RNS Number:9609Z
Adastra Minerals Inc
17 March 2006
17 March 2006
Consolidated Financial Statements
(Expressed in United States dollars)
Adastra minerals inc.
Three months ended January 31, 2006 and 2005
(Unaudited - Prepared by Management)
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of Adastra Minerals Inc. (the "Company") for
the three month periods ended January 31, 2006 and 2005, and related notes (the
"Consolidated Financial Statements") prepared in accordance with Canadian
generally accepted accounting principles. The following discussion and analysis
highlights significant changes since the discussion and analysis in the 2005
Annual Report, which should also be referred to for additional information. The
discussion is based on events that have occurred up to March 10, 2006. Except
as otherwise noted, all dollar amounts contained in this discussion and analysis
and the Consolidated Financial Statements are stated in U.S. dollars.
Additional information relating to the Company, including the Company's Annual
Information Form ("AIF"), is available on SEDAR at www.sedar.com.
Results of Operations
The Company incurred a net loss for the three months ended January 31, 2006, of
$3,192,793, or $0.04 per share, compared to a net loss of $741,817, or $0.01 per
share, for the three months ended January 31, 2005.
The results for the three months ended January 31, 2006, reflect the following
factors:
* There were $2,741,627 of costs incurred as a result of the unsolicited
offer by First Quantum Minerals Ltd. ("First Quantum") to acquire all the common
shares of the Company. In order to assess the unsolicited offer, the Company
appointed a special committee and engaged advisors, which resulted in these
costs being incurred during the quarter. There were no equivalent expenditures
in the first quarter of 2005.
* Administration expenses have decreased on an overall basis, compared
to the first quarter ended January 31, 2005. The decrease of 19% (from $901,893
for the quarter ended January 31, 2005, to $734,315 for the quarter ended
January 31, 2006) is principally due to decreased stock-based compensation and
investor relations fees, partly offset by increases in salaries and wages,
professional fees, and office and administration costs.
* The decrease in stock-based compensation in the quarter ended January
31, 2006, versus the corresponding quarter of 2005, partly reflects that no
options were granted during the first quarter of 2006, whereas 30,000 options
were granted in the first quarter of 2005. In addition, the stock-option
expense relating to options granted in prior periods with vesting dates during
the current or future quarters, was lower in the first quarter of 2006 than in
the comparative quarter of the previous year.
* Investor relations fees decreased primarily because an investor visit
to Kolwezi took place at the end of the first quarter in 2005, whereas the
corresponding visit in 2006 occurred at the beginning of the second quarter.
Also, certain costs related to the annual report and Indaba conference that were
incurred in the first quarter of 2005 have not been incurred until after the end
of the first quarter in 2006.
* Salaries and wages increased primarily due to United Kingdom employer
taxes associated with the exercise of stock options. No options were exercised
in the first quarter of 2005, and 582,500 options were exercised in the first
quarter of 2006. Reflecting the increasing workload of the Head Office, there
was also one additional staff member and more temporary help used compared to
the first quarter of the prior year.
* The higher professional fees during the first quarter of 2006,
compared to the corresponding period of 2005, are mainly due to higher general
corporate legal fees, and fees associated with filing the Company's Annual
Report on Form 20-F. There were also surveyor and legal fees relating to the
marketing and assignment of the lease on the Company's previous office in
London, England.
* Office and administration fees increased primarily due to the
Company's necessary relocation to larger offices. During the first quarter of
2006, the Company incurred moving costs, as well as telephone, and additional
I.T. costs associated with the relocation. The increase was mitigated to some
extent by he impact of an overall weakening of the British pound in comparison
to the U.S. dollar, which reduced the U.S. dollar expense reported in respect of
rent and other office costs at the London office that are incurred in British
pounds.
* Lower cash balances resulted in lower interest income during the
quarter, compared with the corresponding period of 2005. The Company holds some
of these cash balances in Canadian dollars and British pounds, in anticipation
of expenditures to be incurred in these currencies. The foreign exchange gain
of $210,830 during the quarter ended January 31, 2006 arose mainly because the
majority of the proceeds of a private placement of shares were received and
retained in British pounds, and the U.S. dollar weakened against the British
pound between the closing of the placement on December 22, 2005, and the end of
the quarter. Over the quarter ended January 31, 2006, as a whole, the U.S.
dollar strengthened against the British pound and weakened against the Canadian
dollar.
