FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
As at June 30, 2003
CIK Number 0001164771
NORTHERN DYNASTY MINERALS LTD.
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1020 - 800 West Pender Street, Vancouver, Canada V6C 2V6
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover 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): [ ]
Note: Regulation S-T Rule 101(b)(1) only permits the submission in papeR
of a Form 6-K if submitted solely to provide an attached
annual report to security holders.
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): [ ]
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of
a Form 6-K if submitted to furnish a report or other
document that the registrant foreign private issuer must furnish
and make public under the laws of the jurisdiction in which the
registrant is incorporated, domiciled or legally organized
(the registrant's "home country"), or under the rules of the home country
exchange on which the registrant's securities are traded,
as long as the report or other document is not a press release, is not
required to be and has not been distributed to the registrant's
security holders, and, if discussing a material event, has already
been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether by furnishing the information contained
in this Form, the registrant 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 by the undersigned, thereunto duly authorized.
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(Registrant)
/s/ Jeffrey R. Mason
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Jeffrey R. Mason
Director, Chief Financial Officer and Secretary
Date: September 10, 2003
* Print the name and title of the signing officer under his signature.
NORTHERN DYNASTY MINERALS LTD.
QUARTERLY REPORT
JUNE 30, 2003
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MANAGEMENT'S DISCUSSION and ANALYSIS
Northern Dynasty is a mineral exploration company focused on the Pebble
Gold-Copper Project, located 380 kilometres southwest of Anchorage, Alaska.
Northern Dynasty is acquiring the Pebble Project via two options from Teck
Cominco American Incorporated ("Teck Cominco") by way of an October 2001
assignment agreement with Hunter Dickinson Group Inc. ("HDG"), a non-arms-
length party. Northern Dynasty was assigned an 80% interest, with the right to
acquire a 100% interest, in the two Teck Cominco options. The first option
enables Northern Dynasty to purchase the 36 claims covering the Pebble deposit
(the "Resource Lands") by paying Teck Cominco US$10 million in cash or shares
with the same cash equivalency prior to November 30, 2004, and purchasing the
20% HDG interest in shares at its independently appraised value. Northern
Dynasty also has the right under a second option to earn a 50% interest in the
surrounding "Exploration Lands" by purchasing the Resource Lands under the first
option and completing 60,000 feet of drilling (41,294 feet have been completed
to date) on the Exploration Lands before November 30, 2004. When the required
drilling is completed, Teck Cominco can either elect to match the Company's
future expenditures by forming a 50:50 joint venture or sell its 50% interest in
the Exploration Lands to Northern Dynasty for US$4 million and a 5% net profits
interest.
The Pebble property hosts a large, northeast-trending mineralized system defined
by an 89 square kilometre Induced Polarization ("IP") chargeability anomaly
associated with a multi-phase intrusive complex. The billion tonne Pebble
porphyry gold-copper-molybdenum deposit is situated in the northeastern part of
the sulphide system. A new porphyry copper-gold-molybdenum deposit, a porphyry
copper zone, a gold-copper skarn and several high-grade gold veins were
discovered during Northern Dynasty's 2002 exploration program that tested
targets in the Exploration Lands.
In 2002, Northern Dynasty also re-logged 104 holes previously drilled at the
Pebble deposit and developed a geological model for the deposit, revealing
several priority areas within and adjacent to the deposit that have high
potential to host substantial good-grade mineralization. In 2003, Snowden Mining
Industry Consultants Inc. estimated an inferred mineral resource of 1.0 billion
tonnes grading 0.61% copper-equivalent (0.40 g Au/t, 0.30% Cu, and 0.015% Mo
above a cut-off grade of 0.30% Cu-equivalent)1 for the Pebble deposit, within
which there is a significant amount of higher-grade mineralization: 271 million
tonnes of 0.86% copper-equivalent (0.59 g Au/t, 0.43% Cu and 0.018% Cu at a
cut-off grade of 0.70% Cu-equivalent). Details are provided in a May 2003
technical report filed on www.sedar.com.
The Company began its 2003 core drilling program in May, designed to expand and
delineate the good-grade gold-copper-molybdenum portions within the Pebble
deposit. Initial drilling within and adjacent to the Pebble deposit has been
very successful, demonstrating strong continuity and significant extensions to
the higher-grade mineralization as well as the discovery of an entirely new
higher-grade area adjacent to the Pebble deposit but outside the Snowden
resource model.
- Drill holes numbered 3071, 3084, 3085, 3089, 3092 and 3093 successfully
extended higher-grade material over 400 metres northeast from a
higher-grade area indicated as "A";
- Drill hole 3087 successfully extended higher-grade Area A over 250 metres
to the south;
- Drill holes numbered 3082 and 3086 successfully confirmed the continuity of
mineralization within higher-grade Area A;
- Drill hole 3072 successfully extended to the west the higher-grade in an
area called "B":
- Drill hole 3076 resulted in the discovery of a new higher-grade area,
called "D", located southeast and outside of the Pebble deposit; and
- Drill holes 3070, 3078, 3079, 3081 and 3083 successfully confirmed the
continuity of the Pebble deposit to the northeast.
