UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] Registration Statement pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
or
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-30464
IMA EXPLORATION INC.
(Exact name of Registrant as specified in its charter)
IMA EXPLORATION INC.
(Translation of Registrant's name into English)
BRITISH COLUMBIA
(Jurisdiction of incorporation or organization)
#709 - 837 WEST HASTINGS STREET, VANCOUVER, BRITISH COLUMBIA, V6C 3N6
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON SHARES, NO PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NOT APPLICABLE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of December 31, 2003.
36,381,452 COMMON SHARES AS OF DECEMBER 31, 2003
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18
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1
GENERAL INFORMATION:
UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN ARE TO CANADIAN DOLLARS.
GLOSSARY OF TERMS
ARGILLIC ALTERATION: Development of secondary clay minerals by
weathering or hydrothermal activity.
BRECCIA: A rock containing generally angular fragments of
itself or some other rock.
CATEO: In Argentina, a cateo is an exploration concession
granted for a period of up to 1,100 days. In areas
where field work seasons are limited, only the
available field season will be considered in
determining the 1,100 days. A cateo gives the
holder the exclusive right to explore the area,
subject to certain pre-existing rights of owners of
mines within the area and abutting owners of
cateos. Through the process of exploration, the
owner of the cateo may make and file
"manifestations" of discovery (see below) and
petition the mining authority for the granting of
mines (see below). A cateo may be up to 10,000
hectares in size. A single legal person may not
hold more than 20 cateos or 200,000 hectares of
cateos in any one province. When the cateo is
officially granted, a one time payment of about US
$0.35 ( Pesos $0.80 ) per hectare is required.
CLASTIC: Rock components consisting of fragments derived by
mechanical erosion of pre-existing rocks.
COLOR ANOMALY: An atypical or unusual color pattern visible on
air photos or satellite images of rock outcrop
areas, often caused by hydrothermal alteration.
G/T: grams per tonne
HYDROTHERMAL ALTERATION: Those chemical and mineral changes resulting from
the interaction of hot water solutions with
pre-existing solid mineral phases.
INTRUSIVE ROCKS: A body of rock, that while fluid, penetrated into
or between other rocks, but solidified before
reaching the surface.
KM: Kilometre
M: Meter
MAFIC: Dark colored, generally iron or magnesium rich,
rock or mineral.
MANIFESTATIONS: In Argentina, manifestations or "manifestaciones"
of discovery are official notices filed with the
mining authority indicating that the person filing
(who must be the owner of the cateo in an area
covered by a cateo) has made a discovery. The
filing and acceptance by the mining authority of
such a notice, constitutes the first step in
converting a discovery to a mine (see below). A
manifestation of discovery may cover one or more
claims in the case of either a vein or disseminated
deposit. The size of the manifestations and the
annual payments required of the owner is the same
as those for a mine.
MINE: In Argentina, a mine or "mina" is a real property
interest. It is a right of exploration granted on a
permanent basis after the completion of an official
survey for as long as the right is diligently
utilized and semi-annual payments of US$17.50
(Pesos $40) per claim are made. A mine may consist
of one or several claims or "pertinencias". In the
case of vein deposits, each claim is a maximum of
200 by 300 meters or six hectares; for disseminated
deposits, each claim is up to one square kilometer
or 100 hectares.
PORPHYRY: An igneous rock containing mineral crystals that
are visibly larger than other crystals of the same
or different composition.
PPM: parts per million
2
SATELLITE IMAGERY: Maps or images produced from data collected by
satellite displaying wavelength and intensity
variations of visible and infrared radiation
reflected from the Earth's surface.
SCREE: A slope of loose rock debris at the base of a steep
incline or cliff.
SEDIMENTARY ROCKS: Descriptive term for a rock formed of sediment,
namely solid material both mineral and organic,
deposited from suspension in a liquid.
STREAM SEDIMENT SAMPLE: A sample of fine sediment derived from the
mechanical action of the stream.
SKARN A style of alteration characterized by iron and
magnesium bearing aluminosilicate materials such as
garnet and diopside.
SULFIDE: A compound of sulfur combined with one or more
metallic or semi-metallic elements.
VEINS: An occurrence of minerals, having been intruded
into another rock, forming tabular shaped bodies.
AG: Silver
AS: Arsenic
AU: Gold
BA: Barium
CO: Cobalt
CU: Copper
MO: Molybdenum
PB: Lead
SB: Antimony
ZN: Zinc
MINERALS:
BIOTITE: An iron and magnesium bearing mica mineral.
CARBONATE: A mineral containing the radical CO3.
CHALCOPYRITE: A sulfide mineral containing copper and iron.
FELDSPAR: An aluminosilicate with variable amounts of
potassium, sodium and calcium.
HORNBLENDE: A complex hydrated aluminosilicate of magnesium,
iron and sodium.
MAGNETITE: A magnetic iron oxide mineral.
PYROXENE: An aluminosilicate of magnesium and iron.
PYRRHOTITE: A magnetic sulfide of iron.
ROCK TYPES:
ANDESITE: A volcanic rock with the principal minerals being
plagioclase.
CONGLOMERATE: A clastic sedimentary rock containing rounded
fragments of gravel or pebble size.
DACITE: A volcanic or shallow intrusive rock with the
principal minerals being plagioclase, quartz and
one or more mafic constituents.
3
DIORITE: An intrusive rock composed essentially of sodic
plagioclase, hornblende, biotite, or pyroxene.
LIMESTONE: A sedimentary rock consisting chiefly of calcium
carbonate.
SANDSTONE: A clastic sedimentary rock composed largely of
sand-sized grains, principally quartz.
SHALE: A clastic sedimentary rock derived from very fine-
grained sediment (mud).
SILTSTONE: A clastic sedimentary rock similar to shale except
comprised of slightly coarser material (silt).
TUFF: A rock formed of compacted volcanic fragments,
generally smaller than 4mm in diameter.
4
PART I
ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
--------------------------------------------------------------------------------
Not applicable.
ITEM 3. KEY INFORMATION.
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SELECTED FINANCIAL DATA
The selected financial data of IMA Exploration Inc. (the "Company") for the
years ended December 31, 2003, 2002 and 2001 was derived from the consolidated
financial statements of the Company which have been audited by
PricewaterhouseCoopers LLP, independent Chartered Accountants, as indicated in
their report which is included elsewhere in this annual report. The selected
financial data set forth for the years ended December 31, 2000 and 1999 are
derived from the Company's audited consolidated financial statements, not
included herein.
The information in the following table was extracted from the more detailed
consolidated financial statements and related notes included herein and should
be read in conjunction with such financial statements and with the information
appearing under the heading "Item 5. Operating and Financial Review and
Prospects".
Reference is made to Note 10 of the consolidated financial statements of the
Company included herein for a discussion of the material measurement differences
between Canadian Generally Accepted Accounting Principles ("Canadian GAAP") and
United States Generally Accepted Accounting Principles ("U.S. GAAP"), and their
effect on the Company's financial statements.
To date, the Company has not generated sufficient cashflow from operations to
fund ongoing operational requirements and cash commitments. The Company has
financed its operations principally through the sale of its equity securities.
The Company considers that it has adequate resources to meet property
commitments on its existing property holdings; however, at present, the Company
does not have sufficient funds to conduct exploration programs on all of its
existing properties and will need to obtain additional financing or joint
venture partners in order to initiate any such programs. See "Item 5. Operating
and Financial Review and Prospects".
CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CDN$ IN 000, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
Revenue $0 $0 $0 $0 $0
General Corporate
Expenditures (2,937) (1,278) (836) (1,066) (941)
General Exploration
Expenditures (227) (180) (110) (137) (160)
Foreign Exchange (26) (8) 17 (9) (25)
Gain (Loss)
5
-------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
Interest and
Miscellaneous Income 67 27 97 157 47
Provision for
Marketable Securities - - (22) (179) (417)
Gain (Loss) on Sale of
Marketable Securities - - (7) - (162)
Write-off of Mineral
Properties (777) - (21) (790) (99)
Net Income (Loss) (3,418) (1,440) (882) (2,024) (1,746)
Earnings (Loss) per
Share
Basic (0.11) (0.06) (0.06) (0.17) (0.23)
Diluted (0.11) (0.06) (0.06) (0.17) (0.23)
Weighted Average
Number of Shares
Outstanding 32,252 23,188 15,104 11, 939 7,567
Working Capital 4,747 1,431 733 1,435 1,261
Capital Assets 40 46 57 74 90
Mineral Properties 6,884 5,848 4,581 3,282 2,083
Long-Term Debt - - - - -
Total Assets 12,098 7,432 5,487 4,980 3,602
Net Assets -
Shareholder's
Equity 11,671 7,324 5,372 4,790 3,434
6
ADJUSTED TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Under U.S. GAAP the following financial information would be adjusted from
Canadian GAAP (references are made to Note 10 of the accompanying consolidated
audited financial statements):
(CDN$ IN 000, EXCEPT PER SHARE DATA)
2003 2002 2001 2000 1999
CONSOLIDATED STATEMENT
OF OPERATIONS
Earnings (Loss) for
the year under
Canadian GAAP $(3,418) $(1,440) $(882) $(2,024) $(1,746)
Mineral property and
deferred exploration
costs for the year (1,813) (1,267) (1,321) (1,989) (786)
Mineral property and
deferred exploration
costs acquired from
acquisition of IMPSA - - - - (682)
Mineral property and
deferred exploration
costs written off
during the year which
would have been
expensed in the year
incurred 777 - 21 790 99
Stock-based
compensation (144) (102) - - -
Earnings (Loss) for
the year under US GAAP
before comprehensive
income adjustments $(4,598) $(2,809) $(2,181) $(3,224) $(3,115)
Unrealized gains on
available-for-sale
securities 434 55 - - (82)
----------------------------------------------------------------------------
Comprehensive
Income (Loss) $(4,164) $(2,754) $(2,181) $(3,224) $(3,197)
============================================================================
7
============================================================================
Earnings (Loss) per
share under US GAAP $(0.14) $(0.12) $(0.14) $(0.26) $(0.36)
============================================================================
Diluted Earnings
(Loss) per share under
US GAAP $(0.14) $(0.12) $(0.14) $(0.26) $(0.36)
============================================================================
2003 2002 2001 2000 1999
---------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Balance per Canadian
GAAP $11,671 $7,324 $5,372 $4,790 $3,435
Mineral property and
deferred exploration
costs expensed (6,884) (5,848) (4,581) (3,282) (2,083)
Accumulated other
comprehensive income 489 54 - - -
--------------------------------------------------------------------------
$5,277 $1,530 $790 $1,508 $1,352
Balance per US GAAP
==========================================================================
MINERAL PROPERTIES AND
RELATED DEFERRED COSTS
Balance per Canadian
GAAP $6,884 $5,848 $4,581 $3,282 $2,083
Mineral Property
exploration costs and
expenses per US GAAP $(6,884) $(5,848) $(4,581) $(3,282) $(2,083)
----------------------------------------------------------------------------
BALANCE PER US GAAP $- $- $- $- $-
============================================================================
8
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
OPERATING ACTIVITIES
Cash (used) provided
per Canadian GAAP $(1,388) $(1,306) $(898) $(987) $(1,567)
Mineral properties and
deferred costs (1,851) (1,267) (1,321) (1,989) (786)
Mineral property and
exploration
expenditures - IMPSA - - - - (650)
Cash used per US GAAP $(3,238) $(2,573) $(2,219) $(2,976) $(3,003)
INVESTING ACTIVITIES
Cash used per Canadian
GAAP $(1,873) $(1,278) $(1,312) $(2,004) $(373)
Mineral properties and
deferred costs 1,851 1,267 1,321 1,989 786
Mineral property and
exploration
expenditures - IMPSA - - - - 650
----------------------------------------------------------------------------
Cash provided (used)
per US GAAP $(22) $(11) $9 $(15) $1,063
============================================================================
FINANCING ACTIVITIES
Cash provided per
Canadian and US GAAP $6,278 $3,264 $1,463 $3,380 $2,553
============================================================================
See Note 10 of the Company's consolidated financial statements.
EXCHANGE RATE HISTORY
The noon rate of exchange on June 22, 2004, reported by the United States
Federal Reserve Bank of New York for the conversion of Canadian dollars into
United States dollars was CDN$1.3592 (US$0.7357 = CDN$1.00).
9
The following table sets forth high and low exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the six-month period ended May
31, 2004.
MONTH HIGH LOW
December 2003 0.7738 0.7460
January 2004 0.7880 0.7496
February 2004 0.7626 0.7439
March 2004 0.7645 0.7418
April 2004 0.7637 0.7293
May 2004 0.7364 0.7158
The following table sets forth the average exchange rate for one Canadian dollar
expressed in terms of one U.S. dollar for the past five fiscal years.
PERIOD AVERAGE
January 1, 1999 - December 31, 1999 0.6731
January 1, 2000 - December 31, 2000 0.6746
January 1, 2001 - December 31, 2001 0.6456
January 1, 2002 - December 31, 2002 0.6368
January 1, 2003 - December 31, 2003 0.7206
Exchange rates are based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.
RISK FACTORS
Due to the nature of the Company's business and the present stage of exploration
on its mineral resource properties, the following risk factors apply to the
Company's operations, and will apply to the operations of Golden Arrow Resources
Corporation ("Golden Arrow") in the event the arrangement is approved by the
Company's shareholders (see "Item 4. Information on the Company - History and
Development of the Company"):
LIQUIDITY AND CASH FLOW: As at the date of this annual report, the Company has
not generated any revenues from operations to fund ongoing operational
requirements and cash commitments. The Company has financed its operations
principally through the sale of its equity securities. As at May 31, 2004 the
Company had working capital of approximately $7,600,000. Management believes the
Company has adequate resources to maintain its ongoing operations and will
require additional financing for planned exploration and property acquisitions
for the remainder of fiscal 2004. See "Item 5. Operating and Financial Review
and Prospects - Liquidity and Capital Resources".
EXPLORATION STAGE COMPANY: An investment in a natural resources company involves
a high degree of risk. The degree of risk increases substantially where the
Company's properties are in the exploration stage.
ADDITIONAL FINANCING: The Company presently has sufficient financial resources
to meet property commitments on its existing property holdings. The Company at
present does not, however, have sufficient funds to conduct exploration programs
on all these properties and will need to obtain additional financing or find
joint venture partners in order to initiate any such programs.
The Company will continue to rely on successfully completing additional equity
financing and/or conducting joint venture arrangements to further exploration on
its properties. There can be no assurance that the Company will be successful in
obtaining the required financing or negotiating joint venture agreements. The
Company's management may elect to acquire new projects, at which time additional
equity financing may be required to fund overhead and
10
maintain its interests in current projects, or may decide to relinquish certain
of its properties. These decisions will be based on the results of ongoing
exploration programs and the response of equity markets to the projects and
business plan. The failure to obtain such financing or complete joint venture
arrangements could result in the loss or substantial dilution of the Company's
interests (as existing or as proposed to be acquired) in its properties as
disclosed herein. The Company does not have any definitive commitment or
agreement concerning any investment, strategic alliance or related effort, on
any of the Company's material properties. It is the Company's intention to seek
joint venture partners to provide funding for further work on any or all of
those other properties. Joint ventures may involve significant risks and the
Company may lose any investment it makes in a joint venture. Any investments,
strategic alliances or related efforts are accompanied by risks such as:
1. the difficulty of identifying appropriate joint venture partners or
opportunities;
2. the time the Company's senior management must spend negotiating
agreements and monitoring joint venture activities;
3. the possibility that the Company may not be able to reach agreement
on definitive agreements, with potential joint venture partners;
4. potential regulatory issues applicable to the mineral exploration
business;
5. the investment of the Company's capital or properties and the loss of
control over the return of the Company's capital or assets;
6. the inability of management to capitalize on the growth opportunities
presented by joint ventures; and
7. the insolvency of any joint venture partner.
There are no assurances that the Company would be successful in overcoming these
risks or any other problems encountered with joint ventures, strategic alliances
or related efforts.
EXPLORATION RISKS: Mineral exploration is highly speculative in nature, involves
many risks and frequently is nonproductive. There can be no assurance that the
Company's efforts to identify resources will be successful. Moreover,
substantial expenditures are required to establish resources through drilling,
to determine metallurgical processes to extract the metal from the ore and to
construct mining and processing facilities. During the time required to
establish resources, determine suitable metallurgical processes and construct
such mining and processing facilities, the economic feasibility of production
may change because of fluctuating prices. The Company would like to establish
resources but does not intend to construct or operate a mine.
PROJECT DELAY: The Company's minerals business is subject to the risk of
unanticipated delays in permitting its projects. Such delays may be caused by
fluctuations in commodity prices, mining risks, difficulty in arranging needed
financing, unanticipated permitting requirements or legal obstruction in the
permitting process by project opponents. In addition to adding to project
capital costs (and possibly operating costs), such delays, if protracted, could
result in a write-off of all or a portion of the carrying value of the delayed
project.
TITLE TO PROPERTIES: The validity of mining claims, which constitute a
significant portion of the Company's undeveloped property holdings, is often
uncertain and may be contested. Although the Company has attempted to acquire
satisfactory title to its undeveloped properties, the Company, in accordance
with mining industry practice, does not intend to obtain title opinions until a
decision is made to develop a property, with the attendant risk that some
titles, particularly titles to undeveloped properties, may be subject to contest
by other parties. Title to properties may be subject to litigation claims by
others. On March 5, 2004 Minera Aquiline Argentina SA, a subsidiary of Aquiline
Resources Inc. ("Aquiline"), commenced an action against the Company seeking
damages and a constructive trust over certain of the Company's properties in the
Navidad area. The Company believes the Aquiline legal action is without merit
and will vigorously defend itself. A Statement of Defence has been filed. The
trial has been set for October 11, 2005 in Vancouver, British Columbia. As of
the date of this annual report the outcome is not determinable. There can be no
assurance that Golden Arrow will not be joined as a defendant in this action at
some point in the future. See "Item 8. Financial Information - Legal
Proceedings."
PRICE FLUCTUATIONS AND SHARE PRICE VOLATILITY: In recent years the securities
markets in Canada have experienced a high level of price and volume volatility
and the market price of securities of many companies, particularly junior
mineral exploration companies, like the Company, have experienced wide
fluctuations which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. In
particular, the per share price of the Company's common shares on the TSX
Venture Exchange (the "TSX-V") fluctuated from a
11
high of $2.54 to a low of $0.49 during the 12-month period ending December 31,
2003. There can be no assurance that continual fluctuations in price will not
occur.
OPERATING HAZARDS AND RISKS: Mining operations involve many risks, which even a
combination of experience, knowledge and careful evaluation may not be able to
overcome. Operations in which the Company has a direct or indirect interest will
be subject to all the hazards and risks normally incidental to exploration for
metals, any of which could result in damage to or destruction of mines and other
producing facilities, damage to life and property, environmental damage and
possible legal liability for any or all damage. Although the Company maintains
liability insurance in an amount which it considers adequate, the nature of
these risks is such that liabilities could exceed policy limits, in which event
the Company could incur significant costs that could have a materially adverse
effect upon its financial condition.
INSURABLE RISKS AND LIMITATIONS OF INSURANCE: The Company maintains certain
insurance, however, such insurance is subject to numerous exclusions and
limitations. The Company maintains a Total Office Policy in Canadian dollars on
its principal offices. Generally, the Total Office Policy provides a 90%
coverage on office contents, up to $160,000, with a $500 deductible. In
addition, the policy provides general liability coverage of up to $5,000,000 for
personal injury, per occurrence and $2,000,000 for legal liability for any one
premises, with a $500 deductible. The Company also has insurance coverage of up
to $5,000,000 for non-owned automobile liability.
The Company maintains a Foreign Commercial General Liability policy in U.S.
dollars which provides US$5,000,000 coverage for bodily injury or property
damage per occurrence and coverage up to US$5,000,000 per offence for personal
injury or advertising injury (libel, slander, etc.). The policy has a general
aggregate limit for all claims during each consecutive policy period, except for
those resulting from product hazards or completed operations hazards, of
US$5,000,000. The policy has a US$5,000,000 aggregate limit for each consecutive
policy period, for bodily injury or property damage liability arising out of
completed operations and products. In addition, the Foreign Commercial General
Liability policy provides for coverage of up to US$10,000 in medical expenses,
per person, with a US$10,000 limit per accident, and up to US$100,000 for each
occurrence of tenants' fire legal liability. The policy does not apply to injury
or damages occurring within Canada, the United States (including its territories
and possessions), Puerto Rico, any countries or territories against which the
United States has an embargo, sanction or ban in effect, territorial waters of
any of the foregoing, the Gulf of Mexico, or international waters or airspace
when an injury or damage occurs in the course of travel or transportation to any
country or place included in the foregoing. The policy also does not cover
asbestos related claims or liability for bodily injury or property damages
arising out of the discharge, dispersal, release or escape of smoke, vapors,
soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials
or other irritants, contaminants or pollutants into or upon land, the
atmosphere, or any water-course or body of water. The policy also contains a
professional liability exclusion which applies to bodily injury or property
damage arising out of defects in maps, plans, designs or specifications
prepared, acquired or used by the Company or arising out of any act of
negligence, error, mistake or omission in rendering or failing to render
professional consulting or engineering services, whether performed by the
Company or other for whom the Company is responsible.
The Company maintains a Foreign Commercial Automobile Liability Insurance policy
on owned, leased, hired and non-owned automobiles with the following liability
limitations:
o $5,000,000 bodily injury liability for each person.
o $5,000,000 bodily injury liability for each occurrence.
o $5,000,000 property damage liability for each occurrence.
o $10,000 medical expense coverage, per person.
o $10,000 medical expense coverage, per accident.
The foregoing descriptions of the Company's insurance policies do not purport to
be complete and does not cover all of the exclusions to such policies.
MANAGEMENT: The Company is dependent on the services of Joseph Grosso, the
President and a director of the Company, Gerald G. Carlson, the Chairman of the
Company's Board of Directors, and Arthur Lang, the Company's Chief Financial
Officer. The loss of any of these people could have an adverse affect on the
Company. Joseph Grosso provides his services to the Company through Oxbow
International Marketing Corp. ("Oxbow"). Gerald G.
12
Carlson provides his services to the Company through KGE Management Ltd. All of
the Company's other officers and directors are employed directly by the Company.
The Company has entered into consulting agreements with Oxbow and KGE Management
Ltd. The Company has entered into an employment agreement with Arthur Lang. The
Company does not maintain "key-man" insurance in respect of any of its
principals.
DEPENDENCE UPON OTHERS: The success of the Company's operations will depend upon
numerous factors, many of which are beyond the Company's control, including (i)
the ability of the Company to enter into strategic alliances through a
combination of one or more joint ventures, mergers or acquisition transactions,
(ii) the ability to discover and produce minerals; (iii) the ability to attract
and retain additional key personnel in investor relations, marketing, technical
support, and finance; and (iv) the ability and the operating resources to
develop and maintain the properties held by the Company. These and other factors
will require the use of outside suppliers as well as the talents and efforts of
the Company. There can be no assurance of success with any or all of these
factors on which the Company's operations will depend.
CONFLICTS OF INTEREST: Several of the Company's directors are also directors,
officers or shareholders of other companies. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which could place the Company in a
worse position than if no conflict existed. The directors of the Company are
required by law to act honestly and in good faith with a view to the best
interest of the Company and to disclose any interest which they many have in any
project or opportunity of the Company. However, each director has a similar
obligation to other companies for which such director serves as an officer or
director. The Company has no specific internal policy governing conflicts of
interest. See "Item 6. Directors, Senior Management and Employees - Directors
and Senior Management - Conflicts of Interest".
FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS: The projects in which the Company
has an interest are located in Argentina and Peru. Mineral exploration and
mining activities in Argentina and Peru may be affected in varying degrees by
political instability and government regulations relating to the mining
industry. Any changes in regulations or shifts in political conditions are
beyond the control of the Company and may adversely affect its business. The
Company does not maintain and does not intend to purchase political risk
insurance. Operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price controls, export
controls, income taxes, expropriations of property, environmental legislation
and mine safety. The status of Argentina and Peru as developing countries may
make it more difficult for the Company to obtain any required exploration
financing for its projects. The effect of all of these factors cannot be
accurately predicted. Both the Argentine and Peruvian economies have experienced
recessions in recent years and there can be no assurance that their economies
will recover from such recessions.
As a result of the Provincial and Municipal elections in Peru held in November
2002 and the substantial investment required to advance the Rio Tabaconas
project through the next exploration stage, in June 2002 the Company announced
its intention to take a more measured approach to exploration on the Rio
Tabaconas project to ensure that all local cultural, developmental and
environmental concerns in the region have been addressed which may pertain to
mining activities. The Company intends to conduct further exploration only after
an agreement with the local community of Tamborapa has been finalized and a
Social License to continue has been obtained. Aided by several local, national
and international Peruvian Social-Economic consultants, a Company-Community plan
has been prepared and the Company has made its social-economic policies and
procedures available to the public.
Argentina has recently experienced some economic and political instability.
Management believes the new democratic elected government is making progress in
the domestic economy and it is improving the image of the country
internationally. Additionally, management believes the economic crisis of
December 2001 has been overcome, and although the country defaulted on its
loans, it has worked out with the International Monetary Fund a bail-out loan
agreement. The Company maintains the majority of its funds in Canada and only
forwards sufficient funds to meet current obligations and overhead in Argentina.
The Company does not believe that any current currency restrictions which may be
imposed in Argentina will have any immediate impact on the Company's exploration
activities.
IMPACT OF GOVERNMENT REGULATIONS ON THE COMPANY'S BUSINESS: The projects in
which the Company has an interest are located in Argentina and Peru.
13
ARGENTINA
MINING INDUSTRY
Mineral companies are subject to both the Argentinean Mineral Code and the
Environmental Protection Mining Code. The Company believes it is in material
compliance with both the Argentinean Mineral Code and the Environmental
Protection Mining Code.
MINING LAW IN ARGENTINA
In IM-11/19 Argentina; Economic Trends-Nov. 1999, the author stated:
Although some ambiguities in its interpretation have emerged,
the 1993 Argentine Mining Code has created a favorable
investment climate in the sector. An influx of foreign
capital is bringing major copper and gold mines on line in
Catamarca and Santa Cruz provinces, as well as smaller
projects elsewhere.
(Source: U.S. Department of Commerce - National Trade Data Bank, IM-11/19
ARGENTINA; ECONOMIC TRENDS-NOV. 1999).
The right to explore a property (a "cateo") and the right to exploit (a "mina")
are granted by administrative or judicial authorities via concessions. Foreign
individuals and corporations may apply for and hold cateos and minas, at the
same level as local investors without differences of any nature. Cateos and
minas are freely transferable upon registration with the Provincial Mining
Registry where title to the cateo or mina was first registered. Upon the grant
of a legal concession of a cateo or a mine, parties have the right to explore
the land or to own the mine and the resources extracted therefrom.
REGULATORY ENVIRONMENT
Management believes the present government is deeply committed to opening up the
economy, and there has been significant progress in reducing import duties and
export taxes. For decades local industry has been protected, and the transition
to greater international competitiveness will take some time.
Importers and exporters must be registered with Customs. Except for a very
limited list of items requiring the previous approval of the authorities, there
are no import restrictions. Import of pharmaceuticals, drugs, foodstuffs,
defense material, and some other items require the approval of the applicable
government authority. Import duties are being progressively reduced in
accordance with the free enterprise and free-trade policy being implemented by
the government in order to achieve greater international competitiveness. To
illustrate, duties currently range between zero and 20 percent. Restrictions on
exports are not generally imposed.
POLITICAL ENVIRONMENT AND ECONOMY
In recent years Argentina has experienced a number of changes to its government.
The current president, Nestor Kirchner, came to power in May 2003. The country
continues to struggle with its external debt. Negotiations continue with the IMF
and several of its other major creditors. The economic performance of the
country has been troubled and uncertain since the late 1990's. Management
believes there are currently some positive indications that the economic
situation is improving.
PERU
MINING INDUSTRY
Peru has a lengthy history of mining activities that predates the Spanish
conquistadors. Although political unrest and instability have slowed the
development of some of Peru's ore bodies in recent years, mining continues to be
an important contributor to the national economy and exploration by foreign
companies is accelerating due to the
14
abundance of mineral sources. Peru is already a substantial producer of at least
six metals and may have unexplored and unexploited reserves in these and other
metals. Peru ranks among the top 20 gold producing nations, and the newly
expanded Yanacocha mine is Latin America's largest single gold producer and
Antamina is the world's largest zinc and copper mine.
MINERAL CONCESSIONS IN PERU
Under Peruvian law the right to explore for and exploit minerals is granted by
way of concessions. A Peruvian mining concession is a property-related right,
distinct and independent from the ownership of land on which it is located, even
when both belong to the same person. The rights granted by a mining concession
are defensible against third parties, transferable, chargeable and in general,
may be the subject of any transaction or contract. The basic unit for newly
claimed mining concessions is 1,000 hectares and existing concessions of greater
than 1,000 hectares will be reduced to that amount. Otherwise, concessions can
only be divided by percentage parts or shares. Buildings and other permanent
structures used in a mining operation are considered real property and as an
accessory to the concession on which they are situated.
The concession holder must pay an annual rental of US$3.00 per hectare (except
for the year of acquisition, as this rental is paid as part of the concession
application fee). The concession holder must sustain a minimum level of annual
commercial production of greater than US$100 per hectare in gross sales within
six years of the grant of the concession or, if the concession has not been put
into production within that period, from the seventh year, a penalty is due of
US$6.00 per hectare per year in addition to the annual rental. The concession
will terminate if the annual rental is not paid for two consecutive or
alternative years. The term of a concession is indefinite provided it is
properly maintained by payment of rental duties.
The Constitution of Peru provides that foreign people or countries cannot
acquire or own a land title or mining right, directly or indirectly, if such
land title or mining right is located within 50 kilometers of Peru's borders.
The government of Peru is permitted to grant an exemption by publishing an
official statement declaring a public necessity, called a Decreto Supremo. The
Decreto Supremo must be signed by the President of Peru and the Presidential
Cabinet, called the Consejo de Ministros.
The Company's Rio Tabaconas project was declared of public interest on June 1,
1998, by Decreto Supremo No. 020-98-EM, in benefit of Minera IMP Peru S.A.
Pursuant to Decreto Supremo No. 020-98-EM, Minera IMP Peru S.A. was authorized
to own the mining rights inside of the project. Decreto Supremo No. 020-98-EM
was signed by the then President of Peru, Mr. Alberto Fujimori and his
Presidential Cabinet.
Many commercial activities performed by private companies are subject to some
government inspection or control, including mining, which requires prior
government permission, licensing or concession, and compliance with special
registration procedures of the Department of Energy and Mines.
TERRORISM
Peru has been the subject of terrorism by the Sendero Luminoso, a Maoist group
intent on creating a socialist government, and the Tupac Amaru Revolutionary
Movement (the "MRTA"). In recent years both groups have been active. In 1997,
the Sendero Luminoso was implicated in a car-bombing. In 1996-1997, more than
400 people were killed when the MRTA attacked the Japanese embassy in Peru. The
Company may not be able to continue its operations in Peru if the terrorism
continues. The Company cannot predict if, or when, the terrorist activities will
cease. The Company may not be able to find suitable labor for its Peruvian
projects, may have difficulty in obtaining financing for its Peruvian projects,
and may not be able to continue its activities if the terrorism continues.
ENVIRONMENTAL REGULATIONS: The Company's operations are subject to environmental
regulations promulgated by government agencies from time to time. Environmental
legislation provides for restrictions and prohibitions on spills, releases or
emissions of various substances produced in association with certain mining
industry operations, such as seepage from tailings disposal areas, which would
result in environmental pollution. A breach of such legislation may result in
the imposition of fines and penalties. At present, the Company does not believe
that compliance with environmental legislation and regulations will have a
material affect on the Company's operations; however, any changes in
environmental legislation or regulations, or in the Company's business, may
cause
15
compliance with such legislation and/or regulation to have a material impact on
the Company's operations. In addition, certain types of operations require the
submission and approval of environmental impact assessments. Environmental
legislation is evolving in a manner which means stricter standards, and
enforcement, fines and penalties for non-compliance are more stringent.
Environmental assessments of proposed projects carry a heightened degree of
responsibility for companies and directors, officers and employees. The cost of
compliance with changes in governmental regulations has a potential to reduce
the profitability of operations. The Company intends to ensure that it complies
fully with all environmental regulations relating to its operations in Argentina
and Peru.
The provincial government of Chubut Province, Argentina has enacted certain
anti-mining laws banning the use of cyanide and open-pit mining in metallic
extraction in the Province of Chubut. The provincial legislation is more
restrictive than current federal Argentinean mining laws. The Company has hired
a mining engineering consultant to oversee all environmental and socio-economic
studies and programs to ensure international best practices for the mining
industry are applied in the development of the Company's properties. Certain
authorities believe that the provincial legislation may be unconstitutional.
However, there can be no assurance that the provincial legislation will be
repealed.
CURRENCY FLUCTUATIONS: The Company's operations in Argentina, Peru and Canada
make it subject to foreign currency fluctuations and such fluctuation may
adversely affect the Company's financial position and results. The Company's
property, option and mining expenses are generally denominated in U.S. dollars.
As such, the Company's principal foreign exchange exposure is related to the
conversion of the Canadian dollar into U.S. dollars. The Canadian dollar varies
under market conditions. Until the beginning of 2004, the Canadian dollar has
experienced an appreciation against the U.S. dollar, which requires the Company
to spend less Canadian dollars on its projects. Continued fluctuation of the
Canadian dollar against the U.S. dollar will continue to affect the Company's
operations and financial position. The Company's foreign subsidiaries comprise a
direct and integral extension of the Company's operations. These subsidiaries
are also entirely reliant upon the Company to provide financing in order for
them to continue their activities. Consequently, the functional currency of
these subsidiaries is considered by management to be the Canadian dollar and
accordingly exchange gains and losses are included in net income. Management
does not believe the Company is subject to material exchange rate exposure from
any fluctuation of the Argentine or Peruvian currencies. The Company does not
engage in hedging activities. See "Item 5. Operating and Financial Review and
Prospects".
NO DIVIDENDS: The Company has not paid out any cash dividends to date and has no
plans to do so in the immediate future.
PENNY STOCK REGULATION: The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in "penny stocks". Generally, penny
stocks are equity securities with a price of less than US$5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system). Since the Company's shares are traded for less than US$5.00 per
share, the shares are subject to the SEC's penny stock rules.
In addition, it is anticipated that Golden Arrow's shares, if traded in the
United States, will trade at less than US$5.00 per share and will be subject to
the penny stock rules. The Company's shares and Golden Arrow's shares will be
subject to the penny stock rules until such time as (1) the issuer's net
tangible assets exceed US$5,000,000 during the issuer's first three years of
continuous operations or US$2,000,000 after the issuer's first three years of
continuous operations; or (2) the issuer has had average revenue of at least
US$6,000,000 for three years. The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document prescribed by the SEC that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer must obtain a written acknowledgement from
the purchaser that the purchaser has received the disclosure document. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise
exempt from those rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
Such rules and regulations may make it difficult for holders to sell the common
stock of the Company and/or Golden Arrow, and they may be forced to hold it
indefinitely.
16
ENFORCEMENT OF LEGAL PROCESS: It may be difficult to bring and enforce suits
against the Company and Golden Arrow. The Company and Golden Arrow are
corporations incorporated in British Columbia. None of the Company's nor Golden
Arrow's directors are residents of the United States and all, or a substantial
portion, of their assets are located outside of the United States. As a result,
it may be difficult for U.S. holders of the Company's and Golden Arrow's common
shares to effect service of process on these persons within the United States or
to enforce judgements obtained in the U.S. based on the civil liability
provisions of the U.S. federal securities laws against the Company, Golden Arrow
or their officers and directors. In addition, a shareholder should not assume
that the courts of Canada (i) would enforce judgments of U.S. courts obtained in
actions against the Company, Golden Arrow or their officers or directors
predicated upon the civil liability provisions of the U.S. federal securities
laws or other laws of the United States, or (ii) would enforce, in original
actions, liabilities against the Company, Golden Arrow or their officers or
directors predicated upon the U.S. federal securities laws or other laws of the
United States.
However, U.S. laws would generally be enforced by a Canadian court provided that
those laws are not contrary to Canadian public policy, are not foreign penal
laws or laws that deal with taxation or the taking of property by a foreign
government and provided that they are in compliance with applicable Canadian
legislation regarding the limitation of actions. Also, a judgment obtained in a
U.S. court would generally be recognized by a Canadian court except, for
example:
1. where the U.S. court where the judgment was rendered had no
jurisdiction according to applicable Canadian law;
2. the judgment was subject to ordinary remedy (appeal, judicial review
and any other judicial proceeding which renders the judgment not final,
conclusive or enforceable under the laws of the applicable state) or
not final, conclusive or enforceable under the laws of the applicable
state;
3. the judgment was obtained by fraud or in any manner contrary to natural
justice or rendered in contravention of fundamental principles of
procedure;
4. a dispute between the same parties, based on the same subject matter
has given rise to a judgment rendered in a Canadian court or has been
decided in a third country and the judgment meets the necessary
conditions for recognition in a Canadian court;
5. the outcome of the judgment of the U.S. court was inconsistent with
Canadian public policy;
6. the judgment enforces obligations arising from foreign penal laws or
laws that deal with taxation or the taking of property by a foreign
government; or
7. there has not been compliance with applicable Canadian law dealing
with the limitation of actions.
LACK OF PUBLIC MARKET IN THE UNITED STATES: In the event the arrangement is
consummated, management does not believe there will be a public market for the
Golden Arrow common shares in the United States. See "Item 4. Information on the
Company - History and Development of the Company." Management anticipates that
Golden Arrow will seek to have its common shares quoted on the Over-The-Counter
Bulletin Board following completion of the Arrangement; however, there are no
assurances as to if, or when, the Golden Arrow common shares will be quoted on
the Over-The-Counter Bulletin Board. Consequently, Golden Arrow shareholders may
not be able to use their shares for collateral or loans and may not be able to
liquidate at a suitable price in the event of an emergency. In addition, Golden
Arrow shareholders may not be able to resell their shares in the United States
and may have to hold them indefinitely.
ITEM 4. INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------
HISTORY AND DEVELOPMENT OF THE COMPANY
Since 1996, the Company has been engaged, through its subsidiaries, in the
acquisition and exploration of mineral properties, with a primary focus in
Argentina and Peru. The Company was incorporated in British Columbia under the
COMPANY ACT (British Columbia, Canada) (the "Company Act") on September 17,
1979, as Gold Star Resources Ltd. On May 1, 1990, the Company filed an Altered
Memorandum to reflect its name change to EEC Marketing Corp. On January 13,
1992, the Company filed an Altered Memorandum to reflect its name change to
Amera Industries Corp. From its date of inception to January 31, 1992, the
Company was inactive. Between January 31, 1992 and August 31, 1994, the Company
was involved in the eyewear and optical products industry. Subsequently, the
Company again became inactive and began seeking a new business opportunity. The
Company filed another
17
Altered Memorandum on February 9, 1995, to reflect its name change to
International Amera Industries Corp. On February 20, 1996, the Company filed an
Altered Memorandum, changing its name to IMA Resource Corporation, and became
engaged in the acquisition and exploration of mineral properties.
In September of 1995 the Company formed IMPSA Resources Corporation ("IMPSA") in
order to pursue opportunities in Peru. At that time, exploration efforts by
other companies in Peru were beginning in earnest. Management believed Peru was
a favorable country for mineral exploration due to the country's geology and
strong mining culture. In addition, management believed that Peru was
under-explored.
Management believed the amount of capital necessary to fully exploit
opportunities in Peru was greater than what the Company sought to invest. Since
the Company had an ongoing exploration program in Argentina, the Company
initially limited the funding of its Peruvian projects to $250,000. The Company
established IMPSA and used the Company's $250,000 capital contribution to
establish an infrastructure and initiate property reviews. A number of
consultants were retained and detailed property assessments were initiated. The
Company determined that in order to further develop IMPSA, additional funding
would be required.
The Company initially received 500,000 common shares, or 30.76%, of the then
issued and outstanding common shares of IMPSA, for its $250,000 capital
contribution. As a result of issuing 375,000 shares to IMPSA's management and
key employees, and the completion of two private placements (resulting in the
issuance of a total of 1,528,000 common shares of IMPSA), the Company's initial
investment in IMPSA was diluted to 20.76%. However, in order to assure the
Company an ongoing interest in the assets of IMPSA, the Company retained a 20%
participating interest in IMPSA (BVI) and retained the right to maintain a 20%
ownership interest in IMPSA. During fiscal 1998, the Company increased its
investment in IMPSA by purchasing 990,963 shares, which increased the Company's
percentage ownership of IMPSA from 20.76% to 43.81%. In January 1999, the
Company acquired an additional 6,500,000 common shares of IMPSA, increasing its
equity interest from 43.81% to 80.69%. During 2001, the Company completed the
reorganization of its corporate structure to continue the funding of the
Company's Peruvian exploration activities. On August 20, 2001, the Company
entered into an agreement with IMPSA, its 80.69% owned subsidiary, to acquire
IMPSA's 80% interest in IMPSA (BVI) and IMPSA's advances to IMPSA (BVI), of
approximately US$1.536 million, in exchange for $850,000 plus a 2% fee on any
net revenue or proceeds from the disposition of certain properties held by IMPSA
(BVI). See "Item 4. Information on the Company - Organizational Structure." The
fee is limited to a maximum of $1,400,000. This transaction was approved by
IMPSA's shareholders on September 4, 2001. IMPSA used the cash proceeds to
retire its debt to the Company. Rio Tabaconas (formerly known as Tamborapa),
IMPSA's principal property, is for the most part an early stage exploration
property and involves a high degree of risk.
On April 3, 1996, the Company acquired IMA Holdings Corp. ("IHC"), a British
Columbia company. The acquisition of IHC by the Company resulted in the former
shareholders of IHC acquiring control of the Company. At the time of the
acquisition, the Company had two common directors with IHC. Generally accepted
accounting principles required the transaction to be treated for accounting
purposes as a reverse-takeover. In accounting for this transaction:
(i) IHC was deemed to be the purchaser and parent company for accounting
purposes. Accordingly, its net assets are included in the Company's
consolidated balance sheet at their historical book value; and
(ii) control of the net assets and business of the Company was acquired
effective April 3, 1996. The transaction was accounted for as a
purchase of the assets and liabilities of the Company by IHC at their
fair values.
IHC's primary asset was a 50% joint venture interest in Minas Argentinas
(Barbados) Inc. ("Minas Barbados"). Oro Belle Resources Corporation ("Oro
Belle"), a third party, held the remaining 50% interest in Minas Barbados. The
sole asset of Minas Barbados is its 100% interest in Minas Argentinas S.A.
("MASA"). MASA is an Argentine company whose main activity is exploration of
mineral properties in Argentina. During 1998, the Company held discussions with
Oro Belle and its majority shareholder, Viceroy, to restructure the arrangement
and facilitate the funding of future financial requirements of MASA.
In May 1998, the Company entered into an arrangement (the "Plan of Arrangement")
with Viceroy Resource Corporation ("Viceroy") whereby the Company agreed to
exchange its 50% interest in Minas Barbados for 2,200,000
18
common shares of Viceroy (the "Viceroy Shares"), at a price of $2.25 per Viceroy
Share (being the market value of the Viceroy Shares on the date of the
transaction), a 1% net smelter returns royalty interest (the "MASA NSR") in the
mineral property interests held by MASA, and the extinguishment of all debts
owing by the Company to MASA. No value was ascribed to the MASA NSR for the
purpose of calculating the total consideration received at the date of exchange.
The Company also restructured its share capital to facilitate the distribution
of 1,540,000 Viceroy Common Shares to the Company's shareholders. The
transaction was accomplished as follows:
i) each issued and outstanding common share of the Company was exchanged
for one Class A common share and one Class B preferred share (the
"Preferred Shares") of the Company;
ii) the holders of the Preferred Shares received 1,540,000 Viceroy Common
Shares, directly from Viceroy, in exchange for all of the Preferred
Shares;
iii) the Company relinquished its ownership interest in Minas Barbados to
Viceroy in exchange for the Preferred Shares, the MASA NSR, the
extinguishment of all debts to MASA and 660,000 Viceroy Shares. The
Preferred Shares were then canceled by the Company; and
iv) all options and warrants to purchase common shares of the Company
became exercisable to purchase Class A common shares on the same basis
as the common shares.
