UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of MAY, 2005.
Commission File Number: 0-30464
IMA EXPLORATION INC.
--------------------------------------------------------------------------------
(Translation of registrant's name into English)
#709 - 837 West Hastings Street, Vancouver, British Columbia, V6C 3N6, Canada
--------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
IMA EXPLORATION INC.
-------------------------------------
Date: May 27, 2005 /s/ Joseph Grosso
------------------------------ -------------------------------------
Joseph Grosso,
President & CEO
IMA EXPLORATION INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2005 and 2004
(Unaudited - Prepared by Management)
MANAGEMENT'S COMMENTS ON UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements of IMA
Exploration Inc. for the three months ended March 31, 2005 have been prepared by
management and are the responsibility of the Company's management. These
statements have not been reviewed by the Company's external auditors.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM CONSOLIDATED BALANCE SHEETS
(UNAUDITED - PREPARED BY MANAGEMENT)
MARCH 31, DECEMBER 31,
2005 2004
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 6,838,765 5,227,354
Amounts receivable and prepaids 306,265 162,802
Marketable securities (Note 4) 186,000 186,000
------------ ------------
7,331,030 5,576,156
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Note 5) 97,284 94,102
MINERAL PROPERTIES AND DEFERRED
COSTS (Notes 2 and 6) 8,184,776 6,551,598
------------ ------------
15,613,090 12,221,856
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 486,529 523,378
FUTURE INCOME TAX LIABILITIES 997,730 885,093
------------ ------------
1,484,259 1,408,471
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7) 41,328,722 36,982,307
CONTRIBUTED SURPLUS 5,097,112 3,428,382
DEFICIT (32,297,003) (29,597,304)
------------ ------------
14,128,831 10,813,385
------------ ------------
15,613,090 12,221,856
============ ============
APPROVED BY THE BOARD OF DIRECTORS
"Joseph Grosso" , Director
"Arthur Lang" , Director
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED - PREPARED BY MANAGEMENT)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2005 2004
$ $
EXPENSES
Administrative and management services 32,236 44,136
Bank charges and interest 2,129 5,506
Corporate development and investor relations 100,029 59,269
Depreciation - 2,844
General exploration 19,033 38,276
Office and sundry 44,165 11,535
Printing 20,557 10,863
Professional fees 315,224 100,400
Rent, parking and storage 21,034 14,415
Salaries and employee benefits 133,075 85,596
Stock based compensation 1,800,000 1,871,360
Telephone and utilities 14,729 6,273
Transfer agent and regulatory fees 29,817 13,597
Travel and accommodation 71,680 20,565
Cost recoveries - (14,066)
------------ ------------
2,603,708 2,270,568
------------ ------------
LOSS BEFORE OTHER ITEMS (2,603,708) (2,270,568)
------------ ------------
OTHER EXPENSE (INCOME)
Foreign exchange (20,507) (49,144)
Reorganization costs - 200,000
Interest and other income (29,368) (20,680)
------------ ------------
(49,875) 130,176
------------ ------------
LOSS FROM CONTINUING OPERATIONS (2,553,833) (2,400,744)
(Gain) loss allocated to spin-off assets - (224,021)
------------ ------------
LOSS FOR THE YEAR (2,553,883) (2,176,723)
DEFICIT - BEGINNING OF PERIOD (29,597,304) (17,577,363)
DISTRIBUTION OF EQUITY ON SPIN-OFF OF
ASSETS TO GOLDEN ARROW (Note 2) (145,866) -
------------ ------------
DEFICIT - END OF PERIOD (32,286,370) (19,754,086)
============ =============
BASIC AND DILUTED LOSS PER COMMON SHARE
FROM CONTINUNG OPERATIONS $(0.06) $(0.06)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.06) $(0.06)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 44,388,798 37,552,110
============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - PREPARED BY MANAGEMENT)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2005 2004
$ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (2,553,833) (2,176,723)
Net loss allocated to spin-off assets - 224,021
------------ ------------
Net loss from continuing operations (2,553,833) (2,400,744)
Items not affecting cash
Depreciation - 2,844
Stock based compensation 1,800,000 1,871,360
------------ ------------
(753,833) (526,539)
Change in non-cash working capital balances (180,312) 313,921
------------ ------------
(934,145) (212,618)
Cash used in spin-off operations - (149,362)
------------ ------------
(934,145) (361,980)
------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties and
deferred costs (1,520,541) (1,372,807)
Net mineral properties and marketable securities
cash flow related to spin-off assets - 95,750
Purchase of equipment (3,182) (74,911)
------------ ------------
(1,523,723) 1,351,968
------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 4,215,145 5,682,006
Share issuance costs - (411,237)
------------ ------------
4,215,145 5,270,764
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,757,277 3,556,821
CASH TRANSFERRED TO GOLDEN ARROW (Note 2) (145,866) -
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,611,411 3,556,821
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 5,227,354 4,422,334
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 6,838,765 7,979,155
============ =============
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
CASH 838,765 5,179,155
TERM DEPOSITS 6,000,000 2,000,000
------------ ------------
6,838,765 2,979,155
============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
------------------------------------------------------------
NAVIDAD NAVIDAD
AREAS IVA TAX TOTAL
$ $ $ $
------------------------------------------------------------
Balance, beginning of period 5,770,968 112,694 667,936 6,551,598
------------ ------------ ------------ ------------
Expenditures during the period
Assays 69,405 - - 69,405
Communications 3,742 - - 3,742
Drilling 506,167 - - 506,167
Environmental 2,988 - - 2,988
Geophysics 103,785 - - 103,785
Metallurgy 121,993 - - 121,993
Office 2,490 - - 2,490
Petrography 609 - - 609
Salaries and Contractors 281,209 - - 282,209
Supplies and Equipment 84,486 - - 84,486
Transportation 44,934 - - 44,934
Imagery and Base Maps 203 - - 203
Project Development 120,927 - - 120,927
IVA Tax - - 177,601 177,601
------------ ------------ ------------ ------------
1,342,940 - 177,601 1,520,541
------------ ------------ ------------ ------------
Future income tax (Note 9) 112,637 - - 112,637
------------ ------------ ------------ ------------
Balance, end of period 7,226,545 112,694 845,537 8,184,776
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
1. NATURE OF OPERATIONS
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in
Argentina. The Company presently has no proven or probable reserves and
on the basis of information to date, it has not yet determined whether
these properties contain economically recoverable ore reserves.
