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, 2005
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
[ ] Shell Company Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934
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, CANADA 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, 2005.
48,813,064 COMMON SHARES AS OF DECEMBER 31, 2005
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes No X
--------- ---------
1
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Yes No X
--------- ---------
Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer Accelerated filer X Non-accelerated filer
---- ---- ----
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18
----- ----
GENERAL INFORMATION:
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act) Yes No X
--- ---
2
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
$0.30 ( 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 exploitation 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$13 (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
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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.
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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.
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PART I
ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
================================================================================
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
================================================================================
Not applicable.
ITEM 3. KEY INFORMATION.
================================================================================
SELECTED FINANCIAL DATA
The selected financial data and the information in the following table of IMA
Exploration Inc. (the "Company") for the years ended December 31, 2005, 2004 and
2003 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 and the information in the
following table for the years ended December 31, 2002 and 2001 are derived from
the Company's audited consolidated financial statements after reflecting the
carve out of Golden Arrow Resources Corporation not included herein.
The information in the following table should be read in conjunction with the
information appearing under the heading "Item 5. Operating and Financial Review
and Prospects".
Reference is made to Note 10 of the 2005 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
may not have sufficient funds to conduct exploration programs on all of its
existing properties and may 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".
6
CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CDN$ IN 000, EXCEPT PER SHARE
DATA)
================================================================================
2005 2004 2003 2002 2001
Revenue - - - - -
General Corporate
Expenditures (6,092) (4,084) (2,276) (330) (173)
General Exploration
Expenditures (56) (229) (227) (180) (110)
Foreign Exchange Gain
(Loss) 233 (195) (13) (2) 3
Interest and
Miscellaneous Income 150 102 67 27 97
Provision for
Marketable Securities - (100) - - -
Loss Allocated to
Spin off Assets - (131) (969) (955) (699)
Net Loss for the year (5,765) (4,655) (3,418) (1,440) (882)
Loss per Share from
Continuing Operations
(0.12) (0.11) (0.08) (0.02) (0.01)
Loss per Share
Basic and (0.12) (0.11) (0.11) (0.06) (0.06)
Diluted
Weighted Average
Number of Shares 46,197 40,939 32,252 23,188 15,104
Outstanding
Working Capital 7,489 5,053 4,747 1,431 733
Capital Assets - 94 36 46 57
Mineral Properties 15,032 6,551 1,469 148 132
Spin-Off Assets - - 6,749 6,903 5,369
Long-Term Debt - - - - -
Total Assets 23,498 12,222 13,419 8,637 6,407
Net Assets -
Shareholder's Equity 20,761 10,813 11,671 7,324 5,372
7
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)
================================================================================
2005 2004 2003 2002 2001
CONSOLIDATED
STATEMENT OF
OPERATIONS
Loss for the year
under Canadian GAAP
(5,765) (4,655) $(3,418) $(1,440) $(882)
Mineral property and
deferred exploration
costs for the year,
net of reversal of
future income tax and
write down of
marketable securities (7,605) (4,479) (1,813) (1,267) (1,321)
Mineral property and
deferred exploration
costs written off
during the year which
would have been
expensed in the year
incurred - - 777 - 21
Stock-based
compensation - - (144) (102) -
Loss for the year
under US GAAP $13,370) $(9,134) $(4,598) $(2,809) $(2,181)
Unrealized (loss)
gains on
available-for-sale
securities - (387) 434 55 -
--------------------------------------------------------
Comprehensive Loss
for the year $(13,370) $(9,521) $(4,164) $(2,754) $(2,181)
========================================================
Loss per share under
US GAAP $(0.29) $(0.22) $(0.14) $(0.12) $(0.14)
========================================================
Diluted Loss per share
under US GAAP $(0.29) $(0.22) $(0.14) $(0.12) $(0.14)
========================================================
8
2005 2004 2003 2002 2001
--------------------------------------------------------
SHAREHOLDERS' EQUITY
Balance per Canadian
GAAP $20,761 $10,813 $11,671 $7,324 $5,372
Mineral property and
deferred exploration
costs expensed net of
reversal of future
income tax (13,272) (5,666) (6,884) (5,848) (4,581)
Accumulated other
comprehensive income 84 84 489 54 -
--------------------------------------------------------
Balance per US GAAP $7,573 $5,231 $5,277 $1,530 $790
========================================================
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
OPERATING ACTIVITIES
Cash used per
Canadian GAAP $(3,850) $(2,962) $(1,419) $(1,306) $(898)
Mineral properties
and deferred costs (7,025) (4,578) (1,851) (1,267) (1,321)
--------------------------------------------------------
Cash used per US GAAP $(10,875) $(7,540) $(3,270) $(2,573) $(2,219)
========================================================
INVESTING ACTIVITIES
Cash used per
Canadian GAAP $(6,979) $(4,510) $(1,873) $(1,278) $(1,312)
Mineral properties
and deferred costs 7,025 4,578 1,851 1,267 1,321
--------------------------------------------------------
Cash provided (used)
per US GAAP $46 $68 $(22) $(11) $9
========================================================
FINANCING ACTIVITIES
Cash provided per
Canadian and US GAAP
$13,478 $9,297 $6,278 $3,264 $1,463
========================================================
See Note 10 of the Company's consolidated financial statements.
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EXCHANGE RATE HISTORY
The noon rate of exchange on May 3, 2006, reported by the United States Federal
Reserve Bank of New York for the conversion of Canadian dollars into United
States dollars was US$0.9032 (US$1.00 = CDN$1.1072).
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
April 30, 2006.
Month High Low
November 2005 .8579 .8361
December 2005 .8690 .8521
January 2006 .8744 .8528
February 2006 .8788 .8638
March 2006 .8834 .8531
April 2006 .8926 .8534
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, 2001 - December 31, 2001 0.6456
January 1, 2002 - December 31, 2002 0.6368
January 1, 2003 - December 31, 2003 0.7206
January 1, 2004 - December 31, 2004 0.7682
January 1, 2005 - December 31, 2005 0.8254
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 (see "Item 4. Information on the Company - History and
Development of the Company"):
TITLE TO PROPERTIES RISK: 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. In
addition, Navidad properties title has being challenged in the Aquiline
Resources Inc. ("Aquiline") legal action as disclosed in "Item 8. Financial
Information - Legal Proceedings." In March 2004 Aquiline commenced an action
against the Company seeking a constructive trust over the Navidad properties and
damages. At this date the outcome is not determinable. The Company believes the
Aquiline legal action is without merit. However, in the event of an adverse
judgment the Company may suffer loss and such loss could be material; the
Company might not be able to proceed with its plans for the development of
Navidad and could lose the ownership rights it currently has over the project.
10
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 4, 2006 the
Company had working capital of approximately $13,000,000. Management believes
the Company has adequate resources to maintain its ongoing operations and may
require additional financing for planned exploration and property acquisitions
for the remainder of fiscal 2006. 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 may not, however, have sufficient funds to conduct planned exploration
and development programs on all these properties and may 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 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. The Company may 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.
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METAL PRICE RISK: The Company's portfolio of properties has exposure to
predominantly silver and lead. The prices of these metals, especially silver,
greatly affect the value of the Company and the potential value of its
properties and investments.
FINANCIAL MARKETS RISK: The Company is dependent on the equity markets as its
sole source of operating working capital and the Company's capital resources are
largely determined by the strength of the junior resource markets and by the
status of the Company's projects in relation to these markets, and its ability
to compete for the investor support of its projects.
POLITICAL RISK: Exploration is presently carried out in Argentina. This exposes
the Company to risks that may not otherwise be experienced if all operations
were domestic. Political risks may adversely affect the Company's existing
assets and operations. Real and perceived political risk in some countries may
also affect the Company's ability to finance exploration programs and attract
joint venture partners, and future mine development opportunities.
CURRENCY RISK: Business is transacted by the Company in a number of currencies.
Fluctuations in exchange rates may have a significant effect on the cash flows
of the Company. Future changes in exchange rates could materially affect the
Company's results in either a positive or negative direction.
ENVIRONMENTAL RISK: The Company seeks to operate within environmental protection
standards that meet or exceed existing requirements in the countries in which
the Company operates. Present or future laws and regulations, however, may
affect the Company's operations. Future environmental costs may increase due to
changing requirements or costs associated with exploration and the developing,
operating and closing of mines. Programs may also be delayed or prohibited in
some areas. Although minimal at this time, site restoration costs are a
component of exploration expenses.
PROJECT DELAY RISK: 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.
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 high of $4.45 to a low of $2.56
during the 12-month period ending December 31, 2005. 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 All Risk
Replacement Cost Coverage on office contents, up to $300,000, with a $500
deductible. In addition, the policy provides Commercial General Liability
coverage of up to $5,000,000 for Third Party Bodily Injury
12
or Property Damage, per occurrence and $2,000,000 for Tenants Legal Liability
for any one leased 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.
The Company has an Executive and Organization Liability insurance policy for the
benefit of directors and officers. The aggregate limit of liability is $5
million. The policy is renewable on a yearly basis.
MANAGEMENT: The Company is dependent on the services of Joseph Grosso, the
President and a director of the Company. The loss of Mr. Grosso could have an
adverse affect on the Company. Joseph Grosso provides his services to the
Company through Oxbow International Marketing Corp. ("Oxbow"). The Company has
entered into a consulting agreement with Oxbow.
All of the Company's other officers are now employed by Grosso Group Management
Ltd. ("Grosso Group"). See "Item 6. Directors, Senior Management and Employees -
Directors and Senior Management - Conflicts of Interest". 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
13
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. Mineral exploration and mining
activities in Argentina 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 as a developing country 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.
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 had defaulted on its
loans, it has repaid its debt to the International Monetary Fund in December
2005. 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.
ARGENTINA
MINING INDUSTRY
Mineral companies are subject to various federal and provincial laws and
regulations including specific mining and environmental rules. The Company
believes it is in material compliance with all applicable legislation.
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.
14
REGULATORY ENVIRONMENT
Management believes the present government is committed to opening up the
economy and there has been 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 Argentinean Customs office.
Except for a 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, although there are export taxes currently in
place including mineral products.
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 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.
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 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.
The provincial government of Chubut Province, Argentina, has enacted certain
anti-mining laws banning the use of cyanide in metallic mineral extraction in
the Province of Chubut and open-pit mining is subject to, yet to be defined,
zoning process. 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 and Canada make it
subject to foreign currency fluctuations and such fluctuation may adversely
affect the Company's financial position and results. Certain of the Company's
expenses are 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. 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
15
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 currency. 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. The Company'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 they may be forced to hold it
indefinitely.
ENFORCEMENT OF LEGAL PROCESS: It may be difficult to bring and enforce suits
against the Company. The Company is incorporated in British Columbia, Canada.
Only one of the Company's directors is a resident 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
common shares to effect service of process on these persons within the United
States or to enforce judgments obtained in the U.S. based on the civil liability
provisions of the U.S. federal securities laws against the Company 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 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 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;
16
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.
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 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
17
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 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.
18
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 had the result of dividing its present
mineral resource assets between two separate public companies. 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") continued 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") were transferred to Golden Arrow, a new public company
formed to effect the reorganization. Golden Arrow is committed to grass roots
exploration while the Company retained the Navidad project and focused 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 reorganization was implemented by a Plan of Arrangement under the BCBCA. The
Company's shareholders and optionholders approved the Plan of Arrangement at the
Company's Annual General Meeting that was held on June 22, 2004. All other
approvals were subsequently received.
The common shares of Golden Arrow were distributed to shareholders of the
Company in proportion to their shareholdings in the Company on July 7, 2004 and
on the basis of one Golden Arrow share for every 10 shares of the Company held.
The reorganization was 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.
19
Current Corporate Structure
IMA Exploration Inc.
|
|
100% |
|
IMA Holdings Corp.
|
|
CANADA |
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|
100% |
|
IMA Latin America inc.
|
|
100% |
|
|
Inversiones Mineras Argentinas Inc.
|
|
BVI/BARBADOS |
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ARGENTINA |
|
100% |
|
Inversiones Mineras
Argentinas S.A.
|
|
Navidad Area Properties
20
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.
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
$8,480,509 and capital assets of $Nil, $5,082,572 and $93,650, $1,320,408 and
$21,875 for the fiscal years ended December 31, 2005, 2004 and 2003,
respectively.
The Company has not made any write down to the value of its Navidad mineral
properties and deferred costs.
PLANNED EXPLORATION EXPENDITURES AND PROPERTY PAYMENTS
For the period from January 1 to May 4, 2006, the Company has made additions to
mineral properties and deferred costs of approximately $2,500,000. For the
balance of 2006, the Company expects to spend a further $5,500,000 on the
Navidad Project. See "Item 4. Information on the Company - Properties, Plants
and Equipment - Principal Properties - Argentinean Properties and "Item 7.
Major Shareholders and Related Party Transactions - Related Party Transactions."
The Company considers that it has adequate resources to maintain its ongoing
operations but currently may not have sufficient working capital to fund all of
its planned exploration and development work. The Company will continue to rely
on successfully completing additional equity financing 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, exploration and development of mineral properties in Argentina. At
present, the Company has no producing properties and consequently has no current
operating income or cash flow. As of 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 and evaluation
will be required before a final determination as to the economic and legal
feasibility of any of the properties is determined.
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 continues to be active in 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 but has subsequently reduced its holdings.
21
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.
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 an option to acquire a 51% interest,
amended on April 8, 2004 to 75%, in the Mogote property. See "Item 4.
Information on the Company - Properties, Plants and Equipment - Principal
Properties - Argentinean Properties - San Juan Province Properties - Northwest
San Juan - Mogote Property" and "Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions."
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 drill program
commenced in November 2003 and was completed in late March 2004. A Phase II
drill program commenced in late May 2004 and was completed in September 2004.
Subsequent to completion of the Phase II program, a program of surface
exploration including prospecting, geological mapping, ground geophysics and
soil sampling was carried out. A Phase III drill program commenced in November
2004 and, other than a break for Christmas, drilling continued to March 7, 2005.
Subsequently the Company announced that the Phase III program budget was
increased to include an additional 10,000 metres of drilling. Phase III was
completed in September 2005. Phase IV began in January 2006 and is ongoing. The
Phase I drill program at Navidad comprised 8,859.6 metres in 53 holes, 37 of
which were drilled on Galena Hill. Phase II drilling comprised 9,596.5 metres of
diamond core drilling in 67 holes. Drilling in the Phase II program focused on
the Esperanza Trend, the Barite Hill target, and on the Navidad Hill and
Connector Zone targets. Phase III drilling comprised 23,731.6 metres in 131
holes for a project total of 42,188 metres in 251 holes. Phase IV drilling is
ongoing and over 10,000 metres has been drilled in over 50 holes as of this
writing.
On May 3, 2004, the Company announced its intention to proceed with a
reorganization 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") continued 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") were transferred to Golden Arrow, a new public company
formed to effect the reorganization.
The reorganization was implemented by a Plan of Arrangement under the BCBCA. The
Company's shareholders and optionholders approved the Plan of Arrangement at the
Company's Annual General Meeting that was held on June 22, 2004. All other
approvals were subsequently received.
The common shares of Golden Arrow were distributed to shareholders of the
Company in proportion to their shareholdings in the Company on July 7, 2004 and
on the basis of one Golden Arrow share for every 10 shares of the Company held.
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."
22
ORGANIZATIONAL STRUCTURE
The Company has one direct wholly-owned subsidiary, IMA Holdings Corp. ("IHC").
IHC has a direct wholly-owned subsidiary, IMA Latin America Inc. ("IMA Latin
America"), a British Virgin Islands company.
IMA Latin America 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.
The Company's current corporate structure is depicted 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. 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. See "Item 4. Navidad Property - Estimated Resources."
PRINCIPAL PROPERTIES
ARGENTINEAN PROPERTIES
During the fiscal years ending December 31, 2005, 2004 and 2003 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, 2003 $1,469,026 $226,956 $ Nil
December 31, 2004 $6,551,598 $228,961 $ Nil
December 31, 2005 $15,032,107 $55,914 $ Nil
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 were
abundantly visible with lead and copper mineralization outcrops and subcrops
over a strike length of thousands of meters. There was no evidence of prior
prospecting or rock sampling activity 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.
23
[Argentina Property Map]
24
PROPERTY DESCRIPTION AND LOCATION
The Navidad Project comprises 10,000 hectares consisting of four individual
claims of 2,500 hectares each (manifestaciones) in the Gastre Department of the
Province of Chubut. These four claims are underlain by the company's original
claim (the Gan Cateo now reduced to 4,000 hectares) and cover the original claim
area. The project 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.
CLAIMS INCLUDED IN THE NAVIDAD PROJECT:
------------------------------------------------------------------------------------------------------------
FILE NUMBER YEAR DATE TYPE NAME HECTARES
------------------------------------------------------------------------------------------------------------
13984 2002 December 6, 2002 Cateo Gan 4,000
------------------------------------------------------------------------------------------------------------
14340 2004 September 16, 2004 Manifestacion Navidad Este 2,500
------------------------------------------------------------------------------------------------------------
14341 2004 September 16, 2004 Manifestacion Navidad Oeste 2,500
------------------------------------------------------------------------------------------------------------
14902 2006 March 20, 2006 Manifestacion Navidad Este 1 2,500
------------------------------------------------------------------------------------------------------------
14903 2006 March 20, 2006 Manifestacion Navidad Oeste 1 2,500
------------------------------------------------------------------------------------------------------------
Note: the project totals 10,000 hectares, claims 14340, 14341, 14902 and 14903
together cover the same area as the original claim 13984.
The life span of the original cateo will expire on March 30, 2007 and the
manifestacions which have replaced the cateo have no expiration to their
registration. The minimum legislated investment in the cateo (Argentinean
$380,000) and the manifestacions (Argentinean $24,000,000) has been met.
The Company has negotiated access rights in order to perform its exploration
activities with two of the four surface owners and representing about 70% of the
10,000 hectares and the areas of exploration interest. These access rights
require annual payments of approximately US$31,000. Argentinean legislation
provides for the granting of mining easements by the State as the Mineral Rights
are owned by the State and not individual property owners. The Company has not
negotiated the purchase of the surface land with the owners at this time.
There are no known environmental liabilities on the Navidad Project. The Company
has applied for and received all applicable permits for its exploration
activities, including environmental, exploration, drilling, water use and
provincial flora and fauna. A permit for the re-location of an archeological
burial site was obtained and the site was moved in 2005.
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.
Maximum elevation within the Gan cateo is 1,460 m while the minimum elevation is
1,060 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
25
the east; both are along Route 4, a gravel highway. The nearest airport with
scheduled 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 numerous flights and a year round tourist
centre. From Gastre to the Atlantic Coast it is approximately six 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. In 2003 the
government has announced a contract tendered to construct a connection from 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 smelter and other projects.
This construction is now complete and has brought the Argentine national power
grid within easy reach of Navidad.
HISTORY
The Navidad Project has no known exploration history and there is no indication
that any of the surface 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
26
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 rock 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.
DIAMOND DRILLING PROGRAM
Connors Argentina S. A. ("Connors") of Mendoza, Argentina, commenced drilling on
November 26, 2003. A 43-101 report entitled "Diamond Drilling of the Navidad
Silver-Copper-Lead Project, November 2003 To March 2004, Chubut Province,
Argentina, on behalf of IMA Exploration Inc." describes the Phase I drill
program and was prepared by Qualified Person Paul Lhotka, Ph.D., P.Geo. in 2004.
Phase III drilling was completed on September 14, 2005. Currently Phase IV
drilling is ongoing. To the end of the Phase III drill program, 42,188m has been
drilled in 251 holes. As of March 31st, 2006, an additional 9,150m of drilling
in 48 holes had been completed in Phase IV. During the life of the project the
average rate of drilling including moves and breakdowns has been 114.8 metres
per day.
All but 355 metres of the drilling has recovered HQ diameter (61mm) core, with
the remainder recovering NQ diameter core. The 25HH drill supplied by Connors is
containerized and mounted on a tracked undercarriage capable of moving itself.
Water for drilling is brought to the drilling sites by a water truck of about
9,000 liters that was subcontracted by Connors. The water is trucked from
several local sources under agreement with local surface land owners.
Down hole surveys of the holes were done using a Tropari and/or a Sperry Sun
instrument. In general the orientation of holes has 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:
---------------------------------------------------------------------------------------------------------------
Easting Northing elevation Azimuth dip down
Diamond Local E Local N GK faja 2 GK faja 2 (metres) (wrt GK from Length
Drill Hole Campo Inch Campo Inch HAE CI north) vertical (metres)
---------------------------------------------------------------------------------------------------------------
NV03-01 50,000.6 10,005.0 2,514,819.5 5,304,458.8 1,219.5 210.0 -45.0 109.5
---------------------------------------------------------------------------------------------------------------
NV03-02 50,000.0 9,971.1 2,514,802.0 5,304,429.8 1,211.2 30.0 -45.0 154.5
---------------------------------------------------------------------------------------------------------------
NV03-03 51,160.5 9,660.1 2,515,651.6 5,303,580.3 1,178.4 210.0 -45.0 178.5
---------------------------------------------------------------------------------------------------------------
NV03-04 51,160.1 9,669.6 2,515,655.9 5,303,588.6 1,178.6 30.0 -45.0 285.0
---------------------------------------------------------------------------------------------------------------
NV03-05 51,160.1 9,802.1 2,515,722.2 5,303,703.3 1,176.6 30.0 -60.0 217.7
---------------------------------------------------------------------------------------------------------------
NV03-06 49,961.7 9,972.3 2,514,769.5 5,304,449.9 1,218.4 30.0 -45.0 136.2
---------------------------------------------------------------------------------------------------------------
NV03-07 49,919.7 9,965.9 2,514,729.9 5,304,465.4 1,222.2 30.0 -45.0 108.9
---------------------------------------------------------------------------------------------------------------
NV03-08 49,959.8 10,016.3 2,514,789.8 5,304,489.0 1,226.4 210.0 -45.0 146.0
---------------------------------------------------------------------------------------------------------------
NV03-09 49,919.9 10,027.4 2,514,760.8 5,304,518.6 1,231.4 210.0 -45.0 106.1
---------------------------------------------------------------------------------------------------------------
NV03-10 49,961.9 9,953.4 2,514,760.2 5,304,433.5 1,215.1 30.0 -45.0 150.7
---------------------------------------------------------------------------------------------------------------
NV03-11 49,625.2 10,040.0 2,514,511.9 5,304,676.8 1,209.2 120.0 -45.0 133.2
---------------------------------------------------------------------------------------------------------------
NV04-12 51,160.6 9,577.9 2,515,610.5 5,303,509.0 1,155.4 30.0 -65.0 220.0
---------------------------------------------------------------------------------------------------------------
NV04-13 50,876.5 10,015.0 2,515,583.1 5,304,029.5 1,179.4 30.0 -45.0 142.7
---------------------------------------------------------------------------------------------------------------
NV04-14 50,997.6 9,911.7 2,515,636.3 5,303,879.6 1,178.1 210.0 -70.0 158.0
---------------------------------------------------------------------------------------------------------------
NV04-15 51,159.8 9,910.5 2,515,776.1 5,303,797.4 1,167.0 30.0 -60.0 139.6
---------------------------------------------------------------------------------------------------------------
NV04-16 51,161.0 9,451.4 2,515,547.6 5,303,399.2 1,138.3 30.0 -55.0 250.5
---------------------------------------------------------------------------------------------------------------
NV04-17 50,998.8 9,614.4 2,515,488.6 5,303,621.4 1,156.7 30.0 -85.0 164.2
---------------------------------------------------------------------------------------------------------------
27
---------------------------------------------------------------------------------------------------------------
Easting Northing elevation Azimuth dip down
Diamond Local E Local N GK faja 2 GK faja 2 (metres) (wrt GK from Length
Drill Hole Campo Inch Campo Inch HAE CI north) vertical (metres)
---------------------------------------------------------------------------------------------------------------
NV04-18 51,001.3 9,364.5 2,515,365.9 5,303,403.8 1,137.1 30.0 -55.0 274.7
---------------------------------------------------------------------------------------------------------------
NV04-19 51,001.9 9,826.2 2,515,597.2 5,303,803.4 1,181.7 210.0 -80.0 188.1
---------------------------------------------------------------------------------------------------------------
NV04-20 50,801.6 9,897.6 2,515,459.5 5,303,965.3 1,163.0 210.0 -70.0 70.9
---------------------------------------------------------------------------------------------------------------
NV04-21 50,997.6 9,948.5 2,515,654.7 5,303,911.4 1,174.2 30.0 -45.0 198.1
---------------------------------------------------------------------------------------------------------------
NV04-22 50,998.5 9,977.9 2,515,670.2 5,303,936.4 1,171.9 210.0 -75.0 193.8
---------------------------------------------------------------------------------------------------------------
NV04-23 51,000.7 9,713.6 2,515,540.0 5,303,706.4 1,177.3 210.0 -85.0 191.1
---------------------------------------------------------------------------------------------------------------
NV04-24 50,804.7 10,023.1 2,515,524.9 5,304,072.4 1,173.8 30.0 -50.0 145.6
---------------------------------------------------------------------------------------------------------------
NV04-25 51,204.1 9,014.3 2,515,366.4 5,302,999.1 1,140.0 210.0 -45.0 199.8
---------------------------------------------------------------------------------------------------------------
NV04-26 50,802.1 9,728.9 2,515,375.6 5,303,818.9 1,153.5 32.0 -75.0 134.0
---------------------------------------------------------------------------------------------------------------
NV04-27 50,100.7 9,719.0 2,514,763.2 5,304,161.1 1,164.0 30.0 -45.0 181.5
---------------------------------------------------------------------------------------------------------------
NV04-28 51,164.5 9,865.2 2,515,757.6 5,303,755.8 1,170.6 30.0 -60.0 158.0
---------------------------------------------------------------------------------------------------------------
NV04-29 51,299.1 9,847.6 2,515,865.4 5,303,673.3 1,157.6 210.0 -80.0 158.0
---------------------------------------------------------------------------------------------------------------
NV04-30 51,300.4 9,765.7 2,515,825.5 5,303,601.7 1,159.8 210.0 -80.0 209.0
---------------------------------------------------------------------------------------------------------------
NV04-31 51,160.7 9,666.8 2,515,655.1 5,303,585.9 1,178.5 30.0 -80.0 296.0
---------------------------------------------------------------------------------------------------------------
NV04-32 50,598.0 10,088.9 2,515,378.9 5,304,232.8 1,154.7 30.0 -45.0 154.5
---------------------------------------------------------------------------------------------------------------
NV04-33 50,598.4 10,016.4 2,515,343.0 5,304,169.8 1,154.8 210.0 -80.0 149.0
---------------------------------------------------------------------------------------------------------------
NV04-34 50,180.9 9,955.5 2,514,950.9 5,304,325.8 1,180.0 30.0 -45.0 228.2
---------------------------------------------------------------------------------------------------------------
NV04-35 51,199.5 9,251.1 2,515,480.9 5,303,206.5 1,134.2 30.0 -80.0 293.0
---------------------------------------------------------------------------------------------------------------
NV04-36 50,898.2 9,988.0 2,515,588.3 5,303,995.3 1,176.5 210.0 -80.0 77.0
---------------------------------------------------------------------------------------------------------------
NV04-37 50,899.9 9,914.7 2,515,553.2 5,303,931.0 1,173.8 210.0 -80.0 102.5
---------------------------------------------------------------------------------------------------------------
NV04-38 50,897.2 9,819.7 2,515,503.3 5,303,850.0 1,164.4 30.0 -80.0 107.0
---------------------------------------------------------------------------------------------------------------
NV04-39 50,400.2 9,982.9 2,515,154.5 5,304,239.9 1,157.1 210.0 -80.0 215.0
---------------------------------------------------------------------------------------------------------------
NV04-40 50,399.8 10,098.9 2,515,212.2 5,304,340.5 1,155.9 30.0 -45.0 127.2
---------------------------------------------------------------------------------------------------------------
NV04-41 51,080.8 9,943.4 2,515,724.2 5,303,865.4 1,174.9 30.0 -45.0 145.2
---------------------------------------------------------------------------------------------------------------
NV04-42 51,080.4 9,938.8 2,515,721.5 5,303,861.6 1,174.5 210.0 -80.0 187.9
---------------------------------------------------------------------------------------------------------------
NV04-43 51,080.4 9,853.2 2,515,678.7 5,303,787.4 1,180.3 210.0 -75.0 230.6
---------------------------------------------------------------------------------------------------------------
NV04-44 51,079.3 9,750.3 2,515,626.3 5,303,698.9 1,188.1 210.0 -75.0 232.9
---------------------------------------------------------------------------------------------------------------
NV04-45 51,230.9 9,861.1 2,515,813.0 5,303,719.1 1,164.0 210.0 -80.0 167.0
---------------------------------------------------------------------------------------------------------------
NV04-46 51,232.3 9,760.2 2,515,763.8 5,303,630.9 1,168.6 210.0 -80.0 239.0
---------------------------------------------------------------------------------------------------------------
NV04-47 51,236.7 9,681.0 2,515,728.1 5,303,560.2 1,176.6 30.0 -75.0 242.0
---------------------------------------------------------------------------------------------------------------
NV04-48 51,302.3 9,980.9 2,515,934.8 5,303,787.1 1,147.2 30.0 -45.0 67.5
---------------------------------------------------------------------------------------------------------------
NV04-49 51,301.0 9,915.2 2,515,900.8 5,303,730.8 1,150.5 30.0 -80.0 82.8
---------------------------------------------------------------------------------------------------------------
NV04-50 51,159.9 9,954.9 2,515,798.5 5,303,835.8 1,165.7 30.0 -80.0 113.0
---------------------------------------------------------------------------------------------------------------
NV04-51 51,159.1 9,971.9 2,515,806.2 5,303,850.9 1,165.5 30.0 -45.0 100.5
---------------------------------------------------------------------------------------------------------------
NV04-52 50,896.0 9,948.4 2,515,566.7 5,303,962.1 1,173.4 30.0 -45.0 100.5
---------------------------------------------------------------------------------------------------------------
NV04-53 50,796.8 9,954.7 2,515,483.9 5,304,017.1 1,169.2 30.0 -50.0 97.5
---------------------------------------------------------------------------------------------------------------
NV04-54 49,920 9,935 2,514,715 5,304,438 1,215 30.0 -50.0 190.5
---------------------------------------------------------------------------------------------------------------
NV04-55 50,000 9,906 2,514,770 5,304,374 1,197 30.0 -45.0 168.8
---------------------------------------------------------------------------------------------------------------
NV04-56 50,943 10,001 2,515,634 5,303,984 1,178 30.0 -45.0 142.5
---------------------------------------------------------------------------------------------------------------
NV04-57 51,118 9,812 2,515,691 5,303,733 1,181 210.0 -80.0 245.1
---------------------------------------------------------------------------------------------------------------
NV04-58 51,898 9,703 2,516,311 5,303,249 1,157 30.0 -80.0 173.1
---------------------------------------------------------------------------------------------------------------
NV04-59 51,900 9,612 2,516,268 5,303,169 1,142 33.0 -80.0 191.1
---------------------------------------------------------------------------------------------------------------
NV04-60 51,800 9,668 2,516,209 5,303,267 1,145 30.0 -80.0 131.1
---------------------------------------------------------------------------------------------------------------
28
---------------------------------------------------------------------------------------------------------------
Easting Northing elevation Azimuth dip down
Diamond Local E Local N GK faja 2 GK faja 2 (metres) (wrt GK from Length
Drill Hole Campo Inch Campo Inch HAE CI north) vertical (metres)
---------------------------------------------------------------------------------------------------------------
NV04-61 51,203 8,927 2,515,322 5,302,924 1,149 210.0 -45.0 241.5
---------------------------------------------------------------------------------------------------------------
NV04-62 51,095 8,867 2,515,198 5,302,926 1,154 210.0 -45.0 223.5
---------------------------------------------------------------------------------------------------------------
NV04-63 50,392 8,749 2,514,530 5,303,175 1,175 150.0 -45.0 178.4
---------------------------------------------------------------------------------------------------------------
NV04-64 50,374 8,692 2,514,487 5,303,135 1,188 31.0 -45.0 235.3
---------------------------------------------------------------------------------------------------------------
NV04-65 49,919 9,851 2,514,672 5,304,366 1,192 30.0 -45.0 229.5
---------------------------------------------------------------------------------------------------------------
NV04-66 50,100 9,917 2,514,861 5,304,333 1,184 29.0 -45.0 181.5
---------------------------------------------------------------------------------------------------------------
NV04-67 50,247 9,936 2,514,998 5,304,276 1,171 30.0 -45.0 226.5
---------------------------------------------------------------------------------------------------------------
NV04-68 50,351 10,084 2,515,162 5,304,353 1,164 30.0 -45.0 178.5
---------------------------------------------------------------------------------------------------------------
NV04-69 49,862 9,967 2,514,681 5,304,495 1,227 30.0 -45.0 181.3
---------------------------------------------------------------------------------------------------------------
NV04-70 49,809 10,009 2,514,656 5,304,558 1,229 29.0 -45.0 190.3
---------------------------------------------------------------------------------------------------------------
NV04-71 49,860 9,904 2,514,647 5,304,442 1,208 30.0 -45.0 172.5
---------------------------------------------------------------------------------------------------------------
NV04-72 49,802 9,928 2,514,609 5,304,492 1,210 30.0 -45.0 223.2
---------------------------------------------------------------------------------------------------------------
NV04-73 49,802 9,814 2,514,552 5,304,393 1,184 29.0 -45.0 193.5
---------------------------------------------------------------------------------------------------------------
NV04-74 51,997 9,691 2,516,391 5,303,189 1,165 29.0 -80.0 158.0
---------------------------------------------------------------------------------------------------------------
NV04-75 52,198 9,674 2,516,557 5,303,073 1,163 29.0 -80.0 158.0
---------------------------------------------------------------------------------------------------------------
NV04-76 52,401 9,679 2,516,735 5,302,976 1,171 29.0 -80.0 152.0
---------------------------------------------------------------------------------------------------------------
NV04-77 50,400 9,053 2,514,689 5,303,435 1,151 211.0 -45.0 250.5
---------------------------------------------------------------------------------------------------------------
NV04-78 51,308 8,954 2,515,426 5,302,895 1,147 210.0 -45.0 100.5
---------------------------------------------------------------------------------------------------------------
NV04-79 51,100 8,929 2,515,233 5,302,977 1,146 210.0 -45.0 121.5
---------------------------------------------------------------------------------------------------------------
NV04-80 51,003 8,864 2,515,117 5,302,970 1,151 210.0 -45.0 100.5
---------------------------------------------------------------------------------------------------------------
NV04-81 50,405 8,802 2,514,568 5,303,215 1,166 150.0 -45.0 150.8
---------------------------------------------------------------------------------------------------------------
NV04-82 50,340 8,700 2,514,461 5,303,159 1,186 150.0 -45.0 151.0
---------------------------------------------------------------------------------------------------------------
NV04-83 49,760 10,004 2,514,611 5,304,578 1,221 29.0 -45.0 169.5
---------------------------------------------------------------------------------------------------------------
NV04-84 49,721 9,991 2,514,570 5,304,587 1,219 31.0 -45.0 213.0
---------------------------------------------------------------------------------------------------------------
NV04-85 49,660 10,001 2,514,522 5,304,626 1,213 30.0 -45.0 88.5
---------------------------------------------------------------------------------------------------------------
NV04-86 50,545 10,120 2,515,348 5,304,286 1,148 30.0 -45.0 169.5
---------------------------------------------------------------------------------------------------------------
NV04-87 50,651 10,052 2,515,407 5,304,175 1,160 30.0 -45.0 159.5
---------------------------------------------------------------------------------------------------------------
NV04-88 49,197 9,855 2,514,048 5,304,731 1,224 30.0 -80.0 192.3
---------------------------------------------------------------------------------------------------------------
NV04-89 49,760 9,813 2,514,515 5,304,413 1,184 30.0 -60.0 97.5
---------------------------------------------------------------------------------------------------------------
NV04-90 49,719 9,855 2,514,501 5,304,470 1,189 30.0 -45.0 106.5
---------------------------------------------------------------------------------------------------------------
NV04-91 52,345 9,652 2,516,673 5,302,980 1,165 80.0 -45.0 187.5
---------------------------------------------------------------------------------------------------------------
NV04-92 52,634 9,468 2,516,832 5,302,677 1,142 80.0 -65.0 163.9
---------------------------------------------------------------------------------------------------------------
NV04-93 51,604 9,576 2,515,994 5,303,285 1,134 30.0 -80.0 201.0
---------------------------------------------------------------------------------------------------------------
NV04-94 50,400 10,030 2,515,178 5,304,281 1,157 30.0 -45.0 175.5
---------------------------------------------------------------------------------------------------------------
NV04-95 50,250 9,894 2,514,980 5,304,238 1,167 30.0 -60.0 100.5
---------------------------------------------------------------------------------------------------------------
NV04-96 50,099 9,832 2,514,819 5,304,260 1,174 30.0 -45.0 100.5
---------------------------------------------------------------------------------------------------------------
NV04-97 49,920 9,801 2,514,647 5,304,322 1,181 30.0 -60.0 100.5
---------------------------------------------------------------------------------------------------------------
NV04-98 49,811 9,762 2,514,534 5,304,343 1,178 30.0 -60.0 76.7
---------------------------------------------------------------------------------------------------------------
NV04-99 49,661 9,838 2,514,442 5,304,484 1,188 30.0 -60.0 88.7
---------------------------------------------------------------------------------------------------------------
NV04-100 49,722 9,813 2,514,482 5,304,432 1,183 30.0 -60.0 130.7
---------------------------------------------------------------------------------------------------------------
NV04-101 49,660 9,756 2,514,400 5,304,413 1,182 30.0 -60.0 109.7
---------------------------------------------------------------------------------------------------------------
NV04-102 49,601 9,830 2,514,386 5,304,507 1,194 30.0 -60.0 122
---------------------------------------------------------------------------------------------------------------
NV04-103 49,658 9,940 2,514,490 5,304,574 1,204 30.0 -60.0 79.8
---------------------------------------------------------------------------------------------------------------
29
---------------------------------------------------------------------------------------------------------------
Easting Northing elevation Azimuth dip down
Diamond Local E Local N GK faja 2 GK faja 2 (metres) (wrt GK from Length
Drill Hole Campo Inch Campo Inch HAE CI north) vertical (metres)
---------------------------------------------------------------------------------------------------------------
NV04-104 49,659 9,880 2,514,461 5,304,521 1,192 31.0 -60.0 100.3
---------------------------------------------------------------------------------------------------------------
NV04-105 50,300 10,112 2,515,132 5,304,402 1,176 30.0 -60.0 82.7
---------------------------------------------------------------------------------------------------------------
NV04-106 50,301 10,033 2,515,094 5,304,333 1,171 30.0 -60.0 88.7
---------------------------------------------------------------------------------------------------------------
NV04-107 50,475 10,123 2,515,289 5,304,323 1,148 30.0 -45.0 118.1
---------------------------------------------------------------------------------------------------------------
NV04-108 50,599 10,087 2,515,379 5,304,230 1,155 90.0 -45.0 145.5
---------------------------------------------------------------------------------------------------------------
NV04-109 49,921 10,044 2,514,770 5,304,532 1,231 210.0 -60.0 133.5
---------------------------------------------------------------------------------------------------------------
NV04-110 49,811 10,075 2,514,690 5,304,614 1,222 210.0 -45.0 100.5
---------------------------------------------------------------------------------------------------------------
NV04-111 49,809 10,009 2,514,655 5,304,558 1,229 210.0 -65.0 35.0
---------------------------------------------------------------------------------------------------------------
NV04-112 49,760 10,048 2,514,632 5,304,616 1,218 30.0 -45.0 85.5
---------------------------------------------------------------------------------------------------------------
NV04-113 49,721 10,038 2,514,593 5,304,627 1,213 30.0 -45.0 76.5
---------------------------------------------------------------------------------------------------------------
NV04-114 49,759 9,925 2,514,570 5,304,510 1,204 30.0 -60.0 62.1
---------------------------------------------------------------------------------------------------------------
NV04-115 49,719 9,924 2,514,536 5,304,530 1,204 29.0 -60.0 62.0
---------------------------------------------------------------------------------------------------------------
NV04-116 49,761 9,853 2,514,535 5,304,447 1,189 30.0 -60.0 70.7
---------------------------------------------------------------------------------------------------------------
NV04-117 49,700 9,885 2,514,500 5,304,505 1,196 120.0 -45.0 109.5
---------------------------------------------------------------------------------------------------------------
NV04-118 49,600 9,879 2,514,410 5,304,550 1,198 30.0 -60.0 80.0
---------------------------------------------------------------------------------------------------------------
NV04-119 49,600 9,934 2,514,437 5,304,598 1,201 30.0 -60.0 77.1
---------------------------------------------------------------------------------------------------------------
NV04-120 49,859 9,814 2,514,602 5,304,364 1,184 30.0 -60.0 95.0
---------------------------------------------------------------------------------------------------------------
NV04-121 49,401 9,786 2,514,191 5,304,569 1,203 210.0 -70.0 149.1
---------------------------------------------------------------------------------------------------------------
NV04-122 49,324 9,834 2,514,148 5,304,649 1,211 30.0 -70.0 253.5
---------------------------------------------------------------------------------------------------------------
NV04-123 49,324 9,827 2,514,145 5,304,643 1,210 210.0 -70.0 199.9
---------------------------------------------------------------------------------------------------------------
NV04-124 49,199 9,905 2,514,075 5,304,773 1,227 30.0 -80.0 209.3
---------------------------------------------------------------------------------------------------------------
NV04-125 49,197 9,803 2,514,023 5,304,686 1,220 30.0 -80.0 167.1
---------------------------------------------------------------------------------------------------------------
NV04-126 49,248 9,789 2,514,060 5,304,648 1,215 28.0 -50.0 283.5
---------------------------------------------------------------------------------------------------------------
NV04-127 50,471 10,083 2,515,266 5,304,291 1,150 30.0 -60.0 137.1
---------------------------------------------------------------------------------------------------------------
NV04-128 50,448 10,122 2,515,266 5,304,336 1,150 30.0 -60.0 109.6
---------------------------------------------------------------------------------------------------------------
NV04-129 50,500 10,119 2,515,309 5,304,307 1,146 30.0 -60.0 28.8
---------------------------------------------------------------------------------------------------------------
NV04-130 50,500 10,116 2,515,308 5,304,305 1,146 30.0 -62.0 106.8
---------------------------------------------------------------------------------------------------------------
NV04-131 50,578 10,109 2,515,372 5,304,260 1,152 90.0 -60.0 130.8
---------------------------------------------------------------------------------------------------------------
NV04-132 49,720 9,756 2,514,452 5,304,384 1,179 31.0 -60.0 127.8
---------------------------------------------------------------------------------------------------------------
NV04-133 49,797 9,732 2,514,506 5,304,325 1,175 30.0 -60.0 184.8
---------------------------------------------------------------------------------------------------------------
NV05-134 49,253 9,921 2,514,130 5,304,760 1,222 30.0 -70.0 281.0
---------------------------------------------------------------------------------------------------------------
NV05-135 49,250 9,986 2,514,160 5,304,818 1,224 30.0 -70.0 266.0
---------------------------------------------------------------------------------------------------------------
NV05-136 49,246 10,093 2,514,210 5,304,913 1,228 30.0 -70.0 251.0
---------------------------------------------------------------------------------------------------------------
NV05-137 49,200 9,957 2,514,102 5,304,817 1,229 30.0 -80.0 262.0
---------------------------------------------------------------------------------------------------------------
NV05-138 49,250 9,982 2,514,158 5,304,814 1,224 210.0 -56.0 250.0
---------------------------------------------------------------------------------------------------------------
NV05-139 49,699 9,876 2,514,493 5,304,498 1,194 31.0 -70.0 80.0
---------------------------------------------------------------------------------------------------------------
NV05-140 49,699 9,842 2,514,476 5,304,469 1,189 30.0 -60.0 80.0
---------------------------------------------------------------------------------------------------------------
NV05-141 49,738 9,877 2,514,529 5,304,479 1,193 31.0 -60.0 80.0
---------------------------------------------------------------------------------------------------------------
NV05-142 49,738 9,851 2,514,516 5,304,457 1,189 30.0 -60.0 77.0
---------------------------------------------------------------------------------------------------------------
NV05-143 49,320 10,018 2,514,237 5,304,810 1,217 210.0 -55.0 268.8
---------------------------------------------------------------------------------------------------------------
NV05-144 49,402 9,952 2,514,275 5,304,712 1,210 210.0 -65.0 260.1
---------------------------------------------------------------------------------------------------------------
NV05-145 49,402 9,902 2,514,249 5,304,669 1,208 211.0 -65.0 250.7
---------------------------------------------------------------------------------------------------------------
NV05-146 49,499 9,837 2,514,301 5,304,564 1,199 30.0 -60.0 199.8
---------------------------------------------------------------------------------------------------------------
30
---------------------------------------------------------------------------------------------------------------
Easting Northing elevation Azimuth dip down