Liquidity and Capital Resources
As at January 31, 2006, the Company had cash and cash equivalents of
$10,280,351, compared to $5,595,972 at October 31, 2005, and had working capital
of $6,090,755, compared to $3,794,668 at October 31, 2005.
The increase in the cash balance during the quarter is mainly the result of a
private placement in December 2005, which generated net cash proceeds equivalent
to $8,160,214. Conventional exercises of 332,500 stock options during the
quarter provided net cash proceeds of $172,189. There were no warrants
exercised during the quarter. Offsetting these cash inflows during the quarter
were expenditures on the Kolwezi, DRC quarries, and Kipushi properties, the
acquisition of a lease and improvements to a new office in London, and the loss
from operations excluding the non-cash stock based compensation and amortization
expense.
The Company's Consolidated Financial Statements have been prepared assuming the
Company will continue on a going-concern basis. The Company has incurred losses
since inception, and the ability of the Company to continue as a going concern
over the long term depends upon its ability to develop profitable operations and
to continue to raise adequate financing. Management believes that the Company
has the ability to fund planned development activities for financial year 2006
from existing and anticipated cash resources and, if necessary, will be able to
raise financing in capital markets or from other third party participants in its
projects.
During the quarter ended January 31, 2006, there have been no material changes
in the critical accounting estimates as compared to those disclosed in the
Company's latest annual Management's Discussion and Analysis for the year ended
October 31, 2005 contained in its October 31, 2005 Annual Information Form, to
which the reader is referred.
Tabular Disclosure of Contractual Obligations
The Company is committed to payments under a number of operating leases for
various office premises and other accommodation through to May 2011. The
following table lists as of January 31, 2006 information with respect to the
Company's known contractual obligations.
In addition to the above, once all financing arrangements for the Kolwezi
Tailings Project to proceed with construction have been completed, CMD and any
other participating parties are committed to pay to Gecamines the $10,000,000
balance of the consideration for the Tailings Exploitations Rights ("TER").
(The initial $5,000,000 of the $15,000,000 total was paid during the 2004
financial year following the transfer of the TER to KMT).
The Company has not accrued debts, aggregating approximately $246,000, claimed
by certain former shareholders of IDAS, a subsidiary of the Company acquired in
1998, as the Company has not been able to verify the debts. There remain 13,078
common shares of the Company held in escrow for the same reason.
Mineral Property Projects
As at January 31, 2006, amounts capitalized in respect of mineral properties
increased to $24,320,208, from $21,760,738 at October 31, 2005, reflecting
$2,538,806 in costs incurred on the Company's Kolwezi Project and $20,664 on the
Company's DRC quarry licences.
Capitalized mineral property evaluation cost increased to $4,626,524, from
$4,538,897 at October 31, 2005, reflecting $87,627 costs incurred on the
Company's Kipushi Project.
Kolwezi Project, DRC
During the three months ended January 31, 2006, the Company concentrated
primarily on advancing its Kolwezi Project. The Kolwezi Project Definitive
Feasibility Study ("DFS") was completed in early March 2006. The projected
annual production capacities of approximately 5,900 tonnes of cobalt and 33,200
tonnes of copper are more than 7% higher for cobalt, and 10% higher for copper,
than the estimates Adastra announced in December 2004. Total project capital
costs (including owners' costs, engineering, procurement and construction fees
and contingencies, insurance, first-fill, and spares) are anticipated to be $306
million in October 2005 terms. The higher projected production levels more than
offset the operating and capital cost increases when calculating the net present
value of the Kolwezi Project.
In parallel with the DFS, negotiations have continued on a long term electricity
supply contract for the Project, on long term sales agreements and marketing
arrangements for the Project's output of cobalt and copper, and on preparations
for project financing.
In December 2005, the Company announced that it had mandated the Royal Bank of
Scotland as a senior arranger for an untied commercial bank tranche of the
Kolwezi Project financing for US$60-75 million with an eight year maturity; and,
in January 2006, that it had mandated Investec Bank Limited and the Industrial
Development Corporation of South Africa Limited to co-arrange a South African
export credit tranche of the project financing for $80-120 million with a ten
year maturity. In addition, other bilateral and multilateral lenders have
provided expressions of interest in providing senior and subordinated loans
amounting in aggregate to more than $150 million. Advanced negotiations for a
capital overrun facility of $30 million are underway with two public sector
lenders. The Company expects to start lender due diligence and detailed
documentation during the second quarter of financial year 2006.