Consequently the Company considers itself to be an exploration stage
company. The amounts shown as mineral properties and deferred costs
represent costs incurred to date, less amounts amortized and/or written
off, and do not necessarily represent present or future values. The
underlying value of the mineral properties and deferred costs is
entirely dependent on the existence of economically recoverable
reserves, securing and maintaining title and beneficial interest in the
properties, the ability of the Company to obtain the necessary
financing to complete development, and future profitable production.
The Company considers that it has adequate resources to maintain its
core operations for the next fiscal year but currently does not have
sufficient working capital to fund all of its planned exploration and
development work. The Company will continue to rely on successfully
completing additional equity financing.
2. SPIN-OFF ASSETS
On July 7, 2004, the Company completed a corporate restructuring plan
(the "Reorganization") which resulted in dividing the Company's assets
and liabilities into two separate companies. Following the
Reorganization the Company continued to hold the Navidad project, while
all other mineral property interests, certain marketable securities and
cash were spun-off to Golden Arrow Resources Corporation ("Golden
Arrow"), a newly created company. The Navidad Property, located in the
province of Chubut Argentina, was staked by the Company in late 2002
and continues to be the focus of the Company's activities. The
Reorganization of the Company was accomplished by way of a statutory
plan of arrangement. The shareholders of the Company were issued shares
in Golden Arrow on the basis of one Golden Arrow share for ten shares
of the Company. On completion of the Reorganization, the Company
transferred to Golden Arrow:
i) all of the Company's investment in its mineral properties,
excluding the Navidad and Navidad Area properties and related
future income tax liabilities;
ii) the assets and liabilities of IMPSA Resources (BVI) Inc.,
Inversiones Mineras Argentinas Holdings (BVI) Inc., both
wholly-owned subsidiaries of the Company, and IMPSA Resources
Corporation, an 80.69% owned subsidiary of the Company;
iii) certain marketable securities at their recorded values;
iv) cash and cash equivalents
The aggregate carrying amount of the net assets transferred from the
Company to Golden Arrow is as follows:
$
Cash and cash equivalents 1,166,055
Marketable securities and other current
assets and liabilities 548,841
Mineral properties and deferred cost and equipment 6,874,960
Future income tax liabilities (1,079,112)
------------
7,510,744
============
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
3. SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements of the Company have been
prepared by management in accordance with Canadian generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. The
consolidated financial statements have, in management's opinion, been
properly prepared using careful judgement with reasonable limits of
materiality. These interim consolidated financial statements should be
read in conjunction with the most recent annual consolidated financial
statements. The significant accounting policies follow that of the most
recently reported annual consolidated financial statements.
4. MARKETABLE SECURITIES
---------------------------- ---------------------------
MARCH 31, 2005 DECEMBER 31, 2004
---------------------------- ---------------------------
RECORDED FAIR RECORDED FAIR
VALUE VALUE VALUE VALUE
$ $ $ $
Tinka Resources Limited
- 300,000 common shares 96,000 147,000 96,000 180,000
Consolidated Pacific Bay Minerals Ltd.
- 900,000 common shares 90,000 85,500 90,000 90,000
------------ ------------ ------------ -----------
186,000 232,500 186,000 270,000
============ ============ ============ ===========
The Company has entered into option and sale agreements on certain of
its non-core mineral property holdings in which the Company received
common shares of publicly traded companies as partial consideration.
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
MARCH 31, DECEMBER 31,
2005 2004
$ $
Office equipment and computers 234,906 231,724
Leasehold improvements 96,634 96,634
------------ ------------
331,540 328,358
Less accumulated depreciation (234,256) (234,256)
------------ ------------
97,284 94,102
============ ============
On May 6, 2005, on the signing of an administrative services agreement,
the Company transferred the equipment and leasehold improvements to
Grosso Group Management Ltd. (the "Grosso Group") at their carrying
values as of December 31, 2004.
See Note 8 (b)
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
6. MINERAL PROPERTIES AND DEFERRED COSTS
(a) The Company has either staked, fully paid or holds options to
acquire 100% working interests in mineral properties, located
in Chubut Province in Argentina.
(b) Direct costs related to the acquisition and exploration of
mineral properties held or controlled by the Company, are
deferred on an individual property basis until the viability
of a property is determined. Administration costs and general
exploration costs are expensed as incurred. When a property is
placed in commercial production, deferred costs will be
depleted using the units-of-production method. Management of
the Company periodically reviews the recoverability of the
capitalized mineral properties. Management takes into
consideration various information including, but not limited
to, results of exploration activities conducted to date,
estimated future metal prices, and reports and opinions of
outside geologists, mine engineers and consultants. When it is
determined that a project or property will be abandoned then
the costs are written-off, or if its carrying value has been
impaired, then the costs are written down to fair value.
The Company accounts for foreign value added taxes paid as
part of mineral properties and deferred costs. The recovery of
these taxes will commence on the beginning of foreign
commercial operations. Should these amounts be recovered they
would be treated as a reduction in carrying costs of mineral
properties and deferred costs.
Although the Company has taken steps to verify title to
mineral properties in which it has an interest, these
procedures do not guarantee the Company's title. Such
properties may be subject to prior agreements or transfers and
title may be affected by undetected defects.
From time to time, the Company acquires or disposes of
properties pursuant to the terms of option agreements. Options
are exercisable entirely at the discretion of the optionee
and, accordingly, are recorded as mineral property costs or
recoveries when the payments are made or received. After costs
are recovered the balance of the payments are recorded as a
gain on option or disposition of mineral property.
(c) See also Note 2.
