snowden
Resource Estimate will be filed at www.sedar.com as is required by Security
Commission regulations.
6. An "INFERRED MINERAL RESOURCE" is that part of a Mineral Resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited
information and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes.
7. An "INDICATED MINERAL RESOURCE" is that part of a Mineral Resource for
which quantity, grade or quality, densities, shape and physical
characteristics, can be estimated with a level of confidence sufficient to
allow the appropriate application of technical and economic parameters, to
support mine planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable exploration and
testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that are spaced
closely enough for geological and grade continuity to be reasonably
assumed.
Detailed review of the geological interpretation and block model shows that the
Navidad Hill deposit, the Calcite Hill deposit and the Connector Zone remain
open and insufficiently drill tested in several areas. The Phase III drill
program which was recently completed more fully tested the boundaries of the
Navidad and Calcite Hill deposits, with the intent to increase the Indicated
Resources at the Navidad Project.
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.
The Phase III drilling program was completed in September 2005 and comprised
23,732 metres in 131 holes for a project total of 42,188 metres in 251 holes.
Results from the Phase III drilling have been described in News Releases dated
January 13, March 4 and March 22, April 19, June 21, August 17, September 29 and
October 13, 2005. The Phase III drill program has focussed on drilling in the
Calcite Hill and Calcite Hill Northwest Extension areas and expansion and infill
drilling on the Navidad Hill and Connector Zone areas. In addition five holes
were completed at the southern end of the Loma de la Plata prospect.
An updated resource estimation is currently being carried out by Snowden and
should be completed later in the year. Planning is underway for a Phase IV
drilling program which will include continued testing of Loma de la Plata,
additional step-out and infill drilling along the Navidad Trend and preliminary
testing of other targets along the Argenta Trend.
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 silver
equivalent cut-off) and is up to 125 metres thick in its centre. A total of 39
drillholes 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 hole 14
and 63.0 metres of 418.4 g/t silver, including 20.6 metres of 703.0 g/t silver,
in hole 22. During Phase III, hole 175 and 197 were drilled at Galena Hill in
order to collect metallurgical samples. Hole 175 intercepted 194 metres of 188
g/t silver and 5.8% lead including 49.8 metres of 481 g/t silver and 14.2% lead.
Hole 197 intercepted 74.04 metres of 239 g/t silver and 1.97% lead.
NAVIDAD HILL:
A total of 61 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.
-3-
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 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 tonne) including 5.97 metres of 4,579 grams per
tonne (133.7 ounces per tonne) in hole 117 and 58.68 metres of 208 grams per
tonne silver (6.1 ounces per tonne) in hole 112.
Phase III drilling in the area of hole 90 included holes 139 to 142 which were
completed to provide more detailed information on this zone of very high-grade
silver mineralization. Of these, 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. A number of new holes
collared outside of the southern boundary of the known indicated and inferred
resources at Navidad Hill intersected mineralization, including hole 207 which
intersected 27 metres of 80 g/t silver including 3.2m of 389 g/t silver.
CONNECTOR ZONE:
At the Connector Zone 36 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 (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 (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 (holes 32, 86, 87, 108, 131, 153, 154, 155. and 156), the
controls on mineralization and the stratigraphic correlations are less clear.
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.
Phase III drilling at the Connector Zone (holes 153-156 and 228-237)), aimed at
providing additional drill density to upgrade previously defined Inferred
Resources to the Indicated Resources category, intersected moderate-grade silver
mineralization over long intervals with rare high-grade structures (e.g. 2
metres of 2,171 g/t silver in hole 234) outside of the current Indicated
Resource. Results include 88.8 metres of 107 g/t silver in hole 153 and 28.8
metres of 148 g/t silver in hole 154, 26 metres of 104 g/t silver in hole 230,
37 metres of 107 g/t silver in hole 231, 21 metres of 237 g/t silver in 234, and
32 metres of 110 g/t silver in hole 237. Much of this mineralization starts at
or very near surface.
CALCITE HILL AND CALCITE HILL NORTHWEST EXTENSION:
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. Data from holes up to and including
drill hole NV05-174 were used in the June 16, 2005 resource estimate.
Highlights from Phase III drilling at Calcite Hill include: 122.6 metres of 195
g/t silver in hole 124, 196.1 metres of 113 g/t silver in hole 126, 123.6 metres
of 139 g/t silver in hole 138, 46.6 metres of 300 g/t silver including 10.3
metres of 1,257 g/t silver in hole 143, 83.0 metres of 209 g/t silver in hole
148, 80.2 metres of 246 g/t silver including 25.3 metres of 476 g/t silver in
hole 151, 27 metres of 407 g/t silver in hole 207 and 21 metres of 545 g/t
silver in hole 209.