Following the approval of the Environmental Assessment Plan by the DRC Ministry
of Mines' Direction chargee de la Protection de l'Environnement Minier ("DPEM")
in August 2005, work continued on an Environmental & Social Impact Assessment ("
ESIA") meeting Equator Principles and World Bank Guidelines: key requirements of
project finance lenders. (. The ESIA was completed and released in conjunction
with the DFS in early March 2006.
During fiscal 2005, the IDC and IFC both informed the Company that, subject to
certain conditions precedent, they would be exercising options under that
framework agreement to acquire interests in Kingamyambo Musonoi Tailings
S.A.R.L. ("KMT") (the company incorporated earlier in 2004 in the Democratic
Republic of Congo ("DRC") to own the mining title to the tailings and develop
the Kolwezi Project), and the Company's subsidiary Congo Mineral Developments
Limited ("CMD"); and on November 1, 2005 the IDC and IFC signed definitive
agreements to acquire, respectively, 10% and 7.5% interests in KMT. On
completion of these transactions the Company's interest in KMT will be reduced
to 65%, and CMD is scheduled to receive approximately US$12 million in cash.
Subsequent to quarter end, the Company announced it has reached an agreement
under which Mitsubishi Corporation will purchase a 14.9% state in the Kolwezi
Project, in return for, among other things, payment to Adastra of $37.5 million
in cash, provision of $12.5 million of shareholder loans to the Kolwezi Project
on Adastra's behalf and extension of completion guarantees to project lenders.
The agreement is subject to confirmatory due diligence, negotiation of
definitive documentation and approval of both companies' board of directors.
Kipushi Project, DRC
In fiscal year 2003, the Company and Gecamines agreed that priority should be
given to finalising the Kolwezi Contract of Association. Following the
execution of the latter in March 2004, negotiations on the proposed revisions to
the Kipushi Framework Agreement were planned to recommence. Meetings were,
however, postponed until after the end of fiscal year 2004, pending Gecamines'
detailed review of, and response to, the proposals previously submitted by the
Company.
Gecamines' response was received during the quarter ended January 31, 2005, and,
following discussion as to the appropriate way to take the Kipushi Project
forward, the Company began a technical and economic reassessment of the project
during the quarter ended July 31, 2005. This was completed during the quarter
ended January 31, 2006, and the results of this reassessment will form the basis
for finalising negotiations on a revised framework agreement with Gecamines.
Once agreement on the revisions has been reached, and necessary approvals have
been obtained from the government of the DRC, the Company expects that a full
feasibility study of the project will be undertaken. Kumba Base Metals Limited
can earn up to 50% of the Company's interest in the Kipushi Project by incurring
$3,500,000 (less already recognized expenditure by Kumba of $300,000) of
expenditures on the Project, including the conducting of feasibility studies.
Angolan Projects
During the year ended October 31, 2004, the Company found it impossible to
progress matters further with Endiama in relation to its rights with regard to
two mineral properties in Angola. In September 2004, it became clear that
Endiama had repudiated its contractual obligations. Consequently, the Company
announced that it would be seeking legal redress. The Company filed a legal
suit against Endiama in Texas, United States of America in May 2005 citing
breach of contract, negligent misrepresentations and other causes of action, and
requesting damages including loss of benefits, costs and expenses incurred in
connection with IDAS's efforts to acquire and develop the licences, and
professional fees. The case was transferred from a Texas State court to a Texas
Federal court on application by Endiama's lawyers: following which the Company's
lawyers have withdrawn the legal suit in Texas and, in early March 2006,
re-filed it with a US Federal court in Washington D.C.. Although the Company
has been advised by counsel that it has a strong case against Endiama, the
outcome of litigation can never be predicted with certainty.
The Company's presence in Angola remains at a minimal level pending the outcome
of the legal action being taken against Endiama in the United States of America,
and the Company is expensing all costs incurred in connection with Angola since
the end of the 2005 Financial Year.
DRC Quarries
During the quarter ended January 31, 2006, the Company announced that it had
acquired ten quarry licences in the DRC (two for aggregates, located close to
Kolwezi; and eight for limestone, located approximately 45 km north-east of
Kolwezi). Work has begun on evaluating these licences, and in particular
regarding the quarries' potential to supply aggregate for use during
construction of the Kolwezi Tailings plant, and to supply limestone and lime
during the plant's operations.