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
7. SHARE CAPITAL
Authorized: unlimited common shares without par value
100,000,000 preferred shares without par value
---------------------------- ---------------------------
Issued: MARCH 31, 2005 DECEMBER 31, 2004
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 43,816,207 36,982,307 36,381,452 27,707,597
------------ ------------ ------------ -----------
Issued during the period for:
Private placements - - 1,500,000 4,650,000
Exercise of warrants 1,653,517 4,184,145 5,371,285 4,275,149
Exercise of options 10,000 31,000 441,650 597,910
Exercise of agent's option - - 121,820 184,838
Less: Share issue costs - - - (552,273)
Contributed surplus reallocated
on exercise of options - 131,270 - 226,630
Proceeds collected and paid on
behalf of Golden Arrow shares - - - (107,544)
------------ ------------ ------------ -----------
1,663,517 4,346,415 7,434,755 9,274,710
------------ ------------ ------------ -----------
Balance, end of period 45,479,724 41,328,722 43,816,207 36,982,307
============ ============ ============ ===========
(a) Stock Options
During the three months ended March 31, 2005, the Company
granted 900,000 stock options.
The fair value of stock options granted is estimated on the
dates of grants using the Black-Scholes option pricing model
with the following assumptions used for the grants made during
the period:
Risk-free interest rate 3.32%
Estimated volatility 77%
Expected life 2.5 years
Expected dividend yield 0%
The weighted average fair value per share of stock options,
calculated using the Black-Scholes option pricing model,
granted during the period was $2.00 per share.
Option-pricing models require the use of estimates and
assumptions including the expected volatility. Changes in the
underlying assumptions can materially affect the fair value
estimates and, therefore, existing models do not necessarily
provide reliable measure of the fair value of the Company's
stock options.
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
7. SHARE CAPITAL (continued)
A summary of the Company's outstanding stock options at March
31, 2005, and the changes for the three months ended March 31,
2005, is presented below:
OPTIONS WEIGHTED
OUTSTANDING AVERAGE
AND EXERCISE PRICE
EXERCISABLE $
Balance, beginning of period 3,568,500 2.10
Granted 900,000 4.16
Exercised (10,000) 3.10
------------
Balance, end of period 4,458,500 2.51
============
Stock options outstanding and exercisable at March 31, 2005,
are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
205,000 0.40 July 19, 2006
119,000 0.50 May 2, 2007
117,500 0.50 September 23, 2007
90,000 0.84 March 7, 2008
300,000 0.90 May 30, 2008
1,305,000 1.87 August 27, 2008
1,372,000 3.10 March 24, 2009
50,000 4.20 December 01, 2009
900,000 4.16 March 16, 2010
---------
4,458,500
=========
(c) Warrants
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at March 31, 2005, and the changes for the three
months ended March 31, 2005, is as follows:
NUMBER
Balance, beginning of period 1,422,017
Granted 252,000
Exercised (1,653,517)
Expired (20,500)
------------
Balance, end of period -
============
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
7. SHARE CAPITAL (continued)
There were no common shares reserved pursuant to warrants and
agent warrants outstanding at March 31, 2005.
The Company paid a portion of the proceeds received from the
exercise of warrants which were outstanding as of July 7,
2004, to Golden Arrow. Golden Arrow issued one common share of
its share capital on the exercise of every ten shares pursuant
to the exercise of the Company's warrants. None of these
warrants are outstanding as of March 31, 2005.
8. RELATED PARTY TRANSACTIONS
(a) During the three months ended March 31, 2005, the Company paid
$49,790 to directors and officers or companies controlled by
directors and officers of the Company, for accounting,
management and consulting services provided.
(b) Effective January 1, 2005, the Company engaged the Grosso
Group to provide services and facilities to the Company. On
May 6, 2005, an administrative services agreement among the
Company and the Grosso Group was finalized. The Grosso Group
is a private company owned by the Company, Golden Arrow
Resources, Amera Resources Corporation and Gold Point
Exploration Ltd., each of which will own one share. The Grosso
Group will provide its shareholder companies with geological,
corporate development, administrative and management services.
During the three months ended March 31, 2005, the Company paid
$189,438 (plus 1 month deposit of $63,146) to the Grosso
Group.
(c) The Company has agreements with a company controlled by the
wife of the President of the Company for the rental of office
premises. Effective January 1, 2005 the Company subleased the
office premises to the Grosso Group.
(d) The President of the Company provides his services on a
full-time basis under a contract with a private company
controlled by the President. The President is paid an annual
amount of $102,000. The contract also provides that, in the
event the services are terminated without cause or upon a
change in control of the Company, a termination payment would
include a bonus of $6,500 per month, retroactive to July 1,
1999, plus an additional three years of compensation at
$15,000 per month. If the termination had occurred on March
31, 2005, the amount under the agreement would be $995,000.
(e) Other related party transactions are disclosed elsewhere in
these interim consolidated financial statements.
9. SEGMENTED INFORMATION
The Company is involved in mineral exploration and development
activities, which are conducted principally in Argentina. The Company
is in the exploration stage and, accordingly, has no reportable segment
revenues or operating results for the three months ended March 31,
2005.
IMA EXPLORATION INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED - PREPARED BY MANAGEMENT)
9. SEGMENTED INFORMATION (continued)
The Company's total assets are segmented geographically as follows:
--------------------------------------------
MARCH 31, 2005
--------------------------------------------
CORPORATE ARGENTINA TOTAL
$ $ $
--------------------------------------------
Current assets 7,183,540 147,490 7,331,030
Equipment 93,177 4,107 97,284
Mineral properties
and deferred costs - 8,184,776 8,184,776
------------ ------------ ------------
7,276,717 8,336,373 15,613,090
============ ============ ============
--------------------------------------------
DECEMBER 31, 2004
--------------------------------------------
CORPORATE ARGENTINA TOTAL
$ $ $
--------------------------------------------
Current assets 5,438,079 138,077 5,576,156
Equipment 93,177 925 94,102
Mineral properties
and deferred costs - 6,551,598 6,551,598
------------ ------------ ------------
5,531,256 6,690,600 12,221,856
============ ============ ============
10. CONTINGENCY
In March 2004, Aquiline Resources Inc. ("Aquiline") commenced an action
against the Company, seeking a constructive trust over the Navidad
properties and damages. The Company believes the Aquiline legal action
is without merit and continues to vigorously defend itself. A trial
date has been scheduled for October 2005. At this date the outcome is
not determinable. The Company has not made any provision for costs for
which it might become liable in what management considers the unlikely
event of an adverse judgment.