Diamond Local E Local N GK faja 2 GK faja 2 (metres) (wrt GK from Length
Drill Hole Campo Inch Campo Inch HAE CI north) vertical (metres)
---------------------------------------------------------------------------------------------------------------
NV05-147 49,497 9,808 2,514,285 5,304,540 1,194 30.0 -70.0 191.1
---------------------------------------------------------------------------------------------------------------
NV05-148 49,150 9,871 2,514,016 5,304,768 1,229 30.0 -80.0 170.1
---------------------------------------------------------------------------------------------------------------
NV05-149 49,148 9,920 2,514,038 5,304,812 1,234 30.0 -80.0 221.1
---------------------------------------------------------------------------------------------------------------
NV05-150 49,101 9,843 2,513,960 5,304,768 1,230 30.0 -80.0 188.1
---------------------------------------------------------------------------------------------------------------
NV05-151 49,101 9,893 2,513,984 5,304,812 1,234 30.0 -80.0 176.1
---------------------------------------------------------------------------------------------------------------
NV05-152 49,100 9,944 2,514,010 5,304,856 1,239 30.0 -80.0 221.1
---------------------------------------------------------------------------------------------------------------
NV05-153 50,596 10,229 2,515,447 5,304,355 1,143 271.0 -45.0 163.8
---------------------------------------------------------------------------------------------------------------
NV05-154 50,602 10,231 2,515,453 5,304,354 1,143 30.0 -45.0 190.8
---------------------------------------------------------------------------------------------------------------
NV05-155 50,660 10,172 2,515,474 5,304,273 1,149 90.0 -45.0 88.8
---------------------------------------------------------------------------------------------------------------
NV05-156 50,562 10,152 2,515,379 5,304,305 1,149 90.0 -60.0 110.1
---------------------------------------------------------------------------------------------------------------
NV05-157 49,856 9,772 2,514,578 5,304,330 1,178 30.0 -60.0 131.1
---------------------------------------------------------------------------------------------------------------
NV05-158 49,758 9,775 2,514,494 5,304,381 1,180 30.0 -60.0 104.1
---------------------------------------------------------------------------------------------------------------
NV05-159 49,922 9,762 2,514,631 5,304,288 1,175 29.0 -60.0 137.5
---------------------------------------------------------------------------------------------------------------
NV05-160 50,000 9,836 2,514,735 5,304,313 1,182 30.0 -60.0 128.2
---------------------------------------------------------------------------------------------------------------
NV05-161 49,762 9,887 2,514,554 5,304,476 1,195 30.0 -60.0 83.1
---------------------------------------------------------------------------------------------------------------
NV05-162 49,360 10,015 2,514,269 5,304,788 1,214 210.0 -55.0 274.8
---------------------------------------------------------------------------------------------------------------
NV05-163 49,453 9,832 2,514,259 5,304,583 1,197 30.0 -70.0 215.1
---------------------------------------------------------------------------------------------------------------
NV05-164 49,548 9,819 2,514,335 5,304,524 1,194 30.0 -70.0 195.6
---------------------------------------------------------------------------------------------------------------
NV05-165 49,548 9,873 2,514,361 5,304,571 1,202 30.0 -70.0 170.1
---------------------------------------------------------------------------------------------------------------
NV05-166 49,503 9,917 2,514,345 5,304,632 1,206 30.0 -65.0 146.1
---------------------------------------------------------------------------------------------------------------
NV05-167 49,100 9,945 2,514,010 5,304,857 1,239 210.0 -60.0 158.1
---------------------------------------------------------------------------------------------------------------
NV05-168 49,100 10,007 2,514,041 5,304,911 1,236 210.0 -60.0 167.1
---------------------------------------------------------------------------------------------------------------
NV05-169 49,048 9,887 2,513,936 5,304,833 1,234 30.0 -80.0 129.0
---------------------------------------------------------------------------------------------------------------
NV05-170 49,051 9,938 2,513,964 5,304,876 1,237 30.0 -80.0 143.4
---------------------------------------------------------------------------------------------------------------
NV05-171 49,053 9,978 2,513,985 5,304,909 1,238 210.0 -70.0 134.1
---------------------------------------------------------------------------------------------------------------
NV05-172 49,321 9,861 2,514,159 5,304,674 1,212 30.0 -60.0 281.1
---------------------------------------------------------------------------------------------------------------
NV05-173 49,285 9,972 2,514,184 5,304,788 1,221 210.0 -80.0 248.4
---------------------------------------------------------------------------------------------------------------
NV05-174 49,361 9,963 2,514,245 5,304,742 1,214 210.0 -55.0 263.1
---------------------------------------------------------------------------------------------------------------
NV05-175 51,081 9,753 2,515,629 5,303,701 1,188 32.0 -50.0 516.12
---------------------------------------------------------------------------------------------------------------
NV05-176 49,053 9,978 2,513,985 5,304,909 1,238 30.0 -75.0 233.10
---------------------------------------------------------------------------------------------------------------
NV05-177 49,100 9,996 2,514,034 5,304,901 1,236 30.0 -80.0 239.10
---------------------------------------------------------------------------------------------------------------
NV05-178 48,498 9,898 2,513,465 5,305,118 1,223 30.0 -55.0 302.00
---------------------------------------------------------------------------------------------------------------
NV05-179 48,502 9,802 2,513,420 5,305,032 1,208 30.0 -60.0 212.10
---------------------------------------------------------------------------------------------------------------
NV05-180 48,998 9,908 2,513,903 5,304,876 1,234 30.0 -80.0 131.40
---------------------------------------------------------------------------------------------------------------
NV05-181 48,996 9,963 2,513,929 5,304,924 1,237 29.0 -80.0 161.20
---------------------------------------------------------------------------------------------------------------
NV05-182 48,995 10,012 2,513,952 5,304,968 1,240 30.0 -80.0 218.20
---------------------------------------------------------------------------------------------------------------
NV05-183 49,149 9,970 2,514,064 5,304,854 1,234 30.0 -80.0 257.20
---------------------------------------------------------------------------------------------------------------
NV05-184 49,248 9,886 2,514,108 5,304,732 1,221 30.0 -88.0 209.20
---------------------------------------------------------------------------------------------------------------
NV05-185 49,450 9,948 2,514,314 5,304,685 1,210 31.0 -70.0 164.00
---------------------------------------------------------------------------------------------------------------
NV05-186 49,499 9,969 2,514,368 5,304,678 1,211 30.0 -65.0 119.00
---------------------------------------------------------------------------------------------------------------
NV05-187 49,250 9,788 2,514,060 5,304,646 1,214 30.0 -76.0 185.00
---------------------------------------------------------------------------------------------------------------
NV05-188 49,360 10,015 2,514,269 5,304,788 1,214 210.0 -81.0 236.00
---------------------------------------------------------------------------------------------------------------
NV05-189 48,400 10,055 2,513,458 5,305,302 1,181 31.0 -60.0 211.50
---------------------------------------------------------------------------------------------------------------
31
---------------------------------------------------------------------------------------------------------------
Easting Northing elevation Azimuth dip down
Diamond Local E Local N GK faja 2 GK faja 2 (metres) (wrt GK from Length
Drill Hole Campo Inch Campo Inch HAE CI north) vertical (metres)
---------------------------------------------------------------------------------------------------------------
NV05-190 48,397 10,138 2,513,497 5,305,375 1,175 31.0 -61.0 158.00
---------------------------------------------------------------------------------------------------------------
NV05-191 47,798 10,151 2,512,986 5,305,687 1,167 30.0 -70.0 197.00
---------------------------------------------------------------------------------------------------------------
NV05-192 47,802 10,063 2,512,944 5,305,609 1,168 30.0 -70.0 209.00
---------------------------------------------------------------------------------------------------------------
NV05-194 48,604 9,055 2,513,135 5,304,334 1,222 210.0 -80.0 212.20
---------------------------------------------------------------------------------------------------------------
NV05-195 51,227 8,373 2,515,065 5,302,432 1,170 30.0 -80.0 278.20
---------------------------------------------------------------------------------------------------------------
NV05-196 52,190 7,427 2,515,427 5,301,131 1,240 210.0 -75.0 413.66
---------------------------------------------------------------------------------------------------------------
NV05-197 51,081 9,892 2,515,698 5,303,821 1,177 28.0 -52.0 441.05
---------------------------------------------------------------------------------------------------------------
NV05-198 48,863 9,994 2,513,829 5,305,018 1,238 30.0 -90.0 221.30
---------------------------------------------------------------------------------------------------------------
NV05-199 48,863 10,005 2,513,834 5,305,027 1,238 30.0 -45.0 170.10
---------------------------------------------------------------------------------------------------------------
NV05-200 48,600 9,890 2,513,549 5,305,059 1,221 30.0 -76.0 275.10
---------------------------------------------------------------------------------------------------------------
NV05-201 48,600 9,891 2,513,549 5,305,060 1,221 30.0 -45.0 200.00
---------------------------------------------------------------------------------------------------------------
NV05-202 48,605 9,788 2,513,502 5,304,969 1,215 30.0 -73.0 149.10
---------------------------------------------------------------------------------------------------------------
NV05-203 48,391 9,873 2,513,360 5,305,149 1,211 30.0 -72.0 324.75
---------------------------------------------------------------------------------------------------------------
NV05-204 48,391 9,874 2,513,360 5,305,150 1,211 30.0 -45.0 161.00
---------------------------------------------------------------------------------------------------------------
NV05-205 49,448 9,989 2,514,333 5,304,721 1,211 30.0 -63.0 163.50
---------------------------------------------------------------------------------------------------------------
NV05-206 49,451 10,022 2,514,352 5,304,748 1,207 30.0 -45.0 190.00
---------------------------------------------------------------------------------------------------------------
NV05-207 49,498 10,016 2,514,390 5,304,720 1,209 30.0 -45.0 166.00
---------------------------------------------------------------------------------------------------------------
NV05-208 49,555 9,932 2,514,397 5,304,619 1,205 30.0 -70.0 125.00
---------------------------------------------------------------------------------------------------------------
NV05-209 49,402 9,981 2,514,289 5,304,738 1,212 30.0 -71.0 227.00
---------------------------------------------------------------------------------------------------------------
NV05-210 49,551 9,998 2,514,427 5,304,678 1,210 30.0 -90.0 209.00
---------------------------------------------------------------------------------------------------------------
NV05-211 49,285 9,926 2,514,160 5,304,748 1,219 210.0 -80.0 233.00
---------------------------------------------------------------------------------------------------------------
NV05-212 49,286 9,885 2,514,141 5,304,712 1,217 210.0 -80.0 212.00
---------------------------------------------------------------------------------------------------------------
NV05-213 48,954 10,007 2,513,914 5,304,984 1,238 30.0 -80.0 263.00
---------------------------------------------------------------------------------------------------------------
NV05-214 47,999 10,102 2,513,135 5,305,543 1,173 30.0 -80.0 254.00
---------------------------------------------------------------------------------------------------------------
NV05-215 48,201 10,051 2,513,284 5,305,399 1,176 30.0 -80.0 254.00
---------------------------------------------------------------------------------------------------------------
NV05-216 48,199 9,721 2,513,118 5,305,114 1,198 30.0 -80.0 200.00
---------------------------------------------------------------------------------------------------------------
NV05-217 49,799 9,681 2,514,483 5,304,279 1,172 30.0 -60.0 248.00
---------------------------------------------------------------------------------------------------------------
NV05-218 49,855 9,723 2,514,552 5,304,287 1,173 30.0 -60.0 194.50
---------------------------------------------------------------------------------------------------------------
NV05-219 49,922 9,712 2,514,605 5,304,245 1,170 30.0 -60.0 266.00
---------------------------------------------------------------------------------------------------------------
NV05-220 49,996 9,737 2,514,682 5,304,229 1,170 30.0 -70.0 176.00
---------------------------------------------------------------------------------------------------------------
NV05-221 49,857 9,667 2,514,526 5,304,238 1,170 30.0 -60.0 194.00
---------------------------------------------------------------------------------------------------------------
NV05-222 48,301 9,854 2,513,272 5,305,178 1,199 30.0 -85.0 239.00
---------------------------------------------------------------------------------------------------------------
NV05-223 48,301 9,855 2,513,273 5,305,179 1,199 30.0 -45.0 181.50
---------------------------------------------------------------------------------------------------------------
NV05-224 48,601 9,735 2,513,472 5,304,925 1,220 30.0 -75.0 152.00
---------------------------------------------------------------------------------------------------------------
NV05-225 48,500 9,757 2,513,396 5,304,994 1,212 30.0 -65.0 146.00
---------------------------------------------------------------------------------------------------------------
NV05-226 48,400 9,807 2,513,334 5,305,088 1,202 30.0 -58.0 140.00
---------------------------------------------------------------------------------------------------------------
NV05-227 48,703 9,776 2,513,581 5,304,910 1,220 30.0 -90.0 251.00
---------------------------------------------------------------------------------------------------------------
NV05-228 50,299 10,144 2,515,148 5,304,430 1,179 30.0 -50.0 61.50
---------------------------------------------------------------------------------------------------------------
NV05-229 50,655 10,030 2,515,399 5,304,153 1,159 90.0 -45.0 79.50
---------------------------------------------------------------------------------------------------------------
NV05-230 50,400 10,159 2,515,243 5,304,392 1,156 30.0 -45.0 82.30
---------------------------------------------------------------------------------------------------------------
NV05-231 50,576 10,214 2,515,422 5,304,352 1,145 88.5 -80.0 80.00
---------------------------------------------------------------------------------------------------------------
NV05-232 50,577 10,214 2,515,423 5,304,352 1,145 88.5 -45.0 67.30
---------------------------------------------------------------------------------------------------------------
NV05-233 50,590 10,163 2,515,408 5,304,301 1,151 90.0 -48.0 100.30
---------------------------------------------------------------------------------------------------------------
32
---------------------------------------------------------------------------------------------------------------
Easting Northing elevation Azimuth dip down
Diamond Local E Local N GK faja 2 GK faja 2 (metres) (wrt GK from Length
Drill Hole Campo Inch Campo Inch HAE CI north) vertical (metres)
---------------------------------------------------------------------------------------------------------------
NV05-234 50,627 10,126 2,515,423 5,304,251 1,155 90.0 -45.0 70.10
---------------------------------------------------------------------------------------------------------------
NV05-235 50,560 10,087 2,515,345 5,304,250 1,151 90.0 -65.0 143.00
---------------------------------------------------------------------------------------------------------------
NV05-236 50,611 10,059 2,515,375 5,304,201 1,157 90.0 -45.0 100.40
---------------------------------------------------------------------------------------------------------------
NV05-237 50,625 10,186 2,515,451 5,304,303 1,150 90.0 -45.0 82.20
---------------------------------------------------------------------------------------------------------------
NV05-238 49,760 9,727 2,514,472 5,304,339 1,175 30.0 -60.0 167.00
---------------------------------------------------------------------------------------------------------------
NV05-239 49,550 10,032 2,514,443 5,304,707 1,209 30.0 -45.0 103.00
---------------------------------------------------------------------------------------------------------------
NV05-240 49,551 10,014 2,514,435 5,304,692 1,210 30.0 -65.0 90.00
---------------------------------------------------------------------------------------------------------------
NV05-241 47,814 7,067 2,511,456 5,303,008 1,363 270.0 -45.0 118.50
---------------------------------------------------------------------------------------------------------------
NV05-242 47,824 7,094 2,511,479 5,303,026 1,358 269.0 -45.0 70.50
---------------------------------------------------------------------------------------------------------------
NV05-243 47,851 7,089 2,511,500 5,303,008 1,354 270.0 -60.0 95.00
---------------------------------------------------------------------------------------------------------------
NV05-244 47,856 7,060 2,511,490 5,302,981 1,355 270.0 -60.0 71.00
---------------------------------------------------------------------------------------------------------------
NV05-245 47,889 7,115 2,511,546 5,303,012 1,342 270.0 -60.0 89.00
---------------------------------------------------------------------------------------------------------------
NV05-246 49,403 9,975 2,514,287 5,304,732 1,211 30.0 -87.0 209.50
---------------------------------------------------------------------------------------------------------------
NV05-247 49,402 9,986 2,514,292 5,304,742 1,212 30.0 -54.0 173.40
---------------------------------------------------------------------------------------------------------------
NV05-248 49,601 9,989 2,514,465 5,304,645 1,209 30.0 -60.0 81.00
---------------------------------------------------------------------------------------------------------------
NV05-249 50,038 10,021 2,514,860 5,304,454 1,216 30.0 -50.0 63.60
---------------------------------------------------------------------------------------------------------------
NV05-250 50,044 9,953 2,514,831 5,304,392 1,198 30.0 -50.0 120.00
---------------------------------------------------------------------------------------------------------------
NV05-251 50,042 9,912 2,514,809 5,304,358 1,191 30.0 -65.0 99.00
---------------------------------------------------------------------------------------------------------------
NV06-252 47,745 7,806 2,511,767 5,303,682 1,264 210.0 -80.0 407.21
---------------------------------------------------------------------------------------------------------------
NV06-253 48,995 7,724 2,512,808 5,302,986 1,272 213.0 -70.0 471.07
---------------------------------------------------------------------------------------------------------------
NV06-254 46,804 8,247 2,511,172 5,304,535 1,210 212.0 -80.0 314.40
---------------------------------------------------------------------------------------------------------------
NV06-255 48,802 9,709 2,513,634 5,304,802 1,222 30.0 -90.0 131.00
---------------------------------------------------------------------------------------------------------------
NV06-256 48,897 9,702 2,513,712 5,304,748 1,221 30.0 -90.0 185.00
---------------------------------------------------------------------------------------------------------------
NV06-257 49,046 9,621 2,513,801 5,304,604 1,207 30.0 -90.0 140.00
---------------------------------------------------------------------------------------------------------------
NV06-258 48,898 9,652 2,513,688 5,304,704 1,217 30.0 -90.0 100.80
---------------------------------------------------------------------------------------------------------------
NV06-259 48,895 9,753 2,513,736 5,304,793 1,224 30.0 -90.0 122.00
---------------------------------------------------------------------------------------------------------------
NV06-260 48,800 9,760 2,513,657 5,304,847 1,226 30.0 -90.0 131.00
---------------------------------------------------------------------------------------------------------------
NV06-261 48,699 9,722 2,513,551 5,304,865 1,222 30.0 -90.0 131.50
---------------------------------------------------------------------------------------------------------------
NV06-262 48,548 9,813 2,513,466 5,305,019 1,211 30.0 -90.0 122.00
---------------------------------------------------------------------------------------------------------------
NV06-263 48,551 9,859 2,513,491 5,305,057 1,219 30.0 -90.0 131.00
---------------------------------------------------------------------------------------------------------------
NV06-264 48,450 9,885 2,513,417 5,305,130 1,218 211.0 -70.0 134.00
---------------------------------------------------------------------------------------------------------------
NV06-265 48,351 9,876 2,513,326 5,305,172 1,205 30.0 -80.0 137.10
---------------------------------------------------------------------------------------------------------------
NV06-266 52,199 8,154 2,515,798 5,301,757 1,157 210.0 -80.0 263.20
---------------------------------------------------------------------------------------------------------------
NV06-267 48,247 10,021 2,513,309 5,305,349 1,179 30.0 -90.0 149.20
---------------------------------------------------------------------------------------------------------------
NV06-268 48,248 9,995 2,513,297 5,305,326 1,181 210.0 -60.0 143.40
---------------------------------------------------------------------------------------------------------------
NV06-269 48,098 10,027 2,513,183 5,305,429 1,178 30.0 -90.0 161.00
---------------------------------------------------------------------------------------------------------------
NV06-270 49,501 10,101 2,514,435 5,304,792 1,190 30.0 -90.0 68.00
---------------------------------------------------------------------------------------------------------------
NV06-271 49,470 10,090 2,514,403 5,304,798 1,190 30.0 -90.0 101.20
---------------------------------------------------------------------------------------------------------------
NV06-272 51,017 9,790 2,515,592 5,303,765 1,180 30.0 -75.0 175.70
---------------------------------------------------------------------------------------------------------------
NV06-273 51,016 9,769 2,515,581 5,303,747 1,184 30.0 -75.0 185.00
---------------------------------------------------------------------------------------------------------------
NV06-274 51,016 9,744 2,515,568 5,303,725 1,186 30.0 -75.0 197.00
---------------------------------------------------------------------------------------------------------------
NV06-275 51,014 9,822 2,515,606 5,303,794 1,181 30.0 -75.0 161.00
---------------------------------------------------------------------------------------------------------------
NV06-276 51,016 9,847 2,515,620 5,303,814 1,184 30.0 -75.0 197.00
---------------------------------------------------------------------------------------------------------------
33
---------------------------------------------------------------------------------------------------------------
Easting Northing elevation Azimuth dip down
Diamond Local E Local N GK faja 2 GK faja 2 (metres) (wrt GK from Length
Drill Hole Campo Inch Campo Inch HAE CI north) vertical (metres)
---------------------------------------------------------------------------------------------------------------
NV06-277 51,042 9,744 2,515,591 5,303,712 1,187 30.0 -75.0 212.20
---------------------------------------------------------------------------------------------------------------
NV06-278 51,039 9,770 2,515,601 5,303,736 1,163 30.0 -75.0 212.00
---------------------------------------------------------------------------------------------------------------
NV06-279 51,041 9,793 2,515,614 5,303,755 1,183 30.0 -75.0 206.00
---------------------------------------------------------------------------------------------------------------
NV06-280 51,041 9,818 2,515,627 5,303,777 1,183 30.0 -75.0 218.40
---------------------------------------------------------------------------------------------------------------
NV06-281 51,042 9,843 2,515,640 5,303,798 1,183 30.0 -75.0 212.00
---------------------------------------------------------------------------------------------------------------
NV06-282 51,065 9,742 2,515,610 5,303,699 1,187 30.0 -75.0 227.30
---------------------------------------------------------------------------------------------------------------
NV06-283 51,065 9,772 2,515,625 5,303,725 1,186 30.0 -75.0 227.00
---------------------------------------------------------------------------------------------------------------
NV06-284 51,065 9,796 2,515,637 5,303,745 1,184 30.0 -75.0 229.20
---------------------------------------------------------------------------------------------------------------
NV06-285 51,066 9,819 2,515,649 5,303,765 1,183 30.0 -75.0 223.00
---------------------------------------------------------------------------------------------------------------
NV06-286 51,067 9,845 2,515,663 5,303,787 1,182 30.0 -75.0 206.00
---------------------------------------------------------------------------------------------------------------
NV06-287 50,338 8,701 2,514,460 5,303,161 1,185 210.0 -45.0 221.00
---------------------------------------------------------------------------------------------------------------
NV06-288 50,000 8,791 2,514,212 5,303,408 1,166 210.0 -45.0 248.00
---------------------------------------------------------------------------------------------------------------
NV06-289 50,601 8,851 2,514,762 5,303,159 1,153 210.0 -45.0 248.00
---------------------------------------------------------------------------------------------------------------
NV06-290 51,002 8,926 2,515,147 5,303,024 1,146 210.0 -45.0 245.00
---------------------------------------------------------------------------------------------------------------
NV06-291 51,400 8,984 2,515,521 5,302,875 1,144 210.0 -45.0 242.00
---------------------------------------------------------------------------------------------------------------
NV06-292 51,800 9,000 2,515,875 5,302,689 1,131 210.0 -45.0 251.00
---------------------------------------------------------------------------------------------------------------
NV06-293 52,202 8,927 2,516,187 5,302,424 1,133 210.0 -45.0 105.50
---------------------------------------------------------------------------------------------------------------
NV06-294 52,597 8,844 2,516,488 5,302,155 1,125 210.0 -45.0 59.00
---------------------------------------------------------------------------------------------------------------
NV06-295 51,029 9,796 2,515,606 5,303,764 1,182 210.0 -75.0 206.00
---------------------------------------------------------------------------------------------------------------
NV06-296 51,055 9,869 2,515,665 5,303,814 1,181 210.0 -75.0 215.00
---------------------------------------------------------------------------------------------------------------
NV06-297 52,202 8,861 2,516,154 5,302,367 1,135 210.0 -45.0 275.00
---------------------------------------------------------------------------------------------------------------
NV06-298 52,601 8,765 2,516,452 5,302,085 1,126 210.0 -45.0 110.10
---------------------------------------------------------------------------------------------------------------
Total Metres Drilled: 50,646
---------------------------------------------------------------------------------------------------------------
Note coordinates for holes 252 to 298 are provisional pending final surveys by a
professional surveyor.
Core designated for sampling is 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 testing was
undertaken by the Company on the ICP-ORE technique that confirmed its
suitability for the Navidad mineralization. That testing included a precision
34
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 drilling. This program
comprises controls including blind certified standards, blanks, core duplicates
and a secondary laboratory. The primary laboratory for all drilling samples was
Alex Stewart and the secondary lab was ALS-Chemex of La Serena and/or Vancouver.
In each set of 42 samples sent to the primary lab a blind high-grade, low-grade,
blank and duplicate core sample were included in randomized positions. As of
this writing over 687 analyses had been made and reviewed of each standard,
blanks and duplicate sample inserted by the Company in the sample stream.
Including check samples, over 26,800 samples had been analyzed by the primary
laboratory (up to the end of hole 286).
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 from 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 1,216 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 contractors 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.
35
GENERAL GEOLOGICAL UNDERSTANDING
Drilling of the Navidad Hill, Galena Hill, Calcite Hill and intervening areas
has greatly increased the geological understanding of the main geological units
and their relationships. Most of this information was gained by drilling along
the Navidad Trend (Barite Hill to Calcite Hill), but advances have also been
made at Esperanza and at the Argenta Trend from surface mapping supported by
limited drilling. The geology of the Navidad Project is described in a 2003
43-101 report entitled "Exploration of the Navidad Silver-Copper-Lead Property,
December 2002 To May 2003, Chubut Province, Argentina, on behalf of IMA
Exploration Inc." by Qualified Person Paul Lhotka, Ph.D., P.Geo..
Stratigraphy at the Navidad property is comprised of three primary sedimentary
and volcanic units which vary in thickness and composition but can generally be
traced across the property. The lowermost unit is comprised of epiclastic,
volcaniclastic and volcanic rocks that are virtually always unmineralized and
unaltered where they have been tested to date. This is overlain by a volcanic
cycle comprising trachyandesitic (or latitic) volcanic rocks, generally with
quartz eyes, that is altered and mineralized with silver, lead, and to a lesser
degree copper. The trachyandesite sequence comprises massive flows, amygdaloidal
flows, flow breccias and volcaniclastic breccias. This unit varies in
stratigraphic thickness from a few metres to well over 200 metres. The
trachyandesite is in turn overlain by pelitic mudstones and limestones of which
the lowermost portion may be highly mineralized with silver, lead, and often
zinc. On the southwestern portions of the property (Loma de la Plata and the
Argenta trend) the upper unit is dominated by coarse grained, poorly sorted
sandstones and conglomerates that are composed predominantly of granitic rock
interpreted to be derived from the Paleozoic granites which form the regional
basement rocks in the area.
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, particularly in the Galena Hill and
Barite Hill areas. 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 is interpreted as a paleosol.
GALENA HILL DRILLING RESULTS
Results of the 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 it was decided to use a minimum of
approximately 50 g/t silver equivalent including the values of silver and lead
in the calculation. The silver equivalent calculation is based on a silver price
of US$6.00 per troy ounce and US$0.35 per pound for lead according the formula
AgEq = Ag g/t + (Pb% * 10000/250). No adjustments have been made for relative
recoveries of the two metals as at this time there is still insufficient
information to do so. At this time a definitive "cut-off" grade can not be
established since metallurgical and engineering parameters have not been
determined. For the purpose of the resource estimates discussed below and the
intercepts listed below, a 50 g/t silver equivalent cut-off grade was used. 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, 56 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 of the mineralized body suggests that
it could be bulk mineable. Grade
36
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, however three holes designed to test this hypothesis
failed to find indications of a feeder zone. Moving to the southwest away from
this interpreted feeder zone, lead:silver ratios increase and are interpreted as
more distal portions of the deposit.
MINERALIZED INTERCEPTS FROM DRILLHOLES AT THE GALENA HILL DEPOSIT
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------------------------
NV03-03 -45 178.5 3.00 178.50 175.50 80 26 0.00 1.35 0.04
--------------------------------------------------------------------------------------------------------------------------
including 3.00 128.30 125.30 100 33 0.00 1.68 0.05
--------------------------------------------------------------------------------------------------------------------------
including 72.50 107.50 35.00 189 50 0.01 3.47 0.06
--------------------------------------------------------------------------------------------------------------------------
including 86.20 95.45 9.25 294 77 0.01 5.43 0.06
==========================================================================================================================
NV03-04 -45 285.0 2.80 266.70 263.90 156 74 0.00 2.04 0.08
--------------------------------------------------------------------------------------------------------------------------
including 2.80 203.00 200.20 192 92 0.00 2.49 0.11
--------------------------------------------------------------------------------------------------------------------------
including 39.60 176.45 136.85 237 117 0.00 2.99 0.14
--------------------------------------------------------------------------------------------------------------------------
including 39.60 121.25 81.65 268 142 0.00 3.15 0.14
--------------------------------------------------------------------------------------------------------------------------
including 39.60 94.70 55.10 283 164 0.00 2.97 0.10
--------------------------------------------------------------------------------------------------------------------------
including 65.00 94.70 29.70 312 190 0.00 3.06 0.10
--------------------------------------------------------------------------------------------------------------------------
including 65.00 83.50 18.50 377 241 0.00 3.40 0.10
==========================================================================================================================
NV03-05 -60 217.7 43.30 126.25 82.95 399 229 0.01 4.24 0.20
--------------------------------------------------------------------------------------------------------------------------
including 46.70 113.25 66.55 465 272 0.01 4.82 0.20
--------------------------------------------------------------------------------------------------------------------------
including 46.70 55.90 9.20 852 579 0.04 6.82 0.36
----------------------------------------------------------------------------- --------------------------------------------
including 89.00 107.25 18.25 951 503 0.00 11.19 0.36
==========================================================================================================================
NV04-12 -65 220.0 18.80 27.80 9.00 362 42 0.00 8.01 2.56
--------------------------------------------------------------------------------------------------------------------------
and 27.80 35.45 7.65 455 71 0.00 9.60 0.54
--------------------------------------------------------------------------------------------------------------------------
combined 18.80 35.45 16.65 392 54 0.00 8.45 1.55
--------------------------------------------------------------------------------------------------------------------------
within 18.80 60.60 41.80 214 35 0.00 4.46 0.68
==========================================================================================================================
NV04-13 -45 142.7 20.00 64.70 44.70 246 223 0.16 0.56 0.09
==========================================================================================================================
NV04-14 -70 158.0 27.70 142.75 115.05 664 454 0.08 5.26 0.50
--------------------------------------------------------------------------------------------------------------------------
including 27.70 75.10 47.40 1032 776 0.17 6.42 0.92
--------------------------------------------------------------------------------------------------------------------------
including 32.70 50.70 18.00 1631 1,421 0.42 5.24 1.69
==========================================================================================================================
NV04-15 -60 139.6 46.55 115.65 69.10 172 114 0.02 1.46 0.13
--------------------------------------------------------------------------------------------------------------------------
including 47.05 55.55 8.50 723 462 0.08 6.54 0.49
==========================================================================================================================
NV04-16 -55 250.5 63.45 72.45 9.00 133 34 0.00 2.47 0.07
==========================================================================================================================
NV04-17 -85 164.2 21.20 40.20 19.00 408 97 0.01 7.79 0.70
--------------------------------------------------------------------------------------------------------------------------
including 30.20 40.20 10.00 681 162 0.02 12.98 0.42
==========================================================================================================================
NV04-18 -55 274.7 232.00 244.00 12.00 86 70 0.06 0.40 0.01
==========================================================================================================================
NV04-19 -80 188.1 24.00 90.50 66.50 210 100 0.00 2.74 0.14
--------------------------------------------------------------------------------------------------------------------------
including 25.10 37.10 12.00 293 165 0.02 3.20 0.34
--------------------------------------------------------------------------------------------------------------------------
including 49.35 57.75 8.40 346 177 0.02 4.22 0.14
--------------------------------------------------------------------------------------------------------------------------
including 74.00 81.55 7.55 362 174 0.00 4.69 0.11
==========================================================================================================================
NV04-20 -70 70.9 35.50 40.60 5.10 128 55 0.02 1.82 0.03
==========================================================================================================================
37
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------------------------
NV04-21 -45 198.1 42.45 126.00 83.55 340 322 0.23 0.47 0.21
--------------------------------------------------------------------------------------------------------------------------
including 49.95 70.50 20.55 725 703 0.47 0.54 0.40
==========================================================================================================================
NV04-22 -75 193.8 38.65 101.65 63.00 491 418 0.15 1.82 0.32
--------------------------------------------------------------------------------------------------------------------------
42.50 55.60 13.10 991 923 0.26 1.70 0.56
==========================================================================================================================
NV04-23 -85 191.1 48.40 71.20 22.80 45 26 0.00 0.47 0.02
==========================================================================================================================
NV04-24 -50 145.6 3.00 5.65 2.65 963 918 0.28 1.13 0.18
==========================================================================================================================
NV04-26 -75 134.0 none 0
==========================================================================================================================
NV04-28 -60 158.0 45.70 134.75 89.05 191 120 0.01 1.77 0.32
--------------------------------------------------------------------------------------------------------------------------
including 45.70 67.75 22.05 49 23 -0.01 0.65 0.90
--------------------------------------------------------------------------------------------------------------------------
including 67.75 134.75 67.00 238 152 0.01 2.14 0.12
--------------------------------------------------------------------------------------------------------------------------
including 68.10 71.55 3.45 1199 761 0.05 10.96 0.60
--------------------------------------------------------------------------------------------------------------------------
NV04-29 -80 158.0 28.50 38.65 10.15 145 72 0.00 1.84 0.05
==========================================================================================================================
NV04-30 -80 209.0 44.80 52.70 7.90 92 48 -0.01 1.11 0.04
==========================================================================================================================
NV04-31 -80 296.0 3.05 23.85 20.80 102 52 0.00 1.25 0.05
--------------------------------------------------------------------------------------------------------------------------
and 47.35 78.45 31.10 176 71 0.00 2.62 0.31
--------------------------------------------------------------------------------------------------------------------------
including 73.85 75.95 2.10 1371 619 -0.01 18.82 3.58
==========================================================================================================================
NV04-36 -80 77.0 8.00 57.90 49.90 228 179 0.08 1.21 0.17
--------------------------------------------------------------------------------------------------------------------------
including 35.30 49.30 14.00 248 209 0.10 0.97 0.15
==========================================================================================================================
NV04-37 -80 102.5 12.80 89.10 76.30 191 139 0.04 1.28 0.12
--------------------------------------------------------------------------------------------------------------------------
including 13.80 17.70 3.90 887 597 0.02 7.23 0.58
==========================================================================================================================
NV04-38 -80 107.0 20.70 61.20 40.50 120 105 0.04 0.40 0.10
--------------------------------------------------------------------------------------------------------------------------
including 34.10 52.55 18.45 173 167 0.07 0.15 0.13
==========================================================================================================================
NV04-41 -45 145.2 58.10 129.00 70.90 92 78 0.08 0.33 0.20
==========================================================================================================================
NV04-42 -80 187.9 48.35 161.55 113.20 230 151 0.03 1.98 0.11
--------------------------------------------------------------------------------------------------------------------------
including 67.90 121.90 54.00 360 239 0.04 3.04 0.16
--------------------------------------------------------------------------------------------------------------------------
including 148.90 161.55 12.65 191 122 0.04 1.74 0.11
==========================================================================================================================
NV04-43 -75 230.6 44.20 127.25 83.05 372 153 0.01 5.48 0.90
--------------------------------------------------------------------------------------------------------------------------
including 44.20 89.00 44.80 489 217 0.01 6.81 1.06
==========================================================================================================================
NV04-44 -75 232.9 13.35 103.90 90.55 391 178 0.01 5.33 0.22
--------------------------------------------------------------------------------------------------------------------------
including 13.35 28.90 15.55 796 445 0.02 8.77 0.14
==========================================================================================================================
NV04-45 -80 167.0 43.00 69.85 26.85 569 355 0.00 5.34 0.33
--------------------------------------------------------------------------------------------------------------------------
including 43.00 51.05 8.05 1571 958 0.01 15.31 0.87
==========================================================================================================================
NV04-46 -80 239.0 30.40 167.00 136.60 73 31 0.00 1.06 0.05
--------------------------------------------------------------------------------------------------------------------------
including 30.40 65.00 34.60 122 62 0.00 1.51 0.06
==========================================================================================================================
NV04-47 -75 242.0 12.90 131.00 118.10 119 37 0.00 2.06 0.13
--------------------------------------------------------------------------------------------------------------------------
including 84.50 116.00 31.50 232 60 0.00 4.31 0.25
==========================================================================================================================
NV04-48 -45 67.5 16.50 32.85 16.35 52 31 0.00 0.53 0.18
--------------------------------------------------------------------------------------------------------------------------
including 26.70 31.80 5.10 71 50 0.01 0.54 0.25
==========================================================================================================================
NV04-49 -80 82.8 63.45 82.80 19.35 47 32 0.00 0.38 0.05
==========================================================================================================================
38
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------------------------
NV04-50 -80 113.0 20.80 101.00 80.20 292 255 0.14 0.93 0.19
--------------------------------------------------------------------------------------------------------------------------
including 20.80 65.00 44.20 409 391 0.23 0.44 0.26
==========================================================================================================================
NV04-51 -45 100.5 64.50 81.85 17.35 281 186 0.05 2.37 0.46
==========================================================================================================================
NV04-52 -45 100.5 16.50 62.55 46.05 296 271 0.10 0.62 0.21
==========================================================================================================================
NV04-53 -50 97.5 15.70 30.80 15.10 81 52 0.04 0.72 0.85
==========================================================================================================================
NV04-56 -45 142.5 19.30 127.75 108.45 106 102 0.08 0.09 0.08
--------------------------------------------------------------------------------------------------------------------------
including 22.50 64.50 42.00 169 164 0.09 0.12 0.08
==========================================================================================================================
NV04-57 -80 245.1 35.90 170.50 134.60 323 158 0.00 4.15 0.34
--------------------------------------------------------------------------------------------------------------------------
including 39.40 61.25 21.85 1075 677 0.03 9.96 0.54
==========================================================================================================================
NV05-175 -50 516.1 47.18 241.63 194.45 366 164 0.01 5.04 0.34
--------------------------------------------------------------------------------------------------------------------------
including 47.18 174.87 127.69 515 225 0.01 7.24 0.50
--------------------------------------------------------------------------------------------------------------------------
including 47.18 97.00 49.82 973 446 0.02 13.17 0.67
==========================================================================================================================
NV05-197 -52 441.1 94.94 168.98 74.04 317 239 0.08 1.97 0.16
--------------------------------------------------------------------------------------------------------------------------
including 94.94 117.36 22.42 486 294 0.03 4.80 0.20
--------------------------------------------------------------------------------------------------------------------------
and 143.23 168.98 25.75 361 348 0.15 0.31 0.20
==========================================================================================================================
NV06-272 -75 175.7 27.06 154.17 127.11 265 129 0.01 3.40 0.25
--------------------------------------------------------------------------------------------------------------------------
including 27.06 93.01 65.95 402 208 0.02 4.85 0.27
==========================================================================================================================
NV06-273 -75 185.0 26.21 122.70 96.49 296 157 0.01 3.49 0.14
--------------------------------------------------------------------------------------------------------------------------
including 26.21 73.89 47.68 392 238 0.02 3.84 0.15
==========================================================================================================================
NV06-274 -75 197.0 6.88 107.71 100.83 177 119.5 0.02 1.44 0.14
--------------------------------------------------------------------------------------------------------------------------
including 29.46 68.72 39.26 281 221 0.03 1.48 0.25
==========================================================================================================================
NV06-275 -75 161.0 28.50 148.55 120.05 410 218 0.02 4.81 0.73
--------------------------------------------------------------------------------------------------------------------------
including 33.01 60.78 27.77 909 539 0.05 9.26 1.68
==========================================================================================================================
NV06-276 -75 197.0 38.00 137.66 99.66 371 210 0.01 4.02 0.28
--------------------------------------------------------------------------------------------------------------------------
including 38.00 91.60 53.60 428 247 0.01 4.52 0.42
==========================================================================================================================
NV06-277 -75 212.2 3.05 117.62 114.57 215 125 0.00 2.26 0.08
--------------------------------------------------------------------------------------------------------------------------
including 3.05 47.20 44.15 426 266 0.01 4.02 0.11
--------------------------------------------------------------------------------------------------------------------------
including 81.64 117.62 35.98 123 48 0.00 1.87 0.07
--------------------------------------------------------------------------------------------------------------------------
and 167.79 184.41 16.62 294 122 0.02 4.30 1.34
==========================================================================================================================
NV06-278 -75 212.0 31.18 135.80 104.62 321 154 0.01 4.17 0.28
--------------------------------------------------------------------------------------------------------------------------
including 31.18 75.27 44.09 513 290 0.02 5.58 0.18
==========================================================================================================================
NV06-279 -75 206.0 33.00 189.78 156.78 312 121 0.01 4.79 0.73
--------------------------------------------------------------------------------------------------------------------------
including 33.00 74.98 41.98 639 231 0.02 10.20 1.50
==========================================================================================================================
NV06-280 -75 218.4 44.40 162.72 118.32 366 149 0.01 5.41 0.94
--------------------------------------------------------------------------------------------------------------------------
including 50.40 90.38 39.98 463 190 0.00 6.82 1.50
==========================================================================================================================
NV06-281 -75 212.0 57.72 140.00 82.28 308 133 0.01 4.36 0.47
--------------------------------------------------------------------------------------------------------------------------
including 57.72 100.14 42.42 441 185 0.00 6.42 0.85
==========================================================================================================================
NV06-282 -75 227.3 11.30 189.67 178.37 247 124 0.01 3.07 0.48
--------------------------------------------------------------------------------------------------------------------------
including 11.30 89.30 78.00 423 225 0.01 4.96 0.31
--------------------------------------------------------------------------------------------------------------------------
39
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------------------------
including 177.90 189.67 11.77 338 200 0.02 3.44 0.50
==========================================================================================================================
NV06-283 -75 227.0 27.87 123.01 95.14 317 161 0.01 3.91 0.55
--------------------------------------------------------------------------------------------------------------------------
including 36.76 84.58 47.82 429 250 0.02 4.49 0.25
--------------------------------------------------------------------------------------------------------------------------
and 170.91 188.77 17.86 190 110 0.01 2.00 0.76
==========================================================================================================================
NV06-284 -75 229.2 48.79 177.02 128.23 335 151 0.01 4.61 0.67
--------------------------------------------------------------------------------------------------------------------------
including 57.57 90.44 32.87 891 427 0.01 11.61 1.10
==========================================================================================================================
NV06-285 -75 223.0 41.00 164.34 123.34 345 121 0.01 5.60 1.38
--------------------------------------------------------------------------------------------------------------------------
including 47.00 77.70 30.70 542 192 0.01 8.75 2.80
==========================================================================================================================
NV06-286 -75 206.0 44.90 133.47 88.57 157 71 0.01 2.14 0.40
--------------------------------------------------------------------------------------------------------------------------
including 71.85 95.97 24.12 288 134 0.01 3.84 0.36
--------------------------------------------------------------------------------------------------------------------------
1.All length weighted average (LWA) results are "uncut"
2.Silver Equivalent is calculated by the formula AgEq=Ag g/t + (Pb% * 10000/250)
NAVIDAD HILL DRILLING RESULTS
Sixty-two drill holes have been completed to date at Navidad Hill and have been
very successful in delineating silver-copper-lead mineralization. Two distinct
styles of mineralization have been intersected, the first comprises
structurally-controlled, sub-vertical, tabular breccia bodies often containing
very high grade silver (up to ~10,000 g/t over short intervals) and the second
is a stratigraphically controlled body that occurs on the northwest flank of
Navidad Hill at or near the contact between trachyandesite volcanic rocks and
the overlying mudstones and intercalated volcanic tuffs.