Related Party Transactions
During the quarter ended January 31, 2006, the Company paid or accrued an
aggregate of $109,660 (2005 - $57,453) for legal services to a law firm in which
a director of the Company is a partner. In addition, the Company has paid or
accrued $nil (2005 - $1,000) for consulting services to a non-executive
director, and $nil (2005 - $ 5,860) for consulting services to a company in
which a director has an interest.
Risk Factors
The risk factors affecting the Company are substantially unchanged from those
disclosed in the October 31, 2005 annual Management's Discussion & Analysis
contained in its October 31, 2005 Annual Information Form , to which the reader
is referred.
Summary of quarterly results
A summary of quarterly results for each of the eight most recently completed
quarters is as follows:
2006 2005 2004
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Interest income $ 72,454 $ 61,045 $ 81,339 $ 99,126 $ 110,172 $ 101,794 $ 99,675 $ 111,048
Loss for period $ 3,192,793 $ 583,602 $ 485,774 $ 807,283 $ 741,817 $ 429,328 $ 601,173 $ 2,465,791
Basic and
diluted $ 0.04 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.04
loss per share
The main factors underlying the variations in these quarterly results are the
unsolicited offer in the first quarter of 2006 for all the Company's common
shares (significant costs were incurred in evaluating the offer), exchange rate
fluctuations (particularly in the value of the U.S. dollar against the Canadian
dollar and British pound), and the timing of the granting of options (a
relatively large grant of stock options was made in the second quarter of fiscal
2004, with consequent increase in administration costs and losses in that and
the following four quarters).
Forward Looking Statements
This discussion contains forward-looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995 concerning the
Company's plans for its Kolwezi Project, the Kipushi Project and the Angola
Project and the resource size and economic potential of those projects. These
forward-looking statements are subject to a variety of risks and uncertainties
which could cause actual events or results to differ materially from those
reflected in the forward-looking statements, including without limitation, risks
and uncertainties relating to political risks involving the Company's operations
and the policies of other nations and organizations towards companies doing
business in such jurisdictions, the inherent uncertainty of production and cost
estimates and the potential for unexpected costs and expenses, commodity price
fluctuations, the inability or failure to obtain adequate financing on a timely
basis, and other risks and uncertainties, including those described in the
Company's Annual Report on Form 20-F for the year ended October 31, 2005 and
Reports on Form 6-K filed with the Securities and Exchange Commission.
Contact us:
London
Tim Read Justine Howarth / Cathy Malins
Chief Executive Officer Parkgreen Communications
T: +44 (0)20 7355 3552 T: +44 (0)20 7493 3713
F: +44 (0)20 7355 3554 F: +44 (0)20 7491 3936
E: london@adastramin.com E: justine.howarth@parkgreenmedia.com
North America
Martti Kangas
The Equicom Group
T: +1 416 815 0700 x. 243
+1 800 385 5451 (toll free)
F: +1 416 815 0080
E: mkangas@equicomgroup.com
ADASTRA MINERALS INC.
(Unaudited - Prepared by Management)
Notice of no auditor review of interiM financial statements
Under National Instrument 51-109 Part 4 Subsection 4.3(3)(a), if an auditor has
not performed a review of interim financial statements, they must be accompanied
by a notice indicating that the financial statements have not been reviewed by
an auditor.
The unaudited interim financial statements of the Company as at January 31, 2006
and for the three months ended January 31, 2006 and 2005, were prepared by, and
are the responsibility of the Company's management.
The Company's independent auditor did not perform a review of these interim
financial statements in accordance with the standards established by the
Canadian Institute of Chartered Accountants for a review of interim financial
statements by an entity's auditor.
ADASTRA MINERALS INC.
Consolidated Balance Sheets
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
January 31, October 31,
2006 2005
Assets
Current assets:
Cash and cash equivalents $ 10,280,351 $ 5,595,972
Amounts receivable and prepaid
expenses 573,430 486,538
10,853,781 6,082,510
Equipment 439,272 199,802
Mineral properties (note 2) 24,320,208 21,760,738
Mineral property evaluation costs
(note 3) 4,626,524 4,538,897
$ 40,239,785 $ 32,581,947
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 4,763,026 $ 2,287,842
Non-controlling interest 8,750 8,750
Shareholders' equity:
Share capital (note 4(a)) 76,073,009 67,348,642
Contributed surplus (note 4(d)) 5,336,109 5,685,029
Deficit (45,941,109) (42,748,316)
35,468,009 30,285,355
$ 40,239,785 $ 32,581,947
Subsequent events (notes 6 and 7) See accompanying notes to consolidated
financial statements
ADASTRA MINERALS INC.