Assay results from drilling in each area are tabulated below:
HIGHER-GRADE AREA A
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Drill Hole From To Intercept Intercept Au Cu Mo CuEQ1
Number (metres) (metres) (metres) (feet) g/t % % %
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Holes indicating higher grade in Area A extends to the northeast
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3071 24.1 222.2 198.1 650 0.40 0.59 0.026 0.93
3071 Incl. 24.1 182.3 158.2 519 0.44 0.65 0.026 1.02
3071 Incl. 24.1 115.5 91.4 300 0.53 0.81 0.027 1.23
3084 24.1 293.2 269.1 883 0.46 0.46 0.019 0.81
3084 Incl. 43.0 170.7 127.7 419 0.58 0.60 0.012 1.01
3085 24.1 280.1 256.0 840 0.45 0.47 0.020 0.83
3085 Incl. 42.2 74.0 31.8 104 0.56 0.65 0.019 1.07
3085 Incl. 97.7 139.9 42.2 138 0.95 0.49 0.022 1.17
3089 21.0 353.3 332.2 1090 0.41 0.36 0.019 0.69
3089 Incl. 21.0 39.3 18.3 60 0.58 0.45 0.018 0.88
3089 Incl. 121.6 255.7 134.1 440 0.50 0.43 0.020 0.81
3089 Incl. 151.5 306.8 155.3 509 0.43 0.46 0.023 0.82
3092 16.0 315.8 299.8 984 0.40 0.45 0.018 0.77
3092 Incl. 29.7 207.0 177.2 582 0.48 0.56 0.013 0.91
3092 Incl. 29.7 149.1 119.4 392 0.50 0.60 0.012 0.96
3093 29.6 115.5 86.0 282 0.38 0.38 0.012 0.67
3093 Incl. 54.6 100.3 45.7 150 0.47 0.45 0.013 0.80
Holes indicating higher-grade in Area A extends to the south
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3087 8.8 301.5 292.7 960 0.45 0.41 0.025 0.79
3087 Incl. 161.1 301.5 140.4 461 0.62 0.62 0.036 1.13
3087 Incl. 164.3 251.0 86.7 285 0.86 0.70 0.048 1.41
3087 Inc. 216.1 251.0 34.9 115 1.12 0.95 0.052 1.84
Holes indicating higher-grade in Area A has continuity between holes
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3082 32.6 274.0 241.4 792 0.41 0.43 0.039 0.83
3082 Incl. 100.3 270.5 170.3 559 0.45 0.47 0.045 0.91
3082 Incl. 195.3 270.5 75.3 247 0.47 0.56 0.053 1.04
3086 30.2 170.4 140.2 460 0.54 0.41 0.011 0.79
3086 Incl. 30.2 54.3 24.1 79 0.49 0.50 0.015 0.86
HIGHER-GRADE AREA B
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Drill Hole From To Intercept Intercept Au Cu Mo CuEQ1
Number (metres) (metres) (metres) (feet) g/t % % %
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Holes indicating that higher-grade Area B extends to the west
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3072 3.7 188.1 184.4 605 0.47 0.43 0.015 0.78
3072 Incl. 3.7 139.3 135.6 445 0.52 0.47 0.015 0.85
3072 Incl. 3.7 90.5 86.9 285 0.55 0.54 0.018 0.95
NEW HIGHER-GRADE AREA D
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Drill Hole From To Intercept Intercept Au Cu Mo CuEQ1
Number (metres) (metres) (metres) (feet) g/t % % %
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Holes that intersected new higher-grade Area D
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3069 29.1 264.3 235.2 772 0.40 0.24 0.010 0.53
3069 Incl. 166.7 185.0 18.3 60 0.99 0.39 0.012 1.06
3076 48.8 355.4 306.6 1006 0.33 0.42 0.024 0.71
3076 Incl. 133.8 355.4 221.6 727 0.34 0.48 0.029 0.79
3076 Incl. 190.8 355.4 164.6 540 0.37 0.51 0.031 0.86
3076 Incl. 234.7 323.1 88.4 290 0.43 0.61 0.038 1.00
3080 23.0 120.1 97.1 319 0.54 0.29 0.010 0.67
3080 Incl. 82.0 120.1 38.1 125 0.70 0.39 0.015 0.88
3080 Incl. 91.1 120.1 29.0 95 0.77 0.41 0.017 0.95
CONTINUITY WITHIN PEBBLE DEPOSIT TO NORTHEAST
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Drill Hole From To Intercept Intercept Au Cu Mo CuEQ1
Number (metres) (metres) (metres) (feet) g/t % % %
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Holes showing continuity of grade within the northeastern part of the Pebble deposit
----------------------------------------------------------------------------------------------------
3070 18.9 220.7 201.8 662 0.36 0.24 0.003 0.47
3070 Incl. 147.5 220.7 73.2 240 0.48 0.25 0.005 0.57
3070 Incl. 184.1 220.7 36.6 120 0.66 0.24 0.004 0.68
3078 106.4 167.3 61.0 200 0.50 0.44 0.011 0.80
3079 56.4 179.5 123.1 404 0.40 0.33 0.009 0.61
3079 Incl. 63.7 106.4 42.7 140 0.51 0.34 0.010 0.70
3081 33.5 149.4 115.8 380 0.42 0.27 0.004 0.55
3081 Incl. 118.3 149.4 31.1 102 0.51 0.37 0.005 0.71
3083 8.8 34.8 25.9 85 0.43 0.43 0.010 0.74
Note 1
Copper equivalent calculations use metal prices of US$0.80/lb for copper,
US$350/oz for gold, and US$4.50/lb for molybdenum. Copper equivalent
estimates have not been adjusted for metallurgical recoveries of gold and
copper. Molybdenum recovery is assumed to be 60%. Adjustment factors to
account for differences in relative metallurgical recoveries for gold,
copper, and molybdenum will depend upon the completion of definitive
metallurgical testing.