Drilling on the structurally controlled mineralization confirmed that the dip of
the structures is near vertical but two somewhat unexpected geological 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. Assuming vertical dips
the true width of the mineralized intercept ranges from about 34 to 101m in
width. 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. Much of
Navidad Hill has little lead but the silver equivalent calculation has been
shown for all intercepts for comparison and because the stratigraphically
controlled mineralization often has significant lead values.
The stratigraphically-controlled mineralization at Navidad Hill occurs on the
northwest flank of the hill and is covered by 15 to 30 metres of overlying
unmineralized rock. Drill hole NV04-90 intersected this style of mineralization
with what is to date the best mineralized intercept recovered from the property
(35.8m of 2,850 g/t silver and 3.62% lead). Mineralization occurs in the form of
a blanket or gently-dipping, tabular body that is located at or near the contact
between the trachyandesite and overlying rocks. Metal-bearing minerals include
galena, stromeyerite, chalcopyrite, tetrahedrite, pyrite, sphalerite,
chalcocite, Fe-Cu oxides and other oxide species. In several locations, clastic
sulphides are noted in the core that are interpreted to indicate transportation
of the sulphide-bearing material after it's deposition. This strongly supports
the syn-volcanic, syn-sedimentary timing for mineralization that is interpreted.
Assuming a generally flat lying
40
orientation, true thicknesses of the intercepts in this zone are from 70 to 100%
of the composites tabulated below.
MINERALIZED INTERCEPTS FROM THE NAVIDAD HILL DRILLING
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
----------------------------------------------------------------------------------------------------------------------------
NV03-01 -45 109.5 3.05 61.45 58.40 113 111 0.22 0.06 0.07
----------------------------------------------------------------------------------------------------------------------------
including 10.10 31.35 21.25 237 233 0.35 0.09 0.11
----------------------------------------------------------------------------------------------------------------------------
including 10.10 17.50 7.40 538 536 0.81 0.07 0.14
----------------------------------------------------------------------------------------------------------------------------
including 15.70 16.50 0.80 2690 2678 3.07 0.30 0.24
============================================================================================================================
NV03-02 -45 154.5 2.50 50.50 48.00 100 98 0.15 0.06 0.05
----------------------------------------------------------------------------------------------------------------------------
including 5.50 6.45 0.95 868 858 8.07 0.26 0.02
----------------------------------------------------------------------------------------------------------------------------
including 17.60 25.00 7.40 234 227 0.25 0.16 0.09
----------------------------------------------------------------------------------------------------------------------------
including 40.40 41.45 1.05 1332 1320 0.82 0.28 0.14
============================================================================================================================
NV03-06 -45 136.2 3.00 63.20 60.20 165 162 0.26 0.10 0.06
----------------------------------------------------------------------------------------------------------------------------
including 23.30 28.80 5.50 433 425 0.74 0.20 0.10
============================================================================================================================
NV03-07 -45 108.9 3.00 86.65 83.65 258 247 0.32 0.27 0.05
----------------------------------------------------------------------------------------------------------------------------
including 3.00 40.75 37.75 489 475 0.54 0.35 0.07
----------------------------------------------------------------------------------------------------------------------------
including 3.00 6.90 3.90 2011 1998 0.92 0.32 0.07
----------------------------------------------------------------------------------------------------------------------------
including 30.85 33.25 2.40 2154 2130 3.34 0.60 0.09
============================================================================================================================
NV03-08 -45 146.0 2.50 146.00 143.50 154 146 0.21 0.20 0.04
----------------------------------------------------------------------------------------------------------------------------
including 2.50 71.10 68.60 291 275 0.35 0.40 0.06
----------------------------------------------------------------------------------------------------------------------------
including 26.10 40.15 14.05 1152 1084 1.25 1.69 0.11
----------------------------------------------------------------------------------------------------------------------------
including 26.10 28.40 2.30 2766 2661 1.64 2.63 0.16
----------------------------------------------------------------------------------------------------------------------------
including 35.45 37.20 1.75 3077 3043 4.31 0.86 0.11
============================================================================================================================
NV03-09 -45 106.1 2.50 84.30 81.80 129 125 0.12 0.10 0.04
----------------------------------------------------------------------------------------------------------------------------
including 21.00 21.70 0.70 5124 5068 0.36 1.41 0.04
----------------------------------------------------------------------------------------------------------------------------
including 65.25 66.20 0.95 1475 1441 1.62 0.86 0.07
============================================================================================================================
NV03-10 -45 150.7 3.50 78.50 75.00 113 111 0.23 0.05 0.04
----------------------------------------------------------------------------------------------------------------------------
including 3.50 9.40 5.90 673 670 1.25 0.09 0.06
============================================================================================================================
NV03-11 -45 133.2 1.52 12.10 10.58 99 98 0.53 0.02 0.12
============================================================================================================================
NV04-54 -50 190.5 3.05 107.40 104.35 128 125 0.20 0.07 0.04
----------------------------------------------------------------------------------------------------------------------------
including 3.05 38.50 35.45 303 295 0.51 0.19 0.08
============================================================================================================================
NV04-55 -45 168.8 3.00 63.60 60.60 28 27 0.07 0.04 0.05
----------------------------------------------------------------------------------------------------------------------------
including 38.05 43.40 5.35 74 73 0.35 0.03 0.07
----------------------------------------------------------------------------------------------------------------------------
NV04-65 -45 229.5 4.50 23.87 19.37 91 81 0.07 0.25 0.11
----------------------------------------------------------------------------------------------------------------------------
and 23.87 130.50 106.63 19 18 0.05 0.02 0.03
----------------------------------------------------------------------------------------------------------------------------
NV04-69 -45 181.3 3.00 103.95 100.95 56 53 0.07 0.07 0.04
----------------------------------------------------------------------------------------------------------------------------
including 29.43 34.69 5.26 81 78 0.22 0.08 0.04
----------------------------------------------------------------------------------------------------------------------------
including 63.83 66.05 2.22 233 232 0.02 0.02 0.01
============================================================================================================================
NV04-70 -45 190.3 3.00 87.75 84.75 85 83 0.09 0.04 0.04
----------------------------------------------------------------------------------------------------------------------------
including 58.30 62.85 4.55 424 421 0.23 0.06 0.04
----------------------------------------------------------------------------------------------------------------------------
41
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
----------------------------------------------------------------------------------------------------------------------------
including 81.10 87.75 6.65 176 175 0.12 0.03 0.03
============================================================================================================================
NV04-71 -45 172.5 3.00 88.50 85.50 57 56 0.12 0.03 0.04
----------------------------------------------------------------------------------------------------------------------------
including 69.50 88.50 19.00 150 149 0.15 0.02 0.02
----------------------------------------------------------------------------------------------------------------------------
including 78.15 85.50 7.35 267 265 0.21 0.05 0.03
============================================================================================================================
NV04-72 -45 223.2 3.00 53.85 50.85 29 26 0.07 0.06 0.06
----------------------------------------------------------------------------------------------------------------------------
including 45.01 53.85 8.84 48 46 0.04 0.04 0.02
============================================================================================================================
NV04-73 -45 193.5 3.00 36.40 33.40 126 94 0.04 0.80 0.48
----------------------------------------------------------------------------------------------------------------------------
including 28.50 36.40 7.90 340 292 0.17 1.19 0.13
----------------------------------------------------------------------------------------------------------------------------
and 58.00 59.40 1.40 3982 3975 0.88 0.16 0.07
============================================================================================================================
NV04-83 -45 169.5 4.50 88.00 83.50 98 97 0.15 0.04 0.06
----------------------------------------------------------------------------------------------------------------------------
including 53.00 61.91 8.91 213 211 0.25 0.04 0.05
----------------------------------------------------------------------------------------------------------------------------
including 79.50 88.00 8.50 238 237 0.12 0.03 0.00
============================================================================================================================
NV04-84 -45 213.0 13.90 55.50 41.60 57 56 0.17 0.02 0.05
----------------------------------------------------------------------------------------------------------------------------
including 22.20 23.53 1.33 99 98 0.26 0.02 0.07
----------------------------------------------------------------------------------------------------------------------------
and 77.00 81.97 4.97 57 57 0.17 0.00 -0.01
============================================================================================================================
NV04-85 -45 88.5 4.50 28.80 24.30 144 142 0.21 0.06 0.11
----------------------------------------------------------------------------------------------------------------------------
including 4.50 8.20 3.70 694 689 0.68 0.14 0.11
============================================================================================================================
NV04-89 -60 97.5 17.70 28.60 10.90 144 109 0.13 0.89 0.15
============================================================================================================================
NV04-90 -45 106.5 16.50 52.33 35.83 2995 2850 0.90 3.62 0.20
----------------------------------------------------------------------------------------------------------------------------
including 33.00 46.45 13.45 7584 7321 2.12 6.56 0.19
----------------------------------------------------------------------------------------------------------------------------
including 33.00 40.26 7.26 12413 11995 2.32 10.45 0.19
============================================================================================================================
NV04-97 -60 100.5 7.50 39.24 31.74 202 105 0.01 2.43 0.24
----------------------------------------------------------------------------------------------------------------------------
including 25.50 39.24 13.74 359 148 0.03 5.28 0.23
============================================================================================================================
NV04-98 -60 76.7 40.93 67.70 26.77 277 185 0.20 2.30 0.09
============================================================================================================================
NV04-99 -60 88.7 44.60 74.58 29.98 260 188 0.14 1.80 0.08
----------------------------------------------------------------------------------------------------------------------------
including 44.60 61.70 17.10 402 280 0.16 3.05 0.09
============================================================================================================================
NV04-100 -60 130.7 23.45 65.19 41.74 494 390 0.22 2.61 0.09
----------------------------------------------------------------------------------------------------------------------------
including 40.60 49.70 9.10 957 718 0.32 5.97 0.12
============================================================================================================================
NV04-101 -60 109.7 none
============================================================================================================================
NV04-102 -60 122.0 47.78 63.59 15.81 187 116 0.09 1.78 0.27
----------------------------------------------------------------------------------------------------------------------------
including 56.00 63.59 7.59 226 191 0.17 0.87 0.11
============================================================================================================================
NV04-103 -60 79.8 11.02 16.80 5.78 71 63 0.05 0.21 0.33
============================================================================================================================
NV04-104 -60 100.3 38.45 51.60 13.15 1521 1489 0.09 0.80 0.09
============================================================================================================================
NV04-109 -60 133.5 3.00 105.06 102.06 79 73 0.13 0.15 0.04
----------------------------------------------------------------------------------------------------------------------------
including 3.00 50.07 47.07 93 88 0.13 0.12 0.05
----------------------------------------------------------------------------------------------------------------------------
including 20.66 50.07 29.41 115 111 0.14 0.11 0.04
============================================================================================================================
NV04-110 -45 100.5 3.00 64.50 61.50 139 128 0.17 0.27 0.05
----------------------------------------------------------------------------------------------------------------------------
including 3.00 21.46 18.46 343 312 0.43 0.77 0.07
----------------------------------------------------------------------------------------------------------------------------
including 16.12 21.46 5.34 1110 1006 1.39 2.59 0.18
============================================================================================================================
42
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
----------------------------------------------------------------------------------------------------------------------------
NV04-111 -65 35.0 3.00 35.00 32.00 31 28 0.05 0.06 0.07
============================================================================================================================
NV04-112 -45 85.5 6.00 64.68 58.68 222 208 0.22 0.35 0.06
----------------------------------------------------------------------------------------------------------------------------
including 6.00 16.26 10.26 401 375 0.71 0.67 0.17
----------------------------------------------------------------------------------------------------------------------------
including 28.87 43.65 14.78 357 324 0.26 0.83 0.03
============================================================================================================================
NV04-113 -45 76.5 4.50 28.75 24.25 61 60 0.46 0.03 0.04
----------------------------------------------------------------------------------------------------------------------------
including 4.50 10.50 6.00 110 109 0.87 0.03 0.04
============================================================================================================================
NV04-114 -60 62.1 5.56 39.28 33.72 73 57 0.09 0.39 0.12
----------------------------------------------------------------------------------------------------------------------------
including 6.50 12.75 6.25 104 83 0.16 0.51 0.17
============================================================================================================================
NV04-115 -60 62.0 8.00 18.05 10.05 165 151 0.04 0.35 0.13
============================================================================================================================
NV04-116 -60 70.7 15.00 45.40 30.40 325 243 0.32 2.04 0.11
----------------------------------------------------------------------------------------------------------------------------
including 15.00 36.42 21.42 436 322 0.39 2.85 0.13
============================================================================================================================
NV04-117 -45 109.5 25.50 53.65 28.15 1154 1115 0.45 0.98 0.13
----------------------------------------------------------------------------------------------------------------------------
including 42.04 48.01 5.97 4677 4579 1.82 2.47 0.14
============================================================================================================================
NV04-118 -60 80.0 44.00 51.62 7.62 186 155 0.09 0.79 0.11
============================================================================================================================
NV04-119 -60 77.1 44.10 55.30 11.20 132 92 0.03 1.00 0.35
============================================================================================================================
NV04-120 -60 95.0 7.12 65.65 58.53 55 47 0.07 0.22 0.25
----------------------------------------------------------------------------------------------------------------------------
including 26.00 31.24 5.24 102 84 0.04 0.43 0.18
----------------------------------------------------------------------------------------------------------------------------
and 62.80 65.65 2.85 254 242 0.23 0.30 0.05
============================================================================================================================
NV04-132 -60 127.8 49.55 56.75 7.20 66 31 0.05 0.86 0.31
----------------------------------------------------------------------------------------------------------------------------
and 96.71 101.00 4.29 82 62 0.10 0.50 0.04
============================================================================================================================
NV04-133 -60 184.8 94.80 105.32 10.52 95 80 0.14 0.38 0.03
----------------------------------------------------------------------------------------------------------------------------
and 153.97 172.80 18.83 117 113 0.13 0.11 0.04
----------------------------------------------------------------------------------------------------------------------------
including 163.80 167.70 3.90 465 450 0.30 0.36 0.11
============================================================================================================================
NV05-139 -70 80.0 26.00 43.84 17.84 1070 1037 2.00 0.82 0.12
----------------------------------------------------------------------------------------------------------------------------
including 36.20 42.90 6.70 2391 2373 4.98 0.43 0.08
============================================================================================================================
NV05-140 -60 80.0 29.00 61.71 32.71 109 85 0.09 0.62 0.09
----------------------------------------------------------------------------------------------------------------------------
including 29.00 41.56 12.56 232 171 0.14 1.52 0.12
============================================================================================================================
NV05-141 -60 80.0 8.00 34.45 26.45 177 149 0.07 0.72 0.25
----------------------------------------------------------------------------------------------------------------------------
including 19.15 24.13 4.98 463 411 0.13 1.31 0.16
============================================================================================================================
NV05-142 -60 77.0 11.00 45.45 34.45 1285 1220 1.04 1.64 0.18
----------------------------------------------------------------------------------------------------------------------------
including 23.00 43.22 20.22 2034 1979 1.67 1.39 0.15
============================================================================================================================
NV05-157 -60 131.1 14.10 63.88 49.78 101 53 0.06 1.20 0.19
----------------------------------------------------------------------------------------------------------------------------
including 14.10 37.56 23.46 169 70 0.03 2.48 0.40
============================================================================================================================
NV05-158 -60 104.1 35.10 68.10 33.00 111 90 0.09 0.51 0.30
----------------------------------------------------------------------------------------------------------------------------
including 47.10 65.10 18.00 177 147 0.15 0.75 0.07
============================================================================================================================
NV05-159 -60 137.5 14.10 92.94 78.84 65 52 0.06 0.34 0.15
----------------------------------------------------------------------------------------------------------------------------
including 14.10 50.92 36.82 86 65 0.05 0.51 0.30
============================================================================================================================
NV05-160 -60 128.2 29.15 33.26 4.11 668 623 0.33 1.12 0.14
============================================================================================================================
43
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
----------------------------------------------------------------------------------------------------------------------------
NV05-161 -60 83.1 3.05 21.16 18.11 61 44 0.05 0.44 0.14
============================================================================================================================
NV05-217 -60 248.0 137.00 141.15 4.15 55 46 0.27 0.21 0.07
============================================================================================================================
NV05-218 -60 194.5 63.79 74.84 11.05 214 47 0.04 4.16 0.04
============================================================================================================================
NV05-219 -60 266.0 58.89 60.87 1.98 678 436 0.15 6.05 0.02
----------------------------------------------------------------------------------------------------------------------------
and 81.17 102.87 21.70 78 67 0.06 0.28 0.02
----------------------------------------------------------------------------------------------------------------------------
including 81.17 89.15 7.98 112 92 0.08 0.48 0.02
----------------------------------------------------------------------------------------------------------------------------
including 94.17 102.87 8.70 77 72 0.08 0.12 0.02
============================================================================================================================
NV05-220 -70 176.0 66.65 93.92 27.27 136 80 0.04 1.40 0.02
----------------------------------------------------------------------------------------------------------------------------
including 66.65 68.75 2.10 325 79 0.02 6.14 0.02
----------------------------------------------------------------------------------------------------------------------------
and 90.68 93.92 3.24 390 389 0.23 0.02 0.02
============================================================================================================================
NV05-221 -60 194.0 none
============================================================================================================================
NV05-238 -60 167.0 57.61 61.46 3.85 46 14 -0.01 0.78 0.99
----------------------------------------------------------------------------------------------------------------------------
and 119.00 134.86 15.86 51 49 0.04 0.06 0.02
============================================================================================================================
NV05-248 -60 81.0 24.00 41.14 17.14 171 136 0.18 0.86 0.27
----------------------------------------------------------------------------------------------------------------------------
including 28.24 34.99 6.75 279 243 0.29 0.89 0.25
============================================================================================================================
NV05-249 -50 63.6 3.00 8.73 5.73 62 62 0.09 0.00 0.05
============================================================================================================================
NV05-250 -50 120.0 3.00 9.29 6.29 118 113 0.13 0.11 0.07
----------------------------------------------------------------------------------------------------------------------------
and 28.26 35.87 7.61 61 59 0.19 0.05 0.04
============================================================================================================================
NV05-251 -65 99.0 34.17 41.19 7.02 54 54 0.11 0.01 0.03
----------------------------------------------------------------------------------------------------------------------------
1. All length weighted average (LWA) results are "uncut"
2. Silver Equivalent is calculated by the formula AgEq=Ag g/t + (Pb% *
10000/250)
CALCITE HILL DRILLING RESULTS
Sixty drill holes have been completed to date on Calcite Hill and have
demonstrated the presence of a significant mineralized body. Mineralization
encountered at Calcite Hill is predominantly hosted within trachyandesite
volcanic rock and to a lesser degree within mudstone which overlies the volcanic
rock. The volumetrically most important style of mineralization consists of
calcite-barite veinlets and breccias with argentite-acanthite, native silver and
lesser galena and chalcopyrite. In general, this style of mineralization
contains high silver grades with minor amounts of lead and copper. In the upper
portions of the host volcanic unit, and in the overlying mudstone,
mineralization tends to be lead-rich and consists predominantly of
medium-grained galena with moderate silver values. Mineralization at Calcite
Hill has now been defined over a strike length of 500m and varies in horizontal
width from approximately 50 to 150 metres and vertical thickness from 10 to 110
metres.
44
MINERALIZED INTERCEPTS FROM CALCITE HILL DRILLING
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
NV04-88 -80 192.3 70.30 142.63 72.33 340 202 0.05 3.45 0.12
----------------------------------------------------------------------------------------------------------------------------
including 81.61 142.63 61.02 341 226 0.05 2.87 0.01
----------------------------------------------------------------------------------------------------------------------------
including 70.30 110.92 40.62 327 89 0.02 5.95 0.21
----------------------------------------------------------------------------------------------------------------------------
including 110.92 123.36 12.44 693 672 0.14 0.50 0.01
============================================================================================================================
NV04-121 -70 149.1 none
============================================================================================================================
NV04-122 -70 253.5 152.27 199.83 40.78 79 70 0.08 0.23 0.01
----------------------------------------------------------------------------------------------------------------------------
including 179.61 199.83 20.22 114 102 0.13 0.29 0.02
============================================================================================================================
NV04-123 -70 199.9 none
============================================================================================================================
NV04-124 -80 209.3 72.45 195.05 122.60 224 195 0.09 0.74 0.01
----------------------------------------------------------------------------------------------------------------------------
including 72.45 104.00 31.55 574 476 0.13 2.46 0.03
----------------------------------------------------------------------------------------------------------------------------
and 86.22 87.67 1.45 5,922 5,761 0.75 4.05 0.03
----------------------------------------------------------------------------------------------------------------------------
including 116.50 127.76 11.26 313 308 0.17 0.13 0.01
----------------------------------------------------------------------------------------------------------------------------
including 145.70 149.82 4.12 134 129 0.06 0.12 0.00
----------------------------------------------------------------------------------------------------------------------------
including 176.47 180.71 4.24 526 500 0.27 0.63 0.05
============================================================================================================================
NV04-125 -80 167.1 none
============================================================================================================================
NV04-126 -50 283.5 87.40 283.50 196.10 131 113 0.05 0.44 0.11
----------------------------------------------------------------------------------------------------------------------------
including 87.40 187.66 100.26 189 156 0.05 0.83 0.21
----------------------------------------------------------------------------------------------------------------------------
including 120.72 187.66 66.94 252 228 0.07 0.61 0.00
----------------------------------------------------------------------------------------------------------------------------
ends in mineral 270.17 283.50 13.33 232 232 0.06 -0.01 0.00
============================================================================================================================
NV05-134 -70 281.0 71.10 106.01 34.91 82 60 0.05 0.55 0.04
----------------------------------------------------------------------------------------------------------------------------
including 90.11 106.01 15.90 103 102 0.09 0.04 0.00
============================================================================================================================
NV05-135 -70 266.0 54.43 84.87 30.44 79 43 0.06 0.89 0.02
----------------------------------------------------------------------------------------------------------------------------
including 54.43 65.27 10.84 180 82 0.12 2.44 0.07
----------------------------------------------------------------------------------------------------------------------------
and 110.57 110.81 0.24 2954 2,954 0.28 -0.01 0.02
----------------------------------------------------------------------------------------------------------------------------
and 222.39 224.88 2.49 372 367 0.11 0.14 0.00
============================================================================================================================
NV05-136 -70 251.0 none
============================================================================================================================
NV05-137 -80 262.0 60.59 73.05 12.46 71 13 0.00 1.45 0.02
============================================================================================================================
NV05-138 -56 250.0 87.74 211.00 123.26 182 139 0.09 1.07 0.01
----------------------------------------------------------------------------------------------------------------------------
including 155.50 160.00 4.50 671 654 0.31 0.42 0.00
----------------------------------------------------------------------------------------------------------------------------
and 192.50 211.00 18.50 393 387 0.13 0.15 0.01
============================================================================================================================
NV05-143 -55 268.8 82.30 211.39 129.09 131 125 0.05 0.16 0.00
----------------------------------------------------------------------------------------------------------------------------
including 82.30 88.04 5.74 222 117 0.07 2.64 0.02
----------------------------------------------------------------------------------------------------------------------------
and 116.30 126.56 10.26 1264 1257 0.35 0.18 0.02
----------------------------------------------------------------------------------------------------------------------------
combined 82.30 128.86 46.56 316 300 0.10 0.39 0.02
----------------------------------------------------------------------------------------------------------------------------
and 190.31 200.45 10.14 159 157 0.14 0.06 0.00
============================================================================================================================
NV05-144 -65 260.1 69.27 82.62 13.35 51 19 0.00 0.80 0.37
============================================================================================================================
45
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
----------------------------------------------------------------------------------------------------------------------------
NV05-145 -65 250.7 68.54 76.60 8.06 61 16 0.00 1.12 0.52
============================================================================================================================
NV05-146 -60 199.8 55.50 83.39 27.89 47 34 0.06 0.32 0.17
----------------------------------------------------------------------------------------------------------------------------
including 71.35 83.39 12.04 58 59 0.14 -0.01 0.04
----------------------------------------------------------------------------------------------------------------------------
and 150.68 153.70 3.02 313 297 0.10 0.41 0.03
============================================================================================================================
NV05-147 -70 191.1 74.10 87.72 13.62 39 37 0.07 0.06 0.02
----------------------------------------------------------------------------------------------------------------------------
and 163.37 170.10 6.73 46 43 0.10 0.07 0.03
============================================================================================================================
NV05-148 -80 170.1 77.87 160.85 82.98 258 209 0.08 1.23 0.01
----------------------------------------------------------------------------------------------------------------------------
including 115.81 120.40 4.59 1244 1197 0.23 1.16 0.01
============================================================================================================================
NV05-149 -80 221.1 70.97 195.17 124.20 146 135 0.09 0.29 0.02
----------------------------------------------------------------------------------------------------------------------------
including 90.66 131.30 40.64 238 229 0.09 0.21 0.01
============================================================================================================================
NV05-150 -80 188.1 70.17 75.53 5.36 65 35 -0.01 0.75 0.08
----------------------------------------------------------------------------------------------------------------------------
and 83.69 92.18 8.49 110 38 0.02 1.81 0.00
----------------------------------------------------------------------------------------------------------------------------
combined 70.17 92.18 22.01 70 25 0.00 1.13 0.25
============================================================================================================================
NV05-151 -80 176.1 60.24 140.46 80.22 277 246 0.09 0.78 0.03
----------------------------------------------------------------------------------------------------------------------------
including 77.10 140.46 63.36 331 309 0.12 0.56 0.03
----------------------------------------------------------------------------------------------------------------------------
including 107.10 132.43 25.33 483 476 0.21 0.17 0.03
============================================================================================================================
NV05-152 -80 221.1 68.10 119.40 51.30 101 89 0.13 0.31 0.02
----------------------------------------------------------------------------------------------------------------------------
including 76.04 81.96 5.92 282 249 0.57 0.82 0.02
----------------------------------------------------------------------------------------------------------------------------
and 117.22 119.40 2.18 1219 1218 0.54 0.02 0.07
============================================================================================================================
NV05-162 -55 274.8 86.53 118.80 32.27 181 176 0.15 0.13 0.00
----------------------------------------------------------------------------------------------------------------------------
including 112.67 118.80 6.13 726 721 0.35 0.12 0.00
============================================================================================================================
NV05-163 -70 215.1 64.80 80.33 15.53 196 149 0.08 1.17 0.10
============================================================================================================================
NV05-164 -70 195.6 75.10 95.76 20.66 25 24 0.14 0.03 0.01
----------------------------------------------------------------------------------------------------------------------------
and 139.97 143.75 3.78 81 76 0.25 0.13 0.04
============================================================================================================================
NV05-165 -70 170.1 45.49 96.05 50.56 139 102 0.21 0.92 0.04
----------------------------------------------------------------------------------------------------------------------------
including 58.77 72.32 13.55 269 240 0.21 0.71 0.04
============================================================================================================================
NV05-166 -65 146.1 46.60 108.22 61.62 51 44 0.11 0.18 0.04
----------------------------------------------------------------------------------------------------------------------------
including 46.60 59.10 12.50 117 92 0.14 0.61 0.10
----------------------------------------------------------------------------------------------------------------------------
and 89.10 108.22 19.12 60 55 0.13 0.14 0.02
============================================================================================================================
NV05-167 -60 158.1 83.94 113.55 29.61 451 236 0.06 5.38 0.05
----------------------------------------------------------------------------------------------------------------------------
including 83.94 88.80 4.86 1618 1251 0.36 9.19 0.09
----------------------------------------------------------------------------------------------------------------------------
and 99.66 113.55 13.89 375 60 0.01 7.87 0.06
============================================================================================================================
NV05-168 -60 167.1 86.10 87.70 1.60 197 53 0.11 3.60 0.02
----------------------------------------------------------------------------------------------------------------------------
and 113.10 164.10 51.00 169 168 0.26 0.04 0.03
----------------------------------------------------------------------------------------------------------------------------
including 128.95 142.32 13.37 333 333 0.58 0.01 0.08
============================================================================================================================
NV05-169 -80 129.0 80.45 107.40 26.95 84 48 0.01 0.89 0.06
============================================================================================================================
NV05-170 -80 143.4 83.52 134.40 50.88 201 124 0.18 1.93 0.03
----------------------------------------------------------------------------------------------------------------------------
including 83.52 110.21 26.69 329 183 0.19 3.66 0.05
----------------------------------------------------------------------------------------------------------------------------
and 117.76 134.40 16.64 84 83 0.24 0.02 0.02
============================================================================================================================
NV05-171 -70 134.1 89.65 133.52 43.87 284 171 0.16 2.82 0.04
----------------------------------------------------------------------------------------------------------------------------
46
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
----------------------------------------------------------------------------------------------------------------------------
including 95.50 113.85 18.35 424 220 0.21 5.11 0.05
============================================================================================================================
NV05-172 -60 281.1 89.10 101.29 12.19 110 67 0.05 1.07 0.07
============================================================================================================================
NV05-173 -80 248.4 69.31 80.80 11.49 166 127 0.05 0.96 0.03
----------------------------------------------------------------------------------------------------------------------------
and 204.50 220.33 15.83 50 50 0.06 -0.01 -0.01
============================================================================================================================
NV05-174 -55 263.1 84.53 129.50 44.97 91 35 0.03 1.41 0.28
----------------------------------------------------------------------------------------------------------------------------
including 111.50 129.50 18.00 85 57 0.07 0.70 0.00
============================================================================================================================
NV05-176 -75 233.1 95.65 206.10 110.45 39 28 0.07 0.28 0.02
----------------------------------------------------------------------------------------------------------------------------
including 95.65 116.64 20.99 122 63 0.02 1.46 0.05
----------------------------------------------------------------------------------------------------------------------------
including 107.50 116.64 9.14 178 89 0.02 2.22 0.04
============================================================================================================================
NV05-177 -80 239.1 86.04 89.57 3.53 126 25 0.00 2.51 0.03
----------------------------------------------------------------------------------------------------------------------------
and 213.18 218.10 4.92 102 94 0.17 0.19 0.09
============================================================================================================================
NV05-180 -80 131.4 104.40 113.40 9.00 127 119 0.07 0.20 0.03
============================================================================================================================
NV05-181 -80 161.2 3.00 19.02 16.02 50 36 -0.01 0.34 0.19
----------------------------------------------------------------------------------------------------------------------------
and 93.83 122.20 28.37 38 25 0.02 0.32 0.08
============================================================================================================================
NV05-182 -80 218.2 123.07 156.81 33.74 40 39 0.13 0.02 0.03
----------------------------------------------------------------------------------------------------------------------------
including 123.07 128.20 5.13 57 57 0.26 0.01 0.06
----------------------------------------------------------------------------------------------------------------------------
including 145.96 156.81 10.85 72 71 0.11 0.03 0.02
============================================================================================================================
NV05-183 -80 257.2 154.69 159.71 5.02 47 47 0.09 0.01 -0.01
----------------------------------------------------------------------------------------------------------------------------
and 196.75 201.00 4.25 68 67 0.10 0.02 0.02
============================================================================================================================
NV05-184 -88 209.2 82.66 176.20 93.54 128 97 0.04 0.77 0.02
----------------------------------------------------------------------------------------------------------------------------
including 94.90 99.82 4.92 858 712 0.32 3.65 0.05
----------------------------------------------------------------------------------------------------------------------------
including 120.14 124.07 3.93 344 333 0.13 0.29 0.00
============================================================================================================================
NV05-185 -70 164.0 106.97 143.00 36.03 80 71 0.29 0.23 0.06
----------------------------------------------------------------------------------------------------------------------------
including 106.97 111.22 4.25 280 256 0.66 0.61 0.16
----------------------------------------------------------------------------------------------------------------------------
and 58.25 59.81 1.56 5231 5106 1.38 3.12 0.27
============================================================================================================================
NV05-186 -65 119.0 43.50 100.20 56.70 121 82 0.12 0.99 0.19
----------------------------------------------------------------------------------------------------------------------------
including 44.70 53.10 8.40 505 259 0.08 6.15 0.68
============================================================================================================================
NV05-187 -76 185.0 none 0
============================================================================================================================
NV05-188 -81 236.0 184.16 200.00 15.84 169 168 0.21 0.01 0.04
============================================================================================================================
NV05-205 -63 163.5 63.48 80.98 17.50 69 64 0.12 0.12 0.03
----------------------------------------------------------------------------------------------------------------------------
including 63.48 76.26 12.78 83 76 0.16 0.16 0.04
----------------------------------------------------------------------------------------------------------------------------
and 108.40 129.52 21.12 36 35 0.18 0.04 0.05
============================================================================================================================
NV05-206 -45 190.0 72.81 78.94 6.13 58 38 0.01 0.51 0.44
============================================================================================================================
NV05-207 -45 166.0 48.13 75.19 27.06 496 407 0.34 2.21 0.28
----------------------------------------------------------------------------------------------------------------------------
including 64.40 70.48 6.08 909 903 0.87 0.15 0.20
============================================================================================================================
NV05-208 -70 125.0 63.54 93.50 29.96 78 76 0.30 0.05 0.03
----------------------------------------------------------------------------------------------------------------------------
including 78.65 93.50 15.14 135 133 0.45 0.05 0.02
============================================================================================================================
NV05-209 -71 227.0 148.10 167.97 21.27 554 545 0.22 0.21 0.08
============================================================================================================================
NV05-210 -90 209.0 41.23 48.50 7.27 209 68 0.03 3.53 1.90
============================================================================================================================
47
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
----------------------------------------------------------------------------------------------------------------------------
NV05-211 -80 233.0 128.35 190.85 62.50 87 84 0.04 0.09 0.01
----------------------------------------------------------------------------------------------------------------------------
including 128.35 131.81 3.46 764 762 0.15 0.06 0.01
----------------------------------------------------------------------------------------------------------------------------
and 164.15 184.50 20.35 83 80 0.05 0.08 0.01
============================================================================================================================
NV05-212 -80 212.0 142.35 176.25 33.90 93 86 0.07 0.16 0.00
----------------------------------------------------------------------------------------------------------------------------
including 169.03 176.25 7.22 241 216 0.21 0.62 0.03
============================================================================================================================
NV05-239 -45 103.0 36.43 67.00 30.57 165 161 0.11 0.08 0.09
----------------------------------------------------------------------------------------------------------------------------
including 36.43 38.63 2.20 165 120 0.41 1.13 0.61
----------------------------------------------------------------------------------------------------------------------------
and 60.27 67.00 6.73 662 661 0.16 0.00 0.02
============================================================================================================================
NV05-240 -65 90.0 34.67 55.40 20.73 112 108 0.22 0.10 0.11
----------------------------------------------------------------------------------------------------------------------------
including 34.67 38.69 4.02 465 453 0.31 0.28 0.32
----------------------------------------------------------------------------------------------------------------------------
and 51.92 55.40 3.48 69 68 0.58 0.02 0.05
============================================================================================================================
NV05-246 -87 209.5 184.81 193.74 8.93 53 52 0.10 0.01 0.02
============================================================================================================================
NV05-247 -54 173.4 101.14 105.32 4.18 67 65 0.14 0.06 0.02
============================================================================================================================
NV06-270 -90 68.0 21.52 31.38 9.86 431 401 0.08 0.75 0.29
============================================================================================================================
NV06-271 -90 101.2 34.72 48.35 13.63 90 48 0.01 1.04 0.45
============================================================================================================================
1. All length weighted average (LWA) results are "uncut"
2. Silver Equivalent is calculated by the formula AgEq = Ag g/t + (Pb% *
10000/250)
CALCITE HILL NW DRILLING RESULTS
Thirty-seven drill holes have been completed to date on Calcite Hill NW and have
demonstrated the presence of a significant mineralized body. Mineralization
encountered at Calcite Hill NW is somewhat different that other zones in Navidad
Trend in that the mineralization is concentrated in and near a distinctive
sedimentary tuff-breccia unit stratigraphically some 40m above the typical
position at the trachyandesite-sedimentary contact. Directly underlying the main
mineralization is a sequence of fine grained pelitic sediments with significant
amounts of interbedded coal. The distinctive tuff bed outcrops to the west of
the drilled area and is associated with a strong silver and lead soil anomaly.
