Item 1. Business
This annual report contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as “may”,
“should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential” or “continue” or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled “Risk Factors” that may cause our or our industry’s actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
Our financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.
In this annual report, unless otherwise specified, all dollar
amounts are expressed in United States dollars and all references to “common
shares” refer to the common shares in our capital stock.
As used in this current report and unless otherwise indicated,
the terms “we”, “us” and “our” mean Gold and GemStone Mining Inc., a Nevada
corporation, unless otherwise indicated.
General Overview
We were incorporated in the State of Nevada as a for-profit
company on March 5, 2008 under the name Global GSM Solutions Inc. We established
a fiscal year end of January 31. We do not have revenues, have minimal assets
and have incurred losses since inception. Our company was originally formed to
develop, manufacture, and distribute our product and services to the gaming and
vending industry that allows remote monitoring of amusement and vending devices.
Our product was intended to improve security, productivity, and profitability of
devices such as arcade games, toy dispensing machines, redemption games and
vending machines. We were not able to raise sufficient capital to carry out our
business plan and our management changed our focus to acquiring operating assets
or businesses. On May 4, 2012 we entered into a collaboration agreement (the “JV
Agreement”) and changed our business to that of mineral exploration.
Our common stock was initially approved for quotation on the
OTC Bulletin Board under the symbol “GGSM” on December 27, 2010. On April 24,
2012, we filed a Certificate of Amendment with the Nevada Secretary of State to
change our name from Global GSM Solutions Inc. to Gold and GemStone Mining Inc.
and to increase our authorized capital from 75,000,000 to 400,000,000 shares of
common stock, par value of $0.001. These amendments became effective on April
30, 2012 upon approval from the Financial Industry Regulatory Authority
(“FINRA”). Also effective April 30, 2012, our issued and outstanding shares of
common stock increased from 7,350,000 to 330,750,000 shares of common stock, par
value of $0.001, pursuant to a 1 old for 45 new forward split of our issued and
outstanding shares of common stock. On May 4, 2012 our company’s majority
shareholders took a number of actions to reconfigure our capital structure. Our
former directors and officers, Gennady Fedosov and Anna Ivashenko cancelled an
aggregate of 180,000,000 shares of our common stock and transferred an
additional 88,000,000 to incoming management. Subsequent to all cancellations
and transfers, we had 150,750,000 shares issued and outstanding. Our CUSIP
number is 380485102.
Other than as set out in this current report, we have not been
involved in any bankruptcy, receivership or similar proceedings, nor have we
been a party to any material reclassification, merger, consolidation or purchase
or sale of a significant amount of assets not in the ordinary course of our
business.
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Our Current Business
Our company was not successful as a development-stage company
formed to develop, manufacture, and distribute our product and services of
remote monitoring of amusement and vending devices to the gaming and vending
industry. Our product was intended to improve security, productivity, and
profitability of devices such as arcade games, toy dispensing machines,
redemption games and vending machines. We had limited operations and are no
longer in any of these businesses.
On May 4, 2012, we entered into a collaboration agreement (the
“JV Agreement”) with Ridgeback Mining (Sierra Leone) Limited (“RMSL”) regarding
a joint venture on three prospective diamond and gold properties in Sierra
Leone. Pursuant to the JV Agreement, on March 22, 2012 we incorporated of Gold
and Gemstone S. L. Limited, a Sierra Leone company (the “JV Company”). The share
capital of the JV Company is distributed equally between our company and the
shareholders of RMSL, with our company holding 50%. Profits will be distributed
evenly as well. Pursuant to the terms of the JV Agreement, RMSL will transfer
the properties into JV Company and we will provide ongoing financing for all
joint venture operations. Our investment into the JV Company is required to
reach $1,500,000 per concession for an aggregate total of $4,500,000 within the
first twelve months of operation. Two of the three concessions (the Sandia
Concession and the Nyamundu concession) were assigned in to the JV Company on
October 22, 2012. If we do not invest the required $1,500,000 per concession
within the first twelve months, each concession for which the requirement was
not fulfilled will be returned to the ownership of RMSL. At this time the third
concession (the Kambaya Concession) has not been assigned by RMSL in to the JV
Company and therefore there is no commitment to raise the $1,500,000 until 12
months after it has been assigned to the JV Company
Also on May 4, 2012, we accepted the resignation from Geoffrey
Dart as our sole director and officers and accepted the consents to act of
Charmaine King, Timothy Cocker and Tom Tucker. Ms. King was appointed as
president, chief executive officer, chief financial officer, secretary,
treasurer and as a director of our company. Mr. Cocker was appointed as our
chief marketing officer and as a member of our board of directors, and Mr.