CuEQ = Cu(%) + (Au (g/t) x 11.25/17.64) + (Mo(%) x 59.52/17.64)
Many of Teck Cominco's 80 widely spaced holes drilled in the Pebble deposit
averaged 163 metres deep and bottomed in mineralization, suggesting that the
size of the deposit will increase with delineation drilling to depth. It is also
expected to extend further along strike. As an indication, Northern Dynasty's
new exploration drill hole 3074, located 650 metres northeast of the Pebble
deposit, intersected 61 metres of 0.57% copper equivalent (0.50 g/t Au, 0.23%
Cu, 0.008% Mo). This intersection is thought to represent either a further
extension to the Pebble deposit or the edge of a new porphyry deposit of unknown
size.
In addition to the 18 holes drilled in the Pebble deposit area, Northern Dynasty
also completed 7 wildcat exploration holes within the surrounding mineralized
system. Exploration hole 3075, drilled 3 kilometres southwest of the Pebble
deposit, intersected 43 metres grading 0.52 g/t Au and hole 3077 in the same
region intersected 6 metres grading 1.01 g/t Au. An exploration hole (3091) was
also drilled as a southwest step-out to the new Thirty-Eight
gold-copper-molybdenum porphyry discovery. It intersected 82 metres of 0.41%
copper equivalent (0.18 g/t Au, 0.27% Cu, 0.008% Mo). Wildcat exploration holes
numbered 3088 and 3090 were drilled 300 metres northeast of the new Thirty-Seven
gold-copper skarn discovery. Hole 3088 intersected 5 metres grading 0.61 g/t Au
and 0.37% Cu while hole 3090 intersected 0.8 metres grading 16.5 g/t Au. These
wildcat exploration holes show that the terrain surrounding the Pebble deposit
is highly mineralized and that substantial additional drilling is warranted to
fully assess these additional discoveries.
With the excellent drill results at the Pebble deposit, Northern Dynasty's first
objective will be the delineation of the deposit and its higher-grade portions.
The next phase of core drilling, comprising 30,000 feet, began in August 2003.
Market Trends
Gold prices, although volatile, have continued to improve in 2003, averaging
about US$350/oz for the year to date. Copper is currently trading at about
US$0.80/lb. Prices are projected to increase to about US$0.90/lb by 2004.
Financial review
On June 23, 2003, the Company reached an agreement (the "Agreement") with
Shambhala Gold Limited ("Shambhala"), to complete a $5 million private placement
financing. Under the terms of the Agreement, Shambhala subscribed for 6,944,445
Units of Northern Dynasty at a price of $0.72 per Unit for total proceeds of
$5,000,000. Each Unit is comprised of one common share and one warrant
exercisable to purchase an additional common share at a price of $0.90 until
June 12, 2004. All shares issued pursuant to the private placement and upon
exercise of the warrant have a hold period ending on July 31, 2004. The
Agreement received shareholder approval subsequent to the end of the quarter at
the annual and extraordinary general meeting of shareholders of the Company on
July 14, 2003, and the financing was completed subsequent to the quarter end, on
July 31, 2003.
On closing of the Offering, Shambhala Mining Corp., a wholly-owned subsidiary of
Shambhala, incorporated under the laws of the Yukon, holds approximately 26% of
the issued shares of Northern Dynasty. The Agreement provides that Shambhala has
the right to participate in any equity financing by the Company to maintain its
pro rata interest in the Company as long as Shambhala controls 20% or more
(undiluted) of the Company's issued and outstanding shares (the "Cooperative
Period"). During the Cooperative Period, Shambhala is also entitled to nominate
two directors to Northern Dynasty's board. Shambhala has agreed that it will
vote its shares in favour of resolutions recommended by the Company's board of
directors. If at any time during the Cooperative Period, Northern Dynasty elects
to exercise its right to purchase the area of the Pebble Property known as the
Resource Lands, by way of equity financing, Shambhala has a right of first
refusal to subscribe for securities of Northern Dynasty to finance all or part
of the exercise amount.
At the end of the second fiscal quarter of 2003, Northern Dynasty had working
capital of $584,954, as compared to $438,155 at the end of the first quarter.
Working capital increased due to cash received from the exercise of options and
warrants during the period. Northern Dynasty had 20,565,723 common shares issued
and outstanding at June 30, 2003.
Results of Operations
Expenses increased during the second quarter as the Company commenced its 2003
field program on the Pebble Project. Total expenses during the quarter were
$1,750,386, as compared to $236,848 spent in the prior quarter. The amount is
similar to the $1,729,932 spent in the second quarter of 2002. The main
expenditures were on exploration ($1,363,290), office and administration
($224,581) and shareholder communications ($99,175).
The main exploration expenditure in the current quarter was $652,184 for
drilling; 20,693 feet were drilled in the 2003 phase one program that began in
May and was completed in June. Other significant exploration costs were $221,243
for helicopter and fixed wing for transportation to site and drill moves,
$169,902 for site activities that include camp maintenance and preparation and
reclamation of drill sites and $154,835 for geological wages for planning and
supervising the drill program and for logging core from the program.
Environmental and land fees of $64,833 were paid during the quarter, and mainly
included claim fees and the cost of environmental work at site.
Office and administration costs are slightly increased from the $205,434 spent
in the same period in fiscal 2002. Costs during the current quarter include
provisions for stock based compensation. Shareholder communication expenses
during the quarter were mainly associated with the cost of developing, printing
and distributing a brochure on the Pebble project and other updates to
investors, analysts, and other interested parties. Additional costs are related
to wages for investor relations representatives and graphics to develop new
presentation materials for the project.