In the sub-surface it has been traced over a plan area of approximately 1400m
long oriented northwest by about 550m. The mineralized bed lies in the core of a
general syncline with the coal underlying it. The mineralized bed, and also the
coal bed, thicken towards the axis of the syncline suggesting it was a
depositional feature and not just created by the gentle fold observed.
Mineralization comprises minor amounts of galena and minor amounts of pyrite as
beds and disseminations in sandstones to mudstones as well as within the tuff
breccia. At the base of the tuff-breccia is a very distinctive black massive mud
bed with volcanic fragments which generally contains abundant galena of
distinctive elongated crystals not seen elsewhere. This bed has been called the
"Galena Marker". Occasionally minor amounts of green copper oxides or
chalcopyrite are noted in the tuff-breccia or sedimentary rocks above the Galena
Marker. Analytical results show that higher silver values are often associated
with slightly elevated copper values in preference to a direct correlation with
lead. Towards the southeast the stratigraphy and Galena Marker remain open but
the silver to lead ratio drops notably. The thickest and highest silver grade
areas appears to be coincident with the approximate centre of the known
distribution of the host tuff-breccia. Argillic alteration is associated with
the mineralized beds.
48
MINERALIZED INTERCEPTS FROM CALCITE HILL NW DRILLING
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------------------------
NV05-178 -55 302.0 68.00 112.80 44.80 126 96 0.03 0.76 0.07
---------------------------------------------------------------------------------------------------------------------------
including 71.00 101.00 30.00 143 122 0.04 0.52 -0.01
===========================================================================================================================
NV05-179 -60 212.1 43.10 68.10 25.00 263 251 0.08 0.32 0.01
---------------------------------------------------------------------------------------------------------------------------
including 56.10 58.78 2.68 1961 1909 0.58 1.31 0.09
===========================================================================================================================
NV05-189 -60 211.5 55.50 68.82 13.32 72 30 0.03 1.07 0.10
===========================================================================================================================
NV05-190 -61 158.0 48.67 53.10 4.43 229 107 0.00 3.06 0.08
===========================================================================================================================
NV05-191 -70 197.0 8.00 30.86 22.86 52 36 0.01 0.40 0.17
---------------------------------------------------------------------------------------------------------------------------
including 26.00 30.86 4.86 113 81 0.03 0.80 0.04
---------------------------------------------------------------------------------------------------------------------------
and 43.51 44.47 0.96 199 46 0.07 3.83 0.10
---------------------------------------------------------------------------------------------------------------------------
and 76.81 84.66 7.85 87 49 0.00 0.96 0.04
===========================================================================================================================
NV05-192 -70 209.0 17.82 22.07 4.25 70 19 -0.01 1.29 0.03
---------------------------------------------------------------------------------------------------------------------------
and 36.50 39.08 2.58 84 26 0.00 1.44 0.57
---------------------------------------------------------------------------------------------------------------------------
and 97.78 101.74 3.96 108 26 0.00 2.06 0.58
===========================================================================================================================
NV05-198 -90 221.3 0.00 7.40 7.40 1057 1019 0.01 0.97 1.20
---------------------------------------------------------------------------------------------------------------------------
and 7.40 32.30 24.90 48 13 -0.01 0.86 0.09
---------------------------------------------------------------------------------------------------------------------------
and 106.75 108.83 2.08 133 52 -0.01 2.04 0.18
===========================================================================================================================
NV05-199 -45 170.1 0.00 53.10 53.10 95 52 -0.01 1.09 0.12
---------------------------------------------------------------------------------------------------------------------------
including 0.00 31.11 31.11 124 66 -0.01 1.44 0.19
---------------------------------------------------------------------------------------------------------------------------
including 21.41 31.11 9.70 266 141 -0.01 3.11 0.03
===========================================================================================================================
NV05-200 -76 275.1 86.35 91.20 4.85 107 41 -0.01 1.64 0.31
===========================================================================================================================
NV05-201 -45 200.0 58.28 72.78 14.50 47 7 0.00 0.99 0.03
---------------------------------------------------------------------------------------------------------------------------
and 118.26 140.76 22.50 213 102 0.03 2.79 0.09
---------------------------------------------------------------------------------------------------------------------------
including 129.02 140.76 11.74 321 166 0.05 3.86 0.04
===========================================================================================================================
NV05-202 -73 149.1 61.15 71.10 9.95 458 449 0.08 0.24 0.01
===========================================================================================================================
NV05-203 -72 324.8 47.00 75.96 28.96 166 154 0.06 0.32 0.01
---------------------------------------------------------------------------------------------------------------------------
including 59.00 71.00 12.00 336 335 0.14 0.01 0.01
===========================================================================================================================
NV05-204 -45 161.0 71.00 119.12 48.12 65 60 0.02 0.14 0.00
---------------------------------------------------------------------------------------------------------------------------
including 71.00 77.00 6.00 120 113 0.03 0.18 0.00
---------------------------------------------------------------------------------------------------------------------------
and 113.00 119.12 6.12 329 307 0.04 0.57 0.04
===========================================================================================================================
NV05-213 -80 263.0 1.50 26.00 24.50 59 42 -0.01 0.42 0.08
---------------------------------------------------------------------------------------------------------------------------
and 98.50 104.90 6.40 103 97 0.00 0.16 0.08
===========================================================================================================================
NV05-214 -80 254.0 20.00 51.18 31.18 30 19 0.02 0.27 0.05
---------------------------------------------------------------------------------------------------------------------------
and 117.18 119.96 2.78 383 238 0.04 3.61 0.03
===========================================================================================================================
NV05-215 -80 254.0 43.13 62.32 19.19 139 111 0.09 0.70 0.14
===========================================================================================================================
NV05-216 -80 200.0 none
===========================================================================================================================
NV05-222 -85 239.0 18.54 43.62 23.62 86 59 0.09 0.68 0.05
---------------------------------------------------------------------------------------------------------------------------
including 18.54 24.55 6.01 80 69 0.03 0.29 0.03
---------------------------------------------------------------------------------------------------------------------------
and 31.25 32.68 1.43 652 563 0.21 2.23 0.06
---------------------------------------------------------------------------------------------------------------------------
and 38.55 43.62 5.07 92 35 0.02 1.42 0.20
===========================================================================================================================
49
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------------------------
NV05-223 -45 181.5 15.35 78.00 62.65 103 88 0.02 0.39 0.05
---------------------------------------------------------------------------------------------------------------------------
including 57.17 59.80 2.63 375 299 0.21 1.89 0.09
---------------------------------------------------------------------------------------------------------------------------
and 73.85 78.00 4.15 1001 972 0.12 0.71 0.05
===========================================================================================================================
NV05-224 -75 152.0 43.57 66.72 23.15 127 92 0.03 0.87 0.03
---------------------------------------------------------------------------------------------------------------------------
including 55.73 66.72 10.99 216 181 0.06 0.89 0.04
---------------------------------------------------------------------------------------------------------------------------
including 55.73 62.34 6.61 301 281 0.10 0.48 0.01
===========================================================================================================================
NV05-225 -65 146.0 46.92 63.16 16.24 122 101 0.04 0.52 0.06
---------------------------------------------------------------------------------------------------------------------------
including 46.92 58.60 11.68 142 133 0.04 0.22 0.01
===========================================================================================================================
NV05-226 -58 140.0 41.00 59.13 18.13 90 74 0.05 0.41 0.03
---------------------------------------------------------------------------------------------------------------------------
including 41.00 47.70 6.70 119 112 0.03 0.17 0.02
---------------------------------------------------------------------------------------------------------------------------
including 52.32 54.84 2.52 181 181 0.12 -0.01 0.02
===========================================================================================================================
NV05-227 -90 251.0 51.53 74.10 22.57 141 115 0.00 0.65 0.00
---------------------------------------------------------------------------------------------------------------------------
including 63.45 74.10 10.65 256 229 0.01 0.67 -0.01
===========================================================================================================================
NV06-255 -90 131.0 59.30 69.25 9.95 68 19 0.00 1.23 0.05
---------------------------------------------------------------------------------------------------------------------------
including 59.30 62.00 2.70 95 36 0.00 1.48 0.05
---------------------------------------------------------------------------------------------------------------------------
and 67.70 69.25 1.55 216 38 -0.01 4.45 0.11
===========================================================================================================================
NV06-256 -90 185.0 60.57 68.36 7.79 94 23 -0.01 1.76 0.06
---------------------------------------------------------------------------------------------------------------------------
including 60.57 63.47 2.90 110 28 -0.01 2.06 0.04
---------------------------------------------------------------------------------------------------------------------------
and 66.06 68.36 2.30 161 38 -0.01 3.07 0.09
===========================================================================================================================
NV06-257 -90 140.0 33.32 34.85 1.53 132 37 -0.01 2.38 0.08
===========================================================================================================================
NV06-258 -90 100.8 51.54 53.64 2.10 155 35 -0.01 2.99 0.11
===========================================================================================================================
NV06-259 -90 122.0 71.00 76.54 5.54 128 53 -0.01 1.89 0.02
===========================================================================================================================
NV06-260 -90 131.0 75.04 86.60 11.57 178 44 0.00 3.35 0.01
---------------------------------------------------------------------------------------------------------------------------
including 84.00 86.60 2.60 676 143 -0.01 13.32 0.00
===========================================================================================================================
NV06-261 -90 131.5 53.50 64.54 11.04 175 147 0.02 0.70 0.04
===========================================================================================================================
NV06-262 -90 122.0 41.45 66.65 25.20 162 146 0.04 0.40 0.02
---------------------------------------------------------------------------------------------------------------------------
including 55.34 63.88 8.54 392 385 0.12 0.17 0.02
===========================================================================================================================
NV06-263 -90 131.0 68.00 80.77 12.77 281 264 0.03 0.42 0.00
---------------------------------------------------------------------------------------------------------------------------
including 71.00 77.47 6.47 508 496 0.06 0.29 -0.01
---------------------------------------------------------------------------------------------------------------------------
including 71.00 74.95 3.95 785 784 0.09 0.00 0.00
===========================================================================================================================
NV06-264 -70 134.0 51.36 79.77 28.41 141 127 0.05 0.35 0.02
---------------------------------------------------------------------------------------------------------------------------
including 69.04 75.89 6.85 456 455 0.17 0.01 0.01
---------------------------------------------------------------------------------------------------------------------------
including 69.04 70.25 1.21 2213 2208 0.81 0.13 0.10
===========================================================================================================================
NV06-265 -80 137.1 50.85 63.10 12.25 107 80 0.06 0.69 0.09
===========================================================================================================================
NV06-267 -90 149.2 54.14 59.20 5.06 145 97 0.07 1.20 0.14
===========================================================================================================================
NV06-268 -60 143.4 42.77 56.79 14.02 178 160 0.11 0.45 0.06
===========================================================================================================================
NV06-269 -90 161.0 28.05 45.80 17.75 115 93 0.07 0.55 0.09
===========================================================================================================================
1 All length weighted average (LWA) results are "uncut"
2 Silver Equivalent is calculated by the formula AgEq = Ag g/t + (Pb% *
10000/250)
50
CONNECTOR ZONE DRILLING RESULTS
Thirty-seven drill holes have been completed to date on Connector Zone.
Geologically the zone is complex and characterized by rapid changes in
lithological units and their thicknesses. Two main styles of mineralization are
known. The first is located closer to Galena Hill and is hosted by bedded wackes
(immature sandstones) interpreted to be sourced from the trachyandesite unit.
These wackes are feldspathic and are often argillically altered and are cut by
minor veinlets of white and pink clay minerals with lesser amounts of carbonate
and silica. These veinlets contain very minor amounts of galena and chalcopyrite
and sometimes native silver and pyrargyrite.
The second style of mineralization is quite different and is present on the east
flank of Navidad where it comprises mainly volcaniclastic breccias derived with
little reworking from the trachyandesite unit. The mineralized portions appear
to be those that have fine grained pyrite in the matrix of the breccia with
little or no sign of veining or later hydrothermal brecciation.
MINERALIZED INTERCEPTS FROM CONNECTOR ZONE DRILLING
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------------------------
NV04-32 -45 154.5 46.50 96.05 49.55 83 78 0.04 0.14 0.03
==========================================================================================================================
NV04-33 -80 149.0 none
==========================================================================================================================
NV04-34 -45 228.2 10.50 29.20 18.70 103 75 0.01 0.70 0.05
==========================================================================================================================
NV04-39 -80 215.0 none
==========================================================================================================================
NV04-40 -45 127.2 43.20 91.20 48.00 117 108 0.04 0.22 0.16
--------------------------------------------------------------------------------------------------------------------------
including 67.20 88.20 21.00 168 160 0.08 0.19 0.09
==========================================================================================================================
NV04-66 -45 181.5 none
==========================================================================================================================
NV04-67 -45 226.5 50.84 63.70 12.86 186 145 0.04 1.03 0.03
==========================================================================================================================
NV04-68 -45 178.5 52.20 81.75 29.55 114 98 0.03 0.40 0.11
==========================================================================================================================
NV04-86 -45 169.5 34.63 101.18 66.55 52 46 0.03 0.15 0.10
--------------------------------------------------------------------------------------------------------------------------
including 47.80 49.02 1.22 126 104 0.05 0.53 0.08
==========================================================================================================================
NV04-87 -45 159.5 22.40 24.06 1.66 161 129 0.10 0.80 0.08
--------------------------------------------------------------------------------------------------------------------------
and 52.02 52.80 0.78 659 654 1.45 0.13 0.26
--------------------------------------------------------------------------------------------------------------------------
and 66.25 76.50 10.25 26 25 0.04 0.02 0.04
==========================================================================================================================
NV04-94 -45 175.5 103.32 116.39 13.07 46 43 0.00 0.08 0.10
==========================================================================================================================
NV04-95 -60 100.5 49.08 64.80 15.72 76 55 0.00 0.53 0.03
==========================================================================================================================
NV04-96 -45 100.5 none
==========================================================================================================================
NV04-105 -60 82.7 33.43 46.70 13.27 616 545 0.14 1.78 0.11
==========================================================================================================================
NV04-106 -60 88.7 45.80 70.70 24.90 175 147 0.04 0.69 0.11
--------------------------------------------------------------------------------------------------------------------------
including 65.56 67.70 2.14 1262 1,196 0.33 1.63 0.41
==========================================================================================================================
NV04-107 -45 118.1 52.90 99.56 46.66 394 357 0.31 0.94 0.33
--------------------------------------------------------------------------------------------------------------------------
including 71.60 97.10 25.50 626 589 0.55 0.91 0.33
==========================================================================================================================
NV04-108 -45 145.5 31.50 70.50 39.00 495 485 0.10 0.26 0.05
--------------------------------------------------------------------------------------------------------------------------
including 54.07 70.50 16.43 1050 1028 0.19 0.54 0.08
==========================================================================================================================
51
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
--------------------------------------------------------------------------------------------------------------------------
NV04-127 -60 137.1 97.08 111.39 14.31 73 56 0.01 0.44 0.05
==========================================================================================================================
NV04-128 -60 109.6 54.60 80.09 25.49 79 58 0.04 0.54 0.26
==========================================================================================================================
NV04-129 -60 28.8 none - did not reach target
==========================================================================================================================
NV04-130 -62 106.8 38.56 41.04 2.48 207 111 0.02 2.39 0.79
--------------------------------------------------------------------------------------------------------------------------
and 66.33 78.46 12.13 120 33 0.00 2.18 0.09
==========================================================================================================================
NV04-131 -60 130.8 10.33 91.45 81.12 71 61 0.05 0.25 0.10
--------------------------------------------------------------------------------------------------------------------------
including 60.57 67.80 7.23 163 152 0.07 0.29 0.04
--------------------------------------------------------------------------------------------------------------------------
including 79.22 91.45 12.23 138 126 0.07 0.30 0.05
==========================================================================================================================
NV05-153 -45 163.8 0.00 88.80 88.80 111 107 0.10 0.11 0.04
--------------------------------------------------------------------------------------------------------------------------
including 0.00 7.36 7.36 233 226 0.22 0.18 0.12
--------------------------------------------------------------------------------------------------------------------------
and 37.48 88.80 51.32 128 124 0.10 0.12 0.04
==========================================================================================================================
NV04-154 -45 190.8 3.05 31.80 28.75 155 148 0.13 0.15 0.05
==========================================================================================================================
NV05-155 -45 88.8 0.00 9.10 9.10 106 105 0.09 0.03 0.06
==========================================================================================================================
NV05-156 -60 110.1 8.73 75.99 67.26 69 63 0.03 0.14 0.08
--------------------------------------------------------------------------------------------------------------------------
including 8.73 13.80 5.07 88 53 0.02 0.88 0.68
--------------------------------------------------------------------------------------------------------------------------
and 29.10 75.99 46.89 88 83 0.04 0.11 0.03
==========================================================================================================================
NV05-228 -50 61.5 4.50 43.35 38.85 65 57 0.05 0.19 0.13
--------------------------------------------------------------------------------------------------------------------------
including 20.11 34.90 14.79 108 96 0.06 0.30 0.12
==========================================================================================================================
NV05-229 -45 79.5 20.02 21.36 1.34 117 27 0.00 2.25 0.20
==========================================================================================================================
NV05-230 -45 82.3 25.30 51.78 26.48 135 104 0.03 0.77 0.21
==========================================================================================================================
NV05-231 -80 80.0 3.00 40.31 37.31 114 107 0.08 0.18 0.05
--------------------------------------------------------------------------------------------------------------------------
including 7.30 31.26 23.96 142 132 0.09 0.25 0.05
==========================================================================================================================
NV05-232 -45 67.3 3.00 45.60 42.60 74 71 0.08 0.09 0.05
==========================================================================================================================
NV05-233 -48 100.3 19.30 79.94 60.64 67 64 0.05 0.07 0.04
--------------------------------------------------------------------------------------------------------------------------
including 19.30 29.30 10.00 110 106 0.07 0.10 0.04
--------------------------------------------------------------------------------------------------------------------------
and 68.40 79.94 11.54 114 109 0.09 0.13 0.05
==========================================================================================================================
NV05-234 -45 70.1 35.22 55.87 21.40 239 237 0.15 0.05 0.07
--------------------------------------------------------------------------------------------------------------------------
including 35.22 37.26 2.04 2188 2171 1.33 0.42 0.33
==========================================================================================================================
NV05-235 -65 143.0 20.48 51.18 30.70 63 38 0.03 0.63 0.23
--------------------------------------------------------------------------------------------------------------------------
including 46.60 51.18 4.58 100 90 0.09 0.25 0.05
--------------------------------------------------------------------------------------------------------------------------
and 90.56 96.07 5.51 108 98 0.05 0.25 0.03
==========================================================================================================================
NV05-236 -45 100.4 16.40 29.60 13.20 48 22 0.00 0.63 0.54
==========================================================================================================================
NV05-237 -45 82.2 3.00 34.63 31.63 115 110 0.08 0.12 0.04
==========================================================================================================================
1 All length weighted average (LWA) results are "uncut"
2 Silver Equivalent is calculated by the formula AgEq = Ag g/t + (Pb% *
10000/250)
52
OTHER AREAS DRILLING RESULTS
A number of drill holes have been completed in areas such as Loma de la Plata,
Barite Hill, Esperanza Zone and stratigraphic holes outside of named zones.
Significant results have been received from some of these holes as shown in the
table below. Mineral resources have not been calculated on any of these zones.
MINERALIZED INTERCEPTS FROM DRILLING OTHER TARGETS
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
BARITE HILL
===========================================================================================================================
NV04-58 -80 173.1 12.80 41.00 28.20 69 37 0.00 0.80 0.10
===========================================================================================================================
NV04-59 -80 191.1 148.70 152.40 3.70 44 23 -0.01 0.51 0.60
===========================================================================================================================
NV04-60 -80 131.1 none
===========================================================================================================================
NV04-74 -80 158.0 29.00 37.16 8.16 46 29 0.01 0.41 0.08
===========================================================================================================================
NV04-75 -80 158.0 53.93 55.52 1.59 91 63 0.01 0.69 0.18
===========================================================================================================================
NV04-76 -80 152.0 10.10 32.20 22.10 59 34 0.02 0.63 0.21
---------------------------------------------------------------------------------------------------------------------------
and 100.50 122.20 21.70 98 88 0.03 0.26 0.09
---------------------------------------------------------------------------------------------------------------------------
including 106.10 114.47 8.37 204 191 0.08 0.33 0.13
===========================================================================================================================
NV04-91 -45 187.5 3.00 16.50 13.50 31 12 0.00 0.48 0.17
---------------------------------------------------------------------------------------------------------------------------
and 123.50 153.95 30.45 25 13 0.00 0.28 0.14
===========================================================================================================================
NV04-92 -65 163.9 none
===========================================================================================================================
ESPERANZA TREND
===========================================================================================================================
NV04-25 -45 199.8 162.70 170.65 7.95 316 303 0.03 0.31 0.05
===========================================================================================================================
NV04-61 -45 241.5 52.50 55.50 3.00 359 353 0.03 0.17 0.00
===========================================================================================================================
NV04-62 -45 223.5 7.20 9.90 2.70 853 831 0.09 0.56 0.00
===========================================================================================================================
NV04-63 -45 178.4 31.60 77.40 45.80 104 94 0.01 0.25 0.03
===========================================================================================================================
including 31.60 38.95 7.35 171 162 0.01 0.23 0.04
===========================================================================================================================
including 33.55 37.50 3.95 257 246 0.01 0.28 0.04
===========================================================================================================================
and 42.80 77.40 34.60 100 89 0.01 0.27 0.03
===========================================================================================================================
including 66.50 70.50 4.00 201 185 0.01 0.39 0.08
===========================================================================================================================
NV04-64 -45 235.3 6.00 28.30 22.30 34 25 0.00 0.21 0.02
===========================================================================================================================
and 69.20 102.10 32.90 54 47 0.03 0.16 0.02
===========================================================================================================================
including 69.20 70.60 1.40 115 101 0.00 0.37 0.02
===========================================================================================================================
including 96.65 102.10 5.45 154 153 0.17 0.02 0.03
===========================================================================================================================
and 140.10 144.00 3.90 81 47 0.03 0.85 0.04
===========================================================================================================================
NV04-78 -45 100.5 37.80 43.18 5.38 119 50 0.03 1.73 0.03
===========================================================================================================================
NV04-79 -45 121.5 34.72 47.28 12.56 515 513 0.09 0.06 0.01
===========================================================================================================================
NV04-80 -45 100.5 4.50 8.05 3.55 278 258 0.10 0.51 0.03
===========================================================================================================================
53
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
---------------------------------------------------------------------------------------------------------------------------
NV04-81 -45 150.8 58.20 62.48 4.28 43 41 0.01 0.04 0.03
===========================================================================================================================
and 86.87 99.76 12.89 24 23 0.02 0.04 0.03
===========================================================================================================================
NV04-82 -45 151.0 6.00 58.55 52.55 71 57 0.00 0.35 0.01
===========================================================================================================================
including 34.50 58.55 24.05 106 95 0.00 0.28 0.00
===========================================================================================================================
and 102.15 109.30 7.15 214 149 0.02 1.61 0.35
===========================================================================================================================
NV06-287 -45 221.0 6.00 35.00 29.00 28 21 0.00 0.18 0.02
===========================================================================================================================
and 56.00 61.37 5.37 78 74 0.01 0.10 0.02
===========================================================================================================================
NV06-288 -45 248.0 none
===========================================================================================================================
NV06-289 -45 248.0 46.20 59.00 12.80 23 22 0.01 0.03 0.03
===========================================================================================================================
NV06-290 -45 245.0 83.00 104.00 21.00 277 274 0.09 0.08 0.01
===========================================================================================================================
including 83.00 87.43 4.43 295 290 0.11 0.14 0.02
===========================================================================================================================
and 93.59 104.00 10.41 420 416 0.11 0.09 0.01
===========================================================================================================================
LOMA DE LA PLATA
===========================================================================================================================
NV05-241+ -45 118.5 0.00 31.50 31.50 577 562 0.05 0.38 0.02
===========================================================================================================================
NV05-242 -45 70.5 0.00 28.40 28.40 240 236 0.02 0.10 0.02
===========================================================================================================================
including 0.00 19.50 19.50 327 322 0.03 0.11 0.02
===========================================================================================================================
NV05-243 -60 95.0 3.00 32.51 29.51 61 59 0.01 0.05 0.02
===========================================================================================================================
including 3.00 11.27 8.27 140 140 0.02 0.00 0.02
===========================================================================================================================
NV05-244 -60 71.0 3.00 10.56 7.56 100 90 0.03 0.24 0.00
===========================================================================================================================
including 3.00 7.07 4.07 147 140 0.04 0.16 0.01
===========================================================================================================================
NV05-245 -60 89.0 3.00 8.00 5.00 171 172 0.01 -0.01 0.04
===========================================================================================================================
RECONNAISSANCE
===========================================================================================================================
NV04-27 -45 181.5 7.00 7.73 0.73 84 61 0.01 0.56 2.25
===========================================================================================================================
and 66.90 68.10 1.20 381 377 0.01 0.10 0.05
===========================================================================================================================
NV04-35 -80 293.0 none
===========================================================================================================================
NV04-77 -45 250.5 none
===========================================================================================================================
NV04-93 -80 201.0 93.68 94.81 1.13 311 42 0.00 6.73 0.61
===========================================================================================================================
and 137.93 147.00 9.07 69 11 0.05 1.44 0.04
===========================================================================================================================
NV05-193 -70 299.0 none
===========================================================================================================================
NV05-194 -80 212.2 none
===========================================================================================================================
NV05-195 -80 278.2 none
===========================================================================================================================
NV05-196 -75 413.7 221.00 245.00 24.00 22 7 -0.01 0.39 0.09
===========================================================================================================================
including 223.40 227.00 3.60 65 15 -0.01 1.23 0.05
===========================================================================================================================
NV06-252 -80 407.2 161.00 163.39 2.39 27 27 0.11 0.00 0.05
===========================================================================================================================
54
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM TO COMPOSITE G/T G/T % % %
DDH INCLINATION LENGTH METRES METRES LENGTH AgEq SILVER COPPER LEAD ZINC
(METRES) METRES LWA LWA LWA LWA LWA
---------------------------------------------------------------------------------------------------------------------------
and 252.53 256.89 4.36 63 39 0.00 0.60 1.03
===========================================================================================================================
NV06-253 -70 471.1 418.79 423.91 5.12 34 21 0.00 0.34 0.72
===========================================================================================================================
NV06-254 -80 314.4 none
===========================================================================================================================
NV06-266 -80 263.2 none
===========================================================================================================================
1 All length weighted average (LWA) results are "uncut"
2 Silver Equivalent is calculated by the formula AgEq = Ag g/t + (Pb% *
10,000/250)
+ Note that results herein for hole NV05-241 from Loma de la Plata have
been corrected subsequent to those released in a press release on October
11, 2005.
MINERAL RESOURCE ESTIMATES
The Company is required in certain circumstances under Canadian law (National
Instrument 43-101 Standards Of Disclosure For Mineral Projects) ("NI 43-101") to
calculate and categorize "mineral reserve", "proven mineral reserve", "probable
mineral reserve", "mineral resource", "measured mineral resource", "indicated
mineral resource" and "inferred mineral resource" under the Canadian Institute
of Mining Metallurgy and Petroleum ("CIM") Standards on Mineral Resources and
Reserves - Definitions and Guidelines dated December 11 2005. These standards
establish definitions and guidelines for the reporting of exploration
information, mineral resources and mineral reserves in Canada. These definitions
have not been adopted for use in the United States of America by the Securities
and Exchange Commission (the "SEC"). Under these guidelines, the CIM definitions
of proven and probable mineral reserves equate to the definitions of proven and
probable reserves as set out in Guide 7 of the Securities Act Industry Guides
adopted by the SEC ("Guide 7"). In addition, Canadian law requires disclosure of
mineral resources that equate to measured, indicated and inferred resources in
certain circumstances.
Four mineral resource estimates have been completed on deposits at the Navidad
Project. The first was reported on May 25, 2004 and contained an Indicated
Mineral Resource Estimate of 63.6 million tonnes at 101 g/t silver and 1.76%
lead at the Galena Hill deposit. The second estimate was reported on December 1,
2004 and increased the project total Indicated Mineral Resource Estimates to
80.8 million tonnes at 103 g/t silver and 1.45% lead by including the Navidad
Hill and Connector zones. The third estimate was reported on June 16, 2005
bringing project total Indicated Mineral Resource Estimates to 92.8 million
tonnes at 101 g/t silver and 1.36% lead. The fourth and most recent estimate was
reported on February 16, 2006 and is tabulated below. It contains an Indicated
Mineral Resource of 93.4 million tones at 102 g/t silver and 1.41% lead. For the
fourth estimate all prior estimates for each deposit were reviewed and
recalculated; all data up until holes 251 were considered and included where
appropriate; a revised silver equivalent formula using new silver and lead
prices was used that excluded any value for copper and zinc based on
metallurgical test work which suggested that copper and zinc are unlikely to be
recovered in economic quantities. Finally an estimate was made for Calcite Hill
NW for the first time. The first three resource estimates were completed by
Qualified Person Neil Burns, M.Sc., P.Geo., of Snowden Mining Industry
Consultants Inc. and the most recent one was completed by Qualified Persons
Christine Standing, B.Sc. (Hons), MAusIMM, MAIG and Neil Burms, M.Sc., P.Geo.,
of Snowden Mining Industry Consultants Inc., National Instrument 43-101
Technical Reports documenting these estimates have been filed with the
appropriate regulatory bodies in Canada and are publicly available on the SEDAR
website.
55
NAVIDAD PROJECT INDICATED MINERAL RESOURCES USING A 50G/T SILVER EQUIVALENT CUT-OFF:
-------------------------------------------------------------------------------------------------------------------
INDICATED RESOURCES SILVER CONTAINED CONTAINED
(50G/T SILVER TONNES EQUIV. SILVER COPPER LEAD ZINC SILVER LEAD
EQUIVALENT (MILLIONS) (G/T) (G/T) (%) (%) (%) (M OZS) (1,000
CUT-OFF) TONNES)
===================================================================================================================
CALCITE HILL NW
===================================================================================================================
Indicated 6.2 92 72 0.03 0.52 0.11 14.3 32
-------------------------------------------------------------------------------------------------------------------
Inferred 5.3 96 70 0.03 0.64 0.13 12.1 34
===================================================================================================================
CALCITE HILL
===================================================================================================================
Indicated 13.1 126 99 0.08 0.68 0.09 41.6 88
-------------------------------------------------------------------------------------------------------------------
Inferred 0.4 107 93 0.04 0.35 0.06 1.2 1
===================================================================================================================
NAVIDAD HILL
-------------------------------------------------------------------------------------------------------------------
Indicated 12.8 137 119 0.13 0.45 0.12 49.1 58
-------------------------------------------------------------------------------------------------------------------
Inferred 1.3 110 87 0.08 0.59 0.12 3.6 8
===================================================================================================================
CONNECTOR ZONE
-------------------------------------------------------------------------------------------------------------------
Indicated 5.6 105 89 0.04 0.40 0.12 16.0 22
-------------------------------------------------------------------------------------------------------------------
Inferred 1.2 95 84 0.04 0.28 0.09 3.1 3
===================================================================================================================
GALENA HILL
-------------------------------------------------------------------------------------------------------------------
Indicated 55.7 183 103 0.03 2.00 0.20 184.7 1,115
-------------------------------------------------------------------------------------------------------------------
Inferred 2.9 99 33 0.01 1.65 0.12 3.0 47
===================================================================================================================
NAVIDAD PROJECT TOTAL
-------------------------------------------------------------------------------------------------------------------
Indicated 93.4 158 102 0.05 1.41 0.16 305.7 1,315
-------------------------------------------------------------------------------------------------------------------
Inferred 11.1 99 65 0.03 0.85 0.12 23.0 94
-------------------------------------------------------------------------------------------------------------------
1 Silver Equivalent is calculated by the formula AgEq = Ag g/t + (Pb% *
10,000/250)
METALLURGICAL TEST WORK
IMA Exploration first released preliminary metallurgical results from Navidad
silver project on December 1, 2005. Metallurgical work completed to date on
samples from the Navidad deposits has demonstrated that Navidad mineralization
is amenable to concentration by simple, cost effective and environmentally
benign differential flotation processes. In addition to flotation testwork, the
company is also currently investigating the production of silver metal through
hydrometallurgical means from low-grade, high-recovery silver concentrates.
Preliminary results from alkaline pressure oxidation followed by thiosulphate
leaching of pyrite concentrate are highly encouraging.
Flotation testwork has been conducted to date on nine composite samples from
Galena Hill, three samples from Navidad Hill, and two samples from Calcite Hill
by G&T Metallurgical Services Ltd. of Kamloops B.C. (G&T), an ISO 9001:2000
accredited firm. Head grades from these composite samples as reported by G&T are
shown in Table 1 below. The composite samples tested were constructed from
intervals of quartered core at G&T where they were crushed and homogenized in
preparation for metallurgical testing. All work was performed under the
supervision of Tom Shouldice, P. Eng., General Manager - Operations at G&T.
Peter Taggart, P.Eng., of P. Taggart & Associates Ltd., provided overall program
direction, acting as IMA's representative. Both Tom Shouldice and Peter Taggart
are Qualified Persons under Canadian National Instrument 43-101 regulations. A
detailed description of the metallurgical testwork program to
56
date by Qualified Person Peter Taggart, P.Eng., is included in the February 2006
43-101 report filed on SEDAR website.
CALCITE HILL
Limited flotation testwork on mineralization from Calcite Hill yielded excellent
results. Two distinct styles of mineralization are present at Calcite Hill; the
first contains abundant medium-grained galena and high lead values with moderate
silver values. The second mineralization type contains native silver,
argentite-acanthite, stromeyerite, and possesses high silver values with
generally low lead and other base metal grades. Grind sensitivity tests on these
samples indicated that optimal performance could be achieved with a relatively
coarse grind of approximately 150 microns (K80). Comparative work index analyses
suggest the Calcite Hill mineralization will be harder than that examined from
the other Navidad deposits, yet still of moderate grindability with Bond Work
Indices of 14 to 19 kWh/t.
Two composite samples (Calcite Hill 10a and 11a), corresponding to the two
mineralization types, were submitted to G&T for testwork. Head grades of these
composite samples, and the drillholes from which they were collected, are listed
in Table 1.
Table 2 shows metallurgical results achieved from stable locked cycle flotation
tests performed on these samples. The lead-rich sample (Calcite Hill 10a)
yielded a very high quality lead concentrate containing 80.4% lead and 709 g/t
silver at a lead recovery of 92% and silver recovery of 86%. The silver-rich
sample (Calcite Hill 11a) produced a silver concentrate grading 10,500 g/t
silver at a silver recovery of 88%.
GALENA HILL
Mineralization at Galena Hill consists predominantly of fine-grained galena and
pyrite with lesser amounts of sphalerite and chalcopyrite. Electron microprobe
studies have shown silver to be contained within the lattice of both galena and
pyrite, with the bulk of the silver present within pyrite. Flotation tests to
date have focused on producing separate lead and silver (pyrite) concentrates
through differential flotation. Primary grind sensitivity test results suggest
that a nominal flotation feed approximating 80 microns K80 will provide adequate
mineral liberation. The Bond work index of Galena Hill mineralization (NVGH-13)
is 13.5 KWh/tonne, indicating that grinding power consumption will be modest.
Fourteen rougher and 37 open circuit cleaner tests were performed on the Galena
Hill composite samples. The results of three locked cycle tests confirm data
produced in the open circuit tests. Table 3 shows results achieved when
subjecting three of the Galena Hill composite samples to locked cycle flotation
test protocols. Figure 1 show the range of silver and lead results obtained by
the many open circuit cleaner tests.
Lead metallurgical performance was generally good with 74 to 84% of the lead
reporting to the lead concentrates which grade between 62.0 and 75.3% lead and
include 386 to 968 g/t silver. Subsequent to galena flotation, a pyrite
concentrate was produced that recovered 37 to 57% of the total silver and
contains 1,083 to 3,546 g/t silver. Total locked cycle test silver recoveries
(lead concentrate plus silver concentrate) range from 54 to 82%.
Ongoing work targeting improved silver recoveries includes additional flotation
tests using alternate reagents, and mineralogical studies to identify distinct
pyrite types present in concentrates and tails.
NAVIDAD HILL
Two distinct styles of mineralization from Navidad Hill were studied; head
grades and the drillholes from which they were collected are listed in Table 1.
Both types contain mixed sulfide and oxide mineralization, the first (NVNH-8a+b)
was collected from drillholes intersecting stratigraphically-controlled
mineralization on the northwest flank of Navidad Hill and the second (NVNH-9a)
from structurally-controlled mineralization on top of Navidad Hill. Both samples
contain high silver values (436 and 287 g/t Ag) but
57
only the stratigraphically-controlled mineralization contains significant lead
(3.11% Pb). Flotation testwork on both samples produced a single bulk sulphide
concentrate.
Table 4 shows the metallurgical results achieved from locked cycle tests
performed on Composite samples 8a and 9a from Navidad Hill. Results show that
silver recoveries of approximately 64 to 85% were achieved in concentrates
grading from 10,449 to 12,246 g/t silver. Considering the oxidized nature of
this mineralization, these results far exceed expectations. Work is ongoing to
improve upon these results.
TABLE 1: HEAD GRADES OF COMPOSITE SAMPLES USED FOR METALLURGICAL TESTWORK.
-----------------------------------------------------------------------------------------------
SILVER LEAD
SAMPLE DEPOSIT DRILLHOLE(S) (g/t) %
===============================================================================================
NVGH-5b/6b NV04-56, 57 76 3.1
NVGH-6a NV04-57 143 4.86
NVGH-6b NV04-57 107 3.60
NVGH-7a NV04-42 466 3.9
NVGH-7b Galena Hill NV04-42 297 3.7
NVGH-12 NV05-175 264 8.0
NVGH-13 NV05-197 300 4.9
NVGH-14 NV05-197 82 1.3
NVGH-15 NV05-197 340 0.4
===============================================================================================
NVNH-8a NV04-100, 116 435 3.5
NVNH-8b Navidad NV04-100, 116 389 3.2
Hill
NVNH-9a NV04-54, 109 265 0.3
===============================================================================================
NVCH-10a Calcite NV04-88 72 8.5
Hill
NVCH-11a NV04-88 320 0.3
===============================================================================================
Notes: 1. Samples with "a" and "b" suffix were composited from alternating
intervals from the same drill holes.
2. Grades listed here are as measured by G&T after sample preparation
and homogenization.
TABLE 2: CALCITE HILL LOCKED CYCLE TEST RESULTS.
---------------------------------------------------------------------------------------------
PRODUCT MASS ASSAY DISTRIBUTION (%)
PERCENT Pb (%) Ag (g/t) Pb Ag
---------------------------------------------------------------------------------------------
COMPOSITE 10a
---------------------------------------------------------------------------------------------
Flotation Feed 100 9.34 88 100 100
---------------------------------------------------------------------------------------------
CONCENTRATE 10.7 80.4 709 92 86
---------------------------------------------------------------------------------------------
Cleaner Tail 2.0 2.88 102 1 2
---------------------------------------------------------------------------------------------
Rougher Tail 87.2 0.77 12 7 12
---------------------------------------------------------------------------------------------
COMPOSITE 11a
---------------------------------------------------------------------------------------------
Flotation Feed 100 0.38 310 100 100
---------------------------------------------------------------------------------------------
CONCENTRATE 2.6 6.75 10,500 46 88
---------------------------------------------------------------------------------------------
Cleaner Tail 2.8 0.46 248 3 2
---------------------------------------------------------------------------------------------
Rougher Tail 94.6 0.21 31 51 10
---------------------------------------------------------------------------------------------
Note: Feed grades are calculated from assays of test exit products and may
differ slightly from head grades as shown in Table 1.