Tucker was appointed as our vice president of African mining operations as well
as a member of our board of directors. Mr. Cocker and Mr. Tucker have
subsequently resigned from all of their positions on January 16, 2013 and
January 17, 2013, respectively.
As of October 22, 2012 RMSL notified both the Nimikoro Chiefdom
and the Nimiyama Chiefdom that RMSL has assigned the respective concession in to
the JV Company effective October 29, 2012. The notice confirmed that we will
have 12 months from the date of the assignment to raise $1,500,000 for each
concession in to the JV Company or the concessions will revert back to RMSL.
On November 28, 2012, we entered into two separate agreements
for the exploration and development of mineral properties in Africa. The
agreements are summarized as follows:
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1.
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Joint venture agreement between our company and TTM
Global Enterprises Ltd., a company incorporated under the laws of the U.K.
This agreement relates to the investment by our company into a 30%
interest in mining operations in Siguiri, Guinea, Africa. The term of the
agreement is 90 days, within which we are required to provide financing of
$1,500,000 and take on the financial responsibilities for all
administrative fees associated with operations on the property. Of the
$1,500,000, $250,000 is a fee to TTM Global for acquiring the 30% interest
in the property. The $250,000 is to be delivered to TTM Global within 30
days of signing the TTM Global joint venture agreement and the remaining
$1,250,000 must be provided within 90 days.
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2.
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Joint venture agreement between our company and Blue
Orange Mining Limited, a company incorporated under the laws of Ghana.
This agreement relates to the investment by our company into a 50%
interest in thirteen gold concessions within the “Ashanti-belt” in Ghana.
The term of the agreement is 90 days, within which we are required to
provide financing of $5,000,000 towards the joint venture. Of the
$5,000,000, $500,000 is a fee payable to Blue Orange for acquiring the 50%
interest in the concessions. The $500,000 is to be delivered to Blue
Orange within 30 days of signing the Blue Orange joint venture and the
remaining $4,500,000 must be provided within 90
days.
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5
We were unable to fulfill our payment obligations in respect of
the Joint Venture Agreements with TTM Global Enterprises Ltd. and Blue Orange
Mining Limited and, consequently, the agreements were terminated as at February
26, 2013.
Effective January 25, 2013, we entered into an investment
agreement with Deer Valley Management, LLC whereby Deer Valley Management will
provide for a non-brokered financing arrangement of up to $5,000,000. The
financing allows, but does not require us to issue and sell up to the number of
shares of common stock having an aggregate purchase price of $5,000,000 to Deer
Valley Management. Subject to the terms and conditions of the financing
agreement and a registration rights agreement, we may, in our sole discretion,
deliver a notice to Deer Valley Management which states the dollar amount which
we intend to sell to Deer Valley Management on a certain date. The maximum
amount that we shall be entitled to sell to Deer Valley Management shall be
equal to 200% of the average daily volume (U.S. market only) of the common stock
for the 10 trading days prior to the applicable notice date so long as such
amount does not exceed 4.99% of the outstanding shares of our company. Deer
Valley Management will purchase our common stock valued at a 22.5% discount from
the weighted average price for the 3 lowest closing bid prices during 10
consecutive trading days or the previous closing bid price, whichever is less,
prior to delivery and receipt of our capital request. The shares that we sell to
Deer Valley Management must be registered stock, among other conditions of
investment.
In connection with the investment agreement, we also entered
into a registration rights agreement with Deer Valley Management dated January
25, 2013, whereby we agreed to file a Registration Statement on Form S-1 with
the Securities and Exchange Commission within 21 days of the date of the
registration rights agreement. As at the date of this annual report we have not
complied with our obligation to file a registration statement on Form S-1
pursuant to the registration rights agreement and the investment agreement with
Deer Valley Management and we are therefore in default of those Agreements.
Effective February 8, 2013, our company entered into a
collaboration agreement with Tell Mining Group for the exploration and
development of mineral properties in Africa. Tell Mining is an active owner and
developer of gold mining concessions in Ghana. Each concession constitutes a
separate mining project. The agreement contemplates the creation of a joint
venture company in Ghana (the “Ghana JV Company”) for which our company and Tell
Mining shall each hold 50% of the issued and outstanding ordinary shares of the
Ghana JV Company. Our company is required to deposit $10,000 cash with Tell
Mining prior to commencement of mining along with 15% of net profits once in
production, paid quarterly per concession. The term of the agreement is 5 years.
As at the date of this annual report no action has been taken in respect of the
collaboration agreement with Tell Mining and we have not made any payment
pursuant to the agreement.