IMA EXPLORATION INC.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
INTRODUCTION
The following management discussion and analysis and financial review, prepared
as of May 27, 2005, should be read in conjunction with the Company's
consolidated interim financial statements for the three months ended March 31,
2005 and audited annual financial statements and related notes. The consolidated
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP"). Except as otherwise disclosed
all dollar figures in this report are stated in Canadian dollars. Additional
information relevant to the Company can be found on the SEDAR website at
www.sedar.com.
FORWARD LOOKING STATEMENTS
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different than those
expressed or implied. The Company disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in Argentina. At
present, the Company has no producing properties and consequently has no current
operating income or cash flow. As of this date the Company is an exploration
stage company and has not generated any revenues. The Company is entirely
dependent on the equity market for its source of funds. There is no assurance
that a commercially viable mineral deposit exists on any of the properties.
Further evaluation and exploration will be required before the economic
viability of any of the properties is determined.
During the year ended December 31, 2004 the Company completed its
reorganization, which had the effect of transferring all the non-Navidad mineral
properties and related assets to a new corporation, Golden Arrow Resources
Corporation ("Golden Arrow"). The reorganization allowed the Company to focus
all its efforts and resources on the Navidad project located in Chubut Province,
Argentina. The ongoing exploration programs have returned excellent results.
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action against
the Company seeking a constructive trust over the Navidad properties and
damages. The Company believes the Aquiline legal action is without merit and
continues to vigorously defend itself. A trial date has been scheduled for
October 2005. At this date the outcome is not determinable. The Company has not
made any provision for costs for which it might become liable in what management
considers the unlikely event of an adverse judgement.
Effective January 1, 2005, the Company engaged Grosso Group Management Ltd.,
("Grosso Group") to provide services and facilities to the Company. On May 6,
2005, an administrative services agreement was finalized and executed by the
Company and the Grosso Group. The Grosso Group is a private company which is
owned by the Company, Golden Arrow, Amera Resources Corporation and Gold Point
Exploration Ltd., each of which own one share. The Grosso Group provides its
shareholder companies with geological, corporate development, administrative and
management services.
In March 2005 the Company engaged the services of Augusto Baertl of Lima Peru to
determine the economic feasibility of the Navidad Project, through a contract
with Mr. Baertl's company, Gestora de Negocios e Inversiones SA. The Company
expects that, with Mr. Baertl's assistance, a scoping study will be undertaken
as a first step in the determination of the economic viability of Navidad. Mr.
Baertl's mandate is a continuing one whose objective is ultimately the
achievement of commercial production.
-1-
PROPERTIES UPDATE
NAVIDAD
On February 3, 2003 the Company announced the discovery of high-grade
silver-lead-copper mineralization at its 100% owned 10,000 hectare (24,700
acres) Navidad property in north central Chubut Province, Argentina. A Phase I
drilling program commenced in November 2003 and was completed in late March
2004. A Phase II drill program commenced in late May 2004 and was completed in
September 2004. Subsequent to completion of the Phase II program, a program of
surface exploration including prospecting, geological mapping, ground geophysics
and soil sampling was commenced. A Phase III drilling program commenced in
November 2004 and, other than a break for Christmas, drilling continued to March
7, 2005. All drilling to date has been diamond core drilling. Subsequently the
Company has announced that the Phase III program budget has been increased to
include an additional 10,000 metres of drilling and drilling will resume in mid
April 2005. In addition to its active exploration program, the Company has an
ongoing program of environmental baseline data collection in the project area.
On May 25, 2004 the Company announced results of a resource estimation carried
out for the Galena Hill deposit and portions of the adjacent connector zone by
Snowden Mining Consultants Inc. The resource estimation for the Galena Hill
deposit, the first systematically drilled target on the Navidad property,
outlined an Indicated Resource of 207 million ounces of silver and 1.1 million
tonnes of lead at a 50 g/t silver equivalent cut-off grade (63.6 M tonnes at 101
g/t Silver and 1.76% lead). This resource includes a higher-grade core
containing117 million ounces of silver and 495,047 tonnes of lead at a 300 g/t
silver equivalent cut-off grade (13.2 M tonnes at 277 g/t silver and 3.76%
lead). Inferred Resources at Galena Hill total 36 million ounces of silver and
56,776 tonnes of lead at a 50 g/t silver equivalent cut-off grade (16.9 M tonnes
at 67 g/t silver and 0.3% lead).
Subsequent to the Phase II drill program, on December 1, 2004, the Company
announced the results of an updated resource estimate by Snowden Mining Industry
Consultants Inc. including the Navidad Hill and Connector Zone deposits. This
increased the overall project Indicated Resources by 61 million ounces of
contained silver using a 50 g/t silver equivalent cut-off grade. Resources
estimated to date on the project are presented in the table below.
--------------------------------------------------------------------------------
CONTAINED CONTAINED
TONNES SILVER SILVER LEAD SILVER LEAD
(M) (G/T) (OZ/T) % (MILLION (1,000
OUNCES) TONNES)
--------------------------------------------------------------------------------
GALENA HILL
Indicated 63.6 101 2.95 1.76 207 1,118
Inferred 5.8 43 1.26 0.56 8 33
--------------------------------------------------------------------------------
NAVIDAD HILL
Indicated 15.2 115 3.36 0.35 56 52
Inferred 3.4 97 2.83 0.74 11 25
--------------------------------------------------------------------------------
CONNECTOR ZONE
Indicated 2.1 74 2.16 0.27 5 6
Inferred 6.5 100 2.92 0.20 21 13
--------------------------------------------------------------------------------
PROJECT TOTAL
RESOURCES
Indicated 80.8 103 3.01 1.45 268 1,176
Inferred 15.7 78 2.28 0.45 39 71
--------------------------------------------------------------------------------
* Estimated using a 50 g/t silver equivalent cut-off grade
Detailed review of the geological interpretation and block model shows that the
Navidad Hill deposit and the Connector Zone remain open and insufficiently drill
tested in several areas. The Phase III drill program currently underway will
more fully test the boundaries of the Navidad Hill zone, with the intent to
increase the Indicated Resource at Navidad Hill and the Connector Zone.