58
TABLE 3: GALENA HILL LOCKED CYCLE TEST RESULTS.
---------------------------------------------------------------------------------------------
PRODUCT MASS ASSAY DISTRIBUTION (%)
PERCENT Pb (%) Ag (g/t) Pb Ag
---------------------------------------------------------------------------------------------
COMPOSITE 5b/6b
---------------------------------------------------------------------------------------------
Flotation Feed 100 3.30 83 100 100
---------------------------------------------------------------------------------------------
LEAD CONCENTRATE 3.6 75.3 386 81 17
---------------------------------------------------------------------------------------------
PYRITE CONCENTRATE 2.8 6.51 1,083 6 37
---------------------------------------------------------------------------------------------
Pyrite Cleaner Tail 14.2 1.70 98 7 17
---------------------------------------------------------------------------------------------
Pyrite Rougher Tail 79.4 0.23 31 6 30
---------------------------------------------------------------------------------------------
COMPOSITE 7b
---------------------------------------------------------------------------------------------
Flotation Feed 100 3.56 278 100 100
---------------------------------------------------------------------------------------------
LEAD CONCENTRATE 4.2 62.0 968 74 15
---------------------------------------------------------------------------------------------
PYRITE CONCENTRATE 3.6 9.59 3,546 10 46
---------------------------------------------------------------------------------------------
Pyrite Cleaner Tail 10.2 3.01 439 9 16
---------------------------------------------------------------------------------------------
Pyrite Rougher Tail 81.9 0.35 79 8 23
---------------------------------------------------------------------------------------------
COMPOSITE 12
---------------------------------------------------------------------------------------------
Flotation Feed 100 8.02 263 100 100
---------------------------------------------------------------------------------------------
LEAD CONCENTRATE 10.2 66.2 634 84 25
---------------------------------------------------------------------------------------------
PYRITE CONCENTRATE 10.0 7.45 1,494 9 57
---------------------------------------------------------------------------------------------
Pyrite Cleaner Tail 4.1 4.00 214 2 3
---------------------------------------------------------------------------------------------
Pyrite Rougher Tail 75.7 0.48 53 4 15
---------------------------------------------------------------------------------------------
Note: Feed grades are calculated from assays of test exit products and may
differ slightly from head grades as shown in Table 1.
FIGURE 1: SILVER RECOVERY IN LEAD AND PYRITE CONCENTRATES PRODUCED IN OPEN
CIRCUIT TESTS
[GRAPHIC OMITTED]
59
TABLE 4: NAVIDAD HILL LOCKED CYCLE TEST RESULTS.
---------------------------------------------------------------------------------------------
PRODUCT MASS ASSAY DISTRIBUTION (%)
PERCENT Pb (%) Ag (g/t) Pb Ag
---------------------------------------------------------------------------------------------
COMPOSITE 8b
---------------------------------------------------------------------------------------------
Flotation Feed 100 2.89 395 100 100
---------------------------------------------------------------------------------------------
CONCENTRATE 2.4 44.7 10,449 37 64
---------------------------------------------------------------------------------------------
Cleaner Tail 5.0 5.70 526 10 7
---------------------------------------------------------------------------------------------
Rougher Tail 92.5 1.65 124 53 29
---------------------------------------------------------------------------------------------
COMPOSITE 91
---------------------------------------------------------------------------------------------
Flotation Feed 100 0.24 282 100 100
---------------------------------------------------------------------------------------------
CONCENTRATE 2.0 2.12 12,346 17 85
---------------------------------------------------------------------------------------------
Cleaner Tail 8.0 0.37 77 12 2
---------------------------------------------------------------------------------------------
Rougher Tail 90.1 0.19 41 71 13
---------------------------------------------------------------------------------------------
Note: Feed grades are calculated from assays of test exit products and may
differ slightly from head grades as shown in Table 1.
Metallurgical testwork to date on material from the Navidad Project has focused
on using flotation technology to produce a high-grade, saleable lead concentrate
and variable-grade silver concentrates. In the case of Galena Hill, the pyritic
silver concentrates will require further on-site treatment to produce silver
dore. Recently, testwork performed at SGS Lakefield under the direction of Dr.
David Dreisinger, P.Eng. of Dreisinger Consulting Inc. has shown that these
silver concentrates are amenable to pressure oxidation under neutral to alkaline
conditions followed by atmospheric leaching using calcium thiosulphate as a
lixiviant. Preliminary bench-scale testwork has produced silver recoveries of
87% after 24 hours and 89% after 72 hours of leaching. These tests were
conducted on a very low-grade silver concentrate (235 g/t silver), it is hoped
that additional improvements in silver recovery may be realized in future
testwork on higher-grade concentrates. The Company is highly encouraged by these
results as they indicate that the Navidad Project could produce silver dore
on-site using an environmentally benign lixiviant rather than the more commonly
used sodium cyanide. Calcium thiosulphate is routinely used as fertilizer in the
agricultural industry.
PLANNED FUTURE WORK
The Phase IV drilling currently underway is planned to encompass a minimum of
10,000m. The primary objectives of this drilling include 1) expansion of
resources along the Navidad trend, 2) delineation of the high-grade mineralized
zone at Loma de la Plata which has only been tested by 5 drill holes to date 3)
initial testing of other targets located along the 8km Argenta Trend, 4)
additional drilling along the Esperanza trend, and 5) completion of
stratigraphic holes to test buried geological and geophysical targets between
the Navidad and Argenta trends.
Additional surface prospecting, mapping, geochemical sampling, and geophysics
may be carried out as recommended by the Company's Exploration Team.
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
60
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
numbers: 14016/03; 14617/05, 14616/05, 14,644/05, 14643/05, 14642/05, 14399/04,
14616/05, 14641/05, 14640/05, 14639/05 for the total of 54,671 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. ("Pacific Bay") whereby Pacific Bay can
acquire up to a 70% interest in the Regalo mineral claim through the issuance of
900,000 shares of Pacific Bay to the Company, and work expenditures totaling
US$625,000 over three years. On December 16, 2005, an extension of one year was
granted to Pacific Bay to meet this expenditure limit. 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.
In a January 12, 2005 News Release, Pacific Bay reported that the Yastekt South
zone has strong associated gold anomalies consistent over almost one square
kilometre. The Yastekt South anomaly comprises 98 soil analyses that average of
299 ppm gold. Normal, "background" gold values in the area are less than 5 ppm.
Two of the 98 soil analyses returned values in excess of 3 grams per tonne gold.
In a June 21, 2005 press release, Pacific Bay reported that an outcrop sample on
Pacific Bay's Regalo project has returned an assay value of 205 ppm uranium. In
August 22, 2005 press release Pacific Bay reported that a total of 163 rock
samples were collected from 26 backhoe trenches excavated within the large soil
and stream sediment anomalies described above. Of these, 13 rock samples had
detectable gold in the 6 to 41 ppm range. The trench samples identified
anomalous arsenic, molybdenum, vanadium and zinc pathfinder elements in porous,
permeable sandstones and conglomerates with strong quartz-hematite alteration.
NOEL PROPERTY
The Noel claim (file number: 14036/03; 9,406 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 extremely
anomalous values has not been prospected to date and is considered a target for
follow-up work.
TRUCHA PROPERTY
The Trucha claim (file number: 14014/03; 9,915 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
61
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 numbers: 14017/03; 14738/05, 14739/05 for the total of
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 numbers: 14018/03; 14740/05, 14741/05 for the total of
10,000 hectares) and Carlota claim (file numbers: 14034/03; 14742/05, 14743/05
for the total of 10,000 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 III PROPERTY
The Pampa III claim (file number: 14446/04; 2,500 hectares) is located adjacent
to the Navidad Project, along trend and immediately to the southeast. It
replaced the lapsed File Number 14004/03. 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 numbers: 14005/03; 14367/04, 14368/04, 14832/06,
14833/06 for the total of 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 southeast of the Navidad project and lies at the regional contact
between granitic rocks that underlie the prospective Jurassic stratigraphy, and
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 numbers: 14006/03; 14370/04, 14834/06 for the total
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
62
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 numbers: 14007/03; 14732/05, 14731/05, 14830/06 for the
total of 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 numbers: 14008/03; 14369/04, 14831/06 for the total of
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.
PRINCIPAL OFFICE
The Company's principal office is located at #709 - 837 West Hastings Street,
Vancouver, British Columbia, V6C 3N6. The Company leases a portion of its office
space from Beauregard Holdings Corp. ("Beauregard") which is sub-leased to
Grosso Group. 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. On July 7, 2004 Golden
Arrow began sharing the office facilities, capital assets and personnel. During
the fiscal year ended December 31, 2004, the Company received $66,390 from Amera
and $57,000 from Golden Arrow. On January 1, 2005 the Company engaged the Grosso
Group to provide facilities and management services. See "Item 7. Major
Shareholders and Related Party Transactions - Related Party Transactions."
OTHER ASSETS
MARKETABLE SECURITIES
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 31, 2005
and 2004 the Company held 300,000 shares of Tinka Resources Limited and 900,000
shares of Pacific Bay with a quoted market value of $270,000 (2004 - $270,000).
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, 2005, 2004 and 2003 should be read in
conjunction with the consolidated financial statements of the Company and
related notes included therein.
63
CRITICAL ACCOUNTING POLICIES
Reference should be made to significant accounting policies contained in Note 3
of the December 31, 2005 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.
LEGAL PROCEEDINGS
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action against
the Company seeking a constructive trust over the Navidad properties and
damages. On September 29, 2005 the Company made an offer to Aquiline to settle
the litigation. The Board of Directors decided to make the offer due to the
inherent risks of litigation, to minimize the significant legal costs and most
importantly to allow the Company to continue with its business plan to develop
Navidad. The offer was rejected and the action continued on to trial. The trial
commenced on October 11, 2005 and ended on December 12, 2005. At the conclusion
of the trial, the Court reserved its decision; the Court's decision is expected
in the first half of 2006. At this date the outcome is not determinable. The
Company believes the Aquiline legal action is without merit. However, in the
event of an adverse judgment the Company may suffer loss and such loss could be
material; the Company might not be able to proceed with its plans for the
development of Navidad and could lose the ownership rights it currently has over
the project. The Company continues to expense the legal and related costs of
defending the action as they are incurred and has not made a provision for the
future costs that will be incurred or their potential recovery from the
plaintiff.
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 then the costs are written-off, or if its
carrying value has been impaired, then the costs are written down to fair value.
The Company'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
64
referred to in Note 10 of the consolidated financial statements of the Company
included herein. 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 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, exploration and development of mineral properties in Argentina. At
this stage the Company has no producing properties and, consequently, has no
current operating income or cash flow.
The Company's accounting policy under Canadian GAAP is to defer all direct costs
related to the acquisition, exploration and development of mineral properties
held or controlled by the Company on an individual property basis until
viability of a property is determined. Under US GAAP, the costs would be
expensed. 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 then the costs are
written-off, or if its carrying value has been impaired, then the costs are
written down to fair value. At December 31, 2005, the Company had capitalized
$15,032,107 (2004-$6,551,598, 2003 -$1,469,026) on its Argentine properties.
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.
During the year ended December 31, 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 $411,237. Each unit consisted of one common share and
one half common share purchase warrant. Each full warrant entitled the holder to
purchase one additional common share for one year at $3.70 per share.
Underwriters were paid a commission of 6% cash and 200,000 compensation options.
The compensation options were exercisable at a price of $3.25 per compensation
option, for a period of twelve months, into one share and one half warrant with
the warrants having the same terms as described above. The underwriters'
compensation options were exercisable for a period of twelve months. This
financing closed February 23, 2004.
During the year ended December 31, 2005, the Company completed a brokered
private placement of 3,333,340 units at $3.00 per unit, for proceeds of
$9,263,283 net of $600,001 agent's commission and $136,736 of related issue
costs. Each unit consisted of one common share and one half common share
purchase warrant. Each full warrant entitles the holder thereof to purchase one
additional common share in the capital of the Company at a price of $3.45 per
share until September 14, 2009. In addition to the cash commission the
underwriters were paid a commission of 7% (233,334) underwriter's warrants. Each
underwriter's warrant is exercisable for one share at a price of $3.25, for a
period of twenty four months, expiring on September 12, 2007. The financing
closed on September 12, 2005. From January 1, 2006 to April 21 2006 the
aggregate amount the Company received from the exercise of warrants and options
was $172,900.
65
On March 21, 2006 the Company completed a syndicated brokered private placement
financing of 2,865,000 special warrants at $3.50 per special warrant for gross
proceeds of $10,027,500 was completed. Each special warrant will entitle the
holder to acquire one unit consisting of one common share and one half common
share purchase warrant without payment of any additional consideration. Each
full warrant entitles the holder thereof to purchase one additional common share
in the capital of the Company at a price of $3.80 per share until March 21,
2010. In addition to a cash commission of 6% the underwriters were granted
171,900 agents' warrants, representing 6% of the number of special warrants
issued. Each agents' warrant is exercisable for one share at a price of $3.80,
for a period of twenty four months, expiring on March 21, 2008.
During the year ended December 31, 2005, the Company issued 1,663,517 common
shares on the exercise of options, warrants and agents warrants for $4,361,011.
As of December 31, 2005, the Company had reserved 1,900,004 common shares for
issuance upon the exercise of outstanding warrants. As of December 31, 2004, the
Company had reserved 1,422,017 common shares for issuance upon the exercise of
outstanding warrants. As at May 4, 2006, there were 1,900,004 warrants
outstanding.
Cash on hand at May 4, 2006 was approximately $14,500,000. During the nine month
period from March 31, 2006 to December 31, 2006, the Company plans to expend
$6,000,000 on the continuation of the development and exploration program at the
Navidad project.
RESULTS OF OPERATIONS
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2005, 2004 and 2003 should be read in
conjunction with the consolidated financial statements of the Company attached
hereto and related notes included therein.
YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
For the year ended December 31, 2005, the Company reported a consolidated loss
of $5,764,874 ($0.12 per share), an increase of $1,109,811 from the loss of
$4,655,063 ($0.11 per share) for the year ended December 31, 2004. The increase
in the loss in 2005, compared to 2004 amount, was due to a number of factors of
which $1,835,618 can be attributed to increases in operating expenses and
$725,807 decrease in other items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow were
described as "Spin-Off Assets Transferred" and the allocated expenses are
described as "Loss Allocated to Spin-Off Assets" in the consolidated financial
statements. This reclassification did not change previously reported total
losses. The allocation of expenses was calculated on the basis of the ratio of
the specific assets transferred to assets retained. A loss of $131,231 was
allocated to spin-off assets in the 2004 period.
The Company's operating expenses for the year ended December 31, 2005 were
$6,148,234 an increase of $1,835,618 from $4,312,616 in 2004. $339,516 of the
2004 operating expenses had been reclassified as "Loss Allocated to Spin-Off
Assets" which relate to the assets transferred to Golden Arrow. The allocation
was calculated on the basis of the ratio of the specific assets transferred to
assets retained. Certain "Other Income and Expense" items have been allocated to
spin-off assets on a cost specific basis.
Professional fees increased $1,432,498 to $2,327,278 in 2005, primarily due to
legal costs incurred in connection with the Aquiline legal action as well as
increased costs of compliance. In 2005 the Company recorded non-cash stock based
compensation of $2,380,000 compared to $1,972,860 in 2004, for stock options
granted to its employees, consultants and directors, of which $1,800,000 is
included in expenses in 2005 compared to $1,972,860 in 2004 and $580,000 in 2005
compared to $Nil in 2004 is included in capitalized mineral property
expenditures. Other notable changes in the operating expenses are: (i) Salaries
increased $272,151 due to staff increases (salaries in 2005 are a portion of the
monthly fee charged for
66
services by the Grosso Group while in 2004 the Company directly employed its
staff); (ii) Administrative and management services decreased by $89,744 due to
some of the services provided by consultants in 2004 were provided by employees
of the Grosso Group during 2005 and are included in salaries (iii) there are no
cost recoveries (for shared administrative costs and rent) from Amera or Golden
Arrow in 2005; (iv) Corporate development and investor relations increased
$207,951, as the Company has made its shareholders and others more aware of its
Navidad project and its potential, (v) Office and Sundry increased $40,337
mainly due to the increase in insurance premiums and an increase in activity,
(vi) Transfer agent and regulatory fees increased $141,972 mainly due to the
costs of the Company's listing on the American Stock Exchange, (vii) General
exploration decreased by $173,047 as the Company's focus is on Navidad property
for which costs are included in capitalized mineral property expenditures,
(viii) Travel increased $52,444 due to travel related to conferences and
investor presentations as well as to South America.
In 2005 the Company recorded interest income of $150,406 compared to $101,589 in
2004, primarily as a result of increase of funds on deposit. In 2005 there were
no reorganization costs recorded by the Company, in 2004 reorganization costs of
$346,103 were recorded. There was no gain on the optioning of properties to
other mining exploration companies, in 2004 a gain of $328,346 was recognized.
No write down for the carrying value of marketable securities in 2005 was
recognized while a $99,762 write down for the carrying value of marketable
securities was recorded in 2004. A gain of $232,954 for foreign exchange was
recorded in 2005 compared to loss of $195,285 in 2004. The foreign exchange
adjustment in 2005 is a result of a continued strengthening of the Canadian
dollar compared to US dollar and due to the exchange movements between expenses
being incurred in US$ and amounts exchanged to settle such payables. No gain or
loss was allocated to spin-off assets in 2005, in 2004 a loss of $131,232 was
recorded.
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
The Company reported a consolidated loss of $4,655,063 ($0.11 per share) in
2004, an increase of $1,236,645 from the loss of $3,418,418 ($0.11 per share) in
2003. The increase in the loss in 2004, compared to 2003, was due to a number of
factors of which $1,148,400 can be attributed to operating expenses and $88,245
to other expense items.
The Company's prior period financial statements have been reclassified to
reflect the reorganization in accordance with Canadian GAAP. The net assets
transferred to Golden Arrow are described as "Spin-Off Assets Transferred" and
the allocated expenses are described as "Loss Allocated to Spin-Off Assets" in
the consolidated financial statements. This reclassification did not change
previously reported total losses. The allocation of certain expenses was
calculated on the basis of the ratio of the specific assets transferred to
assets retained. The following discussion of the 2004 expenses compared to the
2003 expenses is based on expenses as originally reported.
The Company's 2004 operating expenses were $4,312,616 an increase of $1,148,400
from the $3,164,216 originally reported for 2003. $661,175 of the 2003 operating
expense has been reclassified as "Loss Allocated to Spin-Off Assets" which
relate to the assets transferred to Golden Arrow. In 2004, $131,232 was
allocated to the Loss from Spin-Off Assets compared to $969,175 in 2003. The
allocation was calculated on the basis of the ratio of the specific assets
transferred to assets retained. Certain "Other Income and Expense" items have
been allocated to spin-off assets on the basis of the nature of the income or
expense. In 2004 expenses increased as a result of increased activity at the
Navidad project and the support required at the corporate office.
Professional fees increased $597,017 to $894,780 in 2004, primarily due to legal
costs incurred in connection with the Aquiline legal action as well as increased
costs of compliance. During 2004 the Company recorded a non-cash expense of
$1,972,860 for stock based compensation for stock options granted to its
employees and directors, an increase of $485,625 from 2003. Other notable
changes in the operating expenses are: (i) Salaries increased $113,998 due to
staff increases (in 2004 the Company had an average of seven people on its
payroll compared to three in 2003); (ii) Travel increased $97,641due to travel
to conferences as well as to South America; (iii) Cost recoveries (for shared
administrative costs and
67
rent) from Amera and Golden Arrow increased by $114,161; (iv) Corporate
development and investor relations decreased $62,026, as 2003 was a more active
year in which the Company developed investor awareness.
In 2004 the Company recorded a gain of $328,346 on the optioning of certain
properties to other mining exploration companies (plus $433,960 of gains
relating to the Spin-Off Assets) compared to $481,779 in total in 2003. In 2004
a write-down of $99,762 (2003 - $nil) for the carrying value of marketable
securities was recognized. Reorganization costs of $346,103 were recorded in
2004. An expense of $195,285 for foreign exchange was recorded in 2004 compared
to $25,916 in 2003. The foreign exchange adjustment is as a result of the
continued strengthening of the Canadian dollar compared to the US dollar and due
to the exchange movements between the date of recognition of expenses incurred
in US$ and the date of settlement. Interest and other income was $101,589 in
2004, an increase of $35,028 from 2003, primarily as a result of an increase of
funds on deposit.
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 the Navidad Area Properties. See "Item 8. Financial
Information - Legal Proceedings."
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 loss from continuing operations, $2,503,041, increased $1,963,906
primarily as a result of the cost for Stock Based Compensation which increased
$1,457,729 in 2003 compared to 2002. Loss allocated to Spin-off assets was
little changed in 2003 ($969,175) compared to 2002 ($954,775).
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's 2003 operating expenses were $2,503,041, an increase of $1,993,061
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
for 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 $29,506 for stock
options granted to its consultants. Much of the balance of the increase in the
operating expenses can be attributed to the Navidad Project program: (1)
Administrative and Management Services increased $68,365 (2) Corporate
development and investor relations increased $116,325; (3) General exploration
increased $46,638; (4) Travel increased $33,659. The increase of $159,117 in
professional fees is primarily due to legal costs incurred in connection with
the Aquiline legal action.
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 $13,419,876 at December 31, 2003. The
Company's cash position at December 31, 2003 was $4,422,334 an increase of
$2,986,210 from December 31, 2002.
68
On May 3, 2004 the Company announced a proposed corporate reorganization. The
effect of the reorganization was be to transfer the Transferred Assets to Golden
Arrow. The Company retained the Navidad Properties and is responsible for the
Company's accounts payable. The Company's shareholders received Golden Arrow
common shares which resulted in an identical percentage ownership by the
Company's shareholders before and after the reorganization. See "Item 4.
Information on the Company - History and Development of the Company."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at December 31, 2005 was $7,731,395, an increase of
$2,504,041 from December 31, 2004. Total assets increased to $23,497,994 at
December 31, 2005 from $12,221,856 at December 31, 2004. This increase is mainly
due to the increase in Navidad carrying value and in cash balance. During fiscal
2005, the Company completed a brokered private placement for 3,333,340 units at
$3.00 per unit, for proceeds of $9,263,283 net of $600,001 agent's commission
and $136,736 of related issue costs. Each unit consisted of one common share and
one half common share purchase warrant. Each full warrant entitles the holder
thereof to purchase one additional common share at a price of $3.45 per share
until September 14, 2009. In addition to the cash commission the underwriters
were granted as commission 233,334 underwriter's warrants, representing 7% of
the number of units issued. Each underwriter's warrant is exercisable for one
share at a price of $3.25, for a period of twenty four months, expiring on
September 12, 2007. The underwriter's warrants were valued using the
Black-Scholes Pricing Model. The warrants were valued at $0.76 per warrant for a
total value of $177,333 and have been recorded as share issue costs with a
corresponding increase to contributed surplus. At May 4, 2006, no underwriter's
warrants had been exercised.
On March 21, 2006 the Company completed a syndicated brokered private placement
financing of 2,865,000 special warrants at $3.50 per warrant for gross proceeds
of $10,027,500. Each special warrant will entitle the holder to acquire one unit
consisting of one common share and one half common share purchase warrant. Each
full warrant entitles the holder thereof to purchase one additional common share
in the capital of the Company at a price of $3.80 per share until March 21,
2010. In addition to a cash commission of 6% the underwriters were granted
171,900 agents' warrants, representing 6% of the number of special warrants
issued. Each agents' warrant is exercisable for one share at a price of $3.80,
for a period of twenty four months, expiring on March 21, 2008.
Options and warrants were exercised which resulted in cash proceeds of
$4,215,145 during 2005. The Company paid $145,866 to Golden Arrow from the
exercise of warrants that resulted in the issue of Golden Arrow's shares as
required by the terms of the reorganization. As all warrants that were
outstanding as of the effective date of the reorganization have been exercised
the Company has no further obligation to pay amounts to Golden Arrow for the
issue of its shares on the exercise of the Company's warrants.
The Company has received $172,900 from the exercise of options from January 1 to
May 4, 2006. As at May 4, 2006 the Company had working capital of approximately
$13,500,000.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently may not have sufficient working capital to fund all of
its planned exploration and development work. The Company will continue to rely
on successfully completing additional equity financing to further exploration
and development of Navidad. There can be no assurance that the Company will be
successful in obtaining the required financing. The failure to obtain such
financing could result in the loss of or substantial dilution of its interest in
its properties.
Except as disclosed the Company does not know of any trends, demand,
commitments, events or uncertainties that will result in, or that are reasonably
likely to result in, its liquidity either materially increasing or decreasing at
present or in the foreseeable future. Material increases or decreases in
liquidity are substantially determined by the success or failure of the
exploration programs.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
69
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.
During the period from January 1, 2006 through December 31, 2006, it is
anticipated that the Company will have obligations totaling $760,000 for monthly
payments to the Grosso Group.
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.
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 760,000 760,000 - - -
Long-term Debt Obligations - - - - -
Capital (Finance) Lease Obligations - - - - -
Operating Lease Obligations - - - - -
Purchase Obligations - - - - -
Other Long-Term Liabilities Reflected in
the Company's Balance Sheet under the
GAAP of the Primary Financial Statements - - - - -
---------------------------------------------------------------------------------------------- ----------------------------
Total 760,000 760,000 - - -
===========================================================================================================================
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 DIRECTOR/OFFICER
------------------------------------------------------------------------------------------------------------------------
GERALD G. CARLSON - President and Director of Copper Chairman since February 15, 1999.
Chairman and Director Ridge Exploration Inc., a public
Age 60 British Columbia mineral exploration Director since February 15, 1999.
company from March 1999 to present.
President of Nevada Star Resources
Corp, from March 5, 2002 to present.
------------------------------------------------------------------------------------------------------------------------
70
------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION(1) FIVE YEARS DIRECTOR/OFFICER
------------------------------------------------------------------------------------------------------------------------
JOSEPH GROSSO - Director and President of the Director and President since
President, Chief Executive Officer Company since February 1990. February 1990.
and Director
Age 68 Chief Executive Officer since
February 1990.
------------------------------------------------------------------------------------------------------------------------
ARTHUR LANG - Chief Financial Officer of the Director Vice-President and Chief
Chief Financial Officer, Secretary Company since April 2, 2004. Financial Officer since April 2,
and Director Consultant providing financial 2004.
Age 62 management services to various Secretary since August 31, 2005.
clients from 1999 to April 2004
through Arthur G Lang Inc., a
private British Columbia company.
------------------------------------------------------------------------------------------------------------------------
NIKOLAOS CACOS - President, CEO and director of Corporate Secretary from June 25,
Vice President Amera Resources Corporation, a 1998 to January 2005.
Age 39 public British Columbia company,
since April 2000. Corporate Vice President since June 23, 2005
Secretary and Vice President, North
America Corporate Development of the
Company Director and Corporate
Secretary of Golden Arrow Resources
Corporation.
------------------------------------------------------------------------------------------------------------------------
SEAN HURD - Investor Relations Manager for the Vice President, Investor Relations
Vice President, Investor Relations Grosso Group since 2005 and for the since March 2005.
Age 39 Company from June 2002 to
present. Investor relations for Senate
Capital from February 1996 to May
2002.
------------------------------------------------------------------------------------------------------------------------
ROBERT STUART (TOOKIE) ANGUS Independent Business Adviser to the Director since May 2003
Director mining industry since January
2006. Managing Director, Mergers and
------------------------------------------------------------------------------------------------------------------------
Age 57 Acquisitions, Endeavour
Financial Ltd., November 2003 to
December 31, 2005. Partner in law
firm, Fasken Martineau DuMoulin LLP
from February 2001 to October 2003.
------------------------------------------------------------------------------------------------------------------------
CHET IDZISZEK President, CEO and director of Director since May 2003
Director Madison Enterprises Corp. from 1993
Age 58 to present. President, CEO and
director of Adrian Resources Ltd.
from June 1990 to present.
------------------------------------------------------------------------------------------------------------------------
DAVID TERRY Vice President for the Company since Director since May 2004
Director June 2004 to present. Vice
Age 41 President, Exploration for the Vice President for the Company since
Grosso Group from January 2005 to June 2004
present. Regional geologist
71
------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION(1) FIVE YEARS DIRECTOR/OFFICER
------------------------------------------------------------------------------------------------------------------------
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 and Director Director since June 2004
Director of Canaccord Capital Corporation
Age 69 from 1996 to present.
------------------------------------------------------------------------------------------------------------------------
AUGUSTO BAERTL President of Cia. Minera Antamina Director and President of
Director (Of subsidiary) from 1997 to 2001 and Executive subsidiary since March 2005
Age 62 Chairman from 2001 to 2002. Chief
Executive Officer of Gestora de
Negocios e Inversiones S.A. from
August 2003 to present.
------------------------------------------------------------------------------------------------------------------------
LEONARD HARRIS Retired Mining Consultant since 1995 Director since August 24, 2005
Director
Age 78
------------------------------------------------------------------------------------------------------------------------
CARLOS D'AMICO President since February 2005 and President since February, 2005
President (of subsidiary) General Manager since 2003 to General Manager 2003-2005
Age 48 present of Inversiones Mineras
Argentinas S.A., a subsidiary of the
Company, 2000-2003 President of
Independent Construction Company
------------------------------------------------------------------------------------------------------------------------
GUILLERMO RAMON SALVATIERRA COO, Inversiones Mineras Argentinas COO since October 1, 2005
COO (of subsidiary) S.A., a subsidiary of the Company,
Age 48 2001-2004 Operations Manager, Risk
Manager Coordinator and Senior
Auditor at Transportadora Gas del
Norte S.A., 2000-2001 COO Svedala
Industries AB Argentina
------------------------------------------------------------------------------------------------------------------------
(1) 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. 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.
72
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 Mar/99 to present
Nevada Star Resources Corp. President/Director Mar/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
Arthur Lang Golden Arrow Resources Corporation Director, CFO ,VP Jul/04 to present
Amera Resources Corporation CFO & Secretary Mar/05 to present
Joseph Grosso Amera Resources Corporation Chairman/Director Feb/04 to present
Golden Arrow Resources Corporation Chairman/President/ Jul/04 to present
CEO/Director
Chairman/Director April/06 to present
Robert Stuart (Tookie) Angus CMQ Resources Inc. Director Dec/03 to present
Nevsun Resources Ltd. Director Jan/03 to present
Plutonic Power Corporation Director June/99 to present
Blackstone Ventures Inc. Director Sept/97 to present
Chairman/Secretary
Dynasty Gold Corp. Director Oct/99 to present
Bema Gold Corporation Director June/92 to present
Crescent Gold Limited Director Nov/05 to present
Polaris Minerals Corporation Director Seot/03 to present
Tsodilo Resources Limited Director July/04 to present
United Bolero Development Corp. March/06 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
73
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
---------------- --------------- -------- ---------------
Oromin Explorations Ltd. President/Director Feb/94 to present
The Havana Group Inc. Director Aug/02 to present
David Terry Amera Resources Corporation Vice President Mar/04 to present
Exploration
Golden Arrow Resources Corporation Director/V-P Jul/04 to present
Exploration
Astral Mining Corporation Director March 9/05 to present
David Horton Golden Arrow Resources Corporation Director July/04 to present
Leonard Harris Glamis Gold Ltd. Director May/99 to May/03
Corriente Resources Director Jul/95 to present
Solitario Resources Director Jun/98 to present
Cardero Resource Corp. Director Feb/00 to present
Alamos Minerals Ltd. Director Jun/98 to May/03
Canarc Resource Corp. Director Jun/01 to present
Solliden Exploration Inc. Director Sep/03 to present
Endeavour Gold Corp. Director Jul/03 to present
Alamos Gold Inc. Director Nov/03 to present
Morgain Minerals Inc. Director Jun/04 to present
COMPENSATION
During the fiscal year ended December 31, 2005, the directors and officers of
the Company, as a group, had received or charged the Company a total of $241,088
(2004-$476,226; 2003 - $330,600) 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 and Chief Financial
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 and Chief Financial Officer,
who were serving as executive officers at the end of the most recent fiscal year
and whose total salary and bonus amounted to $150,000 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 $150,000, whether or not they
were an executive officer at the end of the most recent fiscal year.
During the year ended December 31, 2005, the Company had two Named Executive
Officers: Joseph Grosso, President and Chief Executive Officer and Arthur Lang,
Chief Financial Officer (the "Named Executive Officers"). The following table
sets forth all annual and long-term compensation awarded, paid to or earned by
the Company's Named Executive Officers during the financial years ended December
31, 2003, 2004 and 2005.
74
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- -------------------------------------------------
AWARDS PAYOUTS
------------------------ ------------------------
NAME AND OTHER SECURITIES RESTRICTED LTIP
PRINCIPAL SALARY BONUS ANNUAL UNDER SHARES OR PAYOUTS ALL
POSITION YEAR ($) ($) COMPENSA OPTIONS/ RESTRICTED ($) OTHER
(a) (b)(1) (c) (d) TION SARS SHARE (h) COMPEN-
($) GRANTED UNITS SATION
(e) (#)(2) ($) ($)
(f) (g) (i)
---------------------------------------------------------------------------------------------------------------------
Joseph Grosso(3) 2005 $102,000 - - 150,000 - - -
President and Chief 2004 $102,000 - - 150,000 - - -
Executive Officer 2003 $102,000 - - 200,000 - - -
Arthur Lang, Chief 2005 $68,927(4) - - 100,000 - - -
Financial Officer 2004 $58,671 - - 50,000 - - -
2003 $Nil - - - - - -
---------------------------------------------------------------------------------------------------------------------
(1) Fiscal years ended December 31, 2005, 2004 and 2003.
(2) See "Options and Stock Appreciation Rights".
(3) See description of termination payment for Mr. Grosso in Item 6,
agreement dated July 1, 1999 with Oxbow International Marketing Corp.
(4) During the year ended December 31, 2005, Mr. Lang's total compensation
from the Grosso Group was $94,667, of which $68,927 was allocated to
the Company as part of the Grosso Group fees for the year.
LONG TERM INCENTIVE PLAN AWARDS
Long Term Incentive Plan Awards ("LTIP") means any plan providing compensation
intended to serve as an incentive for performance to occur over a period longer
than one fiscal year whether performance is measured by reference to financial
performance of the Company or an affiliate of the Company, or the price of
shares of the Company but does not include option or stock appreciation rights
plans or plans for compensation through restricted shares or units. The Company
has not granted any LTIP's to the Named Executive Officers during the most
recently completed fiscal year.
OPTIONS AND STOCK APPRECIATION RIGHTS
Stock Appreciation Rights ("SAR's") means a right, granted by an issuer or any
of its subsidiaries as compensation for services rendered or in connection with
office or employment, to receive a payment of cash or an issue or transfer of
securities based wholly or in part on changes in the trading price of the shares
of the Company. No SAR's were granted to or exercised by the Named Executive
Officers or directors during the most recently completed fiscal year.
OPTION GRANTS
The following table sets forth stock options granted by the Company during the
financial year ended December 31, 2005 to the Named Executive Officers of the
Company:
MARKET VALUE
% OF TOTAL OPTIONS OF SECURITIES
SECURITIES UNDER GRANTED IN EXERCISE OR UNDERLYING OPTIONS
NAME OPTIONS GRANTED FINANCIAL YEAR(1) BASE PRICE(2) ON DATE OF GRANT EXPIRATION DATE
---- --------------- -------------- ---------- ----------------- ---------------
(#) ($/Security) ($/Security)
Joseph Grosso 150,000 11.02% $4.16 $4.16 March 16, 2010
Arthur Lang 75,000 7.35% $4.16 $4.16 March 16, 2010
25,000 $2.92 $2.92 November 16, 2010
(1) Percentage of all options granted during the financial year.
(2) The exercise price of stock options was set according to the rules of
the TSX-V. The exercise price of stock options may only be adjusted in
the event that specified events cause dilution of the Company's share
capital.
75
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all exercises of stock options by the
Named Executive Officers during the most recently completed fiscal year and the
fiscal year-end value of unexercised options on an aggregated basis:
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SECURITIES ACQUIRED AGGREGATE VALUE AT FISCAL YEAR-END FISCAL YEAR-END(2)
NAME ON EXERCISE(1) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------ -------- ------------------------- -------------------------
(#) ($) (#) ($)
Joseph Grosso Nil Nil 547,500/Nil $520,550 / N/A
Arthur Lang Nil Nil 150,000/Nil $33,000 / 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, 2005,
$3.48, 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, 2005 for
their services in their capacity as directors.
During the last completed financial year ending December 31, 2005, the Company
paid directly $139,088 and indirectly $63,000 (as part of the allocated Grosso
Group monthly fees) to its directors who are not Named Executive Officers, as a
group, for salaries and professional services rendered. See also "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts."
OPTION GRANTS
The following table sets forth information concerning stock options granted to
directors, as a group, who are not Named Executive Officers during the most
recently completed fiscal year:
MARKET VALUE
SECURITIES UNDER % OF TOTAL OPTIONS OF SECURITIES
OPTIONS GRANTED IN EXERCISE OR UNDERLYING OPTIONS
NAME GRANTED(1) FINANCIAL YEAR(2) BASE PRICE(3) ON DATE OF GRANT EXPIRATION DATE
---- ------- ------------------- ------------- ----------------- ---------------
(#) ($/Security) ($/Security)
Directors as a group 300,000 22% $4.16 and $4.16 and $2.92 March 16, 2010
who are not Named $2.92 November 16, 2010
Executive Officers
76
(1) All options are for the Company's Common Shares.
(2) Percentage of all options granted in the year.
(3) The exercise price of the option is set at not less than the market
value of the Company's Common Shares on the date of grant, less a
discount allowed by the TSX-V. The exercise price may be adjusted under
certain circumstances, subject to regulatory acceptance.
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all securities acquired, the aggregate
value realized and the fiscal year end number and value of unexercised
options/SARs held by directors, as a group, who are not Named Executive
Officers:
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SECURITIES ACQUIRED AGGREGATE VALUE AT FISCAL YEAR-END FISCAL YEAR-END(2)
NAME ON EXERCISE(1) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------- -------- ------------------------- -------------------------
(#) ($) (#) ($)
Directors, as a Nil Nil 1,200,000/N/A $1,670,700/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, 2005
$3.48, 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 other than as
disclosed herein.
MANAGEMENT CONTRACTS
GROSSO GROUP MANAGEMENT LTD.
Effective January 1, 2005, the Company engaged Grosso Group to provide services
and facilities to the Company. On May 6, 2005, an Administration Services
Agreement was finalized and executed by the Company and the Grosso Group. The
Grosso Group is a private company which is owned by the Company, Golden Arrow,
Amera, Astral Mining Corporation and Gold Point Energy Corp., each of which own
one share. The Grosso Group provides its shareholder companies with geological,
corporate development, administrative and management services. The Grosso Group
staff is available to the shareholder companies on a cost recovery basis without
the expense of full time personnel. The shareholder companies pay monthly fees
to the Grosso Group. The fee is based upon a reasonable pro-rating of the Grosso
Group's costs including its staff and overhead costs among each shareholder
company with regard to the mutually agreed average annual level of services
provided to each shareholder company. During fiscal 2005, the Company incurred
fees of $730,802 to the Grosso Group. In addition, included in the accounts
receivable, prepaids and deposits is a $205,000 deposit to the Grosso Group. The
deposits from the member companies were used for the purchase of equipment and
leasehold improvements and for operating working capital.
The Administration Services Agreement may be terminated by a shareholder company
after January 1, 2007, upon 30 days written notice to the Grosso Group. Prior
to January 1, 2007, if a shareholder company
77
desires to terminate the agreement it will pay a termination fee equal to
six-months' basic administration charge.
It is anticipated that upon termination of the Administration Services
Agreement, each of the shareholder companies will agree to resell its common
share back to the Grosso Group for $1.00 and the shareholder companies will not
be able to sell, transfer or otherwise dispose of or encumber such share during
the term of the Administration Services Agreement.
The Grosso Group's areas of experience encompass financing, marketing, property
acquisition, community relations, socioeconomic issues, regulatory compliance,
government relations, property exploration and investor relations.
Additionally the Grosso Group has a number of other support staff at its
corporate office and arrangements with contract providers of accounting and
administrative services at the country operations' offices in Argentina and
Peru.
The members of the board of directors of the Grosso Group are appointed by the
shareholder companies, with each shareholder company appointing one of its
directors to serve as a director of the Grosso Group. As of May 4, 2006, the
directors of the Grosso Group are Nikolaos Cacos, Joseph Grosso, Arthur Lang,
Manfred Kurschner and Nick DeMare. Messrs. Lang and Grosso are officers and
directors of the Company. Mr. Lang is an officer and director of Golden Arrow
and an officer of Amera. Mr. Grosso is an officer and director of Golden Arrow
and of Amera and director of Gold Point. Nikolaos Cacos is an officer of IMA, a
director and officer of Golden Arrow and a director and officer of Amera.
Manfred Kurschner is an officer and director of Astral Mining Corporation and
director of Golden Arrow and Nick DeMare is an officer and director of Gold
Point. Mr. DeMare indirectly owns 100% of Chase Management Ltd., a company which
provides consulting services to the Company and other Grosso Group shareholder
companies.