Effective February 22, 2013, our company entered into a
Securities Purchase Agreement with Asher Enterprises, Inc. Under the terms of
the Agreement our company issued an 8% convertible promissory note, in the
principal amount of $42,500, which note matures on November 26, 2013 and may be
converted into shares of our company’s common stock at any time after 180 days
from February 22, 2013, subject to adjustments as further set out in the Note.
The conversion price shall be at a variable conversion rate of 55% multiplied by
the market price, being the average of the lowest two trading prices for our
company’s common stock during the 90 trading day period ending on the last
complete trading day prior to the conversion date, subject to adjustments as
further set out in the note. Our company received the sum of $42,500 principal
under the note on February 22, 2013. The note is issued to Asher pursuant to
Rule 506 of Regulation D of the Securities Act of 1933 on the basis that they
represented to our company that they were an “accredited investor” as such term
is defined in Rule 501(a) of Regulation D.
Our Business
Upon the execution of the JV Agreement, we shifted our business
focus to that of diamond exploration in Sierra Leone. The mining concessions
which are the subject of our joint venture with RMSL are currently in the
exploration stage and no reserves have been proven. Through the joint venture
arrangement, we will undertake exploration activity on the mining concessions,
and will also make efforts to increase our own land holdings and assets in the
gold and diamond exploration industry throughout Africa.
Pursuant to the JV Agreement with RMSL, we are required to
finance each of the three claims subject to our joint venture with a minimum of
$1,500,000 per claim, for an aggregate total of $4,500,000. If we fail to invest
the required amount for any of the claims within 12 months from the date upon
which the mining concessions are transferred to the JV Company by written instrument registered
with the applicable government authorities, the claims will revert back to the
sole ownership of RMSL. We do not currently have enough funds to meet our
investment obligations for any of the claims which are due by October 22,
2013.
6
Market, Customers and Distribution Methods
Although future market conditions cannot be predicted, several
large and well capitalized markets for diamonds and gold exist throughout the
world. Such markets include a very sophisticated futures market for the pricing
and delivery of gold and diamonds. The price for diamonds and gold is affected
by a number of global factors, including economic strength and resultant demand
for diamonds and gold, fluctuating supplies, mining activities and production by
others in the industry, and new and or reduced uses for diamonds and gold.
The mining industry is highly speculative and of a very high
risk nature. As such, mining activities involve a high degree of risk, which
even a combination of experience, knowledge and careful evaluation may not be
able to overcome. Few mining projects actually become operating mines.
The mining industry is subject to a number of factors,
including intense industry competition, high susceptibility to economic
conditions (such as price, foreign currency exchange rates, and capital and
operating costs), and political conditions (which could affect such things as
import and export regulations, foreign ownership restrictions). Furthermore, the
mining activities are subject to all hazards incidental to mineral exploration,
development and production, as well as risk of damage from earthquakes, any of
which could result in work stoppages, damage to or loss of property and
equipment and possible environmental damage. Hazards such as unusual or
unexpected geological formations and other conditions are also involved in
mineral exploration and development.
Competition
The diamond and gold exploration industry is highly
competitive. We are a new exploration stage company and have a weak competitive
position in the industry. We compete with junior and senior exploration
companies, independent producers and institutional and individual investors who
are actively seeking to acquire mineral exploration properties throughout the
world together with the equipment, labor and materials required to operate on
those properties. Competition for the acquisition of diamond and gold
exploration interests is intense with many exploration leases or concessions
available in a competitive bidding process in which we may lack the
technological information or expertise available to other bidders.
Many of the mineral exploration companies with which we compete
for financing and for the acquisition of mineral exploration properties have
greater financial and technical resources than those available to us.
Accordingly, these competitors may be able to spend greater amounts on acquiring
mineral exploration interests of merit or on exploring or developing their
mineral exploration properties. This advantage could enable our competitors to
acquire mineral exploration properties of greater quality and interest to
prospective investors who may choose to finance their additional exploration and
development. Such competition could adversely impact our ability to attain the
financing necessary for us to acquire further mineral exploration interests or
explore our current or future mineral exploration properties.
We also compete with other junior mineral exploration companies
for financing from a limited number of investors that are prepared to invest in
such companies. The presence of competing junior mineral exploration companies
may impact our ability to raise additional capital in order to fund our
acquisition or exploration programs if investors perceive that investments in
our competitors are more attractive based on the merit of their mineral
exploration properties or the price of the investment opportunity. In addition,
we compete with both junior and senior mineral exploration companies for
available resources, including, but not limited to, professional geologists,
land specialists, engineers, camp staff, helicopters, float planes, mineral
exploration supplies and drill rigs.