Consolidated Statements of Operations and Deficit
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
Three months ended January 31, 2006 and 2005
2006 2005
Administration costs:
Amortization $ 4,154 $ 2,910
Bank charges and interest 2,557 1,566
Investor relations 54,171 78,135
Office and administration 106,034 92,002
Professional fees 144,834 75,426
Regulatory authorities filing fees 70,773 57,231
Salaries and wages 235,550 167,151
Stock-based compensation (note 4) 103,011 419,053
Transfer agent 4,842 1,260
Travel and accommodation 8,389 7,159
734,315 901,893
Other items:
Interest income (72,454) (110,172)
Mineral property evaluation costs 135 -
Foreign exchange gain (210,830) (49,904)
Offer assessment costs (note 6) 2,741,627 -
2,458,478 (160,076)
Loss for the period (3,192,793) (741,817)
Deficit, beginning of period (42,748,316) (40,129,840)
Deficit, end of period $ (45,941,109) $ (40,871,657)
Basic and diluted loss per share $ (0.04) $ (0.01)
Weighted average number of common shares
outstanding 74,568,755 70,735,925
See accompanying notes to consolidated financial statements
ADASTRA MINERALS INC.
Consolidated Statements of Cash Flows
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
Three months ended January 31, 2006 and 2005
2006 2005
Cash provided by (used in):
Operations:
Loss for the period $ (3,192,793) $ (741,817)
Items not involving cash:
Amortization 4,154 2,910
Stock-based compensation 103,011 419,053
(3,085,628) (319,854)
Changes in non-cash operating working
capital:
Increase in amounts receivable and
prepaid expenses (86,892) 72,429
Increase in accounts payable and accrued
liabilities 2,475,184 (276,091)
(697,336) (523,516)
Investments:
Purchase of property, plant and equipment (245,352) (6,414)
Expenditures on mineral properties (2,557,833) (1,684,798)
Expenditures on mineral property evaluation
costs (87,536) (25,241)
(2,890,721) (1,716,453)
Financing:
Issue of share capital on private
placement, net 8,160,214 -
Issue of share capital on exercise of
options 172,189 -
Cash settlement of taxes on option exercises (59,967) -
8,272,436 -
Increase (decrease) in cash 4,684,379 (2,239,969)
Cash, beginning of period 5,595,972 16,264,314
Cash, end of period $ 10,280,351 $ 14,024,345
Cash is defined as cash and cash equivalents.
Supplementary disclosure:
Interest received, net $ 72,026 $ 110,172
See accompanying notes to consolidated financial statements
ADASTRA MINERALS INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
Three months ended January 31, 2006 and 2005
1. Significant accounting policies:
These consolidated financial statements of Adastra Minerals Inc. (the "Company")
do not include all disclosures required by Canadian generally accepted
accounting principles for annual financial statements, and accordingly, these
consolidated financial statements should be read in conjunction with the
Company's most recent annual consolidated financial statements. These
consolidated financial statements follow the same accounting policies and
methods of application used in the Company's annual audited consolidated
financial statements as at and for the year ended October 31, 2005.
2. Mineral properties:
Amounts deferred in respect of mineral properties consist of the following:
DRC Zambia
DRC Kolwezi Quarries Angola Solwezi Total
Balance, October 31, 2005 $ 20,546,346 $ - $ 1,214,391 $ 1 $ 21,760,738
Capital equipment 1,637 - - - 1,637
Consulting 1,497,027 19,264 - - 1,516,291
Exploration office and
accounting 174,437 - - - 174,437
Interest received (1,907) - - - (1,907)
Legal 176,285 1,400 - - 177,685
Salaries 421,862 - - - 421,862
Site management 6,715 - - - 6,715
Travel 262,750 - - - 262,750
2,538,806 20,664 - - 2,559,470
Balance, January 31, 2006 $ 23,085,152 $ 20,664 $ 1,214,391 $ 1 $ 24,320,208
(a) Democratic Republic of Congo: Kolwezi
Since October 1998, the Company's subsidiary, Congo Mineral Developments
Limited, ("CMD") has signed and/or initialled various agreements with La
Generale des Carrieres et des Mines ("Gecamines") and/or the Government of the
Democratic Republic of Congo ("GDRC"), governing the terms of the Kolwezi
Tailings Project (the "Project"). In March 2004, CMD, GDRC and Gecamines signed
a Contract of Association (the "CoA") governing the Project and the ownership
and management of Kingamyambo Musonol Tailings S.A.R.L. ("KMT"), the company
incorporated earlier that month in the Democratic Republic of Congo to own the
mining title to the tailings and develop the Project. In accordance with the
CoA, the Tailings Exploitation Rights to the Project have been transferred to
KMT.