The transaction became effective July 7, 1998, upon filing an Altered
Memorandum, and the Company changed its name to IMA Exploration Inc. As a result
of the transaction, the Company consolidated its share capital on the basis of
four old shares for one new share.
On June 30, 1999, the shareholders of the Company passed a Special Resolution
approving a redesignation of the Class A Common Shares to common shares.
In August 1999, the Company completed a private placement with Barrick Gold
Corporation ("Barrick"). Barrick was granted an option to earn an interest in
either the Potrerillos or Rio de Taguas property. The funds were spent on the
drilling program on the Potrerillos property. Subsequent proceeds were spent on
further exploration of the Company's properties in the Valle de Cura region of
San Juan Province, Argentina from October 2000 to March 2001. As a result of the
private placement Barrick became the Company's largest shareholder. During
September 2003 Barrick reduced its shareholding to 1,000,000 shares.
The Company agreed to spend a minimum of $1,125,000 on its Valle de Cura
properties out of the proceeds from the Barrick private placement. As of
December 31, 2003 this requirement had been met. On December 15, 2003, Barrick
served notice that it would not be exercising the option and the Company has
begun pursuing other partners for the continued exploration of these drill ready
projects.
On March 29, 2004, the new British Columbia Business Corporations Act (the
"BCBCA") came into force in British Columbia and replaced the former Company
Act, which is the statute that previously governed the Company. See "Item 10.
Additional Information - Memorandum and Articles of Association."
On May 3, 2004, the Company announced its intention to proceed with a
reorganization of the Company which will have the result of dividing its present
mineral resource assets between two separate public companies. Upon
implementation of the corporate reorganization, the Company will continue to
hold the Navidad silver-lead-copper project and certain other mineral properties
in central Chubut Province, Argentina, while the newly created public company
will hold the other resource assets of the Company.
Under the reorganization, the Company's most advanced project, the Navidad
silver-lead-copper project and certain other Navidad area properties in central
Chubut Province, Argentina (the "Navidad Properties") will continue to be owned
by the Company, while the Company's non-Navidad mineral properties along with
$750,000 of operating cash and the joint venture agreements (including the
marketable securities) relating to the transferred properties (collectively the
"Transferred Assets") will be transferred to Golden Arrow, a new public company
formed to effect
19
the reorganization. These two separate public companies will be owned by the
existing shareholders of the Company and each will have a separate focus. Golden
Arrow will be committed to grass roots exploration while the Company will retain
the Navidad project and focus on:
1. A significantly expanded drill program on the numerous targets within
Navidad;
2. More detailed regional exploration for Navidad style targets;
3. Pursuing a listing on major U.S. and Canadian stock exchanges;
4. Completing a bankable feasibility study on the Navidad project in a
timely fashion; and
5. Exploring the Navidad related properties directly or through joint
ventures.
However, there are no assurances that the Company will be able to successfully
complete any of the foregoing.
The remaining projects outside of Navidad will be held by Golden Arrow which
will initially have the same board of directors as the Company, and it is
intended that Golden Arrow will initially be managed by the same management team
as the Company. Golden Arrow will then be able to focus on grass root
exploration for economic mineral discoveries. Management believes the markets
will then be able to fairly value these exploration assets.
The common shares of Golden Arrow will be distributed to shareholders of the
Company in proportion to their present shareholdings in the Company and on the
basis of one Golden Arrow share for every 10 shares of the Company held. The
reorganization is intended to enhance shareholder value by enabling each company
to focus on the development of its own properties, and by allowing shareholders
to hold an interest in Golden Arrow which reflects the value of the Company's
portfolio of exploration projects.
The reorganization will be implemented by a Plan of Arrangement under the BCBCA.
Once the Company's shareholders and optionholders have approved the Plan of
Arrangement, the Supreme Court of the Province of British Columbia will be
requested to grant its final approval.
The following is a summary of the steps necessary to effect the arrangement, in
the sequence they will occur, and which will occur on the effective date without
any action on the part of the securityholders:
(a) the Company's authorized share structure shall be amended by:
(i) altering the name of the 100,000,000 common shares without par
value to be 100,000,000 Class A Common shares without par
value; and
(ii) creating the following two new classes of shares:
(A) an unlimited number of common shares without par value; and
(B) an unlimited number of special shares without par value;
(b) Golden Arrow's authorized share structure shall be amended by creating
a new class of shares consisting of an unlimited number of preferred
shares without par value having the rights and restrictions set out in
Golden Arrow's Articles;
(c) Each common share of the Company issued and outstanding on the
effective date (other than shares held by dissenting shareholders)
will be exchanged for one new common share of the Company and
one-tenth of one special share of the Company;
(d) The common shares of the Company exchanged for the new common shares
of the Company and the Company's special shares shall be cancelled;
(e) IMA Holdings Corp. will transfer to the Company, with good and
marketable title free and clear of all encumbrances, all of the shares
of Inversiones Mineras Argentinas Holdings (BVI) Inc., IMPSA BVI Inc.
and IMPSA Resources Corporation held by it. As consideration for such
shares transferred to the Company, the Company will reduce the debt
owed to it by IMA Holdings Corp. by an amount equal to the fair market
value of such shares;
(f) Each holder of the Company's special shares will transfer, with good
and marketable title free and clear of all encumbrances, all such
shares to Golden Arrow. As consideration for the Company's special
shares transferred to it, Golden Arrow will issue to such holders,
Golden Arrow common shares on the basis of one Golden Arrow common
share for every one whole special share of the Company held by a
respective holder;
(g) the Company will sell and transfer the Transferred Assets to Golden
Arrow in consideration for the issuance by Golden Arrow of 1,000,000
Golden Arrow preferred shares having a collective fair
20
market value equal to an amount determined by the Company's board of
directors as of the effective date as being equal to the fair market
value of the assets being transferred to Golden Arrow;
(h) The Company will purchase for cancellation the Company's special
shares held by Golden Arrow in consideration for the issuance by the
Company to Golden Arrow of a promissory note from the Company having a
principal amount and fair market value equal to the aggregate fair
market value of the Company's special shares purchased for
cancellation (the "IMA Note");
(i) The authorized share structure of the Company shall be amended by
eliminating the 100,000,000 Class A common shares without par value
and the unlimited special shares without par value, none of which will
then be issued;
(j) Golden Arrow will purchase for cancellation the Golden Arrow preferred
shares held by the Company in consideration for the issuance by Golden
Arrow to the Company of a promissory note from Golden Arrow having a
principal amount and fair market value equal to the aggregate fair
market value of the Golden Arrow preferred shares purchased for
cancellation (the "Golden Arrow Note");
(k) The authorized share structure of Golden Arrow shall be amended by
eliminating the unlimited preferred shares without par value, none of
which will then be issued; and
(l) The Company will pay the principal amount of the IMA Note by
transferring to Golden Arrow the Golden Arrow Note which will be
accepted by Golden Arrow as full payment, satisfaction and discharge
of the Company's obligations under the IMA Note and simultaneously,
Golden Arrow will pay the principal amount of the Golden Arrow Note by
transferring to the Company, the IMA Note which will be accepted by
the Company as full payment, satisfaction and discharge of Golden
Arrow's obligation under the Golden Arrow Note. The IMA Note and the
Golden Arrow Note will both thereupon be cancelled.
The effect of the Arrangement is illustrated by the following simplified
diagrams:
21
IMMEDIATELY PRIOR TO THE ARRANGEMENT
TABLE A
IMA Exploration Inc. Golden Arrow
/ |
/ |
/ 100%
/ |
/ IMA Holdings Corp
/ / | \ \
/ / | \ 80.69%
/ / | \ IMPSA Resources
/ / | \ Corporation
/ / | \
/ / | 100%
/ / | \
80% / | \
/ 20% | \
CANADA / / | \
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
/ / | \
/ / 100% \
/ / | \
/ / IMA Navidad (BVI) Inc. \
/ / | \ Inversiones Mineras
IMPSA BVI Inc. 100% Argentinas Holdings
| | (BVI) Inc.
| | |
| Inversiones Mineras |
100% Argentinas Inc. 100%
| | |
BVI/BARBADOS | |
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ARGENTINA/PERU | |
| 100% |
| | |
Minera IMP - Peru Inversiones Mineras Inversiones Mineras
S.A.C. Argentinas S.A. Australes S.A.
| | |
| | |
| | |
| | |
Peru Properties Navidad Area Non-Navidad Area
Properties Properties Argentina
22
IMMEDIATELY AFTER THE ARRANGEMENT
TABLE B
IMA Exploration Inc. Golden Arrow
| / | \
| / | 80.69%
100% / |
| / | IMPSA Resources
IMA Holdings Corp. / | Corporation
| / \
CANADA | / \
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
100% 100% 100%
|
IMA Navidad (BVI) Inc. Inversiones Mineras IMPSA BVI Inc.
| Argentinas Holdings |
| (BVI) Inc. |
| | |
100% | |
| | |
Inversiones Mineras | |
Argentinas Inc. 100% 100%
| | |
BVI/BARBADOS | |
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ARGENTINA/PERU | |
| | |
100% | |
| | |
Inversiones Mineras Inversiones Mineras Minera IMP - Peru
Argentinas S.A. Australes S.A. S.A.C.
| | |
| | |
Navidad Area Non-Navidad Peru Properties
Properties Area Properties
Argentina
PRINCIPAL OFFICE
The current office and principal address of the Company is located at #709 - 837
West Hastings Street, Vancouver, British Columbia, V6C 3N6. The Company's
telephone number is (604) 687-1828.
23
ACQUISITION AND DISPOSITION OF MINERAL PROPERTY INTERESTS DURING THE THREE PRIOR
FISCAL YEARS
The Company has made additions to mineral properties and deferred costs of
$1,850,761, $1,266,555, and $1,320,777 and capital assets of $21,875, $11,201,
and $8,012 for the fiscal years ended December 31, 2003, 2002, and 2001,
respectively. For the three months ended March 31, 2004, the Company has made
additions to mineral properties and deferred costs of approximately $1,433,000
and additions to capital assets of approximately $75,000.
During the fiscal year ended December 31, 2003, the Company wrote down the value
of its mineral properties and deferred costs by $776,626. This adjustment of
property values reflected the expiration of the agreement with Barrick Gold
Corporation on the Company's Valle de Cura area properties. During the fiscal
year ended December 31, 2002 the Company did not terminate any option agreements
on properties and mineral claims. During the fiscal year ended December 31,
2001, the Company terminated option agreements on properties and mineral claims
resulting in the write-off of mineral properties and deferred costs in the
amounts of $21,483.
PLANNED EXPLORATION EXPENDITURES AND PROPERTY PAYMENTS
During the nine month period from March 31, 2003 to December 31, 2003, the
Company has no planned exploration expenditures in Argentina for the Valle del
Cura region, the Gualcamayo region, or the NW San Juan region. The Company plans
to expend $2,100,000 in Argentina on Phase II of the drilling program on the
Navidad project.
For the Company's other Argentinean properties, the majority of which are
proposed to be transferred to Golden Arrow, a budget of $350,000 has been
approved for work on the Laguna de los Toros property. It is the Company's
intention to seek joint venture partners to provide funding for further work on
any or all of those other properties. On March 6, 2003, the Company entered into
an agreement granting Amera Resources Corporation ("Amera"), an Option to earn
51% undivided interest on Mogote (Arturo's) Property. Joseph Grosso, Nikolaos
Cacos and David Terry, officers and/or directors of the Company, are officer,
directors and/or employees of Amera. Amera can earn its interest in the property
by issuing 1,650,000 common shares to the Company and incurring US$1,250,000 of
expenditures (including work programs and underlying option payments), over a
period of five years. In addition, Amera has agreed to reimburse the Company for
past payments made and expenditures which had been incurred by the Company on
the Mogote (Arturo's) Property. As at December 31, 2003, Amera had reimbursed
the Company $192,952 and $4,902 remained outstanding and is included in amounts
receivable. As at December 31, 2003, the Company had received 100,000 shares of
Amera at a recorded amount of $45,000. On April 8, 2004, the Company and Amera
entered into a further agreement whereby Amera can earn an additional 24%
interest, for a total 75% interest, after earning the initial 51% interest, by
issuing 300,000 common shares to the Company and conducting an additional US $3
million of exploration expenditures over a three year period. See "Item 4.
Information on the Company - Properties, Plants and Equipment - Principal
Properties - Argentinean Properties - San Juan Province Properties - Northwest
San Juan - Mogote (Arturo's) Property" and "Item 7. Major Shareholders and
Related Party Transactions - Related Party Transactions."
The Company plans to spend approximately $200,000 on the Rio Tabaconas project
(formerly known as Tamborapa project) in Peru during the nine month period from
March 31, 2004 to December 31, 2004. In June 2002 the Company announced it would
take a more measured approach to exploration on the project to ensure that local
cultural, developmental and environmental concerns pertaining to mining
activities in the region would be addressed. See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Properties - Peruvian
Properties." All exploration activities have been deferred until an agreement
with the local community of Tamborapa can be finalized. The Company has declared
force majeure, as allowed under the property option agreement. A Company
Community plan has been prepared with the aid of several Peruvian social
economic consultants and has been presented for discussion to the community
leaders, government officials and interested party leaders and as of the date of
this report no agreement has been reached. Thus the Company (or Golden Arrow if
the arrangemnt is approved) will continue to work with the various social
economic consultants to develop a plan which will be acceptable to all parties
in the community of Tabaconas. Upon acceptance by the community of the Company
Community plan the Company (or Golden Arrow if the arrangement is approved)
plans to proceed with the next phase of a diamond drill program.
In addition, minimum property payments of approximately US $225,000 are required
to maintain all of the existing property holdings.
24
As of June 22, 2004, the Company does not have sufficient working capital to
fund all of its planned exploration work and property commitments and meet all
of its ongoing overhead obligations. The Company will continue to rely on
successfully completing additional equity financing and/or conducting joint
venture arrangements to conduct further exploration on its properties. There can
be no assurance that the Company will be successful in obtaining the required
financing or negotiating joint venture agreements. The failure to obtain such
financing or joint venture agreements could result in the loss of, or
substantial dilution of the Company's interest in its properties.
BUSINESS OVERVIEW
The Company is a natural resource company engaged in the business of acquisition
and exploration of mineral properties in South America, principally in Argentina
and Peru. The Company's strategy and primary corporate objective is to acquire
properties for the purpose of mineral exploration and exploitation in known
mining areas adjacent to, or in close proximity to, known major discoveries. The
Company, therefore, expects these properties to command higher acquisition,
maintenance and vendor participation fees, where these higher fees are deemed
reasonable to attempt to reduce the overall risks associated with mineral
exploration. In the event the Company discovers mineralization capable of
economic production, it intends to seek a joint venture partner and/or to sell
all or a portion of its interest in the subject property to finance the
development of such property. The secondary corporate objective is to identify
new frontiers through the evaluation of available historic and satellite data
and acquire large parcels of land in undeveloped regions with the potential to
host mineral deposits. There are no assurances that the Company's strategies
will achieve the desired results and the Company may acquire interests in
properties at higher prices, due to the properties' proximities to other
discoveries and may have to write-off all or a portion of the value of such
properties if they prove uneconomic. At present, the Company has no producing
properties and consequently has no current operating income or cash flow. As of
the date of this annual report, the Company is an exploration stage company and
has not generated any revenues from mining operations. There is no assurance
that a commercially viable mineral deposit exists on any of the Company's
properties. Further exploration will be required before a final evaluation as to
the economic and legal feasibility of any of the properties is determined.
Due to the seasonality of field work in the high Andes, the timing for the Valle
del Cura work is generally restricted to the period from October to April, while
the Patagonia region is accessible from September to June, and work on Rio
Tabaconas, the Peruvian property, can be carried out year round but is generally
more effective in the drier season from May to December. On the properties in
the Navidad area, accessibility and work may be limited during the winter
months.
GENERAL DEVELOPMENT OF THE COMPANY'S BUSINESS
The Company has been active in Peru and Argentina since 1996 acquiring and
exploring mineral properties.
In August 1999 the Company completed a private placement with Barrick. Barrick
was granted an option to earn an interest in either the Potrerillos or Rio de
Taguas property. The funds were spent on the drilling program on the Potrerillos
property. Subsequent proceeds were spent on further exploration of the Company's
properties in the Valle de Cura region of San Juan Province, Argentina from
October 2000 to March 2001. As a result of the private placement Barrick became
the Company's largest shareholder. During September 2003 Barrick reduced its
shareholding to 1,000,000 shares.
The Company agreed to spend a minimum of $1,125,000 on its Valle de Cura
properties out of the proceeds from the Barrick private placement. As of
December 31, 2003 this requirement had been met. On December 15, 2003 Barrick
served notice that it would not be exercising the option and the Company has
begun pursuing other partners for the continued exploration of these drill ready
projects.
In March 2001, the Company granted Rio Tinto Mining and Exploration Limited
("Rio Tinto") an option to acquire a majority interest in the Mogote property in
the Valle de Cura region of San Juan Province, Argentina. This agreement was
terminated by Rio Tinto in December 2001. In March 2003 (as amended September
30, 2003), the Company granted Amera Resources Corporation ("Amera") an option
to acquire a 51% interest, amended on April 8, 2004 to 75%, in the Mogote
property. Recent exploration results from Amera's work have been encouraging.
See "Item 4. Information on the Company - Properties, Plants and Equipment -
Principal Properties - Argentinean Properties - San
25
Juan Province Properties - Northwest San Juan - Mogote (Arturo's) Property" and
"Item 7. Major Shareholders and Related Party Transactions - Related Party
Transactions."
In September 2003, the Company granted Cloudbreak Resources Ltd. ("Cloudbreak")
an option to acquire a 50% interest in the Gollette property located in the
Valle de Cura. Cloudbreak can increase its interest to 75% by funding additional
work expenditures and development costs.
The Company acquired the Peruvian property known as Rio Tabaconas in 1997 by way
of an option. In addition the Company owns claims which surround and overlie the
optioned concessions. Mine workings in the Rio Tabaconas area are believed to be
on the order of 100 to 150 years old. The first modern examination of what is
now the Rio Tabaconas property was conducted in the late 1980's when a
government-funded Peruvian-German consortium re-opened the old mine workings on
Cerro Tablon and carried out experimental geochemical and geological studies in
the mine area. Since that time, the property has been briefly examined and
sampled by a number of companies at the Company's invitation. The Company had
spent $3,164,554 on Rio Tabaconas to the end of December 2003.
On June 28, 2002, the Company suspended further exploration activities at the
Rio Tabaconas project. The Company has deferred any further exploration until an
agreement with the local community has been finalized. The Company has declared
force majeure, as allowed under the option agreement. The Company and the
optionor have revised the timing of the remaining US $1,315,000 option payments.
On August 1, 2003, the Company commenced paying US $1,500 per month to the
optionor as compensation during this waiting period. The Company is working to
ensure that all local cultural, developmental and environmental concerns in the
region have been addressed which may pertain to mining activities. Upon
acceptance by the community of a Community Agreement between the Company and the
local community, the Company plans to proceed with the next phase of the diamond
drill program. A detailed 3,000 metre drill plan has been drafted based upon
evaluation of geological, geochemical and geophysical information. The next
phase of the exploration program is expected to be completed after finalizing
the Community Agreement.
In 2002, the Company began to acquire properties in Chubut Province, Argentina.
In 2003, the Company significantly increased its focus on activities in the
Chubut region. The Company has entered into a number of joint venture agreements
which resulted in the farm-out of several of its non-core properties.
In early 2003, the Company focused its efforts on its Navidad Area Properties in
Chubut Province located in southern Argentina. The preliminary results of its
initial exploration efforts were very encouraging. A Phase I drilling program
commenced in November 2003 and continued into March 2004. A second phase is
scheduled to commence in May 2004.At the date of this report the Company has not
received any results from this program. Management believes that the Navidad
Project is worthy of its primary interest and accordingly has focused the
majority of its available resources on this project and expects to continue to
do so.
In early 2003 the Company negotiated the sale of three non-core properties in
Chubut Province to Amera, Amera has issued 500,000 shares to the Company at a
deemed price of $225,000 for these properties. In addition, in the event that a
decision is made to place any of the properties into commercial production a
bonus of US$250,000 is payable and the Company has retained a net smelter
returns royalty ("NSR") of 3%. See "Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions."
GOVERNMENT REGULATIONS
The Company's operations are subject to certain governmental laws and
regulations. See "Item 3. Key Information - Risk Factors - Foreign Countries and
Regulatory Requirements", "Item 3. Key Information - Risk Factors - Impact of
Government Regulations on the Company's Business" and "Item 3. Key Information -
Risk Factors - Environmental Regulations."
ORGANIZATIONAL STRUCTURE
The Company has one direct wholly-owned subsidiary, IMA Holdings Corp. ("IHC"),
a British Columbia company and one 80% owned subsidiary, IMPSA BVI Inc. ("IMPSA
(BVI)"), a British Virgin Islands company.
26
IHC has two direct wholly-owned subsidiaries, IMA Navidad (BVI) Inc. ("IMA
Navidad"), a British Virgin Islands company, and Inversiones Mineras Argentinas
Holdings (BVI) Inc. ("IMA Holdings (BVI)"), a British Virgin Islands company.
IHC has one direct 80.69% owned subsidiary, IMPSA Resources Corporation
("IMPSA"), a private British Columbia company, and holds a direct 20% interest
in IMPSA (BVI).
IMA Navidad has one direct wholly-owned subsidiary, Inversiones Mineras
Argentinas Inc., a Barbados company ("IMA Barbados"). IMA Barbados has one
direct wholly-owned subsidiary, Inversiones Mineras Argentinas S.A. ("IMA
Argentinas"), an Argentine company.
IMPSA (BVI) has one wholly-owned subsidiary, Minera IMP-Peru S.A.C ("IMPSA
Peru"), a Peruvian company.
IMA Holdings (BVI) has one wholly-owned subsidiary, Inversiones Mineras
Australes S.A., an Argentine company.
The Company's current corporate structure is depicted in Table A (above). See
"Item 4. Information on the Company - History and Development of the Company."
Unless otherwise indicated herein, the term "Company" means collectively the
Company and its subsidiaries.
PROPERTIES, PLANTS AND EQUIPMENT
The Company's principal business is the acquisition and exploration of mineral
properties in known mining areas adjacent to, or in close proximity to, known
major discoveries, with a focus in Argentina and Peru. As of the date of this
annual report, all of the Company's properties are without known reserves and
the Company's operations are exploratory in nature.
PRINCIPAL PROPERTIES
NAVIDAD PROJECT
On February 3, 2003 the Company announced the discovery of high-grade
silver-lead mineralization on its 100% owned 10,000 hectare (24,700 acres)
Navidad Project in north central Chubut Province, Argentina. The mineralization
had been discovered by prospecting on December 10, 2002 and was a new discovery
as there were no recorded occurrences of silver mineralization in the area. This
was surprising due to the fact that high-grade, structurally-controlled
mineralization and the moderate-grade replacement style mineralization with
abundant visible lead and copper mineralization outcrops and subcrops over a
strike length of thousands of meters. There was no evidence of prior prospecting
or sampling activity anywhere despite the area being inhabited.
CHUBUT (PATAGONIA) AREA PROPERTIES
Since 2001 the Company has acquired a 100% interest in a number of claims in
western Chubut Province. These properties include the Laguna de los Toros
property, Evelina (Las Bayas) property, Toros II property, Victoria properties
(several), Costa properties. Lago Pico property, Corcovado property, Loma Alto
property, Ruto property, Alberto property, Rolando property, Cecilia property,
Pedro property, Fernando property, Ivan property and Daniel property. Together
they cover an area of approximately 86,000 hectares. A number of these
properties have been sold or farmed-out to joint venture partners. All of these
Chubut properties are in the exploration stage.
VALLE DE CURA AREA PROPERTIES
The Company has acquired 100% interests in a number of properties in the Valle
de Cura area totaling approximately 34,000 hectares. Beginning in 1999 IMA
entered into an option agreement with Barrick pursuant to which Barrick could
acquire an interest in the properties. Both Barrick and the Company have
fulfilled all their obligations under this agreement and Barrick notified the
Company on December 15, 2003 that they would not be exercising their option.
Accordingly this agreement has terminated and other partners are being
considered for these drill ready projects. One of these properties has been
farmed-out to another joint venture partner.
27
NORTHWEST SAN JUAN AREA PROPERTIES
The Company has acquired 100% interests in a number of properties in the
Northwest area of San Juan province totaling approximately 20,000 hectares. The
Arturo or Mogote property is under option to the Company and is currently the
subject of a joint venture agreement with Amera whereby Amera can earn up to a
75% interest in the property. There are no current plans for work on the other
properties in this area.
GUALCAMAYO AREA PROPERTIES
The Company has also acquired interests in properties in other mining areas of
interest in San Juan province totaling approximately 50,000 hectares. There are
no current plans for work on the properties in this area.
RIO TABACONAS PROPERTY (PERU)
The 9,000 hectare Rio Tabaconas property is located in northwestern Peru,
approximately 35 kilometers south of the southernmost tip of Ecuador in the
District of Tabaconas, Province of San Ignacio, Department of Cajamarca. The
Company has an option to purchase three claims covering a 2,890 hectare area
within the central part of the property and holds 100% ownership, with no
outstanding royalties, on the remainder of the property. In June 2002 the
Company announced it would take a more measured approach to exploration on the
project to ensure that local cultural, developmental and environmental concerns
pertaining to mining activities in the region would be addressed. All
exploration activities have been deferred until an agreement with the local
community of Tamborapa can be finalized. IMA has declared force majeure, as
allowed under the property option agreement. A Company Community plan has been
prepared with the aid of several Peruvian social economic consultants and has
been presented for discussion to the community leaders, government officials and
interested party leaders and as of the date of this report no agreement has been
reached. Thus the Company will continue to work with the various social economic
consultants to develop a plan which will be acceptable to all parties in the
community of Tabaconas. Upon acceptance by the community of the Company
Community plan the Company plans to proceed with the next phase of a diamond
drill program.
During the fiscal years ending December 31, 2003, 2002 and 2001 the Company had
capitalized and expensed costs on all of its properties as follows:
General Exploration Aggregate Amount
FISCAL YEAR ENDING AMOUNT CAPITALIZED Expensed IN FISCAL YEAR Written-off IN FISCAL YEAR
December 31, 2001 $4,581,172 $109,875 $ 21,483
December 31, 2002 $5,847,727 $180,321 $ Nil
December 31, 2003 $6,883,641 $226,956 $776,626
28
[Argentina Property Map]
29
ARGENTINEAN PROPERTIES
NAVIDAD PROJECT
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 Project in north central Chubut, Argentina. The mineralization
had been discovered by prospecting on December 10, 2002, and was a new discovery
as there were no recorded occurrences of silver mineralization in the area. This
was surprising due to the fact that high-grade, structurally-controlled
mineralization and the moderate-grade replacement style mineralization with
abundant visible lead and copper mineralization outcrops and subcrops over a
strike length of thousands of meters. There was no evidence of prior prospecting
or sampling activity anywhere despite the area being inhabited. Furthermore a
fence line passes through the central part of the outcropping high-grade
mineralization and blocks of rock containing obvious green copper oxides had
been used to prop up fence posts.
PROPERTY DESCRIPTION AND LOCATION
The Navidad Project comprises 10,000 hectares consisting of one individual claim
(cateo) in the Gastre Department of the Province of Chubut. It is centered at
approximately 42.415 decimal degrees south latitude and 68.82 decimal degrees
west longitude in the Campo Inchauspe datum. The above point has been located in
the field by professional surveyors and has the coordinates 2,514,856.53 east
and 5,304,454.84 north in Gauss Kruger Campo Inchauspe zone 2 and was assigned
the local grid coordinates 50,000E, 10,000N with an elevation of 1,218.18 m
(Height Above Ellipsoid WGS1984). The local grid is rotated 30 degrees to the
east of Gauss Kruger north.
MINERAL TITLES INCLUDED IN THE NAVIDAD PROJECT:
--------------------------------------------------------------------------------
FILE NUMBER YEAR DATE TYPE NAME HECTARES
--------------------------------------------------------------------------------
13984 2002 December 6, 2002 CATEO Gan 10,000
--------------------------------------------------------------------------------
ACCESSIBILITY AND INFRASTRUCTURE
The property is located in the north-central part of the Province of Chubut
within the prominent Gastre structural lineament in a somewhat uplifted area.
Minimum elevation within the Gan cateo is 1,060 m while the maximum elevation is
1,460 m. Relief is gentle with minor local exceptions.
Vegetation is sparse and comprises grasses and low brush. Trees are absent. The
climate is characterized as continental semi-arid with moderate temperatures in
summer often accompanied by high winds. Winters are cold with temperatures often
dipping below zero Celsius, but are generally not characterized by extended
sub-zero periods. Most of the precipitation falls in winter as both rain and
snow and, as such, conditions may not favor field work in the winter, but
depending on the year, work may be possible even during winter.
Access to the property is possible year around by two-wheel drive pick-up truck
except in very wet periods. Gastre is the nearest town some 40km to the west and
the town of Gan Gan is about the same distance to the east; both are along Route
4 a gravel highway. The nearest airport with scheduled (rare) service is in
Esquel four hours drive to the southwest by gravel road. To the north about two
hours drive, in the province of Rio Negro, is the town of Ingenerio Jacobacci
which is larger than Gastre and has much better services including banking. From
Ingenerio Jacobacci it is another three and a half hours to the west to
Bariloche, a city with multiple daily flights and a centre for tourism year
around. From Gastre to the Atlantic Coast it is approximately seven hours drive
virtually all on gravel roads. Along the coast infrastructure is much better
with paved, roads, ports and airports and larger population centers.
During normal road conditions the trip from Gastre to the Navidad Project is
about 30 minutes.
A high voltage power line running from the Futaleufu site to an aluminum smelter
at Puerto Madryn passes roughly 50km south of the Navidad Project. The
government has announced a contract tendered to construct this power line to the
national power grid at Choele Choel in Rio Negro to the north in order to
facilitate expansion of the aluminum
30
smelter and other projects. Construction of the connection will bring the
national power grid with easy reach of Navidad.
HISTORY
The Navidad Project has no known exploration history and there is no indication
that any of the showings were previously discovered or sampled. A prospecting
discovery of this type seems unthinkable in the exploration industry in this day
and age, especially within a few hundred meters of a provincial highway, except
for the lack of mining and prospecting tradition in Patagonia. Proof of this
lack of mining tradition is that the posts of the fence line that passes through
the central part of the outcropping high grade mineralization had been propped
up with blocks of rock containing obvious green copper oxides.
The only nearby sign of previous mining activity lies about 3km north west of
Navidad Hill where some barite veins were opened up by trenches presumably with
the idea of selling barite as an industrial mineral to the petroleum industry.
Sampling during the surface work showed these veins have very low values of
silver, copper and lead. Verbal reports suggest the trenching was done about 20
years ago.
Effectively the exploration history of Navidad Project began on December 10,
2002 with the discovery of outcropping mineralization by one of the Company's
geologists. Subsequent surface work comprised extensive geological mapping, rock
sampling, soil sampling and geophysics including magnetic, induced polarization
and gravity surveys.
REGIONAL AND LOCAL GEOLOGY
According to the preliminary map 4369-II at 1:250,000 scale of SEGEMAR, the
national geological service of Argentina, the Navidad Project mineralization is
mapped as part of the Upper Jurassic Canadon Asfalto Formation.
Province wide geological maps of Chubut by the same organization indicate that
the Canadon Asfalto is restricted to the central part of Chubut. The type
section of the formation is located along the Rio Chubut southwest of the
project area between Paso Sapo and Paso de Indios.
Much of the remainder of the Navidad Project is underlain by the Lonco Trapial
Formation of Lower Jurassic age and finally older, poorly age-defined basement
granitic rocks of Paleozoic age.
The Canadon Asfalto Formation comprises fine sandstones, limestones and
volcanics of continental and lacusterine environment. It appears significant
regional variations in composition and depositional environment are present
within the formation as currently defined. Both fossils and a K/Ar radiometric
age of 173 +/-4 Ma indicate a middle to upper Jurassic age.
The Lonco Trapial Formation, including Tacquetren Formation and other
equivalents, is more widely distributed in Chubut excluding the Andean portion.
The formation is volcanic dominant and appears to be the first phase of infill
of local grabens in the developing San Jorge Basin. Again, significant regional
variability in composition and depositional facies is indicated, with
compositions ranging from felsic to mafic.
Apparently one of the controlling features of the San Jorge Basin is the
long-lived, major structure known as the Gastre Fault. This fault is a wide,
northwest-trending zone of fracturing that appears to have controlled deposition
of units and then dismembered them from the Jurassic through the present.
Faulting related to the Gastre Fault is present in the Navidad Project area, but
the most striking structural elements in the area are a series of northwest
trending folds.
31
DIAMOND DRILLING PROGRAM
Connors Argentina S. A. ("Connors") of Mendoza Argentina commenced drilling on
November 26, 2003 and finished drilling on March 10, 2004, including a 29 day
break during the Christmas/New Years holidays. During the program 8,853.58m were
drilled in 53 holes for an average of 118m per day including moves and
breakdowns and excepting only the holiday break noted above.
All but one of the holes recovered HQ diameter (61mm) core. The exception was
NV03-04 which was cored to 244.20m with HQ and then recovered NQ core to the end
of the hole at 284.98m. The drill supplied was containerized and mounted on a
tracked undercarriage capable of moving itself. Water for drilling was brought
to the drilling sites by a water truck of 9,000 liters that was subcontracted by
Connors. The water was trucked from several local sources under agreement with
local surface land owners.
Down hole surveys of the holes were done on all but one hole using a Tropari
instrument. This instrument is a magnetic compass and inclinometer with a timing
mechanism that blocks the instrument once it has stabilized in the hole. It is
then retrieved and read by the geologist. In general the holes had little
deviation because of the relatively large diameter of the drill string and the
relatively short lengths of the holes.
SURVEYED COORDINATES AND ORIENTATIONS OF NAVIDAD DRILLHOLES
----------------------------------------------------------------------------------------------------------------
dip
E GK faja 2 N GK faja 2 elevation Az wrt down length
Hole ID local E local N (Campo (Campo m HAE GK CI from (m)
Inchauspe) Inchauspe) north vertical
----------------------------------------------------------------------------------------------------------------
NV03-01 50,000.6 10,005.0 2,514,819.5 5,304,458.8 1,219.5 210.0 -45.0 109.50
----------------------------------------------------------------------------------------------------------------
NV03-02 50,000.0 9,971.1 2,514,802.0 5,304,429.8 1,211.2 30.0 -45.0 154.50
----------------------------------------------------------------------------------------------------------------
NV03-03 51,160.5 9,660.1 2,515,651.6 5,303,580.3 1,178.4 210.0 -45.0 178.50
----------------------------------------------------------------------------------------------------------------
NV03-04 51,160.1 9,669.6 2,515,655.9 5,303,588.6 1,178.6 30.0 -45.0 284.98
----------------------------------------------------------------------------------------------------------------
NV03-05 51,160.1 9,802.1 2,515,722.2 5,303,703.3 1,176.6 30.0 -60.0 217.70
----------------------------------------------------------------------------------------------------------------
NV03-06 49,961.7 9,972.3 2,514,769.5 5,304,449.9 1,218.4 30.0 -45.0 136.20
----------------------------------------------------------------------------------------------------------------
NV03-07 49,919.7 9,965.9 2,514,729.9 5,304,465.4 1,222.2 30.0 -45.0 108.90
----------------------------------------------------------------------------------------------------------------
NV03-08 49,959.8 10,016.3 2,514,789.8 5,304,489.0 1,226.4 210.0 -45.0 146.00
----------------------------------------------------------------------------------------------------------------
NV03-09 49,919.9 10,027.4 2,514,760.8 5,304,518.6 1,231.4 210.0 -45.0 106.10
----------------------------------------------------------------------------------------------------------------
NV03-10 49,961.9 9,953.4 2,514,760.2 5,304,433.5 1,215.1 30.0 -45.0 150.70
----------------------------------------------------------------------------------------------------------------
NV03-11 49,625.2 10,040.0 2,514,511.9 5,304,676.8 1,209.2 120.0 -45.0 133.20
----------------------------------------------------------------------------------------------------------------
NV04-12 51,160.6 9,577.9 2,515,610.5 5,303,509.0 1,155.4 30.0 -65.0 220.00
----------------------------------------------------------------------------------------------------------------
NV04-13 50,876.5 10,015.0 2,515,583.1 5,304,029.5 1,179.4 30.0 -45.0 142.70
----------------------------------------------------------------------------------------------------------------
NV04-14 50,997.6 9,911.7 2,515,636.3 5,303,879.6 1,178.1 210.0 -70.0 158.00
----------------------------------------------------------------------------------------------------------------
NV04-15 51,159.8 9,910.5 2,515,776.1 5,303,797.4 1,167.0 30.0 -60.0 139.55
----------------------------------------------------------------------------------------------------------------
NV04-16 51,161.0 9,451.4 2,515,547.6 5,303,399.2 1,138.2 30.0 -55.0 250.50
----------------------------------------------------------------------------------------------------------------
NV04-17 50,998.8 9,614.4 2,515,488.6 5,303,621.4 1,156.7 30.0 -85.0 164.20
----------------------------------------------------------------------------------------------------------------
NV04-18 51,001.3 9,364.5 2,515,365.9 5,303,403.8 1,137.0 30.0 -55.0 274.70
----------------------------------------------------------------------------------------------------------------
NV04-19 51,001.9 9,826.2 2,515,597.2 5,303,803.4 1,181.7 210.0 -80.0 188.10
----------------------------------------------------------------------------------------------------------------
NV04-20 50,801.6 9,897.6 2,515,459.5 5,303,965.3 1,163.0 210.0 -70.0 70.90
----------------------------------------------------------------------------------------------------------------
NV04-21 50,997.6 9,948.5 2,515,654.7 5,303,911.4 1,174.2 30.0 -45.0 198.10
----------------------------------------------------------------------------------------------------------------
NV04-22 50,998.5 9,977.9 2,515,670.2 5,303,936.4 1,171.9 210.0 -75.0 193.75
----------------------------------------------------------------------------------------------------------------
NV04-23 51,000.7 9,713.6 2,515,540.0 5,303,706.4 1,177.3 210.0 -85.0 191.10
----------------------------------------------------------------------------------------------------------------
NV04-24 50,804.7 10,023.1 2,515,524.9 5,304,072.4 1,173.8 30.0 -50.0 145.60
----------------------------------------------------------------------------------------------------------------
NV04-25 51,204.1 9,014.3 2,515,366.4 5,302,999.1 1,140.0 210.0 -45.0 199.80
----------------------------------------------------------------------------------------------------------------
NV04-26 50,802.1 9,728.9 2,515,375.6 5,303,818.9 1,153.5 32.0 -75.0 134.00
----------------------------------------------------------------------------------------------------------------
NV04-27 50,100.7 9,719.0 2,514,763.2 5,304,161.1 1,164.0 30.0 -45.0 181.50
----------------------------------------------------------------------------------------------------------------
32
----------------------------------------------------------------------------------------------------------------
dip
E GK faja 2 N GK faja 2 elevation Az wrt down length
Hole ID local E local N (Campo (Campo m HAE GK CI from (m)
Inchauspe) Inchauspe) north vertical
----------------------------------------------------------------------------------------------------------------
NV04-28 51,164.5 9,865.2 2,515,757.6 5,303,755.8 1,170.6 30.0 -60.0 158.00
----------------------------------------------------------------------------------------------------------------
NV04-29 51,299.1 9,847.6 2,515,865.4 5,303,673.3 1,157.6 210.0 -80.0 158.00
----------------------------------------------------------------------------------------------------------------
NV04-30 51,300.4 9,765.7 2,515,825.5 5,303,601.7 1,159.8 210.0 -80.0 209.00
----------------------------------------------------------------------------------------------------------------
NV04-31 51,160.7 9,666.8 2,515,655.1 5,303,585.9 1,178.5 30.0 -80.0 296.00
----------------------------------------------------------------------------------------------------------------
NV04-32 50,598.0 10,088.9 2,515,378.9 5,304,232.8 1,154.7 30.0 -45.0 154.50
----------------------------------------------------------------------------------------------------------------
NV04-33 50,598.4 10,016.4 2,515,343.0 5,304,169.8 1,154.8 210.0 -80.0 149.00
----------------------------------------------------------------------------------------------------------------
NV04-34 50,180.9 9,955.5 2,514,950.9 5,304,325.8 1,180.0 30.0 -45.0 228.20
----------------------------------------------------------------------------------------------------------------
NV04-35 51,199.5 9,251.1 2,515,480.9 5,303,206.5 1,134.2 30.0 -80.0 293.00
----------------------------------------------------------------------------------------------------------------
NV04-36 50,898.2 9,988.0 2,515,588.3 5,303,995.3 1,176.5 210.0 -80.0 77.00
----------------------------------------------------------------------------------------------------------------
NV04-37 50,899.9 9,914.7 2,515,553.2 5,303,931.0 1,173.8 210.0 -80.0 102.50
----------------------------------------------------------------------------------------------------------------
NV04-38 50,897.2 9,819.7 2,515,503.3 5,303,850.0 1,164.4 30.0 -80.0 107.00
----------------------------------------------------------------------------------------------------------------
NV04-39 50,400.2 9,982.9 2,515,154.5 5,304,239.9 1,157.1 210.0 -80.0 215.00
----------------------------------------------------------------------------------------------------------------
NV04-40 50,399.8 10,098.9 2,515,212.2 5,304,340.5 1,155.9 30.0 -45.0 127.20
----------------------------------------------------------------------------------------------------------------
NV04-41 51,080.8 9,943.4 2,515,724.2 5,303,865.4 1,174.9 30.0 -45.0 145.20
----------------------------------------------------------------------------------------------------------------
NV04-42 51,080.4 9,938.8 2,515,721.5 5,303,861.6 1,174.5 210.0 -80.0 187.90
----------------------------------------------------------------------------------------------------------------
NV04-43 51,080.4 9,853.2 2,515,678.7 5,303,787.4 1,180.3 210.0 -75.0 230.60
----------------------------------------------------------------------------------------------------------------
NV04-44 51,079.3 9,750.3 2,515,626.3 5,303,698.9 1,188.1 210.0 -75.0 232.90
----------------------------------------------------------------------------------------------------------------
NV04-45 51,230.9 9,861.1 2,515,813.0 5,303,719.1 1,164.0 210.0 -80.0 167.00
----------------------------------------------------------------------------------------------------------------
NV04-46 51,232.3 9,760.2 2,515,763.8 5,303,630.9 1,168.6 210.0 -80.0 239.00
----------------------------------------------------------------------------------------------------------------
NV04-47 51,236.7 9,681.0 2,515,728.1 5,303,560.2 1,176.6 30.0 -75.0 236.00
----------------------------------------------------------------------------------------------------------------
NV04-48 51,302.3 9,980.9 2,515,934.8 5,303,787.1 1,147.2 30.0 -45.0 67.50
----------------------------------------------------------------------------------------------------------------
NV04-49 51,301.0 9,915.2 2,515,900.8 5,303,730.8 1,150.5 30.0 -80.0 82.80
----------------------------------------------------------------------------------------------------------------
NV04-50 51,159.9 9,954.9 2,515,798.5 5,303,835.8 1,165.7 30.0 -80.0 113.00
----------------------------------------------------------------------------------------------------------------
NV04-51 51,159.1 9,971.9 2,515,806.2 5,303,850.9 1,165.5 30.0 -45.0 100.50
----------------------------------------------------------------------------------------------------------------
NV04-52 50,896.0 9,948.4 2,515,566.7 5,303,962.1 1,173.4 30.0 -45.0 100.50
----------------------------------------------------------------------------------------------------------------
NV04-53 50,796.8 9,954.7 2,515,483.9 5,304,017.1 1,169.2 30.0 -50.0 97.50
----------------------------------------------------------------------------------------------------------------
Total m 8853.58
----------------------------------------------------------------------------------------------------------------
All core designated for sampling was cut with an electric-powered table saw with
a diamond tipped blade. The core was sawn in half and one half was sampled and
the remainder was stored in the core box. In a few areas the core was broken or
rubbley and could not be sawn. In such cases the recovered material was sampled
by spoon and if necessary was split with a knife or chisel. Rarely, due to hard
core or problems with the saw, core was split with a mechanical splitter.