Related Party Transactions
Hunter Dickinson Inc. ("HDI") of Vancouver, British Columbia is a private
company with certain directors in common with the Company that carries out
geological, corporate development, shareholder communications, administration
and other management activities for, and incurs third party costs on behalf of,
the Company under an agreement dated December 1996. HDI is reimbursed on a full
cost-recovery basis. In the quarter ending June 30, 2003, Northern Dynasty paid
$394,412 to HDI as compared to $110,856 in the previous quarter.
NORTHERN DYNASTY MINERALS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003
(Expressed in Canadian Dollars)
(Unaudited)
NORTHERN DYNASTY MINERALS LTD.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
June 30, 2003 December 31, 2002
(unaudited) (audited)
------------- -----------------
Assets
Current assets
Cash and equivalents ............................ $ 866,288 $ 424,152
Amounts receivable and prepaids ................. 104,650 178,834
Balances receivable from related
parties (note 8) .............................. - 79,350
------------ ------------
970,938 682,336
Equipment (note 4) ................................. 4,836 2,813
------------ ------------
$ 975,774 $ 685,149
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities ........ $ 91,542 $ 174,559
Balances payable to related parties (note 8) .... 294,442 11,729
------------ ------------
385,984 186,288
------------ ------------
Shareholders' equity
Share capital (note 7) .......................... 13,687,351 11,035,977
Subscriptions received (note 7(b)(i)) ........... - 650,000
Contributed surplus (note 7(e)) ................. 50,403 13,271
Deficit ......................................... (13,147,964) (11,200,387)
------------ ------------
589,790 498,861
Nature of operations (note 1)
Commitments (note 11)
Subsequent events (note 12)
------------ ------------
$ 975,774 $ 685,149
============ ============
The accompanying notes are an integral part of these consolidated financial statements
Approved by the Board of Directors
/s/ Ronald W. Thiessen /s/ Jeffrey R. Mason
Ronald W. Thiessen Jeffrey R. Mason
Director Director
NORTHERN DYNASTY MINERALS LTD.
Consolidated Statements of Operations
(Expressed in Canadian Dollars)
(Unaudited)
Three months ended June 30 Six months ended June 30
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Expenses
Conference and travel ............... $ 24,179 $ 12,622 $ 30,629 $ 20,824
Depreciation ........................ 555 180 698 360
Exploration (note 6) ................ 1,363,290 1,455,741 1,501,250 2,167,054
Legal, accounting and audit ......... 14,861 23,110 15,471 49,493
Office and administration (note 7(d)) 224,581 205,434 280,522 244,500
Shareholder communication ........... 99,175 26,545 127,342 48,487
Trust and filing .................... 23,745 6,300 31,322 17,651
------------ ------------ ------------ ------------
1,750,386 1,729,932 1,987,234 2,548,369
------------ ------------ ------------ ------------
Other items
Foreign exchange gain (loss) ........ 31,616 (20,187) 35,192 (22,501)
Interest income ..................... 2,319 16,322 4,465 24,272
------------ ------------ ------------ ------------
33,935 (3,865) 39,657 1,771
------------ ------------ ------------ ------------
Loss for the period .................... $ (1,716,451) $ (1,733,797) $ (1,947,577) $ (2,546,598)
------------ ------------ ------------ ------------
Weighted average number of
common shares outstanding ........... 18,283,739 12,705,042 17,634,698 11,285,832
------------ ------------ ------------ ------------
Basic and diluted loss per share ....... $ (0.09) $ (0.14) $ (0.11) $ (0.23)
============ ============ ============ ============
Consolidated Statements of Deficit
(Expressed in Canadian Dollars)
Six months ended June 30
----------------------------
2003 2002
------------- ------------
Deficit, beginning of period ........................................ $ (11,200,387) $ (6,087,894)
Loss for the period ................................................ (1,947,577) (2,546,598
------------- ------------
Deficit, end of period .............................................. $ (13,147,964) $ (8,634,492)
============= ============
The accompanying notes are an integral part of these consolidated financial statements
NORTHERN DYNASTY MINERALS LTD.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
(Unaudited)
Three months ended June 30 Six months ended June 30
-------------------------- --------------------------
Cash provided by (applied to): 2003 2002 2003 2002
----------- ----------- ----------- -----------
Operating activities
Loss for the period ................................... $(1,716,451) $(1,733,797) $(1,947,577) $(2,546,598)
Items not involving cash
Depreciation ...................................... 555 180 698 360
Stock-based compensation .......................... 31,947 - 37,132 -
Shares issued for property option payments ........ - - - 575,000
Changes in non-cash working capital items
Amounts receivable and prepaids ................... 47,618 (56,641) 74,184 (66,629)
Accounts payable and accrued liabilitied .......... 64,106 173,383 (83,017) 21,867
Balances receivable from and payable to related
parties ........................................ 307,770 (7,419) 362,063 (434,024)
----------- ----------- ----------- -----------
(1,264,455) (1,624,294) (1,556,517) (2,450,024)
----------- ----------- ----------- -----------
Investing activities
Purchase of equipment ............................. (2,721) - (2,721) -
----------- ----------- ----------- -----------
(2,721) - (2,721) -
----------- ----------- ----------- -----------
Financing activities
Common shares issued for cash, net of issue costs .. 1,833,469 970,107 2,651,374 1,369,574
Subscriptions received ............................. - (270,000) (650,000) -
----------- ----------- ----------- -----------
1,833,469 700,107 2,001,374 1,369,574
----------- ----------- ----------- -----------
Increase (decrease) in cash and equivalents ........... 566,293 (924,187) 442,136 (1,080,450)
Cash and equivalents, beginning of period ............. 299,995 1,888,693 424,152 2,044,956
----------- ----------- ----------- -----------
Cash and equivalents, end of period ................... $ 866,288 $ 964,506 $ 866,288 $ 964,506
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements
NORTHERN DYNASTY MINERALS LTD.