2. Mineral properties (continued):
(a) Democratic Republic of Congo: Kolwezi (continued):
The Company initially owned 82.5% of KMT, with Gecamines and GDRC owning 12.5%
and 5.0% respectively. The CoA recognizes the framework agreement that was
entered into by the Company in February 2003 for the Industrial Development
Corporation of South Africa Limited ("IDC") and the International Finance
Corporation ("IFC") to participate in the Project. During fiscal year 2005, the
IDC and the IFC both informed the Company that, subject to certain conditions
precedent, they would be exercising options under that framework agreement to
acquire interests in KMT from CMD; and on November 1, 2005, the IDC and IFC
signed definitive agreements to acquire, respectively, 10% and 7.5% interests in
KMT. Following the completion of these transactions, the Company's interest in
KMT will be 65%.
Under the CoA, KMT is to pay Gecamines a total of $15,000,000 as consideration
for the Tailings Exploitation Rights ("TER"): $5,000,000 was paid following the
transfer to KMT of the TER on May 27, 2004, and $10,000,000 will be paid
following the completion of all financing arrangements for the Project. The
$15,000,000 is to be provided to KMT by CMD and other participating parties such
as the IDC and IFC based on their pro rata ownership of the Project excluding
Gecamines and GDRC's percentage ownership. Gecamines is to receive an annual
dividend of the greater of its ordinary dividend and 2.5% of free cash flow (as
defined) for each year from start-up until senior debt and subordinated loans
(including all interest thereon) have been fully reimbursed. Thereafter,
Gecamines will be entitled to an annual dividend based on 10% of the average
price realized for cobalt sold in a year in excess of $10.00 per pound (adjusted
for inflation) in addition to any ordinary dividend received by Gecamines,
providing that ordinary dividends are paid in such year.
CMD and the participating parties are to complete feasibility studies, carry out
an environmental impact study, draw up an environmental management plan and
obtain commitments for financing the Project by November 27, 2007 (a time period
of three years and six months from transfer date of the mining rights).
(b) Democratic Republic of Congo: Quarries
In 2005, the Company's subsidiary, Roan Prospecting and Mining Sprl, obtained
exploration rights for quarries in the DRC. The rights cover ten concession
areas: eight for limestone, and two for aggregates. The renewable licences have
an initial term of one year. During the quarter ended January 31, 2006, the
Company began work on these licences.
2. Mineral properties (continued):
(c) Angola:
During the year ended October 31, 2001, the Government of Angola awarded two
licences to Endiama E.P. ("Endiama"), the Angola state mining company, for
properties to be explored and developed with the Company's wholly owned
subsidiary, IDAS Resources N.V. ("IDAS"), a Netherlands Antilles company. These
properties are a prospecting licence which comprises approximately 2,690 km2 in
the Cuango River floodplain and an adjacent exploitation licence ("Camutue")
which comprises approximately 246 km2. Both licences are in the Provinces of
Luanda-Norte and Malange, Angola. IDAS had been acquired by the Company in
1998, and under the terms of the share purchase agreement, the vendors retained
a net profits interest equal to 20% of the profits, to a maximum of $56,000,000,
resulting from IDAS' share of income from operations of its then Angola mineral
properties. The covered properties include the licence areas mentioned above.
"Profits" means the actual and distributable proceeds received by IDAS from the
properties, to be calculated based on international generally accepted
accounting principles.