Alex Stewart (Assayers) Argentina S.A. ("Alex Stewart") of Mendoza, Argentina
was the primary lab for all drill core samples. All samples are weighed on
receipt in the sample bag prior to drying and this weight is reported with the
analytical data. Sample preparation comprised drying at 90(degree) C for up to
40 hours, followed by crushing of the entire sample to #10 mesh. Next the sample
was split down to 1.5 kg with a riffle splitter for pulverization to 85% passing
#200 mesh. Between each sample the crusher and the pulverizor were cleaned with
barren quartz.
All drill core samples were submitted for 30 gram fire-assay for silver with
gravimetric finish and also a fire assay for Au (with AAS finish). The lab is
required to report all sample weights used in fire assays.
In addition, all samples were analyzed by Alex Stewart's ICP-ORE technique which
uses a strong multi-acid attack on a sample size of 0.2 grams. The method has
been optimized to handle a wide range or concentrations of base and other
metals, but with some sacrifice in the higher than normal detection limits for
typical ICP analyses. Elements included in the package are Ag, As, Bi, Ca, Cd,
Co, Cu, Fe, Hg, Mg, Mn, Mo, Ni, P, Pb, S, Sb, Tl and Zn. Extensive
33
testing was undertaken by the Company on the ICP-ORE technique that confirmed
its suitability for the Navidad mineralization. That testing included a
precision test on 30 samples as well as a blind duplicate pulp test on 32
samples both with satisfactory results. Furthermore, ICP-ORE was used in
characterization of the in-house standards developed (see below) and was found
to correlate well with methods used by other labs. In fact all of the ICP-ORE
results for Cu and Pb lay within the two standard deviation limit and hence were
used in the definition of the accepted values for the standards.
QUALITY CONTROL
A comprehensive quality control and quality assurance program for analyses of
drill core was put in place well prior to the start of the drilling campaign.
This program comprises controls including blind certified standards, blanks and
core duplicates and a secondary laboratory. The primary laboratory for all
drilling samples was Alex Stewart and the secondary lab was ALS-Chemex La Serena
and/or Vancouver. In each set of 42 samples sent to the primary lab blind
high-grade, low-grade, blank and duplicate core sample were included in
randomized positions.
In addition to the above, a systematic program of reanalysis of pulps by a
second independent lab has been used throughout the program. Randomly
pre-selected samples are sent from the primary laboratory and they include
blanks and standards. Two samples form each set of 42 samples, or 4.8% percent
of the pulps are therefore being checked. At the time of this writing results
were available for 144 duplicates.
The purpose of this work is to confirm the reproducibility of the analytical
method at a second lab.
Results of the control by the secondary lab and through the inclusion of blanks,
standards, and duplicates confirm the high quality of the data generated in the
drilling program.
CHAIN OF CUSTODY
Core is delivered to the core shack by the drill contractor or picked-up by the
Company's employees and stored in the core shack in Gastre. The core shack is
kept under lock and key when the Company's employees are not present.
Core cutting is supervised by the geologist logging core who ensures that the
sequence of blanks, duplicates and standards is followed. Cut core is placed
into clean new transparent plastic sample bags into which two pre-printed custom
sample tickets are placed. The lab uses one of these for the pulp bag and one
for the reject bag. A third sample ticket is stapled into the core tray along
with the meterage represented by the sample. The fourth and final sample ticket
remains in the sample tag book with the hole numbers and meterages filled in.
Once samples have been cut and bagged the bags are double sealed with two
zip-strips. The first ordinary zip strip will close the bag around the neck of
the bag under as much tension as it will support. A second, custom printed
zip-strip seal with the Company's name and the matching sample number to the
sample ticket inside will be affixed to the bag above the zip-strip under
tension. The numbered seal will pierce the bag above the neck of the bag where
it is sealed by the first zip strip so as to make it impossible to slip the
ordinary zip-strip over the neck of the back. The lab is required to notify the
Company if the samples do not arrive with the Company seals intact. All seals
are being stored by the assay lab to present as proof of use.
Sealed sample bags are placed in rice sacks in sequence for shipment to the lab.
A record of all samples shipped is kept by the geologist sending the sample
shipment. Samples are transported by a company contracted to transport samples
directly from the core shack in Gastre to the assay laboratory in Mendoza (some
1,500km). They are not allowed to carry other cargo or make other stops.
GENERAL GEOLOGICAL UNDERSTANDING
Drilling of the Navidad Hill, Galena Hill and intervening areas has greatly
increased the geological understanding of the main geological units and their
relationships. Most of the new information was gained by drilling at Galena Hill
as that is where the drilling was concentrated, but advances were made at
Navidad and Esperanza as well.
34
Stratigraphy at Galena Hill is comprised of four primary sedimentary and
volcanic units, from lowest to uppermost these are: a "lower" cycle comprised of
epiclastic, volcaniclastic and volcanic rocks which are unmineralized and
unaltered that dips toward grid south. This is overlain by a volcanic cycle
comprising latitic volcanic rocks, generally with quartz eyes, that is altered
and mineralized with silver and lead. The latite sequence comprises massive
flows, amygdaloidal flows, flow breccias and volcaniclastic breccias. The
latites are in turn overlain by pelitic mudstones and limestones of which the
lowermost portion may be highly mineralized with silver and lead. The latites
form a steadily thickening wedge towards grid south. It is unclear whether the
geometry of the uppermost sediments indicates tectonic folding or perhaps just
local slumping.
The contact between the lower volcanic cycle and the latite cycle is of great
interest due to the dramatic change between unaltered and unmineralized rocks
below and high mineralized rocks above. The upper part of the lower cycle is
generally reddish as if affected by a lateritic weathering. On some sections
such as 51,160E the contact is quite planar whereas on others it is quite
irregular, possible due to faulting or paleotopography. In some cases a dark
grey, soft material with an unusual texture and structure of partings and slip
surfaces is present below the latites on the contact. This could be interpreted
as fault gouge or a paleosol.
The latite sequence dramatically thickness towards grid south (southwest
relative to true north). It is absent to the north and thickens to over 220m
within some 500m. While the capping sedimentary sequence varies in thickness
from zero to about 40m in thick on top of Galena Hill in hole NV04-35 it attains
a thickness of about 140m on section 51,200E but 200m further grid south than
NV04-16 shown in figure 23. In hole NV04-35 the latite sequence is at least 150m
thick, but the base was not intersected.
GALENA HILL DRILLING RESULTS
Results of the initial drilling at Galena Hill have been very positive. The
amount and continuity and grade of the mineralization in the subsurface exceeded
even the expectations that existed based on the surface work.
The geometry of the mineralization, a gently-dipping, exposed to
shallowly-buried zone of significant thickness suggests potential for bulk
mining. Hence in determining how to select the mineralized intercepts for
tabulation and data manipulation is was decided to use a minimum of about 50 g/t
silver irrespective of the copper, lead and zinc grades. The minimum grade was
not strictly applied to the selection of the intercepts as samples with
sub-fifty gram per tonne silver values were permitted for several samples in
some instances. In some cases where there were long intercepts of mineralization
somewhat below 50 g/t silver, but where there were significant lead values these
intercepts were also listed below. At this time definitive "cut-off" grade can
not be established since metallurgical and engineering parameters have not been
determined. The following intercepts reflect the potential of Galena Hill in a
bulk mining scenario. Some higher grade intercept are also shown. These higher
grades tend to occur at or near the upper contact of the latite sequence with
the overlying mudstones, or even in the lower part of the mudstones.
In total, 35 drill holes have been drilled into the Galena Hill deposit. These
holes outline a silver-lead deposit ranging in vertical thickness from about 10
to 115 metres with horizontal dimensions of approximately 400 by 500 metres at
generally greater than 50 g/t silver. The top of the mineralized body is exposed
at surface in some areas and in other areas is covered by as much as 40 metres
of barren sedimentary cap rock. The shape and aspect of the mineralized body
suggests that it could be bulk mineable. Grade distributions show a zone of
high-grade silver values with lesser copper and relatively low lead values along
the northeastern boundary of the deposit; this area is interpreted to be the
source or feeder zone for mineralizing fluids which created the deposit. Moving
to the southwest from this feeder zone, lead:silver ratios increase and are
interpreted as more distal portions of the deposit.
35
MINERALIZED INTERCEPTS FROM DRILLHOLES AT THE GALENA HILL DEPOSIT
---------------------------------------------------------------------------------------------------------------
composite vertical
DDH from to length thickness g/t % % %
- - - - Silver Copper Lead Zinc
inclination metres metres metres metres LWA LWA LWA LWA
===============================================================================================================
NV03-03 -45 3.00 178.50 175.50 124.61 26.2 0.00 1.35 0.04
---------------------------------------------------------------------------------------------------------------
including 3.00 128.30 125.30 88.96 33.0 0.00 1.68 0.05
---------------------------------------------------------------------------------------------------------------
including 72.50 107.50 35.00 24.85 49.9 0.01 3.47 0.06
---------------------------------------------------------------------------------------------------------------
including 86.20 95.45 9.25 6.57 76.8 0.01 5.43 0.06
===============================================================================================================
NV03-04 -45 2.80 266.70 263.90 187.37 74.1 0.00 2.04 0.08
---------------------------------------------------------------------------------------------------------------
including 2.80 203.00 200.20 142.14 92.3 0.00 2.49 0.11
---------------------------------------------------------------------------------------------------------------
including 39.60 176.45 136.85 97.16 117.3 0.00 2.99 0.14
---------------------------------------------------------------------------------------------------------------
including 39.60 121.25 81.65 57.97 141.5 0.00 3.15 0.14
---------------------------------------------------------------------------------------------------------------
including 39.60 94.70 55.10 39.12 164.3 0.00 2.97 0.10
---------------------------------------------------------------------------------------------------------------
including 65.00 94.70 29.70 21.09 189.5 0.00 3.06 0.10
---------------------------------------------------------------------------------------------------------------
including 65.00 83.50 18.50 13.14 241.2 0.00 3.40 0.10
===============================================================================================================
NV03-05 -60 43.30 126.25 82.95 72.17 229.2 0.01 4.24 0.20
---------------------------------------------------------------------------------------------------------------
including 46.70 113.25 66.55 57.90 271.8 0.01 4.82 0.20
---------------------------------------------------------------------------------------------------------------
including 46.70 55.90 9.20 8.00 578.9 0.04 6.82 0.36
---------------------------------------------------------------------------------------------------------------
including 89.00 107.25 18.25 15.88 503.0 0.01 11.19 0.36
===============================================================================================================
NV04-12 -65 18.80 27.80 9.00 8.19 41.6 0.00 8.01 2.56
---------------------------------------------------------------------------------------------------------------
including 27.80 35.45 7.65 6.96 70.8 0.00 9.60 0.54
---------------------------------------------------------------------------------------------------------------
combined 18.80 35.45 16.65 15.15 55.0 0.00 8.74 1.64
---------------------------------------------------------------------------------------------------------------
within 18.80 60.60 41.80 38.04 35.5 0.00 4.46 0.68
===============================================================================================================
NV04-13 -45 20.00 64.70 44.70 31.74 223.4 0.16 0.56 0.09
===============================================================================================================
NV04-14 -70 27.70 142.80 115.10 109.35 453.6 0.08 5.26 0.50
---------------------------------------------------------------------------------------------------------------
including 27.70 75.10 47.40 45.03 775.6 0.17 6.42 0.92
---------------------------------------------------------------------------------------------------------------
including 32.70 50.70 18.00 17.10 1421.2 0.42 5.24 1.69
===============================================================================================================
NV04-15 -60 46.55 115.65 69.10 60.12 113.5 0.02 1.46 0.13
---------------------------------------------------------------------------------------------------------------
including 47.05 55.55 8.50 7.40 461.7 0.08 6.54 0.49
===============================================================================================================
NV04-16 -55 63.45 72.45 9.00 7.56 34.2 0.00 2.47 0.07
===============================================================================================================
NV04-17 -85 21.20 40.20 19.00 18.81 96.7 0.01 7.79 0.70
---------------------------------------------------------------------------------------------------------------
including 30.20 40.20 10.00 9.90 161.6 0.02 12.98 0.42
===============================================================================================================
NV04-18 -55 232.0 244.00 12.00 9.96 70.1 0.06 0.40 0.01
===============================================================================================================
NV04-19 -80 24.00 90.50 66.50 65.17 100.3 0.00 2.74 0.14
---------------------------------------------------------------------------------------------------------------
including 25.10 37.10 12.00 11.76 165.2 0.02 3.20 0.34
---------------------------------------------------------------------------------------------------------------
including 49.35 57.75 8.40 8.23 177.4 0.02 4.22 0.14
---------------------------------------------------------------------------------------------------------------
including 74.00 81.55 7.55 7.40 174.0 0.00 4.69 0.11
===============================================================================================================
NV04-20 -70 35.50 40.60 5.10 4.79 54.8 0.02 1.82 0.03
===============================================================================================================
NV04-21 -45 42.45 126.00 83.55 56.81 321.7 0.23 0.47 0.21
---------------------------------------------------------------------------------------------------------------
36
---------------------------------------------------------------------------------------------------------------
composite vertical
DDH from to length thickness g/t % % %
- - - - Silver Copper Lead Zinc
inclination metres metres metres metres LWA LWA LWA LWA
===============================================================================================================
including 49.95 70.50 20.55 13.97 703.0 0.47 0.54 0.40
===============================================================================================================
NV04-22 -75 38.65 101.65 63.00 61.11 418.4 0.15 1.82 0.32
---------------------------------------------------------------------------------------------------------------
including 42.50 55.60 13.10 12.71 923.3 0.26 1.70 0.56
===============================================================================================================
NV04-23 -85 48.40 71.20 22.80 22.57 26.3 0.00 0.47 0.02
===============================================================================================================
NV04-24 -50 3.00 5.65 2.65 1.88 917.9 0.28 1.13 0.18
===============================================================================================================
NV04-26 -75 none 0.00
===============================================================================================================
NV04-28 -60 45.70 134.75 89.05 77.47 120.4 0.01 1.77 0.32
---------------------------------------------------------------------------------------------------------------
including 45.70 67.75 22.05 19.18 23.0 -0.01 0.65 0.90
---------------------------------------------------------------------------------------------------------------
including 67.75 134.75 67.00 58.29 152.5 0.01 2.14 0.12
---------------------------------------------------------------------------------------------------------------
including 68.10 71.55 3.45 3.00 760.9 0.05 10.96 0.60
===============================================================================================================
NV04-29 -80 28.50 38.65 10.15 9.95 71.8 0.00 1.84 0.05
===============================================================================================================
NV04-30 -80 44.80 52.70 7.90 7.74 47.8 0.00 1.11 0.04
===============================================================================================================
NV04-31 -80 3.05 23.85 20.80 20.38 51.7 0.00 1.25 0.05
---------------------------------------------------------------------------------------------------------------
and 47.35 78.45 31.10 30.48 71.0 0.00 2.62 0.31
---------------------------------------------------------------------------------------------------------------
including 73.85 75.95 2.10 2.06 618.6 -0.01 18.82 3.58
===============================================================================================================
NV04-36 -80 8.00 57.90 49.90 48.90 179.1 0.08 1.21 0.17
---------------------------------------------------------------------------------------------------------------
including 35.30 49.30 14.00 13.72 209.5 0.10 0.97 0.15
===============================================================================================================
NV04-37 -80 12.80 89.10 76.30 74.77 139.4 0.04 1.28 0.12
---------------------------------------------------------------------------------------------------------------
including 13.80 17.70 3.90 3.82 597.4 0.02 7.23 0.58
===============================================================================================================
NV04-38 -80 20.70 61.20 40.50 39.69 104.5 0.04 0.40 0.10
---------------------------------------------------------------------------------------------------------------
including 34.10 52.55 18.45 18.08 166.8 0.07 0.15 0.13
===============================================================================================================
NV04-41 -45 58.10 129.00 70.90 50.34 78.5 0.08 0.33 0.20
===============================================================================================================
NV04-42 -80 48.35 161.55 113.20 110.94 150.8 0.03 1.98 0.11
---------------------------------------------------------------------------------------------------------------
including 67.90 121.90 54.00 52.92 239.1 0.04 3.04 0.16
---------------------------------------------------------------------------------------------------------------
including 148.90 161.55 12.65 12.40 121.6 0.04 1.74 0.11
===============================================================================================================
NV04-43 -75 44.20 127.25 83.05 81.39 153.2 0.01 5.48 0.90
---------------------------------------------------------------------------------------------------------------
including 44.20 89.00 44.80 43.90 216.9 0.01 6.81 1.06
===============================================================================================================
NV04-44 -75 13.35 103.90 90.55 88.74 177.8 0.01 5.33 0.22
---------------------------------------------------------------------------------------------------------------
including 13.35 28.90 15.55 15.24 445.3 0.02 8.77 0.14
===============================================================================================================
NV04-45 -80 43.00 69.85 26.85 26.31 355.4 0.00 5.34 0.33
---------------------------------------------------------------------------------------------------------------
including 43.00 51.05 8.05 7.89 958.4 0.01 15.31 0.87
===============================================================================================================
NV04-46 -80 30.40 167.00 136.60 133.87 30.9 0.00 1.06 0.05
---------------------------------------------------------------------------------------------------------------
including 30.40 65.00 34.60 33.91 61.8 0.00 1.51 0.06
===============================================================================================================
NV04-47 -75 12.90 131.00 118.10 113.38 36.6 0.00 2.06 0.13
---------------------------------------------------------------------------------------------------------------
including 84.50 116.00 31.50 30.24 59.5 0.00 4.31 0.25
===============================================================================================================
NV04-48 -45 16.50 32.85 16.35 11.61 30.6 0.00 0.53 0.18
---------------------------------------------------------------------------------------------------------------
37
---------------------------------------------------------------------------------------------------------------
composite vertical
DDH from to length thickness g/t % % %
- - - - Silver Copper Lead Zinc
inclination metres metres metres metres LWA LWA LWA LWA
===============================================================================================================
including 26.70 31.80 5.10 3.62 49.7 0.01 0.54 0.25
===============================================================================================================
NV04-49 -80 63.45 82.80 19.35 18.96 31.6 0.00 0.38 0.05
===============================================================================================================
NV04-50 -80 20.80 101.00 80.20 78.60 254.7 0.14 0.93 0.19
---------------------------------------------------------------------------------------------------------------
including 20.80 65.00 44.20 43.32 391.0 0.23 0.44 0.26
===============================================================================================================
NV04-51 -45 64.50 81.85 17.35 12.32 185.9 0.05 2.37 0.46
===============================================================================================================
NV04-52 -45 16.50 62.55 46.05 32.70 270.6 0.10 0.62 0.21
===============================================================================================================
NV04-53 -50 15.70 30.80 15.10 10.72 52.0 0.04 0.72 0.85
===============================================================================================================
Notes:
1. All length weighted average (LWA) results are "uncut"
2. Vertical thicknesses are calculated considering the dip of the drill holes
and assuming flat lying body.
NAVIDAD HILL DRILLING RESULTS
Much less drilling has been done at Navidad Hill than at Galena Hill. The
results of the eight holes drilled to date are listed below: all have
intersections of silver mineralization. Seven of these holes were drilled on
three sections separated at 40m intervals while the eighth is located some 300m
to the northwest. Holes at Navidad Hill were drilled at close-spacing and as
"scissors" crossing each other from opposite sides of the mineralized zone to
determine the dip and continuity of the narrow high grade structures that hosted
the mineralization at surface.
While these holes did confirm that the dip of the structures is near vertical
two somewhat unexpected aspects were encountered: firstly, significant amounts
of clay alteration (argillic) are present; secondly, in between the known
structures there are many areas with minor veins and stockwork veinlets. High
silver grades were intersected in some of the structures in the drill holes (see
table below); however, in general the grades in the drill holes are
significantly less than the average grades of the structures on surface which
were often in the range of 5,000 to 20,000 grams per tonne silver. This
combination of the features suggests that Navidad Hill should be considered a
bulk target rather than as individual high grade vein targets. Like Galena Hill,
intercepts have been calculated at a 50 g/t silver minimum grade again somewhat
loosely applied at this early stage. All of the seven holes in the main area
drilled have significant intercepts ranging from 48.0 to 143.5 m in core length
with 97.8 to 246.9 g/t silver with the best individual intercept being NV03-07
83.65m of 246.9 g/t silver with minor copper and lead values. Assuming vertical
dips the true width of the mineralized intercept ranges from about 34 to 101m in
width. In most cases holes were started within the mineralized zone and the full
true width was not crossed by single holes and is only seen when considering the
scissor pair. Despite the high base metal grades of the individual structures in
the detailed surface sampling and in the core samples the grades of copper and
lead over the width of the bulk zone are generally less than 0.3%. This marks a
significant difference from the central part of the Galena Hill deposit.
Mineralization in the main group of Navidad Hill drill holes is hosted by
massive latite to latite breccias that generally appear to be massive flows or
flow domes. No internal stratigraphy has been recognized to date. None of the
holes penetrated the base of the latite sequence nor cut any obvious sedimentary
or volcaniclastic units with it. Mineralized structures appear to be of two main
types; firstly, sharp-walled structures filled with brecciated and re-brecciated
clasts of gangue and mineral and secondly, veinlets and stockwork of gangue and
mineral. Gangue minerals include: calcite which ranges from massive crystalline
to finely banded; quartz as chalcedonic to crystalline silica; and crystalline
barite. "Ore" minerals visible by eye include minor amounts of sulphides
included pyrite, a grey sulphide (tetrahedrite or chalcocite), minor galena,
rare native copper, green copper oxides (probably mainly malachite) and black
copper oxides (probably mainly neotocite or copper wad). No native silver was
observed by eye or hand lens. No clear division between oxide mineralization and
sulphide mineralization can be made with depth.
38
Minor amounts of sulphides are present at surface and are also present a depth.
Copper oxides are present at surface and to the bottom of the zone tested to
date (about 80m below surface).
MINERALIZED INTERCEPTS FROM THE NAVIDAD HILL DRILLING
-----------------------------------------------------------------------------------------------------------------------
composite
DDH from to length true width g/t % % %
- - - - Silver Copper Lead Zinc
location inclination metres metres metres metres LWA LWA LWA LWA
=======================================================================================================================
NV03-01 Navidad Hill -45 3.05 61.45 58.40 41.29 111.1 0.22 0.06 0.07
-----------------------------------------------------------------------------------------------------------------------
including 10.10 31.35 21.25 15.03 233.3 0.35 0.09 0.11
-----------------------------------------------------------------------------------------------------------------------
including 10.10 17.50 7.40 5.23 535.6 0.81 0.07 0.14
-----------------------------------------------------------------------------------------------------------------------
including 15.70 16.50 0.80 0.57 2677.6 3.07 0.30 0.24
=======================================================================================================================
NV03-02 Navidad Hill -45 2.50 50.50 48.00 33.94 97.8 0.15 0.06 0.05
-----------------------------------------------------------------------------------------------------------------------
including 6.45 6.70 0.25 0.18 858.0 8.07 0.26 0.02
-----------------------------------------------------------------------------------------------------------------------
including 17.60 25.00 7.40 5.23 227.1 0.25 0.16 0.09
-----------------------------------------------------------------------------------------------------------------------
including 40.40 41.45 1.05 0.74 1320.3 0.82 0.28 0.14
=======================================================================================================================
NV03-06 Navidad Hill -45 3.00 63.20 60.20 42.57 161.6 0.26 0.10 0.06
-----------------------------------------------------------------------------------------------------------------------
including 23.30 28.80 5.50 3.89 424.7 0.74 0.20 0.10
=======================================================================================================================
NV03-07 Navidad Hill -45 3.00 86.65 83.65 59.15 246.9 0.32 0.27 0.05
-----------------------------------------------------------------------------------------------------------------------
including 3.00 40.75 37.75 26.69 474.9 0.54 0.35 0.07
-----------------------------------------------------------------------------------------------------------------------
including 3.00 6.90 3.90 2.76 1997.9 0.92 0.32 0.07
-----------------------------------------------------------------------------------------------------------------------
including 30.85 33.25 2.40 1.70 2129.6 3.34 0.60 0.09
=======================================================================================================================
NV03-08 Navidad Hill -45 2.50 146.00 143.50 101.47 146.0 0.20 0.19 0.04
-----------------------------------------------------------------------------------------------------------------------
including 2.50 71.10 68.60 48.51 274.5 0.35 0.40 0.06
-----------------------------------------------------------------------------------------------------------------------
including 26.10 40.15 14.05 9.93 1084.2 1.25 1.69 0.11
-----------------------------------------------------------------------------------------------------------------------
including 26.10 28.40 2.30 1.63 2660.7 1.64 2.63 0.16
-----------------------------------------------------------------------------------------------------------------------
including 35.45 37.20 1.75 1.24 3042.6 4.31 0.86 0.11
=======================================================================================================================
NV03-09 Navidad Hill -45 2.50 84.30 81.80 57.84 125.4 0.12 0.10 0.04
-----------------------------------------------------------------------------------------------------------------------
including 21.00 21.70 0.70 0.49 5067.5 0.36 1.41 0.04
-----------------------------------------------------------------------------------------------------------------------
39
-----------------------------------------------------------------------------------------------------------------------
composite
DDH from to length true width g/t % % %
- - - - Silver Copper Lead Zinc
location inclination metres metres metres metres LWA LWA LWA LWA
=======================================================================================================================
including 65.25 66.20 0.95 0.67 1440.7 1.62 0.86 0.07
=======================================================================================================================
NV03-10 Navidad Hill -45 3.50 78.50 75.00 53.03 111.1 0.23 0.05 0.04
-----------------------------------------------------------------------------------------------------------------------
including 3.50 9.40 5.90 4.17 669.7 1.25 0.09 0.06
=======================================================================================================================
NV03-11 Navidad -45 1.52 12.10 10.58 n/a 98.3 0.53 0.02 0.12
Hill West
=======================================================================================================================
Notes
1. All length weighted average (LWA) results are "uncut"
2. True widths are calculated assuming -45 degree drill holes and vertical
structures.
OTHER AREAS DRILLING RESULTS
Eight drill holes were collared in areas outside of Galena or Navidad Hills.
These holes were drilled to test stratigraphy or suspected mineralization in
additional zones.
MINERALIZED INTERCEPTS FROM DRILLING OTHER TARGETS
--------------------------------------------------------------------------------------------------------------------------
composite true
DDH from to length width g/t % % %
- - - - Silver Copper Lead Zinc
location inclination metres metres metres metres LWA LWA LWA LWA
==========================================================================================================================
==========================================================================================================================
NV04-32 Connector -45 46.50 96.05 49.55 35.04 77.9 0.04 0.14 0.03
Zone
==========================================================================================================================
NV04-33 Connector -80 none
Zone
==========================================================================================================================
NV04-34 Connector -45 10.50 29.20 18.70 13.22 75.1 0.01 0.70 0.05
Zone
==========================================================================================================================
NV04-39 Connector -80 none
Zone
==========================================================================================================================
NV04-40 Connector -45 43.20 91.20 48.00 33.94 108.5 0.04 0.22 0.16
Zone
--------------------------------------------------------------------------------------------------------------------------
including 67.20 88.20 21.00 14.85 160.4 0.08 0.19 0.09
==========================================================================================================================
NV04-25 Esperanza -45 162.70 170.65 7.95 5.62 303.4 0.03 0.31 0.05
Trend
==========================================================================================================================
NV04-35 recce -80 none
==========================================================================================================================
NV04-27 recce -45 7.00 7.73 0.73 unknown 61.5 0.01 0.56 2.25
--------------------------------------------------------------------------------------------------------------------------
and 66.90 68.10 1.20 unknown 377.2 0.01 0.10 0.05
==========================================================================================================================
Notes
1. All length weighted average (LWA) results are "uncut".
2. True widths are calculated assuming -45 degree drill holes and vertical
structures.
40
PLANNED FUTURE WORK
Planned and ongoing work at the Navidad Project includes a resource estimate at
Galena Hill, metallurgical work on representative samples from Galena Hill,
additional drilling on outlying zones, additional surface work on outlying
zones, and additional geophysical work.
An additional 8,000 to 10,000 metres of drilling is planned for the Navidad
Project. This work will concentrate on zones peripheral to the Galena Hill
deposit such as: Barite Hill, Navidad Hill, the Esperanza Trend, and Calcite
Hill. It is expected that work will be ongoing throughout May, June and July.
Additional surface work will include: soil sampling, geological mapping, rock
chip sampling and pole-dipole I.P. geophysics. This work will continue as far
into the southern winter as is practical.
A preliminary budget of approximately $2,100,000 has been estimated for the work
recommended in the next stage of exploration on the Navidad Project. The budget
is based on experience from exploration already carried out on the Navidad
Project.
NAVIDAD AREA PROPERTIES (OTHER THAN THE NAVIDAD PROJECT)
The following properties are 100% owned by the Company unless stated otherwise.
TAQUETREN PROPERTY
The Taquetren claim (File Number: 14015/03; 10,000 hectares) is located directly
east of the Rio Chubut, approximately 70 kilometres to the southwest of Navidad.
The area is mapped as being underlain by Jurassic Canadon Asphalto and Lonco
Trapial Formation volcanic and sedimentary rocks similar to those that host the
Navidad discovery. Very preliminary prospecting and stream sediment sampling has
shown anomalous values of antimony; no source has yet been located for this
anomaly. Regional mapping and terrain analysis shows an important northwest
trending structure to bisect the Taquetren property; this orientation is similar
to structures that control mineralization at the Navidad Project.
REGALO PROPERTY
The Regalo property is located 25 kilometres north-northwest of Cerro Condor and
90 kilometres south-southwest of the Navidad project. The Regalo claim (File
Number: 14016/03; 10,000 hectares) covers ground mapped as prospective Jurassic
Canadon Asphalto and Lonco Trapial Formation rocks and includes several
regionally-important northwest trending structures. Preliminary stream-sediment
sampling has returned highly anomalous gold values. Gold values from nine stream
sediment samples, along 6 kilometres of one drainage (and adjoining
tributaries), range in value from 0.134 to 0.831 ppm. The Company has entered
into an option agreement dated August 12, 2003 with Consolidated Pacific Bay
Minerals Ltd. ("Consolidated Pacific Bay") whereby Consolidated Pacific Bay can
acquire up to a 70% interest in the Regalo mineral claim through the issuance of
900,000 shares of Consolidated Pacific Bay to the Company, and work expenditures
totalling US$625,000 over three years. Consolidated Pacific Bay must issue all
900,000 shares (which have been issued, with a deemed value of $180,000) and
expend US$50,000 on the property by August 12, 2004, in order to earn a 51%
interest in the claims. A further 19% interest in the claims can be earned by
Pacific Bay if it completes a feasibility study and finances the property to
production. A second cateo (Regalo II) has been staked to the north of the
primary Regalo claim, adding another 10,000 hectares to the property subject to
the Company's agreement with Consolidated Pacific Bay.
NOEL PROPERTY
The Noel claim (File Number: 14036/03; 10,000 hectares) is adjacent to the
Regalo and Trucha claims and also contains a significant, multi-sample,
gold-in-stream sediment anomaly. Government maps show the claim to be underlain
primarily by Canadon Asphalto Formation sedimentary and volcanic rocks, with
overlying Cretaceous sandstone along the eastern side of the claim. Five stream
sediment samples taken from two drainages over approximately 5 kilometres range
in value from 0.114 to 1.570 ppm gold. The apparent source area for these
41
extremely anomalous values is has not been prospected to date and is considered
a high-priority target for follow-up work.
TRUCHA PROPERTY
The Trucha claim (File Number: 14014/03; 10,000 hectares) is contiguous with the
Regalo and Noel claims and also includes a stream sediment sample highly
anomalous in gold (single sample, 0.556 ppm Au). Regional mapping shows the
claim to be underlain by prospective Jurassic Canadon Asphalto and Lonco Trapial
Formation rocks, cut by several regional-scale structures. In conjunction with
evaluation of the Noel claims, the Trucha claim requires detailed prospecting to
identify the source of gold producing the high stream-sediment values.
MARA PROPERTY
The Mara claim (File Number: 14018/03; 9,945 hectares) is located approximately
95 kilometres to the south-southwest of Navidad. Regional mapping shows the
property to be underlain by Jurassic Canadon Asphalto and Lonco Trapial
Formation rocks, which unconformably overly granitic basement rocks. Several
mapped and interpreted northwest-trending structures are present on the property
and are considered to be prospective for both Navidad-style mineralization and
traditional low-sulphidation gold veins. No fieldwork has been carried out to
date on the property.
CONDOR AND ALAMO PROPERTIES
The Condor claim (File Number: 14017/03; 10,000 hectares) and Alamo claim (file
number: 14032/03; 10,000 hectares) are located directly south of the
Regalo/Noel/Trucha claims and were staked based on prospective stratigraphy,
structure and the presence of known barite occurrences. The known barite
together with Navidad-age stratigraphy and similar structure makes these claims
highly prospective for Navidad-style mineralization. No fieldwork has been
completed on these claims to date; management believes a first-pass evaluation
is warranted.
NINA AND CARLOTA PROPERTIES
The Nina claim (file number: 14018/03; 9,945 hectares) and Carlota claim (file
number: 14018/03; 9,945 hectares) are located 40 kilometres southeast of Paso De
Indios and were staked based on the presence of prospective Canadon Asphalto
stratigraphy and regional northwest trending structures. No fieldwork has been
completed to date on these claims; management believes a first-pass evaluation
is warranted.
PAMPA 3 PROPERTY
The Pampa 3 claim (File Number: 14004/03; 2,500 hectares) is located adjacent to
the Navidad Project, along trend and immediately to the southeast. Although
predominantly covered with recent alluvium, it is interpreted to be underlain by
the Canadon Asphalto Formation limestone and volcaniclastic rocks which host
mineralization at Navidad. Work to date has been minimal with only two
stream-sediment samples collected, both of which drain areas peripheral to the
claim.
COLONIA PROPERTY
The Colonia claim (File Number: 14005/03; 10,000 hectares) covers a large area
of highly prospective ground directly along strike from the Navidad discovery.
Most of the 10,000 hectare claim is underlain by prospective Canadon Asphalto
Formation rocks. Preliminary stream-sediment sampling has defined highly
anomalous values of antimony, an important "pathfinder" element at the Navidad
discovery. Minor prospecting (four rock samples collected) has not yet unveiled
the source of these stream-sediment values, management believes significant
additional work is warranted.
JULIE PROPERTY
The Julie claim (File Number: 14035/03; 5,675 hectares) is approximately 30
kilometres southease of the Navidad project and lies at the regional contact
between granitic rocks that underlie the prospective Jurassic stratigraphy, and
42
Jurassic volcanic rocks. Several important LandSat-interpreted structures are
present on this claim; regional structure has been shown to be of critical
importance at the Navidad discovery. Preliminary stream-sediment sampling shows
anomalous values of copper and antimony, although management believes it is
strongly warranted, no significant follow-up work has been done.
SIERRA 1 PROPERTY
The Sierra 1 claim (File Number: 14006/03; 10,000 hectares) covers a large area
of prospective Canadon Asphalto Formation rocks and the underlying volcanic
rocks and a portion of the granitic basement. It is located immediately to the
east of the Julie Property. Significant areas of LandSat-interpreted alteration
are present in the northeastern portion of the claim, the imagery shows patterns
very similar to those seen in the area of the Navidad discovery. Preliminary
stream-sediment sampling has shown anomalous copper values, these results have
yet to be followed up on.
SIERRA 2 PROPERTY
The Sierra 2 claim (File Number: 14007/03; 10,000 hectares) covers an area of
complex geology in the hinge zone of a regional-scale anticline and is located
immediately south of the Sierra 1 property in the Navidad area. Mapped rock
units include the Canadon Asphalto Formation and overlying Cretaceous sandstone.
Essentially no work has been done in the central portions of this claim as the
local land owners could not be contacted to gain permission for entry onto their
land.
Mina Yanquetreu is a small abandoned barite mine in the central portions of the
claim. This occurrence is highly encouraging as both strataform (exhalative) and
vein-controlled barite is intimately associated with the Navidad system.
Management believes this area is considered highly prospective and warrants a
significant early-stage exploration program.
SIERRA 3 PROPERTY
The Sierra 3 claim (File Number: 14008/03; 10,000 hectares) covers the
southwestern portions of mapped Canadon Asphalto Formation rocks in the Navidad
area. Also present on the claim are Jurassic volcanic rocks and underlying
granitic basement. Major LandSat-interpreted structures are present as are
possible zones of alteration. Preliminary stream-sediment sampling has returned
strongly anomalous copper values. No follow-up prospecting or rock sampling has
been undertaken to date. Management believes the Sierra 3 claim is considered
highly prospective and warrants considerable follow-up work.
OTHER CHUBUT PROVINCE PROPERTIES
If the reorganization is consummated the following properties will be
transferred to Golden Arrow.
LAGUNA DE LOS TOROS PROPERTY
LOCATION AND ACCESS
This property is located just to the east of the continental divide forming the
border between Chile and Argentina. In this area the continental divide is quite
subdued in elevation and is not marked by high mountainous peaks. Elevations on
the property reach about 750m and relief within the property is only slightly
more than fifty meters. Vegetation is sparse and comprises grasses and low
brush. Trees are absent. The climate is characterized as continental semi-arid
with moderate temperatures in summer often accompanied by high winds. Winters
are cold with temperatures often dipping below zero celsius, but are generally
not characterized by extended sub-zero periods. Most of the precipitation falls
in winter as both rain and snow and as such, conditions may not favor fieldwork
in the winter.
Access to the property is possible year around by two-wheel drive pick-up truck
as provincial route 40 bisects the property. Gobernador Costa is the nearest
significant sized town. It has no air service: the nearest airport with
scheduled service is Esquel four hours drive to the north by mostly paved road.
From Gobernador Costa access to Las
43
Bayas is by provincial route #40 south approximately 50 road kilometres. During
good road conditions the trip from town to the property is less that one hour.
Gobernador Costa has basic services including fuel, food and lodging as well as
a bank with an automatic teller machine.
MINERAL TITLES INCLUDED IN THE LOS TOROS PROPERTY
The Los Toros property comprises 11,612 hectares consisting of three individual
claims, two of which are categorized as "cateos" and one as a "manifestacion"
located in the Tehuelches Department of the Province of Chubut. The property is
100% owned by the Company. It is centered at approximately 44.36 decimal degrees
south latitude and 70.65 degrees west longitude in the Campo Inchauspe datum.
----------------------------------------------------------------------------------------------------------
FILE NUMBER YEAR DATE OBTAINED TYPE NAME HECTARES
----------------------------------------------------------------------------------------------------------
13645 2001 January 24, 2001 Cateo Unnamed 2,262
----------------------------------------------------------------------------------------------------------
13928 2002 September 12, 2002 Cateo Toros II 2,950
----------------------------------------------------------------------------------------------------------
14038 2003 March 18, 2003 Manifestacion Lucia 6,400
Total 11,612
----------------------------------------------------------------------------------------------------------
REGIONAL AND LOCAL GEOLOGY
The Los Toros Property lies in western Chubut at the margin of the Andean
cordillera volcano-plutonic complex with the continental volcanic-sedimentary
sequences. The oldest rocks are upper Paleozoic volcanics of continental
affinity and are overlain by Jurassic volcanic rocks of the Lago La Plata
Formation which are in turn overlain by mainly sandstone units of the Lower
Cretaceous Apeleg Formation. Known and postulated mineralization is hosted by
the Jurassic volcanic rocks.
EXPLORATION HISTORY
A total of 233 rock samples and 435 soil samples have been collected within the
limits of the current property boundaries for the Company. There are no known
historical mining or exploration environmental liabilities associated with the
property.
DETAILED EXPLORATION - MORGUL NORTH
The Morgul North area was mapped and sampled in detail at 1:1000 scale in order
to assess it's potential to host economic gold and/or silver mineralization and
to permit planning for a significant drill program. The Morgul North structure
is a classic, high-level, low-sulphidation epithermal vein. It trends
north-south and dips approximately 45(0) to the east. It has been mapped over a
strike length of approximately 800 metres and, including the silicified and
altered envelope around the actual vein, has widths of less than 2 metres to
over 20 metres. Silicification is predominantly a replacement of volcanic rock
rather than a true open space filling vein, however, mapped and petrographically
defined textures are consistent with a high-level position in the epithermal
system, potentially above the important gold-rich boiling zone.
Fifty-one rock samples were collected from the Morgul North vein, these were
predominantly measured chip samples across the structure, however rare grab
samples were also taken. In general gold values are anomalous but low (0.005 to
2.17 g/t), while arsenic, antimony, and mercury values are highly elevated. This
distribution of low gold and high arsenic, antimony, and mercury is typical of
the upper levels of mineralized low-sulphidation epithermal systems. One sample
(M2373) contained abundant coarse grained galena and returned 1.36% lead which
is very odd given the interpreted high-level setting of the Morgul North vein.
Generally, higher values of lead are expected lower in an epithermal system, as
yet, no clear explanation for this value is apparent.
44
DETAILED EXPLORATION - MORGUL SOUTH
The Morgul South Vein was mapped and sampled in similar detail (1:1,000 scale)
to the Morgul North Vein. Sixty-two rock samples were taken, of these, 40 were
measured chip samples across silicified or altered structures.
The Morgul South Vein is actually a series of structures which coalesce into one
north-trending structure in its northern extents. To the south, structures
appear to "horse-tail" out into more east and southeast trending splays off the
main north-trending vein. In general, better gold grades (up to 1.1 g/t) were
returned from these smaller "splays" in the southeastern portions of the mapped
system. Although measured vein orientations are more erratic at Morgul South
than at Morgul North, the overall trend is close to north-south and dips are
generally in the range of 45(0) to 75(0) to the east.
Overall strike length of the Morgul South vein (including areas of no outcrop
where the presence of the vein is inferred) is approximately 1,250 metres.
Measured widths vary from less than 1 metre to greater than 25 metres. Similar
to the Morgul North vein, results from the Morgul South vein generally show low
gold values (<0.005 to 1.170 ppm) and highly elevated arsenic (9 to 3,899 ppm),
antimony (<5 to 90 ppm), and mercury (0.180 to 21.500 ppm) values. Again, these
values are consistent with levels of exposure which are above the "boiling zone"
and hence above the postulated zone of gold deposition.
DETAILED EXPLORATION - NAZGUL
The Nazgul structure is a new discovery as a result of the most recent phase of
property-wide exploration. It consists of a zone of silicification and open
space filling chalcedonic quartz within a wider zone of argillic alteration with
quartz stockworking. It has been mapped over a strike length of approximately
260 metres and has widths of approximately 8 to greater than 30 metres including
the enveloping argillic alteration and quartz stockwork. The structure trends
towards 220(0) (northwest); dips are not known due to the relatively limited
exposure.
Gold grades returned from the 23 samples taken from this zone are uniformly low
(<0.005 to 0.014 ppm), while arsenic (15 to 357 ppm), antimony (<2 to 30 ppm),
and mercury (1.150 to 20.300 ppm) values are high, again supporting the thesis
that elevated gold grades may be present at depth below the present levels of
exposure.
SOIL SAMPLE GRID - MORGUL NORTH AND SOUTH
East-west oriented lines of soil samples were collected over the Morgul North
and South prospects in order to further characterize the structures and to test
for additional zones that may not outcrop. Sixteen lines were run, generally
with 100 metre spacing between lines but with up to 300 metre spacing at the
north and south extremities of the grid. Samples were collected every 25 metres
along lines. Four hundred sixteen (416) original soil samples were collected in
this program in addition to the 19 duplicate samples for a total of 435 samples.
Gold values returned from the soil samples are, as is often the case, rather
erratic. In the Morgul North area there is no clear correlation between higher
gold values and the known vein. Most of the most strongly anomalous values
(greater than 0.010 - 0.015 ppm) were returned from single sample sites (as
opposed to multi-sample anomalies that generally are a more reliable indicator
of mineralization) and can not be correlated with known mineralization. At the
Morgul South area, there is a better correlation with mapped mineralization over
portions of the vein structure, but there are still many single point anomalies
that are not clearly explained by the known mineralization. Gold values range
from less than 0.0011 ppm to 0.249 ppm and return an arithmetic mean of 0.03
ppm.