General competitive conditions may be substantially affected by
various forms of legislation and/or regulation introduced from time to time by
the governments of the countries in which we operate, as well as factors beyond
our control, including international political conditions, overall levels of
supply and demand for mineral exploration.
In the face of competition, we may not be successful in
acquiring, exploring or developing profitable mineral properties or interests,
and we cannot give any assurance that suitable properties or interests will be
available for our acquisition, exploration or development. Despite this, we hope
to compete successfully in the mineral exploration industry by:
7
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keeping our costs low;
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relying on the strength of our management’s contacts; and
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using our size and experience to our advantage by adapting quickly to
changing market conditions or responding swiftly to potential opportunities.
Research and Development
During the year ended January 31, 2013 we did not spend any
funds on research and development.
Employees
We are an exploration stage company and currently have no
employees, other than our one officer and director who provides her services on
a consulting basis.
Intellectual Property
We own all of the right to the website, and the content
therein, of www.ggsmining.com.
Governmental Regulations
Mining operations in Sierra Leone are subject to a number of
governmental regulations including the Mines and Minerals Act of 2009 and
diamond mining specifically is regulated by the Diamond Trading Act. We are
committed to complying with and are, to our knowledge, in compliance with, all
governmental regulations applicable to our company and our mining concessions.
Permits from a variety of regulatory authorities are required for many aspects
of mine operation and reclamation. We cannot predict the extent to which these
requirements will affect our company or our properties if we identify the
existence of minerals in commercially exploitable quantities. In addition,
future legislation and regulation could cause additional expense, capital
expenditure, restrictions and delays in the exploration of our mining
concessions.
The JV Company being formed with RMSL will be registered with a
Small Scale Mining License from the Ministry of Mine and Mineral Resources in
Sierra Leone. The Ministry overseas the conduct of all mining companies in the
country and ensures compliance with the Mines and Minerals Act of 2009. The
first steps for the JV Company to meet Government Regulations as a Licensed
Small Scale Mining Company are set out below:
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To prepare and maintain the companies Memorandum of Incorporation and
Association;
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To register the formation of the business with the Registrar of Companies
at the Office of the Administrator and Registrar General ( OARG);
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To register the business at Ministry of Mines and Minerals;
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To request a Small Scale Mining License from the Ministry of Mines and
Minerals;
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To pay for Small Scale Mining License;
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To pay Mining Board sitting fees (25 Board Members);
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Finalize Mining Lease Agreement with each Chiefdom;
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To prepare Mining Work plan for the Company including financial details for
each Concession;
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To prepare Environmental (EIA) Report for each Concession;
8
On May 22, 2012, the JV Company was incorporated under the name
Gold and Gemstone S. L. Limited, a Sierra Leone company, and on September 18,
2012, the JV Company became registered to carry on small-scale mining activities
pursuant to the Mines and Minerals Act (Sierra Leone) at a cost of $1,000; this
registration is valid until September 17, 2013 when it will have to be renewed.
The registration fee was advanced to our company without terms for repayment by
Tom Tucker, our former director and vice president of African mining operations.
We intend to satisfy the balance of the regulatory requirements on an as needed
basis and subject to our available capital resources. Our company will require
additional equity or debt investment to satisfy all additional licensing and
regulatory obligations and, to date, we have not secured or identified any
sources of such financing and there is no guarantee that we will be successful
in that regard. If we are unable to secure the requite financing to fulfill our
regulatory obligations, we will have no alternative but to reduce the number of
licenses in proportion to the funds available to us, or to delay or suspend our
exploration activities until we raise sufficient funds. In relation to ongoing
business operations and continued compliance with the regulations as set out in
the Mines and Minerals Act of 2009 we anticipate hiring a specialist advisor who
has significant experience in complying with Government Regulation in Sierra
Leone and specifically with the Ministry of Mines and Minerals.
The cost for completing the initial registrations and
compliance with the regulations is approximately $115,450 which is broken down
as follows:
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Registration of JV Company as Mining Company at Ministry of Mines - $1,000;
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Environmental Report (EIA) - $25,000;
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Work plan for the mining process, including financial details - $15,000;
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Surface rent for 50 licenses - $20,000;
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Mining License for 50 licenses - $30,000;
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Application Small Scale Mining License - $250;
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Approval by the board, sitting fees - $20,000;
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Small Scale Mining License - $2,000;
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Cadastral Map Listing - $2,000;
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Listing on Ministry of Mines Website - $200.
Outside of the above mentioned regulations associated with the
Mines and Minerals Act 2009 we do not foresee any specific government regulation
that will have an impact on the day to day running of our operations in Sierra
Leone. Other than of course operating within the relevant laws currently in
force in the Republic of Sierra Leone and fulfilling all obligations to the
community.