Each of the public company shareholders of the Grosso Group will have its own
separate board of directors (whose members include persons employed by the
Grosso Group); however, some directors will serve on multiple boards and on the
board of directors of companies which are not shareholders of the Grosso Group.
In connection with the formation and establishment of the Grosso Group, Mr. Nick
DeMare was issued the initial share of the Grosso Group and acted as the
President, Secretary and sole director of the Grosso Group. Effective February
6, 2004, Mr. DeMare transferred the sole outstanding share of the Grosso Group
to Joseph Grosso, the Chairman and a director and principal shareholder of the
Company. Mr. DeMare also resigned as a director and the President and Secretary
of the Grosso Group effective February 6, 2004 and Mr. Grosso was appointed as a
director and the President and Secretary of the Grosso Group. Mr. Grosso
returned the sole outstanding share of the Grosso Group to the Grosso Group for
cancellation and one share was issued to the Company.
The Board of Directors of the Company has approved the Administration Services
Agreement.
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, 2005, Oxbow was paid $102,000. On April 12, 2006 the Board accepted
the recommendation from the Compensation Committee to increase the monthly
consulting fee effective May 1, 2006 to $20,833 ($250,000 per annum) and to pay
a bonus of $150,000.
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 while
providing services to the Company, or by Mr. Grosso as a result of a material
breach or default by the Company, Oxbow is entitled to a bonus payment in the
amount of $461,500.
78
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) three years of Mr. Grosso's monthly compensation (which may be
adjusted annually), and (iv) a bonus payment of $461,500.
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. On January 5, 2004 this contract was amended to reduce the fee paid to
$1,375 per month. Mr. Cacos resigned as a director of the Company in October
2004. During fiscal 2005, Mr. Cacos was paid directly by the Company $Nil (2004
- $17,600, 2003 - $66,000). On January 1, 2005 Mr. Cacos's contract with the
Company was cancelled and replaced with a contract with the Grosso Group. During
the year ended December 31, 2005, Mr. Cacos's total compensation from the Grosso
Group was $22,500, of which $14,862 was allocated to the Company as part of the
Grosso Group fees for the year.
SEAN HURD
By agreement dated June 11, 2001, as extended, Sean Hurd, a former director of
the Company, was paid $4,000 per month for professional services rendered.
During the fiscal year ended December 31, 2005, Mr. Hurd was paid directly by
the Company $Nil (2004 - $73,800, 2003 - $48,000). Mr. Hurd resigned as a
director in October 2004. In January 2005, Mr. Hurd became an employee of the
Grosso Group. During the year ended December 31, 2005, Mr. Hurd's total
compensation from the Grosso Group was $96,000, of which $72,216 was allocated
to the Company as part of the Grosso Group fees for the year.
GERALD CARLSON
By agreement dated February 15, 2001, between the Company and KGE Management
Ltd. ("KGE"), a private company owned by Gerald Carlson, Chairman of the board
of directors 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. 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. 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 was required to provide a
minimum of eight days of service per month. This agreement expired March 31,
2005 and was renewed for six months with the same terms. During the fiscal year
ended December 31, 2005, the Company paid $24,000 to KGE (2004 - $34,749, 2003 -
$41,400). Effective January 1, 2006 the Company agreed to pay KGE a fee of $600
per day if services were required and the former agreement was not renewed.
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.
During the fiscal year ended December 31, 2004, Mr. Lang was paid $58,671. Mr.
Lang became an employee of the Grosso Group in January 2005. Effective May 1,
2005 Mr. Lang's annual salary was increased to $102,000. During the year ended
December 31, 2005, Mr. Lang's total compensation from the Grosso Group was
$94,667, of which $68,927 was allocated to the Company as part of the Grosso
Group fees for the year. On April 12, 2006 the Board accepted the recommendation
from the Compensation Committee to increase Mr. Lang's annual salary to $150,000
effective May 1, 2006 and to pay a bonus of $50,000.
79
DAVID TERRY
Mr. Terry, an officer and a director of the Company, had a consulting agreement
with Amera dated February 16, 2004, amended June 1, 2004, which called for
monthly payments of $10,000. The Company had agreed to reimburse Amera for 50%
of these fees. In the fiscal year ended December 31, 2004 the Company paid
$43,000 as a result of this arrangement. On January 1, 2005 Mr. Terry's
agreement with Amera was replaced by a similar agreement with the Grosso Group.
During the year ended December 31, 2005, Mr. Terry's total compensation from the
Grosso Group was $120,000, of which $63,600 was allocated to the Company as part
of the Grosso Group fees during the year. On April 12, 2006 the Board accepted
the recommendation from the Compensation Committee to increase Mr. Terry's
monthly fee to $12,500 ($150,000 annually) effective May 1, 2006 and to pay a
bonus of $50,000.
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:
(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
COMPENSATION 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 Company's Compensation Committee must be comprised of at least two
independent directors, who 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. Horton and Angus are members of the Compensation
80
Committee. The board of directors of the Company, after each annual
shareholder's meeting must appoint or re-appoint a compensation committee.
TERMS OF REFERENCE
FOR THE
COMPENSATION COMMITTEE
GENERAL
The Compensation Committee is a committee of the Board to which the Board has
delegated its responsibility for oversight of the Corporation's overall human
resources policies and procedures. This includes reviewing the adequacy and form
of the compensation paid to the Corporation's executives and key employees to
ensure that such compensation realistically reflects the responsibilities and
risks of such positions.
The Compensation Committee's objectives are to assist the Board in meeting its
responsibilities in respect of overall human resources policies and procedures
including recruitment, performance management, compensation, benefit programs,
resignation/terminations, training and development, succession planning and
organizational planning and design, to ensure a broad plan of executive
compensation is established that is competitive and motivating in order to
attract, retain and inspire executive management and other key employees and to
review all compensation and benefit proposals for the Corporation's executives
and make recommendations to the Board.
COMPOSITION AND PROCESS
1. The Compensation Committee will be comprised of a minimum of two
directors, all of whom will be independent.
2. Compensation Committee members will be appointed by the Board on an
annual basis for a one-year term and may serve any number of
consecutive terms, which are encouraged to ensure continuity of
experience.
3. The Chair of the Compensation Committee will be appointed by its
members on an annual basis for a one-year term and may serve any number
of consecutive terms. The Compensation Committee Chair will arrange for
an alternate chair for a specific meeting if he or she is planning to
be absent.
4. The Compensation Committee Chair will establish the agenda for
Compensation Committee meetings and ensure that properly prepared
agenda materials are circulated to the members with sufficient time for
review prior to the meeting.
5. The Compensation Committee will meet at least twice per year and may
call special meetings as required. A quorum at meetings of the
Compensation Committee will be one of its members. The Compensation
Committee may hold its meetings, and members of the Compensation
Committee may attend meetings, by telephone conference call.
6. At all meetings of the Compensation Committee every question will be
decided by a majority of the votes cast. In case of an equality of
votes, the Compensation Committee Chair will forward the matter to the
Board of Directors for resolution.
7. The minutes of Compensation Committee meetings will document the date
and time of the meetings.
8. The Compensation Committee will have the authority to retain (or
terminate) any outside counsel, advisors or consultants it determines
necessary to assist it in discharging its functions, independently of
the Board, Chair or CEO. The Compensation Committee will be provided
with the necessary funding to compensate any counsel, advisors or
consultants it retains.
9. The CEO may attend and participate in meetings of the Compensation
Committee, except when his compensation is the subject matter.
81
RESPONSIBILITIES
1. The Compensation Committee will review management prepared policies and
make recommendations to the Board regarding the following matters:
2. Compensation, philosophy, policies and guidelines for senior officers,
as well as supervisory and management personnel of the Corporation and
any subsidiary companies.
3. Corporate benefits for senior management (i.e. car insurance, life
insurance, retirement plan, expense accounts, etc.).
4. Incentive plans, along with global payment information as it applies to
senior management bonus and discretionary bonus plans.
5. Review and approval of Corporate goals and objectives relevant to CEO
and other senior management compensation.
6. Evaluation of the performance of the CEO and other senior management in
light of corporate goals and objectives and making recommendations with
respect to compensation levels based on such evaluations.
7. Policies regarding the Corporation's Incentive Stock Option Plan and
the granting of stock options to Directors, management and employees of
the Corporation.
8. Policies regarding the development and implementation of incentive
compensation plans and equity based compensation plans.
9. Compensation levels for directors and committee members, including the
compensation of the Chair and the Chair of any Board committees, to
ensure compensation realistically reflects the responsibilities and
risk involved in being an effective director. Compensation should be
commensurate with the time spent by directors in meeting their
obligations and should be transparent and easy for shareholders to
understand.
10. Succession plan for the CEO and other executives and key employees of
the Corporation, in conjunction with the CEO.
11. Any material changes in human resources policy, procedure, remuneration
and benefits.
12. Review of executive compensation disclosure in all public disclosure
documents.
13. The Compensation Committee will review and assess its effectiveness,
contribution and these Terms of Reference annually and recommend any
proposed changes thereto to the Board.
14. Perform any other activities consistent with these Terms of Reference,
as the Compensation Committee or the Board deems necessary or
appropriate.
15. The Compensation Committee will have the authority to delegate any
specific tasks to individual Compensation Committee members.
AUDIT COMMITTEE
The Company's Audit Committee must be comprised of at least three directors, who
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.
Horton, Angus, Idziszek are members of the Audit Committee. The board of
directors of the Company, after each annual shareholder's 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:
82
- 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.
The Audit Committee's Charter is attached as an Exhibit.
EMPLOYEES
As of December 31, 2005, the Company uses the services of the Grosso Group,
which had twenty full-time employees in the area of management and
administration compared with nine full-time employees and three part-time
employees that the Company employed directly in the areas of management and
administration at December 31, 2004 compared to eight full-time employees and
two part-time employees in the area of management and administration at December
31, 2003. Exploration activities are conducted by consultants, laborers and
technicians hired for the duration of the exploration program.
SHARE OWNERSHIP
As of May 4, 2006, the Company had 48,948,064 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 4, 2006.
--------------------------------------------------------------------------------------------------------------------
SHARES AND RIGHTS
BENEFICIALLY OWNED OR
TITLE OF CLASS NAME CONTROLLED (1) PERCENT OF CLASS(1)
--------------------------------------------------------------------------------------------------------------------
Common Stock Joseph Grosso 1,522,167(2) 3.1%
Common Stock Nikolaos Cacos 188,151(3) 0.4%
Common Stock Sean Hurd 310,000(4) 0.6%
Common Stock Gerald Carlson 402,500(5) 0.8%
Common Stock David Terry 202,000(6) 0.4%
Common Stock Chet Idziszek 330,000(7) 0.7%
Common Stock Robert Stuart (Tookie) Angus 220,000(8) 0.5%
Common Stock Arthur Lang 150,000(9) 0.3%
Common Stock David Horton 130,000(10) 0.3%
Common Stock Leonard Harris 52,000(11) 0.1%
Common Stock Officers and Directors (as a group, 10 3,506,818(12) 7.2%
persons)
83
(1) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options,
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 48,933,064 shares of
common stock outstanding as of May 4, 2006.
(2) Includes the following shares, options and warrants held by Mr.
Grosso, Evelyn Grosso (Mr. Grosso's wife) and Mr. Grosso's private
companies:
(a) 581,543 shares held by Mr. Grosso;
(b) 7,500 shares held by Beauregard (50%);
(c) 27,564 shares held by Mr. Grosso's wife (50%);
(d) 348,448 shares held by Oxbow (50%);
(e) 9,612 shares held by Threadco (50%); and
(f) 547,500 Options held by Mr. Grosso to acquire 547,500 shares.
See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock
Options."
(3) Includes 13,151 shares held by Mr. Cacos and 175,000 options
held by Mr. Cacos to acquire an additional 175,000 shares. See
"Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock
Options."
(4) Includes 310,000 options held by Mr. Hurd to acquire an
additional 310,000 shares. See "Item 6. Directors, Senior
Management and Employees - Options, Warrants and Other Rights to
Acquire Securities - Stock Options."
(5) Includes 47,500 shares held by KGE Management Ltd., a private
company owned by Mr. Carlson and options held by Mr. Carlson to
acquire an additional 355,000 shares. See "Item 6. Directors,
Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(6) Includes 2,000 shares held by Mr. Terry and options held by Mr.
Terry to acquire an additional 200,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants
and Other Rights to Acquire Securities - Stock Options."
(7) Includes 85,000 shares held by Mr. Idziszek and options held by
Mr. Idziszek to acquire an additional 245,000 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 220,000 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 150,000 shares.
See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock
Options."
(10) Includes options held by Mr. Horton to acquire 130,000 shares.
See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock
Options."
(11) Includes 2,000 shares and options held by Mr. Harris to acquire
50,000 shares. See "Item 6. Directors, Senior Management and
Employees - Options, Warrants and Other Rights to Acquire
Securities - Stock Options."
(12) Includes the shares, options, and warrants set forth in
footnotes 2 through 11 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 4, 2006, 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 11,115,404 common shares of the Company may be issued. The following is a
brief summary of these stock options and warrants currently outstanding and
agreements.
84
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").
At the annual and extraordinary general meetings of shareholders of the Company
held on June 24, 2004, and June 23, 2005 shareholders approved and ratified by
ordinary resolution the 2003 Stock Option Plan to make a total of up to 10% of
the issued and outstanding shares of IMA available for issuance. 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 the Compensation Committee (the
"Committee") of the Company's Board consisting of not less than two of its
members. The Stock Option Plan is currently administered by the Committee.
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.
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 shares 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.
85
Options will also be non-assignable and non-transferable, 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 4, 2006, the Company has 4,746,000 non-transferable incentive stock
options to purchase common shares outstanding to the following persons:
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
--------------------------------------------------------------------------------------------------------------------
N. Cacos Officer 110,000 $3.10 Mar. 24/09 $3.10
50,000 $4.16 Mar. 16/10 $4.16
15,000 $2.92 Nov. 16/10 $2.92
J. 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
150,000 $4.16 Mar. 16/10 $4.16
S. Hurd Officer 100,000 $1.87 Aug. 27/08 $1.87
130,000 $3.10 Mar. 24/09 $3.10
60,000 $4.16 Mar. 16/10 $4.16
20,000 $2.92 Nov. 16/10 $2.92
G. 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
20,000 $4.16 Mar. 16/10 $4.16
N. DeMare Consultant 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
30,000 $4.16 Mar. 16/10 $4.16
E. Grosso(2) Consultant 67,500 $0.50 Sept. 23/07 $0.50
75,000 $3.10 Mar. 24/09 $3.10
A. Sanchez Consultant 5,000 $0.40 Jul. 19/06 $0.40
15,000 $0.84 Mar. 07/08 $0.84
86
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
--------------------------------------------------------------------------------------------------------------------
K. Patterson Consultant 25,000 $3.10 Mar. 24/09 $3.10
25,000 $2.92 Nov. 16/10 $2.92
D. Terry Director 50,000 $3.10 Mar. 24/09 $3.10
80,000 $4.16 Mar. 16/10 $4.16
70,000 $2.92 Nov. 16/10 $2.92
C. Idziszek Director 150,000 $0.90 May 30/08 $0.90
75,000 $3.10 Mar. 24/09 $3.10
20,000 $4.16 Mar. 16/10 $4.16
J. C. Berretta Consultant 25,000 $3.10 Mar. 24/09 $3.10
75,000 $4.16 Mar. 16/10 $4.16
W. Lee(3) Consultant 75,000 $1.87 Aug. 27/08 $1.87
30,000 $3.10 Mar. 24/09 $3.10
R. Angus Director 150,000 $0.90 May 30/08 $0.90
40,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
D. Dorval Employee 60,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
J. Denee Employee 10,000 $3.10 Mar. 24/09 $3.10
5,000 $4.16 Mar. 16/10 $4.16
C. Sandoval Employee 10,000 $3.10 Mar. 24/09 $3.10
15,000 $4.16 Mar. 16/10 $4.16
C. D'Amico(5) Director (of 220,000 $1.87 Aug. 27/08 $1.87
subsidiary-exempted 75,000 $3.10 Mar. 24/09 $3.10
from reporting)
C. Timossi Consultant 75,000 $3.10 Mar. 24/09 $3.10
S. Phillips Consultant 300,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
J. Faccin Consultant 10,000 $3.10 Mar. 24/09 $3.10
M. De Simone Director (of 59,500 $0.50 May 02/07 $0.50
subsidiary-exempted 80,000 $3.10 Mar. 24/09 $3.10
from reporting)
I. Chiarantano Director (of 59,500 $0.50 May 02/07 $0.50
subsidiary-exempted
from reporting)
D. Horton Director 100,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
87
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
--------------------------------------------------------------------------------------------------------------------
A. Lang Director 50,000 $3.10 Mar. 24/09 $3.10
75,000 $4.16 Mar. 16/10 $4.16
25,000 $2.92 Nov. 16/10 $2.92
G. James Consultant 7,000 $3.10 Mar. 24/09 $3.10
R. Aragon Director (of 50,000 $1.87 Aug. 27/08 $1.87
subsidiary-exempted
from reporting)
A. Colucci Consultant 120,000 $1.87 Aug. 27/08 $1.87
P. Hedblom Consultant 30,000 $1.87 Aug. 27/08 $1.87
20,000 $2.92 Nov. 16/10 $2.92
J. Wong Consultant 25,000 $1.87 Aug. 27/08 $1.87
L. Roth Consultant 50,000 $4.20 Dec. 1/09 $4.02
D. Tindale Employee 5,000 $4.16 Mar. 16/10 $4.16
F. Riedl Consultant 30,000 $4.16 Mar. 16/10 $4.16
A. Beartl Director (of 150,000 $4.16 Mar. 16/10 $4.16
subsidiary-exempted 150,000 $2.92 Nov. 16/10 $2.92
from reporting)
I. Thomson Consultant 10,000 $4.16 Mar. 16/10 $4.16
L. Harris Director 50,000 $2.92 Nov. 16/10 $2.92
C. Yepes Employee 10,000 $2.92 Nov.16/10 $2.92
C. Smyth Consultant 5,000 $2.92 Nov. 16/10 $2.92
E. Epshtein Employee 15,000 $2.92 Nov. 16/10 $2.92
K. Vargas Employee 15,000 $2.92 Nov. 16/10 $2.92
L. Rivero Employee 10,000 $2.92 Nov. 16/10 $2.92
L. Shane Employee 5,000 $2.92 Nov. 16/10 $2.92
G. Salvatierra Employee 25,000 $2.92 Nov. 16/10 $2.92
TOTAL 4,746,000
=========
Officers and directors, 2,525,000
as a group (10 =========
persons)(4)
88
(1) Pursuant to the rules of the TSX-V, the Company has issued stock
options to employees, directors, officers and consultants. "Employee"
refers to the employees of the Grosso Group providing administrative
and management services to the Company.
(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 officer and director of the
Company effective April 2, 2004 and currently remains as a consultant
to the Company.
(4) Includes options held by Joseph Grosso's wife, Evelyn Grosso.
(5) The Company granted Mr. D'Amico options to acquire common shares during
his tenure as director of a subsidiary.
WARRANTS AND OTHER COMMITMENTS
As of May 4, 2006, there were 1,900,004 non-transferable common share purchase
warrants exercisable.
As of May 4, 2006, the Company's officers and directors, as a group, including
entities controlled or under significant influence of officers and directors of
the Company, did not hold any warrants to purchase 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.
On March 21, 2006 a syndicated brokered private placement financing of 2,865,000
special warrants at $3.50 per special warrant for gross proceeds of $10,027,500
was completed. Each special warrant will entitle the holder to acquire one unit
consisting of one common share and one half common share purchase warrant
without payment of any additional consideration. Each full warrant entitles the
holder thereof to purchase one additional common share in the capital of the
Company at a price of $3.80 per share until March 21, 2010. In addition to a
cash commission of 6% the underwriters were granted 171,900 agents' warrants,
representing 6% of the number of special warrants issued. Each agents' warrant
is exercisable for one share at a price of $3.80, for a period of twenty four
months, expiring on March 21, 2008.
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 other than that which
is described below.
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 (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
89
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, as of December 31, 2005, Prudent Bear Funds Inc. is no
longer a major shareholder of the Company.
SHARES HELD IN THE UNITED STATES
As of May 4, 2006, there were approximately 69 registered holders of the
Company's shares in the United States, with combined holdings of 6,693,265
shares (13.67% of the 48,948,065 outstanding shares at May 4, 2006).
CHANGE OF CONTROL
As of May 9, 2006, 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 May 9, 2006, 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. Effective January 1, 2005, the Company engaged Grosso Group to provide
services and facilities to the Company. On May 6, 2005, an
Administrative Services Agreement was finalized and executed by the
Company and the Grosso Group. The Grosso Group is a private company
which is owned by the Company, Golden Arrow, Amera, Astral Mining
Corporation and Gold Point Energy Corp., each of which own one share.
The Grosso Group provides its shareholder companies with geological,
corporate development, administrative and management services. The
Grosso Group staff is available to the shareholder companies on a cost
recovery basis without the expense of full time personnel. The
shareholder companies pay monthly fees to the Grosso Group. The fee is
based upon a reasonable pro-rating of the Grosso Group's costs
including its staff and overhead costs among each shareholder company
with regard to the mutually agreed average annual level of services
provided to each shareholder company. During fiscal 2005, the Company
incurred fees of $730,802 to the Grosso Group. In addition, included in
the Accounts receivable, prepaids and deposits is a $205,000 deposit to
the Grosso Group. The deposits from the member companies were used for
the purchase of equipment and leasehold improvements and for operating
working capital.
The Administration Services Agreement may be terminated by a
shareholder company after January 1, 2007, upon 30 days written notice
to the Grosso Group. Prior to January 1, 2007, if a shareholder company
desires to terminate the agreement it will pay a termination fee equal
to six-months' basic administration charge.
2. Prior to the signing of the Administrative Services Agreement with the
Grosso Group in 2005 the Company shared office facilities, capital
assets and personnel with Amera. Joseph Grosso,
90
Nikolaos Cacos, Arthur Lang and David Terry, officers and/or directors
of the Company, are officers, directors and/or employees of Amera.
During the fiscal year ended December 31, 2005 the Company received
$Nil (2004 - $66,390, 2003 - $35,110) from Amera for reimbursement of
expenses.
3. The Company leases a portion of its office space from Beauregard, a
private company 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 January 1, 2004 the Company and Beauregard
executed a lease for a term of three years with an option to renew for
a further two years with minimum annual lease payments of $52,200, plus
operating costs. In addition, the Company is responsible for all
leasehold improvements. During the fiscal year ended December 31, 2005,
the Company incurred $Nil (2004 - $33,822, 2003 - $Nil) for leasehold
improvements conducted on the office premises. On March 1, 2005 the
Company and Beauregard executed a lease for additional premises for a
term of one year and ten months with an option to renew for a further
two years with minimum annual lease payments of $38,100, plus operating
costs. During the fiscal year ended December 31, 2005, the Company paid
rent to Beauregard in the amount of $128,722 (2004 - $74,870, 2003 -
$60,924). The Company subleases the premises to the Grosso Group and
recovered the 2005 rent it had paid. - See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Office".
4. The Company 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, 2005, Oxbow was paid $102,000 (2004 - $102,000, 2003 -
$102,000). On April 12, 2006 the Board accepted the recommendation from
the Compensation Committee to increase the monthly consulting fee
effective May 1, 2006 to $20,833 ($250,000 per annum) and to pay a
bonus of $150,000.
5. The Company entered into an agreement with Nikolaos Cacos, an officer
and former 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, 2004, Mr. Cacos was paid $17,600
(2003 - $66,000; 2002 - $66,000). Effective January 1, 2005, Mr. Cacos'
contract with the Company was replaced by a new agreement between the
Grosso Group and Mr. Cacos. During the year ended December 31, 2005,
Mr. Cacos's total compensation from the Grosso Group was $22,500, of
which $14,862 was allocated to the Company as part of the Grosso Group
fees for the year.
6. 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".
7. The Company has entered into an agreement with KGE Management Ltd.
("KGE"), a private company owned by Gerald Carlson, 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." By agreement dated
February 15, 2001, between the Company and KGE, 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. 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. 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 was required
to provide a minimum of eight days of service per month. This agreement
expired March 31, 2005 and was renewed for six months with the same
terms. During the fiscal year ended December 31, 2005, the Company paid
$24,000
91
to KGE (2004 - $34,749, 2003 - $41,400). Effective January 1, 2006 the
Company agreed to pay KGE a fee of $600 per day if services were
required and the former agreement was not renewed.
8. The Company has entered into an agreement with Mr. Sean Hurd, an
officer and former director of the Company, pursuant to which Mr. Hurd
provides services to the Company. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts." During
the fiscal year ended December 31, 2005, Mr. Hurd was paid directly by
the Company $Nil (2004 - $73,800, 2003 - $48,000). In January 2005, Mr.
Hurd became an employee of the Grosso Group. During the year ended
December 31, 2005, Mr. Hurd's total compensation from the Grosso Group
was $96,000, of which $72,216 was allocated to the Company as part of
the Grosso Group fees for the year.
9. On December 16, 2003 and November 16, 2004, the Company entered into
an agreement with Endeavour Financial Ltd. a company of which Mr.
Angus, a director of the Company, was a shareholder. A monthly fee of
US$5,000 for services was payable under this agreement for a minimum
period of one year. On July 4, 2005, the agreement was amended to
increase the monthly fee to US$10,000 per month effective June 1, 2005.
During the fiscal year ended December 31, 2005, Endeavour was paid
$115,088 (2004 - $78,637). 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. Effective December 31, 2005 Mr. Angus
retired from Endeavour and the monthly fee was reduced to US$5,000 per
month. See "Item 6. Directors, Senior Management and Employees -
Directors and Senior Management." The agreement was terminated by
mutual consent effective February 28, 2006.
10. On February 14, 2006 and effective January 1, 2006, the Company has
entered into an agreement with RSA Holdings Ltd., pursuant to which
R.S. (Tookie) Angus, a director of the Company, provides advisory
services including participation on various committees of the Company.
A monthly fee of US$5,000 for services is payable under this agreement
for a minimum period of six months. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
11. Mr. Terry had a consulting agreement with Amera dated February 16,
2004, amended June 1, 2004, which called for monthly payments of
$10,000. The Company had agreed to reimburse Amera for 50% of these
fees. In the fiscal year ended December 31, 2004 the Company paid
$43,000 as a result of this arrangement. On January 1, 2005 Mr. Terry's
agreement with Amera was replaced by a similar agreement with the
Grosso Group. During the year ended December 31, 2005, Mr. Terry's
total compensation from the Grosso Group was $120,000, of which $63,600
was allocated to the Company as part of the Grosso Group fees during
the year. On April 12, 2006 the Board accepted the recommendation from
the Compensation Committee to increase Mr. Terry's monthly fee to
$12,500 ($150,000 annually) effective May 1, 2006 and to pay a bonus of
$50,000. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts."
12. 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. 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. During the fiscal year ended December
31, 2004, Mr. Lang was paid $58,671. Mr. Lang became an employee of the
Grosso Group in January 2005. Effective May 1, 2005 Mr. Lang's annual
salary was increased to $102,000. During the year ended December 31,
2005, Mr. Lang's total compensation from the Grosso Group was $94,667,
of which $68,927 was allocated to the Company as part of the Grosso
Group fees for the year. On April 12, 2006 the Board accepted the
recommendation from the Compensation Committee to increase Mr. Lang's
annual salary to $150,000 effective May 1, 2006
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and to pay a bonus of $50,000. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
12. The Company has entered into an Arrangement Agreement with Golden Arrow
pursuant to which the Company transferred 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."
The Company entered into an indemnity agreement, 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, 2005, 2004 and 2003.
SIGNIFICANT CHANGES
There are no significant changes to report between the year end December 31,
2005 and the date of this annual report.
LEGAL PROCEEDINGS
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action against
the Company seeking a constructive trust over the Navidad properties and
damages. On September 29, 2005 the Company made an offer to Aquiline to settle
the litigation. The Board of Directors decided to make the offer due to the
inherent risks of litigation, to minimize the significant legal costs and most
importantly to allow the Company to continue with its business plan to develop
Navidad. The offer was rejected and the action continued on to trial. The trial
commenced on October 11, 2005 and ended on December 12, 2005. At the conclusion
of the trial, the Court reserved its decision; the Court's decision is expected
in the first half of 2006. At this date the outcome is not determinable. The
Company believes the Aquiline legal action is without merit. However, in the
event of an adverse judgment the Company may suffer loss and such loss could be
material; the Company might not be able to proceed with its plans for the
development of Navidad and could lose the ownership rights it currently has over
the project. The Company continues to expense the legal and related costs of
defending the action as they are incurred and has not made a provision for the
future costs that will be incurred or their potential recovery from the
plaintiff.
The Company has provided Golden Arrow with an indemnity for any costs or losses
incurred by Golden Arrow in respect of the legal action commenced by Aquiline
against the Company.
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.
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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 2005 through April 2006.
TSX VENTURE EXCHANGE (OR PREDECESSOR) STOCK TRADING ACTIVITY
SALES PRICE
---------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2005 18,584,000 $4.45 $2.56
December 31, 2004 37,199,200 $4.80 $1.73
December 31, 2003 50,625,400 $2.54 $0.49
December 31, 2002 17,609,200 $0.94 $0.34
December 31, 2001 5,559,800 $0.62 $0.27
SALES PRICE
---------------------
QUARTER ENDED VOLUME HIGH LOW
March 31, 2006 9,126,500 $3.96 $2.84
December 31, 2005 5,453,800 $3.96 $2.56
September 30, 2005 3,780,700 $3.95 $2.65
June 30, 2005 2,949,100 $4.00 $2.61
March 31, 2005 6,400,400 $4.45 $3.40
December 31, 2004 9,179,500 $4.80 $3.22
September 30, 2004 4,560,100 $3.39 $2.00
June 30, 2004 7,885,200 $3.57 $1.93
March 31, 2004 15,574,400 $3.81 $1.73
SALES PRICE
---------------------
MONTH ENDED VOLUME HIGH LOW
April 30, 2006 2,213,400 $3.70 $3.29
March 31, 2006 4,217,000 $3.90 $3.13
February 28, 2006 2,343,600 $3.96 $3.05
January 31, 2006 2,565,900 $3.82 $2.84
December 31, 2005 1,657,100 $3.55 $2.81
November 30, 2005 1,524,700 $3.21 $2.81
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AMERICAN STOCK EXCHANGE AND OVER-THE-COUNTER BULLETIN BOARD STOCK TRADING
ACTIVITY
As of July 6, 2005, the Company's shares started to trade on the American Stock
Exchange ("AMEX"). Prior to that the Company's shares were trading on the OTC
Bulletin Board operated by the National Association of Securities Dealers in the
United States from October 8, 2002. The Company currently trades on the AMEX
under the symbol "IMR". The following tables set forth the market price ranges
and the aggregate volume of trading of the common shares of the Company on the
AMEX or the OTC Bulletin Board system for the periods indicated:
SALES PRICE US$
---------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2005 13,245,000 $3.68 $2.00
December 31, 2004 20,134,200 $4.05 $1.31
December 31, 2003 6,974,500 $1.89 $0.36
December 31, 2002 97,497 $0.36 $0.22
SALES PRICE US$
---------------------
QUARTER ENDED VOLUME HIGH LOW
March 31, 2006 7,278,900 $3.48 $2.43
December 31, 2005 4,024,400 $3.39 $2.16
September 30, 2006 3,003,500 $3.48 $2.00
June 30, 2005 2,150,800 $3.23 $2.05
March 31, 2005 4,066,300 $3.68 $2.72
December 31, 2004 5,395,400 $4.05 $2.53
September 30, 2004 3,302,600 $2.68 $1.48
June 30, 2004 2,636,700 $2.70 $1.40
March 31, 2004 8,799,500 $2.93 $1.31
SALES PRICE US$
---------------------
MONTH ENDED VOLUME HIGH LOW
April 30, 2006 2,222,900 $3.25 $2.88
March 31, 2006 2,919,600 $3.48 $2.70
February 28, 2006 1,925,300 $3.44 $2.50
January 31, 2006 2,434,000 $3.38 $2.43
December 31, 2005 1,152,900 $3.06 $2.41
November 30, 2005 944,500 $2.72 $2.39
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
95
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.
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 Transition to
the BCBCA is completed. The Board of Directors 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
deleted and replaced 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 passed a special resolution removing the
application of the Pre-Existing Company Provisions at a meeting held on June 24,
2004.
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 proposed 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 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
96
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 at 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.
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
97
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.
The directors, officers, employees and agents have entered into Indemnity
Agreements, as allowed under the new Articles of the Company.
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 altered 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.
98
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
The current Articles allow for quorum to be two persons who are, or who
represent by proxy, shareholders who, in the aggregate, hold at least five
percent (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 passed all of the above changes to
the Company's Articles at its shareholder's meeting held on June 24, 2004.
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:
99
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
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 current Articles of the Company were passed by the shareholders at
the Company's annual general meeting on June 24, 2004.
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.
100
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 an unlimited number of 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.
COMMON SHARES
A total of 48,933,064 common shares were issued and outstanding as of May 4,
2006. 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.
On March 21, 2006 the Company completed a syndicated brokered private placement
financing of 2,865,000 special warrants at $3.50 per special warrant for gross
proceeds of $10,027,500. Each special warrant will entitle the holder to acquire
one unit consisting of one common share and one half common share purchase
warrant without payment of any additional consideration. Each full warrant
entitles the holder thereof to purchase one additional common share in the
capital of the Company at a price of $3.80 per share until March 21, 2010. In
addition to a cash commission of 6% the underwriters were granted 171,900
agents' warrants, representing 6% of the number of special warrants issued. Each
agents' warrant is exercisable for one share at a price of $3.80, for a period
of twenty four months, expiring on March 21, 2008.
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 4, 2006, there were
18,283,053 Preferred Shares, Series I, outstanding. All of the outstanding
preferred shares of the Company are held by Inversiones Mineras Argentinas Inc.,
a wholly owned subsidiary of IMA, and eliminate on consolidation. 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.
101
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 4, 2006, there are 18,283,053 Series I Shares
outstanding. All of the outstanding preferred shares of the Company are held by
Inversiones Mineras Argentinas Inc., a wholly owned subsidiary of IMA, and
eliminate on consolidation. 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.
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 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 15 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
102
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:
1. Effective January 1, 2005, the Company engaged Grosso Group to provide
services and facilities to the Company. On May 6, 2005, an
administrative services agreement was finalized and executed by the
Company and the Grosso Group. The Grosso Group is a private company
which is owned by the Company, Golden Arrow, Amera, Astral Mining
Corporation and Gold Point Energy Corp., each of which own one share.
The Grosso Group provides its shareholder companies with geological,
corporate development, administrative and management services. The
Grosso Group staff is available to the shareholder companies on a cost
recovery basis without the expense of full time personnel. The
shareholder companies pay monthly fees to the Grosso Group. The fee is
based upon a reasonable pro-rating of the Grosso Group's costs
including its staff and overhead costs among each shareholder company
with regard to the mutually agreed average annual level of services
provided to each shareholder company. During fiscal 2005, the Company
incurred fees of $730,802 to the Grosso Group. In addition, included in
the Accounts receivable, prepaids and deposits is a $205,000 deposit to
the Grosso Group. The deposits from the member companies were used for
the purchase of equipment and leasehold improvements and for operating
working capital.
The Administration Services Agreement may be terminated by a
shareholder company after January 1, 2007, upon 30 days written notice
to the Grosso Group. Prior to January 1, 2007, if a shareholder company
desires to terminate the agreement it will pay a termination fee equal
to six-months' basic administration charge.
2. The Company leases a portion of its office space from Beauregard, a
private company 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 January 1, 2004 the Company and Beauregard
executed a lease for a term of three years with an option to renew for
a further two years with minimum annual lease payments of $52,200, plus
operating costs. In addition, the Company is responsible for all
103
leasehold improvements. During the fiscal year ended December 31, 2005,
the Company incurred $Nil (2004 - $33,822, 2003 - $Nil) for leasehold
improvements conducted on the office premises. On March 1, 2005 the
Company and Beauregard executed a lease for additional premises for a
term of one year and ten months with an option to renew for a further
two years with minimum annual lease payments of $38,100, plus operating
costs. During the fiscal year ended December 31, 2005, the Company paid
rent to Beauregard in the amount of $128,722 (2004 - $74,870, 2003 -
$60,924). The Company subleases the premises to the Grosso Group and
recovered the 2005 rent it had paid. - See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Office".
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, 2005, Oxbow was paid $102,000 (2004 - $102,000, 2003 -
$102,000). On April 12, 2006 the Board accepted the recommendation from
the Compensation Committee to increase the monthly consulting fee
effective May 1, 2006 to $20,833 ($250,000 per annum) and to pay a
bonus of $150,000.
4. On December 16, 2003 and November 16, 2004, the Company entered into
an agreement with Endeavour Financial Ltd. a company of which Mr.
Angus, a director of the Company, was a shareholder. A monthly fee of
US$5,000 for services was payable under this agreement for a minimum
period of one year. On July 4, 2005, the agreement was amended to
increase the monthly fee to US$10,000 per month effective June 1, 2005.
During the fiscal year ended December 31, 2005, Endeavour was paid
$115,088 (2004 - $78,637). 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. Effective December 31, 2005 Mr. Angus
retired from Endeavour and the monthly fee was reduced to US$5,000 per
month. See "Item 6. Directors, Senior Management and Employees -
Directors and Senior Management." The agreement was terminated by
mutual consent effective February 28, 2006.
5. On February 14, 2006 and effective January 1, 2006, the Company has
entered into an agreement with RSA Holdings Ltd., pursuant to which
R.S. (Tookie) Angus, a director of the Company, provides advisory
services including participation on various committees of the Company.
A monthly fee of US$5,000 for services is payable under this agreement
for a minimum period of six months. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
6. Mr. Terry had a consulting agreement with Amera dated February 16,
2004, amended June 1, 2004, which called for monthly payments of
$10,000. The Company had agreed to reimburse Amera for 50% of these
fees. In the fiscal year ended December 31, 2004 the Company paid
$43,000 as a result of this arrangement. On January 1, 2005 Mr. Terry's
agreement with Amera was replaced by a similar agreement with the
Grosso Group. During the year ended December 31, 2005, Mr. Terry's
total compensation from the Grosso Group was $120,000, of which $63,600
was allocated to the Company as part of the Grosso Group fees during
the year. On April 12, 2006 the Board accepted the recommendation from
the Compensation Committee to increase Mr. Terry's monthly fee to
$12,500 ($150,000 annually) effective May 1, 2006 and to pay a bonus of
$50,000. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts."
7. The Company has entered into an Arrangement Agreement with Golden Arrow
pursuant to which the Company transferred 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."
The Company entered into an indemnity agreement, 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."
104
8. The Company entered into a Management Services Agreement dated March
22, 2005 with IMA Latin America Inc., the Company's wholly owned BVI
subsidiary and Gestora de Negocios E Inversiones S.A. ("Gestora") to
retain Gestora to provide certain management, consulting and advisory
services of Mr. Augusto Baertl ("Baertl") for the development of the
Navidad project. A Confidentiality Agreement between the Grosso Group
Management Ltd. and Gestora was also entered into. A Director/Officer
Agreement between IMA Latin America Inc. and Baertl was also entered
into as well as an Indemnity Agreement between the Company and Baertl.
9. The Company has entered into an agreement with KGE Management Ltd.
("KGE"), a private company owned by Gerald Carlson, pursuant to which
Gerald G. Carlson, an officer and director of the Company, provides
services to the Company. By agreement dated February 15, 2001, between
the Company and KGE, 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. 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. 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. This agreement expired March 31, 2005 and
was renewed for six months with the same terms. During the fiscal year
ended December 31, 2005, the Company paid $24,000 to KGE (2004 -
$34,749, 2003 - $41,400). Effective January 1, 2006 the Company agreed
to pay KGE a fee of $600 per day if services were required and the
former agreement was not renewed. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
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.
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
105
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 2005 is $250,000,000. 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;
(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;
106
(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
107
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 corporation which is a resident of the United States which owns at least
10% of the voting shares of the corporation paying the dividend. . In the event
of the Company declaring and paying dividends it would withhold any applicable
taxes.
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
108
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 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.
109
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 (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 Internal Revenue Code of 1986, as amended. The
elections require certain conditions be met such as filing on or before the due
date, as extended, for filing the shareholder's income tax return for the first
taxable year to which the election will apply.
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.
110
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.
================================================================================
Not applicable.
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, 2005 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, 2005, 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. David Horton, who serves on the Company's audit
committee.
ITEM 16B. CODE OF BUSINESS CONDUCT AND ETHICS.
================================================================================
CODE OF BUSINESS CONDUCT AND ETHICS
The Board of Directors of IMA Exploration Inc. (the "Company") has adopted a
Code of Business Conduct and Ethics that outlines the Company's values and its
commitment to ethical business practices in every business transaction. This
code applies to all directors, officers, and employees of the Company and its
subsidiaries and affiliates. A copy of the Company's Code of Business Conduct
and Ethics is available on the Company's website at
www.imaexploration.com/s/CorporteGovernance.asp.