In general, Arsenic values show a much more interpretable pattern. At Morgul
South, arsenic values correlate well with the known structures, generally
returning values of over 100 ppm over several sample sites near known
structures. At Morgul North, there is a strong bias with highly anomalous
samples to the east of the structure and markedly lower values to the west. One
possible explanation for this distribution of arsenic lies in the 45(0) east dip
of the Morgul North structure. High arsenic values associated with the structure
near surface may be "leaking" to surface through a series of smaller vertical
dipping veinlets. Alternatively, the predominant winds which blow from the west
may have selectively redistributed the arsenic. Arsenic values in the soil
samples vary from 3 to 252 ppm with an arithmetic mean of 23.1 ppm.
45
While it was hoped that the soils would locate additional covered veins the data
failed to do so convincingly.
FUTURE WORK
Based on the results to date, management believes a program of diamond drilling
at the Morgul North, South, and Nazgul prospects is warranted. A 2,500 metre
drilling campaign with drillholes testing all three areas has been recommended.
Prior to drilling, a review should be made of the data collected to date and a
field visit made to select the final drill hole locations. Minor road
construction will be necessary in order to get people and equipment to the drill
sites, although if a track mounted drill rig is used this will be kept to a
minimum. At this time significant trenching or geophysical work is not
recommended.
A preliminary budget of $350,000 has been estimated for the recommended work
based on the costs of similar programs in the region.
LAS BAYAS/VICTORIA PROPERTY
The Las Bayas/Victoria Property property is located in west central Chubut
Province, Argentina, 40 kilometres north of the town of Alto Rio Senguer and 200
kilometres northwest of the port of Comodoro Rivadavia. The property comprises
seven cateos including Evelina (Las Bayas) (File Number: 14131, 3,450.3
hectares), Victoria 1 (File Number 13801, 5,400 hectares), Victoria 3 (File
Number 13808, 6,509 hectares) and Victoria 6 (File Number: 13883, 9,932.44
hectares), all of which are 100% owned by the Company. Preliminary
reconnaissance geological mapping and rock sampling in 2001 indicated that host
strata at Las Bayas is cut by a series of subparallel epithermal quartz veins
exposed over a minimum one kilometre strike length. Subsequent surface work in
2002 included over 700 rock chip samples and 1,200 soil samples which defined a
4 kilometre by 1.5 kilometre area of outcropping low-sulphidation epithermal
quartz veins. Geochemistry indicated potentially economic gold and silver values
and anomalous arsenic, antimony, and mercury. Results of the 2002 surface work
led to a 1,953 metre diamond drill campaign in February, 2003. This program
tested approximately 900 linear metres of the total 15,000 linear metres of
quartz veins mapped on the property.
The Company completed a 19 hole, 1,953 metre diamond drill program on the Las
Bayas project on March 3, 2003. Eighteen of the 19 drill holes completed
intersected the targeted low-sulphidation quartz veins; these intersections
ranged in width from 0.4 to 22.1 metres of vein material. This drilling tested
approximately 900 metres of the mapped 15,000 metre strike length of veins
exposed at Las Bayas Hill.
FUTURE WORK
No work is currently planned for the Las Bayas project. Due to the large size of
the mineralized system exposed at Las Bayas, the Company's geologists feel the
project has significant exploration potential.
COSTA PROPERTY
The Costa property is located immediately south of the town of Gobernador Costa
in western Chubut. The property comprises three cateos including Costa (File
Number: 13886-02, 4,660.50 hectares), Costa I (File Number 13890-02, 3825
hectares) and Costa II (File Number 13982-02, 6,467 hectares), all of which are
owned by the Company. The cateos were acquired based on structural
interpretation, correlative Landsat-interpreted alteration, and geologic setting
similar to that of known mineralization in the nearby Cherque area.
Northwest-trending linear features with associated Landsat-interpreted
alteration zones, with a strike length in excess of 5 kilometres, are present on
the Costa property. The property is underlain by prospective Jurassic volcanic
rocks which are intruded by Upper Cretaceous granitic intrusions. Although the
property is at a very early stage, management believes it may have good
potential for epithermal gold deposits.
46
CORCOVADO PROPERTY
The Corcovado property is located approximately 50 kilometres south of Esquel,
10 kilometres northwest of the town of Corcovado. The property is 100% owned by
the Company. The property comprises one cateo (File Number 13892-02, 10,000
hectares) and was staked to cover an area of prospective Jurassic volcanic rocks
which are cut by Upper Cretaceous granitic intrusions that are located along the
same trend as the Esquel deposit. Airborne reduced-to-pole magnetics show a
prominent magnetic high in the southwest part of the property which is related
to mapped intrusive rocks. Northwest- and northeast-trending linears emanating
from the magnetic high are suggestive of structures which could control
mineralization. No work is planned for the property in the immediate future,
however, management believes the property may have excellent exploration
potential.
PENASCUDO PROPERTY
The Penascudo property is located in the southwestern corner of Chubut Province.
The property comprises seven adjacent Mine Concessions (Minas) including:
Alberto, 1,100 hectares; Rolando, 1,300 hectares; Cecilia, 1,400 hectares;
Pedro, 1,300 hectares; Fernando, 1,300 hectares; Ivan, 1,300 hectares; and
Daniel, 1,300 hectares. The Company holds a 100% interest in the properties.
Pursuant to an option agreement dated June 11, 2003, between the Company and
Ballad Gold & Silver Ltd. (formerly Ballad Ventures Ltd.) ("Ballad") Ballad can
earn, subject to a 1.5% NSR, an initial 70% interest in the property by
incurring US$1.8 million in expenditures over five years, making a one time
US$300,000 payment to exercise the option, and issuing 500,000 shares on
approval of the option (which have been issued, at a deemed value of $250,000)
by the TSX-V and a further 500,000 shares upon exercise of the option. Ballad
Venture Ltd. can increase its interest to 85% by funding a feasibility study.
Low sulphidation epithermal quartz veins with high-grade gold and silver, and
locally visible gold, are hosted by a 5-square kilometre rhyolite dome on the
property. Sampling by the Company of brecciated quartz veins, located 200 metres
apart, returned assays of 18.7 g/t gold over 0.45 metres and 216.6 g/t gold over
0.4 metres. Ballad has reported high-grade assays from chip sampling of the El
REY ("The King") Zone of between 0.08 g/t gold over 0.30 metres and 1,102.99 g/t
gold over 0.35 metres and 4.1 g/t silver over 0.30 metres and 704.7 g/t silver
over 0.35 metres from their initial work on the property.
SAN JUAN PROVINCE PROPERTIES - VALLE DE CURA AREA
The Valle de Cura region of northwest Argentina lies at the northern end of the
well-defined El Indio metallogenic belt which straddles the Chile-Argentina
border between approximately 29(degree) to 30.5(degree) South. This belt is
defined by world-class high-sulphidation epithermal deposits, such as:
Pascua-Lama, Veladero, and El Indio-Tambo. Large-scale hydrothermal alteration
and mineralization in the El Indio belt is associated with Miocene to Recent
rhyolitic to dacitic volcanism; known ore is predominantly hosted within these
volcanic rocks. Large colour anomalies are present in areas of strong argillic
and advanced argillic alteration, these colour anomalies are easily
distinguished in aerial photographs and Landsat images and are generally present
in areas of significant mineralization.
In a 1997 agreement with the Company, Barrick subscribed to a $1.5 million
private placement, of which the Company had to spend a minimum of $1,125,000 on
its Valle de Cura properties in northwestern Argentina before August 17, 2000.
An August 1999 agreement granted Barrick an option to earn a 50% interest in
EITHER the Rio de las Taguas or Potrerillos properties in the Valle de Cura
region for a US$250,000 payment and exploration expenditure commitments. In
2000, Barrick exercised warrants for net proceeds to the Company of $2.25
million, part of which were used to fund the Company's exploration program in
the Valle de Cura region from October 2000 to March 2001. In December 2003,
Barrick served notice that they would not be exercising the option to earn a 50%
interest in either the Rio de las Taguas or Potrerillos properties.
RIO DE LAS TAGUAS PROPERTY
LOCATION AND ACCESS
The Rio de las Taguas property is located in northwestern San Juan province
approximately six kilometres due east of Barrick's Pascua-Lama project which
straddles the Chile-Argentina border. The property is roughly bisected by the
Arroyo de los Amerillos, a tributary to the Rio de las Taguas, and is accessible
by 4WD truck along Arroyo de los
47
Amerillos. Elevations range from 3,800 metres at the mouth of the Arroyo de los
Amerillos to over 4,600 metres on the western boundary.
MINERAL TITLES INCLUDED IN RIO DE LAS TAGUAS
The Rio de las Taguas property comprises one cateo (File Number 0638-S-95, 1,820
hectares).
AGREEMENTS
The Company holds a 100% interest in the property. The property was the subject
of an option agreement with Barrick between 1999 and 2003. See "Item 4.
Information on the Company - History and Development of the Company" and "Item
4. Information on the Company - Properties, Plants and Equipment - Principal
Properties - Argentinean Properties - San Juan Province Properties - Valle de
Cura Area."
EXPLORATION HISTORY
The Company commenced a program of geochemical sampling and geological mapping
in late 1999. Three target zones were identified by this program. The Ridge Zone
is a 350 meter long northeast-trending zone of strongly clay-altered volcanics
with grab samples returning anomalous values in gold and arsenic. The Central
Breccia Zone covers an area of silicification, quartz veining and brecciation
measuring approximately 400 meters by 300 meters, while the Valley Shear is a
linear, southeast-trending overburden covered valley which parallels the trend
of the mineralized Pascua Fault.
A Phase II program consisting of gridding, ground geophysics, detailed
geological mapping, PIMA sampling and geochemical sampling over the three target
areas was carried out in early 2001. This work identified the Ridge Zone as the
highest priority target. Further geophysical work consisting of induced
polarization surveying was completed in April 2000 and outlined a large (600 x
300 meters) chargeability zone under scree cover adjacent to the Ridge Zone.
In November 2000, a program of road construction and bulldozer trenching was
carried out on the Ridge Zone to provide better access and rock exposure for
detailed geological mapping and rock sampling. Approximately 3.5 kilometres of
road were constructed, of which approximately 500 meters was in bedrock. Mapping
and sampling of the new exposures and surrounding area were completed in late
2000. The geologic mapping showed the area to consist of a lower andesitic
volcanic unit overlain by dacitic to rhyolitic pyroclastics. Alteration exposed
in the road cuts is mainly sericite-clay ranging from weak to moderate in
intensity. The strongest alteration effects appear to be associated with local
structures of limited extent.
The geochemical sampling consisted of 140 rock samples and eight talus fines
samples. The results confirmed low order anomalies in a number of elements, most
notably gold and arsenic. Gold values in rock range from <0.01 g/t to 0.09 g/t,
and in talus fines from 0.01 g/t to 0.4 g/t. Silver values in rock range from
<0.1 g/t to 3.8 g/t, and in talus fines from 0.2 g/t to 0.4 g/t. Arsenic values
in rock range from <5 ppm to 622 ppm, and in talus fines from 52 ppm to 120 ppm.
PLANNED FUTURE WORK
A series of exploration programs from 1999 to 2001 have defined significant
potential for high-sulphidation epithermal mineralization at the Rio de las
Taguas property. The Company is currently pursuing other partners for continued
exploration of this drill-ready property.
POTRERILLOS PROPERTY
LOCATION AND ACCESS
The Potrerillos property is located north of the Despoblado flats and east of
the Rio de las Taguas in northwest San Juan province, approximately 10 km due
east of Barrick's Veladero deposit. Elevations range from 4,000 metres to
48
over 5,100 metres in the northeast corner of the property. Access to most parts
of the property is possible using 4WD trucks from the Veladero-Lama and El Toro
roads.
MINERAL TITLES INCLUDED IN POTRERILLOS
The Potrerillos property comprises one cateo (File Number: 546010-L-94, 4,000
hectares).
AGREEMENTS
Potrerillos forms part of a group of three properties, which jointly have
payments pending to the property vendor of $US 70,000 (Dec 20/04) and $US
170,000 (Dec 20/05) in addition to a one time payment of $US 1 million upon a
positive feasibility study. The property was the subject of an option agreement
between the Company and Barrick between 1999 and 2003. See "Item 4. Information
on the Company - History and Development of the Company" and "Item 4.
Information on the Company - Properties, Plants and Equipment - Principal
Properties - Argentinean Properties - San Juan Province Properties - Valle de
Cura Area."
EXPLORATION HISTORY
Coast Mountain Geological Ltd. ("CMG") conducted a reconnaissance geological
mapping and sampling program in early 1999. The geological mapping indicates
that Tertiary age volcanic rocks occur over much of the property. A total of 83
rock samples were collected for geochemical analysis, and 26 of these were also
submitted for Portable Infrared Mineral Analyzer ("PIMA") analysis to identify
the alteration mineralogy. Anomalous gold values (nil to 0.23 g/t) along with
scattered anomalous basemetal, silver and arsenic values were returned, mainly
from the central northwest portion of the property. The PIMA study showed that
four samples from the same area contain alunite, a key indicator mineral for
high level epithermal gold mineralization.
The Company commenced a Phase I program of detailed geochemical sampling and
geological mapping in late 1999. The Phase I program identified three targets
for detailed follow-up work. The Panorama Zone in the central part of the
property has returned grab samples assaying from nil to 0.63 g/t Au and from 1
g/t to 276 g/t Ag from a north-trending zone of quartz veining and
silicification which has been traced for approximately 1 kilometre along strike.
The Fabriana Extension zone, located on the western portion of the property,
consists of a large area (800 meters x 300 meters) of altered volcanic rocks
with grab samples returning strongly anomalous values in arsenic and scattered
anomalous gold values. The Narelle Zone, on the northeastern part of the
property, is a large (1.5 x 1 kilometre) zone of strongly silicified felsic
volcanics with variably anomalous mercury and gold values.
In February 2000, a Phase II program consisting of ground geophysics (CSAMT),
detailed geochemical sampling and geological mapping was commenced on the
Fabriana Extension zone. The geophysical surveys outlined an east-west trending
resistivity anomaly at least 500 meters in length which underlies felsic
volcanic breccias with strong alunite alteration, strongly anomalous arsenic,
and erratic anomalous gold values. In April-May 2000, a reverse-circulation
drilling program was completed over the Fabriana Extension target. Nine holes
totalling 1,785 meters were completed.
Six of the holes were sited to test a resistivity feature defined by ground
geophysical surveys. The anomaly trends east-west, and was interpreted to
underlie surface outcrops of felsic breccias containing abundant alunite
alteration and anomalous arsenic and lead values. The drilling intersected
shallow dipping Tertiary volcanics consisting of a felsic sequence up to 40
meters thick of breccias and interbedded flows overlying several hundred meters
of porphyritic andesites. Within the andesites, a number of narrow intervals
with anomalous gold values were intersected, associated with (i) quartz veining
or (ii) clay-altered fault zones. The mineralized quartz-veined intervals are
generally associated with strongly anomalous mercury values. Three additional
holes were drilled to the south of the resistivity anomaly on targets defined by
surface geological mapping and induced polarization surveying. All holes drilled
into the andesite succession, and encountered several clay altered fault zones
and alunite veining. These zones returned variably anomalous arsenic values, but
only background gold. The results confirm the existence of a high
sulphidation-style alteration system. Management believes further work is
necessary to better characterize the alteration encountered in the drilling as
well as additional geophysical modeling of the induced polarization and CSAMT
results.
49
Between November 2000 and February 2001, the Company carried out further
exploration on the Potrerillos property consisting of bulldozer trenching,
geological mapping, and rock chip and talus fines goechemical sampling. This
work concentrated on the Narelle zone, with some additional work on the Panorama
zone.
At Narelle, seven bulldozer trenches totaling approximately 1,750 meters were
excavated. Talus fines geochemical sampling (113 samples) and rock geochemical
sampling (50 samples) was conducted to better define the extent and strength of
the gold-mercury anomaly detected in the previous season. Gold values in the
talus fines ranged from <0.01 g/t to 0.37 g/t, with mercury ranging from <0.02
ppm to 68.4 ppm. Gold values in the rock sampling ranged from <0.01 g/t to 0.02
g/t, with mercury ranging from <0.02 ppm to 10.8 ppm. The high values in both
sample media concentrate in an area approximately 200 meters in diameter in the
same location as the anomalous results from the 1999 - 2000 program. The
mineralization, hosted by rhyolitic pyroclasitic rocks, may be related to
intersecting NE and NNW-trending structures.
At Panorama, 15 rock samples were collected from the northern continuation of
the zone from the area sampled in the 1999 - 2000 season through to the northern
property boundary. Five of the fifteen samples returned strongly anomalous to
very high gold and/or silver values, with the overall range in gold values being
from <0.01 g/t to 15.4 g/t and in silver from 0.1 g/t to 2,900 g/t. Elevated
mercury values ranging from <0.02 ppm to 4.93 ppm were also present.
PLANNED FUTURE WORK
A series of exploration programs from 1999 to 2001 have defined significant
potential for high-sulphidation epithermal mineralization at the Potrerillos
property. The Company is currently pursuing other partners for continued
exploration of this drill-ready property.
GOLLETE
The Gollete property is located along the Pascua-Lama lineament in the Valle de
Cura region, 25 km southeast of Barrick's Veladero property and 250 km northwest
of San Juan. The Gollete property comprises one cateo (File Number:545243-L-94,
10,000 hectares).
Gollete is one of a group of three properties that the Company is earning a 100%
interest in by making further payments to the property vendor of $70,000 (Dec
20/04) and $170,000 (Dec 20/05) in addition to a one time payment of
US$1,000,000 upon a positive feasibility study. Pursuant to an option agreement
dated September 22, 2003 between the Company and Cloudbreak, the Company granted
to Cloudbreak an option to earn a 50% interest in Gollote in consideration for
the issuance of 500,000 common shares of Cloudbreak to the Company (with a
deemed value of $150,000), subject to TSX-V acceptance (the initial 500,000
shares have been received), an additional 350,000 shares by October 1, 2004, and
exploration expenditures of US$1,000,000 over three years, with US$150,000 being
spent in the first year, US$350,000 in the second year and US$500,000 in the
third. There will be the option to increase the interest to 75 per cent by
making additional exploration expenditures of US$1,000,000 in the fourth year;
US$1,500,000 in the fifth year; issuing an additional 1,000,000 shares; and
providing a comprehensive report on the results of the work performed up to the
date of the report.
Initial work in 1999 on Gollete outlined areas of argillic and advanced argillic
alteration, associated with anomalous gold geochemistry. Three potentially
important areas of hydrothermal alteration, with features characteristic of
high-sulfidation epithermal systems have been mapped on the property. Sampling
returned anomalous gold values ranging from below detection to 0.168 ppm in
rocks and from below detection to 0.168 ppm as well as anomalous As, Cu and Zn
results. In early 2000, the Company completed additional rock and stream
sediment sampling confirming the presence of potentially important alteration in
the northern part of the property at the Condor Zone. Widespread argillic
alteration and advanced argillic alteration occurs within an approximate 2.0 x
0.7 km area. Management believes a combination of hydrothermal alteration and
favorable structure, as well as proximity to the Pascua-Lama and Veladero
deposits, makes Gollete a significant target for epithermal precious metal
mineralization.
50
ORTIGUITA PROPERTY
The Ortiguita property (File Number: 546369-L-94, 3,600 hectares) is located
approximately 35 kilometers east-north-east of Barrick's Veladero property.
Ortiguita forms part of a group of three properties, which jointly have payments
pending to the property vendor of US$70,000 (Dec 20/04) and US$170,000 (Dec
20/05) in addition to a one time payment of US$1,000,000 upon a positive
feasibility study. In early 2001, a short reconnaissance program was carried
out, mainly directed at checking several color anomalies visible on satellite
imagery. Eight rock and four stream sediment samples were collected; none
returned anomalous values in gold or silver; anomalous Cu, Pb, Zn, As and Hg
values were identified in stream sediment samples. Management believes that
further work should be conducted on the property.
EL TORRO (PASO DE SOBERADO) PROPERTY
The Company holds a 100% unencumbered interest in the El Torro (Paso del
Soberado) property (File Number: 546083-M-94, 873 hectares) located
approximately 20 kilometres north-northeast of Barrick's Veladero property. The
property was examined in early 2001. Several alteration zones were identified
and 25 rock and stream sediment geochemical samples collected. Three of the rock
samples returned anomalous gold values ranging from 0.26 to 0.51 g/t. All of the
anomalous samples are of float material, with two of the three shedding from a
NE-trending breccia zone containing quartz and alunite. Additional work to
determine the extent of the mineralized breccia zone will be undertaken in the
future.
DESPOBLADOS PROPERTY
Despoblados comprises two properties (File Number: 542242-L-94, 1,260 hectares)
in the Valle de Cura region of northwestern San Juan Province. The Company holds
a 100% interest in the property subject to the cateo being advanced to an
exploitation phase. A payment of US$800,000 is due to Lirfer S.A after
completion of a positive feasibility study. The western claim is located 15 km
southeast of Barrick's Veladero deposit along the Pascua-Lama-Veladero
lineament. Limited reconnaissance sampling and mapping has been completed on the
western claim, while no work has been carried out on the eastern property.
Management believes the property warrants further evaluation.
BANITOS (RONCHIETTO) PROPERTY
The Banitos property consists of one cateo (File Number: 546604-R-94, 5,230
hectares) in the Valle de Cura region of northwestern San Juan Province. The
Company holds a 100% interest in the property; in the event of exploitation of
the property, the property is subject to a royalty of US$960,000 paid in eight
instalments to V. Ronchietto. Initial reconnaissance prospecting, geological
mapping and geochemical sampling during 1999 and 2000 on Banitos have identified
anomalous gold and pathfinder elements in rock and sediment samples. PIMA
analyses have identified illite/smectite and kaolinite alteration minerals. In
early 2002, CMG carried out a reconnaissance geological mapping and sampling
program. This work indicated that much of the property is underlain by Tertiary
age volcanic and sedimentary rocks which overlie gently dipping Permian age
sedimentary rocks. Most of the 29 rock samples collected were of float material,
and returned weakly anomalous gold values ranging from nil to a maximum of 0.04
g/t. Management believes the property merits further evaluation.
VELADERO PROPERTY
The Company holds a 100% unencumbered interest in the Veladero property in the
Valle de Cura area. The property comprises two separate claim blocks (File
Number: 0477-S-95, 129.34 hectares) located contiguous with the Chilean border
10-15 kilometres south of Barrick's Veladero property. Alteration is evident on
satellite images of the northern claim area. No groundwork has been carried out
on the property and none is planned in the immediate future.
51
SAN JUAN PROVINCE PROPERTIES - NORTHWEST SAN JUAN
MOGOTE (ARTURO'S) PROPERTY
LOCATION AND ACCESS
The property is located in the Departament Iglesia, Macho Muerto zone, in the
San Juan Province close to the northern border with La Rioja Province,
approximately 300 kilometers northwest of the city of San Juan, and bordering
Chile.
MINERAL TITLES INCLUDED IN MOGOTE PROPERTY
The Mogote (Arturo's) property consists of one cateo and three discoveries of
8,009 hectares (19,790 acres) and five Minas. In 2004, Amera staked a number of
claims adjoining the northwestern part of the Mogote project on the Chilean side
of the border.
----------------------------------------------------------------------------
NAME FILE NUMBER TYPE OWNER HECTARES
----------------------------------------------------------------------------
- 338579-R-92 Cateo IMSA 2259
----------------------------------------------------------------------------
Adela #1 425-098-A-2000 Discovery N. Arturo 2000
----------------------------------------------------------------------------
Mogotes Norte 520-0275-R097 Discovery R. Viviani 1650
----------------------------------------------------------------------------
Mogotes Sur 520-0274-R-97 Discovery R. Viviani 2100
----------------------------------------------------------------------------
Mogote 1 156.277-S-76 Mina IMSA 48
----------------------------------------------------------------------------
Mogote 9 156.285-S-76 Mina N. Arturo 48
----------------------------------------------------------------------------
Mogote 14 156.290-S-76 Mina IMSA 48
----------------------------------------------------------------------------
Mogote 4 156.280-S-76 Mina IMSA 48
----------------------------------------------------------------------------
Mogote 5 156.280-S-76 Mina IMSA 48
----------------------------------------------------------------------------
AGREEMENTS
Under an option agreement dated June 7, 2000 among the Company, Inversiones
Mineras Argentinas S.A. and Nestor Arturo, as amended August 3, 2000, and
September 1, 2000, the Company may acquire a 100% interest in the property by
making cash payments totaling $280,000. To date the Company has paid US$79,100.
Subsequent payments are US$80,000 on December 6, 2004 (when the option is
exercised); and US$110,000 on June 6, 2005. The vendors will have the right to
receive a royalty of 0.5% NSR, up to a maximum of US$500,000.
In March 2001 the Company entered into an option agreement with Rio Tinto,
whereby Rio Tinto could acquire up to a 70% interest in the property by meeting
certain work commitments and cash payments to the Company. At the end of 2001,
Rio Tinto elected not to continue with the option agreement due to budgetary
constraints.
The Company signed a letter of Intent on March 6, 2003, with Amera, pursuant to
which Amera could earn an undivided 51% interest in the Mogote (Arturo's)
Property. To earn a 51% interest in the property, Amera must issue 1,650,000
common shares to the Company and incur US$1,250,000 of expenditures, including
work programs and underlying option payments, all over five years. The Company
has received the initial 100,000 shares and Amera is proceeding with work
expenditures.
In addition, Amera agreed to reimburse the Company for past payments made and
expenditures which had been incurred by the Company on the Mogote (Arturo's)
Property. As at December 31, 2003, Amera had reimbursed the Company $192,952 and
$4,902 remained outstanding and is included in amounts receivable. As at
December 31, 2003 the Company had received 100,000 shares of Amera at a recorded
amount of $45,000.
On April 8, 2004, the Company and Amera entered into a further agreement whereby
Amera can earn an additional 24% interest, for a total 75% interest, after
earning the initial 51% interest, by issuing 300,000 common shares (which have
been issued) to the Company and conducting an additional US $3 million of
exploration expenditures over a three year period.
52
Amera has committed to spend the initial US$1,000,000 by May 30, 2005. Amera
received approval from the TSX-V for this transaction on April 22, 2004. Joseph
Grosso, Nikolaos Cacos and David Terry, officers and/or directors of the
Company, are also officer, directors and/or employees of Amera. See "Item 7.
Major Shareholders and Related Party Transactions - Related Party Transactions."
REGIONAL AND LOCAL GEOLOGY
The property is underlain by basement rocks of the Permian age Choiyoi Group,
which are faulted against and overlain by Tertiary age volcanic rocks.
EXPLORATION HISTORY
A brief geological reconnaissance took place in March-April 2000, during which
21 rock and talus samples were collected. Gold values ranged from nil to 0.13
g/t, with most of the anomalous samples coming from zones argillic and/or
ferruginous alteration.
In November-December 2000, a reconnaissance geological and geochemical sampling
program was carried out over the property. This work outlined an area measuring
approximately 3 kilometers E-W near the northern property boundary which
returned a high proportion of anomalous copper and gold results in both rock and
sediment samples. During January 2003 the Company carried out a four week
detailed surface exploration program to establish drill targets for a Phase I
drill program. The results significantly expanded the gold-copper exploration
potential of the project.
During the period November 17 through December 14, 2003, Amera carried out an
exploration program comprising detailed geologic mapping, ground magnetics,
Induced Polarization ("IP"), trench sampling, and surface geochemistry in the
northern part of the property. The work was focused on two major zones of
copper-gold mineralization, Filo Este and Filo Central, and one zone of high
sulphidation alteration, Zona Colorada. The copper-gold mineralization is
characterized by strongly anomalous values in copper and gold related to
potassic alteration of a Miocene diorite porphyry system. The high sulphidation
alteration is the upper level expression of a separate, but similar diorite
porphyry. The work indicated the presence of a major mineralized porphyry
beneath the Filo Este zone of potassic and propylitic alteration. Mineralization
is hosted within Oligocene volcanic breccias and phases of the Miocene diorite
porphyry which have undergone moderate to strong biotite, potassium feldspar,
magnetite, and quartz vein alteration. Hypogene mineralization consisted of
chalcopyrite and bornite within quartz veins and as wallrock disseminations.
Recent supergene oxidation has altered the primary copper minerals to various
copper oxide and sulphate minerals to include malachite and antlerite.
A 600 metre trench was excavated over the Filo Este zone of potassic alteration
and encountered 510 meters of continuous mineralization that averaged 0.196%
copper and 0.331 ppm gold. Mineralization consisted of fracture controlled
sulfates and oxides and as disseminations in wallrock and A-type quartz veins.
Copper minerals were approximately 80% oxide and 20% sulfides with the sulfides
consisting of chalcopyrite and bornite. Ground magnetics suggest a shallow
porphyry system underlying Filo Este ridge with strong magnetite alteration that
covers an area of at least 1.5 kilometres by 800 meters. The shallow depth of
intrusion is indicated by a steep magnetic gradient and is consistent with the
level of exposure of alteration and mineralization. Two other distinct magnetic
sources were encountered at Filo Central and underlying the East Cirque area.
The IP indicates several distinct copper sulfide bodies of 2-4% sulfide that are
coincident with magnetite alteration on Filo Este.
FILO ESTE DRILLING
In March, 2004, Amera carried out a 1,475 metre, 5 hole dimond drill program and
conduced further geological mapping and talus fine sampling on the northern part
of the Mogote property. The drilling tested a portion of the Filo Este porphyry
target to a depth of up to 495 metres over a strike length of 860 metres and a
width of approximately 250 metres. Hole MOG-04-1 had to be abandoned at 71.6
metres and hole MOG-04-1A was drilled from the same location to target depth.
Highlights of the drill results are provided in table form below.
53
------------------------------------------------------------------------------------------------------------
g/t g/t %
------------------------------------------------------------------------------------------------------------
Drillhole Total Depth From To Interval Gold Silver Copper
------------------------------------------------------------------------------------------------------------
(metres) (metres) (metres) (metres) (LWA) (LWA) (LWA)
------------------------------------------------------------------------------------------------------------
MOG-04-1 71.6 2.0 70.0 68.0 0.43 13.9 0.244
------------------------------------------------------------------------------------------------------------
MOG-04-1A 495.3 6.0 495.3 489.3 0.23 2.6 0.170
------------------------------------------------------------------------------------------------------------
including 258.0 424.0 166.0 0.19 2.2 0.243
------------------------------------------------------------------------------------------------------------
and 308.0 396.0 88.0 0.20 1.9 0.290
------------------------------------------------------------------------------------------------------------
MOG-04-2 315.4 2.0 315.4 313.4 0.16 1.9 0.171
------------------------------------------------------------------------------------------------------------
including 196.0 315.4 119.4 0.21 2.8 0.248
------------------------------------------------------------------------------------------------------------
MOG-04-3 300.0 6.0 300.0 294.0 0.11 1.3 0.078
------------------------------------------------------------------------------------------------------------
MOG-04-4 292.9 2.0 292.9 290.9 0.23 3.1 0.104
------------------------------------------------------------------------------------------------------------
PLANNED FUTURE WORK
Amera is continuing to compile the data from the 2004 spring program to guide
the next phase of exploration on the Mogote project.
LAS FLECHAS SOUTH 1-3
Las Flechas South is located in northwestern San Juan province, and is
approximately 340 km northwest of San Juan City. The property is located between
the Maricunga Au-Cu belt to the north and the El Indio-Pascua-Lama-Veladero
Au-Ag-Cu belt to the south. The Company holds a 100% unencumbered interest in
the the Las Flechas 1-3 cateos (339258-G-92, 339259-S-92 and 295858-G-90) and
Adela discovery (1796-G-95).
Las Flechas South formed part of an extensive land package in the area held by
the Company and Viceroy Resource Corp. ("Viceroy"). Work completed to date at
Las Flechas South has been limited to first-pass sampling and geological
mapping. The claims, predominantly underlain by Tertiary volcanic rocks, cover a
very prominent, large silicic-argillic hydrothermal alteration zone 15 square
kilometres in size. In 1995 a 10-day program of prospecting, rock, silt and soil
sampling and reconnaissance geological mapping was carried out. Silt samples
collected in 1995 from creeks draining this anomaly returned elevated gold
values ranging from negligible up to 0.122 ppm. Rock samples assayed from below
detection up to 0.8 g/t gold. Management believes Las Flechas South represents
an excellent exploration opportunity, which has seen only cursory work, and that
further work has is recommended.
ARROYO CAJON DE LA BREA
The Arroyo Cajon de la Brea property is located east of Mina Macho Muerto, a
historic copper occurrence along the Cajon de la Brea belt. The Company holds a
100% unencumbered interest in the Arroyo Cajon de la Brea property which
comprises a single claim (File Number: 0617-S95, 4,440 hectares). Mineralization
in the belt is characterized by vein and tourmaline-breccia related copper
deposits. Copper mineralization and gold enrichment are related to distinct
granitic and rhyolitic host rocks cut by quartz-feldspar porphyry dykes. A date
from one of these dykes yielded an Eocene age (52 Ma). Initial rock and stream
sediment sampling on Arroyo Cajon de la Brea identified anomalous As, Zn, Ba, V
and Sr values. No work has been completed on the project since 1997 and none is
planned in the immediate future.
SAN JUAN PROVINCE PROPERTIES - GUALCAMAYO AREA
Gold Mineralization in the Gualcamayo area is spatially and genetically related
to porphyritic Tertiary intrusive rocks including small stocks, plugs, and
dykes. Mineralization occurs as proximal skarn (Magdelena, Emilia Innes, General
Belgrano) and as distal disseminated sediment-replacement bodies (Quebrada del
Diablo, Omar, Pirrotina) both of which are hosted within limestone and
calcareous siltstone units. The Quebrada del Diablo (1.35 million ounces gold @
1.2 g/t) and several other important exploration targets were discovered during
the late 1990's by a joint venture partnership between Viceroy and the Company.
The Company has since divested its portion of the joint venture agreement, but
retains a 2% N.S.R. on the deposits.
54
QUEBRADA DEL DURANZO
The Company holds a 100% interest in the Quebrada del Duranzo property (File
Number 339149-L-93, 8,000 hectares) in the Gualcamayo area of the
Pre-Cordillera. The property is subject to a payment of US$800,000 after
completion of a positive feasibility study to Lirfer S.A.. The property covers
geological environments prospective for gold and copper-gold skarn or carbonate
replacement mineralization.
SIERRA PESCADO I & II
The Sierra Pescado property is located in northeast San Juan province to the
south of the Quebrada del Diablo target comprises Sierra Pescado I (File Number:
338073-E-92, 800 hectares) and Sierra Pescado II (File Number: 425-185-2001,
2,080 hectares). The Company holds a 100% interest in the property subject to a
payment of US$800,000 after completion of a positive feasibility study to Lirfer
S.A.. Prospecting and geochemical sampling was carried out in late 1999 on the
Sierra Pescado I and II claims. The results from this preliminary examination
indicate the presence of skarn-style alteration associated with anomalous gold
values which range from detection up to 0.19 g/t gold.
SIERRA YANSO
The Sierra Yanso cateo (File Number: 546145-L-94, 9,997 hectares) is located to
the southeast of the Quebrada del Durazno property. The Company holds a 100%
interest in the property subject to a payment of US$800,000 after completion of
a positive feasibility study to Lirfer S.A.
SAN JUAN PROVINCE PROPERTIES - OTHER AREAS
CHINGUILLOS
The Chinguillos property a cateo (File Number: 0616-S-95, 3,610 hectares) plus
manifestation, is located in the Pre-Cordillera of northern San Juan Province,
approximately 215 kilometers north of the city of San Juan. The Company holds a
100% unencumbered interest in the property. In the southwestern part of the
property, strong argillic alteration is developed over a one by two kilometre
area underlain by dacite intrusive. Thin carbonate veins occur within the
alteration zone and samples of the vein material are strongly anomalous in
copper, arsenic, nickel and cobalt. Gold values range from nil to 0.04 g/t.
Initial rock samples also returned anomalous Cu, As, Sb, Ni, Co, and Zn values.
Management believes additional follow-up mapping and sampling are recommended
for the property.
GUARDIA VIEJA
The Guardia Vieja propert comprises one claim (File Number: 0294-F-18-95, 3,407
hectares) located 150 kilometers northwest of San Juan city. The Company holds a
100% unencumbered interest in the property. To date only a short visit has been
make to the property by Company geologists but initial evaluation of satellite
imagery indicates the presence of a color anomaly associated with a linear
structure that cuts across the property in a northeast-southwest direction.
Management believes a field evaluation of the property is warranted.
ARROYO DE LOS DIFUNTOS
The Arroyo de los Difuntos property is located 140 kilometers southwest of the
city of San Juan, in the Cordillera Principal, and comprises one cateo (File
Number: 0224-F18-95, 3,125 hectares). The Company holds a 100% unencumbered
interest the property. Arroyo de los Difuntos was visited by Apex Geoscience
Ltd. in March 1997. Apex reported localized zones of hydrothermal alteration and
skarning, and anomalous lead, nickel, cadmium, manganese, barium and vanadium in
rock grab samples collected near the southern claim boundary. Additional
sampling and prospecting to evaluate the alteration zones is warranted.
55
PORTEZUELO DE AGUA NEGRA
The Company holds a 100% unencumbered interest in the property that is located
northwest of San Juan and south of the Valle de Cura area. The property
comprises one Cateo (File Number: 0855-M-95, 1,424.2 hectares). No groundwork
has been carried out on the property to date by the Company and management
believes an evaluation is recommended.
FILO DE LAS OPENAS
The Company holds a 100% unencumbered interest in the Filo de las Openas
property, located in northern San Juan province, 50 kilometres by road from the
town of Rodeo. The property comprises one Cateo (File Number: 0639-S-95, 5410
hectares). The property covers the contact between altered host sedimentary
rocks and the Permian Colanguil muscovite-granite pluton. A 1997 reconnaissance
program of the property by Apex Geoscience Ltd. identified a 500 x 200 metre
alteration zone on the northwestern quadrant of the claim returned anomalous Au,
Ag, Ba, Cu, Zn, Mo, Ni, Co, Cd, As, Sb and Te. Rock samples from the area
returned anomalous Cu, Ni, Co, As and Cr results. No further groundwork has been
carried out on the property to date by the Company.
PORTEZUELO TORTOLAS
The Portezuelo Tortolas property is located in central western San Juan
province, 15 km southeast of Tambo. The Company holds a 100% unencumbered
interest in the property which comprises one Cateo (File Number: 0224-F18-95,
4,500 hectares). No groundwork has been carried out on the property to date by
the Company; however, management believes a reconnaissance evaluation is
warranted.
CERRO DEL SALADO
The Cerro del Salado property is located east of the Valle de Cura,
approximately 70 km southeast of Barrick's Veladero project. The Company holds a
100% unencumbered interest in the property which comprises one cateo (File
Number: 295687-G-90, 2,413 hectares). The claim covers the contact between a
Permian granitic pluton and host Carboniferous clastic sedimentary rocks.
Exploration targets include gold and base metal veins. Initial evaluation of the
project was carried out in 1995. Results from stream sediment samples collected
on the project ranged from below detection up to 0.093 ppm Au. No groundwork has
been carried out on the property since 1995 but follow-up of anomalous
geochemistry is recommended.
PELAMBRES 2
The Pelambres 2 property (100% owned by the Company) is located along the
Chilean-Argentine border in the southwestern corner of San Juan province. It is
a type of tenure called a discovery (File Number: 520-0626-97, 345 hectares) and
was staked to cover extensions of prospective rocks onto open ground. No work is
currently planned on this property.
56
[Peru Property Map 1]
57
PERUVIAN PROPERTIES
RIO TABACONAS PROPERTY
PROPERTY DESCRIPTION, LOCATION, AND ACCESS
The 9,000 hectare (22,230 acres) Rio Tabaconas property is located in
northwestern Peru, approximately 35 kilometres south of the southernmost tip of
Ecuador and 760 kilometers NNW of Lima. Access to the property is by road from
the city of Chiclayo, approximately a 12-hour trip.
Pursuant to an agreement between IMPSA Peru and Sociedad Minera de
Responsabilidad Limitada Don Alberto, JJ De Piura and Sociedad Minera de
Responsibilidad Limitada Nova JJ de Piura dated Janury 24, 1997, as amended on
January 31, 2000, August 22, 2000, April 24, 2001, December 23, 2002, and August
15, 2003, IMPSA Peru acquired an option from J and J Madueno Bustamante to
purchase a 100% interest in three concessions totalling 2,890 hectares (7,138
acres) in the Cajamarca Department of San Ignacio Province in northern Peru. In
addition, IMPSA Peru owns nine claims totalling 5,400 hectares (13,338 acres),
which surround and overlie the optioned concessions. An additional 2,700
hectares (6,669 acres) were added during 2003. Collectively these are known as
the Rio Tabaconas project. The terms of the option agreement require an
aggregate sum of US$1,500,000 payable over seven years and an exploration
program totalling US$525,000 over three years (the exploration commitment has
been fulfilled). On June 28, 2002, the Company suspended further exploration
activities at the Rio Tabaconas project. This decision was made in response to
the local community expressing its concerns with mineral exploration activities.
The Company is making progress towards the finalization of an agreement with the
local community. The Company has deferred any further exploration until an
agreement with the local community has been finalized. As a result the Company
declared force majeure, as allowed under the option agreement. On August 1,
2003, the Company commenced paying US$1,500 per month to the optionor as
compensation until the Company can reach an agreement with the local community.
Accordingly, the Company and the optionor have revised the timing of the
remaining US$1,315,000 option payments.
Of the total option payments US$185,000 has been paid. The remaining payments
and due dates were: US$100,000 on December 20, 2003, US$200,000 on December 20,
2004 and US$1,015,000 when the option will be executed on commencement of
commercial exploitation of the property. Alternatively, in the event commercial
exploitation of the production does not occur, the payments are to be made in
four installments of US$200,000 commencing August 20, 2005 and subsequent
installments on December 30 of each following year, with a final installment of
US$215,000 due December 31, 2009. In the event that commercial production
commences during this period, the full remaining balance is due within 20 days
of production start-up. As a result of the declaration of force majeure all the
above dates have been delayed until the Company removes its declaration of force
majeure. At that point the timing will allow the Company to make these payments
based on the elapsed time added to the original committed dates.
During the 2004 fiscal year, $50,000 will be used to pay government charges
(known as "canons") for the right to do exploration work. These charges are the
Company's responsibility and are not credited to option payments or exploration
program requirements.
GEOLOGICAL SETTING
Rocks exposed at the Tabaconas property are dominated by volcanic flows, tuffs,
and coarse pyroclastic rocks assigned to the Oyotun Formation, of Jurassic age.
This formation also includes tuffaceous sedimentary rocks and volcanic sediments
with intercalated limestone in the higher parts of the volcanic sequence.
Plutonic rocks of Cretaceous-Tertiary age intrude all the supracrustal rocks in
the region except for the youngest Tertiary volcanic sequences. The dominant
intrusive type in the area of the Tamborapa property is porphyritic granite of
the Paltashaco pluton.
The Rio Tabaconas property lies within the Cajamarca copper-gold metallogenic
belt, which extends from Michiquillay, near the city of Cajamarca, northwards
into Ecuador. This belt is defined by a number of important gold and copper-gold
deposits hosted by Tertiary volcanic and intrusive rocks and Mesozoic
sedimentary rocks. Two of the most significant deposits in the belt are
Yanacocha and La Granja. Other important deposits in the belt include the
Michiquillay, Tantahuatay, Cerro Corona, Canariaco, Pena Verde, and Lanchipampa
porphyry systems and the La
58
Zanja, Jehuamarca and Las Huaquillas volcanic or sedimentary-hosted gold and
polymetallic deposits. The deposits in the belt are typically of Tertiary age
and genetically linked to heat engines or convective hydrothermal systems
associated with Tertiary intrusive and volcanic centers.