At this time, we cannot provide investors with any assurance
that we will be able to raise sufficient funding from the sale of our common
stock or through a loan from our directors to meet our obligations with regard
to the mining concessions, the initial registrations above, or general
operations over the next twelve months. We do not have any arrangements in place
for any future debt or equity financing.
Environmental Compliance
We are not aware of any material violations of environmental
permits, licenses or approvals that have been issued with respect to our
operations. We expect to comply with all applicable laws, rules and regulations
relating to our business, and at this time, we do not anticipate incurring any
material capital expenditures to comply with any environmental regulations or
other requirements.
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While our intended projects and business activities do not
currently violate any laws, any regulatory changes that impose additional
restrictions or requirements on us or on our potential customers could adversely
affect us by increasing our operating costs or decreasing demand for our
products or services, which could have a material adverse effect on our results
of operations.
Reports to Security Holders
We intend to furnish our shareholders with annual reports
containing financial statements audited by our independent auditors and to make
available quarterly reports containing unaudited financial statements for each
of the first three quarters of each year.
The public may read and copy any materials that we file with
the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address
of that site is www.sec.gov.
Item 2. Properties
Executive Offices
Our principal executive offices are located at 2144 Whitekirk
Way, Draper, Utah. This space is a residential office provided to us at no
charge by our sole officer and director and is adequate for our present needs.
We do not anticipate that we will require any additional premises in the
foreseeable future.
Mining Concessions
We have entered into a joint venture with RMSL to explore three
distinct diamond and gold mining concessions in Sierra Leone. A description of
these concessions follows.
Location and Access
The mining concessions are split across three separate
Chiefdoms; the Sandia Concession (Nimiyama Chiefdom), the Nyamundu concession
(Nimikoro Chiefdom) and the Kambaya Concession (Sandoh Chiefdom). These
concessions are all in the Kono District which is located in the north eastern
region of Sierra Leone. The below map of Sierra Leone outlines (in red) the
location of the Kono District:
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The three concessions are located on and around the banks of
the Sewa River, which is the main diamond bearing river in Sierra Leone. The
Sewa River is the most important commercial stream in Sierra Leone and is formed
by the junction of the Bagbe and Bafi rivers, which rise in the northeastern
part of the country near the Guinea border; it flows for 150 miles (240 km) in a
south-southwesterly direction.
Specifically, these claims and sizes are as follows:
Nimiyama Chiefdom (The Sandia Concession) – 50 Acres situated
on the banks of the Sewa River
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Grid Co-ordinates:
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X
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Y
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RB01
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249305
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958997
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RB02
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249124
|
958818
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RB03
|
248985
|
958565
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RB04
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248779
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958489
|
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RB05
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248687
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958697
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RB06
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248944
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959156
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The Nimiyama Chiefdom has granted the Sandia concession near
Madina Village (grid reference 8.522626, -11.257639) which is 17km South on
rough roads to the nearest town which is Njaiama-Sewafe (Grid reference
8.543337, -11.243305) . From Njaiama-Sewafe it is about a 35km drive North East
by main road to Yengema Airport (grid reference 8.621926, -11.044178) and a
further 12km East by main road to the Koidu City (grid reference 8.650948,
-10.973282) . The journey by car from Njaiama-Sewafe to Koidu City is
approximately 40minutes. There is no railway in the location of the concession.
The road from Njaiama-Sewafe to the Sandia concession is serviceable by motor
vehicle but is very rough and there may be some remedial works required for
heavy plant machinery access. There is no electricity in the local town or at
the concession area so the site would rely upon generators to begin operations.
There is good mobile phone network coverage in the area.
Nimikoro Chiefdom
(The Nyamundu Concession) – 25 Acres
of diamond and gold exploration land in the Nimikoro Chiefdom. The total claim
area is 87 acres but RMSL has been granted an initial 25 acre concession with
the option to extend later.
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Grid Co-ordinates:
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X
|
Y
|
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RG01
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270992
|
949421
|
|
RG02
|
270840
|
949443
|
|
RG03
|
270810
|
949410
|
|
RG04
|
270792
|
949334
|
|
RG05
|
270741
|
949298
|
|
RG06
|
270628
|
949404
|
|
RG07
|
270457
|
949609
|
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|
Grid Co-ordinates:
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X
|
Y
|
|
RG08
|
270647
|
950328
|
|
RG09
|
270741
|
950338
|
|
RG10
|
270790
|
950302
|
|
RG11
|
270788
|
950041
|
|
RG12
|
270971
|
950028
|
|
RG13
|
270950
|
949946
|
|
RG14
|
270954
|
949712
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The Nimikoro Chiefdom has granted the Nyamandu concession (grid
reference 8.676318, -11.154692) located close to the town Nyamandu, it is a
further 3km North to the main road junction at Bumpeh (grid reference 8.69473,
-11.166916) . From Bumpeh it is approximately 18km South East by main road to
Yengema Airport (grid reference 8.621926, -11.044178) and it is a further 12km
East to the nearest major city which is Koidu City (grid reference 8.650948,
-10.973282) . To travel to the airport or Koidu you must catch a ferry to cross
the Sewa River. There is no railway in the location of the concession. The road
from Nyamandu is serviceable by motor vehicle but is very rough and there may be
some remedial works required for heavy plant machinery access. There is no
electricity in the local town or at the concession area so the site would rely
upon generators to begin operations. There is good mobile phone network coverage
in the area.