Notes to Consolidated Financial Statements
For the period ended June 30, 2003
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Northern Dynasty Minerals Ltd. (the "Company") is incorporated under the
laws of the Province of British Columbia, and its principal business
activity is the exploration of mineral properties. Its principal mineral
property interests are located in Alaska, USA.
These consolidated financial statements have been prepared using Canadian
generally accepted accounting principles assuming a going concern. The
Company has incurred losses since inception and the ability of the Company
to continue as a going concern depends upon its ability to develop
profitable operations and to continue to raise adequate financing. These
financial statements do not reflect adjustments, which could be material,
to the carrying values of assets and liabilities which may be required
should the Company be unable to continue as a going concern.
2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles.
The Company has a wholly-owned subsidiary, Northern Dynasty Mines Inc.,
incorporated under the laws of the State of Alaska, USA. These consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiary. All material intercompany balances and
transactions have been eliminated.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and equivalents
Cash and equivalents consist of cash and highly liquid investments, having
maturity dates of three months or less from the date of purchase, which are
readily convertible to known amounts of cash.
(b) Equipment
Equipment is recorded at cost and is depreciated over its estimated useful
life using the declining balance method at various rates ranging from 20%
to 30% per annum.
(c) Mineral property interests
The acquisition costs of mineral properties are deferred until the
properties are placed into production, sold or abandoned. These deferred
costs are amortized on a unit-of-production basis over the estimated useful
life of the related properties following the commencement of production, or
written off if the properties are allowed to lapse or are abandoned. If the
deferred mineral property costs are determined not to be recoverable over
the estimated useful life or are less than estimated fair market value, the
unrecoverable portion is charged to earnings in that period.
Mineral property acquisition costs include the cash consideration and the
fair market value of common shares, based on the trading price of the
shares, on the date of issue or as otherwise provided under the agreement
terms for the mineral property interest. Costs for properties for which the
Company does not possess unrestricted ownership and exploration rights,
such as option agreements, are expensed in the period incurred or until a
feasibility study has determined that the property is capable of commercial
production.
Exploration costs and option payments are expensed in the period incurred.
Administrative expenditures are expensed in the period incurred.
(d) Share capital
Common shares issued for mineral property interests are recorded at the
fair market value based upon the trading price of the shares on the TSX
Venture Exchange on the date of issue or as otherwise provided under the
agreement terms to issue the shares.
The proceeds from common shares issued pursuant to flow-through share
financing agreements are credited to share capital as the tax benefits of
the exploration expenditures incurred pursuant to these agreements are
transferred to the purchaser of the flow-through shares.
Share issue costs are deducted from share capital.
(e) Stock-based compensation plan
The Company has a stock-option plan which is described in note 7(d).
Effective January 1, 2002, the Company has adopted the new accounting
standard of the Canadian Institute of Chartered Accountants ("CICA") for
accounting for stock-based compensation.
The Company has adopted the fair market value method of accounting for all
stock options granted. Under this method, stock-based compensation on
options granted to employees, directors, and consultants is recorded as an
expense over the period the options are vested, based on the estimated fair
value at the measurement date using a fair value pricing model.
(f) Foreign currency translation
All of the Company's foreign subsidiaries are considered integrated.
Monetary assets and liabilities of the Company's integrated foreign
operations are translated into Canadian dollars at exchange rates in effect
at the balance sheet date. Non-monetary assets and liabilities are
translated at historical estimated exchange rates unless such items are
carried at market, in which case they are translated at the exchange rates
in effect on the balance sheet date. Revenues and expenses, except
depreciation, are translated at average exchange rates for the period.
Depreciation is translated at the same exchange rates as the assets to
which it relates.
Foreign exchange gains or losses are expensed.
(g) Income taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, future income tax assets and liabilities are
computed based on differences between the carrying amount of assets and
liabilities on the balance sheet and their corresponding tax values,
generally using the enacted or substantively enacted income tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Future income tax assets also result from unused loss carryforwards and
other deductions. Future tax assets are recognized to the extent that they
are considered more likely than not to be realized. The valuation of future
income tax assets is adjusted, if necessary, by the use of a valuation
allowance to reflect the estimated realizable amount.
The Company's accounting policy for future income taxes currently has no
effect on the financial statements of any of the periods presented.
(h) Loss per share
Basic loss per share is calculated by dividing the loss for the period by
the weighted average number of common shares outstanding during the period.
Diluted loss per share is calculated using the treasury stock method. Under
the treasury stock method, the weighted average number of common shares
outstanding used for the calculation of diluted loss per share assumes that
the proceeds to be received on the exercise of dilutive stock options and
warrants are used to repurchase common shares at the average market price
during the period.
Diluted loss per share has not been presented as the effect of the
outstanding options and warrants would be anti-dilutive.
(i) Fair value of financial instruments
The carrying values of cash and equivalents, amounts receivable, and
accounts payable and accrued liabilities approximate their fair value due
to their short term nature. The Company is not exposed to significant
credit risk or interest rate risk.