EXPLORATION HISTORY
The first modern examination of what is now the Tabaconas property was conducted
in the late 1980s when a government-funded Peruvian-German consortium re-opened
the old mine workings on Cerro Tablon and carried out experimental geochemical
and geological studies in the mine area. The Company acquired the property in
January 1997.
The Company carried out brief property examinations in 1997 and 1999. During
mid-2000, The Company carried out a four-week exploration program. In November
2000, a helicopter-borne electromagnetic ("EM") and magnetic survey was flown
over the property. The magnetic results provided a structural framework for the
whole property, and showed the presence of a number of well-defined
east-northeast-trending magnetic features. This east-northeast structural trend
is an important element at some large mineral deposits in northern Peru,
including Yanacocha, Antamina and Magistral.
In July 2001 a pre-drilling surface exploration program was carried out and in
September 2001, a 33 hole, 1,600-meter diamond drill program was undertaken. The
drill program tested three areas (Tablon, Tablon West and La Union Ridge) on
Cerro Tablon. Other exploration conducted simultaneously included grid-based
soil sampling, geological mapping and trenching. The most recently completed
work program was conducted from February to March of 2002. The program
incorporated IP-resistivity and magnetometer surveys, detailed geological and
structural mapping, and rock, soil, and stream sediment geochemical sampling.
The results of this program facilitated preparation of the proposed 3,000-metre
drill program. This program was put on hold due to unresolved issues with the
local communities.
MINERALIZATION AND PROPERTY GEOLOGY
Several distinct styles of intrusive-related gold mineralization are present in
fifteen named zones at the Rio Tabaconas property. Known mineralization at Cerro
Tablon consists of gold-rich massive sulphide bodies
(pyrrhotite-pyrite-sphalerite-galena-chalcopyrite) which replace limestone and
occur as stratabound, fault-related, and intrusive contact-related bodies. In
addition to these carbonate-replacement bodies, Cerro Tablon also hosts
potential for structurally-controlled mineralization at the North and La Union
Zones. On Cerro Las Minas, bulk-tonnage, disseminated gold mineralization is
associated with strong to intense phyllic alteration at the West Breccia and
Peak Zones, while high-grade lode-gold occurs within quartz vein/shear zones at
Minas Sur and La Catedral. Elsewhere on the property, anomalous rock, soil, and
silt samples demonstrate potential for additional discoveries.
Stratified rocks exposed at Cerro Tablon include, from oldest to youngest,
footwall andesite, massive limestone, bedded limestone, and tuffaceous
siltstone; all of which are assigned to the Jurassic Oyotun Formation. These
units are cut by two related intrusive phases: feldspar-hornblende porphyry and
intrusive breccia.
On Cerro Las Minas, three stratified rock units and five intrusive rock units
have been identified. Stratified rocks include, from oldest to youngest,
quartzite breccia, lithic tuff, and pebble to cobble conglomerate. The Cerro Las
Minas intrusive complex hosts disseminated mineralization and includes three
related phases: fine-grained felsic intrusion, flow-banded felsic intrusion, and
intrusive breccia. Other intrusive rocks exposed on Cerro Las Minas include
quartz-feldspar porphyry dykes and larger bodies of diorite to quartz diorite.
CERRO TABLON MINERALIZATION
There are seven named targets at Cerro Tablon, six of which have been classified
as drill-ready. These are, in order of importance: the Tablon Main, Tablon West,
Tablon South, Tablon Southwest Extension, La Union, North, and Sphalerite Creek
Zones. Gold-rich massive sulphide boulders (22 samples average 9.3 g/t Gold)
derived from the Tablon Main and West zones now lie at the base of Cerro Tablon
in Quebrada de las Minas. These boulders originally drew the attention of the
Company's geologists and led to the discovery of outcropping mineralization on
Cerro Tablon.
59
TABLON MAIN ZONE
The Tablon Main Zone is comprised of numerous outcropping massive sulphide
bodies and was the primary focus of the 2001 drill program. The Tablon Main Zone
is important to the Tabaconas property not only for its significant
intersections and high gold grades, but also as a model for mineralization that
may be present at the Tablon South, Tablon West, and Tablon Southwest Extension
Zones.
Mineralization at the Tablon Main Zone consists of massive to semi-massive,
fine- to medium-grained pyrrhotite, pyrite, sphalerite, galena, and
chalcopyrite. Gold grades commonly range from several grams per tonne to
approximately 30 g/t with rare intervals returning up to 118 g/t Au. Sulphide
bodies are generally massive to semi-massive and often include sulphide veinlet
or "stringer" zones below the massive sulphide body. Visible gold has been noted
within veinlet-style mineralization. Massive sulphides (mantos) at the
limestone/footwall andesite contact are commonly several metres thick (up to
7m). Fault related and intrusive contact related mineralization is quite
variable in size and morphology; drillhole intersections range up to 16.4
metres. Significant intersections from the 2001 drill program include:
--------------------------------------------------------------------------------
DDH From (m) To (m) Length (m) Gold (g/t)
--------------------------------------------------------------------------------
RT01-06 9.07 30.48 21.41 3.10
--------------------------------------------------------------------------------
RT01-07 10.08 30.00 19.92 2.41
--------------------------------------------------------------------------------
RT01-11 15.54 18.20 2.66 14.20
--------------------------------------------------------------------------------
RT01-13 13.41 38.83 25.42 8.78
--------------------------------------------------------------------------------
RT01-15 17.68 19.36 1.68 5.47
--------------------------------------------------------------------------------
RT01-16 16.17 20.07 3.9 13.18
--------------------------------------------------------------------------------
RT01-21 1.52 10.97 9.45 5.08
--------------------------------------------------------------------------------
RT01-22 47.44 50.3 2.86 15.22
--------------------------------------------------------------------------------
RT01-29 34.85 51.25 16.4 17.99
--------------------------------------------------------------------------------
RT01-29 42 44.15 2.15 118.10
--------------------------------------------------------------------------------
TABLON WEST ZONE
Approximately 300 metres southwest of the Tablon Main Zone, massive sulphides
with significant gold grades outcrop at the Tablon West Zone. This zone was
drill-tested by holes RT01-23 to 27 during the 2001 drill program. The drilled
massive sulphides at Tablon West are hosted by the tuffaceous siltstone which
occurs stratigraphically above the more prospective limestone/footwall andesite
contact. This contact remains largely untested below the known mineralization.
Significant drill intersections at the Tablon West Zone include:
--------------------------------------------------------------------------------
DDH From (m) To (m) Length (m) Gold (g/t)
--------------------------------------------------------------------------------
RT01-25 33.00 36.10 3.10 12.97
--------------------------------------------------------------------------------
RT01-26 0.00 6.00 6.00 6.95
--------------------------------------------------------------------------------
RT01-26 1.00 2.00 1.00 17.37
--------------------------------------------------------------------------------
RT01-27 9.76 12.00 2.24 1.49
--------------------------------------------------------------------------------
In addition to the drilled zone at Tablon West, a newly discovered sulphide body
is located approximately 150 metres to the southeast and is named the Cliff
Zone. This zone is situated approximately 60 metres stratigraphically below the
sulphides at Tablon West. Massive and semi-massive sulphides at the Cliff Zone
occur along an intrusive contact and grade up to 8.79 g/t over 2.0 metres. The
Cliff Zone is significant in that it shows the potential for additional
Tablon-style massive sulphide mineralization stratigraphically below Tablon
West.
CERRO LAS MINAS TARGETS
The Cerro Las Minas area contains four known mineralized zones with significant
concentrations of gold. Three of the four zones (Peak Zone, West Breccia Zone,
and Minas Sur) have been mapped, sampled, and tested by geophysical surveys with
positive results. Styles of gold mineralization vary significantly between the
different zones
60
on Cerro Las Minas (disseminated gold within phyllic alteration, shear-zone
hosted lode gold), but it is interpreted that all are related to a single
intrusion-related mineralizing event.
Geophysical results on Cerro Las Minas correlate extremely well with the known
mineralized zones and suggest that mineralization extends further than
previously known. The West Breccia and Peak zones are defined by high
chargeability responses and are connected by a zone of moderate chargeability.
The Minas Sur Zone occurs at the southeast end of a strong, linear chargeability
anomaly which extends at least 500 metres to the northwest and is open in that
direction. Management considers Minas Sur to be a high priority drill target.
FUTURE WORK PLANNED
The Company has continued to maintain the Rio Tabaconas properties in Peru in
good standing, although the "force majeure" provision of the contact has been
invoked until a resolution of the local cultural, developmental and
environmental concerns pertaining to mining activities in the region can be
addressed. The Company and the optionor have revised the timing of the remaining
US $1,315,000 option payments. On August 1, 2003, the Company commenced paying
US $1,500 per month to the optionor as compensation during this waiting period.
Upon reaching an agreement with the local communities the Company plans to
proceed with a Phase II diamond drill program. This program will include
drilling of targets on Cerro Tablon, Cerro Las Minas and possibly other areas of
the property. Management expects to revise the term of the option agreement upon
resolution of this issue.
ALTO CHICAMA PROPERTIES
During 2002, the Company acquired, through staking, 8,000 hectares (19,760
acres) of mining property in the Alto Chicama area, La Libertad Department.
After a brief geological evaluation the Company has decided not to carry out any
further work on the properties.
PRINCIPAL OFFICE
The Company's principal office is located at #709 - 837 West Hastings Street,
Vancouver, British Columbia, V6C 3N6. The Company leases its office space from
Beauregard Holdings Corp. ("Beauregard"). See "Item 7. Major Shareholders and
Related Party Transactions - Related Party Transactions".
On September 1, 2002 the Company started to share office facilities, capital
assets and personnel with Amera. During the fiscal year ended December 31, 2003,
the Company received $35,110 (2002 - $6,000) from Amera. See "Item 7. Major
Shareholders and Related Party Transactions - Related Party Transactions." For
the three month period ending on March 31, 2004, the Company has received
$21,315 (2003 - $6,000) from Amera.
OTHER ASSETS
INVESTMENT IN IMPSA
The Company directly owns 80% of the issued share capital of IMPSA (BVI) and
owns the remaining 20% through its wholly-owned subsidiary, IHC. IMPSA (BVI) has
one wholly-owned subsidiary, IMPSA Peru, which owns or has a right to own,
through an option agreement and staked claims, the property known as Rio
Tabaconas. See "Item 4. Information on the Company - Properties, Plants and
Equipment - Principal Properties - Peruvian Properties - Rio Tabaconas
Property."
MARKETABLE SECURITIES
In connection with the exchange of the Company's interest in Minas Barbados, the
Company received, net of the distribution to its shareholders, 660,000 Viceroy
Common Shares. As at December 31, 2003, the Company held shares in Viceroy,
Quest Capital and Spectrumgold with a quoted market value of $161,546. The Quest
and Specreumgold shares were received as a result of the reorganization of
Viceroy.
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. As at December
61
31, 2003 the Company held 600,000 shares of Amera Resources Corporation with a
quoted market value of $546,000 and 500,000 shares of Ballad Gold & Silver Ltd.
with a quoted market value of $325,000. It is the Company's intention to sell
the marketable securities so as to maximize its return.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2003, 2002 and 2001 should be read in
conjunction with the consolidated financial statements of the Company and
related notes included therein.
CRITICAL ACCOUNTING POLICIES
Reference should be made to the change in accounting policy and significant
accounting policies contained in notes 2 and 3 of the December 31, 2003
consolidated financial statements of the Company attached hereto. 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
consolidated financial statements attached hereto, direct costs related to the
acquisition and exploration of mineral properties held or controlled by it have
been capitalized on an individual property basis. It is the Company's policy to
expense any exploration associated costs not related to specific projects or
properties. Management 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.
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. See "Item 3. Key Information - Risk Factors."
The Company's consolidated financial statements were prepared on a going concern
basis which assumes that it will be able to realize assets and discharge
liabilities in the normal course of business.
The Company's consolidated financial statements are in Canadian dollars (CDN$)
and are prepared in accordance with Canadian GAAP, the application of which, in
the case of the Company, conforms in all material respects for the periods
presented with U.S. GAAP except for the measurement differences referred to in
Note 10 of the consolidated financial statements of the Company included herein.
The noon rate of exchange on June 22, 2004, reported by the United States
Federal Reserve Bank of New York for the conversion of Canadian dollars into
United States dollars was CDN$1.3592 (US$0.7357 = CDN$1.00). The effects of
inflation and price changes have not had a material impact on the Company's
income or net sales revenues during the past three years.
The Company and its subsidiaries' functional currency is the Canadian dollar.
The majority of the Company's cash deposits and accounts are in Canadian funds.
The Canadian dollar varies under market conditions, the continued
62
fluctuation of the Canadian dollar against the U.S. dollar will continue to
affect the Company's operations and financial position. See "Item 3. Key
Information - Risk Factors - Currency Fluctuations".
OVERVIEW
The Company is a natural resource company engaged in the business of acquisition
and exploration of mineral properties in South America, principally in Argentina
and Peru. At this stage the Company has no producing properties and,
consequently, has no current operating income or cash flow.
The Company's accounting policy is to defer all direct costs related to the
acquisition and exploration of mineral properties held or controlled by the
Company on an individual property basis until viability of a property is
determined. General exploration costs are expensed as incurred. When a property
is placed in commercial production, such deferred costs are 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 or its carrying
value has been impaired, a write down is taken for any expected loss on the
project or property. At December 31, 2003, the Company had capitalized
$3,719,087 (2002 -$3,181,277; 2001 - $2,777,458) on its Argentine properties and
$3,164,554 (2002 - $2,666,450; 2001 - $1,803,714) on the Peruvian properties.
To date the Company has financed its activities by the issue of common shares.
During the year ended December 31, 2001, the Company completed two private
placements of 3,000,0000 units, at a price of $0.26 per unit, for net cash
proceeds of $746,250, and 2,063,000 units, at a price of $0.38 per unit, for net
cash proceeds of $717,006. Each unit consists of one common share of the Company
and one half non-transferable share purchase warrant. Each whole warrant from
the placement of 3,000,000 units entitled the holder to purchase one common
share of the Company, at a price of $0.40, on or before July 3, 2002. In
addition to the 3,000,000 units, Agent's warrants to purchase 259,000 common
shares, for the exercise price of $0.35 per share, on or before July 3, 2002
were also issued. None of the $0.40 and $0.35 warrants were outstanding as of
December 31, 2003. Each whole warrant from the placement of 2,063,000 units
entitled the holder to purchase one common share of the Company, at a price of
$0.45, on or before March 31, 2003, and the Company also issued Agent's warrants
to purchase 206,300 common shares, for the exercise price of $0.45, on or before
March 31, 2003. As of December 31, 2003, none of the warrants with an exercise
price of $0.45 remained outstanding.
During the year ended December 31, 2002, the Company completed the following
four private placements:
i) 637,000 units at a price of $0.38 for cash proceeds of $222,695,
net of share issue costs of $19,365. Each unit consisted of one
common share of the Company and one warrant. Two warrants
entitled the holder to purchase an additional common share for
the exercise price of $0.45 on or before March 31, 2003. In
addition, agents warrants were issued to purchase 63,700 common
shares at a price of $0.45 on or before March 31, 2003.
ii) 1,777,778 units at a price of $0.45 per unit for cash proceeds
of $686,132, net of share issue costs of $118,868. Each unit
consisted of one common share of the Company and one warrant.
Two warrants entitled the holder to purchase an additional
common share at a price of $0.54 per share on or before April 9,
2003. In addition, the Company issued 11,111 shares to the
agents, at a price of $0.45 per share. The agents also received
agents warrants to purchase 355,556 common shares at a price of
$0.54 per share on or before April 9, 2003.
iii) 1,722,222 units at a price of $0.45 per unit, for cash proceeds
of $751,000, net of share issue costs of $24,000. Each unit
consisted of one common share of the Company and one warrant.
Each warrant entitled the holder to purchase an additional
common share of the Company at a price of $0.53 per share on or
before May 23, 2003 and $0.60 per share on or before May 23,
2004. The agents also received agents warrants to purchase
66,666 common shares at a price of $0.53 per share on or before
May 23, 2003. Certain directors have purchased 191,111 units.
63
iv) 1,554,915 units at a price of $0.47 for cash proceeds of
$698,987, net of share issue costs of $31,823. Each unit
consisted of one common share of the Company and one warrant.
Each warrant entitles the holder to purchase an additional
common share of the Company at a price of $0.55 per share on or
before September 27, 2003 and $0.60 on or before September 27,
2004. The agents also received agents warrants to purchase
37,496 common shares at a price of $0.50 per share on or before
September 27, 2003. Certain directors have purchased 325,000
units total benefit was $9,700.
During the year ended December 31, 2003, the Company completed a brokered
private placement for 2,900,000 units at a price of $0.90 per unit, for cash
proceeds of $2,421,150, net of share issue costs of $188,850 which closed in
April 2003. Each unit consisted of one common share and one-half
non-transferable common share purchase warrant. One whole warrant entitles the
holder to purchase one common share for the exercise price of $1.10 per share on
or before April 28, 2004. In addition, options and warrants were exercised which
resulted in cash proceeds of $3,931,624 to the Company during the year.
In February 2004, the Company completed a brokered private placement of
1,500,000 units at $3.10 per unit, for proceeds of $4,307,500 net of costs of
$342,500. In addition the Company has received $2,779,149 from the exercise of
warrants and options from January 1 to May 31, 2004.
During the year ended December 31, 2001, the Company did not issue any common
shares on the exercise of warrants. During the year ended December 31, 2002, the
Company issued 2,085,361 common shares on the exercise of warrants and agents
warrants for $837,512. During the year ended December 31, 2003, the Company
issued 5,074,996 common shares on the exercise of warrants and agents warrants
for $3,035,765. As of December 31, 2003, the Company had reserved 6,042,448
common shares for issuance upon the exercise of outstanding warrants.
Cash on hand at March 31, 2004 was approximately $8,000,000. During the nine
month period from March 31, 2004 to December 31, 2004, the Company has no
planned exploration expenditures in Argentina for the Valle del Cura region, the
Gualcamayo region, or the NW San Juan region. The Company plans to expend
$2,100,000 on the Phase II drilling program at the Navidad project. In the event
the reorganization is approved, management believes Golden Arrow will expend
$350,000 on an initial drill program at the Laguna de los Toros property and
$200,000 on the Rio Tabaconas project (formerly known as Tamborapa project) in
Peru during the nine month period from March 31, 2004 to December 31, 2004.
RESULTS OF OPERATIONS
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2003, 2002 and 2001 should be read in
conjunction with the consolidated financial statements of the Company attached
hereto and related notes included therein.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
The Company reported a consolidated loss of $3,418,418 ($0.11 per share) in
2003, an increase of $1,978,312 from the loss of $1,440,106 ($0.06 per share) in
2002. The increase in the loss experienced by the Company in 2003, compared to
2002, was due to a number of factors of which $1,705,940 can be attributed to
operating expenses and $272,372 to non-operating items.
In early 2003 the Company focused its efforts on its Navidad Project in Chubut
Province located in southern Argentina. The preliminary results of its initial
exploration efforts were very encouraging. Phase I of a drilling program
commenced in November 2003 and continued into March 2004. A second phase is
scheduled to commence in May 2004. Management believes that the Navidad Project
is worthy of its primary interest and accordingly has focused the majority of
its available resources on this project and expects to continue to do so. The
Company has continued to maintain the Rio Tabaconas properties in Peru in good
standing, although the "force majeur" provision of the contact has been invoked
until a resolution of the local cultural, developmental and environmental
concerns pertaining to mining activities in the region can be addressed. On
December 15, 2003 Barrick served notice that it would not be exercising its
option on the Potrerillos or Rio de las Taguas properties and the Company is
pursuing other partners for the continued exploration of these drill ready
projects. The Company entered into a number of joint venture agreements which
resulted in the farm-out of several of its properties.
64
On March 5, 2004 Minera Aquiline Argentina SA, a subsidiary of Aquiline,
commenced an action against the Company seeking damages and a constructive trust
over the Navidad Area Properties. See "Item 8. Financial Information - Legal
Proceedings." The Company believes the Aquiline legal action is without merit
and will vigorously defend itself. A Statement of Defence has been filed. The
trial has been set for October 11, 2005 in Vancouver, British Columbia. As of
the date of this annual report, the outcome is not determinable.
The Company's 2003 operating expenses were $3,164,216 an increase of $1,705,940
from 2002. A significant portion of the increase for 2003 is attributed to the
Company's application of the fair value method of accounting for stock options
granted to its employees and directors. As permitted, the Company has elected
prospective application, effective January 1, 2003. Previously options granted
to the Company's directors and employees were only disclosed on a pro forma
basis in the notes to the Company's consolidated financial statements. During
2003 the Company recorded a non-cash compensation expense of $1,487,235 relating
to stock options granted to the Company's employees, directors and consultants.
In 2002, the Company recorded an expense of $128,260 for stock options granted
to its consultants and disclosed a pro forma charge of $140,840 for stock
options granted to its directors and employees. Had the Company applied
retroactive treatment it would have recorded an expense of $269,100 for 2002.
Much of the balance of the increase in the operating expenses can be attributed
to the Navidad Project program: (1) Corporate development and investor relations
increased $103,333; (2) General exploration increased $46,638; (3) Travel
increased $25,465. The increase of $124,935 in professional fees is primarily
due to legal costs incurred in connection with the Aquiline legal action.
The Company recorded a gain of $481,779 on the optioning of properties to Ballad
and Amera.
The Company wrote down the value of its mineral properties and deferred costs by
$776,626 in 2003. This adjustment of property values reflects the expiration of
the agreement with Barrick on the Company's Valle de Cura area properties. In
2002 the Company did not write off any mineral properties and deferred costs.
Interest and other income was $66,561 in 2003, an increase of $39,976 from 2002,
primarily as a result of an increase of funds on deposit.
In 2003 the Company received cash proceeds of $6,467,245 from the sale of common
shares less costs of $188,850. The Company's total assets increased from
$7,432,489 at December 31, 2002 to $12,097,844 at December 31, 2003. The
Company's cash position at December 31, 2003 was $4,454,241 an increase of
$3,018,117 from December 31, 2002.
On May 3, 2004 the Company announced a proposed corporate reorganization. See
"Item 4. Information on the Company - History and Development of the Company."
The effect of the reorganization will be to transfer the Transferred Assets to
Golden Arrow. The Company will retain the Navidad Properties and will be
responsible for the Company's accounts payable. The Company's shareholders will
receive Golden Arrow common shares which will result in an identical percentage
ownership by the Company's shareholders before and after the reorganization.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
The Company reported a consolidated loss of $1,440,106 ($0.06 per share) in
2002, an increase of $558,231 from the loss of $881,875 ($0.06 per share) in
2001. The increase in the loss experienced by the Company in 2002, compared to
2001, was due to a number of factors of which $512,591 can be attributed to
operating expenditures and $45,640 to non-operating items.
As a result of adopting the new section of the Canadian Institute of Chartered
Accountants' Handbook Section 3870 effective January 1, 2002 the Company has
recognized compensation expense of $128,260 for stock options granted to
consultants which is included in the increased operating expenditures.
As a result of extremely encouraging results from Phase I drilling in the fall
of 2001, the Company continued to focus its main exploration activities on the
Rio Tabaconas project in Peru for the first half of 2002 by carrying out
extensive pre-drill work to further define drill targets on the property's most
advanced gold zones, Tablon and Cerro Las Minas. As a result of the pre-drill
program the potential size of the mineralized zone was significantly expanded. A
65
substantial follow up Phase II drill program was developed to test the
identified drill targets. In order to obtain financing for the work. The Company
proceeded with an extensive market awareness program and investor relations
campaign throughout North America and Europe with the assistance of several
consultants. During the first six months of 2002 the Company raised net equity
proceeds of $1,659,827 for further exploration and property payments in Peru and
Argentina and general working capital.
By the middle of the year the Company acquired an additional 8,000 ha (10,851.3
acres) in Northern Peru and increased its properties in the Patagonia region in
southern Argentina during the remainder of the year to a total of 91,423 ha
(124,007 acres) as compared to 7,650.3 ha (10,377 acres in 2001).
As a result of the Provincial and Municipal elections in Peru held in November
2002 and the substantial investment required to advance the Rio Tabaconas
project through the next exploration stage, in June 2002 the Company announced
its intention to take a more measured approach to exploration on the Rio
Tabaconas project to ensure that all local cultural, developmental and
environmental concerns in the region have been addressed. See "Item 4.
Information on the Company - Properties, Plants and Equipment - Principal
Properties - Peruvian Properties - Rio Tabaconas Property." The Company intends
to conduct further exploration only after an agreement with the local community
of Tamborapa has been finalize.
In the meantime, the Company devoted its attention to aggressively assessing its
grass roots properties, acquiring and advancing some of the exciting projects in
Argentina such as Las Bayas and lately the Navidad Project.
Through out the year exploration on the Potrerillos and Rio de las Taguas
properties was on hold pending a resumption of exploration and development
activities at the nearby Pascua-Lama and Veladero deposits by Barrick. The
property option agreement due to expire on November 30, 2002, was extended by
mutual consent to allow Barrick's technical team to review additional properties
of the Company. Subsequent to the year end, Barrick and the Company agreed to
extend the Selection Notice Period in the option agreement from November 30,
2002 to December 30, 2003. In return for the extension Barrick paid US$65,000
which was used to make payments to maintain the option properties in good
standing.
As a result of the above corporate activities there were increases in to the
following expenses: (i) Administration and management services - $4,218; (ii)
Bank charges and interest - $3,028; (iii) Corporate development and investor
relations - $161,175 of which $51,417 reflects the cost of full time investor
relations staff, $51,906 for investor relations consultant, $30,223 for various
media advertising and $25,323 for international and other conferences; (iv)
General exploration - $70,446 as a result of an aggressive examination of
grassroots properties mainly in the Patagonia region; (v) Printing - $10,171
mainly for investor presentation material; (vi) Professional fees - $67,776
which relates to the ongoing North America and European market awareness
program; (vii) Salaries and employee benefits - $998 reflects a slight increase
in administration wages and benefits cost; (viii) Stock based compensation -
$128,260 for stock options granted to consultants, as required by the CICA
Handbook Section 3870 effective January 1, 2002; (ix) Telephone and utilities -
$ 9,230 due to the increase in correspondence with Europe, North America and
South America; (x) Transfer agent and regulatory fees - $20,235 as a result of
the increase in equity financings; (xi) Travel and accommodation - $42,745
mainly due to the European market awareness and investor relations program and
trips to Peru and Argentina for property negotiations.
The following expenses decreased for the year: (i) Amortization and depreciation
- $1,885; and (ii) Office and sundry - $3,052 as a result of cost recovery from
a private company sharing office space; (iii) Rent, parking and storage - $754
as a result of cost recovery from a private company sharing office space;
During 2002 the Company did not write-off of mineral claims and deferred costs,
compared to a write off of $21,483 in 2001. The mineral claims written off
during 2001 were 100 % owned by the Company.
Interest and miscellaneous income reported for 2002 was $26,585 a decrease of
$70,695 from $97,280 reported in 2001 as a result of lower interest rates paid
on funds on deposit and no overhead charge for the exploration expenditures on
the Valle de Cura property allowed under the Barrick agreement.
66
During 2002, the Company did not dispose of any common shares of Viceroy. The
Company sold 100,000 Viceroy shares in 2001 for cash proceeds of $16,966
resulting in a loss or $6,534. No provision was required for Marketable
Securities for the year ended 2002 as compared to $22,483 in 2001.
The Company's total assets increased from $5,487,374 at December 31, 2001 to
$7,432,489 at December 31, 2002. The increase is attributed to the equity
financing conducted by the Company through four private placements and exercise
of warrants and stock options issuing 7,958,387 common shares for proceeds of
$3,458,382 before deducting share issue costs of $194,056.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
The Company reported a consolidated loss of $881,875 ($0.06 per share) in 2001,
a decrease of $1,142,565 from the loss of $2,024,440 ($0.17 per share ) in 2000.
The decrease in the loss experienced by the Company in 2001, compared to 2000,
was due to an decrease in operating expenditures of $257,840 and non-operating
cost of $884,725.
During the 2001 fiscal year, the Company focused its main exploration activities
on the Rio Tabaconas properties (formerly known as Tamborapa properties) in
Peru. The exploration activities consisted of a pre-drill program during July,
followed by a Phase One, 1,600 meter (30 hole) diamond drill program in
September. The Company also carried out a small exploration program in the
Patagonia region by staking a total of 7,650.3 ha (10,377 acres). The emphasis
from Argentina to Peru resulted in the Company reducing the amount of activities
in corporate development and investor relations and financing for the year.
As a result the following expenses decreased in 2001 as compared to 2000: (i)
Amortization and depreciation - $7,229 as a result of fewer additions to capital
assets; (ii) Corporate development and investor relations -$90,884 as a result
of a one time media promotion, $42,340 paid in the previous year and $7,300 due
to attending fewer conferences, $4,000 for reduced new release dissemination and
$37,244 to reflect a reduction in investor relations staff cost; (iii) General
exploration - $27,273 as a result of less general exploration work; (iv) Office
and sundry - $3,095; (v) Printing - $9,812; (vi) Professional fees -$135,808 of
which $36,964 related to services provided in Argentina and $80,000 for a one
time cost paid in the previous year and $13,971 due to reduced legal fees; (vii)
Telephone and utilities - $9,667 as a result of less investor relations work;
(viii) Travel and accommodation - $6,798.
The following expenses increased during the 2001 fiscal year as compared to
2000: (i) Administration and management services - $1,440 ; (ii) Bank charges
and interest - $ 386; (iii) Rent, parking and storage - $ 4,301 which reflects a
full year as compared to a partial year for the additional office space; (iv)
Salaries and employee benefits - $25,801 which reflects the cost of a full time
administrative assistant and a full year for actual remuneration and applicable
taxes which had been cut back in the prior year; (v) Transfer agent and
regulatory fees - $798.
During 2001 the Company wrote off $21,483 of mineral claims and deferred cost as
compared to $789,953 in 2000. The mineral claims were 100% owned by the Company.
Interest and miscellaneous income reported for 2001 was $97,280 a decrease of
$59,585 from $156,865 reported in 2000 as a result of lower interest rates paid
on less funds on deposit and lower overhead charge for the exploration
expenditures on the Valle del Cura property allowed under the Barrick agreement.
During 2001, the Company disposed of 100,000 Viceroy common shares for cash
proceeds of $16,966, reporting a loss of $6,534 as compared to a loss of Nil
reported in 2000. A provision for marketable securities for 2001 of $22,483 was
made as compared to $178,777 reported in 2000 due to fewer shares held at year
end.
The Company's total assets increased from $4,979,696 at December 31, 2000 to
$5,487,374 at December 31, 2001. The increase is attributed to the equity
financing conducted by the Company through two private placements issuing
5,063,000 common shares for proceeds of $1,563,940 with a net commission of
$100,684.
67
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at December 31, 2003 was $4,454,241 an increase of
$3,018,117 from December 31, 2002. Total assets increased from $7,432,489 at
December 31, 2002 to $12,097,844 at December 31, 2003, funded primarily from the
issue of common shares for net proceeds of $6,352,774. See "Item 5. Operating
and Financial Review and Prospects - Overview."
The Company has capitalized expenditures of approximately $1,500,000 subsequent
to December 31, 2003 on the Navidad Project related to the Phase I drilling
program which continued into March 2004.
As at May 31, 2004 the Company had working capital of approximately $7,600,000.
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 work and property commitments. A Phase II budget for the
Navidad Project has been approved in the amount of $2,100,000. The Company will
continue to rely on successfully completing additional equity financing and/or
conducting joint venture arrangements to further exploration on its properties.
There can be no assurance that the Company will be successful in obtaining the
required financing or negotiating joint venture agreements. The failure to
obtain such financing or joint venture agreements could result in the loss of or
substantial dilution of its interest in its properties.
The Company's management may elect to acquire new projects, at which time
additional equity financing may be required to fund overhead and maintain its
interests in current projects, or may decide to relinquish certain of its
properties. These decisions will be based on the results of ongoing exploration
programs and the response of equity markets to the projects and business plan.
As at December 31, 2003 the Company's accounts payable and accrued liabilities
included approximately $250,000 of costs related to the Phase I Navidad drilling
program which was underway at that date. The balance was for normal operating
expenses and accruals for professional fees. The March 31, 2004 accounts payable
and accrued liabilities included approximately $500,000 of costs related to the
Navidad drilling program which was completed in early 2004.
During the period from January 1, 2004 through December 31, 2004, the Company
has property payments and rent (on the Company's offices) obligations totalling
$324,000.
The Company does not know of any trends, demands, 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
or the acquisition of projects.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet arrangements that have
or are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
68
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Payments Due by Period
Less than 1 More than 5
Total Year 1-3 Years 3-5 Years Years
--------------------------------------------------------------------------------------------------------------------
Contractual Obligations $2,427,000 $247,000 $538,000 $270,000 $1,372,000
Long-term Debt Obligations
Capital (Finance) Lease Obligations
Operating Lease Obligations $205,000 $77,000 $128,000
Purchase Obligations
Other Long-Term Liabilities Reflected in
the Company's Balance Sheet under the
GAAP of the Primary Financial Statements
--------------------------------------------------------------------------------------------------------------------
Total $2,632,000 $324,000 $666,000 $270,000 $1,372,000
====================================================================================================================
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
--------------------------------------------------------------------------------
DIRECTORS AND SENIOR MANAGEMENT
The name, positions held with the Company and principal occupation of each
director, officer and executive officer of the Company within the five years
preceding the date of this annual report are as follows:
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION (1) FIVE YEARS(2) DIRECTOR/OFFICER
-----------------------------------------------------------------------------------------------------------------------
GERALD G. CARLSON - President and Director of Copper Chairman since February 15, 1999.
Chairman and Director Ridge Exploration Inc., a public
Age 58 British Columbia mineral exploration Director since February 15, 1999.
company from March 2002 to present.
President of Nevada Star Resources
Corp, from March 5, 2002 to present.
President and CEO of LaTeko
Resources Ltd. from December 1996 to
February 2002.
-----------------------------------------------------------------------------------------------------------------------
JOSEPH GROSSO - Director and officer of the Company President since February 1990.
President, Chief Executive Officer since February 1990. President of
and Director Oxbow International Marketing Corp., Chief Executive Officer since
Age 66 a private British Columbia company. February 1990.
Director since February 1990.
-----------------------------------------------------------------------------------------------------------------------
ARTHUR LANG - Chief Financial Officer of the Chief Financial Officer since April
Chief Financial Officer, Company since April 2, 2004. 2, 2004.
Vice-President, and Director Consultant providing financial
Age 60 management services to various Vice-President since April 2, 2004.
clients from 1999 to April 2004
through Arthur G Lang Inc., a Director since April 2, 2004.
private British Columbia company.
-----------------------------------------------------------------------------------------------------------------------
69
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION (1) FIVE YEARS(2) DIRECTOR/OFFICER
-----------------------------------------------------------------------------------------------------------------------
NIKOLAOS CACOS - Corporate Secretary and Secretary since June 25, 1998.
Corporate Secretary and Director Vice-President Investor Relations of
Age 37 the Company since 1993. Director of Director since June 20, 2002
Info Touch Technologies, a
technology company, since August
1998. President and CEO of Gatco
Technology Corp. a capital pool
corporation, from May 2000 to Oct.
2001. President and director of
Amera Resources Corporation, a
private British Columbia company,
since April 2000.
-----------------------------------------------------------------------------------------------------------------------
SEAN HURD - Investor relations manager for the Director since September 2001.
Director Company from June 2002 to present
Age 37 and director since September 2001.
Investor relations manager for Mercury
Scheduling Systems Inc. from August
2001 to March 31, 2002. Investor
relations manager for the Company from
June 2000 to August 2001. Investor
relations for Senate Capital from
February 1996 to May 2002.
-----------------------------------------------------------------------------------------------------------------------
ROBERT STUART (TOOKIE) ANGUS Director of the Company from May Director since May 2003
Director 2003 to present. Managing Director,
Age 55 Mergers and Acquisitions, Endeavour
Financial Ltd., November 2003 to
present. Partner in law firm, Fasken
Martineau DuMoulin LLP from February
2001 to October 2003. Partner in
law firm, Stikeman Elliott from 1998
to 2001.
-----------------------------------------------------------------------------------------------------------------------
CHET IDZISZEK Director of the Company from May Director since May 2003
Director 2003 to present. President, CEO and
Age 56 director of Madison Enterprises
Corp. from 1993 to present. President,
CEO and director of Adrian Resources
Ltd. from June 1990 to present.
-----------------------------------------------------------------------------------------------------------------------
DAVID TERRY Director of the Company from May Director since May 2004
Director 2004 to present. Vice President,
Age 39 Exploration for Amera Resources
Corporation from March 2004 to
present. Regional geologist with the
British Columbia Ministry of Energy
and Mines in Cranbrook, British
Columbia from May 2001 to March 2004.
Project Geologist with Boldien Limited
prior to May 2001.
-----------------------------------------------------------------------------------------------------------------------
DAVID HORTON Senior Vice-President of Canaccord Nominee for Director
Nominee for Director Capital Corporation from 1996 to
Age 68 present.
-----------------------------------------------------------------------------------------------------------------------
(1) The persons listed have been proposed to the shareholders as nominees
for the board of directors at the meeting of shareholders to be held
June 24, 2004.
70
(2) Officers and Directors of the Company may also serve as directors of
other companies. See "Conflicts of Interest" below.
There are no family relationships between any directors or executive officers of
the Company. With the exception of the agreement with Endeavour Financial Ltd.
relating to Mr. Angus' appointment to the board of directors, to the best of the
Company's knowledge, there are no known arrangements or understandings with any
major shareholders, customers, suppliers or others, pursuant to which any of the
Company's officers or directors was selected as an officer or director of the
Company. See "Item 7. Major Shareholders and Related Party Transactions -
Related Party Transactions."
CONFLICTS OF INTEREST
There are no existing or potential conflicts of interest among the Company, its
directors, officers or promoters as a result of their outside business interests
with the exception that certain of the Company's directors, officers and
promoters serve as directors, officers and promoters of other companies, and,
therefore, it is possible that a conflict may arise between their duties as a
director, officer or promoter of the Company and their duties as a director or
officer of such other companies.
The directors and officers of the Company are aware of the existence of laws
governing accountability of directors and officers for corporate opportunity and
requiring disclosures by directors of conflicts of interest and the Company will
rely upon such laws in respect of any directors' and officers' conflicts of
interest or in respect of any breaches of duty by any of its directors or
officers. All such conflicts will be disclosed by such directors or officers in
accordance with the BCBCA, and they will govern themselves in respect thereof to
the best of their ability in accordance with the obligations imposed upon them
by law.
All of the Company's directors are also directors, officers or shareholders of
other companies that are engaged in the business of acquiring, developing and
exploiting natural resource properties including properties in countries where
the Company is conducting its operations. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which place the Company in a worse
position than if no conflict existed. The directors of the Company are required
by law to act honestly and in good faith with a view to the best interest of the
Company and to disclose any interest which they may have in any project or
opportunity of the Company. However, each director has a similar obligation to
other companies for which such director serves as an officer or director. The
Company has no specific internal policy governing conflicts of interest.
The following table identifies the name of each director of the Company and any
company, which is a reporting issuer in Canada or the United States, and for
which such director currently serves as an officer or director:
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
Gerald G. Carlson Copper Ridge Explorations President/Director Feb/99 to present
Nevada Star Resources Corp. President/Director Feb/02 to present
Dentonia Resources Ltd. Director Feb/94 to present
Fairfield Minerals Ltd. Director Jul/98 to present
Orphan Bay Resources Inc. Director Nov/00 to present
Nikolaos Cacos Amera Resource Corporation President/Director Apr/00 to present
Arthur Lang Mr. Lang is not an officer or director
of any other public company.
Joseph Grosso Amera Resource Corporation Chairman/Director Feb/04 to present
Sean Hurd Mr. Hurd is not an officer or director
of any other public company.
Robert Stuart (Tookie) Angus CMQ Resources Inc. Director Dec/03 to present
MCK Mining Corp Director Dec/03 to present
71
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
Nevsun Resources Ltd. Director Jan/03 to present
Canico resource Corp. Director Sept/02 to present
Plutonic Capital Inc. Director June/99 to present
First Quantum Minerals Ltd. Director Dec/97 to present
Blackstone Ventures Inc. Director Sept/97 to present
Adrian Resources Ltd. Director July/03 to present
Dynasty Gold Corp. Secretary/Director Oct/99 to present
Bema Gold Corporation Director June/92 to present
Chet Idziszek Adrian Resources Ltd. Chairman/CEO/ June/90 to present
President/Director
Madison Enterprises Corp. Chairman/CEO/ Nov/93 to present
President/Director
Lund Gold Ltd. CEO/President/ May/97 to present
Director
Oromin Explorations Ltd. President/Director Feb/94 to present
The Havana Group Inc. Director Aug/02 to present
David Terry Amera Resource Corporation Vice President Mar/04 to present
Exploration
David Horton Mr. Horton is not an officer or
director of any other public company
COMPENSATION
During the fiscal year ended December 31, 2003, the directors and officers of
the Company, as a group, had received or charged the Company a total of $330,600
(2002 - $326,326; 2001 - $326,707) for services rendered by the directors and
officers or companies owned by the individuals.
The Company is required, under applicable securities legislation in Canada, to
disclose to its shareholders details of compensation paid to its directors and
officers. The following fairly reflects all material information regarding
compensation paid by the Company to its directors and officers, which
information has been disclosed to the Company's shareholders in accordance with
applicable Canadian law.
EXECUTIVE COMPENSATION
"Named Executive Officers" means the Chief Executive Officer of the Company,
regardless of the amount of compensation of that individual, and each of the
Company's four most highly compensated executive officers, other than the Chief
Executive Officer, who were serving as executive officers at the end of the most
recent fiscal year and whose total salary and bonus amounted to $100,000 or
more. In addition, disclosure is also required for any individual whose total
salary and bonus during the most recent fiscal year was at least $100,000,
whether or not they were an executive officer at the end of the most recent
fiscal year.
During the year ended December 31, 2003, the Company had one Named Executive
Officer: Joseph Grosso, President and Chief Executive Officer (the "Named
Executive Officer"). The following table sets forth all annual and long-term
compensation awarded, paid to or earned by the Company's Named Executive
Officers during the financial years ended December 31, 2001, 2002 and 2003.
72
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------------------------------------
AWARDS PAYOUTS
-----------------------------------
NAME AND OTHER SECURITIES RESTRICTED LTIP
PRINCIPAL SALARY BONUS ANNUAL UNDER SHARES OR PAYOUTS ALL
POSITION YEAR ($) ($) COMPENSA OPTIONS/ RESTRICTED ($) OTHER
(A) (B)(1) (C) (D) TION SARS SHARE (H) COMPEN-
($) GRANTED UNITS SATION
(E) (#)(2) ($) ($)
(F) (G) (I)
--------------------------------------------------------------------------------------------------------------------
Joseph Grosso 2003 $102,000 - - 200,000 - - -
President and Chief 2002 $102,000 - - 500,000 - - -
Executive Officer 2001 $102,000 - - 300,000 - - -
--------------------------------------------------------------------------------------------------------------------
(1) Fiscal years ended December 31, 2003, 2002 and 2001.
(2) See "Options and Stock Appreciation Rights".
LONG TERM INCENTIVE PLAN AWARDS
Long Term Incentive Plan Awards ("LTIP") means any plan providing compensation
intended to serve as an incentive for performance to occur over a period longer
than one fiscal year whether performance is measured by reference to financial
performance of the Company or an affiliate of the Company, or the price of
shares of the Company but does not include option or stock appreciation rights
plans or plans for compensation through restricted shares or units. The Company
has not granted any LTIP's to the Named Executive Officer during the most
recently completed fiscal year.
OPTIONS AND STOCK APPRECIATION RIGHTS
Stock Appreciation Rights ("SAR's") means a right, granted by an issuer or any
of its subsidiaries as compensation for services rendered or in connection with
office or employment, to receive a payment of cash or an issue or transfer of
securities based wholly or in part on changes in the trading price of the shares
of the Company. No SAR's were granted to or exercised by the Named Executive
Officers or directors during the most recently completed fiscal year.