HONEST AND ETHICAL CONDUCT
The Company expects a high level of personal integrity for each
employee, officer and director when interacting with investors,
business partners, shareholders, suppliers, consultants and other
employees.
111
CONFLICT OF INTEREST
When possible, conflicts of interest between personal and professional
relationships should be avoided, however, unavoidable conflict of
interest will be handled in accordance with the Company's ethical
standards.
A director, officer or employee may not represent the Company in any
transaction with a person or an entity in which the director, officer
or employee has a direct or indirect interest or from which the
director, officer or employee may derive personal benefit.
ACCURATE AND TIMELY DISCLOSURE
Full, fair, accurate, timely and understandable disclosure in reports
or documents submitted to the Securities and Exchange Commission and
other securities commissions across Canada as well as all public
communications. Employees and officers who prepare financial and other
reports will exercise diligence in ensuring that there are no false or
misleading statements.
COMPLIANCE WITH APPLICABLE GOVERNMENTAL LAWS, RULES AND REGULATIONS
The Company is committed to compliance with all laws, rules and
regulations, including laws and regulations applicable to the Company's
securities, as well as any rules promulgated by any exchange on which
the Company's shares are listed.
PROMPT INTERNAL REPORTING OF VIOLATIONS
Employees and officers are responsible for the prompt internal
reporting of any violations of the Code to the Company's Compliance
Officer.
PROTECTION AND PROPER USE OF COMPANY ASSETS AND OPPORTUNITIES
All employees have an obligation to protect the Company's assets and to
ensure that all opportunities available to the Company are brought to
the attention of the relevant officer or employee.
CONFIDENTIALITY OF COMPANY INFORMATION
It is the Company's policy that business affairs of the Company are
confidential and should not be discussed outside the Company except for
information that has already been made available to the public.
INSIDER TRADING
Management, employees, members of the Board of Directors and others who
are in a "special relationship" with the Company from time to time
become aware of corporate developments or plans which may affect the
value of the Company's shares (inside information) before these
developments or plans are made public. Company directors, officers and
employees are prohibited from using inside information themselves or
disclosing this inside information to others who may use the
information to trade Company stock.
FAIR DEALING
Each employee should endeavour to respect the rights of, and deal
fairly with, our shareholders, investors, business partners, suppliers,
competitors and employees. No employee should take
112
unfair advantage of anyone through manipulation, concealment, abuse of
privileged information, misrepresentation of material facts, or any
other unfair business practice.
REPORTING UNETHICAL AND ILLEGAL CONDUCT/ETHICS QUESTIONS
The Company is committed to taking prompt action against violations of
the Code of Business Conduct and Ethics and it is the responsibility of
all directors, officers and employees to comply with the Code and to
report violations or suspected violations to the Company's Compliance
Officer. Employees may also discuss their concerns with their
supervisor who will then report suspected violations to the Compliance
Officer.
The Compliance Officer is appointed by the Board of Directors and is
responsible for investigating and resolving all reported complaints and
allegations and shall advise the President and CEO, the CFO and/or the
Audit Committee.
The Compliance Officer can be reached via telephone at 1-866-921-6714
or via the internet site located at
http://www.whistleblowersecurity.com.
VIOLATIONS AND WAIVERS
The Compliance Officer will report suspected fraud or securities law
violations for review by the Audit Committee. The Audit Committee will
report all violations reviewed by the Committee to the Board of
Directors.
The Compliance Officer will report regularly to the Board of Directors
on the results and resolution of complaints and allegations concerning
violations of the Code.
No waivers of any provision of this Code of Business Conduct and Ethics
may be made except by the Board of Directors. Any waiver or amendment
shall be reported as required by law or regulation.
Only the Audit Committee may amend this Code of Business Conduct and
Ethics.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
================================================================================
AUDIT FEES
For the fiscal year ended December 31, 2005, the Company's auditor is expected
to bill approximately $45,000, and for the fiscal year ended December 31, 2004,
the Company's auditor billed approximately $39,000 for the audit of the
Company's annual financial statements or services that are normally provided by
the auditor in connection with statutory and regulatory filings or engagements
for those fiscal years.
AUDIT RELATED FEES
For the fiscal years ended December 31, 2005 and 2004, the Company's auditor is
expected to bill $10,700 and billed $16,253, 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, 2005 and 2004, the Company's auditor is
expected to bill $7,500 and billed $7,500, respectively, for tax compliance, tax
advice and tax planning services.
113
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. 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 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, 2005, the Company's auditors have not billed the Company for
audit related services in connection with the reorganization.
Beginning July 1, 2004, the Company's audit committee obtained 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 also allowed 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-38
ITEM 18. FINANCIAL STATEMENTS.
================================================================================
Not applicable.
ITEM 19. EXHIBITS.
================================================================================
EXHIBITS
EXHIBIT
NUMBER EXHIBIT
1.1 Notice of Articles(8)
1.2 Articles (1)
4.1 Share Purchase Agreement Between Shareholders and 389863 B.C. Ltd.
(1)
114
EXHIBIT
NUMBER EXHIBIT
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(8)
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)
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)
115
EXHIBIT
NUMBER EXHIBIT
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 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)
4.42 Amendment to Consulting Agreement Between KGE Management Ltd. And
IMA Exploration Inc. (5)
4.43 Amendment to Agreement between the Company and Sean Hurd (5)
4.44 Amendment to Exploration and Option Agreement with Barrick
Exploraciones Argentina S.A. dated March 26, 2003. (6)
4.45 Letter of Intent dated March 6, 2003 with Amera Resources
Corporation (6)
4.46 Letter Agreement with Amera Resources Corporation re:
reimbursement of office expenses (6)
4.47 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)
4.48 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)
4.49 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)
4.50 Amendment to Consulting Services Agreement Between Oxbow
International Marketing Corp. and IMA Resource Corporation dated
July 15, 2002 (6)
116
EXHIBIT
NUMBER EXHIBIT
4.51 Amendment to Consulting Agreement Between KGE Management Ltd. And
IMA Exploration Inc. dated June 14, 2002 (6)
4.52 Amendment to Consulting Agreement Between KGE Management Ltd. And
IMA Exploration Inc. dated October 3, 2002 (6)
4.53 Amendment to Agreement between the Company and Sean Hurd dated
June 10, 2002 (6)
4.54 Amendment to Consulting Services Agreement Between Oxbow
International Marketing Corp. and IMA Resource Corporation dated
April 17, 2003 (6)
4.55 Arrangement Agreement between IMA Exploration Inc., IMA Holdings
Corp. and Golden Arrow Resources Corporation dated May 14, 2004
(7)
4.56 Amendment to consulting Agreement with Nikolaos Cacos dated
January 5, 2004(8)
4.57 Amendment to Agreement with Sean Hurd dated January 5, 2004(8)
4.58 Financial Advisory Services Agreement with Endeavour Financial
Ltd. (8)
4.59 Agreement between the Company and Amera Resources Corporation
dated March 6, 2003 relating to the Lago Pico, Loma Alta and Nueva
Ruta properties(8)
4.60 Amendment to Letter of Intent with Amera Resources Corporation
dated September 30, 2003(8)
4.61 Amendment to Letter of Intent with Amera Resources Corporation
dated April 8, 2004(8)
4.62 Letter Agreement with Beauregard Holdings Corp. dated February 5,
2004 regarding office lease(8)
4.63 Option Agreement dated September 22, 2003, between the Company and
Cloudbreak Resources Ltd.(8)
4.64 Option Agreement dated August 12, 2003 between the Company and
Consolidated Pacific Bay Minerals Ltd.(8)
4.65 Option agreement dated June 11, 2003, between the Company and
Ballad Gold & Silver Ltd. (formerly Ballad Ventures Ltd.)(8)
4.66 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.(8)
4.67 Letter Agreement with Arthur Lang dated April 23, 2004(8)
4.68 Arrangement Agreement by and among the Company, Golden Arrow
Resources Corporation and IMA Holdings Corp. dated May 14, 2004(9)
4.69 Indemnity Agreement provided to Golden Arrow Resources Corporation
dated 7th day of July 2004(9)
4.70 Administration Services Agreement with the Grosso Group Management
Ltd. dated January 1, 2005 (9)
4.71 Amendment to Consulting Agreement Between KGE Management Ltd. and
IMA Exploration Inc. dated April 1, 2005 (9)
4.72 Amendment to Consulting Agreement Between KGE Management Ltd. and
IMA Exploration Inc. dated January 26, 2006
117
EXHIBIT
NUMBER EXHIBIT
4.73 Advisory Services Agreement Between RSA Holdings Ltd. and IMA
Exploration Inc. dated February 14, 2006
4.74 Auditor Consent Letter
8.1 List of Subsidiaries (8)
12.1 Certification of Joseph Grosso Pursuant to Rule 13a-14(a)
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.
(8) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed June 23, 2004. File Number 0-30464.
(9) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed June 7, 2005. File Number 0-30464.
118
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: May 8, 2006
119
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
F-1
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of the Company have been
prepared by management in accordance with accounting principles generally
accepted in Canada and reconciled to accounting principles generally accepted in
the United States as set out in Note 10 and contain estimates based on
management's judgement. Management maintains an appropriate system of internal
controls to provide reasonable assurance that transactions are authorized,
assets safeguarded, and proper records maintained.
The Audit Committee of the Board of Directors has met with the Company's
independent auditors to review the scope and results of the annual audit, and to
review the financial statements and related financial reporting matters prior to
submitting the financial statements to the Board for approval.
The Company's independent auditors, PricewaterhouseCoopers LLP, are appointed by
the shareholders to conduct an audit in accordance with generally accepted
auditing standards in Canada and the Public Company Accounting Oversight Board
(United States), and their report follows.
/s/ JOSEPH GROSSO /s/ ART LANG
----------------- -----------------------
Joseph Grosso Art Lang
President Chief Financial Officer
March 24, 2006
F-2
PRICEWATERHOUSECOOPERS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
PricewaterhouseCoopers Place
250 Howe Street, Suite 700
Vancouver, British Columbia
Canada V6C 3S7
Telephone 1 604 806 7000
Facsimile 1 604 806 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, 2005 and December 31, 2004 and the consolidated statements of
operations and deficit and cash flows for the years ended December 31, 2005,
2004 and 2003. 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 Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(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, 2005
and 2004 and the results of its operations and its cash flows for the years
ended December 31, 2005, 2004 and 2003 in accordance with Canadian generally
accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
March 24, 2006
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and the other memeber firms of PricewaterhouseCoopers International Limited,
each of which is a seperate and independent legal entity.
F-3
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
2005 2004
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 7,731,395 5,227,354
Accounts receivable, prepaids and
deposits (Note 5 and 7) 548,492 162,802
Marketable securities (Note 4) 186,000 186,000
------------ ------------
8,465,887 5,576,156
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Note 5) - 94,102
MINERAL PROPERTIES AND
DEFERRED COSTS (Notes 2 and 8) 15,032,107 6,551,598
------------ ------------
23,497,994 12,221,856
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 976,811 523,378
FUTURE INCOME TAX LIABILITIES (Note 8) 1,760,110 885,093
------------ ------------
2,736,921 1,408,471
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 50,414,672 36,982,307
CONTRIBUTED SURPLUS (Note 6) 5,854,445 3,428,382
DEFICIT (35,508,044) (29,597,304)
------------ ------------
20,761,073 10,813,385
------------ ------------
23,497,994 12,221,856
============ ============
NATURE OF OPERATIONS AND CONTINGENCY (Note 1)
COMMITMENTS (Note 7)
SUBSEQUENT EVENTS (Note 12)
APPROVED BY THE BOARD
/s/ DAVID HORTON , Director
------------------------
/s/ ROBERT STUART ANGUS , Director
------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
2005 2004 2003
$ $ $
EXPENSES
Administrative and management services 150,340 240,084 119,921
Corporate development and investor relations 525,938 317,987 196,537
General exploration 55,914 228,961 226,956
Office and sundry 148,015 107,678 52,118
Professional fees 2,327,278 894,780 198,876
Rent, parking and storage 72,791 90,629 35,552
Salaries and employee benefits 585,560 313,409 98,202
Stock based compensation (Note 6) 1,800,000 1,972,860 1,487,235
Telephone and utilities 26,648 34,165 18,681
Transfer agent and regulatory fees 199,715 57,743 34,078
Travel and accommodation 256,035 203,591 52,175
Cost recoveries (Note 7) - (149,271) (17,290)
------------ ------------ ------------
6,148,234 4,312,616 2,503,041
------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (6,148,234) (4,312,616) (2,503,041)
------------ ------------ ------------
OTHER EXPENSE (INCOME)
Foreign exchange (232,954) 195,285 12,763
Reorganization costs - 346,103 -
Interest and other income (150,406) (101,589) (66,561)
Gain on options and disposition of
mineral properties - (328,346) -
Write-down of marketable securities - 99,762 -
------------ ------------ ------------
(383,360) 211,215 (53,798)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (5,764,874) (4,523,831) (2,449,243)
Loss allocated to spin-off assets (Note 2) - 131,232 969,175
------------ ------------ ------------
LOSS FOR THE YEAR (5,764,874) (4,655,063) (3,418,418)
DEFICIT - BEGINNING OF YEAR (29,597,304) (17,577,363) (14,158,945)
DISTRIBUTION OF EQUITY ON SPIN-OFF OF ASSETS
TO GOLDEN ARROW (Note 2) (145,866) (7,364,878) -
------------ ------------ ------------
DEFICIT - END OF YEAR (35,508,044) (29,597,304) (17,577,363)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE
FROM CONTINUNG OPERATIONS $(0.12) $(0.11) $(0.08)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.12) $(0.11) $(0.11)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 46,197,029 40,939,580 32,251,753
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
2005 2004 2003
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (5,764,874) (4,655,063) (3,418,418)
Net loss allocated to spin-off assets - 131,232 969,175
------------ ------------ ------------
Net loss from continuing operations (5,764,874) (4,523,831) (2,449,243)
Items not affecting cash
Depreciation - 26,665 13,257
Stock based compensation 1,800,000 1,972,860 1,487,235
Gain on options and disposition of
mineral properties - (328,346) -
Write-down of marketable securities - 99,762 -
------------ ------------ ------------
(3,964,874) (2,752,890) (948,751)
Change in non-cash working capital balances 115,256 74,785 182,698
------------ ------------ ------------
(3,849,618) (2,678,105) (766,053)
Cash used in spin-off operations - (283,629) (653,496)
------------ ------------ ------------
(3,849,618) (2,961,734) (1,419,549)
------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties
and deferred costs (7,025,492) (4,448,659) (1,069,228)
Net mineral properties and marketable securities
cash flow related to spin-off assets - 32,592 (781,533)
Proceeds from sale/(purchase) of equipment 46,589 (93,650) (21,875)
------------ ------------ ------------
(6,978,903) (4,509,717) (1,872,636)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 14,215,165 9,707,897 6,467,245
Share issuance costs (736,737) (411,237) (188,850)
------------ ------------ ------------
13,478,428 9,296,660 6,278,395
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,649,907 1,825,209 2,986,210
CASH TRANSFERRED TO GOLDEN ARROW (Note 2) (145,866) (1,020,189) -
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,504,041 805,020 2,986,210
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 5,227,354 4,422,334 1,436,124
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR 7,731,395 5,227,354 4,422,334
============ ============ ============
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
Cash 151,395 927,354 1,622,334
Term Deposits 7,580,000 4,300,000 2,800,000
------------ ------------ ------------
7,731,395 5,227,354 4,422,334
============ ============ ============
SUPPLEMENTARY CASH FLOW INFORMATION (Note 11)
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(EXPRESSED IN CANADIAN DOLLARS)
NAVIDAD
NAVIDAD AREAS IVA TAX TOTAL
$ $ $ $
Balance, beginning of year 5,770,968 112,694 667,936 6,551,598
------------ ------------ ------------ ------------
Expenditures during the year
Assays 316,220 - - 316,220
Communications 28,100 51 - 28,151
Drilling 2,188,346 - - 2,188,346
Engineering 53,340 - - 53,340
Environmental 391,816 - - 391,816
Geophysics 176,036 - - 176,036
Metallurgy 501,070 - - 501,070
Office and other 95,310 640 - 95,950
Petrography 13,563 - - 13,563
Salaries and Contractors (Note 6 (d)) 1,539,569 - - 1,539,569
Supplies and Equipment 441,012 41 - 441,053
Transportation 248,554 - - 248,554
Project Development 828,036 - - 828,036
IVA Tax - - 783,788 783,788
------------ ------------ ------------ ------------
6,820,972 732 783,788 7,605,492
------------ ------------ ------------ ------------
Future income tax (Note 8) 875,017 - - 875,017
------------ ------------ ------------ ------------
Balance, end of year 13,466,957 113,426 1,451,724 15,032,107
============ ============ ============ ============
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, 2004
(EXPRESSED IN CANADIAN DOLLARS)
GOLDEN ARROW
NAVIDAD SUBTOTAL RELATED
NAVIDAD AREAS IVA TAX NAVIDAD PROPERTIES TOTAL
$ $ $ $ $ $
Balance, beginning of year 1,253,391 16,178 199,457 1,469,026 6,744,907 8,213,933
------------ ------------ ------------ ------------ ------------ ------------
Expenditures during the year
Assays 567,364 - - 567,364 1,702 569,066
Communications 13,729 - - 13,729 - 13,729
Drilling 1,663,984 - - 1,663,984 - 1,663,984
Environmental 252,201 - - 252,201 65,166 317,367
Office and other 172,874 22,786 - 195,660 48,798 244,458
Salaries and Contractors 994,912 2,949 - 997,861 2,339 1,000,200
Supplies and Equipment 147,422 529 - 147,951 - 147,951
Transportation 51,583 - - 51,583 - 51,583
Option payments 19,595 70,252 - 89,847 12,048 101,895
IVA Tax - - 468,479 468,479 - 468,479
------------ ------------ ------------ ------------ ------------ ------------
3,883,664 96,516 468,479 4,448,659 130,053 4,578,712
------------ ------------ ------------ ------------ ------------ ------------
Balance, before transfer 5,137,055 112,694 667,936 5,917,685 6,874,960 12,792,645
Future income tax (Note 8) 633,913 - - 633,913 - 633,913
Property transfer to Golden Arrow - - - - (6,874,960) (6,874,960)
------------ ------------ ------------ ------------ ------------ ------------
Balance, end of year 5,770,968 112,694 667,936 6,551,598 - 6,551,598
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS AND CONTINGENCY
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in
Argentina. The Company presently has no proven or probable reserves and
on the basis of information to date, it has not yet determined whether
these properties contain economically recoverable ore reserves.
Consequently the Company considers itself to be an exploration stage
company. The amounts shown as mineral properties and deferred costs
represent costs incurred to date, less amounts amortized and/or written
off, and do not necessarily represent present or future values. The
underlying value of the mineral properties and deferred costs is
entirely dependent on the existence of economically recoverable
reserves, securing and maintaining title and beneficial interest in the
properties, the ability of the Company to obtain the necessary
financing to complete development, and future profitable production.
The Company considers that it has adequate resources to maintain its
core operations for the next fiscal year but currently does not have
sufficient working capital to fund all of its planned exploration and
development work. The Company will continue to rely on successfully
completing additional equity financing.
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action
against the Company seeking a constructive trust over the Navidad
properties and damages. On September 29, 2005 the Company made an offer
to Aquiline to settle the litigation. The Board of Directors decided to
make the offer due to the inherent risks of litigation, to minimize the
significant legal costs and most importantly to allow the Company to
continue with its business plan to develop Navidad. The offer was
rejected and the action continued on to trial. The trial commenced on
October 11, 2005 and ended on December 12, 2005. The Court's decision
is expected in the first half of 2006. At this date the outcome is not
determinable. The Company has not made any provision for costs for
which it might become liable in what management considers the unlikely
event of an adverse judgment. However, in the event of an adverse
judgment the Company may suffer loss and such loss could be material;
the Company might not be able to proceed with its plans for the
development of Navidad and could lose the ownership rights it currently
has over the project. The Company continues to expense the legal and
related costs of defending the action as they are incurred and has not
made a provision for the future costs that will be incurred or their
potential recovery from the plaintiff.
2. SPIN-OFF OF ASSETS
On July 7, 2004, the Company completed a corporate restructuring plan
(the "Reorganization") which resulted in dividing the Company's assets
and liabilities into two separate companies. Following the
Reorganization the Company continued to hold the Navidad Area
properties, while all other mineral property interests, certain
marketable securities and cash were spun-off to Golden Arrow Resources
Corporation ("Golden Arrow"), a newly created company. The Navidad
project, located in the province of Chubut Argentina, was staked by the
Company in late 2002 and continues to be the focus of the Company's
activities. The Reorganization of the Company was accomplished by way
of a statutory plan of arrangement. The shareholders of the Company
were issued shares in Golden Arrow on the basis of one Golden Arrow
share for ten shares of the Company. On completion of the
Reorganization, the Company transferred to Golden Arrow:
i) all of the Company's investment in its mineral properties,
excluding the Navidad project and Navidad Area properties and
related future income tax liabilities;
ii) the assets and liabilities of IMPSA Resources (BVI) Inc.,
Inversiones Mineras Argentinas Holdings (BVI) Inc., both
wholly-owned subsidiaries of the Company, and IMPSA Resources
Corporation, an 80.69% owned subsidiary of the Company;
iii) certain marketable securities at their recorded values;
iv) cash and cash equivalents
F-9
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
2. SPIN-OFF OF ASSETS (continued)
The aggregate carrying amount of the net assets transferred from the
Company to Golden Arrow during 2004 is as follows:
2004
$
Cash and cash equivalents 1,020,189
Marketable securities and other current
assets and liabilities 548,841
Mineral properties and deferred cost and equipment 6,874,960
Future income tax liabilities (1,079,112)
------------
7,364,878
=============
During 2005 the Company paid $145,866 to Golden Arrow from the exercise
of warrants of the Company that resulted in the issue of Golden Arrow
shares as required by the terms of the Reorganization. As all warrants
that were outstanding as of the effective date of the reorganization
have been exercised the Company has no further obligation to pay
amounts to Golden Arrow for the issue of its shares on the exercise of
the Company's warrants.
The Company's comparative amounts in the Statement of Operations and
Deficit include an allocation of general and administrative expenses as
Loss allocated to spin-off assets. The allocation was calculated on the
basis of the ratio of the specific assets transferred to assets
retained. Certain "Other Income and Expense" items have been allocated
to spin-off assets on a cost specific basis.
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.
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
include the determination of environmental obligations, the
recoverability of mineral properties, and the assumptions used in the
determination of the fair value of stock based compensation. Actual
results may differ from these estimates.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. The
Company's principal subsidiary is Inversiones Mineras Argentinas S.A..
All inter-company transactions and balances have been eliminated.
F-10
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments
maturing within 90 days of initial investment.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost and 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 then the costs are written-off,
or if its carrying value has been impaired, then the mineral properties
and deferred costs are written down to fair value.
The Company accounts for foreign value added taxes paid as part of
mineral properties and deferred costs. The recovery of these taxes will
commence on the beginning of foreign commercial operations. Should
these amounts be recovered they would be treated as a reduction in
carrying costs of mineral properties and deferred costs.
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not
guarantee the Company's title. Such properties may be subject to prior
agreements or transfers and title may be affected by undetected
defects.
From time to time, the Company acquires or disposes of properties
pursuant to the terms of option agreements. Options are exercisable
entirely at the discretion of the optionee and, accordingly, are
recorded as mineral property costs or recoveries when the payments are
made or received. After costs are recovered, the balance of the
payments received are recorded as a gain on option or disposition of
mineral property.
EQUIPMENT
Equipment, which comprises leasehold improvements and office furniture
and equipment, is recorded at cost less accumulated amortization
calculated using the straight-line method over their estimated useful
lives of five years.
F-11
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations are recognized when a legal or
constructive obligation arises. This liability is recognized at the
fair value of the asset retirement obligation. When the liability is
initially recorded the Company capitalizes the cost by increasing the
carrying amount of the related long-lived assets. Over time the
liability is accreted to its present value each period, and the
capitalized cost is amortized over the useful life of the related
asset. Upon settlement of the liability, the Company may incur a gain
or loss. As at December 31, 2005 the Company does not have any asset
retirement obligations.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment when events or
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 are 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 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.
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 due to the
short-term nature of those instruments. As of December 31, 2005, the
market value of marketable securities was $270,000 (2004 - $270,000).
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. Potential
future income tax assets are not recognized to the extent that they are
not considered likely to be realized.
F-12
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
LOSS PER SHARE
Loss per share is calculated based on the weighted average number of
common shares issued and outstanding during the year. The effect of
potential issuances of shares under options and warrants would be
anti-dilutive and therefore basic and diluted losses per share are the
same. Information regarding securities that could potentially dilute
basic earnings per share in the future is presented in Note 6.
STOCK BASED COMPENSATION
The Company has an employee stock option plan. The Company recognizes
an expense or addition to exploration properties and deferred
exploration expenditures arising from stock options granted to both
employees and non-employees using the fair value method. The fair value
of option grants is generally established at the date of grant using a
Black Scholes option pricing model and the expense or addition to
mineral properties is recognized over the vesting period.
VARIABLE INTEREST ENTITIES
Effective January 1, 2005, the Company adopted Accounting Guideline
AcG-15, Consolidation of Variable Interest Entities, which requires
consolidation of entities in which the Company expects to receive or
absorb the majority of the entity's expected losses, expected residual
returns or both. The Company has determined that it has no variable
interest entities.
COMPARATIVE FIGURES
Certain of the prior year comparatives have been reclassified to
conform with the current year's presentation.
4. MARKETABLE SECURITIES
2005 2004
---------------------------- ----------------------------
QUOTED QUOTED
RECORDED MARKET RECORDED MARKET
VALUE VALUE VALUE VALUE
$ $ $ $
Tinka Resources Limited
- 300,000 common shares 96,000 126,000 96,000 180,000
Consolidated Pacific Bay Minerals Ltd.
- 900,000 common shares 90,000 144,000 90,000 90,000
------------ ------------ ------------ ------------
186,000 270,000 186,000 270,000
============ ============ ============ ============
The Company has entered into option and sale agreements on certain of
its non-core mineral property holdings in which the Company received
common shares of publicly-traded companies as partial consideration.
F-13
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
5. EQUIPMENT AND LEASHOLD IMPROVEMENTS
2005 2004
------------ -------------
$ $
Office equipment and computers - 231,724
Leasehold improvements - 96,634
------------ ------------
- 328,358
Less: Accumulated depreciation - (234,256)
------------ ------------
- 94,102
============ ============
On May 6, 2005, on the signing of an Administration Services Agreement,
the Company transferred its corporate equipment and leasehold
improvements to Grosso Group Management Ltd. (the "Grosso Group") at
their carrying values of $93,177 as of December 31, 2004. As of
December 31, 2005 the Company has received $46,589 from the Grosso
Group for these assets. The remaining balance due from the Grosso Group
is included in Accounts Receivable.
6. SHARE CAPITAL
Authorized - unlimited common shares without par value
- 100,000,000 preferred shares without par value
NUMBER $
Issued - common shares
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
Private placement 1,500,000 4,650,000
Exercise of options 441,650 597,910
Exercise of agents' options 121,820 184,838
Contributed surplus reallocated on
exercise of options - 226,630
Exercise of warrants 5,371,285 4,275,149
Proceeds collected and paid on behalf
of Golden Arrow shares - (107,544)
Less share issue costs - (552,273)
------------ ------------
Balance, December 31, 2004 43,816,207 36,982,307
Private placement 3,333,340 10,000,020
Exercise of options 10,000 31,000
Exercise of agents' options 168,000 546,000
Contributed surplus reallocated
on exercise of options - 131,270
Exercise of warrants 1,485,517 3,784,011
Proceeds collected and paid on behalf
of Golden Arrow shares - (145,866)
Less share issue costs - (914,070)
------------ ------------
Balance, December 31, 2005 48,813,064 50,414,672
============ ============
F-14
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
(a) During fiscal 2005, the Company completed a brokered private
placement for 3,333,340 units at $3.00 per unit, for proceeds
of $9,263,283 net of $600,001 agent's commission and $136,736
of related issue costs. Each unit consisted of one common
share and one half common share purchase warrant. Each full
warrant entitles the holder thereof to purchase one additional
common share at a price of $3.45 per share until September 14,
2009. In addition to the cash commission the underwriters were
granted as commission 233,334 underwriter's warrants,
representing 7% of the number of units issued. Each
underwriter's warrant is exercisable for one share at a price
of $3.25, for a period of twenty four months, expiring on
September 12, 2007. The underwriter's warrants were valued
using the Black-Sholes Pricing Model. The warrants were valued
at $0.76 per warrant for a total value of $177,333 and have
been recorded as share issue costs with a corresponding
increase to contributed surplus. At December 31, 2005, no
underwriter's warrants had been exercised.
(b) During fiscal 2004, the Company completed a brokered private
placement of 1,500,000 units at $3.10 per unit for proceeds of
$4,238,763, net of $339,000 agent's commission and $72,237 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 compensation options to the agent
to acquire 200,000 shares at $3.25 per share and 100,000
warrants at $3.70 per share on or before February 23, 2005.
The compensation options granted were valued at $0.705 per
option using the Black-Scholes Option Pricing Model, for a
total value of $141,036, which has been recorded as share
issue costs with a corresponding increase to contributed
surplus. At December 31, 2004, a total of 32,000 compensation
options had been exercised. The balance of 168,000
compensation options was exercised during 2005.
(c) 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.
(d) Stock options and stock based compensation
The Company grants stock options in accordance with the
policies of the TSX Venture Exchange ("TSXV"). The stock
options granted during 2005 are subject to a four month hold
period and exercisable for a period of five years. A summary
of the Company's outstanding options at December 31, 2005,
2004 and 2003 and the changes for the years ending on those
dates is presented below:
2005 2004 2003
--------------------- --------------------- ---------------------
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, 3,568,500 2.10 2,528,150 1.32 2,465,500 0.44
Beginning of year
Granted 1,360,000 3.74 1,512,000 3.14 1,918,500 1.60
Exercised (10,000) 3.10 (441,650) 1.14 (1,855,850) 0.44
Cancelled (37,500) 3.92 (30,000) 3.10 - -
----------- ----------- -----------
Balance, end of year 4,881,000 2.54 3,568,500 2.10 2,528,150 1.32
=========== =========== ===========
F-15
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
Stock options outstanding and exercisable at December 31, 2005
are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
205,000 0.40 July 19, 2006
119,000 0.50 May 2, 2007
115,000 0.50 September 23, 2007
90,000 0.84 March 7, 2008
300,000 0.90 May 30, 2008
1,305,000 1.87 August 27, 2008
1,347,000 3.10 March 24, 2009
25,000 3.10 March 24, 2007
50,000 4.20 December 01, 2009
865,000 4.16 March 16, 2010
460,000 2.92 November 16, 2010
----------
4,881,000
==========
During fiscal 2005, the Company granted 1,360,000 stock
options (2004 - 1,512,000; 2003 - 1,918,500). The fair value
of stock options granted is estimated on the dates of grants
using the Black-Scholes Option Pricing Model with the
following assumptions used for the grants made during the
year:
2005 2004 2003
Risk-free interest rate 3.32% - 3.70% 2.38% 3.76% - 4.16%
Estimated volatility 70% - 77% 77% 74% - 78 %
Expected life 2.5 years 2.5 years 2.5 years
Expected dividend yield 0% 0% 0%
For 2005, stock based compensation of $2,380,000 (2004:
1,972,869; 2003: 1,487,235) was recorded by the Company, of
which $1,800,000 (2004: $1,972,860; 2003: $1,487,235) is
included in expenses and $580,000 (2004: Nil; 2003: Nil) is
included in capitalized mineral property expenditures, with a
corresponding increase in contributed surplus.
The weighted average fair value per share of stock options
granted during the year was $1.76 per share (2004 - $1.28;
2003 - $0.63). 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, 2005, 2004 and 2003 and the
changes for the years ending on those dates is as follows:
F-16
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
2005 2004 2003
Balance,
beginning of year 1,422,017 6,042,448 9,511,550
Issued 1,984,004 810,909 1,502,965
Exercised (1,485,517) (5,371,285) (4,969,066)
Cancelled - (38,955) -
Expired (20,500) (21,100) (3,001)
---------- ---------- ----------
Balance,
end of year 1,900,004 1,422,017 6,042,448
========== ========== ==========
Common shares reserved pursuant to warrants and agent warrants
outstanding at December 31, 2005 are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
1,666,670 3.45 September 14, 2009
233,334 3.25 September 13, 2007
----------
1,900,004
==========
7. RELATED PARTY TRANSACTIONS
(a) Effective January 1, 2005 the Company engaged the Grosso Group
to provide services and facilities to the Company. The Grosso
Group is a private company owned by the Company, Golden Arrow,
Amera Resources Corporation ("Amera") and Gold Point Energy
Corp., each of which owns one share. The Grosso Group provides
its shareholder companies with geological, corporate
development, administrative and management services. The
shareholder companies pay monthly fees to the Grosso Group.
The fee is based upon a reasonable pro-rating of the Grosso
Group's costs including its staff and overhead costs among
each shareholder company with regard to the mutually agreed
average annual level of services provided to each shareholder
company. During fiscal 2005, the Company incurred fees of
$730,802 to the Grosso Group: $764,012 was paid in twelve
monthly payments and $33,210 is included in accounts
receivable, prepaids and deposits as a result of a review of
the allocation of the Grosso Group costs to the member
companies for the year. In addition, included in accounts
receivable, prepaids and deposits is a $205,000 deposit to the
Grosso Group for the purchase of equipment and leasehold
improvements and for operating working capital.
(b) During fiscal 2005, the Company paid $241,088 (2004 -
$476,226; 2003 - $330,600) to directors and officers or
companies controlled by directors and officers of the Company,
for accounting, management and consulting services provided.
(c) Prior to the signing of the Administration Services Agreement
with the Grosso Group in 2005, the Company shared its office
facilities with Amera and Golden Arrow. During fiscal 2005,
the Company received $nil (2004 - $66,390; 2003 - $35,110)
from Amera and $nil (2004 - $57,000; 2003 - $Nil) from Golden
Arrow for shared rent and administration costs.
(d) The Company has agreements with a company controlled by the
wife of the President of the Company for the rental of office
premises. Effective January 1, 2005 the Company subleased the
office premises to the Grosso Group.
F-17
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
7. RELATED PARTY TRANSACTIONS (continued)
(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, 2005, the amount payable under the agreement would be
$1,047,000.
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:
2005 2004 2003
$ $ $
Statutory tax rate 34.12% 35.62% 37.62%
============ ============ ============
Loss for the year (5,764,874) (4,655,063) (3,418,418)
============ ============ ============
Provision for income taxes based on
statutory Canadian combined federal
and provincialincome tax rates (1,966,975) (1,658,133) (1,286,009)
Differences in foreign tax rates - (114,390) (383,116)
Losses for which an income tax benefit
has not been recognized 1,966,975 1,722,523 1,669,125
------------ ------------ ------------
- - -
============ ============ ============
The significant components of the Company's future tax assets are as
follows:
2005 2004
$ $
Future income tax assets
Financing costs 472,437 192,369
Operating loss carryforward 4,709,496 3,594,455
------------ ------------
5,181,933 3,786,824
Valuation allowance for future tax assets (5,181,933) (3,786,824)
------------ ------------
- -
============ ============
FUTURE INCOME TAX LIABILITIES
For certain acquisitions and other payments for mineral property
interests, the Company records a future income tax liability and a
corresponding adjustment to the related asset carrying amount. During
the year ended December 31, 2005, the Company recorded a future income
tax liability of $875,017 (2004 - $633,913) and a corresponding
adjustment to mineral properties.
F-18
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
8. INCOME TAXES (continued)
2005 2004
$ $
Future income tax liabilities 1,760,110 885,093
============ ============
The Company has Canadian non-capital loss carryforwards of $13,684,112
that may be available for tax purposes. The losses expire as follows:
EXPIRY DATE $
2006 1,255,915
2007 1,261,932
2008 841,160
2009 1,317,729
2010 1,545,964
2014 2,752,324
2015 4,709,088
-----------
13,684,112
===========
9. SEGMENTED INFORMATION
The Company is involved in mineral exploration and development
activities, which are conducted principally in Argentina. The Company
is in the exploration stage and, accordingly, has no reportable segment
revenues or operating results for each of fiscal 2005 and 2004.
The Company's total assets are segmented geographically as follows:
DECEMBER 31, 2005
--------------------------------------------
CORPORATE ARGENTINA TOTAL
$ $ $
Current assets 8,331,000 134,887 8,465,887
Mineral properties
and deferred costs - 15,032,107 15,032,107
------------ ------------ ------------
8,331,000 15,166,994 23,497,994
============ ============ ============
DECEMBER 31, 2004
--------------------------------------------
CORPORATE ARGENTINA TOTAL
$ $ $
Current assets 5,438,079 138,077 5,576,156
Equipment 93,177 925 94,102
Mineral properties
and deferred costs - 6,551,598 6,551,598
------------ ------------ ------------
5,531,256 6,690,600 12,221,856
============ ============ ============
F-19
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
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 effects of 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:
2005 2004 2003
$ $ $
CONSOLIDATED STATEMENTS OF OPERATIONS
Loss for the year under Canadian GAAP (5,764,874) (4,655,063) (3,418,418)
Mineral properties and deferred costs for the year (i) (8,480,509) (5,212,625) (2,134,757)
Reversal of Future income tax liability (i) 875,017 633,913 322,217
Write down of marketable securities - 99,762 -
Mineral properties and deferred costs written off
during the year which would have been
expensed in the year incurred (i) - - 776,626
Stock-based compensation (iii) - - (144,000)
------------ ------------ ------------
Loss for the year under US GAAP (13,370,366) (9,134,013) (4,598,332)
Unrealized gains (losses)
on available-for-sale securities (ii) - (387,160) 434,346
------------ ------------ ------------
Comprehensive loss (iv) (13,370,366) (9,521,173) (4,163,986)
============ ============ ============
Basic and diluted loss per share under US GAAP (0.29) (0.22) (0.14)
============ ============ ============
Weighted average number of common shares outstanding 46,197,029 40,939,580 32,251,753
============ ============ ============
2005 2004
$ $
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP 20,761,073 10,813,385
Mineral properties and deferred costs expensed (i) (15,032,107) (6,551,598)
Reversal of Future income tax liability (i) 1,760,110 885,093
Accumulated other comprehensive income (ii) 84,000 84,000
------------ ------------
Balance per US GAAP 7,573,076 5,230,880
============ ============
2005 2004
$ $
MINERAL PROPERTIES AND DEFERRED COSTS
Balance per Canadian GAAP 15,032,107 6,551,598
Mineral properties and deferred costs
expensed under US GAAP (i) (15,032,107) (6,551,598)
------------ ------------
Balance per US GAAP - -
============ ============
F-20
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
2005 2004
$ $
FUTURE INCOME TAX LIABILITY
Balance per Canadian GAAP 1,760,110 885,093
Reversal of future income tax liability(i) (1,760,110) (885,093)
------------ ------------
Balance per US GAAP - -
============ ============
2005 2004 2003
$ $ $
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP (3,849,618) (2,961,734) (1,419,549)
Mineral properties and deferred costs(i) (7,025,492) (4,578,712) (1,850,761)
------------ ------------ ------------
Cash used per US GAAP (10,875,110) (7,540,446) (3,270,310)
============ ============ ============
2005 2004 2003
$ $ $
INVESTING ACTIVITIES
Cash used per Canadian GAAP (6,978,903) (4,509,717) (1,872,636)
Mineral properties and deferred costs(i) 7,025,492 4,578,712 1,850,761
------------ ------------ ------------
Cash provided by (used) per US GAAP 46,589 68,995 (21,875)
============ ============ ============
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 exploration costs relating
to unproven mineral properties as incurred, and reverses any
associated future income tax liabilities. 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-21
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(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 December 31, 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. As a result of a
Repricing, the Company recorded compensation cost in 2003.
During fiscal 2004, for US GAAP purposes, the Company adopted
the fair value based method of accounting for stock-based
compensation on a modified prospective basis in accordance
with FAS 148. This application is consistent with the early
application of CICA 3870 under Canadian GAAP (Note 3).
Accordingly, effective January 1, 2004, 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) Spin-Off of Assets to Golden Arrow
Under Canadian GAAP, a spin-off of assets is accounted for and
disclosed in accordance with CICA Handbook Section 3475
"Disposal of Long-Lived Assets and Discontinued Operations".
Under US GAAP, such a spin-off would be accounted for and
disclosed as a dividend in kind and would not require separate
carve-out of results in the statements of operations and cash
flows nor separate balance sheet classification.
vi) Recent Accounting Pronouncements
ACCOUNTING CHANGES AND ERROR CORRECTIONS
SFAS 154 , effective for accounting changes and error
corrections made in fiscal years beginning after December 15,
2005, has been introduced and requires, unless impracticable,
retroactive application as the required method for reporting
changes in accounting principles in the absence of
transitional provisions specific to the newly adopted
accounting principle. The Company will apply this standard for
US GAAP purposes commencing in fiscal 2006.