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Sandoh Chiefdom (The Kambaya Concession) – 30 Acres of diamond
and gold exploration land in the Sandoh Chiefdom with an additional 50 acres
available upon commencing of mining operations.
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Grid Co-ordinates:
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X
|
Y
|
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RG01
|
264623
|
960344
|
|
RG02
|
264550
|
960183
|
|
RG03
|
264328
|
960252
|
|
RG04
|
264122
|
960429
|
|
RG05
|
264051
|
960618
|
|
RG06
|
264213
|
960659
|
|
RG07
|
264246
|
960533
|
|
RG08
|
264356
|
960410
|
|
RG09
|
264475
|
960354
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The Sandoh Chiefdom has granted a concession near Kambaya (grid
reference 8.69299, -11.149449) . The nearest airport is Yengema Airport (grid
reference 8.621926, -11.044178) which is 16km East of Kambaya by main road. The
nearest major city is Koidu City (grid reference 8.650948, -10.973282) which is
a further 12km East from the airport by main road. The journey from Kambaya to
Koidu City is approximately one hour by car. To travel to the airport or Koidu
you must catch a ferry to cross the Sewa River. . There is no railway in the
location of the concession. The short road from Kambaya to the specific
concession site is serviceable by motor vehicle but is very rough and there may
be some remedial works required for heavy plant machinery access. There is no
electricity in the local town or at the concession area so the site would rely
upon generators to begin operations. There is good mobile phone network coverage
in the area.
Access to the country interior from Freetown, the capital of
Sierra Leone, is by a combination of paved and dirt roads and it is
approximately 200 miles between Freetown and Yengema Airport. New hydroelectric
schemes are being developed to help address the electricity needs of the
country’s power grids. Communications have improved significantly in the last
few years, with the mobile phone network being regularly extended. Coverage now
reaches most population centers and main roads.
Key to locations on the following maps:
Map of the Kono District showing the location of the three
concessions on the Western side close to the Sewa River:
Zoomed satellite image showing the three concessions and their
proximity to Yengema Airport and Koidu City:
15
Ownership Interest
We have entered into the JV Agreement with Ridgeback Mining
Sierra Leone (RMSL) which holds certain exclusive mining rights to the above
described mining concessions. The concession lands and all associated mining
rights are owned and administered by the local Paramount Chiefs of each of the
above mentioned Chiefdoms. Prior to entering into the JV Agreement RMSL obtained
the exclusive right by agreement with each relevant Chiefdom to conduct mining
activities and to exploit the concessions through October, 2012. The mining
rights are further described below. The JV Agreement provides that the joint
venture incorporate a JV Company to hold title to, and to operate, the mining
concession. The JV Company was incorporated on March 22, 2012 under the name
Gold and Gemstone Mining S. L. Limited. The JV Agreement further provides that
the share capital in the JV Company and all profits generated by the JV Company
are to be distributed equally between our company and RMSL. Pursuant to the
terms of the JV Agreement, RMSL will transfer the mining concessions into JV
Company upon incorporation and our company is responsible to provide ongoing
financing for all joint venture operations. Our investment into the JV Company
is required to reach $1,500,000 per concession for an aggregate total of
$4,500,000 within the first twelve months of operation. If we do not invest the
required $1,500,000 per concession within the first twelve months from the date
upon which the claims are transferred to the JV Company, each concession for
which the requirement was not fulfilled will be returned to the ownership of
RMSL.