OPTION GRANTS
The following table sets forth stock options granted by the Company during the
financial year ended December 31, 2003 to the Named Executive Officers of the
Company:
Market Value
% of Total Options of Securities
Securities Under Granted in Exercise or Underlying Options
NAME OPTIONS GRANTED FINANCIAL YEAR(1) BASE PRICE(2) ON DATE OF GRANT EXPIRATION DATE
(#) ($/Security) ($/Security)
Joseph Grosso 200,000 10.42% $1.87 $1.87 August 27, 2008
(1) Percentage of all options granted during the financial year.
(2) The exercise price of stock options was set according to the rules of
the TSX-V. The exercise price of stock options may only be adjusted in
the event that specified events cause dilution of the Company's share
capital.
73
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all exercises of stock options by the
Named Executive Officers during the most recently completed fiscal year and the
fiscal year-end value of unexercised options on an aggregated basis:
Value of Unexercised
Unexercised Options In-the-Money Options
Securities Acquired Aggregate Value at Fiscal Year-End Fiscal Year-End(2)
NAME ON EXERCISE(1) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
(#) ($) (#) ($)
Joseph Grosso 375,000 $454,500 325,000/Nil $156,250 / N/A
(1) All options are exercisable to acquire the Company's Common Shares.
(2) Value of unexercised in-the-money options calculated using the closing
price of the Company's Common Shares on the TSX-V on December 31, 2002,
$1.75, less the exercise price per share of in-the-money stock options.
PENSION PLAN
The Company does not provide retirement benefits for directors or executive
officers.
TERMINATION OF EMPLOYMENT, CHANGES IN RESPONSIBILITY AND EMPLOYMENT CONTRACTS
The Company has no plans or arrangements in respect of remuneration received or
that may be received by the Named Executive Officers in the Company's most
recently completed fiscal year or current fiscal year in respect of compensating
such officers in the event of termination of employment (as a result of
resignation, retirement, change of control, etc.) or a change in
responsibilities following a change of control, where the value of such
compensation exceeds $100,000, except as disclosed in "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
COMPENSATION OF DIRECTORS
There are no arrangements under which directors were compensated by the Company
during the most recently completed financial year ended December 31, 2003 for
their services in their capacity as directors.
During the last completed financial year ending December 31, 2003, the Company
paid a total of $156,600 to its directors who are not Named Executive Officers,
as a group, for salaries and professional services rendered. See also "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts."
OPTION GRANTS
The following table sets forth information concerning stock options granted to
directors, as a group, who are not Named Executive Officers during the most
recently completed fiscal year:
Market Value
Securities Under % of Total Options of Securities
OPTIONS Granted in Exercise or Underlying Options
NAME GRANTED(1) FINANCIAL YEAR(2) BASE PRICE(3) ON DATE OF GRANT EXPIRATION DATE
(#) ($/Security) ($/Security)
Directors as a group 300,000 15.64% $0.90 $1.07 May 30, 2008
who are not Named 225,000 11.73% $1.87 $1.87 August 27, 2008
Executive Officers
(1) All options are for the Company's Common Shares.
(2) Percentage of all options granted in the period.
(3) The exercise price of the option is set at not less than the market
value of the Company's Common Shares on the date of grant, less a
discount allowed by the TSX-V. The exercise price may be adjusted
under certain circumstances, subject to regulatory acceptance.
74
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all securities acquired, the aggregate
value realized and the fiscal year end number and value of unexercised
options/SARs held by directors, as a group, who are not Named Executive
Officers:
Value of Unexercised
Unexercised Options In-the-Money Options
Securities Acquired Aggregate Value at Fiscal Year-End Fiscal Year-End(2)
NAME ON EXERCISE(1) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
(#) ($) (#) ($)
Directors, as a 379,600 $235,228 547,900/Nil $515,915 / N/A
group, who are not
Named Executive
Officers
(1) All options are exercisable to acquire the Company Common Shares.
(2) Value of unexercised in-the-money options calculated using the
closing price of the Company's Common Shares on the TSX-V on December
31, 2002, $0.55, less the exercise price per share of in-the-money
stock options.
PROPOSED COMPENSATION
The Company has no bonus, profit sharing or similar plans in place pursuant to
which cash or non-cash compensation is proposed to be paid or distributed to the
Named Executive Officers in the current or subsequent fiscal years.
MANAGEMENT CONTRACTS
JOSEPH GROSSO
By agreement, made effective as of July 1, 1999, Oxbow International Marketing
Corp., a private company owned by Joseph Grosso, is paid a consulting fee of
$8,500 per month for making available the services of Joseph Grosso as President
and Chief Executive Officer of the Company. During the fiscal year ended
December 31, 2003, Oxbow was paid $102,000.
Pursuant to the terms of the agreement, in the event the agreement is terminated
by the Company as a result of Mr. Grosso's death or permanent disability or by
Mr. Grosso as a result of a material breach or default by the Company, Oxbow is
entitled to: (i) any monthly compensation due to the date of termination, (ii)
options as determined by the board of directors, (iii) an additional $6,500 per
month of compensation, payable from July 1, 1999 through the date of
termination, (iv) twelve months of Mr. Grosso's monthly compensation (which may
be adjusted annually), and (v) a bonus payment of $78,000.
In the event the agreement is terminated by the Company without cause or as a
result of a change of control, Oxbow is entitled to (i) any monthly compensation
due to the date of termination, (ii) options as determined by the board of
directors, (iii) an additional $6,500 per month of compensation, payable from
July 1, 1999 through the date of termination, (iv) three years of Mr. Grosso's
monthly compensation (which may be adjusted annually), and (v) a bonus payment
of $234,000.
NIKOLAOS CACOS
By agreement dated January 1, 1996, as amended December 10, 1996 and August 22,
2001, Nikolaos Cacos, an officer and director of the Company, was paid $5,500
per month for professional services rendered. Mr. Cacos received a retainer of
$4,500 per month until December 1, 2001. Thereafter, the rate was increased by
$1,000. During the fiscal year ended December 31, 2003, Mr. Cacos was paid
$66,000 (2002 - $66,000; 2001 - $66,000). On January 5, 2004 this contract was
amended to reduce the fee paid, which currently is $1,375 per month.
75
SEAN HURD
By agreement dated June 11, 2001, as extended, Sean Hurd, a director of the
Company, was paid $4,000 per month for professional services rendered. During
the fiscal year ended December 31, 2003, Mr. Hurd was paid $48,000 (2002 -
$52,050; 2001 - $30,882). On January 5, 2004 this contract was amended to reduce
the fee paid, which currently is $2,400 per month.
GERALD CARLSON
By agreement dated February 15, 2001, between the Company and KGE Management
Ltd., a private company owned by Gerald Carlson, Chairman of the Company, Mr.
Carlson was paid a consulting fee of $36,000 per year, plus $550 per day if
services are rendered for more than five days per month, through KGE Management
Ltd. The agreement expired January 14, 2001 and was renewed until June 18, 2003.
By mutual agreement on October 3, 2002, the fee was changed to $2,000 per month
plus $550 per day if services were rendered for more than four days per month.
During the fiscal year ended December 31, 2003, the Company paid $41,400 to KGE
Management Ltd. (2002 - $33,000; 2001 - $33,000). On April 1, 2004 a new
agreement was executed providing for a monthly retainer of $2,000 per month plus
a fee of $600 per day for additional days in excess of 3 days per month. Mr.
Carlson is required to provide a minimum of eight days of service per month.
This agreement continues to March 31, 2005.
In the event of a change of management of the Company as a result of a takeover
of the Company, Mr. Carlson is entitled to be paid two times the monthly
retainer for the remaining months outstanding under the agreement.
ARTHUR LANG
By agreement dated April 23, 2004, Arthur Lang, the Chief Financial Officer and
a director of the Company, is paid a salary of $80,000 per year for professional
services rendered. Mr. Lang is also reimbursed for certain monthly club dues.
DAVID TERRY
As of the date of this report, the Company does not have an agreement with Mr.
Terry; however, Mr. Terry has entered into a Consulting Agreement dated February
16, 2004, with Amera pursuant to which Mr. Terry is paid a monthly salary of
$7,500. In addition, Mr. Terry is to be granted stock options from Amera and the
Company. Mr. Terry receives a $500 per month automobile and parking allowance
from Amera and Amera gave Mr. Terry a relocation allowance of $25,000. The
agreement is effective from March 16, 2004 to March 16, 2006. Prior to the
effective date of the agreement, Mr. Terry billed Amera $405.00 per day for
services. In the event the agreement is terminated Amera may pay Mr. Terry
$7,500 (plus GST) in lieu of one month's notice.
The Company has agreed to reimburse Amera for a portion of Mr. Terry's costs.
CORPORATE CEASE TRADE ORDERS OR BANKRUPTCIES
Other than as disclosed herein, no director or officer of the Company is or has
been, within the preceding 10 years, a director or officer of any other issuer
that, while that person was acting in that capacity:
(a) was the subject of a cease trade order or similar order or an
order that denied the other issuer access to any exemptions for
a period of more than 30 consecutive days, or
(b) became bankrupt, made a proposal under any legislation relating
to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement, or compromise with creditors or had a
receiver, receiver manager or trustee appointed to hold its
assets.
PENALTIES OR SANCTIONS
No director or officer of the Company is or has, within the past 10 years:
76
(a) been subject to any penalties or sanctions imposed by a court
relating to Canadian securities legislation or Canadian
securities regulatory authority or has entered into a settlement
agreement with a Canadian securities regulatory authority, or
(b) been subject to any other penalties or sanctions imposed by a
court or regulatory body that would be likely to be considered
important to a reasonable investor making an investment
decision.
INDIVIDUAL BANKRUPTCIES
No director or officer of the Company is or has, within the preceding 10 years,
become bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency or been subject to or instituted any proceedings, arrangement, or
compromise with creditors or had a receiver, receiver manager or trustee
appointed to hold the assets of that individual.
BOARD PRACTICES
REMUNERATION COMMITTEE
The board of directors of the Company has adopted procedures to ensure that all
employment, consulting or other compensation agreements between the Company and
any director or senior officer of the Company or between any associate or
affiliate of the Company and any director or senior officer are considered and
approved by the disinterested members of the board of directors or a committee
of independent directors.
The board of directors appoints a Remuneration Committee as is needed.
AUDIT COMMITTEE
The Company's Audit Committee must be comprised of at least three directors, the
majority of whom are not employees, control persons or members of the management
of the Company or any of its associates or affiliates. As of the date of this
report, Messrs. Angus, Idziszek and Lang are members of the Audit Committee. The
board of directors of the Company, after each annual shareholder' meeting must
appoint or re-appoint an audit committee.
The Audit Committee must review the annual financial statements of the Company
before they are approved by the board of directors of the Company. The board of
directors of the Company must review, and if considered appropriate, approve the
annual financial statements of the Company before presentation to the
shareholders of the Company. In addition, the Audit Committee is responsible
for:
- Retaining the external auditors and communicating to them that
they are ultimately accountable to the Committee and the Board
as the representatives of the shareholders;
- Reviewing the external audit plan and the results of the audit,
approves all audit engagement fees and terms and pre-approves
all non-audit services to be performed by the external auditor;
- Reviewing the Company's financial statements and related
management's discussion and analysis of financial and operating
results; and
- Having direct communication channels with the Company's
auditors.
The Audit Committee's mandate requires that all of the members be financially
literate and at least one member have accounting or related financial management
expertise. The mandate of the Committee empowers it to retain legal, accounting
and other advisors.
77
EMPLOYEES
As of December 31, 2003, the Company had nine full-time employees and two
part-time employees in the area of management and administration compared with
eight full-time employees and two part-time employees in the area of management
and administration at December 31, 2002 and seven full-time employees and one
part-time employee in the area of management and administration at December 31,
2001. Exploration activities are conducted by consultants, laborers and
technicians hired for the duration of the exploration program.
SHARE OWNERSHIP
As of May 31, 2004, the Company had 41,115,376 shares outstanding. The following
table sets forth details of all employee share ownership and includes
information regarding the date of expiration or any options or warrants held by
each employee; the exercise price of the particular option or warrant held; the
total number of options and warrants held by each employee; the total number of
shares held by each employee; and each employee's percentage of ownership:
The following table sets forth certain information regarding ownership of the
Company's shares by the Company's officers and directors as of May 31, 2004.
--------------------------------------------------------------------------------------------------------------------
SHARES AND RIGHTS
BENEFICIALLY OWNED OR
TITLE OF CLASS NAME CONTROLLED(1) PERCENT OF CLASS(1)
--------------------------------------------------------------------------------------------------------------------
Common Stock Joseph Grosso 2,037,026(2) 4.85
Common Stock Nikolaos Cacos 233,551(3) 0.57
Common Stock Sean Hurd 251,100(4) 0.61
Common Stock Gerald Carlson 380,000(5) 0.92
Common Stock David Terry 70,000(6) 0.17
Common Stock Chet Idziszek 308,000(7) 0.75
Common Stock Robert Stuart (Tookie) Angus 190,000(8) 0.46
Common Stock Arthur Lang 50,000(9) 0.12
Common Stock Officers and Directors (as a group, 8 3,519,677(10) 8.13
persons)
(1) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants within 60 days from May 31, 2004, these additional shares are
deemed to be outstanding for the purpose of computing the percentage of
common stock owned by such persons, but are not deemed to be outstanding
for the purpose of computing the percentage owned by any other person.
Based on 41,115,376 shares of common stock outstanding as of May 31,
2004.
(2) Includes the following shares, options and warrants held by Mr. Grosso,
Evelyn Grosso (Mr. Grosso's wife) and Oxbow:
(a) 641,902 shares held by Mr. Grosso;
(b) 262,000 shares held by Mr. Grosso's wife;
(c) 220,724 shares held by Oxbow;
(d) Options held by Mr. Grosso to acquire 397,500 shares;
(e) Options held by Ms. Grosso to acquire 142,500 shares;
(f) Warrants held by Mr. Grosso to acquire 150,000 shares at a price of
$0.60 per share, exercisable until September 27, 2004;
(g) Warrants held by Ms. Grosso to acquire 50,000 shares at a price of
$0.60 per share, exercisable until September 27, 2004; and
(h) Warrants held by Oxbow to acquire 172,400 shares at a price of
$0.75 per share, exercisable until September 15, 2004.
See "Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."
78
(3) Includes 48,551 shares held by Mr. Cacos and options held by Mr. Cacos
to acquire an additional 185,000 shares. See "Item 6. Directors,
Senior Management and Employees - Options, Warrants and Other Rights
to Acquire Securities - Stock Options."
(4) Includes 21,100 shares held by Mr. Hurd and options held by Mr. Hurd
to acquire an additional 230,000 shares. See "Item 6. Directors,
Senior Management and Employees - Options, Warrants and Other Rights
to Acquire Securities - Stock Options."
(5) Includes 45,000 shares held by Mr. Carlson and options held by Mr.
Carlson to acquire an additional 335,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and
Other Rights to Acquire Securities - Stock Options."
(6) Includes 20,000 shares held by Mr. Terry and options held by Mr. Terry
to acquire an additional 50,000 shares. See "Item 6. Directors, Senior
Management and Employees - Options, Warrants and Other Rights to
Acquire Securities - Stock Options."
(7) Includes 83,000 shares held by Mr. Idziszek and options held by Mr.
Idziszek to acquire an additional 225,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and
Other Rights to Acquire Securities - Stock Options."
(8) Includes options held by Mr. Angus to acquire 190,000 shares. See
"Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."
(9) Includes options held by Mr. Lang to acquire 50,000 shares. See "Item
6. Directors, Senior Management and Employees - Options, Warrants and
Other Rights to Acquire Securities - Stock Options."
(10) Includes the shares, options, and warrants set forth in footnotes 2
through 9 above. See "Item 6. Directors, Senior Management and
Employees - Options, Warrants and Other Rights to Acquire Securities -
Stock Options."
OPTIONS, WARRANTS AND OTHER RIGHTS TO ACQUIRE SECURITIES
As of May 31, 2004, the Company had granted a number of stock options, issued a
number of warrants and entered into a number of agreements pursuant to which up
to 7,944,449 common shares of the Company may be issued. The following is a
brief summary of these stock options, warrants and agreements.
STOCK OPTIONS
The TSX-V requires all TSX-V listed companies to adopt stock options plans, and
such plans must contain certain provisions. At the annual and extraordinary
general meeting of shareholders of the Company held on June 26, 2003, the
shareholders approved the Company's stock option plan (the "Stock Option Plan").
The purpose of the Stock Option Plan is to provide incentive to the Company's
employees, officers, directors, and consultants responsible for the continued
success of the Company. The following is a summary of the Stock Option Plan.
ADMINISTRATION OF THE STOCK OPTION PLAN
The Stock Option Plan provides that it will be administered by the Company's
board of directors (the "Board"), or by a stock option committee (the
"Committee") of the Company's Board consisting of not less than 2 of its
members. The Stock Option Plan is currently administered by the Board.
DESCRIPTION OF STOCK OPTION PLAN
The effective date (the "Effective Date") of the Stock Option Plan is June 2,
2003, the date the Board of Directors approved the Stock Option Plan, and it
will terminate ten years from the Effective Date.
The Stock Option Plan provides that options may be granted to any employee,
officer, director or consultant of the Company or a subsidiary of the Company.
79
The options issued pursuant to the Stock Option Plan will be exercisable at a
price not less than the market value of the Company's common shares at the time
the option is granted. "Market Value" means:
(a) for each organized trading facility on which the common share are
listed, Market Value will be the closing trading price of the common
shares on the day immediately preceding the grant date less any
discounts permitted by the applicable regulatory authorities;
(b) if the Company's common shares are listed on more than one organized
trading facility, the Market Value shall be the Market Value as
determined in accordance with subparagraph (a) above for the primary
organized trading facility on which the common shares are listed, as
determined by the Board (or a committee thereof), subject to any
adjustments as may be required to secure all necessary regulatory
approvals;
(c) if the Company's common shares are listed on one or more organized
trading facilities but have not traded during the ten trading days
immediately preceding the grant date, then the Market Value will be
determined by the Board (or a committee thereof), subject to any
adjustments as may be required to secure all necessary regulatory
approvals; and
(d) if the Company's common shares are not listed for trading on a stock
exchange or over the counter market, the value which is determined by
the Board (or a committee thereof) to be the fair value of the
Company's common shares, taking into consideration all factors that
the Board (or a committee thereof) deems appropriate, including,
without limitation, recent sale and offer prices of the Company shares
in private transactions negotiated at arms' length.
Options under the Stock Option Plan will be granted for a term not to exceed 10
years from the date of their grant, provided that if the Company is then a "Tier
2" company listed on the TSX-V, the term of the option will be not more than
five years.
Options under the Stock Option Plan will be subject to such vesting schedule as
the Committee may determine. In the event that an option is to be terminated
prior to expiry of its term due to certain corporate events, all options then
outstanding shall become immediately exercisable for 10 days after notice
thereof, notwithstanding the original vesting schedule.
Options will also be non-assignable and non-transferrable, provided that they
will be exercisable by an optionee's legal heirs, personal representatives or
guardians for up to 12 months following the death or termination of an optionee
due to disability, or up to 12 months following the death of an employee if the
employee dies within 12 months of termination due to disability. All such
options will continue to vest in accordance with their original vesting
schedule.
The maximum number of common shares to be reserved for issuance under the Stock
Option Plan, including options currently outstanding, will not exceed 10% of the
number of common shares of the Company issued and outstanding on the applicable
date of grant.
If a material alteration in the capital structure of the Company occurs as a
result of a recapitalization, stock split, reverse stock split, stock dividend,
or otherwise, the Committee shall make adjustments to the Stock Option Plan and
to the options then outstanding under it as the Committee determines to be
appropriate and equitable under the circumstances, unless the Committee
determines that it is not practical or feasible to do so, in which event the
options granted under the Stock Option Plan will terminate as set forth above.
The TSX-V requires all TSX-V listed companies who have adopted stock option
plans which reserve a maximum of 10% of the number of common shares of the
Company issued and outstanding on the applicable date of grant, to obtain
shareholder approval to the Stock Option Plan on an annual basis.
As of May 31, 2004, the Company had granted an aggregate of 3,743,500
non-transferable incentive stock options to purchase common shares outstanding
to the following persons:
80
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
Nikolas Cacos Director 75,000 $1.87 Aug. 27/08 $1.87
110,000 $3.10 Mar. 24/09 $3.10
Joseph Grosso Director 47,500 $0.50 Sept. 23/07 $0.50
200,000 $1.87 Aug. 27/08 $1.87
150,000 $3.10 Mar. 24/09 $3.10
Sean Hurd Director 100,000 $1.87 Aug. 27/08 $1.87
130,000 $3.10 Mar. 24/09 $3.10
Gerald Carlson Director 200,000 $0.40 Jul. 19/06 $0.40
50,000 $1.87 Aug. 27/08 $1.87
85,000 $3.10 Mar. 24/09 $3.10
Nick DeMare Employee 25,000 $0.84 Mar. 07/08 $0.84
50,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
Evelyn Grosso(2) Employee 67,500 $0.50 Sept. 23/07 $0.50
75,000 $3.10 Mar. 24/09 $3.10
A. Sanchez Employee 5,000 $0.40 Jul. 19/06 $0.40
15,000 $0.84 Mar. 07/08 $0.84
Keith Patterson Employee 50,000 $0.84 Mar. 07/08 $0.84
25,000 $3.10 Mar. 24/09 $3.10
David Terry Director 50,000 $3.10 Mar. 24/09 $3.10
Chet Idziszek Director 150,000 $0.90 May 30/08 $0.90
75,000 $3.10 Mar. 24/09 $3.10
J. C. Berretta Employee 30,000 $1.87 Aug. 27/08 $1.87
25,000 $3.10 Mar. 24/09 $3.10
William Lee(3) Director 75,000 $1.87 Aug. 27/08 $1.87
30,000 $3.10 Mar. 24/09 $3.10
Robert Stuart Director 150,000 $0.90 May 30/08 $0.90
(Tookie) Angus 40,000 $3.10 Mar. 24/09 $3.10
Diane Reeves Employee 60,000 $3.10 Mar. 24/09 $3.10
Jeanne Denee Employee 10,000 $3.10 Mar. 24/09 $3.10
Claudia Sandoval Employee 10,000 $3.10 Mar. 24/09 $3.10
Maria Villacis Employee 10,000 $3.10 Mar. 24/09 $3.10
81
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
Carlos D'Amico Employee 220,000 $1.87 Aug. 27/08 $1.87
75,000 $3.10 Mar. 24/09 $3.10
Carlos Timossi Employee 75,000 $3.10 Mar. 24/09 $3.10
Steve Phillips Employee 300,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
Joanne Faccin Employee 10,000 $3.10 Mar. 24/09 $3.10
Marianna De Employee 59,500 $0.50 May 02/07 $0.50
Simone 80,000 $3.10 Mar. 24/09 $3.10
J. Caplan Employee 2,500 $0.50 Sep. 23/07 $0.50
I. Chiarantano Employee 59,500 $0.50 May 02/07 $0.50
David J. Horton Employee 100,000 $3.10 Mar. 24/09 $3.10
John Capman Employee 80,000 $3.10 Mar. 24/09 $3.10
Arthur Lang Director 50,000 $3.10 Mar. 24/09 $3.10
Gordon James Employee 7,000 $3.10 Mar. 24/09 $3.10
R. Aragon Employee 50,000 $1.87 Aug. 27/08 $1.87
A. Colucci Employee 120,000 $1.87 Aug. 27/08 $1.87
M. Saldana Employee 5,000 $0.40 Jul. 19/06 $0.40
25,000 $0.84 Mar. 07/08 $0.84
I. Saldana Employee 40,000 $0.50 May 02/07 $0.50
D. Bussandri Employee 15,000 $1.87 Aug. 27/08 $1.87
S. Kain Employee 15,000 $1.87 Aug. 27/08 $1.87
L. Salley Employee 15,000 $1.87 Aug. 27/08 $1.87
P. Hedblom Employee 30,000 $1.87 Aug. 27/08 $1.87
J. Wong Employee 25,000 $1.87 Aug. 27/08 $1.87
M. Maksym Employee 10,000 $1.87 Aug. 27/08 $1.87
TOTAL 3,743,500
=========
Officers and 1,805,000
directors, as a group ---------
8 persons)(4)
82
(1) Pursuant to the rules of the TSX-V, the Company has issued stock
options to employees, directors, and consultants. The Company, for the
purposes of issuing stock options, designates consultants as employees;
therefore, certain persons designated as employees are, in fact,
consultants.
(2) Evelyn Grosso is the wife of Joseph Grosso.
(3) The Company granted Mr. Lee options to acquire common shares during
his tenure as director. Mr. Lee resigned as an office and director of
the Company effective April 2, 2004.
(4) Includes options held by Joseph Grosso's wife, Evelyn Grosso.
WARRANTS AND OTHER COMMITMENTS
As of May 31, 2004, there were non-transferable common share purchase warrants
exercisable for the purchase of 4,200,949 common shares, as follows:
NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
1,039,322 $0.75 September 15, 2004
1,042,960 $0.60 September 27, 2004
850,000 $3.70 February 20, 2005
200,000 $3.25 February 20, 2005
1,068,667 $0.90 March 16, 2005
----------------
4,200,949 TOTAL
================
As of May 31, 2004, the Company's officers and directors, as a group, including
entities controlled or under significant influence of officers and directors of
the Company, held warrants to purchase up to 372,400 of the Company's common
shares.
There are no assurances that the options, warrants or other rights described
above will be exercised in whole or in part.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------
PRINCIPAL HOLDERS OF VOTING SECURITIES
To the best of the Company's knowledge there are no persons who beneficially
own, directly or indirectly, or exercise control or direction, over more than 5%
of the issued and outstanding common shares of the Company.
CHANGES IN OWNERSHIP BY MAJOR SHAREHOLDERS
In August 1999, Barrick Gold Corporation ("Barrick") acquired, through a private
placement, 1.5 million units at a price of $1.00 per unit. Each unit consists of
one common share in the capital stock of the Company and one non-transferable
share purchase warrant, entitling Barrick to purchase an additional common share
for a period of one year at a price of $1.50 per share. On April 19, 2000,
Barrick exercised warrants at $1.50 to purchase an additional 350,000 shares of
the Company. On August 16, 2000, Barrick exercised its remaining warrants to buy
1,150,000 common shares of the Company. As of April 30, 2003 Barrick owned
3,000,000 common shares of the Company
83
(9.22%). To the best of the Company's knowledge, subsequent to April 30, 2003,
Barrick sold common shares of the Company and is no longer a major shareholder.
On April 28, 2003, Prudent Bear Funds, Inc. advised the Company that it had
acquired control and direction, through Prudent Bear Fund, a mutual fund
controlled by it, over 818,500 of the Company's common shares. This resulted in
Prudent Bear Funds, Inc. having ownership of and control over a total of
3,209,637 common shares together with warrants to purchase an additional 754,137
common shares. As of April 30, 2003, if such warrants were exercised Prudent
Bear Funds, Inc. would have control and direction of 3,963,774 common shares of
the Company (12.18%). To the best of the Company's knowledge, subsequent to
April 30, 2003, Prudent Bear Funds Inc. sold common shares of the Company and is
no longer a major shareholder.
SHARES HELD IN THE UNITED STATES
As of May 31, 2004, there were approximately 187 registered holders of the
Company's shares in the United States, with combined holdings of 4,809,968
shares (9.9% of the 41,115,376 outstanding shares at May 31, 2004).
CHANGE OF CONTROL
As of June 22, 2004, there were no arrangements known to the Company which may,
at a subsequent date, result in a change of control of the Company.
CONTROL BY OTHERS
To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by another corporation, any foreign government,
or any other natural or legal person, severally or jointly.
RELATED PARTY TRANSACTIONS
Other than as disclosed below, from January 1, 2003 through March 31, 2004, the
Company did not enter into any transactions or loans between the Company and any
(a) enterprises that directly or indirectly through one or more intermediaries,
control or are controlled by, or are under common control with the Company; (b)
associates; (c) individuals owning, directly or indirectly, an interest in the
voting power of the Company that gives them significant influence over the
Company, and close members of any such individual's family; (d) key management
personnel and close members of such individuals' families; or (e) enterprises in
which a substantial interest in the voting power is owned, directly or
indirectly by any person described in (c) or (d) or over which such a person is
able to exercise significant influence.
1. The Company shares office facilities, capital assets and personnel with
Amera. Joseph Grosso, Nikolaos Cacos, and David Terry, officers and/or
directors of the Company, are officers, directors and/or employees of
Amera. Amera currently pays a minimum of $2,500 per month to the
Company for shared rent and administration costs. During the fiscal
year ended December 31, 2003 the Company received $35,110 (2002 -
$6,000). For the three month period ending on March 31, 2004, the
Company received $21,315 (2003 - $6,000) from Amera.
2. The Company leases its office space from Beauregard, a private company
50% owned by Joseph Grosso, an officer and director of the Company, and
50% owned by Mr. Grosso's wife, Mrs. Evelina Grosso. The Company
commenced occupation of the office premises in January 1999. The term
of the lease was for three years and had been extended for another two
years. On February 5, 2004 the Company and Beauregard executed a letter
agreement relating to a new lease with minimum lease payments of
$50,250 per annum, plus operating costs. As of the date of this report,
the lease was in the process of being drafted. It is intended that the
2004 lease will be for a term of three years with an option to extend
the term for an additional two years at prevailing market rent. In
addition, the Company is responsible for all leasehold improvements.
During the fiscal year ended December 31, 1999, the Company incurred
$12,366 for leasehold improvements conducted on the office premises.
The Company made no further leasehold improvement expenditures in 2003.
See "Item 4. Information on the Company - Properties, Plants and
Equipment - Principal Office". During the fiscal year ended December
31, 2003, the Company paid rent in the amount of
84
$60,924 (2002 - $60,924; 2001 - $60,924). For the three month period
ending on March 31, 2004, the Company has paid rent in the amount of
$16,597 (2002 - $15,230; 2001 - $15,230).
3. The Company has executed an agreement with Oxbow, pursuant to which Mr.
Grosso, an officer and director of the Company, provides services to
the Company. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts". During the fiscal year ended
December 31, 2003, Oxbow was paid $102,000 (2002 - $102,000; 2001 -
$102,000), and during the three months ended March 31, 2004, Oxbow was
paid $25,500.
4. The Company has entered into an agreement with Nikolaos Cacos, an
officer and director of the Company, pursuant to which Mr. Cacos
provides services to the Company. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts." During
the fiscal year ended December 31, 2003, Mr. Cacos was paid $66,000
(2002 - $66,000; 2001 - $66,000). During the three months ended March
30, 2004, Mr. Cacos was paid $5,225.
5. The Company's officers and directors have been granted incentive stock
options enabling them to purchase common shares of the Company. See
"Item 6. Directors, Senior Management and Employees - Share Ownership".
6. By agreement dated June 21, 1996, as amended December 10, 1996, William
Lee, a former officer and director of the Company, was paid a salary of
$6,000 per month. During the fiscal year ended December 31, 2003, Mr.
Lee was paid $72,000 (2002 - $72,000; 2001 - $72,000). During the three
months ended March 31, 2004 Mr. Lee was paid $68,769 for salary and
retiring allowance.
7. The Company has entered into an agreement with KGE Management Ltd.,
pursuant to which Gerald G. Carlson, an officer and director of the
Company, provides services to the Company. See "Item 6. Directors,
Senior Management and Employees - Compensation - Management Contracts."
During the fiscal year ended December 31, 2003, Mr. Carlson, through
KGE, was paid $41,400 (2002 - $33,000; 2001 - $33,000). During the
three months ended March 31, 2004, Mr. Carlson, through KGE, was paid
$13,800.
8. The Company has entered into an agreement with Mr. Sean Hurd, investor
relations manager and director of the Company (effective September
2000), pursuant to which Mr. Hurd provides services to the Company. See
"Item 6. Directors, Senior Management and Employees - Compensation -
Management Contracts." During the year ended December 31, 2003, Mr.
Hurd was paid $48,000 (2002 - $52,050; 2001 - $30,882). During the
three months ended March 30, 2004, Mr. Hurd was paid $7,200.
9. During the year ended December 31, 2003, the Company recorded $61,067
(2002 - $64,641; 2001 - $45,381) for reimbursement of expenditures and
disbursements incurred on behalf of the Company by Mr. Grosso. As at
December 31, 2003, $7,538 (2002 - $1,496; 2001 - $17,683) remained
unpaid and has been included in accounts payable and accrued
liabilities.
10. The Company signed a letter of Intent on March 6, 2003, as amended
September 30, 2003, with Amera, pursuant to which Amera could earn a
undivided 51% interest (subject to regulatory approval) in the Mogote
(Arturo's) Property. In an agreement dated April 8, 2004, Amera
acquired an option to earn an additional 24% interest (for a total of
75% interest) in the Mogote property. Joseph Grosso, Nikolaos Cacos and
David Terry, officers and/or directors of the Company, are officers,
directors and/or employees of Amera. See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Properties -
Argentinean Properties - San Juan Province Properties - Northwest San
Juan - Mogote (Arturo's) Property."
11. On March 6, 2003 the Company entered into an agreement to sell a 100%
undivided interest in Lago Pico (10,000 ha), Loma Alta (10,000 ha) and
Nueva Ruta (4,180 ha) to Amera. The terms of the agreement were
approved by the independent committee of the Company. Amera received
approval from the TSX-V on November 3, 2003 and has issued 500,000
common shares to the Company with a deemed value of $225,000. In
addition, in the event that a decision is made to place any of the
properties into commercial production, the Company will receive a bonus
of US$250,000 and a 3 % net smelter return royalty.
85
12. On December 16, 2003 the Company entered into an agreement with
Endeavour Financial Ltd. a company of which Mr. Angus, a director of
the Company, is a shareholder. A monthly fee of US$5,000 for services
is payable under this agreement for a minimum period of one year. The
agreement includes a provision for a nominee from Endeavour to be
nominated to the board and for fees to be paid to Endeavour, in
addition to the monthly fee, in the event of certain specified
transactions. See "Item 6. Directors, Senior Management and Employees -
Directors and Senior Management."
13. The Company has agreed to issue options to David Terry, a director of
the Company, and to reimburse Amera for a portion of Mr. Terry's salary
for services provided to the Company by Mr. Terry. See "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts." Mr. Terry became a director of the Company in May 2004, as
such, during the fiscal year ended December 31, 2003 and the three
months ended March 31, 2004, the Company did not make any payments to
Amera for Mr. Terry's services.
14. The Company has entered into an agreement dated April 23, 2004, with
Mr. Lang, Chief Financial Officer and a director of the Company,
pursuant to which Mr. Lang provides services to the Company. See "Item
6. Directors, Senior Management and Employees - Compensation -
Management Contracts." Mr. Lang became CFO and a director of the
Company on April 2, 2004, as such, during the fiscal year ended
December 31, 2003 and the three months ended March 31, 2004, the
Company did not make any payments to Mr. Lang for his services.
15. The Company has entered into an Arrangement Agreement with Golden Arrow
pursuant to which the Company will transfer certain assets to Golden
Arrow as part of a reorganization of the Company. See "Item 4.
Information on the Company - History and Development of the Company."
As of the date of this report, Mr. Grosso is the sole officer, director
and shareholder of Golden Arrow. Mr. Grosso is acting as the sole
officer, director and shareholder of Golden Arrow for convenience and
to implement the Arrangement Agreement. If the Arrangement Agreement is
consummated, the shareholders of the Company will become the
shareholders of Golden Arrow, and it is anticipated that the Company's
management will also become the management of Golden Arrow. Mr. Grosso
will also return the share back to Golden Arrow on the effective date
of the arrangement. In connection with the reorganization, the Company
intends to enter into an indemnity, in form and substance acceptable to
Golden Arrow, for any costs or losses incurred by Golden Arrow in
respect of the legal action commenced by a Minera Aquiline Argentina
S.A. against the Company. See "Item 8. Financial Information - Legal
Proceedings."
ITEM 8. FINANCIAL INFORMATION.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
FINANCIAL STATEMENTS
DESCRIPTION PAGE
Consolidated Financial Statements for the Years Ended F-1
December 31, 2003, 2002 and 2001.
SIGNIFICANT CHANGES
On February 11, 2004, the Company announced that it had entered into an
agreement with two underwriters who had agreed to purchase, on a bought-deal
basis, 1,500,000 units of the Company at a purchase price of $3.10 per unit, for
total proceeds of $4.65 million. This transaction closed on February 23, 2004.
On March 5, 2004 Minera Aquiline Argentina SA, a subsidiary of Aquiline
Resources Inc., commenced an action against the Company seeking damages and a
constructive trust over certain of the Company's properties in the Navidad area.
See "Item 8. Financial Information - Legal Proceedings."
86
On May 3, 2004, the Company announced its intention to proceed with a
reorganization of the Company which will have the result of dividing its present
mineral resource assets between two separate public companies. See "Item 4.
Information on the Company - History and Development of the Company."
LEGAL PROCEEDINGS
In March 2004, Minera Aquiline Argentina S.A., a wholly-owned subsidiary of
Aquiline Resources Inc., commenced a legal proceeding against the Company
asserting that the Company unlawfully used confidential information, and is
seeking damages and a constructive trust over the Navidad Area Properties. The
Company is defending this action. The trial has been set for October 11, 2005 in
Vancouver, British Columbia.
In the event the reorganization is approved, the Company intends to provide
Golden Arrow, on or before the effective date, with an indemnity in form and
substance acceptable to Golden Arrow for any costs or losses incurred by Golden
Arrow in respect of the legal action commenced by a Minera Aquiline Argentina
S.A. against the Company.
The Company commenced an action against Aquiline Resources Inc. by way of Writ
of Summons filed on October 15, 2003 in the Supreme Court of British Columbia
Vancouver Registry Action No. S035507. In the action, the Company alleges that
Aquiline wrongfully interfered with a "bought deal" private placement financing
scheduled to close on October 2, 2003 through the issuance of a letter which
falsely asserted that the Company had misused confidential information belonging
to Aquiline or its subsidiary in staking its Navidad mineral claims. Aquiline
filed an Appearance to the claim on October 24, 2003. As of the date of this
annual report, no further steps have been taken in the action.
DIVIDEND POLICY
The Company has not paid any dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate future. Any decision to
pay dividends on its common shares in the future will be made by the board of
directors on the Company on the basis of earnings, financial requirements and
other such conditions that may exist at that time.
ITEM 9. THE OFFER AND LISTING.
--------------------------------------------------------------------------------
PRICE HISTORY
The Company's common shares are listed on the TSX-V. From April 15, 1996 to
November 28,1999, the Company's shares were listed on the Vancouver Stock
Exchange (the "VSE"). Effective November 29, 1999, the VSE and the Alberta Stock
Exchange (the "ASE") merged and began operations as the Canadian Venture
Exchange or CDNX. On August 1, 2001, the CDNX was acquired by the Toronto Stock
Exchange and became known as the TSX-V. The Company is classified as a Tier I
company on the TSX-V and trades under the symbol "IMR". Companies which satisfy
the minimum initial listing requirements of the TSX-V are designated as Tier II
companies and are subject to listing requirements which are stricter than those
for companies which are designated as Tier I companies.
The following table lists the volume of trading and high and low sales prices on
the TSX-V (or predecessor), for shares of the Company's common stock for the
last five fiscal years, each quarterly period during the last two fiscal years
and each month from December 2003 through May 2003.
87
TSX VENTURE EXCHANGE (OR PREDECESSOR) STOCK TRADING ACTIVITY
SALES PRICE
--------------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2003 49,855,800 $2.54 $0.49
December 31, 2002 17,608,424 $0.94 $0.34
December 31, 2001 5,564,250 $0.62 $0.27
December 31, 2000 4,330,674 $1.15 $0.30
December 31, 1999 2,126,666 $0.88 $0.40
SALES PRICE
--------------------------------
QUARTER ENDED VOLUME HIGH LOW
March 31, 2004 15,546,600 $3.81 $1.73
December 31, 2003 14,206,200 $2.37 $1.42
September 30, 2003 12,946,600 $2.54 $1.32
June 30, 2003 9,170,600 $1.65 $0.78
March 31, 2003 13,712,400 $1.06 $0.49
December 31, 2002 2,753,752 $0.56 $0.35
September 30, 2002 2,360,296 $0.55 $0.34
June 30, 2002 9,803,396 $0.94 $0.42
March 31, 2002 2,690,980 $0.56 $0.39
SALES PRICE
--------------------------------
MONTH ENDED VOLUME HIGH LOW
May 31, 2004 3,220,600 $2.90 $1.93
April 30, 2004 2,507,000 $3.57 $2.39
March 31, 2004 6,103,600 $3.60 $2.13
February 29, 2004 5,687,200 $3.81 $2.46
January 31, 2004 3,755,800 $2.50 $1.73
December 31, 2003 4,285,700 $2.30 $1.42
OVER-THE-COUNTER BULLETIN BOARD STOCK TRADING ACTIVITY
As of October 8, 2002, the Company's shares received clearance for trading on
the OTC Bulletin Board operated by the National Association of Securities
Dealers in the United States. The Company currently trades on the OTC Bulletin
Board under the symbol "IMXPF". The following tables set forth the market price
ranges and the aggregate volume of trading of the common shares of the Company
on the OTC Bulletin Board system for the periods indicated:
BID PRICE
------------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2003 6,964,497 $1.89 $0.36
December 31, 2002 97,497 $0.36 $0.22
88
BID PRICE
------------------------------
QUARTER ENDED VOLUME HIGH LOW
March 31, 2004 8,798,755 $2.93 $1.31
December 31, 2003 3,376,297 $1.78 $1.01
September 30, 2003 1,743,800 $1.89 $0.97
June 30, 2003 983,900 $1.25 $0.52
March 31, 2003 860,500 $0.75 $0.36
December 31, 2002 72,497 $0.33 $0.22
September 30, 2002 25,000 $0.36 $0.29
BID PRICE
------------------------------
MONTH ENDED VOLUME HIGH LOW
May 31, 2004 782,588 $2.15 $1.40
April 30, 2004 1,335,303 $2.70 $1.70
March 31, 2004 3,257,963 $2.70 $1.61
February 29, 2004 3,875,898 $2.93 $1.87
January 31, 2004 1,664,894 $1.91 $1.31
December 31, 2003 1,394,123 $1.78 $1.06
Management is considering, and during the next 12 months the Company may apply
for, listings on the Toronto Stock Exchange and/or the American Stock Exchange.
Management does not know if, or when, any applications for listing will be
filed. Additionally, even if th Company applies for these listings, there are no
assurances that such listings will be approved.
ITEM 10. ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------
MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company was incorporated under the COMPANY ACT (British Columbia) on
September 17, 1979, as Gold Star Resources Ltd. The Company's Incorporation
Number is 197061. On May 1, 1990, the Company filed an Altered Memorandum to
reflect its name change to EEC Marketing Corp. On January 13, 1992, the Company
filed an Altered Memorandum to reflect its name change to Amera Industries Corp.
On February 9, 1995, the Company filed an Altered Memorandum to reflect its name
change to International Amera Industries Corp. On February 20, 1996, the Company
filed an Altered Memorandum to reflect its name change to IMA Resource
Corporation. Effective July 7, 1998, the Company underwent a statutory plan of
arrangement (the "Arrangement") with Viceroy Resource Corporation ("Viceroy"),
changed its name to IMA Exploration Inc., consolidated its share capital on the
basis of four old shares for one new share and filed an Altered Memorandum to
give effect to the foregoing. See "Item 4. Information on the Company".
The Company's objects and purposes are not set forth in or prescribed by its
Articles or Memorandum. The Company is in the business of the acquisition,
exploration and development of mineral properties, mainly in Argentina and Peru.
AMENDMENT OF NOTICE OF ARTICLES
On March 29, 2004, the new British Columbia Business Corporations Act came into
force in British Columbia and replaced the former Company Act, which is the
statute that previously governed the Company. Under the BCBCA, the Company has
two years within which to transition ("Transition") itself under the new
statute. In accordance with the BCBCA, the Company cannot complete the
Arrangement or amend its Articles or Notice of Articles until the
89
Transition to the BCBCA is completed. The Board of Directors (the "Board") of
the Company approved the Transition of the Company under the BCBCA on April 29,
2004. The Company filed a transition application with the Registrar of Companies
British Columbia and completed the Transition on May 4, 2004.