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
-4-
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 Phase III drilling program included a number of holes completed on the
Calcite Hill Northwest Extension Zone where mineralization has been defined over
a 1200 metres strike length. The mineralization at Calcite Hill Northwest is
dominantly hosted in sedimentary rocks that overly the volcanic rocks which host
the majority of the mineralization at Navidad Project. Within the overlying
sediments strong clay alteration is widespread and affects pelites, sandstones
and conglomerates. Mineralization can be lead-rich with silver (hole 201), or
lead-poor but with minor values in copper and higher silver grades (holes 202
and 203). Fine-grained but visible, disseminated native silver was located
within a carbonaceous bed in hole 203. This is a new mode of occurrence of
silver at Navidad Project. At Calcite Hill Northwest mineralization appears to
be stratigraphically controlled and is disseminated in the host rock; veins or
feeder structures have not been recognized. The zone is nearly flat-lying, shows
good continuity from hole to hole and typically starts at shallow depths of 15
to 50 meters below surface.
Drilling at Calcite Hill Northwest has defined a central area of approximately
400 x 150 metres x 5 to 60 meters thick (defined by drill holes 178, 179, 202,
203 and 223-227). Highlights include: holes 178 and 179 (30.0 metres of 122 g/t
silver and 25.0 metres of 251 g/t silver, respectively), 202 (10 metres of 435
g/t silver), and 203 (29 metres of 154 g/t silver). Results outside the core
area include intercepts from holes 199 (31.1 metres of 62 g/t silver and 1.29%
lead) and 201 (22.5 metres of 104 g/t silver and 2.79% lead). Significant
further drilling will be required in the future to follow-up on identified
mineralization in the Calcite Hill Northwest area.
ESPERANZA TREND:
A total of 10 drillholes 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 hole 62 and 2.6 metres of 513 grams per tonne silver in hole 79.
Interestingly, hole 79 shows signs of the mineralization being stratigraphically
rather than structurally controlled as had been interpreted to date in this
area. 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, 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 during 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 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.
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
-5-
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.
Initial drilling of five holes at Loma de la Plata has confirmed the surface
discovery but has tested only a small portion of the known surface
mineralization. Trenches 7 and 10 are located up to 275 metres from the current
drilling and returned values of 48.5 metres of 315 g/t silver and 56.0 metres of
452 g/t silver, respectively. Of the five drill holes completed at Loma de la
Plata, two (241 and 242) were drilled at angles of -45 and were collared near
trenches where high-grade silver had been defined on surface. Hole 241 was
drilled under trenches 1 and 3 that returned 40.1 metres of 740 g/t silver and
42.9 metres of 684 g/t silver, respectively. Hole 242 was drilled under trench 2
which returned 103.3 metres of 290 g/t silver. The strong correlation between
surface results from trenching and sub-surface results from drilling suggests
that little or no surface enrichment of silver has occurred at Loma de la Plata.
The remaining three holes were collared 40 to 90 metres further to the east and
drilled at -60 angles. These holes (243-245) appear to have missed the
better-mineralized north-south trending zone as defined by trenches 1-3, 8, and
9 and drill holes 241 and 242.
Drilling at Loma de la Plata has confirmed the basic geological model of a
favourable, mineralized, upper-volcanic sequence comprised of quartz-eye bearing
trachyandesites. The units dip approximately 25 to 30 degrees towards the
northeast and the favourable unit is approximately 30 to 35 metres thick in the
area drilled to date. The form and shape of mineralized zones of veinlets and
brecciation is not yet well defined, but is hosted exclusively within the
trachyandesite upper volcanic rocks. Further drilling will be required to
confirm the orientation and ultimate size potential of this zone.
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 (see attached figure).
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. IMA
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 Argenta Trend
includes Sector Zeta and Loma de la Plata and extends approximately 8 kilometres
to the southeast, parallel with the Esperanza and Navidad Trends.
The Argenta Trend is highlighted by anomalous silver, lead and zinc values in
soils with subordinate and sporadic anomalous copper. Recent surface work along
the Argenta trend has discovered high-grade lead values over significant widths.
New discoveries include the "Bajo del Plomo", "Filo del Plomo" and "Ginger"
zones where lead values of up to 10.7% lead over 10 metres, 7.3% lead over 17
metres and 4.8% lead over 21 metres respectively, have been discovered. These
new discoveries are located southeast of the Loma de la Plata zone. With the
addition of the three new zones, the Argenta Trend now consists of five named
mineralized zones along an 8 kilometre strike length. Mineralization styles vary
from silver-copper rich at the northwest end at Sector Zeta, to silver-rich at
-6-
Loma de la Plata, to lead-dominant at Bajo del Plomo, Filo del Plomo and Ginger.