The Phase I drill program at Navidad comprised 8,859.6 metres in 53 holes, 37 of
which were drilled on Galena Hill. Phase II drilling comprised 9,596.5 metres of
drilling in 67 holes. Drilling in the Phase II program focused on the Esperanza
Trend, the Barite Hill target, and on the Navidad Hill and Connector Zone
targets. Phase III drilling to date has comprised 9,526.2 metres in 54 holes for
a project total of 27,982.3 metres in 174 holes. Results from the Phase III
drilling have been described in news releases dated January 13, March 4 and
March 22, 2005. The Phase III drill program has focussed on drilling in the
Calcite Hill area and expansion and infill drilling on the Navidad Hill and
Connector Zone areas.
-2-
Galena Hill
The Galena Hill Deposit is hosted primarily within gently dipping
trachyandesitic volcanic breccias with a matrix of galena, pyrite, calcite, and
barite. These breccias are interpreted to have formed primarily by multiple
hydrothermal fluid pulses. Calcareous mudstones overlie the mineralized volcanic
breccias; these generally contain significant silver, lead and zinc values
within one to five metres of the volcanic-mudstone contact. Sulphides occur in
the mudstone both as crosscutting veinlets and as strataform beds suggesting a
syn-depositional timing for the mineralization event. The Galena Hill deposit
measures approximately 450 by 500 metres in plan view (at 50 g/t AgEq cut-off)
and is up to 125 metres thick in its centre. A total of 39 drillholes have been
completed to date to delineate the Galena Hill resource. Highlights from Phase I
drilling on Galena Hill include 115 metres of 497 g/t silver and 5.71% lead in
Drill Hole 14 and 63.0 metres of 418.4 g/t silver, including 20.6m of 703.0 g/t
silver, in Drill Hole 22.
Navidad Hill
A total of 53 drill holes have been completed to date at Navidad Hill. In
addition to the structurally controlled mineralization located on top of Navidad
Hill, near-surface stratigraphically controlled silver mineralization has now
been identified along the southwest and southeast flanks of Navidad Hill.
Intercepts of structurally controlled, near vertical mineralized bodies on the
top of Navidad Hill include hole NV04-110 which intersected 61.5 metres of 128
grams per tonne silver, including 5.34 metres of 1,006 grams per tonne silver.
Highlights of stratigraphically-controlled mineralization on the western flank
of the Navidad volcanic dome include the exceptional intercept from Drill Hole
NV04-90 that returned 35.8 metres of 2,850 grams per tonne (83.2 ounces per ton)
silver including 7.3 metres of 11,995 grams per tonne (350.3 ounces per ton)
silver starting from 16.5 metres depth. Drill Hole 90 was drilled at an
inclination of -45(degree) towards the northeast on the western flank of Navidad
Hill, approximately 275 metres northwest of Drill Holes 1 and 2 and in an area
of little or no outcrop. Bonanza-grade mineralization in Drill Hole 90 contains
semi-massive silver-copper-lead sulphides and/or sulphosalts. In several
locations native silver occurs as fine veinlets and grains up to 5 millimetres
in size. Further intercepts in the area include 28.15 metres of 1,115 grams per
tonne silver (32.6 ounces per ton) including 5.97 metres of 4,579 grams per
tonne (133.7 ounces per ton) in Drill Hole 117 and 58.68 metres of 208 grams per
tonne silver (6.1 ounces per ton) in Drill Hole 112.
Phase III drilling in the area of Drill Hole 90 included Drill Holes 139 to 142
which were completed to provide more detailed information on this zone of very
high-grade silver mineralization. Of these, Drill Holes 139 (17.8 metres of
1,037 g/t silver) and 142 (34.5 metres of 1,220 g/t silver) intersected
significantly higher grade than that predicted by the Snowden resource block
model. Drill Holes 157 to 161 were collared along the southern boundary of the
known resource at Navidad Hill and demonstrate that mineralization continues
beyond the limits of the Indicated portion of current resource estimation.
Connector Zone
At the Connector Zone 24 drill holes have been completed to date. Drilling has
demonstrated that both structurally and stratigraphically controlled high-grade
silver mineralization occurs in this area, as at Navidad Hill. In the
northwestern part of the Connector Zone (Drill Holes 40, 68, 105, 106, and 107),
the control on mineralization appears to be stratigraphic with the
mineralization occurring in the same stratigraphic position as at the Galena
Hill deposit and on the flank of Navidad Hill (Drill Hole 90). Highlights from
this mineralization style include 46.7 metres of 334 grams per tonne silver from
hole 107 and 13.3 metres of 545 grams per tonne silver from hole 105. In the
southeastern Connector Zone (Drill Holes 32, 86, 87, 108, 131, 153, 154, 155.
and 156), the controls on mineralization and the stratigraphic correlations are
less clear. Drill Hole 108 was drilled towards the east to cross a northerly
trending structural zone partially exposed on surface and intersected an
impressive 485 grams per tonne silver over 39.0 metres.
Phase III drilling at the Connector Zone (holes 153-156) has intersected silver
mineralization over long intervals outside of the current Indicated Resource.
Results include 88.8 metres of 107 g/t silver in Drill Hole 153 and 28.8m of 148
g/t silver in Drill Hole 154; both intercepts start at surface. Mineralization
in Drill Holes 153 and 154 is open to expansion to the north and northwest. Both
step-out and infill drilling is required in this area and an updated resource
estimate will be undertaken when this is completed.