The rights of the joint venture to the concessions are secured
by letter agreements dated October 2, 2010 between RMSL and each of the
Nimiyama, Nimikoro and Sandoh Chiefdoms. The letter agreements are set to expire
in October, 2012. Subsequently, on May 18, 2012, RMSL, entered into an extension
agreement with the Nimiyama Chiefdom to extend the Sandia Concession until May
18, 2013. On May 25, 2012, RMSL, acting on behalf of the joint venture, entered
into an extension agreement with the Nimikoro Chiefdom to extend the Nyamundu
Concession until May 25, 2013. Pursuant to the extension agreements, if
commercial operations on the applicable concessions are commenced prior to the
expiration of the extension period, the concessions will renewed for an
additional five years. Both the Sandia and Nyamundu concessions are subject to a
net profit royalty payable to the applicable Chiefdom. The royalty amounts are
subject to further negotiations with each Chiefdom. As of October 22, 2012, RMSL
notified both the Nimikoro Chiefdom and the Nimiyama Chiefdom that RMSL has
assigned the respective concession in to the JV Company effective October 29,
2012. The notice confirmed that we will have 12 months from the date of the
assignment to raise $1,500,000 for each concession in to the JV Company or the
concessions will revert back to RMSL.
16
The third concession, located in Kambaya and administered by
The Sandoh Chiefdom has not been formally renewed as at the date of this annual
report. To date, we have received verbal assurances from the Sandoh Chiefdom
that the Kambaya concession will be renewed on terms similar to the Nyamundu and
Sandia concessions, however we are neither able to guarantee the renewal of the
concession nor the terms of renewal. . Upon the anticipated extension of the
Kambaya concession, it will be immediately assigned in to the JV Company and at
that date we will have 12 months to provide $1,500,000 to the JV Company. In the
event that we are not able to do so, this concession, will be returned to RMSL.
Accounting Considerations
Our financial statements are prepared in accordance with US
GAAP, and accordingly, we intend to account for our investment in the joint
venture using the equity method required by Accounting Principles Board Opinion
No. 18. Using the equity method our investment in the joint venture will be
initially recorded at cost. The carrying amount of the investment will
thereafter be increased or decreased to recognize our share of profits or losses
from the joint venture after the acquisition date. Any distributions received
from the joint venture will reduce the carrying amount of the investment.
History of Operations
The three concessions which make up the mining concessions
subject to the JV Agreement with RMSL have not had any concerted historical
operations. The general area in which the mining concessions are located has
seen a significant amount of mining activity and a small summary is provided
below.
Alluvial diamond mining by Sierra Leone Selection Trust
commenced in the Kono area in 1932. Artisanal mining (legal and illegal) also
accounted for a significant output in these areas. By 1997, diamond recovery was
seriously disrupted by rebel activity; with most of the diamondiferous areas
being overrun. Since January 2002 the federal government has re-established
control of the diamond producing areas and rebel activity has ceased. Alluvial
mining for diamonds recommenced in a number of areas, initially led by licensed
and unlicensed artisanal workers and later by an increasing number of local and
international mining companies.
In 2004 Koidu Holdings Ltd commenced hard rock mining on the
kimberlite pipes at Koidu, in the same district as the mining concessions.
Present Condition
Much of Sierra Leone, including the Kono District where we
intend to operate, is covered with dense secondary forest or bush, which has
been cleared in many places for local subsistence agriculture. Over large areas
the land surface comprises residual laterite, or detrital material. Mining in
the area is open pit-style along the current banks of existing rivers, as well
as coving sites of ancient riverbeds.
Broadly speaking, the eastern half of Sierra Leone, where the
mining concessions lie, consists of a number of elevated plateaus and mountain
ranges generally lying between 300m and 600m above sea level and rising to a
maximum height of 1,950m. Most of the rivers descend from the plateau to the
coastal plain in a series of rapids and waterfalls.
The mining concessions have not had any exploration work
completed on them and do not exhibit any evidence of historical operations. They
are undeveloped and will require significant exploration and surface work before
any mining activity can begin. We plan to undertake exploration work on the
mining concessions and generate a full geological survey and report.
17
Plan of Exploration
The below tables describe our planned operating budget for the
12 month period beginning February 2013. The timeframe and cost estimates
described represent our management’s beliefs based on its experiences and
understanding of the mining industry in Sierra Leone and the Kono District where
the concessions are located. The time frames described for each task indicate
the estimated time of completion from when the task is initiated. Importantly,
the initiation of any task will be subject to the availability of required
capital, which cannot be guaranteed, and to the seasonal limitations on
exploration in Sierra Leone. We anticipate that all significant exploration
activities will be suspended during Sierra Leone’s rainy season, being the
months of April through October.