(j) Change in Accounting Policy - Stock-Based Compensation
Effective January 1, 2002, the Company adopted the new Recommendations of
the Canadian Institute of Chartered Accountants relating to the accounting
for stock-based compensation and other stock-based payments. Under the new
standard, payments to non-employees, and to employees awards that are
direct awards of stock, that call for settlement in cash or other assets,
or that are stock appreciation rights which call for settlement by the
issuance of equity instruments, are accounted for using the fair value
method and is included in operations, with an offset to contributed
surplus. No compensation expense is recorded for all other non-cash
stock-based employee compensation awards; however pro forma disclosure of
net income and earnings per share, had the Company used the fair value
method, is presented if applicable.
Prior to the adoption of the new standard, no compensation expense was
recorded for the Company's stock-based incentive plans when the options
were granted. Any consideration paid by those exercising stock options was
credited to share capital upon receipt.
The new Recommendations were applied prospectively. The adoption of this
new standard resulted in no changes to amounts previously reported.
(k) Use of estimates
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities as at
the balance sheet date, and the reported amounts of revenues and expenses
during the reporting period. Significant areas requiring the use of
management estimates include the determination of potential impairments of
asset values, and rates for depreciation of equipment, as well as the
assumptions used in determining the fair value of non-cash stock-based
compensation. Actual results could differ from those estimates.
(l) Comparative figures
Certain of the prior periods' comparative figures have been reclassified to
conform to the financial statement presentation adopted for the current
period.
4. EQUIPMENT
Net
Accumulate Book
Cost Depreciate Value
------- ------- -------
June 30, 2003
Site equipment ................................... $15,387 $14,926 $ 461
Vehicles ......................................... 4,335 4,335 -
Computer equipment ............................... 5,209 834 4,375
------- ------- -------
$24,931 $20,095 $ 4,836
======= ======= =======
December 31, 2002
Site equipment ................................... $15,387 $14,660 $ 727
Vehicles ......................................... 4,335 4,239 96
Computer equipment ............................... 2,488 498 1,990
------- ------- -------
$22,210 $19,397 $ 2,813
======= ======= =======
5. MINERAL PROPERTY INTERESTS
(a) Pebble Property
On November 1, 2001, the Company acquired the rights to two options granted
by Teck Cominco American Incorporated ("Teck Cominco") respecting its
Pebble property in southwestern Alaska.
The two options granted by Teck Cominco were acquired by the Company
through an agreement with Hunter Dickinson Group Inc. ("HDGI"), a private
company which is related by virtue of certain directors in common. The
Company has been assigned, at HDGI's cost, an 80% interest, with the right
to acquire a 100% interest, in the two Teck Cominco options. HDGI's costs
($584,655) include the staking of 134 claims to expand the property along
with 30 km of induced polarization surveying over the new claims.
The first option enables the Company to explore the Pebble property for
more than 2 years prior to electing to purchase a 100% interest in the
Pebble deposit, free from any underlying royalty. This option was extended
by one year in an agreement dated December 19, 2002 whereby the Company
issued Teck Cominco 200,000 shares for the one year deferral. The Company
can elect to (a) purchase the 36 claims covering the Pebble deposit by
paying Teck Cominco US$10 million, in cash or shares with the same cash
equivalency, prior to November 30, 2004, and (b) purchase the 20% HDGI
interest in shares at its independently appraised value. If the Company
elects to issue shares to Teck Cominco in lieu of cash, the Company will
manage the sale of any shares that Teck Cominco wishes to sell. Any excess
of Teck Cominco's resale proceeds will be credited against future option
requirements and any share resale shortfall must be made up by the Company
to maintain the option. Interim payments to Teck Cominco were also
required, including US$250,000, in cash or stock with the same cash
equivalency, prior to December 31, 2001 (which was paid), plus 500,000
two-year share purchase warrants exercisable at $0.75 (which were issued on
December 31, 2001) and a cumulative total of 1,000,000 shares (500,000 were
issued on March 27, 2002 and 500,000 were issued on December 19, 2002) and
750,000 warrants (500,000 were issued on March 27, 2002 exercisable at
$1.15 and 250,000 were issued on December 31, 2002 exercisable at $0.60) in
two tranches before December 31, 2002. If the Company purchases the
Resource Lands under the first option, it also has the right under the
second option to earn a 50% interest in the adjacent Exploration Lands by
completing 60,000 feet (to date 41,294 feet has been completed) of drilling
before November 30, 2004, with two one-year extensions available for
100,000 shares each. Upon the Company completing the drilling, Teck Cominco
can either match the Company's future expenditures by forming a 50:50 joint
venture, or sell its 50% interest in the Exploration Lands to the Company
for US$4 million and a 5% net profits interest.
(b) Pickle Lake Joint Venture
The Company holds a 37.5% participating joint venture interest, subject to
a 2.5% Net Profits Interest ("NPI") held by the original owners, in mineral
properties in northwestern Ontario under the Pickle Lake Joint Venture. The
Company is searching for additional joint venture partners to fund further
exploration on these properties. The Company continues to maintain these
claims in good standing.
(c) Little Bald Mountain
The Company holds an 8.1% NPI interest in the Little Bald Mountain ("LBM")
property in Nevada, USA, which may be acquired by Placer Dome U.S. Inc. by
annual election for an option payment of $1,500,000 before December 1995,
escalating by $500,000 for each successive year thereafter. The option
expires on December 31, 2003.