-3-
Calcite Hill
Near the end of the Phase II program a single hole, NV04-88, was drilled to test
favourable stratigraphy on the edge of Calcite Hill in an area where there are
few indications of mineralization or geochemical anomalies at surface. The hole
intersected 72.3 metres averaging 202 grams per tonne silver and 3.45% lead from
70.3 to 142.6 metres depth and included a higher-grade interval containing 12.4
metres averaging 672 grams per tonne silver. Drill Holes 88 was located
approximately 400 metres west of the nearest holes on Navidad Hill. The major
Calcite Hill silver-lead soil anomaly is located a further 340 metres to the
northwest of Drill Hole 88. The mineralization in NV04-88 comprises galena,
calcite and barite with minor amounts of native silver and argentinte-acanthite
(native silver had not been observed in any of the drill core from the Navidad
Project prior to Drill Hole 88).
Phase III drilling has now defined a mineralized zone approximately 275 metres
long by 100 metres wide by 50 to 120 metres deep at Calcite Hill. Highlights
from Phase III drilling at Calcite Hill include: 122.6 metres of 195 g/t silver
in Drill Hole 124; 196.1 metres of 113 g/t silver in Drill Hole 126; 123.6
metres of 139 g/t silver in Drill Hole 138; 46.6 metres of 300 g/t silver
including 10.3 metres of 1,257 g/t silver in Drill Hole 143; 83.0 metres of 209
g/t silver in Drill Hole 148; and 80.2 metres of 246 g/t silver including 25.3m
of 476 g/t silver in Drill Hole 151.
Mineralization encountered to date at Calcite Hill is predominantly hosted
within trachyandesite volcanic rock and to a lesser degree within mudstone which
overlies the volcanic rock. The volumetrically most important style of
mineralization consists of calcite-barite veinlets and breccias with
argentite-acanthite, native silver and lesser galena and chalcopyrite. In
general, this style of mineralization contains high silver grades with minor
amounts of lead and copper. In the upper portions of the host volcanic unit, and
in the overlying mudstone, mineralization tends to be lead-rich and consists
predominantly of medium-grained galena with moderate silver values. The Calcite
Hill soil anomaly extends for 1.4 km to the northwest of current drilling. A
resource estimate has not yet been done for Calcite Hill.
Esperanza Trend
A total of 10 drill holes have been completed to date in two areas along the 6
kilometre Esperanza Trend. Highlights include 2.7 metres of 831 grams per tonne
silver in Drill Hole 62 and 2.6 metres of 513 grams per tonne silver in Drill
Hole 79. Interestingly, Drill Hole 79 shows signs of the mineralization being
stratigraphically rather than structurally controlled as had been interpreted to
date in this area. Drill Hole 63 intersected 45.8 metres of 94 grams per tonne
silver, including 4.0 metres of 246 grams per tonne silver, 800 metres to the
northwest. In the same area, Drill Hole 82 intersected 54.6 metres of 64 grams
per tonne silver, including 26.1 metres of 106 grams per tonne silver and also
6.0 metres of 140 grams per tonne silver. These results confirm the high grades
and potential for a significant structurally and/or stratigraphically controlled
zone at Esperanza. Significantly more drilling will be required to evaluate the
6-kilometre Esperanza Trend.
Barite Hill
A total of 8 holes were completed at Barite Hill in Phase II. Although many of
these holes contain significant near surface intersections of galena matrix
breccia similar in style to that at Galena Hill, they have generally lower
silver and lead values. The most significant intercept was from Drill Hole
NV04-76 that cut 22.1 metres of galena matrix breccia averaging 34 grams per
tonne silver and 0.63% lead in the upper part of the hole and then intersected a
different style of mineralization deeper in the hole that contained 21.7 metres
of 88 grams per tonne silver including 8.4 metres of 191 grams per tonne silver.
This deeper mineralization is associated with calcite veining within a
fine-grained muddy sedimentary rock and is characterized by high silver to base
metal ratios.
-4-
Loma de la Plata
The surface exploration program launched September 2004 resulted in the
discovery of the Loma de la Plata Zone, approximately 4 kilometres west of the
Galena Hill deposit, through grid soil sampling. At Loma de la Plata, an area of
approximately 400 x 400 metres has been systematically sampled with twelve lines
of continuous and semi-continuous channel samples; these sample lines range in
length from 12.5 to 135.9 metres. Highlights of channel samples include:
Line LP-1: 40.1 metres of 740 g/t silver
Line LP-3: 42.9 metres of 684 g/t silver
Line LP-4: 135.9 metres of 159 g/t silver
Line LP-7: 48.5 metres of 315 g/t silver
Line LP-2: 103.3 metres of 290 g/t silver
Line LP-9: 49.5 metres of 410 g/t silver
Line LP-10: 56.0 metres of 452 g/t silver
The Loma de la Plata zone is hosted within quartz-eye phyric trachyandesite
volcanic rocks that dip to the northeast at 15 to 45 degrees. Mineralization
occurs in micro-veinlets and breccia zones and consists primarily of minor
galena and copper oxides with common native silver. Preliminary geological
assessment indicates that the zone is hosted by a similar sequence of volcanic
and sedimentary rocks, in a similar stratigraphic position, to those that host
the Galena Hill deposit. The possibility of leaching, or alternatively
concentration, of silver values at or near surface cannot be determined from the
data available and drilling will be required. No drilling has been carried out
on the Loma de la Plata zone to date.
Sector Zeta
At Sector Zeta, approximately 5 kilometres west of the Galena Hill Deposit,
seven sample lines ranging in length from 6.7 to 60.0 metres have been completed
covering an area of approximately 80 by 100 metres. Highlights of the Sector
Zeta results include:
Line Z-5: 8.0 metres of 105 g/t Silver and 1.14% Copper
Line Z-6: 12.0 metres of 112 g/t Silver and 1.13% Copper
Line Z-7: 12.0 metres of 133 g/t Silver and 3.27% Copper
Mineralization at Sector Zeta predominantly consists of green copper oxides
within argillicly altered latite volcanic rocks that are often brecciated. The
Company's geologists interpret that the volcanic rocks which host mineralization
here are part of the same volcanic unit that hosts mineralization at Galena and
Navidad Hills and also at Loma de la Plata. At present, the orientation of the
mineralized zone at Sector Zeta is unknown; drill data will be needed to
unambiguously define the geometry and size of the mineralization. The
possibility of leaching, or alternatively, concentration of silver and copper
values at or near surface, particularly at Sector Zeta in the case of copper,
cannot be determined from the data available to date and drilling will be
required; no drilling has been carried out in the Sector Zeta area.