Mineralization is hosted by the same trachyandesitic volcanic rocks as the
Galena, Navidad, and Calcite Hill deposits, and in some cases in adjacent
sedimentary rocks. It appears to occur at approximately the same stratigraphic
position as the known resources but with significant differences in sedimentary
facies.
The Company now has over 58 square kilometres of geophysical surveying covering
and extending beyond the Navidad and Argenta Trends. The Galena Hill deposit has
a strong geophysical signature, while other deposits such as Navidad and Calcite
Hills have much more subtle signatures. This additional geophysical coverage
provides a wealth of information about the geology and structure at Navidad in
addition to highlighting new areas prospective for mineralized zones that may be
completely buried.
NAVIDAD AREA PROPERTIES:
The Company has 18 exploration properties in Chubut Province in addition to
Navidad. The Regalo property is currently the subject of a joint venture
agreement.
REGALO:
Work by Consolidated Pacific Bay Minerals Ltd. ("Pacific Bay") on the Regalo
Property, currently under option from IMA, has identified highly anomalous gold
in soils and silt samples over a large area. In a January 12, 2005 News Release,
Pacific Bay reported that the Yastekt South zone has strong associated gold
anomalies 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. In a June 21, 2005 press release,
Pacific Bay reported that an outcrop sample on Pacific Bay's Regalo project has
returned an assay value of 205 ppm uranium. On August 22, 2005 press release
Pacific Bay reported that a total of 163 rock samples were collected from 26
backhoe trenches excavated within the large soil and stream sediment anomalies
described above. Of these, 13 rock samples had detectable gold in the 6 to 41
ppb range. The trench samples identified anomalous arsenic, molybdenum, vanadium
and zinc pathfinder elements in porous, permeable sandstones and conglomerates
with strong quartz-hematite alteration.
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.
------------------------------------- -------------------------------------------------- -----------
2005 2004 2003
------------------------------------- -------------------------------------------------- -----------
SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 JUN. 30 MAR. 31 DEC. 31
$ $ $ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenues Nil Nil Nil Nil Nil Nil Nil Nil
Loss from Continuing
Operations (1,233,392) (973,950) (2,553,833) (1,164,504) (492,562) (466,021) (2,400,744) (1,436,078)
Loss per Common Share from
Continuing Operations (0.03) (0.02) (0.06) (0.03) (0.01) (0.01) (0.06) (0.04)
Income (Loss) Allocated to
Spin-off Assets Nil Nil Nil Nil Nil (355,252) 224,020 (702,420)
Net Loss (1,233,392) (973,950) (2,553,833) (1,164,955) (492,562) (821,273) (2,176,273) (2,138,498)
Net Loss per Common Share
Basic and Diluted (0.03) (0.02) (0.06) (0.02) (0.01) (0.02) (0.06) (0.07)
------------------------------------- -------------------------------------------------- -----------
SUMMARY OF FINANCIAL RESULTS
For the nine months ended September 30, 2005 the Company reported a consolidated
loss of $4,723,756 ($0.10 per share), an increase of $1,233,198 from the loss of
$3,490,558 ($0.08 per share) for the nine months ended September 30, 2004. The
increase in the loss in 2005, compared to 2004 amount, was due to a number of
factors of which $1,488,391 can be attributed to increases in operating expenses
and $255,193 decrease in other items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow were
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. A loss of $131,231 was
allocated to spin-off assets in the 2004 period.
-7-
RESULTS OF OPERATIONS
The Company's operating expenses for the nine months ended September 30, 2005
were $4,805,089 an increase of $1,488,391 from $3,316,698 in the 2004 period.
$339,519 of the 2004 operating expenses had been reclassified as "Loss Allocated
to Spin-Off Assets" which relate to the assets transferred to Golden Arrow. 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.
Professional fees increased $812,369 to $1,244,654 in the 2005 period, primarily
due to legal costs incurred in connection with the Aquiline legal action as well
as increased costs of compliance. In the 2005 period the Company recorded a
non-cash expense of $1,800,000 for stock based compensation for stock options
granted to its employees, consultants and directors, a decrease of $71,360 from
2004. Other notable changes in the operating expenses are: (i) Salaries
increased $135,675 due to staff increases (salaries in 2005 are a portion of the
monthly fee charged for services by the Grosso Group while in 2004 the Company
directly employed its staff); (ii) Travel increased $74,863 due to travel
related to conferences and investor presentations as well as to South America;
(iii) there are no cost recoveries (for shared administrative costs and rent)
from Amera or Golden Arrow in the 2005 period; (iv) Corporate development and
investor relations increased $292,068, as the Company has made its shareholders
and others more aware of its Navidad project and its potential, (v) Office and
Sundry increased $59,092 mainly due to the increase in insurance premiums and
increase in activity, (vi) Transfer agent and regulatory fees increased $136,629
mainly due to the costs of the Company's listing on the American Stock Exchange.