During the year ended October 31, 2002, IDAS entered into a Heads of Agreement
with Endiama and Twins Ltd. ("Twins"), a company representing private sector
Angolan interests. The Heads of Agreement governed the ownership structure
relating to the two licences in Angola and the obligations of the parties. The
parties agreed to the formation of a new company (later agreed to be called "
Luminas") which would exercise the mining rights. The financing of the project
was to be undertaken by IDAS. IDAS was to own 51% of the share capital of
Luminas for the period of time that any loans to Luminas by IDAS remained
outstanding. Endiama was to own 38% and Twins 11%. Once the loans had been
repaid in full, IDAS was to own 49%, Endiama 38% and Twins 13%. IDAS also
verbally agreed, and subsequently completed formal drafting of, arrangements
with Twins to ensure IDAS' continued voting control of Luminas. The Heads of
Agreement and a subsequent agreement entered into by the parties set out the
repayment terms of the loans from cash flows and called for a minimum investment
of $1,500,000 by IDAS for each of the two licences. IDAS was to pay 10% of its
dividends to Endiama during the first eighteen months of production. The board
of directors of Luminas was to be comprised of five members of whom three were
to be nominated by IDAS. However, IDAS was unable to progress matters further,
and the Company believes that Endiama has repudiated its contractual
obligations. Consequently, the Company filed a legal suit against Endiama in
Texas, USA, on May 18, 2005 citing breach of contract, negligent
misrepresentation and other causes of action, and requested damages including
loss of benefits, costs and expenses incurred in connection with IDAS's efforts
to acquire and develop the licences, and professional fees. Legal action
continues to be pursued in the United States of America.
2. Mineral properties (continued):
(d) Zambia:
The Company held a prospecting licence, which covered approximately 950 km2 in
the Solwezi District in the Republic of Zambia. The Company applied for renewal
of the licence in relation to a reduced area of 441 km2. This was received in
October 2005 and is valid until September 30, 2006.
3. Mineral property evaluation costs:
Amounts deferred in respect of mineral property evaluation costs consist of the
following:
Democratic Republic of Congo - Kipushi evaluation costs:
Amount
Balance, October 31, 2005 $ 4,538,897
Capital equipment 91
Consulting 57,427
Exploration office and accounting 6,193
Legal 145
Salaries 21,925
Travel 1,846
87,627
Balance, January 31, 2005 $ 4,626,524
During the year ended October 31, 1996, the Company entered into a two year
exclusive framework agreement (the "Gecamines Agreement") with Gecamines
relating to the rehabilitation of the Kipushi zinc and copper mine in the
southern region of the DRC. During the year ended October 31, 1998, the Company
received confirmation from Gecamines that because delays have occurred in the
research of the definition of the mining and metallurgical treatment phase of
the project, requirements for the completion of feasibility studies by the
Company will be delayed until a period of up to 12 months after the completion
of this definition phase, such starting date to be agreed upon by the Company
and Gecamines, and which the Company now expects to be in 2006.
3. Mineral property evaluation costs (continued):
As part of the Gecamines Agreement, the Company has agreed to prepare, at its
expense, feasibility studies covering the rehabilitation and resumption of
production at the Kipushi Mine, various options for processing the copper-zinc
ore, and an examination of the viability of the re-treatment of existing
tailings. The Gecamines Agreement gives the Company the exclusive right to
examine the Kipushi Mine, to enter into joint ventures for ore processing and
tailings processing, and to make suitable arrangements for the resumption of
production. The Gecamines Agreement does not give the Company any interests in
the Kipushi Project. The Company will only acquire interests in the Kipushi
Project if satisfactory results are obtained from the feasibility studies and if
agreements, both satisfactory and conforming with the New Mining Code, can be
negotiated with Gecamines and the Government of the Democratic Republic of
Congo.
The agreement also specifies that the Company and Gecamines will collaborate on
exploration and development over the area of certain Gecamines concessions.
On July 17, 2000, the Company entered into an option agreement (the "Option
Agreement") with the Zinc Corporation of South Africa Limited, since renamed
Kumba Base Metals ("Kumba"). Pursuant to the Option Agreement, Kumba had an
option to elect to earn up to a 50% interest in the Kipushi Project. During the
year ended October 31, 2001, following the performance of due diligence, Kumba
exercised its option to participate in the Kipushi Project. On execution of the
option, Kumba deposited the option fee of $100,000 into a joint account to meet
expenditures incurred in negotiating commercial agreements between the Company,
Kumba and Gecamines.