Argenta Trend
On January 21, 2005 the Company released the results from a large expansion to
the soil sample grid and follow-up prospecting which uncovered a series of new
mineralized zones to the southeast of Loma de la Plata. The newly named "Argenta
Trend" includes Sector Zeta and Loma de la Plata and extends approximately six
kilometres to the southeast, parallel with the Esperanza and Navidad Trends.
A total of 1,366 new soil samples (including blanks and duplicates) were
collected at 50 metre intervals on lines spaced 200 metres apart and cover an
area of over 1,300 hectares to the south of the previous grid. The Argenta Trend
is highlighted by anomalous silver, lead and zinc values with subordinate and
sporadic anomalous copper. Prospecting and geological mapping along the Argenta
Trend has found several new zones of silver-lead, lead-silver, and silver-copper
mineralization. Results have been reported for 32 rock chip and grab samples
which range from below detection to high-grade silver, lead, and copper.
Highlights include eight samples containing over 100 g/t silver (up to 290 g/t
silver), ten samples with over 10% lead (up to 29.7% lead), and two samples with
over 1% copper (up to 1.42%).
-5-
NAVIDAD AREA PROPERTIES
The Company has 18 exploration properties in Chubut Province in addition to
Navidad, several of which are the subject of joint venture agreements.
Regalo
Work by Consolidated Pacific Bay Minerals Ltd. ("Pacific Bay") on the Regalo
Property, currently under option from the Company, has identified highly
anomalous gold in soils and silt samples over a large area. In Pacific Bay's
January 12, 2005 news release, they report that in one zone, "Yastekt South",
the strong gold anomalies are consistent over almost one square kilometre. The
Yastekt South anomaly comprises 98 soil analyses that average 299 ppb gold.
Normal, "background" gold values in the area are less than 5 ppb. Two of the 98
soil analyses returned values in excess of 3 grams per tonne gold. Pacific Bay
is exploring the property for epithermal gold deposits and is planning to carry
out a trenching program on the property in the near future.
Other parties to the joint venture agreements in the Navidad area have agreed
not to seek TSXV approval for the agreements until certain legal and political
uncertainties can be resolved. Accordingly the Company has not yet completed the
terms of the agreements.
SELECTED QUARTERLY FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the
unaudited consolidated interim financial statements of the Company. The
information has been prepared in accordance with Canadian GAAP.
---------- -------------------------------------------------- ------------------------------------
2005 2004 2003
---------- -------------------------------------------------- ------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30
$ $ $ $ $ $ $ $
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Revenues Nil Nil Nil Nil Nil Nil Nil Nil
Loss from Continuing
Operations (2,553,833) (1,164,504) (492,562) (466,021) (2,400,744) (1,436,078) (586,158) (243,728)
Loss per Common Share from
Continuing Operations (0.06) (0.03) (0.01) (0.01) (0.06) (0.04) (0.02) (0.01)
Income (Loss) Allocated to
Spin-off Assets Nil Nil (Nil) (355,252) 224,020 (702,420) 22,656 (163,658)
Net Loss (2,553,833) (1,164,955) (492,562) (821,273) (2,176,273) (2,138,498) (563,502) (407,386)
Net Loss per Common Share
Basic and Diluted (0.06) (0.02) (0.01) (0.02) (0.06) (0.07) (0.02) (0.01)
---------- -------------------------------------------------- ------------------------------------
SUMMARY OF FINANCIAL RESULTS
For the three months ended March 31, 2005 the Company reported a consolidated
loss of $2,553,833 ($0.06 per share), an increase of $377,110 from the loss of
$2,176,723 ($0.06 per share) for the three months ended March 31, 2004. The
increase in the loss in 2005, compared to 2004, was due to a number of factors
of which $333,140 can be attributed to operating expenses and $43,970 to other
expense items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow were
described as "Spin-Off Assets Transferred" and the allocated expenses are
described as "Loss Allocated to Spin-Off Assets" in the consolidated financial
statements. This reclassification did not change previously reported total
losses. The allocation of expenses was calculated on the basis of the ratio of
the specific assets transferred to assets retained. A gain of $224,021 was
allocated to spin-off assets in the 2004 period.
RESULTS OF OPERATIONS
The Company's operating expenses for the three months ended March 31, 2005 were
$2,603,708 an increase of $333,140 from $2,270,568 in the 2004 period. $176,152
of the 2004 operating expenses had been reclassified as "Loss Allocated to
Spin-Off Assets" which relate to the assets transferred to Golden Arrow. The
allocation was calculated on the basis of the ratio of the specific assets
transferred to assets retained. Certain "Other Income and Expense" items have
been allocated to spin-off assets on the basis of the nature of the income or
expense.
-6-
Professional fees increased $214,824 to $315,224 in the 2005 period, primarily
due to legal costs incurred in connection with the Aquiline legal action as well
as increased costs of compliance. In the 2005 period the Company recorded a
non-cash expense of $1,800,000 for stock based compensation for stock options
granted to its employees and directors, a decrease of $71,360 from 2004. Other
notable changes in the operating expenses are: (i) Salaries increased $47,479
due to staff increases (salaries in 2005 are a portion of the monthly fee
charged for services by the Grosso Group while in 2004 the Company directly
employed its staff); (ii) Travel increased $51,115due to travel to conferences
as well as to South America; (iii) there are no cost recoveries (for shared
administrative costs and rent) from Amera Resources Corporation or Golden Arrow
in the 2005 period; (iv) Corporate development and investor relations increased
$40,760, as the Company has made its shareholders and others more aware of its
Navidad project and its potential.