In the 2005 period the Company recorded interest income of $90,428 compared to
$76,134 in the 2004 period. In the 2004 period the Company recorded
reorganization costs of $341,603, there were no reorganization costs recorded in
2005. No gain or loss was allocated to spin-off assets in 2005, in 2004 a loss
of $131,231 was recorded.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at September 30, 2005 was $10,644,399, an increase
of $3,925,777 from September 30, 2004.
During the nine months ended September 30, 2005, the Company completed a
brokered private placement for 3,333,340 units at $3.00 per unit, for proceeds
of $9,273,575, net of $600,001 agent's commission and $126,444 of related issue
costs. Each unit consisted of one common share and one half common share
purchase warrant. Each full warrant entitles the holder thereof to purchase one
additional common share in the capital of the Company at a price of $3.45 per
share until September 14, 2009. In addition to the cash commission the
underwriters have been paid a commission of 7% (233,334) underwriter's warrants.
Each underwriter's warrant is exercisable for one share at a price of $3.25, for
a period of twenty four months, expiring on September 12, 2007. The
underwriter's warrants were valued using the Black-Sholes Pricing Model. The
warrants at $0.76 per warrant for a total value of $177,333 have been recorded
as share issue costs with a corresponding increase to contributed surplus. At
November 14, 2005, no underwriter's warrants had been exercised.
Options and warrants were exercised which resulted in cash proceeds of
$4,215,145 during the period. The Company paid $145,866 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. As all warrants that were
outstanding as of the effective date of the reorganization have been exercised
the Company has no further obligation to pay amounts to Golden Arrow for the
issue of its shares on the exercise of the Company's warrants.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently may 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 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.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
-8-
OPERATING CASH FLOW
Cash outflow from operating activities for the nine months ended September 30,
2005 was $2,762,578, compared to cash outflow for the same period in 2004 of
$1,423,114 as a result of increases in activities and changes in non-cash
working capital.
FINANCING ACTIVITIES
During the nine months ended September 30, 2005, the Company received
$14,215,165 from the issue of common shares from a brokered private placement
and on the exercise of warrants and options less costs of $726,445, compared to
$9,116,392, less costs of $411,237, for the same period in 2004. Capital
contribution of $750,000 and portion of warrants of $103,059 were paid to Golden
Arrow during the 2004 period as required by the terms of the reorganization.
INVESTING ACTIVITIES
Investing activities required cash of $5,163,231 during the nine months ended
September 30, 2005, compared to $4,132,694 for the same period in 2004, these
investing activities were primarily for additions to the Navidad properties in
Argentina.
RELATED PARTY TRANSACTIONS
Effective January 1, 2005, the Company engaged the Grosso Group to provide
services and facilities to the Company. On May 6, 2005, an administrative
services agreement among the Company and the Grosso Group was executed. During
the nine months ended September 30, 2005, the Company paid fees of $568,314
(plus deposit of $205,000) to the Grosso Group. The fees the Company pays to the
Grosso Group are allocated to various expense items that reflect the nature of
the actual costs; rent, salaries, investor relations, etc. These fees are
equivalent to costs the Company would have incurred directly.
During the nine months ended September 30, 2005, the Company paid $173,588 to
directors and officers or companies controlled by directors and officers of the
Company, for technical, 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. Effective as of January 1, 2005 the
Company subleased this office space to the Grosso Group. 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 September 30, 2005, the amount due
under the agreement would be $1,027,500.
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
-9-
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.
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. For a more complete discussion of these risks and others,
reference should be made to the December 31, 2004 Management Discussion and
Analysis.
SHARE DATA INFORMATION
As of November 14, 2005 there were 48,813,064 common shares, 1,900,004 warrants
and 4,421,000 stock options outstanding.
INVESTOR RELATIONS
The Company currently does not engage any outside investor relations
consultants. Mr. Sean Hurd is the Company's Vice-President, Investor Relations
and coordinates investor relations' activities.
-10-
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Joseph Grosso, President & Chief Executive Officer of IMA Exploration Inc.,
certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of IMA Exploration Inc. (the issuer) for
the interim period ending September 30, 2005;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the interim filings;
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the interim filings are being prepared; and
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
5. I have caused the issuer to disclose in the interim MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: November 14, 2005
/s/ JOSPEH GROSSO
-----------------------------------
Joseph Grosso,
President & Chief Executive Officer
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Arthur Lang, Chief Financial Officer of IMA Exploration Inc., certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of IMA Exploration Inc. (the issuer) for
the interim period ending September 30, 2005;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the interim filings;
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the interim filings are being prepared; and
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
5. I have caused the issuer to disclose in the interim MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: November 14, 2005
/s/ ARTHUR LANG
------------------------------------
Arthur Lang, Chief Financial Officer
-12-