6. EXPLORATION EXPENSES
Three months ended June 30 Six months ended June 30
-------------------------- -------------------------
Pebble Property 2003 2002 2003 2002
------------ ----------- ----------- -----------
Assay and analysis ............. $ 28,523 $ (1,269) $ 37,420 $ 17,528
Drilling ....................... 652,184 564,201 652,184 568,590
Engineering .................... 3,800 28,135 35,513 29,400
Environmental and land fees .... 64,833 (12,217) 107,850 (2,173)
Equipment rental ............... 3,623 14,684 3,623 14,684
Freight ........................ 15,251 32,019 15,251 32,019
Geological ..................... 154,835 218,624 190,058 294,272
Graphics ....................... 34,106 35,166 41,837 55,232
Helicopter/fixed wing .......... 221,243 343,940 221,243 343,940
Options payments ............... - - - 575,000
Site activities ................ 169,902 217,692 181,281 223,796
Socioeconomic .................. 692 3,642 692 3,642
Travel and accommodation ....... 14,298 11,124 14,298 11,124
----------- ----------- ----------- -----------
Incurred during the period ..... 1,363,290 1,455,741 1,501,250 2,167,054
Cumulative exploration expenses,
beginning of period ........ 5,636,290 1,879,707 5,498,330 1,168,394
----------- ----------- ----------- -----------
Cumulative exploration expenses,
end of period ............... $ 6,999,580 $ 3,335,448 $ 6,999,580 $ 3,335,448
=========== =========== =========== ===========
7. SHARE CAPITAL
(a) Authorized share capital
The Company's authorized share capital consists of 100,000,000 common
shares, without par value.
(b) Issued and outstanding common shares
Number
Common shares issued: Price of shares Amount
----- ---------- -----------
Balance, December 31, 2001 .................................. 9,292,455 $ 7,907,717
Private placement (net of issue costs) ................. 0.34 1,176,470 391,317
Private placement (net of issue costs) ................. 0.50 2,000,000 890,700
Private placement (net of issue costs) ................. 1.05 197,548 189,793
Share purchase options exercised ....................... 0.40 310,750 124,300
Share purchase options exercised ....................... 0.55 13,000 7,150
Property option payments (note 5(a)) ................... 0.60 700,000 420,000
Property option payments (note 5(a)) ................... 1.15 500,000 575,000
Share purchase warrants exercised ...................... 0.40 1,325,000 530,000
---------- -----------
Balance, December 31, 2002 .................................. 15,515,223 11,035,977
Private placement January 2003, net of issue costs (i) . 0.50 1,700,000 809,654
Share purchase options exercised ....................... 0.40 107,000 42,800
Share purchase options exercised ....................... 0.43 8,000 3,440
Share purchase options exercised ....................... 0.50 7,500 3,750
Warrants exercised ..................................... 0.40 575,000 230,000
Warrants exercised ..................................... 0.45 769,000 346,050
Warrants exercised ..................................... 0.60 870,000 522,000
Warrants exercised ..................................... 0.62 514,000 318,680
Warrants exercised ..................................... 0.75 500,000 375,000
---------- -----------
Balance, June 30, 2003 ...................................... 20,565,723 $13,687,351
========== ===========
(i) On January 14, 2003, the Company completed a private placement
consisting of 1,300,000 flow-through units and 400,000 non
flow-through units at $0.50 each. Each flow-through unit was comprised
of a flow-through common share and a two-year non-flow-through share
purchase warrant. Each warrant entitles the holder to purchase one
common share at a price of $0.60 until January 14, 2005. The non
flow-through units were comprised of one common share and one two-year
share purchase warrant with the same warrant terms. As at December 31,
2002, the Company had received $650,000 for the flow-through portion
of the private placement (note 11).
(ii) On July 14, 2003, subsequent to the quarter end, the Company received
shareholders' approval for the private placement of 6,944,445 units at
a price of $0.72 per unit. Each unit was comprised of one common share
and one warrant exercisable to purchase an additional common share at
a price of $0.90 until June 12, 2004. All shares issued pursuant to
the private placement financing and upon the exercise of the warrants
have a hold period until July 31, 2004. On July 31, 2003, the private
placement was completed.
(c) Share purchase warrants
The continuity of share purchase warrants (each warrant exercisable into
one common share) for the period ended June 30, 2003 is:
Exercise Dec. 31 Expired/ June 30,
Expiry date Price 2002 Issued Exericsed Cancelled 2003
----------- -------- ---------- --------- ----------- ---------- ----------
July 16, 2003 ................. $ 0.40 775,000 - (575,000) - 200,000
December 27, 2003 ............. $ 1.15 197,548 - - - 197,548
December 31, 2003 ............. $ 0.75 500,000 - (500,000) - -
February 20, 2004 ............. $ 0.45 1,176,470 - (769,000) - 407,470
March 27, 2004 ................ $ 1.15 500,000 - - - 500,000
April 19, 2004 ................ $ 0.62 2,000,000 - (514,000) - 1,486,000
December 31, 2004 ............. $ 0.60 250,000 - (250,000) - -
January 14, 2005 .............. $ 0.60 - 1,700,000 (620,000) - 1,080,000
--------- --------- ---------- --------- ----------
5,399,018 1,700,000 (3,228,000) - 3,871,018
Weighted average exercise price $ 0.63 $ 0.60 $ 0.56 $ - $ 0.68
========= ========= ========== ========= ==========
(i) Subsequent to June 30, 2003, 200,000 share purchase warrants were
exercised at $0.40, 520,000 share purchase warrants were exercised at
$0.60, 822,000 share purchase warrants were exercised at $0.62, and
11,904 share purchase warrants were exercised at $1.15.