In the 2005 period the Company recorded interest income of $29,368 compared to
$20,680 in the2004 period. In the 2004 period the Company recorded
reorganization costs of $200,000, there were no reorganization costs recorded in
2005. No gain or loss was allocated to spin-off assets in 2005, in 2004 a gain
of $224,021 was recorded.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at March 31, 2005 was $6,838,765, a decrease of
$1,140,390 from March 31, 2004. During the three months ended March 31, 2005,
options and warrants were exercised which resulted in cash proceeds of
$4,237,695. The Company paid $112,683 to Golden Arrow from the exercise of
warrants that resulted in the issue of Golden Arrow's shares as required by the
terms of the reorganization. As all warrants that were outstanding as of the
effective date of the reorganization have been exercised the Company has no
further obligation to pay amounts to Golden Arrow for the issue of its shares on
the exercise of the Company's warrants.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently does not have sufficient working capital to fund all of
its planned exploration and development work. The expanded work for Phase III of
the Navidad project has been approved in the amount of $2,000,000. The Company
will continue to rely on successfully completing additional equity financing to
further exploration and development of Navidad. There can be no assurance that
the Company will be successful in obtaining the required financing. The failure
to obtain such financing could result in the loss of or substantial dilution of
its interest in its properties.
The Company does not know of any trends, demand, commitments, events or
uncertainties that will result in, or that are reasonably likely to result in,
its liquidity either materially increasing or decreasing at present or in the
foreseeable future. Material increases or decreases in liquidity are
substantially determined by the success or failure of the exploration programs.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
OPERATING CASH FLOW
Cash outflow from operating activities for the three months ended March 31, 2005
was $934,145, compared to cash outflow for the same period in 2004 of $361,980
as a result of increases in activities and changes in non-cash working capital.
FINANCING ACTIVITIES
During the three months ended March 31, 2005, the Company received $4,215,145
from the issue of common shares on the exercise of warrants, compared to
$5,682,006, less costs of $411,237, for the same period in 2004.
INVESTING ACTIVITIES
Investing activities required cash of $1,523,723 during the three months ended
March 31, 2005, these investing activities were for additions to the Navidad
properties in Argentina.
RELATED PARTY TRANSACTIONS
Effective January 1, 2005, the Company engaged the Grosso Group to provide
services and facilities to the Company. On May 6, 2005, an administrative
services agreement among the Company and the Grosso Group was executed. During
the three months ended March 31, 2005, the Company paid fees of $189,438 to the
Grosso Group.
-7-
During the three months ended March 31, 2005, the Company paid $49,790 to
directors and officers or companies controlled by directors and officers of the
Company, for accounting, management and consulting services provided. The
Company has agreements with a company controlled by the wife of the President of
the Company for the rental of office premises. Effective as of January 1, 2005
the Company subleased this office space to the Grosso Group. The President of
the Company provides his services on a full-time basis under a contract with a
private company controlled by the President. The President is paid an annual
amount of $102,000. The contract also provides that, in the event the services
are terminated without cause or upon a change in control of the Company, a
termination payment would include a bonus of $6,500 per month, retroactive to
July 1, 1999, plus an additional three years of compensation at $15,000 per
month. If the termination had occurred on March 31, 2005, the amount due under
the agreement would be $995,000.
CRITICAL ACCOUNTING POLICIES
Reference should be made to the Company's significant accounting policies
contained in Note 3 of the Company's consolidated financial statements for the
year ended December 31, 2004. These accounting policies can have a significant
impact of the financial performance and financial position of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
annual consolidated financial statements, direct costs related to the
acquisition and exploration of mineral properties held or controlled by the
Company have been capitalized on an individual property basis. For certain
acquisitions and related payments for mineral property interests, the Company
records a future income tax liability and a corresponding adjustment to the
related asset carrying amount. It is the Company's policy to expense any
exploration associated costs not related to specific projects or properties.
Management of the Company periodically reviews the recoverability of the
capitalized mineral properties. Management takes into consideration various
information including, but not limited to, results of exploration activities
conducted to date, estimated future metal prices, and reports and opinions of
outside geologists, mine engineers and consultants. When it is determined that a
project or property will be abandoned or its carrying value has been impaired, a
provision is made for any expected loss on the project or property.
FINANCIAL INSTRUMENTS
The Company's financial instruments consisting of cash and cash equivalents,
amounts receivable, marketable securities and accounts payable and accrued
liabilities approximate their carrying values due to the short-term nature of
those instruments.
RISK FACTORS
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. Exploration for mineral resources involves a high degree of risk. The
cost of conducting programs may be substantial and the likelihood of success is
difficult to assess. For a more complete discussion of these risks and others,
reference should be made to the December 31, 2004 Management Discussion and
Analysis.
SHARE DATA INFORMATION
As of May 27, 2005 there were 45,479,724 common shares and 4,458,500 stock
options outstanding.
-8-
INVESTOR RELATIONS
The Company currently does not engage any outside investor relations
consultants. Mr. Sean Hurd is the Company's Vice-President, Investor Relations
and coordinates investor relations' activities.
-9-
FORM 52-109FT2
CERTIFICATION OF INTERIM FILINGS DURING TRANSITION PERIOD
I, Joseph Grosso, Chief Executive Officer, President and Director of IMA
Exploration Inc., certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of IMA Exploration Inc. (the issuer) for
the interim period ending March 31, 2005.
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings.
Date: May 30, 2005
/s/ Joseph Grosso
-----------------------------------------------
Joseph Grosso
Chief Executive Officer, President and Director
IMA Exploration Inc.
FORM 52-109FT2
CERTIFICATION OF INTERIM FILINGS DURING TRANSITION PERIOD
I, Arthur Lang, Chief Financial Officer of IMA Exploration Inc., certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of IMA Exploration Inc. (the issuer) for
the interim period ending March 31, 2005.
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings.
Date: May 27, 2005
/s/ Arthur Lang
-----------------------
Arthur Lang
Chief Financial Officer
IMA Exploration Inc.