Concurrent with the completion of the Transition, the Company was required, in
accordance with the BCBCA, to incorporate certain provisions known as the
"Pre-Existing Company Provisions" (the "Pre-Existing Company Provisions") into
its Notice of Articles, which replaced the existing Memorandum of the Company.
The Pre-Existing Company Provisions provide the Company with certain default
provisions in case certain provisions which are required to be included in the
Articles under the BCBCA are not included in the Company's Articles.
In order to bring the Company's Articles in line with the BCBCA, the Company
intends to delete and replace its Articles in their entirety. The new Articles,
will among other things, incorporate and amend certain of the information
required by the Pre-Existing Company Provisions. In accordance with the BCBCA,
the Company cannot alter its Articles in relation to any matter that is included
in the Pre-Existing Company Provisions until the Company has removed the
application of the Pre-Existing Company Provisions by special resolution of the
shareholders of the Company.
Accordingly, the shareholders of the Company will be asked at a meeting to be
held on June 24, 2004, to pass a special resolution removing the application of
the Pre-Existing Company Provisions.
ADOPTION OF NEW ARTICLES
The Board has determined that it is in the best interests of the Company to
adopt new articles (the "New Articles") to replace its existing Articles (the
"Existing Articles"). Management believes the language used in the Existing
Articles of the Company is no longer appropriate and there are a number of
references to provisions in the former Company Act (the "Former Act") which no
longer exists. The New Articles also incorporate many key provisions of the
BCBCA that should reinforce the importance of certain sections of the BCBCA
including disclosing conflicts of interest, indemnification, fiduciary duties
and other obligations that are imposed on the Board.
Set forth below is a discussion of the changes proposed under the New Articles.
These proposed changes to the New Articles include a discussion of substantive
changes included in the New Articles and changes included that are as a result
of changes under the BCBCA. The New Articles incorporate a number of
non-substantive changes, including the use of the new terminology adopted under
the BCBCA. For example, "members" are now "shareholders" and "register of
members" is now "central securities register" under the BCBCA. Many of these
terminology and wording changes are not discussed in detail here, as they
reflect statutory requirements that the Company cannot alter or amend.
The following is a discussion of the substantive changes proposed in the New
Articles.
BORROWING POWERS
Under the Existing Articles, the Company may borrow money, issue debt and
mortgage, pledge, or give security on the undertaking, or on the whole or any
part of the property and assets, of the Company (both present and future).
However, under the BCBCA, companies are now also permitted, without restriction,
to guarantee repayment of money by any other person or the performance of any
obligation of any other person. This change reflects the modernization of
corporate legislation to effectively respond to increasingly complex financial
transactions that companies may enter into in the course of their business. As a
result, the New Articles propose that the Company also be able to guarantee the
repayment of money by any other person or the performance of any obligation of
any other person. Management believes that it is in the best interests of the
Company to allow for such a guarantee to permit the Company the maximum
flexibility in possible future financial transactions, recognizing the duties
directors have to ensure that the guarantee must always be in the best interest
of the Company and its shareholders.
DIRECTORS AUTHORITY TO SET AUDITOR'S REMUNERATION
Under the BCBCA, the Company is, subject to shareholder approval, permitted to
include in the New Articles authorization for the directors to set the
remuneration paid to the auditors of the Company. The Former Act required
90
the shareholders to set the remuneration or the shareholders to authorize, on an
annual basis, the directors to set the remuneration. Historically, shareholders
of the Company have always authorized the directors to appoint the auditors and
to set the auditor's remuneration. As a result, the inclusion of the authority
for directors to set the auditor's remuneration in the New Articles merely
codifies existing practice. More importantly, however, this change also codifies
new corporate governance rules and regulations relating to audit committees and
the appointment and remuneration of auditors.
SPECIAL MAJORITY FOR RESOLUTIONS
Under the Former Act, the majority of votes required to pass a special
resolution at a general meeting was three-quarters of the votes cast on a
resolution. Under the BCBCA, the Company is authorized to determine whether a
special resolution requires two-thirds or three-quarters of the votes cast on a
resolution. The Existing Articles did not state what the majority was for a
special resolution, as this matter was dealt with under the Former Act. The New
Articles propose that a special resolution require a majority of two-thirds of
the votes cast on a resolution. This threshold is consistent with the threshold
in most other Canadian corporate law statutes such as the Canada Business
Corporations Act.
SHARE ISSUANCES
Under the Former Act, the maximum discount or commission payable on the issuance
of a share of the Company was 25%. Under the BCBCA the Company is, subject to
shareholder approval, now permitted to avoid setting a numerical maximum for a
discount or commission payable on the issuance of a share but rather limit any
discount or commission by a test of reasonableness. The New Articles provide
that the Company be permitted to pay or offer the commission or discount as
permitted in the BCBCA. Management of the Company believes that the 25% maximum
limit should not be set out in the New Articles as such a limit does not
consider factual circumstances nor apply a test of reasonableness. By limiting
the discount or commission amounts payable by the test of reasonableness,
exercised by directors with a duty to act in the best interest of the Company,
the Company is provided greater flexibility in possible future transactions. In
addition, since the Company is a public company, it is subject to the
requirements of the TSX-V on share issuances and discounts and commissions,
which requirements are generally far more stringent than the Former Act
provisions.
The following are changes to the provisions contained in the BCBCA which have an
effect on provisions contained in the Existing Articles:
OFFICERS
Under the Existing Articles, the Company was required to have a least a
President and Secretary as officers, and there had to be separate individuals
holding those positions. In addition, the President was required to be director
of the Company. These were requirements under the Former Act. However, under the
BCBCA, those requirements no longer exist, and as a result, it is proposed that
the New Articles remove these requirements. Management and the board of
directors believe that by removing these restrictions the Company is better able
to meet its corporate governance obligations as to membership of the board of
directors.
PUBLICATION OF ADVANCE NOTICE OF MEETING
Under the Existing Articles, the Company was required to publish an advance
notice of a general meeting of shareholders at which directors are to be elected
in the manner required under the Former Act. Under the BCBCA, the Company is no
longer required to publish notice of general meetings, and recent changes to
securities legislation in Canada requires that all public companies, including
the Company, post advance notice of a general meeting on WWW.SEDAR.COM in
advance of the record date for the meeting. As a result, it is proposed that the
New Articles remove the requirement to publish advance notice of the meeting.
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SHARE CERTIFICATES
Under the Existing Articles, a shareholder is entitled to a share certificate
representing the number of shares of the Company he or she holds. Under the
BCBCA, a shareholder is now entitled to a share certificate representing the
number of shares of the Company he or she holds or a written acknowledgement of
the shareholder's right to obtain such a share certificate. As a result, the New
Articles have been amended to provide for this additional right. The addition of
the ability to issue a written acknowledgement is very useful for public
companies such as the Company, since it permits flexibility in corporate and
securities transmissions.
DISCLOSURE OF INTEREST OF DIRECTORS
Under the BCBCA, the provisions relating to the disclosure of interests by
directors have been revised and updated. As directors of the Company are bound
by these provisions, the New Articles have deleted reference to the old
disclosure of interest provisions and refer to the provisions contained in the
BCBCA.
INDEMNITY PROVISION
Under the Former Act, the Company could only indemnify directors where it
obtained prior court approval, except in certain limited circumstances. The
Existing Articles provided for the Company to indemnify directors, subject to
the requirements of the Former Act. Under the BCBCA, the Company is now
permitted to indemnify a past or present director or officer of the Company
without obtaining prior court approval in respect of an "eligible proceeding".
An "eligible proceeding" includes any legal proceeding relating to the
activities of the individual as a director or officer of the Company. However,
under the BCBCA, the Company will be prohibited from paying an indemnity if:
(a) the party did not act honestly and in good faith with a view
to the best interests of the Company;
(b) the proceeding was not a civil proceeding and the party did
not have reasonable grounds for believing that his or her
conduct was lawful; and
(c) the proceeding is brought against the party by the Company or
an associated corporation.
As a result, the New Articles propose to allow the Company to indemnify
directors, officers, employees and agents, subject to the limits imposed under
the BCBCA. Management believes that it is in the best interests of the Company
to allow the indemnification of directors, officers, employees and agents,
subject to the limits and conditions of the BCBCA.
AUTHORIZED SHARE CAPITAL
Under the Former Act, the Company was required to set a maximum number for its
authorized share capital and such number was required to be contained in the
Company's memorandum. Under the BCBCA there are no maximum number restrictions
and, due to the elimination of the memorandum under the BCBCA, such authorized
share capital must be contained in a company's Notice of Articles. In order to
provide the Company with greater flexibility to proceed with equity financings,
management has determined that it will alter its authorized share capital from
200,000,000 shares divided into 100,000,000 common shares and 100,000,000
preferred shares to an unlimited number of common shares and 100,000,000
preferred shares and that such altered authorized share capital will be
reflected in its New Notice of Articles. This change forms part of the Plan of
Arrangement.
HOLDING OF ANNUAL MEETINGS
Under the Former Act, annual meetings were required to be held within 13 months
of the last annual meeting. The BCBCA allows for annual meetings to be held once
in each calendar year and not more than 15 months after the last annual meeting
and accordingly, the Company's New Articles reflect this provision.
QUORUM FOR SHAREHOLDER MEETING
Under the Existing Articles, quorum for a shareholder meeting was two persons
present and being, or representing by proxy, members holding not less than
one-tenth of the shares that may be voted at the meeting. The New Articles
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allow for quorum to be two persons who are, or who represent by proxy,
shareholders who, in the aggregate, hold at least 5% of the issued shares
entitled to be voted at the meeting.
ALTERATIONS TO CONSTATING DOCUMENT
In accordance with the BCBCA, the New Articles update the type of alterations
that can be made to the Company's constating documents, and disclose the type of
resolution that is required to make such amendments.
Accordingly, the shareholders of the Company will be asked at the shareholder
meeting on June 24, 2004 to pass a special resolution adopting the changes to
the Company's Articles.
SUMMARY OF MATERIAL PROVISIONS
The following is a summary of certain material provisions of the Company's
Articles of Association and Memorandum (as currently in effect and as proposed
to be amended) and certain provisions of the BCBCA, applicable to the Company:
A. DIRECTOR'S POWER TO VOTE ON A PROPOSAL, ARRANGEMENT OR CONTRACT IN
WHICH THE DIRECTOR IS MATERIALLY INTERESTED.
Under the BCBCA, subject to certain exceptions, a director or senior
officer of the Company must disclose any material interest that he
personally has, or that he as a director or senior officer of another
corporation has in a contract or transaction that is material to the
Company and which the Company has entered into or proposes to enter
into.
A director or senior officer of the Company does not hold a disclosable
interest in a contract or transaction if:
1. the situation that would otherwise constitute a
disclosable interest arose before the coming into force
of the BCBCA, or the interest was disclosed and approved
under, or was not required to be disclosed under
legislation that applied to the Company before the coming
into effect of the BCBCA;
2. both the Company and the other party to the contract or
transaction are wholly owned subsidiaries of the same
corporation;
3. the Company is a wholly owned subsidiary of the other
party to the contract or transaction;
4. the other party to the contract or transaction is a
wholly owned subsidiary of the Company ; or
5. the director or senior officer is the sole shareholder of
the Company or of a corporation of which the Company is a
wholly owned subsidiary.
A director or senior officer of the Company does not hold a disclosable
interest in a contract or transaction merely because:
1. the contract or transaction is an arrangement by way of a
security granted by the Company for money loaned to, or
obligations undertaken by, the director or senior
officer, or a person in whom the director or senior
officer has a material interest, for the benefit of the
Company or an affiliate of the Company;
2. the contract or transaction relates to an indemnity or
insurance under the BCBCA;
3. the contract or transaction relates to the remuneration
of the director or senior officer, or a person in whom
the director or senior officer, employee or agent of the
Company or of an affiliate of the Company;
4. the contract or transaction relates to a loan to the
Company, and the director or senior officer, or a person
win whom the director or senior officer has a material
interest, is or is to be a guarantor of some or all of
the loan; or
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5. the contract or transaction has been or will be made with
or for the benefit of a corporation that is affiliated
with the Company and the director or senior officer is
also a director or senior officer of that corporation or
an affiliate of that corporation.
A director or senior officer who holds such a material interest must
disclose such interest in writing. The disclosure must be evidenced in
writing in a consent resolution, the minutes of a meeting or any other
record deposited with the Company's record office. A director who has a
disclosable interest in a contract or transaction is not entitled to
vote of any directors' resolution to approve that contract or
transaction, but may be counted in the quorum at the directors' meeting
at which such vote is taken.
The new Articles of the Company to be put before the shareholders at
the Company's annual general meeting on June 24, 2004, will reflect the
provisions of the BCBCA.
B. DIRECTOR'S POWER, IN THE ABSENCE OF AN INDEPENDENT QUORUM, TO VOTE
COMPENSATION TO THEMSELVES OR ANY MEMBERS OF THEIR BODY.
The compensation of the directors is decided by the directors unless
the Board of Directors requests approval of the compensation from the
shareholders. If the issuance of compensation to the directors is
decided by the directors, a quorum is the majority of the directors in
office.
C. BORROWING POWERS EXERCISABLE BY THE DIRECTORS AND HOW SUCH BORROWING POWERS
MAY BE VARIED.
The Company, if authorized by the directors, may:
1. borrow money in the manner and amount, on the security,
from the sources and on the terms and conditions that
they consider appropriate;
2. issue bonds, debentures and other debt obligations either
outright or as security for any liability or obligation
of the Company or any other person and at such discounts
or premiums and on such other terms as they consider
appropriate;
3. guarantee the repayment of money by any other person or
the performance of any obligation of any other person;
and
4. mortgage, charge, whether by way of specific or floating
charge, grant a security interest in, or give other
security on, the whole or any part of the present and
future assets and undertaking of the Company.
The borrowing powers may be varied by amendment to the Articles of the
Company which requires approval of the shareholders of the Company by
special resolution.
D. RETIREMENT AND NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT REQUIREMENT.
There are no such provisions applicable to the Company under the Notice
of Articles, Articles (as existing or the new proposed Articles) or the
BCBCA.
E. NUMBER OF SHARES REQUIRED FOR A DIRECTOR'S QUALIFICATION.
A director of the Company is not required to hold a share in the
capital of the Company as qualification for his office.
DESCRIPTION OF SHARE CAPITAL
The authorized capital of the Company consists of 200,000,000 shares divided
into 100,000,000 common shares without par value and 100,000,000 Preferred
shares without par value, of which 18,283,053 have been designated as Preferred
Shares, Series I. A complete description is contained in the Company's Altered
Memorandum and Articles.
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The Company has proposed amending its authorized capital, in accordance with the
BCBCA, to an unlimited number of common shares and 100,000,000 preferred shares,
of which 18,283,053 will be designated as Preferred Shares, Series I.
COMMON SHARES
Of the 100,000,000 authorized common shares, a total of 41,115,376 common shares
were issued and outstanding as of May 31, 2004. All of the common shares are
fully paid and not subject to any future call or assessment. All of the common
shares of the Company rank equally as to voting rights, participation in a
distribution of the assets of the Company on a liquidation, dissolution or
winding-up of the Company and the entitlement to dividends. The holders of the
common shares are entitled to receive notice of all shareholder meetings and to
attend and vote at such meetings. Each common share carries with it the right to
one vote. The common shares do not have preemptive or conversion rights. In
addition, there are no sinking fund or redemption provisions applicable to the
common shares or any provisions discriminating against any existing or
prospective holders of such securities as a result of a shareholder owning a
substantial number of shares. The Company has proposed to the shareholders to
amend the Company's Articles to increase the number of authorized common shares
to an unlimited number of common shares without par value.
PREFERRED SHARES
The Company is authorized to issue up to 100,000,000 preferred shares in one or
more series. The preferred shares are entitled to priority over the common
shares with respect to the payment of dividends and distribution in the event of
the dissolution, liquidation or winding-up of the Company. The holders of
preferred shares as a class shall not be entitled as such to receive notice of,
to attend or to vote at any meeting of the shareholders of the Company, other
than at a meeting of holders of Preferred Shares. As of May 31, 2004, there were
18,283,053 Preferred Shares, Series I, outstanding. There are no sinking fund or
redemption provisions or any provisions discriminating against any existing or
prospective holders of such securities as a result of a shareholder owning a
substantial number of shares applicable to the preferred shares.
PREFERRED SHARES, SERIES I
The Company is authorized to issue 100,000,000 preferred shares of which
18,283,053 have been designated as Preferred Shares, Series I (the "Series I
Shares"). The holders of Series I Shares are not entitled to receive notice of,
attend or vote at any meeting of the shareholders of the Company, other than at
a meeting of holders of Preferred Shares, Series I. The holders of Series I
Shares are entitled to receive, if, as and when declared by the board of
directors of the Company, non-cumulative dividends. Upon dissolution,
liquidation or winding-up of the Company, the holders of Series I Shares are
entitled to receive an amount equal to the redemption amount, which is
determined by dividing $3,495,800 by the number of Series I Shares issued,
together with all declared and unpaid dividends thereon. The Series I Shares may
be redeemed at the option of the Company or the holder of the Series I Shares.
Upon redemption of the Series I Shares, the Company shall pay to the holder of
the Series I Shares the Redemption Amount together with all declared and unpaid
dividends thereon. As of May 31, 2004, there are 18,283,053 Series I Shares
outstanding. There are no sinking fund or redemption provisions or any
provisions discriminating against any existing or prospective holders of such
securities as a result of a shareholder owning a substantial number of shares
applicable to the Series I Shares. The Series I Shares are not subject to
further capital calls or assessments.
CHANGES TO RIGHTS AND RESTRICTIONS OF SHARES
If the Company wishes to change the rights and restrictions of the common
shares, preferred shares or the Series I Shares, the Company must obtain the
approval of 3/4 of the holders of the common shares, preferred shares and the
Series I Shares. Under the BCBCA and the proposed amendments to the Company's
Articles, if the Company wishes to change the rights and restrictions of the
common shares, preferred shares or the Series I Shares, the Company must obtain
the approval of 2/3 of the holders of the common shares, preferred shares and
the Series I Shares.
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DIVIDEND RECORD
The Company has not paid any dividends on its common shares and has no policy
with respect to the payment of dividends.
OWNERSHIP OF SECURITIES AND CHANGE OF CONTROL
There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on the
securities imposed by foreign law or by the constituent documents of the
Company.
Any person who beneficially owns or controls, directly or indirectly, more than
10% of the Company's voting shares is considered an insider, and must file an
insider report with the British Columbia, Alberta and Ontario Securities
Commissions within ten days of becoming an insider disclosing any direct or
indirect beneficial ownership of, or control over direction over securities of
the Company. In addition, if the Company itself holds any of its own securities,
the Company must disclose such ownership.
There are no provisions in the Company's Memorandum and Articles of Association
or Bylaws that would have an effect of delaying, deferring or preventing a
change in control of the Company operating only with respect to a merger,
acquisition or corporate restructuring involving the Company or its
subsidiaries.
MEETINGS OF THE SHAREHOLDERS
ANNUAL AND EXTRAORDINARY GENERAL MEETINGS
Pursuant to the Company's existing Articles, the Company must hold its annual
general meeting once in every calendar year (being not more than 13 months from
the last annual general meeting) at such time and place to be determined by the
Directors of the Company. The Company must publish an advance notice in the
manner required by the Company Act of any general meeting at which Directors are
to be elected. The Company must give shareholders not less than 21 days' notice
of any general meeting of the shareholders.
Under BCBCA and the proposed changes to the Company's Articles, the Company's
annual general meeting is to be held once in each calendar year and not more
than 15 months after the previous meeting. No advance notice will be required to
be published at a meeting where directors are to be elected. The Company must
give shareholders not less than 21 days' notice of any general meeting of the
shareholders.
The Directors may fix in advance a date, which is no fewer than 35 days or no
more than 60 days prior to the date of the meeting. All the holders of common
shares as at that date are entitled to attend and vote at a general meeting.
DIFFERENCES FROM REQUIREMENTS IN THE UNITED STATES
Except for the Company's quorum requirements, certain requirements related to
related party transactions and the requirement for notice of shareholder
meetings, discussed above, there are no significant differences in the law
applicable to the Company, in the areas outlined above, in Canada versus the
United States. In most states in the United States, a quorum must consist of a
majority of the shares entitled to vote. Some states allow for a reduction of
the quorum requirements to less than a majority of the shares entitled to vote.
Having a lower quorum threshold may allow a minority of the shareholders to make
decisions about the Company, its management and operations. In addition, most
states in the United States require that a notice of meeting be mailed to
shareholders prior to the meeting date. Additionally, in the United States, a
director may not be able to vote on the approval of any transaction in which the
director has a interest.
MATERIAL CONTRACTS
The following are material contracts to which the Company is a party:
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1. The Company has executed an agreement with Oxbow, pursuant to which Mr.
Grosso, an officer and director of the Company, provides services to
the Company. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts" and "Item 7. Major Shareholders
and Related Party Transactions - Related Party Transactions."
2. The Company has entered into an agreement with Nikolaos Cacos, an
officer and director of the Company, pursuant to which Mr. Cacos
provides services to the Company. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts" and
"Item 7. Major Shareholders and Related Party Transactions - Related
Party Transactions."
3. The Company has entered into an agreement with KGE Management Ltd.,
pursuant to which Gerald G. Carlson, an officer and director of the
Company, provides services to the Company. See "Item 6. Directors,
Senior Management and Employees - Compensation - Management Contracts"
and "Item 7. Major Shareholders and Related Party Transactions -
Related Party Transactions."
4. An Exploration and Option Agreement with Barrick Exploraciones
Argentina S.A. ("Barrick"), dated August 17, 1999 and amended March 19,
2001 and further amended on March 25, 2003, granting Barrick an option
to earn an interest in EITHER the Rio de las Taguas or Potrerillos
properties in the Valle del Cura region. See "Item 4. Information on
the Company - Properties, Plants and Equipment - Principal Properties -
Argentinean Properties - San Juan Province Properties - Valle de Cura
Area."
5. Purchase Agreement with Victor Ronchietto, dated March 24, 1999 as
amended April 6, 2000, between IMASA and Mr. Ronchietto. See "Item 4.
Information on the Company - Properties, Plants and Equipment
- Principal Properties - Argentinean Properties - San Juan Province
Properties - Valle de Cura Area - Banitos (Ronchietto) Property".
6. Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova
JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda)
Don Alberto JJ de Piura, dated January 24, 1997 as amended January 31,
2000, August 22, 2000, April 22, 2001, December 23, 2002 and August 15,
2003. See "Item 4. Information on the Company - Properties, Plants and
Equipment - Principal Properties - Peruvian Properties".
7. The Company has entered into an agreement with Mr. Sean Hurd, investor
relations manager and director of the Company (effective September
2000), pursuant to which Mr. Hurd provides services to the Company. See
"Item 6. Directors, Senior Management and Employees - Compensation -
Management Contracts" and "Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions."
8. An Option Agreement between Nestor Arturo and IMASA, signed June 7,
2000 as amended August 3, 2000 and September 1, 2000, granting the
Company an option to acquire mineral rights. See "Item 4. Information
on the Company - Properties, Plants and Equipment - Principal
Properties - Argentinean Properties - San Juan Province Properties -
Northwest San Juan - Mogote (Arturo's) Property."
9. Letter agreement between the Company and Beauregard dated February 5,
2004, regarding the Company's office lease. See "Item 7. Major
Shareholders and Related Party Transactions - Related Party
Transactions."
10. The Company signed a letter of Intent on March 6, 2003, as amended
September 30, 2003, with Amera, pursuant to which Amera could earn an
undivided 51% interest (subject to regulatory approval) in the Mogote
(Arturo's) Property. In an agreement dated April 8, 2004, Amera
acquired an option to earn an additional 24% interest (for a total of
75% interest) in the Mogote property. Joseph Grosso, Nikolaos Cacos and
David Terry, officers and/or directors of the Company, are officers,
directors and/or employees of Amera. See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Properties -
Argentinean Properties - San Juan Province Properties - Northwest San
Juan - Mogote (Arturo's) Property" and "Item 7. Major Shareholders and
Related Party Transactions - Related Party Transactions."
11. On December 16, 2003 the Company entered into an agreement with
Endeavour Financial Ltd. a company with which Mr. Angus, a director of
the Company is associated. A monthly fee of US$5,000 for services is
97
payable under this agreement for a minimum period of one year. See
"Item 7. Major Shareholders and Related Party Transactions - Related
Party Transactions."
12. The Company has entered into an agreement with Mr. Lang, Chief
Financial Officer and a director of the Company, dated April 23, 2004,
pursuant to which Mr. Lang provides services to the Company. See "Item
6. Directors, Senior Management and Employees - Compensation -
Management Contracts" and "Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions."
13. The Company has agreed to issue options to David Terry, a director of
the Company, and to reimburse Amera for a portion of Mr. Terry's salary
for services provided to the Company by Mr. Terry. See "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts" and "Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions."
14. Arrangement Agreement by and among the Company, Golden Arrow and IMA
Holdings Corp. dated May 14, 2004. See "Item 4. Information on the
Company - History and Development of the Company."
15. Agreement between the Company and Amera dated March 6, 2003, relating
to the Lago Pico, Loma Alta and Nueva Ruta properties. See "Item 7.
Major Shareholders and Related Party Transactions - Related Party
Transactions."
16. In the event the reorganization is consummated, the Company intends to
enter into an indemnification agreement with Golden Arrow. See "Item 8.
Financial Information - Legal Proceedings."
17. Option Agreement dated September 22, 2003, with Cloudbreak Resources
Ltd. relating to the Gollette property. See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Properties -
Argentinean Properties - San Juan Province Properties - Valle de Cura
Area - Gollette."
18. Option Agreement dated August 12, 2003 between with Consolidated
Pacific Bay Minerals Ltd. relating to the Regalo mineral claim. See
"Item 4. Information on the Company - Properties, Plants and Equipment
- Principal Properties - Argentinean Properties - Navidad Area
Properties (Other than the Navidad Project) - Regalo Property."
19. Option agreement dated June 11, 2003, with Ballad Gold & Silver Ltd.
relating to the Penascudo Property. See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Properties -
Argentinean Properties - Other Chubut Province Properties - Penascudo
Property."
EXCHANGE CONTROLS
There are no governmental laws, decrees, or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends, or other payments to non-resident holders of the Company's
Common Stock. Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (10% if the shareholder is a
corporation owning at least 10% of the outstanding Common Stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States. See "Item 10. Additional Information - Taxation".
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations specific to the rights of non-Canadians to hold or vote the Common
Stock of the Company under the laws of Canada or the Province of British
Columbia or in the charter documents of the Company.
Management of the Company considers that the following general summary is
materially complete and fairly describes those provisions of the Act pertinent
to an investment by an American investor in the Company.
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold levels or the business activity of which is
related to Canada's cultural heritage or national identity, to either notify, or
file an application for review with, Investment Canada, the federal agency
created by the Investment Canada Act.
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The notification procedure involves a brief statement of information about the
investment of a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the
Act:
(a) an investment to establish a new Canadian business; and
(b) an investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
An investment is reviewable under the Act if there is an acquisition by a
non-Canadian of a Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:
(a) for non-WTO Investors, the threshold is $5,000,000 for a direct
acquisition and over $50,000,000 for an indirect acquisition. The
$5,000,000 threshold will apply however for an indirect acquisition of the
asset value of the Canadian business being acquired exceeds 50% of the
asset value of the global transaction;
(b) except as specified in paragraph (c) below, a threshold is calculated for
reviewable direct acquisitions by or from WTO Investors. The threshold for
2004 is $237,000,000. Pursuant to Canada's international commitments,
indirect acquisitions by or from WTO Investors are not reviewable; and
(c) the limits set out in paragraph (a) apply to all investors for
acquisitions of a Canadian business that:
(i) engages in the production of uranium and owns an interest in a
producing uranium property in Canada;
(ii) provides any financial services;
(iii) provides any transportation service; or
(iv) is a cultural business.
WTO Investor as defined in the Act means:
(a) an individual, other than a Canadian, who is a national of a WTO Member or
who has the right of permanent residence in relation to that WTO Member;
(b) a government of a WTO Member, whether federal, state or local, or an
agency thereof;
(c) an entity that is not a Canadian-controlled entity, and that is a WTO
investor-controlled entity, as determined in accordance with the Act;
(d) a corporation or limited partnership:
(i) that is not a Canadian-controlled entity, as determined pursuant
to the Act;
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(ii) that is not a WTO investor within the meaning of the Act;
(iii) of which less than a majority of its voting interests are owned by
WTO investors;
(iv) that is not controlled in fact through the ownership of its voting
interests; and
(v) of which two thirds of the members of its board of directors, or
of which two thirds of its general partners, as the case may be,
are any combination of Canadians and WTO investors;
(e) a trust:
(i) that is not a Canadian-controlled entity, as determined pursuant
to the Act;
(ii) that is not a WTO investor within the meaning of the Act;
(iii) that is not controlled in fact through the ownership of its voting
interests, and
(iv) of which two thirds of its trustees are any combination of
Canadians and WTO investors, or
(f) any other form of business organization specified by the regulations that
is controlled by a WTO investor.
WTO Member as defined in the Act means a member of the World Trade Organization.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its Canadian parent or grandparent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian parent or grandparent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of actual or de jure
voting control of a Canadian corporation or through the acquisition of
substantially all of the assets of the Canadian business. No change of voting
control will be deemed to have occurred if less than one-third of the voting
control of a Canadian corporation is acquired by an investor.
The Act specifically exempts certain transactions from either notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting interests by any person in the ordinary course of that
person's business as a trader or dealer in securities.
TAXATION
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES
Management of the Company considers that the following discussion describes the
material Canadian federal income tax consequences applicable to a holder of
Common Stock of the Company who is a resident of the United States and who is
not a resident of Canada and who does not use or hold, and is not deemed to use
or hold, his shares of Common Stock of the Company in connection with carrying
on a business in Canada (a "non-resident shareholder").
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administrative and assessing policies of Revenue Canada,
Taxation and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This description is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action.
DIVIDENDS
Dividends paid on the common stock of the Company to a non-resident will be
subject to withholding tax. The Canada-U.S. Income Tax Convention (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a corporation resident in Canada (such as the Company) to
residents of the United States, and also provides for a further reduction of
this rate to 5% where the beneficial owner of the dividends is a
100
corporation which is a resident of the United States which owns at least 10% of
the voting shares of the corporation paying the dividend.
CAPITAL GAINS
In general, a non-resident of Canada is not subject to tax under the ITA with
respect to a capital gain realized upon the disposition of a share of a
corporation resident in Canada that is listed on a prescribed stock exchange.
For purposes of the ITA, the Company is listed on a prescribed stock exchange.
Non-residents of Canada who dispose of shares of the Company will be subject to
income tax in Canada with respect to capital gains if:
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at arm's
length; or
(c) the non-resident holder and persons with whom the non-resident
holder did not deal with at arm's length,
owned not less than 25% of the issued shares of any class or series of the
Company at any time during the five-year period preceding the disposition. In
the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless the value of such
shares is derived principally from real property situated in Canada. However, in
such a case, certain transitional relief under the Treaty may be available.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal income
tax consequences, under current law, applicable to a U.S. Holder (as defined
below) of the Company's common stock. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, nonresident alien individuals or foreign
corporations, or shareholders owning common stock representing 10% of the vote
and value of the Company. In addition, this discussion does not cover any state,
local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial of recently proposed legislation which, if enacted, could
be applied, possibly on a retroactive basis, at any time. Holders and
prospective holders of the Company's Common Stock should consult their own tax
advisors about the federal, state, local and foreign tax consequences of
purchasing, owning and disposing of shares of Common Stock of the Company.
U.S. HOLDERS
As used herein, a "U.S. Holder" is defined as (i) citizens or residents of the
U.S., or any state thereof, (ii) a corporation or other entity created or
organized under the laws of the U.S., or any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of source or that is otherwise subject to U.S. federal income tax on
a net income basis in respect of the common stock, or (iv) a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust, whose ownership of common stock is not
effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.
DISTRIBUTIONS ON SHARES OF COMMON STOCK
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the Company's common stock are required to include in gross
income for United States federal income tax purposes the gross
101
amount of such distributions to the extent that the Company has current or
accumulated earnings and profits, without reduction for any Canadian income tax
withheld from such distributions. Such Canadian tax withheld may be credited,
subject to certain limitations, against the U.S. Holder's United States federal
income tax liability or, alternatively, may be deducted in computing the U.S.
Holder's United States federal taxable income by those who itemize deductions.
(See more detailed discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common stock and thereafter as gain from the sale or
exchange of such shares. Preferential tax rates for long-term capital gains are
applicable to a U.S. Holder which is an individual, estate or trust. There are
currently no preferential tax rates for long-term capital gains for a U.S.
Holder which is a corporation. Dividends paid on the Company's common stock will
not generally be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Company's common stock may be entitled, at
the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year.
Subject to certain limitations, Canadian taxes withheld will be eligible for
credit against the U.S. Holder's United States federal income taxes. Under the
Code, the limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. Dividends paid by the
Company generally will be either "passive" income or "financial services"
income, depending on the particular U.S. Holder's circumstances. Foreign tax
credits allowable with respect to each class of income cannot exceed the U.S.
federal income tax otherwise payable with respect to such class of income. The
consequences of the separate limitations will depend on the nature and sources
of each U.S. Holder's income and the deductions appropriately allocated or
apportioned thereto. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of common stock should consult their own tax advisors
regarding their individual circumstances.
DISPOSITION OF SHARES OF COMMON STOCK
A U.S. Holder will recognize gain or loss upon the sale of shares of common
stock equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received; and (ii) the shareholder's tax basis
in the common stock. This gain or loss will be capital gain or loss if the
shares are a capital asset in the hands of the U.S. Holder, and such gain or
loss will be long-term capital gain or loss if the U.S. Holder has held the
common stock for more than one year. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for a
particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders who are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
OTHER CONSIDERATIONS
The Company has not determined whether it meets the definition of a "passive
foreign investment company" (a "PFIC"). It is unlikely that the Company meets
the definition of a "foreign personal holding company" (a "FPHC") or a
"controlled foreign corporation" (a "CFC") under current U.S. law.
If more than 50% of the voting power or value of the Company were owned
(actually or constructively) by U.S. Holders who each owned (actually or
constructively) 10% or more of the voting power of the Company's common shares
("10% Shareholders"), then the Company would become a CFC and each 10%
Shareholder would be required to include in its taxable income as a constructive
dividend an amount equal to its share of certain undistributed income of the
Company. If (1) more than 50% of the voting power or value of the Company's
common shares were owned (actually or constructively) by five or fewer
individuals who are citizens or residents of the United States and
102
(2) 60% or more of the Company's income consisted of certain interest, dividend
or other enumerated types of income, then the Company would be a FPHC. If the
Company were a FPHC, then each U.S. Holder (regardless of the amount of the
Company's Common Shares owned by such U.S. Holder) would be required to include
in its taxable income as a constructive dividend its share of the Company's
undistributed income of specific types.
If 75% or more of the Company's annual gross income has ever consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC. Please note that the
application of the PFIC provisions of the Code to mining companies is somewhat
unclear.
If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest charge together with tax calculated at maximum tax rates on certain
"excess distributions" (defined to include gain on the sale of stock) unless
such U.S. Holder made an election either to (1) include in his or her taxable
income certain undistributed amounts of the Company's income or (2) mark to
market his or her Company common shares at the end of each taxable year as set
forth in Section 1296 of the Code.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S. Holders of the Company's shares. Under Treasury regulations
currently in effect, non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct taxpayer identification number to the payor in the required
manner, (2) is notified by the IRS that it has failed to report payments of
interest or dividends properly or (3) fails, under certain circumstances, to
certify that it has been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
DOCUMENTS ON DISPLAY
Documents concerning the Company and referred to in this report may be inspected
at the Company's principal office, located at #709 - 837West Hastings Street,
Vancouver, British Columbia, V6C 3N6.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------
As of the date of this report, the Company does not have any material market
risk sensitive financial instruments.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
--------------------------------------------------------------------------------
See "Item 4. Information on the Company - History and Development of the
Company" and "Item 10. Other Information - Memorandum and Articles of
Association" for information on the Company's proposed reorganization, the
adoption of the BCBCA in British Columbia, and the proposed changes to the
Company's governing documents.
103
ITEM 15. CONTROLS AND PROCEDURES.
--------------------------------------------------------------------------------
An evaluation was performed under the supervision and with the participation of
the Company's management, including Mr. Grosso, the Company's chief executive
officer, and Mr. Lang, the Company's chief financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") as of December 31, 2003. Based upon
that evaluation, Messrs. Grosso and Lang, concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms.
During the fiscal year ended December 31, 2003, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
--------------------------------------------------------------------------------
The Board of Directors has determined that the Company has at least one audit
committee financial expert, Mr. Arthur Lang, who serves on the Company's audit
committee.
ITEM 16B. CODE OF ETHICS.
--------------------------------------------------------------------------------
The Company has not yet adopted a code of ethics that applies to the Company's
principal executive officers, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. Given the
Company's current operations, management does not believe a code of ethics is
necessary at this stage of the Company's development.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
--------------------------------------------------------------------------------
AUDIT FEES
For the fiscal years ended December 31, 2003 and 2002, the Company's principal
accountant is expected to bill approximately $30,000 and billed $30,000,
respectively, for the audit of the Company's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years.
AUDIT-RELATED FEES
For the fiscal years ended December 31, 2003 and 2002, the Company's principal
accountant is expected to bill $16,000 and billed $nil, respectively, for
assurance and related services that were reasonably related to the performance
of the audit or review of the Company's financial statements outside of those
fees disclosed above under "Audit Fees".
TAX FEES
For the fiscal years ended December 31, 2003 and 2002, the Company's principal
accountant is expected to bill $28,000 and billed $nil, respectively, for tax
compliance, tax advice, and tax planning services.
104
PRE-APPROVAL POLICIES AND PROCEDURES
Generally, in the past, prior to engaging the Company's auditors to perform a
particular service, the Company's audit committee has, when possible, obtained
an estimate for the services to be performed. Except as disclosed below, the
audit committee in accordance with procedures for the Company approved all of
the services described above.
Additionally, the auditors have been engaged to perform services by
non-independent directors of the Company (who are members of the audit
committee) pursuant to pre-approval policies and procedures established by the
audit committee (which are detailed as to the particular service) and the audit
committee has been informed of any such engagement and service.
Since January 1, 2004, the Company's auditors have billed the Company $16,000
for audit related services in connection with the reorganization. These services
were authorized by non-independent members of the board of directors of the
Company, who were also members of the audit committee, but were not pre-approved
by the full audit committee. Subsequent to the auditors' engagement the audit
committee was informed of such engagement and service.
Beginning July 1, 2004, the Company's audit committee intends to obtain
estimates for services to be performed, prior to engaging the Company's auditor
to perform any audit or non-audit related services, including those set forth
above. The audit committee will also allow the engagement of the auditor, by a
non-independent member of the board of directors, to render services pursuant to
pre-approval policies and procedures established by the audit committee (which
are detailed as to the particular service), provided the audit committee is
informed of any such engagement and service. The audit committee may delegate to
one of its members, who is also an independent director of the Company, the
ability to approve such services on behalf of the audit committee. Any approval
by such director shall be ratified by the audit committee at its next scheduled
meeting.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS.
--------------------------------------------------------------------------------
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
See pages F-1 though F-26
ITEM 18. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
Not applicable.
105
ITEM 19. EXHIBITS.
--------------------------------------------------------------------------------
EXHIBITS
EXHIBIT
NUMBER EXHIBIT
1.1 Notice of Articles
1.2 Articles (1)
4.1 Share Purchase Agreement Between Shareholders and 389863 B.C. Ltd. (1)
4.2 Arrangement Agreement Between Viceroy Resource Corporation and IMA Resource
Corporation (1)
4.3 Consulting Services Agreement Between Oxbow International Marketing Corp. and IMA
Resource Corporation (1)
4.4 Employment Agreement with William Lee (1)
4.5 Consulting Services Agreement Between Nikolaos Cacos and IMA Resource Corporation
(1)
4.6 Consulting Agreement Between KGE Management Ltd. and IMA Exploration Inc. dated
April 1, 2004
4.7 Consulting Agreement Between Lindsay R. Bottomer and IMA Exploration Inc. (1)
4.8 Exploration and Option Agreement with Barrick Exploraciones Argentina S.A. (1)
4.9 Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio Lirio
representing Lir-Fer Construcciones S.R.L. (1)
4.10 Option Agreement with Lirio and Lir-Fer Construcciones S.R.L. (1)
4.11 Option Agreement with Oscar Garcia and others (1)
4.12 Purchase Agreement with Modesto Enrique Arasena (1)
4.13 Option Agreement with Hugo Arturo Bosque (1)
4.14 Option Agreement with Guillermo Munoz, Lydia Gonzalez, Ricardo Sanchez and
Antonio Monteleone (1)
4.15 Option Agreement with Jorge Ernesto Rodriguez and Gerardo Javier Rodriguez (1)
4.16 Option Agreement with Jorge Ernesto Rodriguez and Raul Alberto Garcia (1)
4.17 Purchase Agreement with Victor Ronchietto (1)
4.18 Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova JJ de
Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ
de Piura (1)
4.19 Amendment to Option Agreement with Hugo Arturo Bosque (2)
4.20 Amendment to Purchase Agreement with Victor Ronchietto (2)
4.21 Option Agreement with Dionisio Ramos (2)
4.22 Amendment to Consulting Services Agreement Between Oxbow International Marketing
Corp. and IMA Resource Corporation (2)
4.23 Amendment to consulting Agreement between IMA Exploration Inc. and Nikolaos Cacos
(3)
4.24 Agreement between the Company and Sean Hurd dated June 2, 2002 (3)
106
EXHIBIT
NUMBER EXHIBIT
4.25 Option Agreement between Nestor Arturo and IMA S.A. (3)
4.26 Amendment to Option Agreement with Guillermo Munoz, Lydia Gonzalez, Ricardo
Sanchez and Antonio Monteleone (3)
4.27 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura (3)
4.28 Option Agreement with Rio Tinto Mining and Exploration Limited (4)
4.29 Amendment to Exploration and Option Agreement with Barrick Exploraciones
Argentina S.A. (4)
4.30 Consulting Agreement between the Company and Lindsay Bottomer dated April 1,
2002(4)
4.31 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. (4)
4.32 Amendment to Option Agreement with Juan Demetrio Lirio and Lir-Fer Construcciones
S.R.L. (4)
4.33 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura (4)
4.34 Amendment to Option Agreement between Nestor Arturo and IMA S.A. (4)
4.35 Amendment to Consulting Agreement Between KGE Management Ltd. and IMA Exploration
Inc. (4)
4.36 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. (5)
4.37 Amendment to Option Agreement with Juan Demetrio Lirio and Lir-Fer Construcciones
S.R.L. (5)
4.38 Amendment to Option Agreement between Nestor Arturo and IMA S.A. (5)
4.39 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura (5)
4.40 Short Form Offering Document (5)
4.41 Amendment to Consulting Services Agreement Between Oxbow International Marketing
Corp. and IMA Resource Corporation (5)
4.43 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration
Inc. (5)
4.44 Amendment to Agreement between the Company and Sean Hurd (5)
4.45 Amendment to Exploration and Option Agreement with Barrick Exploraciones
Argentina S.A. dated March 26, 2003. (6)
4.46 Letter of Intent dated March 6, 2003 with Amera Resources Corporation (6)
4.47 Letter Agreement with Amera Resources Corporation re: reimbursement of office
expenses (6)
107
EXHIBIT
NUMBER EXHIBIT
4.48 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura dated December 23, 2002 (6)
4.49 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. dated July 10, 2002 (6)
4.50 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. dated December 27, 2002 (6)
4.51 Amendment to Consulting Services Agreement Between Oxbow International Marketing
Corp. and IMA Resource Corporation dated July 15, 2002 (6)
4.52 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration
Inc. dated June 14, 2002 (6)
4.53 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration
Inc. dated October 3, 2002 (6)
4.54 Amendment to Agreement between the Company and Sean Hurd dated June 10, 2002 (6)
4.55 Amendment to Consulting Services Agreement Between Oxbow International Marketing
Corp. and IMA Resource Corporation dated April 17, 2003 (6)
4.56 Arrangement Agreement between IMA Exploration Inc., IMA Holdings Corp.
and Golden Arrow Resources Corporation dated May 14, 2004 (7)
4.57 Amendment to consulting Agreement with Nikolaos Cacos dated January 5, 2004
4.58 Amendment to Agreement with Sean Hurd dated January 5, 2004
4.59 Financial Advisory Services Agreement with Endeavour Financial Ltd.
4.60 Agreement between the Company and Amera Resources Corporation dated March 6, 2003
relating to the Lago Pico, Loma Alta and Nueva Ruta properties
4.61 Amendment to Letter of Intent with Amera Resources Corporation dated September
30, 2003
4.62 Amendment to Letter of Intent with Amera Resources Corporation dated April 8, 2004
4.63 Letter Agreement with Beauregard Holdings Corp. dated February 5, 2004 regarding
office lease
4.64 Option Agreement dated September 22, 2003, between the Company and Cloudbreak
Resources Ltd.