On January 30, 2002, the Company signed, and in November 2004 amended, a joint
venture agreement with Kumba whereby Kumba can earn up to 50% of the Company's
interest in the Kipushi Project by incurring $3,500,000 of expenditures on the
Project, including the conducting of feasibility studies. Kumba is not obliged
to conduct the feasibility studies until commercial agreements for the
rehabilitation and resumption of the Kipushi Mine have been entered into between
the Company, Kumba and Gecamines, security of tenure is achieved via an
agreement with Gecamines, and Governmental approval is received. During 2003,
Kumba deposited a further $100,000 into the joint venture account to meet
expenditures incurred towards achieving such an agreement. Kumba will be
required to fund the $3,500,000 of expenditures, less already recognized
expenditures of $300,000 by Kumba, over a 28 month period commencing with the
completion of these items, which must be no later than October 31, 2006,
otherwise the agreement will terminate.
4. Share capital:
(a) Share capital:
Number
of shares Amount
Balance, October 31, 2005 70,940,022 $ 67,348,642
For options exercised cashlessly 80,309 133,995
For options exercised conventionally 332,500 430,158
For private placement, net of issuance costs 6,000,000 8,160,214
Balance, January 31, 2006 77,352,831 $ 76,073,009
(b) Share purchase warrants:
Warrants outstanding at January 31, 2006:
Balance Balance
October 31, January 31, Exercise Expiry
2005 Issued Exercised 2006 price date
1,690,122 21,170 - 1,711,292 CDN$ 0.75 February 12, 2008
(c) Share options:
Weighted
average price
Options outstanding, October 31, 2005 7,991,209 CDN$ 1.47
Cancelled / expired (237,500) 1.46
Exercised (582,500) 0.60
Options outstanding, January 31, 2006 7,171,209 CDN$ 1.55
There were no stock options granted during the quarter.
During the quarter there were 332,500 options exercised in the conventional
manner for total proceeds of CDN$199,500. In addition, 250,000 options were
exercised using the cashless exercise arrangement, and resulting in the issuing
of a further 80,309 shares.
There were also 205,000 unvested share options cancelled with an exercise price
of CDN$1.60 per share and 32,500 unvested share options cancelled with an
exercise price of CDN$0.60 per share during the quarter.
The Company recorded stock-based compensation expense of $103,011 as a result of
the vesting of options granted in previous periods.
4. Share capital (continued):
(d) Contributed surplus:
Balance, October 31, 2005 $ 5,685,029
Stock-based compensation (note 4(c)) 103,011
Transferred to share capital on exercise of stock
options for cash (257,969)
Transferred to share capital on cashless exercise of
stock options (193,962)
Balance, January 31, 2006 $ 5,336,109
5. Segmented information:
The Company's operations are primarily directed towards the acquisition,
exploration and development of mineral resource properties and represent a
single reportable segment. All material revenue of the Company is attributable
to the corporate head office.
Property, plant and equipment, including mineral properties and mineral property
evaluation costs, by geographic area are as follows:
January 31, October 31,
2006 2005
Property, plant and equipment by geographic area:
Democratic Republic of Congo $ 27,898,425 $ 25,250,214
Angola 1,214,391 1,214,391
Zambia 1 1
United Kingdom 273,187 34,831
$ 29,386,004 $ 26,499,437
6. Offer assessment costs:
On January 18, 2006 First Quantum Minerals Ltd. ("First Quantum") announced an
unsolicited offer to acquire all the outstanding common shares of the Company.
Under the terms of the offer, the Company's stockholders would receive one First
Quantum share for every 17.5 of the Company's shares held. In order to assess
the unsolicited offer, the Company appointed a Special Committee and engaged
advisors, which has resulted in $2,741,627 in costs being incurred during the
quarter ended January 31, 2006. Subsequent to January 31, 2006, the Company's
Board of Directors formally recommended that shareholders reject First Quantum's
offer.
7. Subsequent event:
Subsequent to January 31, 2006, the Company announced that it had reached an
agreement (subject to confirmatory due diligence, negotiation of definitive
documentation, and approval of both companies' boards of directors) with
Mitsubishi Corporation ("Mitsubishi") for Mitsubishi to purchase a 14.9% stake
in KMT in return for, among other things, payment to the Company of $37,500,000
in cash, provision of $12,500,000 of shareholder loans to the Kolwezi project on
the Company's behalf and extension of completion guarantees to project leaders.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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