(d) Share purchase option compensation plan
The Company has a share purchase option compensation plan approved by the
shareholders that allows it to grant up to 3,600,000 share purchase
options, vesting over up to two years, subject to regulatory terms and
approval, to its employees, officers, directors and consultants. The
exercise price of each option can be set equal to or greater than the
closing market price of the common shares on the TSX on the day prior to
the date of the grant of the option, less any allowable discounts. Options
have a maximum term of five years and terminate 30 days following the
termination of the optionee's employment, except in the case of retirement
or death.
The continuity of share purchase options for the period ended June 30, 2003
is:
Exercise Dec. 31 Expired / June 30
Expiry date Price 2002 Granted Exercised Cancelled 2003
----------- -------- --------- ------- --------- --------- ----------
February 12, 2003 ............. $ 0.43 8,000 - (8,000) - -
May 15, 2004 (i) .............. $ 0.40 1,070,250 - (107,000) - 963,250
December 20, 2004 ............. $ 0.50 119,000 - (7,500) - 111,500
May 9, 2005 ................... $ 0.75 - 107,500 - - 107,500
--------- ------- -------- --------- ---------
1,197,250 107,500 (122,500) - 1,182,250
Weighted average exercise price $ 0.42 $ 0.75 $ 0.41 $ - $ 0.44
========= ======= ========= ========= =========
(i) Subsequent to June 30, 2003, 183,500 share purchase options were
exercised at $0.40.
The exercise prices of all share purchase options granted during 2002 were
equal to the market price at the grant date. The estimated fair value of
all options granted to non-employees during 2003 have been reflected in the
statement of operations as follows:
Office and administration .............................. $37,132
-------
Total stock-based compensation cost recognized in
operations, credited to contributed surplus ............ $37,132
=======
The weighted-average assumptions used to estimate the fair value of options
granted during 2002 were:
Risk-free interest rate ..................................... 3%
Expected option life ........................................ 2 years
Vesting period .............................................. 0-6 months
Expected price volatility ................................... 40%
Expected dividend yield ..................................... nil
Option pricing models require the input of highly subjective assumptions
including the expected price volatility. Changes in the subjective input
assumptions can materially affect the fair value estimate, and therefore
the existing models do not necessarily provide a reliable measure of the
fair value of the Company's stock options.
The Company did not issue any stock-based compensation to directors,
officers or employees during the period. Accordingly, there is no pro forma
disclosure required.
(e) Contributed surplus
Balance, December 31, 2001 and 2000 ........................... $ -
Changes during 2002:
Non-cash stock-based compensation to non-employees ......... 13,271
---------
Contributed surplus, December 31, 2002 ........................ $ 13,271
Changes during 2003:
Non-cash stock-based compensation to non-employees ......... 37,132
---------
Contributed surplus, June 30, 2003 ............................ $ 50,403
=========
8. RELATED PARTY TRANSACTIONS AND BALANCES
Six month ended Year ended
Transactions June 30, 2003 December 31, 2002
------------ --------------- -----------------
Services rendered and expenses reimbursed
Hunter Dickinson Inc. (a) ........................ $ 505,268 $ 1,227,425
Hunter Dickinson Group Inc. (b) .................. 10,480 28,698
=========== ===========
Balances receivable (payable) June 30, 2003 December 31, 2002
----------------------------- ------------- -----------------
Hunter Dickinson Inc. (a) ........................ $ (286,652) $ 79,350
Hunter Dickinson Group Inc. (b) .................. (7,790) (11,729)
----------- -----------
$ (294,442) $ 67,621
=========== ===========
(a) Hunter Dickinson Inc. ("HDI") is a private company with certain
directors in common that provides geological, corporate development,
administrative and management services to, and incurs third party
costs on behalf of, the Company on a full cost-recovery basis pursuant
to an agreement dated December 31, 1996. The balances payable to HDI
has resulted from advances by HDI to the Company and from services
rendered to, but not yet paid for by the Company.
(b) Hunter Dickinson Group Inc. ("HDGI") is a private company with certain
directors in common that provide consulting services at market rates
to the Company. The balances payable to HDGI have resulted from the
services rendered to, but not yet paid for by the Company.
9. INCOME TAXES
As at December 31, 2002, the Canadian parent company had the following
amounts available to reduce future taxable income, the future tax benefits
of which have not been reflected in the accounts, as it cannot be
considered more likely than not that these amounts will be utilized. The
following non-capital and capital losses, approximately, are available to
reduce future taxable income:
Expiry Date
-----------
2003 $ 64,000
2004 53,000
2005 54,000
2006 -
2007 -
2008 25,000
2009 306,000
2010 799,000
----------
Total non-capital losses 1,301,000
Capital loss carried forward 2,091,500
Excess of aggregate tax cost of equipment over net book value -
----------
Total losses and excess equipment tax costs available $3,392,500
==========
10. SEGMENTED INFORMATION
The Company operates in a single reportable operating and geographic
segment, the exploration and development of mineral properties in Alaska,
USA.
11. COMMITMENTS
At June 30, 2003, the Company is committed to incur prior to December 31,
2003, on a best-efforts basis, a total of $650,000 in qualifying Canadian
exploration expenditures pursuant to a private placement for which
flow-through proceeds were received on December 31, 2002 and renounced to
subscribers on that date.
12. SUBSEQUENT EVENTS
Subsequent to June 30, 2003, the Company:
(a) issued 6,944,445 common shares and 6,944,445 common share purchase
warrants pursuant a private placement (note 7(b)(ii)),
(b) issued 1,553,904 common shares pursuant to the exercise of warrants
(note 7(c)(i)), and
(c) issued 183,500 common shares pursuant to the exercise of share
purchase options (note 7(d)(i)).