|
PHASE 1
|
|
Nature of Work
|
Timeframe
|
Cost
|
|
|
|
|
|
Incorporation and Registration of J/V Company
(complete)
|
4 Days
|
$4,000
|
|
Registration at Ministry of Mines (complete)
|
3 Days
|
$1,000
|
|
Obtain Land from Landowners
|
2 Weeks
|
$20,000
|
|
Obtain Mining License from Ministry of Mines,
incl. EIA report and Work Plan
|
6 Weeks
|
$94,450
|
|
Sourcing Equipment
|
2 Weeks
|
$737,000
|
|
Shipment of Equipment
|
6 Weeks
|
$40,000
|
|
Road Clearing and Leveling
|
2 weeks
|
$12,000
|
|
Customs Clearing and Transport to Site
|
2 Weeks
|
$50,000
|
|
Contingency
|
|
$38,000
|
|
|
|
|
|
Total
|
6 Months
|
$996,450
|
|
PHASE 2
|
|
Nature of Work
|
Timeframe
|
Cost
|
|
|
|
|
|
Start of Operation - Setup Camp
|
2 Weeks
|
$10,000
|
|
Clearing Overburden
|
2 Months
|
$100,000
|
|
Excavation of Gravel for Sampling and Analysis
|
1 Month
|
$100,000
|
|
Washing Gravel for Sampling and Analysis
|
6 Weeks
|
$220,000
|
|
|
|
|
|
Total
|
6 Months
|
$430,000.00
|
Geology
There has not been any geology conducted specifically on the
mining concessions. What follows is a general description of the geology of
Sierra Leone and specifically the region in which the mining concessions are
located.
Most of the country is underlain by rocks of Precambrian age
(Achaean and Proterozoic) with a coastal strip about 50km in width comprising
marine and estuarine sediments of Tertiary and Quaternary to Recent age. The
Precambrian (mainly Achaean) underlies about 75 percent of the country and
typically comprises granite-greenstone terrain. It represents parts of an
ancient continental nucleus located on the edge of the West African Craton. The
Achaean basement can be subdivided into; infra-crustal rocks (gneisses and
granitoids with metamorphic inclusions); supra-crustal rocks (containing
greenstone belts); basic and ultra basic igneous intrusions.
18
The infra-crustal gneisses and granitoids were formed and
reworked during two major orogenic cycles, an older Leonean episode (~
2,950-3,200 Ma) and a younger Liberian episode (~ 2700 Ma). The granitoids
represent the host unit for the later diamond-bearing kimberlite intrusions,
believed to be of Cretaceous age. The supra-crustal greenstone belts, comprising
mainly gneisses and schists, are the principal hosts of the gold mineralization
of the country.
The basic and ultra basic intrusive are seen primarily on the
coast of the Freetown peninsula. Dolerite intrusions are common, occurring as
dykes trending mainly east-west or northwest-southeast within the basement
complex, and as extensive sills. Tertiary, and more recent, weathering has led
to lateralization across a large part of Sierra Leone, affecting mainly the
greenstone belts and the extensive dolerite intrusions, diamondiferous
kimberlitic dykes and pipes of Mesozoic age, trending 070°-074°, occur in the
east of the country, at Koidu and Tongo, and new discoveries of narrow
northwest-trending dykes are reported from the north and west of the country.
Erosion of diamondiferous kimberlites during various phases of uplift resulted
in the transportation and deposition of diamonds and other heavy minerals in
alluvial deposits along rivers and river terraces over an area of almost
20,000km2 in the east and southeast of the country, representing more than one
quarter of the land area of Sierra Leone.
Kimberlites, the primary source of diamonds, were first
discovered in the Kono District in 1948, specifically in the Koidu area, where
the mining concessions reside, and subsequently at Tongo. These were extensively
tested and bulk sampled at the time, with limited mining being carried out.
Index of Geologic Terms
|
Term
|
Definition
|
|
diamondiferous
|
containing diamond or diamonds that can be
extracted
|
|
dolerite
|
an igneous rock of fine to medium grain size
|
|
igneous
|
describes rock formed under conditions of
intense heat or produced by the solidification of volcanic magma on or
below the Earth's surface
|
|
inclusion
|
a solid, liquid, or gas contained within a
mineral or rock
|
|
granitoid
|
a variety of coarse grained plutonic rock
similar to granite which mineralogically are composed predominately of
feldspar and quartz
|
|
gneiss
|
a coarse-grained high-grade metamorphic rock
formed at high pressures and temperatures, in which light and dark mineral
constituents are segregated into visible bands
|
|
kimberlite
|
a form of igneous rock, found especially in
South Africa, composed mainly of peridotite and often containing diamonds
|
|
metamorphic
|
relating to or involving a change in physical
form
|
|
orogenic
|
relating to or formed by the folding, faulting,
and uplift of the Earth's crust
|
|
pipes
|
a vertical passage through which molten lava
flows
|
|
schist
|
a rock whose minerals have aligned themselves
in one direction in response to deformation stresses, with the result that
the rock can be split in parallel layers
|