4.65 Option Agreement dated August 12, 2003 between the Company and Consolidated
Pacific Bay Minerals Ltd.
4.66 Option agreement dated June 11, 2003, between the Company and Ballad Gold &
Silver Ltd. (formerly Ballad Ventures Ltd.)
4.67 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado
Nova JJ de Piura and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don
Alberto JJ de Piura dated August 15, 2003.
4.68 Letter Agreement with Arthur Lang dated April 23, 2004
8.1 List of Subsidiaries
12.1 Certification of Joseph Grosso Pursuant to Rule 13a-14(a)
108
12.2 Certification of Arthur Lang Pursuant to Rule 13a-14(a)
13.1 Certification of Joseph Grosso Pursuant to 18 U.S.C. Section 1350
13.2 Certification of Arthur Lang Pursuant to 18 U.S.C. Section 1350
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F, filed with the Commission on January 6, 2000. File number 0-30464.
(2) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F/A Amendment No. 1 filed July 14, 2000. File Number 0-30464.
(3) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F/A Amendment No. 2 filed September 15, 2000. File Number 0-30464.
(4) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 8, 2001. File Number 0-30464.
(5) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 8, 2002. File Number 0-30464.
(6) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 16, 2003. File Number 0-30464.
(7) Previously filed as with the Company's Report on Form 6-K filed June 18,
2004. File Number 0-30464.
109
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
IMA EXPLORATION INC.
(Registrant)
/s/ ARTHUR LANG
------------------------------------------------------
Arthur Lang, Chief Financial Officer and Director
Date: June 23, 2004
--------------------------------
110
--------------------------------------------------------------------------------
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------
F-1
PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers LLP
Chartered Accountants
PricewaterhouseCoopers Place
#700 - 250 Howe Street
Vancouver, BC Canada
V6C 3S7
Tel: 604-806-7000
Fax: 604-806-7806
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
IMA EXPLORATION INC.
We have audited the consolidated balance sheets of IMA EXPLORATION INC. as at
December 31, 2003 and 2002 and the consolidated statements of operations and
deficit and cash flows for the years ended December 31, 2003, 2002 and 2001.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada and the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2003
and 2002 and the results of its operations and its cash flows for the years
ended December 31, 2003, 2002 and 2001 in accordance with Canadian generally
accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
April 27, 2004 (except for note 12(b) which is as of May 3, 2004)
COMMENTS BY AUDITORS FOR US READERS ON CANADA-US REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the company's financial statements such as the changes described in Note 2 to
the financial statements. Our report dated April 27, 2004 is expressed in
accordance with Canadian reporting standards, which do not require reference to
such a change in accounting principles in the auditor's report when the change
is properly accounted for and adequately disclosed in the financial statements.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, BC, Canada
April 27, 2004
F-2
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
2003 2002
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 4,454,241 1,436,124
Amounts receivable and prepaids 176,030 79,661
Marketable securities (Note 4) 543,460 23,460
------------ ------------
5,173,731 1,539,245
EQUIPMENT net of accumulated depreciation
of $228,692 (2002 - $201,771) 40,472 45,517
MINERAL PROPERTIES AND DEFERRED COSTS (Note 5) 6,883,641 5,847,727
------------ ------------
12,097,844 7,432,489
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 426,494 108,351
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 27,707,597 21,354,823
CONTRIBUTED SURPLUS 1,541,116 128,260
DEFICIT (17,577,363) (14,158,945)
------------ ------------
11,671,350 7,324,138
------------ ------------
12,097,844 7,432,489
============ ============
NATURE OF OPERATIONS (Note 1)
SUBSEQUENT EVENTS (Note 12)
APPROVED BY THE BOARD
/s/ Joseph Grosso , Director
-------------------------------
/s/ Art Lang , Director
-------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-3
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
2003 2002 2001
$ $ $
EXPENSES
Administrative and management services 243,515 224,109 219,891
Bank charges and interest 10,319 10,492 7,464
Corporate development and investor relations 352,706 249,373 88,198
Depreciation 26,920 22,772 24,657
General exploration 226,956 180,321 109,875
Office and sundry 57,959 34,823 37,875
Printing 46,388 22,304 12,133
Professional fees 297,763 172,828 105,052
Rent, parking and storage 72,192 72,268 68,522
Salaries and employee benefits 199,411 196,042 193,544
Stock based compensation (Note 6 (d)) 1,487,235 128,260 -
Telephone and utilities 37,934 34,368 25,138
Transfer agent and regulatory fees 34,078 35,831 15,596
Travel and accommodation 105,950 80,485 37,740
Cost recoveries (Note 7(d)) (35,110) (6,000) -
------------ ------------ ------------
3,164,216 1,458,276 945,685
------------ ------------ ------------
OTHER EXPENSE (INCOME)
Foreign exchange 25,916 8,415 (17,030)
Interest and other income (66,561) (26,585) (97,280)
Gain on options and disposition of mineral properties (481,779) - -
Write-off of mineral properties and deferred costs 776,626 - 21,483
Write-down of marketable securities - - 22,483
Loss on sale of marketable securities - - 6,534
------------ ------------ ------------
254,202 (18,170) (63,810)
------------ ------------ ------------
LOSS FOR THE YEAR (3,418,418) (1,440,106) (881,875)
DEFICIT - BEGINNING OF YEAR (14,158,945) (12,718,839) (11,836,964)
------------ ------------ ------------
DEFICIT - END OF YEAR (17,577,363) (14,158,945) (12,718,839)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.11) $(0.06) $(0.06)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 32,251,753 23,188,485 15,104,239
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-4
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
2003 2002 2001
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (3,418,418) (1,440,106) (881,875)
Items not affecting cash
Depreciation 26,920 22,772 24,657
Stock based compensation 1,487,235 128,260 -
Gain on options and disposition of mineral properties (481,779) - -
Write-down of marketable securities - - 22,483
Loss on sale of marketable securities - - 6,534
Write-off of mineral properties and deferred costs 776,626 - 21,483
------------ ------------ ------------
(1,609,416) (1,289,074) (806,718)
Increase in amounts receivable and prepaids (96,369) (9,772) (17,984)
Increase (decrease) in accounts payable and accrued liabilities 318,143 (7,365) (73,703)
------------ ------------ ------------
(1,387,642) (1,306,211) (898,405)
------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties and deferred costs (1,850,761) (1,266,555) (1,320,777)
Purchase of equipment (21,875) (11,201) (8,012)
Proceeds on sale of marketable securities - - 16,966
------------ ------------ ------------
(1,872,636) (1,277,756) (1,311,823)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 6,467,245 3,453,382 1,563,940
Share issuance costs (188,850) (189,056) (100,684)
------------ ------------ ------------
6,278,395 3,264,326 1,463,256
------------ ------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,018,117 680,359 (746,972)
CASH AND CASH EQUIVALENTS
- BEGINNING OF YEAR 1,436,124 755,765 1,502,737
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR 4,454,241 1,436,124 755,765
============ ============ ============
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
CASH 1,654,241 631,255 605,765
TERM DEPOSITS 2,800,000 804,869 150,000
------------ ------------ ------------
4,454,241 1,436,124 755,765
============ ============ ============
SUPPLEMENTARY CASH FLOW INFORMATION (Note 11)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-5
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2003
(EXPRESSED IN CANADIAN DOLLARS)
ARGENTINA
----------------------------------------------------------------------------
LIRIO RIO DE LAGUNA DE
GROUP NAVIDAD LAS TAGUAS EVELINA LOS TOROS
$ $ $ $ $
Balance, beginning of year 1,966,934 5,090 543,889 107,209 138,203
------------ ------------ ------------ ------------ ------------
Expenditures during the year
Assays - 62,232 - 14,048 -
Contractors - access - 10,923 - 18,268 -
Contractors - surveying - 102,595 - - -
Contractors - environmental - 40,664 - 301 -
Drilling - 193,836 - 191,923 -
Field supplies - 28,423 - 3,801 -
Field workers - - - - -
Geological 2,250 297,005 - 27,990 1,207
Geological supplies - 50,317 - 4,896 -
Geochemistry - 1,659 - - -
Geophysics - 88,886 - - -
Geophysics supplies - 29,702 - - -
Legal fees 2,382 198 - 162 162
Option payments 90,810 - - - -
Staking and statutory fees 1,900 2,900 - - -
Taxes 204 669 191 417 214
Travel - 37,369 - 9,595 50
Office 746 9,924 704 1,262 53
Other 5,327 - - - -
Project management 659 10,879 279 2,002 973
Vehicles - 28,940 - 9,431 2
------------ ------------ ------------ ------------ ------------
104,278 997,121 1,174 284,096 2,661
------------ ------------ ------------ ------------ ------------
Option payments received and cost recoveries (94,803) - - - -
Write-off of mineral properties (649,094) - - - -
Proceeds on sale of mineral properties - - - - -
Foreign value added tax - - - - -
------------ ------------ ------------ ------------ ------------
(743,897) - - - -
------------ ------------ ------------ ------------ ------------
Balance, end of year 1,327,315 1,002,211 545,063 391,305 140,864
============ ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-6
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS, 2003 - CONTINUED
ARGENTINA PERU TOTAL
---------------------------- ------------ ------------
RIO
MOGOTE OTHER TABACONAS
$ $ $ $
Balance, beginning of year 107,940 312,012 2,666,450 5,847,727
------------ ------------ ------------ ------------
Expenditures during the year
Assays 8,050 13,233 1,580 99,143
Contractors - access 1,483 - - 30,674
Contractors - surveying - - - 102,595
Contractors - environmental - - 104,844 145,809
Drilling - - - 385,759
Field supplies 9,013 501 12,036 53,774
Field workers - - 18,850 18,850
Geological 52,011 4,626 146,576 531,665
Geological supplies 3,859 2,244 - 61,316
Geochemistry - - - 1,659
Geophysics - - - 88,886
Geophysics supplies - - - 29,702
Legal fees 2,375 3,760 54,336 63,375
Option payments 15,291 - 41,247 147,348
Staking and statutory fees 825 80,979 49,260 135,863
Taxes 237 21,899 14 23,845
Travel 718 285 38,176 86,193
Office 1,434 826 18,286 33,236
Other - - 1,958 7,285
Project management 2,431 7,557 - 24,780
Vehicles 498 4,970 8,849 52,690
------------ ------------ ------------ ------------
98,225 140,880 496,012 2,124,447
------------ ------------ ------------ ------------
Option payments received and cost recoveries (206,165) (45,979) - (346,947)
Write-off of mineral properties - (127,532) - (776,626)
Proceeds on sale of mineral properties - (22,981) - (22,981)
Foreign value added tax - 55,929 2,092 58,021
------------ ------------ ------------ ------------
(206,165) (140,563) 2,092 (1,088,533)
------------ ------------ ------------ ------------
Balance, end of year - 312,329 3,164,554 6,883,641
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-7
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2002
(EXPRESSED IN CANADIAN DOLLARS)
ARGENTINA
----------------------------------------------------------------------------
LIRIO RIO DE LAGUNA DE
GROUP NAVIDAD LAS TAGUAS EVELINA LOS TOROS
$ $ $ $ $
Balance, beginning of year 1,879,134 - 540,720 7,853 72,017
------------ ------------ ------------ ------------ ------------
Expenditures during the year
Assays - - 19 39,836 20,251
Contractors - access - - - - -
Contractors - surveying - - - - -
Contractors - environmental - 487 - 856 -
Drilling - - - - -
Field supplies - - 100 - -
Field workers - - - - -
Geological 1,941 785 - 43,799 37,815
Geological supplies - - - 2,451 1,092
Geochemistry - - - - -
Geophysics - - - - -
Geophysics supplies - - - - -
Legal fees 2,343 - - 34 34
Option payments 71,585 - - - -
Staking and statutory fees - 3,818 3 - 1,232
Taxes 1,653 - 1,653 121 562
Travel - - - 7,445 575
Office 10,278 - 385 729 1,014
Other - - - - -
Project management - - 1,009 36 36
Vehicles - - - 4,049 3,575
------------ ------------ ------------ ------------ ------------
87,800 5,090 3,169 99,356 66,186
------------ ------------ ------------ ------------ ------------
Foreign value added tax - - - - -
------------ ------------ ------------ ------------ ------------
Balance, end of year 1,966,934 5,090 543,889 107,209 138,203
============ ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-8
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS, 2002 - CONTINUED
ARGENTINA PERU TOTAL
---------------------------- ------------ ------------
RIO
MOGOTE OTHER TABACONAS
$ $ $ $
Balance, beginning of year 74,565 203,169 1,803,714 4,581,172
------------ ------------ ------------ ------------
Expenditures during the year
Assays - - 24,428 84,534
Contractors - access - - - -
Contractors - surveying - - 20,923 20,923
Contractors - environmental - - 112,689 114,032
Drilling - - - -
Field supplies 1,220 - 18,122 19,442
Field workers - - 49,790 49,790
Geological 14,034 57,075 236,231 391,680
Geological supplies - - - 3,543
Geochemistry - - - -
Geophysics - - - -
Geophysics supplies - - - -
Legal fees 469 - 63,266 66,146
Option payments 13,969 - 227,079 312,633
Staking and statutory fees 757 39,753 - 45,563
Taxes 424 - - 4,413
Travel 1,710 - 41,856 51,586
Office 792 - 19,266 32,464
Other - - 12,882 12,882
Project management - - - 1,081
Vehicles - - 36,204 43,828
------------ ------------ ------------ ------------
33,375 96,828 862,736 1,254,540
------------ ------------ ------------ ------------
Foreign value added tax - 12,015 - 12,015
------------ ------------ ------------ ------------
Balance, end of year 107,940 312,012 2,666,450 5,847,727
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-9
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS
The Company is in the process of exploring its mineral properties in
South America and evaluating other mineral properties. 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. See
also Note 12.
2. CHANGE IN ACCOUNTING POLICY
Effective January 1, 2003, the Company prospectively adopted the fair
value method of accounting for the stock options granted to employees
and directors, as recommended by the Canadian Institute of Chartered
Accountants' Handbook ("CICA 3870") STOCK-BASED COMPENSATION AND OTHER
STOCK BASED PAYMENTS. CICA 3870 provides alternative methods of
transition for the adoption of the fair value method and as permitted,
the Company has elected the prospective application, which allows the
fair value method to be applied to stock options granted, modified or
settled on or after January 1, 2003 to employees and directors.
Pro-forma disclosure for stock options issued prior to January 1, 2003,
as required by the standard, had the Company used the fair value method
is presented in Note 6 (d).
Stock-based compensation has been credited to contributed surplus.
The fair value of stock options is determined by using the
BLACK-SCHOLES OPTION PRICING MODEL with assumptions for risk-free
interest rates, dividend yields, volatility factors of the expected
market price of the Company's common shares and an expected life of the
options.
For stock options granted to other than employees and directors the
Company continues to apply the fair value method.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The significant measurement differences between
those principles and those that would be applied under United States
generally accepted accounting principles ("US GAAP") as they affect the
Company are disclosed in Note 10.
F-10
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and all its subsidiaries. The Company's principal subsidiaries
are IMPSA Resources Corporation (80.69%), Minera Imp-Peru S.A. (100%)
and Inversiones Mineras Argentinas S.A. (100%). All intercompany
transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments
maturing within 90 days of the original date of acquisition.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost or market.
MINERAL PROPERTIES AND DEFERRED COSTS
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 or its carrying value has been
impaired, a provision is made for any expected loss on the project or
property.
The Company also 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.
F-11
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
EQUIPMENT
Equipment, which comprise leasehold improvements and office furniture
and equipment, are recorded at cost less accumulated depreciation
calculated using the straight-line method over their estimated useful
lives of five years.
ASSET RETIREMENT OBLIGATIONS
The fair value of a liability for an asset retirement obligation is
recognized when a reasonable estimate of fair value can be made. The
asset retirement obligation is recorded as a liability with a
corresponding increase to the carrying amount of the related long-lived
asset. Subsequently, the asset retirement cost is allocated to expenses
using a systematic and rational method and is adjusted to reflect
period-to-period changes in the liability resulting from passage of
time and revisions to either timing or the amount of the original
estimate of the undiscounted cash flow. As at December 31, 2003, the
Company does not have any asset retirement obligations.
LONG-LIVED ASSETS IMPAIRMENT
Long-lived assets are reviewed for impairment when changes in
circumstances suggest their carrying value has become impaired.
Management considers assets to be impaired if the carrying value
exceeds the estimated undiscounted future projected cash flows to
result from the use of the asset and its eventual disposition. If
impairment is deemed to exist, the assets will be written down to fair
value. Fair value is generally determined using a discounted cash flow
analysis.
TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign operations are integrated and translated using
the temporal method. Under this method, the Company translates monetary
assets and liabilities denominated in foreign currencies at period-end
rates. Non-monetary assets and liabilities are translated at historical
rates. Revenues and expenses are translated at average rates in effect
during the period except for depreciation and amortization which are
translated at historical rates. The resulting gains or losses are
reflected in the operating results in the period of translation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and
cash equivalents and amounts receivable. The Company limits its
exposure to credit loss by placing its cash and cash-equivalents with
major financial institutions.
F-12
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting of
cash and cash equivalents, amounts receivable and accounts payable and
accrued liabilities approximate their carrying values. As of December
31, 2003, the market value of marketable securities was $1,032,546
(2002 - $78,200).
INCOME TAXES
The Company uses the liability method of accounting for future income
taxes. Under this method of tax allocation, future income tax
liabilities and assets are recognized for the estimated tax
consequences attributable to differences between the amounts reported
in the consolidated financial statements and their respective tax
bases, using substantively enacted tax rates and laws that are expected
to be in effect in the periods in which the future income tax assets or
liabilities are expected to be settled or realized. The effect of a
change in income tax rates on future income tax liabilities and assets
is recognized in income in the period that the change occurs. Future
income tax assets are recognized to the extent that they are considered
more likely than not to be realized.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income
available to common shareholders by the weighted average number of
common shares outstanding during the year. The computation of diluted
earnings per share assumes the conversion, exercise or issuance of
securities only when such conversion, exercise or issuance would have a
dilutive effect on earnings per share. The dilutive effect of
outstanding options and warrants and their equivalents is reflected in
diluted earnings per share by application of the treasury stock method.
COMPARATIVE FIGURES
Certain of the 2002 and 2001 fiscal year figures have been reclassified
to conform with the presentation used in fiscal 2003.
4. MARKETABLE SECURITIES
2003 2002
---------------------------- ----------------------------
QUOTED QUOTED
RECORDED MARKET RECORDED MARKET
VALUE VALUE VALUE VALUE
$ $ $ $
Ballad Gold & Silver Ltd.
- 500,000 common shares 250,000 325,000 - -
Amera Resources Corporation ("Amera")
- 600,000 common shares 270,000 546,000 - -
Other 23,460 161,546 23,460 78,200
------------ ------------ ------------ ------------
543,460 1,032,546 23,460 78,200
============ ============ ============ ============
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.
F-13
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
5. MINERAL PROPERTIES AND DEFERRED COSTS
2003 2002
-------------------------------------------- ------------
DEFERRED
ACQUISITION EXPLORATION
COSTS COSTS TOTAL TOTAL
$ $ $ $
Argentina
Navidad - 1,002,211 1,002,211 5,090
Lirio Group 221,020 1,106,295 1,327,315 1,966,934
Rio de las Taguas 133,262 411,801 545,063 543,889
Evelina - 391,302 391,302 107,209
Laguna de los Toros - 140,867 140,867 138,203
Other 11,639 300,690 312,329 419,952
------------ ------------ ------------ ------------
365,921 3,353,166 3,719,087 3,181,277
Peru
Rio Tabaconas 741,293 2,423,261 3,164,554 2,666,450
------------ ------------ ------------ ------------
1,107,214 5,812,132 6,883,641 5,847,727
============ ============ ============ ============
(a) Argentinean Properties
The Company has either staked, fully paid or holds options to
acquire 100% working interests in mineral properties, located
in San Juan Province and Chubut Province in Argentina.
As of December 31, 2003, the Company must make further
payments with respect to option agreements on the Lirio Group
of properties, totalling US $240,000, as follows:
YEAR US $
2004 70,000
2005 170,000
------------
240,000
============
The Company has also agreed to pay net smelter return
royalties ("NSR") of up to US $7,000,000 once commercial
production is achieved on the Lirio Group of properties.
During fiscal 2003, the Company reviewed its non-core mineral
properties and determined to write off mineral properties and
related deferred exploration costs of $776,626.
(b) Rio Tabaconas, Peru
The Company holds an option to acquire a 100% interest in
three concessions, in the Cajamarca Department of San Ignacio
Province in northern Peru. In addition, the Company owns ten
concessions, which surround and overlie the optioned
concessions. Collectively these are known as the Rio Tabaconas
Project.
F-14
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
5. MINERAL PROPERTIES AND DEFERRED COSTS (continued)
Under the terms of the option agreement, the Company has paid
US $185,000 and was required to make further payments
totalling US $1,340,000. On June 28, 2002, the Company
suspended further exploration activities at the Rio Tabacanos
project. This decision was made in response to the local
community expressing its concerns with mineral exploration
activities. The Company has deferred any further exploration
until an agreement with the local community has been
finalized. As a result the Company declared force majeure, as
allowed under its option agreement. Accordingly, the Company
and the optionor have deferred payment of the remaining US
$1,155,000 option payments until the force majeure is
discontinued. On August 1, 2003, the Company commenced paying
US $1,500 per month to the optionor as compensation during
this waiting period.
(c) During fiscal 2003, the Company entered into agreements with
Amera, a publicly-traded company with common management and
shareholders, whereby the Company:
(i) optioned its Mogote Property in the NW San Juan
Region of Argentina. Amera has the option to earn a
51% interest in the 8,009 hectare Mogote Property by
issuing a total of 1,650,000 common shares of Amera
to the Company and by incurring US $1.25 million of
expenditures, including work programs and underlying
option payments, all over a five year period ending
July 1, 2007. Amera has also agreed to reimburse the
Company for past payments made and expenditures which
had been incurred by the Company on the Mogote
Property. As at December 31, 2003, Amera has
reimbursed the Company $192,952, and $4,902 remained
outstanding and is included in amounts receivable.
The Company has also received 100,000 shares of Amera
at a recorded amount of $45,000.
On April 8, 2004, the Company and Amera entered into
a further agreement whereby Amera can earn an
additional 24% interest, for a total 75% interest,
after earning the initial 51% interest, by issuing
300,000 shares of Amera (issued) and conducting an
additional US $3 million of exploration expenditures
over a three year period ending May 20, 2007.
(ii) sold a 100% undivided interest in three mineral
properties, comprising 24,280 hectares (the "Chubut
Properties"), located in Chubut Province, Argentina,
for 500,000 common shares of Amera for a recorded
amount of $225,000. In addition, in the event that a
decision is made to place the Chubut Properties into
commercial production, Amera will pay the Company a
bonus of US$250,000 and a 3% net smelter returns
royalty.
F-15
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL
Authorized - 100,000,000 common shares without par value
- 100,000,000 preferred shares without par value
NUMBER $
Issued - common shares
Balance, December 31, 2000 13,529,219 16,627,241
Private placements 5,063,000 1,563,940
Less share issue costs - (100,684)
------------ ------------
Balance, December 31, 2001 18,592,219 18,090,497
Private placements 5,703,026 2,552,870
Exercise of options 170,000 68,000
Exercise of warrants 2,085,361 837,512
Less share issue costs - (194,056)
------------ ------------
Balance, December 31, 2002 26,550,606 21,354,823
Private placement 2,900,000 2,610,000
Exercise of options 1,855,850 895,859
Exercise of warrants 4,969,066 2,940,428
Exercise of agent's options 105,930 95,337
Less share issue costs - (188,850)
------------ ------------
Balance, December 31, 2003 36,381,452 27,707,597
============ ============
(a) During fiscal 2003, the Company completed a brokered private
placement for 2,900,000 units at a price of $0.90 per unit,
for cash proceeds of $2,421,150, net of share issue costs of
$188,850. Each unit consisted of one common share of the
Company and one-half non-transferable common share purchase
warrant. One whole warrant entitles the holder to purchase one
common share for the exercise price of $1.10 per share on or
before April 28, 2004. Certain officers and directors of the
Company purchased 445,000 units of the private placement.
In connection with the financing, the Company granted the
agent an option to purchase 195,750 units on the same basis
and terms as the private placement. The agent has exercised
options to purchase 105,930 units, for $95,337 cash, and, as
of December 31, 2003, 89,820 units remained outstanding.
(b) During fiscal 2002, the Company completed the following
private placements:
i) 637,000 units at a price of $0.38 for cash proceeds of
$222,695, net of share issue costs of $19,365. Each
unit consisted of one common share of the Company and
one warrant. Two warrants entitled the holder to
purchase an additional common share for the exercise
price of $0.45 on or before March 31, 2003. The Company
also issued agents warrants to purchase 63,700 common
shares at a price of $0.45 on or before March 31, 2003;
F-16
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
ii) 1,777,778 units at a price of $0.45 per unit for cash
proceeds of $686,132, net of share issue costs of
$118,868. Each unit consisted of one common share of
the Company and one warrant. Two warrants entitle the
holder to purchase an additional common share at a
price of $0.54 per share on or before April 9, 2003.
The Company also issued 11,111 shares to the agents, at
a price of $0.45 per share. The Company also issued
agents warrants to purchase 355,556 common shares at a
price of $0.54 per share on or before April 9, 2003;
iii) 1,722,222 units at a price of $0.45 per unit, for cash
proceeds of $751,000 net of share issue costs of
$24,000. Each unit consisted of one common share of the
Company and one warrant. Each warrant entitled the
holder to purchase an additional common share of the
Company at a price of $0.53 per share on or before May
23, 2003 and $0.60 per share on or before May 23, 2004.
Certain directors purchased 191,111 units. The Company
also issued agents warrants to purchase 66,666 common
shares at a price of $0.53 per share on or before May
23, 2003; and
iv) 1,554,915 units at a price of $0.47 for cash proceeds
of $698,987, net of share issue costs of $31,823. Each
unit consisted of one common share of the Company and
one warrant. Each warrant entitles the holder to
purchase an additional common share of the Company at a
price of $0.55 per share on or before September 27,
2003 and $0.60 on or before September 27, 2004. Certain
directors purchased 325,000 units. The Company also
issued agents warrants to purchase 37,496 common shares
at a price of $0.50 per share on or before September
27, 2003.
(c) During fiscal 2001, the Company completed the following
private placements:
i) 3,000,000 units at a price of $0.26 for cash proceeds
of $746,250, net of share issue costs of $33,750. Each
unit consisted of one common share of the Company and
one-half warrant. Each full warrant entitled the holder
to purchase one common share for the exercise price of
$0.40 on or before July 3, 2002. The President of the
Company purchased 240,000 units. The Company also
issued agents warrants to purchase 259,000 common
shares at a price of $0.35 on or before July 3, 2002;
ii) 2,063,000 units at a price of $0.38 for cash proceeds
of $717,006, net of share issue costs of $66,934. Each
unit consisted of one common share of the Company and
one-half warrant. Each full warrant entitled the holder
to purchase one common share for the exercise price of
$0.45 on or before March 31, 2003. The Company also
issued agents warrants to purchase 206,300 common
shares for the exercise price of $0.45 on or before
March 31, 2003.
(d) Stock Options
The Company grants stock options in accordance with the
policies of the TSX Venture Exchange ("TSXV"). A summary of
the Company's outstanding options at December 2003, 2002 and
2001 and the changes for the years ending on those dates is
presented below:
F-17
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
2003 2002 2001
---------------------- ---------------------- ----------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AVERAGE OUTSTANDING AVERAGE OUTSTANDING AVERAGE
AND EXERCISE AND EXERCISE AND EXERCISE
EXERCISABLE PRICE EXERCISABLE PRICE EXERCISABLE PRICE
$ $ $
Balance,
beginning of year 2,465,500 0.44 1,635,500 0.40 1,224,000 0.54
Granted 1,918,500 1.60 1,050,000 0.50 1,635,500 0.40
Exercised (1,855,850) 0.44 (170,000) 0.40 - -
Cancelled - - (50,000) 0.40 (1,224,000) 0.54
------------ ------------ ------------
Balance, end of year 2,528,150 1.32 2,465,500 0.44 1,635,500 0.40
============ ============ ============
Stock options outstanding and exercisable at December 31, 2003
are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
254,150 0.40 July 19, 2006
159,000 0.50 May 2, 2007
225,000 0.50 September 23, 2007
195,000 0.84 March 7, 2008
300,000 0.90 May 30, 2008
1,395,000 1.87 August 27, 2008
---------
2,528,150
=========
During fiscal 2002, the Company granted 540,000 stock options
to its employees and directors and applied the intrinsic value
based method of accounting. Had the Company followed the fair
value based method of accounting in fiscal 2002, the Company
would have recorded an additional compensation expense of
$140,840 in respect of its employees and directors' stock
options. Pro- forma loss and loss per share information
determined under the fair value method in fiscal 2002 are as
follows:
$
Net loss for fiscal 2002
- as reported (1,440,106)
- compensation expense (140,840)
------------
- pro-forma (1,580,946)
============
Basic and diluted loss per share
- as reported (0.06)
- pro-forma (0.07)
During fiscal 2002, the Company recognized compensation
expense of $128,260 for stock options granted to consultants.
F-18
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
The fair value of stock options granted to employees,
directors and consultants 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
year:
2003 2002
Risk-free interest rate 3.76% - 4.16% 3.89% - 4.25%
Estimated volatility 74% - 78% 73% - 87%
Expected life 2.5 years 2.5 years
The weighted average fair value per share of stock options,
calculated using the Black-Scholes option pricing model,
granted during the period to the Company's employees,
directors and consultants was $0.63 (2002 - $0.26) 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.
(e) Warrants
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at December 31, 2003, 2002 and 2001 and the
changes for the years ending on those dates is as follows:
2003 2002 2001
Balance, beginning of year 9,511,550 6,588,967 3,592,167
Issued 1,502,965 5,007,944 2,996,800
Exercised (4,969,066) (2,085,361) -
Expired (3,001) - -
------------ ------------ ------------
Balance, end of year 6,042,448 9,511,550 6,588,967
============ ============ ============
Common shares reserved pursuant to warrants and agent warrants
outstanding at December 31, 2003 are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
1,477,222 0.60 May 23, 2004
778,471 0.60 September 27, 2004
1,066,822 0.75 September 15, 2004
1,253,667 0.90 March 16, 2005
173,667 0.75 April 19, 2004
1,292,599 1.10 April 28, 2004
---------
6,042,448
=========
(f) See also Note 12.
F-19
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
7. RELATED PARTY TRANSACTIONS
(a) During fiscal 2003, the Company paid $330,600 (2002 -
$136,276; 2001 - $157,825) to companies controlled by current
and former directors and officers of the Company, for
accounting, management, and consulting services provided.
(b) The Company has agreements with a company controlled by the
President of the Company for the rental of office premises.
The Company is required to make monthly rent payments of
$5,077. During fiscal 2003, the Company paid $60,924 (2002 -
$60,924; 2001 - $60,924) for rent.
(c) During fiscal 2003, the Company recorded $61,067 (2002 -
$64,641; 2001 - $45,381) for reimbursement of expenditures and
disbursements incurred on behalf of the Company by the
President of the Company. As at December 31, 2003, $7,538
(2002 - $1,496 ; 2001 - $17,683) remains unpaid and has been
included in accounts payable and accrued liabilities.
(d) The Company shares its office facilities with Amera. Amera is
currently paying a minimum of $2,500 per month to the Company
for shared rent and administration costs. During fiscal 2003,
the Company received $35,110 (2002 - $6,000; 2001 - $nil) from
Amera.
(e) 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 December
31, 2003, the amount under the agreement would be $891,000.
(f) Other related party transactions are disclosed elsewhere in
these consolidated financial statements.
8. INCOME TAXES
The recovery of income taxes shown in the consolidated statements of
operations and deficit differs from the amounts obtained by applying
statutory rates to the loss before provision for income taxes due to
the following:
2003 2002 2001
$ $ $
Statutory tax rate 37.62% 39.62% 44.62%
Provision for income taxes based on statutory
Canadian combined federal and provincial
income tax rates (1,286,009) (570,570) (393,493)
Differences in foreign tax rates (383,116) (4,234) 179,918
Losses for which an income tax benefit
has not been recognized 1,669,125 574,804 213,575
------------ ------------ ------------
- - -
============ ============ ============
F-20
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
8. INCOME TAXES (continued)
The significant components of the Company's future tax assets are as
follows:
2003 2002
$ $
Future income tax assets
Financing costs 116,985 98,934
Operating loss carryforward 4,051,130 4,164,745
Excess of tax values of mineral
properties and property, plant
and equipment over book value 465,045 330,957
------------ ------------
4,633,160 4,594,636
Valuation allowance for future tax assets (4,633,160) (4,594,636)
------------ ------------
- -
============ ============
The Company has Canadian non-capital loss carryforwards of $9,002,084
that may be available for tax purposes. The losses expire as follows:
EXPIRY DATE $
2004 1,554,225
2005 1,266,386
2006 1,255,915
2007 1,277,771
2008 845,836
2009 1,319,284
2010 1,482,667
------------
9,002,084
============
9. SEGMENTED INFORMATION
The Company is involved in mineral exploration and development
activities, which are conducted principally in Argentina and Peru. The
Company is in the exploration stage and, accordingly, has no reportable
segment revenues or operating results for each of fiscal 2003, 2002 and
2001.
The Company's total assets are segmented geographically as follows:
2003
------------------------------------------------------------
CORPORATE ARGENTINA PERU TOTAL
$ $ $ $
Current assets 5,075,092 65,637 32,999 5,173,728
Equipment 28,974 7,032 4,466 40,472
Mineral properties and deferred costs - 3,719,087 3,164,554 6,883,641
------------- ------------ ------------ ------------
5,104,066 3,791,756 3,202,019 12,097,844
============= ============ ============ ============
F-21
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
9. SEGMENTED INFORMATION (continued)
2002
------------------------------------------------------------
CORPORATE ARGENTINA PERU TOTAL
$ $ $ $
Current assets 4,161,455 49,117 40,914 1,539,245
Equipment 34,323 5,817 5,377 45,517
Mineral properties and deferred costs - 3,181,277 2,666,450 5,847,727
------------ ------------ ------------ ------------
4,196,278 3,236,211 2,712,741 7,432,489
============ ============ ============ ============
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared
in accordance with Canadian GAAP, which differ in certain material
respects from US GAAP.
The significant measurement differences between Canadian GAAP and US
GAAP for certain items on the consolidated balance sheets, statements
of operations and deficit and statements of cash flows are as follows:
2003 2002 2001
$ $ $
CONSOLIDATED STATEMENTS OF OPERATIONS
Loss for the year under Canadian GAAP (3,418,418) (1,440,106) (881,875)
Mineral properties and deferred costs for the year (i) (1,812,540) (1,266,555) (1,320,777)
Mineral properties and deferred costs written off
during the year which would have been
expensed in the year incurred (i) 776,626 - 21,483
Stock-based compensation (iii) (144,000) (102,150) -
------------ ------------ ------------
Loss for the year under US GAAP (4,598,332) (2,808,811) (2,181,169)
Unrealized gains on available-for-sale securities (ii) 434,346 54,740 -
------------ ------------ ------------
Comprehensive loss (iv) (4,163,986) (2,754,071) (2,181,169)
============= ============ ============
Loss per share under US GAAP (0.14) (0.12) (0.14)
============= ============ ============
Diluted loss per share under US GAAP (0.14) (0.12) (0.14)
============= ============ ============
2003 2002
$ $
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP 11,671,350 7,324,138
Mineral properties and deferred costs expensed (i) (6,883,641) (5,847,727)
Accumulated other comprehensive income (ii) 489,086 54,740
------------ ------------
Balance per US GAAP 5,276,795 1,531,151
============ ============
F-22
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
2003 2002
$ $
MINERAL PROPERTIES AND DEFERRED COSTS
Balance per Canadian GAAP 6,883,641 5,847,727
Mineral properties and deferred costs
expensed under US GAAP (i) (6,883,641) (5,847,727)
------------ ------------
Balance per US GAAP - -
============ ============
2003 2002 2001
$ $ $
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP (1,387,642) (1,306,211) (898,405)
Mineral properties and deferred costs (i) (1,850,761) (1,266,555) (1,320,777)
------------ ------------ ------------
Cash used per US GAAP (3,238,403) (2,572,766) (2,219,182)
============ ============ ============
2003 2002 2001
$ $ $
INVESTING ACTIVITIES
Cash used per Canadian GAAP (1,872,636) (1,277,756) (1,311,823)
Mineral properties and deferred costs (i) 1,850,761 1,266,555 1,320,777
------------ ------------ ------------
Cash provided (used) per US GAAP (21,875) (11,201) 8,954
============ ============ ============
i) Mineral properties and deferred costs
Mineral properties and deferred costs are accounted for in
accordance with Canadian GAAP as disclosed in Note 3. For US
GAAP purposes, the Company expenses acquisition and
exploration costs relating to unproven mineral properties as
incurred. When proven and probable reserves are determined for
a property, subsequent exploration and development costs of
the property are capitalized. The capitalized costs of such
properties would then be assessed, on a periodic basis, to
determine whether the carrying value can be recovered on an
undiscounted cash flow basis. If the carrying value cannot be
recovered on this basis, the mineral properties would be
written down to fair value determined using discounted cash
flows.
ii) Investments
The Company's marketable securities are classified as
available-for-sale investments under US GAAP and carried at
the lower of cost and market value for Canadian GAAP purposes.
Such investments are not held principally for the purpose of
selling in the near term and, for US GAAP purposes, must have
holding gains and losses reported as a separate component of
shareholders' equity until realized or until an other than
temporary impairment in value occurs.
F-23
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
iii) Accounting for stock-based compensation
For US GAAP purposes, the Company accounted for stock-based
employee compensation arrangements using the intrinsic value
method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES"
until 2003.
Under US GAAP, when stock options are cancelled and
immediately reissued at a revised price (the "Repricing"),
these options are accounted for as variable compensation from
the date of the Repricing. Under this method, following the
repricing date, compensation expense is recognized when the
quoted market value of the Company's common shares exceeds the
amended exercise price. Should the quoted market value
subsequently decrease, a recovery of a portion, or all of the
previously recognized compensation expense, will be
recognized.
During fiscal 2003, for US GAAP purposes, the Company has
prospectively adopted the fair based method of accounting for
stock-based compensation in accordance with FAS 148. This
application is consistent with the early application of CICA
3870 under Canadian GAAP (Note 3). Accordingly there is no
difference on accounting for stock-based compensation under
Canadian and US GAAP.
iv) Comprehensive income
US GAAP requires disclosure of comprehensive income (loss)
which is intended to reflect all other changes in equity
except those resulting from contributions by and payments to
owners.
v) New Accounting Standards
In May 2003, the FASB issued Statement No. 150, "ACCOUNTING
FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY" ("SFAS No. 150"), which addresses how
to classify and measure certain financial instruments with
characteristics of both liabilities (or assets in some
circumstances) and equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. Adoption of SFAS
No. 150 on July 1, 2003 had no impact on the Company's
financial position and results of operations.
In January 2003, the FSAB issued Interpretation No. 46
"CONSOLIDATION OF VARIABLE INTEREST ENTITIES" ("FIN No. 46")
(revised December 2003). FIN No. 46 clarifies the application
of Accounting Research Bulletin No. 51 "CONSOLIDATED FINANCIAL
STATEMENTS" to only certain entities in which equity investors
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the
equity to finance its activities without additional
subordinated financial support from other parties. FIN No. 46
applies immediately to variable interest entities created
after January 31, 2003, and the variable interest entities
obtained after that date. It applies at the end of the first
annual reporting period beginning after June 15, 2003, to
variable interests in which an enterprise holds a variable
interest which was acquired before February 1, 2003. Adoption
of FIN No. 46 on January 1, 2004 will not materially impact
the Company's financial position or results of operations.
F-24
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
A similar guideline has been introduced in Canada, Accounting
Guideline 15 "CONSOLIDATION OF VARIABLE INTEREST ENTITIES".
This guideline applies to annual and interim periods beginning
on or after November 1, 2004. The Company is continuing to
evaluate the potential impact of Accounting Guideline 15.
In July 2003, the CICA released Section 1100 "GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES". This new section establishes
standards for financial reporting in accordance with generally
accepted accounting principles. It describes what constitutes
Canadian GAAP and its sources, replacing "FINANCIAL STATEMENT
CONCEPTS" paragraph 1000.59-61. Also, in July 2003, the CICA
released Section 1400, "GENERAL STANDARDS OF FINANCIAL
STATEMENT PRESENTATION". This section clarifies what
constitutes fair presentation in accordance with Canadian
GAAP. Both these sections are effective for fiscal years
beginning on or after October 1, 2003 and the Company is
currently evaluating their impact.
11. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the
Company as follows:
2003 2002 2001
$ $ $
Investing activities
Proceeds on disposition of mineral properties (272,982) - -
Acquisition of marketable securities 272,982 - -
------------ ------------ ------------
- - -
============ ============ ============
Financing activities
Finder's fees payable - (5,000) -
Shares issued for payment of finder's fees - 5,000 -
Shares issued on exercise of options 74,379 - -
Contributed surplus (74,379) - -
------------ ------------ ------------
- - -
============ ============ ============
Other supplementary cash flow information:
2003 2002 2001
$ $ $
Interest paid in cash - - -
============ ============ ============
Income taxes paid in cash - - -
============ ============ ============
F-25
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(EXPRESSED IN CANADIAN DOLLARS)
12. SUBSEQUENT EVENTS
a) In March 2004, Minera Aquiline Argentina S.A., a wholly-owned
subsidiary of Aquiline Resources Inc., commenced a legal
proceeding against the Company, asserting that the Company
unlawfully used confidential information, and is seeking a
constructive trust over the Navidad Project and other
surrounding properties in Chubut Province, Argentina. The
Company is defending this action and, as at the date of the
Auditor's Report, the outcome is not determinable.
b) On May 3, 2004, the Company announced a corporate
restructuring which would have the result of dividing its
existing portfolio of mineral properties into two separate
public companies. Following the corporate restructuring the
Company will continue to hold the Navidad project, while the
newly created company will hold all other mineral property
interests. The proposed reorganization of the Company will be
accomplished by way of a statutory plan of arrangement and is
subject to shareholder, regulatory and court approvals.
c) Subsequent to December 31, 2003, the Company:
(i) completed a brokered private placement of 1,500,000
units at $3.10 per unit, for proceeds of $4,307,500 net
of $279,000 agent's commission and $63,500 of related
issue costs. Each unit consisted of one common share
and one half non-transferable share purchase warrant.
Each whole warrant entitles the holder to purchase a
common share for $3.70 per share on or before February
23, 2005. The Company also issued 200,000 units, at a
recorded amount of $620,000 to its agent;
(ii) granted 1,462,000 stock options for $3.10 per share to
its directors, employees and consultants for a period
of five years; and
(iii) issued 2,634,291 common shares for $2,308,015 on the
exercises of stock options and warrants.
F-26