F-22
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
FINANCIAL INSTRUMENTS
On January 27, 2005, the CICA issued Section 3855 of the
Handbook titled "Financial Instruments - Recognition and
Measurement". It expands Handbook section 3860, "Financial
Instruments - Disclosure and Presentation" by prescribing when
a financial instrument is to be recognized on the balance
sheet and at what amount. It also specifies how financial
instrument gains and losses are to be presented. All financial
instruments will be required to be classified into various
categories. Held to maturity investments, loans and
receivables are measured at amortized cost with amortization
of premium or discounts and losses and impairment included in
current period interest income or expense. Held for trading
financial assets and liabilities are measured at fair market
value with all gains and losses included in net income in the
period in which they arise. All available for sale financial
assets are measured at fair market value with revaluation
gains and losses included in other comprehensive income until
the asset is removed from the balance sheet except that other
than temporary losses due to impairment are included in net
income. All other financial liabilities are to be carried at
amortized cost. This new Handbook section will bring Canadian
GAAP more in line with U.S. GAAP. The mandatory effective date
is for fiscal years beginning on or after October 1, 2006,
with optional early recognition for fiscal years beginning on
or after December 31, 2004. At present, the Company's most
significant financial instruments are cash and cash
equivalents, accounts receivable and accounts payable. This
new section requires little difference in accounting for these
financial instruments from current standards.
HEDGE ACCOUNTING
Handbook Section 3865, "Hedges" provides alternative
treatments to Handbook Section 3855 for entities which choose
to designate qualifying transactions as hedges for accounting
purposes. The effective date of this section is for fiscal
years beginning on or after October 1, 2006, with optional
early recognition for fiscal years beginning on or after
December 31, 2004.
The Company does not currently have any hedging relationships.
NON-MONETARY TRANSACTIONS
CICA Handbook Section 3831 "Non-Monetary Transactions" will be
applicable to the company commencing with the 2006 financial
year. Under this standard, exchanges of non-monetary assets
after January 1, 2006 would be recorded at carrying value if
they lack commercial substance.
COMPREHENSIVE INCOME
New Handbook Section 1530, "Comprehensive Income", introduces
a new requirement to temporarily present certain gains and
losses outside of income. Section 1530 defines comprehensive
income as a change in value of net assets that is not due to
owner activities. Assets that are classified as available for
sale will have revaluation gains and losses included in other
comprehensive income until the asset is removed from the
balance sheet.
At present, the Company has investments in shares of arm's
length corporations that may be classified as available for
sale investments. The Company would be required to recognize
unrealized gains and losses on these securities and include
these amounts in comprehensive income. The effective date of
this section is for fiscal years beginning on or after October
1, 2006, with optional early recognition for fiscal years
beginning on or after December 31, 2004. Implementation of
this section will more closely align Canadian GAAP with U.S.
GAAP.
F-23
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
11. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the
Company as follows:
2005 2004 2003
$ $ $
Investing activities
Proceeds on disposition of mineral properties - (252,000) (272,982)
Acquisition of marketable securities - 252,000 272,982
Expenditures on mineral properties and deferred costs (580,000) - -
Stock based compensation capitalized 580,000 - -
------------ ------------ ------------
- - -
============ ============ ============
2005 2004 2003
$ $ $
Financing activities
Shares issue costs (177,333) - -
Shares issued on exercise of options - 204,070 74,379
Contributed surplus 177,333 (204,070) (74,379)
------------ ------------ ------------
- - -
============ ============ ============
12. SUBSEQUENT EVENTS
Subsequent to December 31, 2005, the Company:
a) Completed on March 21, 2006 a syndicated brokered private
placement financing of 2,865,000 special warrants at $3.50 per
warrant for gross proceeds of $10,027,500. Each special
warrant will entitle the holder to acquire one unit consisting
of one common share and one half common share purchase
warrant. Each full warrant entitles the holder thereof to
purchase one additional common share in the capital of the
Company at a price of $3.80 per share until March 21, 2010. In
addition to a cash commission of 6% the underwriters were
granted 171,900 agents' warrants, representing 6% of the
number of special warrants issued. Each agents' warrant is
exercisable for one share at a price of $3.80, for a period of
twenty four months, expiring on March 21, 2008.
b) Issued 120,000 common shares for $172,900 on the exercises of
stock options.
F-24
IMA EXPLORATION INC.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2005
INTRODUCTION
The following management discussion and analysis and financial review, prepared
as of March 29, 2006, should be read in conjunction with the Company's audited
annual consolidated financial statements and related notes for the years ended
December 31, 2005 and 2004. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). Except as otherwise disclosed all dollar figures in this
report are stated in Canadian dollars. Additional information relevant to the
Company can be found on the SEDAR website at WWW.SEDAR.COM.
FORWARD LOOKING STATEMENTS
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different than those
expressed or implied. The Company disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in Argentina. At
present, the Company has no producing properties and consequently has no current
operating income or cash flows. As of this date the Company is an exploration
stage company and has not generated any revenues. The Company is entirely
dependent on the equity market for its source of funds. There is no assurance
that a commercially viable mineral deposit exists on any of the properties.
Further evaluation and exploration will be required before the economic
viability of any of the properties is determined.
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action against
the Company seeking a constructive trust over the Navidad properties and
damages. On September 29, 2005 the Company made an offer to Aquiline to settle
the litigation. The Board of Directors decided to make the offer due to the
inherent risks of litigation, to minimize the significant legal costs and most
importantly to allow the Company to continue with its business plan to develop
Navidad. The offer was summarily rejected within 24 hours and the action
continued on to trial. The trial commenced on October 11, 2005 and ended on
December 12, 2005. The Court is currently reviewing the thousands of pages of
transcripts from the two month long trial along with testimony from numerous
witnesses and the lengthy arguments submitted by both parties. The Court's
decision is expected in the first half of 2006. At this date the outcome is not
determinable. The Company has not made any provision for costs for which it
might become liable in what management considers the unlikely event of an
adverse judgment. However, in the event of an adverse judgment the Company may
suffer loss and such loss could be material; the Company might not be able to
proceed with its plans for the development of Navidad and could lose the
ownership rights it currently has over the project. The Company continues to
expense the legal and related costs of defending the action as they are incurred
and has not made a provision for the future costs that will be incurred or their
potential recovery from the plaintiff.
During the year ended December 31, 2004 the Company completed its
reorganization, which had the effect of transferring all the non-Navidad mineral
properties and related assets to a new corporation, Golden Arrow Resources
Corporation ("Golden Arrow"). The reorganization allowed the Company to focus
all its efforts and resources on the Navidad project located in Chubut Province,
Argentina. The ongoing exploration programs have returned excellent results.
Effective January 1, 2005, the Company engaged Grosso Group Management Ltd.,
("Grosso Group") to provide services and facilities to the Company. On May 6,
2005, an administrative services agreement was finalized and executed by the
Company and the Grosso Group. The Grosso Group is a private company which is
owned by the Company, Golden Arrow, Amera Resources Corporation ("Amera") and
Gold Point Energy Corp. ("Gold Point"), each of which own one share. The Grosso
Group provides its shareholder companies with geological, corporate development,
F-25
administrative and management services. The Grosso Group staff is available to
the shareholder companies on a cost recovery basis without the expense of full
time personnel. The shareholder companies pay monthly fees to the Grosso Group.
The fee is based upon a reasonable pro-rating of the Grosso Group's costs
including its staff and overhead costs among each shareholder company with
regard to the mutually agreed average annual level of services provided to each
shareholder company.
In March 2005 the Company engaged the services of Augusto Baertl of Lima, Peru,
to determine the economic feasibility of the Navidad Project, through a contract
with Mr. Baertl's company, Gestora de Negocios e Inversiones SA. A scoping study
is in process as a first step in the determination of the economic viability of
Navidad. Mr. Baertl's mandate is a continuing one whose objective is ultimately
the achievement of commercial production.
PROPERTIES UPDATE
NAVIDAD
On February 3, 2003 the Company announced the discovery of silver-lead-copper
mineralization at its 100% owned 10,000 hectare (24,700 acres) Navidad property
in north central Chubut Province, Argentina. A Phase I drill program commenced
in November 2003 and was completed in late March 2004. A Phase II drill program
commenced in late May 2004 and was completed in September 2004. Phase III drill
program commenced in November 2004 and was completed in September 2005. The
Company commenced a Phase IV drill program in January 2006 that is ongoing at
the present time.
On May 25, 2004, just six months after the first drilling on the Navidad
Project, the Company released the first resource estimate for the Galena Hill
deposit. Since then, a number of resource estimate updates have been released,
the most recent on February 16, 2006 in which the Company reported that Navidad
Project Indicated resources are estimated at 93.4 million tonnes grading 102 g/t
silver and 1.41% lead for a total of 305.7 million ounces silver and 2.90
billion pounds of lead (1.32 million tonnes) making the Navidad discovery a
truly world class silver-lead deposit.
In December 2005 the Company released preliminary metallurgical test results and
announced that it has retained the international mining consulting firm Pincock,
Allen and Holt of Denver, Colorado, to prepare a conceptual study of the Navidad
project. This study is expected to provide preliminary technical, legal, social,
environmental and economic parameters of the Navidad project to guide the
ongoing development of the project. It will be based on the resources outlined
in the February 2006 update.
In addition to its active exploration program, the Company has made a strong
commitment to its ongoing community relations and environmental baseline data
collection programs in the project area. The Company intends to continue
expanding the silver and lead resources at Navidad by systematically drill
testing exploration targets as well as expanding and better defining areas where
resources have been defined.
INDICATED AND INFERRED RESOURCES
On February 16, 2006 the Company announced the results of an updated resource
estimation carried out by Snowden Mining Industry Consultants Inc. ("Snowden")
which included Indicated and Inferred Resources at Calcite NW. IMA has now
defined continuous silver resources over a 3.6 kilometre strike length along the
Navidad Trend in the Galena Hill, Connector Zone, Navidad Hill, Calcite Hill and
Calcite NW deposits. Inferred and indicated resources estimated to date on the
Navidad Project are presented in the table below at a range of cut-off grades:
NAVIDAD PROJECT INDICATED RESOURCES AT 50 G/T SILVER EQUIVALENT CUT-OFF(1):
--------------------------------------------------------------------------------
THOUSAND CONTAINED CONTAINED
CUT-OFF GRADE TONNES SILVER COPPER LEAD ZINC SILVER LEAD
(g/t AgEq(1)) (g/t) (%) (%) (%) (M ozs) (M lbs)
--------------------------------------------------------------------------------
50 93,393 102 0.05 1.41 0.16 305.73 2,900
--------------------------------------------------------------------------------
60 83,134 110 0.05 1.52 0.17 293.86 2,792
--------------------------------------------------------------------------------
80 74,498 118 0.05 1.64 0.18 281.83 2,690
--------------------------------------------------------------------------------
100 66,615 126 0.05 1.76 0.19 269.06 2,583
--------------------------------------------------------------------------------
200 53,715 141 0.06 2.01 0.21 243.99 2,376
--------------------------------------------------------------------------------
300 22,456 213 0.06 3.03 0.29 153.57 1,498
--------------------------------------------------------------------------------
F-26
NAVIDAD PROJECT INFERRED RESOURCES AT 50 G/T SILVER EQUIVALENT CUT-OFF(1):
--------------------------------------------------------------------------------
THOUSAND CONTAINED CONTAINED
CUT-OFF GRADE TONNES SILVER COPPER LEAD ZINC SILVER LEAD
(g/t AgEq(1)) (g/t) (%) (%) (%) (M ozs) (M lbs)
--------------------------------------------------------------------------------
50 11,063 65 0.03 0.85 0.12 23.03 207
--------------------------------------------------------------------------------
60 9,056 72 0.03 0.91 0.12 20.93 183
--------------------------------------------------------------------------------
80 5,576 92 0.04 1.02 0.13 16.44 125
--------------------------------------------------------------------------------
100 3,920 107 0.04 1.11 0.14 13.43 96
--------------------------------------------------------------------------------
200 597 145 0.06 2.50 0.26 2.77 33
--------------------------------------------------------------------------------
300 41 312 0.17 1.02 0.13 0.41 1
--------------------------------------------------------------------------------
Notes:
1. Silver equivalent calculated using US$6.00/oz silver and $0.35/lb lead.
(AgEq = Ag + (%Pb*10,000/250). No attempt has been made to adjust these
relative values by accounting for metallurgical recoveries as insufficient
information is available to do so.
2. Strict quality control and quality assurance procedures have been observed
at all stages of data collection leading to this resource. Please see IMA's
website (www.imaexploration.com) for a detailed overview of these
procedures.
3. Resource categories (Indicated and Inferred) used here and the preparation
of this resource estimate conform to National Instrument 43-101 "Standards
of disclosure for mineral projects" and those of the Canadian Institute of
Mining, Metallurgy, and Petroleum (the "CIM") "Definition Standards on
Mineral Resources and Reserves, 2004".
4. A National Instrument 43-101 Technical Report documenting the Snowden
Resource Estimate will be filed at www.sedar.com as is required by Security
Commission regulations.
5. An `INFERRED MINERAL RESOURCE' is that part of a Mineral Resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited
information and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes.
6. An `INDICATED MINERAL RESOURCE' is that part of a Mineral Resource for
which quantity, grade or quality, densities, shape and physical
characteristics, can be estimated with a level of confidence sufficient to
allow the appropriate application of technical and economic parameters, to
support mine planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable exploration and
testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that are spaced
closely enough for geological and grade continuity to be reasonably
assumed.
Detailed review of the geological interpretation and block model shows that the
Calcite Hill deposit, the Connector Zone and Calcite NW remain open and
insufficiently drill tested in several areas.
METALLURGICAL TESTWORK
On December 1, 2005 the Company released a summary of preliminary Metallurgical
testwork carried out on samples of Galena Hill, Navidad Hill, and Calcite Hill
mineralization demonstrating that Navidad mineralization is amenable to
concentration by simple, cost effective, and environmentally benign differential
flotation processes. In addition to flotation testwork, the Company is also
currently investigating the production of silver metal through
hydrometallurgical means from low-grade, high-recovery silver concentrates. On
February 16, 2006 IMA released highly encouraging preliminary results from
alkaline pressure oxidation followed by thiosulphate leaching of silver
concentrates.
Flotation testwork has been conducted by G&T Metallurgical Services Ltd. of
Kamloops B.C. (G&T), an ISO 9001:2000 accredited firm. All work was performed
under the supervision of Tom Shouldice, P. Eng., General Manager - Operations at
G&T. Peter Taggart, P.Eng, of P. Taggart & Associates Ltd., provided overall
program direction, acting as IMA's representative. Both are considered Qualified
Persons as defined by National Instrument 43-101.
Limited flotation testwork on two composite samples (high lead-moderate silver
and high silver-low lead) from Calcite Hill yielded excellent results. Locked
cycle flotation tests performed on the lead-rich sample yielded a very high
quality lead concentrate containing 80.4% lead and 709 g/t silver at a lead
recovery of 92% and silver recovery of 86%. The silver-rich sample produced a
silver concentrate grading 10,500 g/t silver at a silver recovery of 88%.
Mineralization at Galena Hill consists predominantly of fine-grained galena and
pyrite with lesser amounts of sphalerite and chalcopyrite. Electron microprobe
studies have shown silver to be contained within the lattice of both galena and
pyrite, with the bulk of the silver present within pyrite. Flotation tests to
F-27
date have focused on producing separate lead and silver (pyrite) concentrates
through differential flotation. Fourteen rougher and 37 open circuit cleaner
tests were performed on the Galena Hill composite samples. The results of three
locked cycle tests confirm data produced in the open circuit tests. Lead
metallurgical performance at Galena Hill was generally good with 74 to 84% of
the lead reporting to the lead concentrates which grade between 62.0 and 75.3%
lead and include 386 to 968 g/t silver. Subsequent to galena flotation, a pyrite
concentrate was produced that recovered 37 to 57% of the total silver and
contains 1,083 to 3,546 g/t silver. Total locked cycle test silver recoveries
(lead concentrate plus silver concentrate) range from 54 to 82%. Silver
recoveries as high as 93.2% have been obtained with batch flotation tests
designed to maximize silver recovery at the expense of concentrate grade.
Ongoing work targeting improved silver recoveries for Galena Hill includes
additional flotation tests using alternate reagents, and mineralogical studies
to identify distinct pyrite types present in concentrates and tails.
Hydrometallurgical testwork carried out at SGS Lakefield under the direction of
Dr. David Dreisinger, P.Eng. of Dreisinger Consulting Inc. has shown that silver
concentrates from Galena Hill are amenable to pressure oxidation under neutral
to alkaline conditions followed by atmospheric leaching using calcium
thiosulphate as a lixiviant. Preliminary bench-scale testwork has produced
silver recoveries of 87% after 24 hours and 89% after 72 hours of leaching.
These tests were conducted on a very low-grade silver concentrate (235 g/t
silver), it is hoped that additional improvements in silver recovery may be
realized in future testwork on higher-grade concentrates. The company is very
encouraged by these results as they indicate that the Navidad Project could
produce silver dore on-site using an environmentally benign lixiviant rather
than the more commonly used sodium cyanide. Calcium thiosulphate is routinely
used as fertilizer in the agricultural industry.
Two distinct styles of mineralization from Navidad Hill were studied. Both
samples had high silver values (436 and 287 g/t Ag) but only one contained
significant lead (3.11% Pb) and both comprised mixed sulfide and oxide
mineralization. Flotation testwork on both samples produced a single bulk
sulphide concentrate. Silver recoveries of approximately 64 to 85% were achieved
in concentrates grading from 10,449 to 12,246 g/t silver.
While significant progress has been made in understanding the metallurgy of the
Navidad deposits, the Company is confident that with additional testwork, our
highly skilled and experienced metallurgical team will continue to unlock
additional value through improvements to metallurgical performance.
EXPLORATION PROGRAM:
The Phase I drill program at Navidad comprised 8,859.6 metres in 53 holes, 37 of
which were drilled on Galena Hill. Phase II drill program comprised 9,596.5
metres of diamond core drilling in 67 holes. Drilling in the Phase II program
focused on the Esperanza Trend, the Barite Hill target, and on the Navidad Hill
and Connector Zone targets. The Phase III drill program was completed in
September 2005 and comprised 23,732 metres in 131 holes. Results from the Phase
III drilling have been described in News Releases dated January 13, March 4 and
March 22, April 19, June 21, August 17, September 29 and October 13, 2005. The
Phase III drill program has focussed on drilling in the Calcite Hill and Calcite
Hill Northwest Extension areas and expansion and infill drilling on the Navidad
Hill and Connector Zone areas. In addition five holes were completed at the
southern end of the Loma de la Plata prospect.
The Phase IV drill program commenced in January 2006 and is ongoing with 8,252
metres of drilling in 44 holes completed as at March 19th, 2006, bringing the
project total to 50,440 metres in 294 holes. The Phase IV program to date has
focussed on infill and expansion drilling on Calcite Hill Northwest Extension,
exploratory drilling along Esperanza, infill drilling on Galena Hill and
stratigraphic drilling between the Esperanza and Argenta Trends. Results from
the Phase IV program will be released in batches as they are received and
compiled. No results have been released to date from the Phase IV drilling
program and therefore are not discussed in the following sections.
The exploration program at the Navidad Project is being carried out under the
supervision of Dr. Paul Lhotka, P.Geo., a Qualified Person as defined by
National Instrument 43-101.
GALENA HILL:
The Galena Hill Deposit is hosted primarily within gently dipping
trachyandesitic volcanic breccias with a matrix of galena, pyrite, calcite, and
barite. These breccias are interpreted to have formed primarily by multiple
hydrothermal fluid pulses. Calcareous mudstones overlie the mineralized volcanic
breccias; these generally contain significant silver, lead and zinc values
within one to five metres of the volcanic-mudstone contact. Sulphides occur in
the mudstone both as crosscutting veinlets and as strataform beds suggesting a
F-28
syn-depositional timing for the mineralization event. The Galena Hill deposit
measures approximately 450 by 500 metres in plan view (at 50 g/t silver
equivalent cut-off) and is up to 125 metres thick in its centre. A total of 39
drillholes delineate the Galena Hill resource. Highlights from Phase I drilling
on Galena Hill include 115 metres of 497 g/t silver and 5.71% lead in hole 14
and 63.0 metres of 418.4 g/t silver, including 20.6 metres of 703.0 g/t silver,
in hole 22. During Phase III, hole 175 and 197 were drilled at Galena Hill in
order to collect metallurgical samples. Hole 175 intercepted 194 metres of 188
g/t silver and 5.8% lead including 49.8 metres of 481 g/t silver and 14.2% lead.
Hole 197 intercepted 74.04 metres of 239 g/t silver and 1.97% lead. Results of
these two holes were incorporated into the resource estimate published on
February 16, 2006.
NAVIDAD HILL:
A total of 62 drill holes have been completed to date at Navidad Hill. In
addition to the structurally controlled mineralization located on top of Navidad
Hill, near-surface stratigraphically controlled silver mineralization has now
been identified along the southwest and southeast flanks of Navidad Hill.
Intercepts of structurally controlled, near vertical mineralized bodies on the
top of Navidad Hill include hole NV04-110 which intersected 61.5 metres of 128
grams per tonne silver, including 5.34 metres of 1,006 grams per tonne silver.
Highlights of stratigraphically-controlled mineralization on the western flank
of the Navidad volcanic dome include the exceptional intercept from hole NV04-90
that returned 35.8 metres of 2,850 grams per tonne (83.2 ounces per ton) silver
including 7.3 metres of 11,995 grams per tonne (350.3 ounces per ton) silver
starting from 16.5 metres depth. Drill hole 90 was drilled at an inclination of
-45(degree) towards the northeast on the western flank of Navidad Hill,
approximately 275 metres northwest of drill holes 1 and 2 and in an area of
little or no outcrop. Bonanza-grade mineralization in drill hole 90 contains
semi-massive silver-copper-lead sulphides and/or sulphosalts. In several
locations native silver occurs as fine veinlets and grains up to 5 millimetres
in size. Further intercepts in the area include 28.15 metres of 1,115 grams per
tonne silver (32.6 ounces per tonne) including 5.97 metres of 4,579 grams per
tonne (133.7 ounces per tonne) in hole 117 and 58.68 metres of 208 grams per
tonne silver (6.1 ounces per tonne) in hole 112.
Phase III drilling in the area of hole 90 included holes 139 to 142 which were
completed to provide more detailed information on this zone of very high-grade
silver mineralization. Of these, holes 139 (17.8 metres of 1,037 g/t silver) and
142 (34.5 metres of 1,220 g/t silver) intersected significantly higher grade
than that predicted from the wider spaced drilling and the prior resource block
model. Results of these new holes were incorporated into the resource estimate
published on February 16, 2006.
CONNECTOR ZONE:
At the Connector Zone 37 drill holes have been completed to date. Drilling has
demonstrated that both structurally and stratigraphically controlled high-grade
silver mineralization occurs in this area, as at Navidad Hill. In the
northwestern part of the Connector Zone (holes 40, 68, 105, 106, and 107), the
control on mineralization appears to be stratigraphic with the mineralization
occurring in the same stratigraphic position as at the Galena Hill deposit and
on the flank of Navidad Hill (hole 90). Highlights from this mineralization
style include 46.7 metres of 334 grams per tonne silver from hole 107 and 13.3
metres of 545 grams per tonne silver from hole 105. In the southeastern
Connector Zone (holes 32, 86, 87, 108, 131, 153, 154, 155. and 156), the
controls on mineralization and the stratigraphic correlations are less clear.
Hole 108 was drilled towards the east to cross a northerly trending structural
zone partially exposed on surface and intersected an impressive 485 grams per
tonne silver over 39.0 metres.
Phase III drilling at the Connector Zone (holes 153-156 and 228-237)), aimed at
providing additional drill density to upgrade previously defined Inferred
Resources to the Indicated Resources category, intersected moderate-grade silver
mineralization over long intervals with rare high-grade structures (e.g. 2
metres of 2,171 g/t silver in hole 234) outside of the current Indicated
Resource. Results include 88.8 metres of 107 g/t silver in hole 153 and 28.8
metres of 148 g/t silver in hole 154, 26 metres of 104 g/t silver in hole 230,
37 metres of 107 g/t silver in hole 231, 21 metres of 237 g/t silver in 234, and
32 metres of 110 g/t silver in hole 237. Much of this mineralization starts at
or very near surface.
F-29
CALCITE HILL:
Near the end of the Phase II program a single hole, NV04-88, was drilled to test
favourable stratigraphy on the edge of Calcite Hill in an area where there are
few indications of mineralization or geochemical anomalies at surface. The hole
intersected 72.3 metres averaging 202 grams per tonne silver and 3.45% lead from
70.3 to 142.6 metres depth and included a higher-grade interval containing 12.4
metres averaging 672 grams per tonne silver.
Highlights from Phase III drilling at Calcite Hill include: 122.6 metres of 195
g/t silver in hole 124, 196.1 metres of 113 g/t silver in hole 126, 123.6 metres
of 139 g/t silver in hole 138, 46.6 metres of 300 g/t silver including 10.3
metres of 1,257 g/t silver in hole 143, 83.0 metres of 209 g/t silver in hole
148, 80.2 metres of 246 g/t silver including 25.3 metres of 476 g/t silver in
hole 151, 27 metres of 407 g/t silver in hole 207 and 21 metres of 545 g/t
silver in hole 209.
Mineralization encountered to date at Calcite Hill is predominantly hosted
within trachyandesite volcanic rock and to a lesser degree within mudstone which
overlies the volcanic rock. The volumetrically most important style of
mineralization consists of calcite-barite veinlets and breccias with
argentite-acanthite, native silver and lesser galena and chalcopyrite. In
general, this style of mineralization contains high silver grades with minor
amounts of lead and copper. In the upper portions of the host volcanic unit, and
in the overlying mudstone, mineralization tends to be lead-rich and consists
predominantly of medium-grained galena with moderate silver values. A total of
60 drill holes were used in the estimate of resources published in February
2006.
CALCITE HILL NW:
Exploration drilling in Phase III along strike towards the northwest from
Calcite Hill discovered new mineralization. This new mineralization is named
Calcite NW. The mineralization at Calcite Hill NW is dominantly hosted in
sedimentary rocks that overly the volcanic rocks which host the majority of the
mineralization at Navidad Project. Within the overlying sediments strong clay
alteration is widespread and affects pelites, sandstones and conglomerates.
Mineralization can be lead-rich with silver (hole 201), or lead-poor but with
minor values in copper and higher silver grades (holes 202 and 203).
Fine-grained but visible, disseminated native silver was located within a
carbonaceous bed in hole 203. This is a new mode of occurrence of silver at
Navidad Project. At Calcite Hill NW mineralization appears to be
stratigraphically controlled and is disseminated in the host rock; veins or
feeder structures have not been recognized. The zone is nearly flat-lying, shows
good continuity from hole to hole and typically starts at shallow depths of 15
to 50 meters below surface.
Drilling at Calcite Hill NW has defined a central area of approximately 400 x
150 metres x 5 to 60 meters thick (defined by drill holes 178, 179, 202, 203 and
223-227). Highlights include: holes 178 and 179 (30.0 metres of 122 g/t silver
and 25.0 metres of 251 g/t silver, respectively), 202 (10 metres of 435 g/t
silver), and 203 (29 metres of 154 g/t silver). Results outside the core area
include intercepts from holes 199 (31.1 metres of 62 g/t silver and 1.29% lead)
and 201 (22.5 metres of 104 g/t silver and 2.79% lead). The resource estimate
released in February 16, 2006 used 23 holes.
ESPERANZA TREND:
A total of 11 drillholes have been completed to date in two areas along the 6
kilometre Esperanza Trend. Highlights include 2.7 metres of 831 grams per tonne
silver in hole 62 and 2.6 metres of 513 grams per tonne silver in hole 79.
Interestingly, hole 79 shows signs of the mineralization being stratigraphically
rather than structurally controlled as had been interpreted to date in this
area. Hole 63 intersected 45.8 metres of 94 grams per tonne silver, including
4.0 metres of 246 grams per tonne silver, 800 metres to the northwest. In the
same area, hole 82 intersected 54.6 metres of 64 grams per tonne silver,
including 26.1 metres of 106 grams per tonne silver and also 6.0 metres of 140
grams per tonne silver. These results confirm the high grades and potential for
a significant structurally and/or stratigraphically controlled zone at
Esperanza. Significantly more drilling will be required to evaluate the
6-kilometre Esperanza Trend.
BARITE HILL:
A total of 8 holes were completed at Barite Hill during Phase II. Although many
of these holes contain significant near surface intersections of galena matrix
breccia similar in style to that at Galena Hill, they have generally lower
silver and lead values. The most significant intercept was from hole NV04-76
that cut 22.1 metres of galena matrix breccia averaging 34 grams per tonne
silver and 0.63% lead in the upper part of the hole and then intersected a
F-30
different style of mineralization deeper in the hole that contained 21.7 metres
of 88 grams per tonne silver including 8.4 metres of 191 grams per tonne silver.
This deeper mineralization is associated with calcite veining within a
fine-grained muddy sedimentary rock and is characterized by high silver to base
metal ratios.
LOMA DE LA PLATA:
The surface exploration program launched September 2004 resulted in the
discovery of the Loma de la Plata Zone, approximately 4 kilometres west of the
Galena Hill deposit, through grid soil sampling. At Loma de la Plata, an area of
approximately 400 x 400 metres has been systematically sampled with twelve lines
of continuous and semi-continuous channel samples; these sample lines range in
length from 12.5 to 135.9 metres. Highlights of channel samples include:
Line LP-1: 40.1 metres of 740 g/t silver
Line LP-3: 42.9 metres of 684 g/t silver
Line LP-4: 135.9 metres of 159 g/t silver
Line LP-7: 48.5 metres of 315 g/t silver
Line LP-2: 103.3 metres of 290 g/t silver
Line LP-9: 49.5 metres of 410 g/t silver
Line LP-10: 56.0 metres of 452 g/t silver
The Loma de la Plata zone is hosted within quartz-eye phyric trachyandesite
volcanic rocks that dip to the northeast at 15 to 45 degrees. Mineralization
occurs in micro-veinlets and breccia zones and consists primarily of minor
galena and copper oxides with common native silver.
Initial drilling of five holes at Loma de la Plata has confirmed the surface
discovery but has tested only a small portion of the known surface
mineralization. Trenches 7 and 10 are located up to 275 metres from the current
drilling and returned values of 48.5 metres of 315 g/t silver and 56.0 metres of
452 g/t silver, respectively. Of the five drill holes completed at Loma de la
Plata, two (241 and 242) were drilled at angles of -45 and were collared near
trenches where high-grade silver had been defined on surface. Hole 241
intersected 31.5 metres of 562 g/t silver (grade was incorrectly stated in a
October 13, 2005 News Release as 684 g/t) and was drilled under trenches 1 and 3
that returned 40.1 metres of 740 g/t silver and 42.9 metres of 684 g/t silver,
respectively. Hole 242 intersected 28.4 metres of 236 g/t silver and was drilled
under trench 2 which returned 103.3 metres of 290 g/t silver. The strong
correlation between surface results from trenching and sub-surface results from
drilling suggests that little or no surface enrichment of silver has occurred at
Loma de la Plata. The remaining three holes were collared 40 to 90 metres
further to the east and drilled at -60 angles. These holes (243-245) appear to
have missed the better-mineralized north-south trending zone as defined by
trenches 1-3, 8, and 9 and drill holes 241 and 242.
Drilling at Loma de la Plata has confirmed the basic geological model of a
favourable, mineralized, upper-volcanic sequence comprised of quartz-eye bearing
trachyandesites. The units dip approximately 25 to 30 degrees towards the
northeast and the favourable unit is approximately 30 to 35 metres thick in the
area drilled to date. The form and shape of mineralized zones of veinlets and
brecciation is not yet well defined, but is hosted exclusively within the
trachyandesite upper volcanic rocks. Further drilling will be required to
confirm the orientation and ultimate size potential of this zone.
SECTOR ZETA
At Sector Zeta, approximately 5 kilometres west of the Galena Hill Deposit,
seven sample lines ranging in length from 6.7 to 60.0 metres have been completed
covering an area of approximately 80 by 100 metres (see attached figure).
Highlights of the Sector Zeta results include:
Line Z-5: 8.0 metres of 105 g/t Silver and 1.14% Copper
Line Z-6: 12.0 metres of 112 g/t Silver and 1.13% Copper
Line Z-7: 12.0 metres of 133 g/t Silver and 3.27% Copper
Mineralization at Sector Zeta predominantly consists of green copper oxides
within argillicly altered latite volcanic rocks that are often brecciated. IMA
geologists interpret that the volcanic rocks which host mineralization here are
part of the same volcanic unit that hosts mineralization at Galena and Navidad
Hills and also at Loma de la Plata. At present, the orientation of the
mineralized zone at Sector Zeta is unknown; drill data will be needed to
unambiguously define the geometry and size of the mineralization.
F-31
The possibility of leaching, or alternatively, concentration of silver and
copper values at or near surface, particularly at Sector Zeta in the case of
copper, cannot be determined from the data available to date and drilling will
be required; no drilling has been carried out in the Sector Zeta area.
ARGENTA TREND:
On January 21, 2005 the Company released the results from a large expansion to
the soil sample grid and follow-up prospecting which uncovered a series of new
mineralized zones to the southeast of Loma de la Plata. The Argenta Trend
includes Sector Zeta and Loma de la Plata and extends approximately 8 kilometres
to the southeast, parallel with the Esperanza and Navidad Trends.
The Argenta Trend is highlighted by anomalous silver, lead and zinc values in
soils with subordinate and sporadic anomalous copper. Recent surface work along
the Argenta trend has discovered high-grade lead values over significant widths.
New discoveries include the "Bajo del Plomo", "Filo del Plomo" and "Ginger"
zones where lead values of up to 10.7% lead over 10 metres, 7.3% lead over 17
metres and 4.8% lead over 21 metres respectively, have been discovered. These
new discoveries are located southeast of the Loma de la Plata zone. With the
addition of the three new zones, the Argenta Trend now consists of five named
mineralized zones along an 8 kilometre strike length. Mineralization styles vary
from silver-copper rich at the northwest end at Sector Zeta, to silver-rich at
Loma de la Plata, to lead-dominant at Bajo del Plomo, Filo del Plomo and Ginger.
Mineralization is hosted by the same trachyandesitic volcanic rocks as the
Galena, Navidad, and Calcite Hill deposits, and in some cases in adjacent
sedimentary rocks. It appears to occur at approximately the same stratigraphic
position as the known resources but with significant differences in sedimentary
facies.
The Company now has over 58 square kilometres of geophysical surveying covering
and extending beyond the Navidad and Argenta Trends. The Galena Hill deposit has
a strong geophysical signature, while other deposits such as Navidad and Calcite
Hills have much more subtle signatures. This additional geophysical coverage
provides a wealth of information about the geology and structure at Navidad in
addition to highlighting new areas prospective for mineralized zones that may be
completely buried.
NAVIDAD AREA PROPERTIES:
The Company has 18 exploration properties in Chubut Province in addition to
Navidad. The Regalo property is currently the subject of a joint venture
agreement.
REGALO:
Work by Consolidated Pacific Bay Minerals Ltd. ("Pacific Bay") on the Regalo
Property, currently under option from IMA, has identified highly anomalous gold
in soils and silt samples over a large area. In a January 12, 2005 News Release,
Pacific Bay reported that the Yastekt South zone has strong associated gold
anomalies consistent over almost one square kilometre. The Yastekt South anomaly
comprises 98 soil analyses that average 299 ppb gold. Normal, "background" gold
values in the area are less than 5 ppb. Two of the 98 soil analyses returned
values in excess of 3 grams per tonne gold. In a June 21, 2005 press release,
Pacific Bay reported that an outcrop sample on Pacific Bay's Regalo project has
returned an assay value of 205 ppm uranium. On August 22, 2005 press release
Pacific Bay reported that a total of 163 rock samples were collected from 26
backhoe trenches excavated within the large soil and stream sediment anomalies
described above. Of these, 13 rock samples had detectable gold in the 6 to 41
ppb range. The trench samples identified anomalous arsenic, molybdenum, vanadium
and zinc pathfinder elements in porous, permeable sandstones and conglomerates
with strong quartz-hematite alteration.
F-32
SELECTED ANNUAL FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the
audited consolidated financial statements and notes thereto. The information has
been prepared in accordance with Canadian GAAP.
--------------------------------------------
YEARS ENDED DECEMBER 31
--------------------------------------------
2005 2004 2003
$ $ $
------------ ------------ ------------
Total Assets 23,497,994 12,221,856 13,419,876
Long Term Financial Liabilities - - -
Total Revenues - - -
General and Administrative Expenses 6,148,234 4,312,616 2,503,041
Loss from Continuing Operations (5,764,874) (4,523,831) (2,449,243)
Loss per Common Share from Continuing Operations (0.12) (0.11) (0.08)
Loss allocated to Spin-Off Assets - (131,232) (969,175)
Net Loss (5,764,874) (4,655,063) (3,418,418)
Net Loss per Common Share Basic and Diluted (0.12) (0.11) (0.11)
--------------------------------------------
Total assets increased $11,276,138 from December 31, 2004 to 2005 primarily due
to the expenditures on the Navidad project. Total assets decreased $1,198,021
from December 31, 2003 to December 31, 2004 as a result of the transfer of
assets to Golden Arrow offset by corresponding increases in the Company's cash
balance and in the Navidad property carrying value. General and adminstrative
expenses have increased mainly due to the increases in legal costs incurred in
connection with the Aquiline legal action and due to the increase in the
activity level related to continued exploration at the Navidad project and the
necessary support required.
SELECTED QUATERLY FINANCIAL INFORMATION AND FOURTH QUARTER
The following selected consolidated financial information is derived from the
unaudited consolidated interim financial statements of the Company. The
information has been prepared in accordance with Canadian GAAP.
-------------------------------------------------- --------------------------------------------------
2005 2004
-------------------------------------------------- --------------------------------------------------
DEC. 31 SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 JUN. 30 MAR. 31
$ $ $ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenues - - - - - - - -
Loss from Continuing
Operations (1,041,118) (1,233,392) (972,894) (2,517,470) (1,164,504) (492,562) (466,021) (2,400,744)
Loss per Common Share from
Continuing Operations (0.02) (0.03) (0.02) (0.06) (0.03) (0.01) (0.01) (0.06)
Income (Loss) Allocated to
Spin-off Assets - - - - - - (355,252) 224,020
Net Loss (1,041,118) (1,233,392) (972,894) (2,517,470) (1,164,955) (492,562) (821,273) (2,176,273)
Net Loss per Common Share
Basic and Diluted (0.02) (0.03) (0.02) (0.06) (0.02) (0.01) (0.02) (0.06)
-------------------------------------------------- --------------------------------------------------
The Net Loss for the periods includes the following:
- Q1 2004 Net Loss includes $1,871,360 non-cash stock based compensation
expense for the stock options granted during the period
- Q2 2004 includes $313,801 gain on disposition of mineral property
- Q1 2005 Net Loss includes $1,800,000 non-cash stock based compensation
for the stock options granted during the period
- Q3 2005 Net Loss includes the increased legal fees related to the
Aquiline litigation
- In the quarter ended December 31, 2005, the Company's legal costs were
substantially higher compared to 2004 period as the Aquiline trial took
place during the quarter ended December 31, 2005. This increase was
offset with a foreign exchange gain recorded in the last quarter of
2005 and with a decrease in stock based compensation in the 2005 period
compared to 2004.
SUMMARY OF FINANCIAL RESULTS
For the year ended December 31, 2005, the Company reported a consolidated loss
of $5,764,874 ($0.12 per share), an increase of $1,109,811 from the loss of
$4,655,063 ($0.11 per share) for the year ended December 31, 2004. The increase
F-33
in the loss in 2005, compared to 2004 amount, was due to a number of factors of
which $1,835,618 can be attributed to increases in operating expenses and
$725,807 decrease in other items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow were
described as "Spin-Off Assets Transferred" and the allocated expenses are
described as "Loss Allocated to Spin-Off Assets" in the consolidated financial
statements. This reclassification did not change previously reported total
losses. The allocation of expenses was calculated on the basis of the ratio of
the specific assets transferred to assets retained. A loss of $131,231 was
allocated to spin-off assets in the 2004 period.
RESULTS OF OPERATIONS
The Company's operating expenses for the year ended December 31, 2005 were
$6,148,234 an increase of $1,835,618 from $4,312,616 in 2004. $339,516 of the
2004 operating expenses had been reclassified as "Loss Allocated to Spin-Off
Assets" which relate to the assets transferred to Golden Arrow. The allocation
was calculated on the basis of the ratio of the specific assets transferred to
assets retained. Certain "Other Income and Expense" items have been allocated to
spin-off assets on a cost specific basis.
Professional fees increased $1,432,498 to $2,327,278 in 2005, primarily due to
legal costs incurred in connection with the Aquiline legal action as well as
increased costs of compliance. In 2005 the Company recorded non-cash stock based
compensation of $2,380,000 compared to $1,972,860 in 2004, for stock options
granted to its employees, consultants and directors, of which $1,800,000 is
included in expenses in 2005 compared to $1,972,860 in 2004 and $580,000 in 2005
compared to Nil in 2004 is included in capitalized mineral property
expenditures. Other notable changes in the operating expenses are: (i) Salaries
increased $272,151 due to staff increases (salaries in 2005 are a portion of the
monthly fee charged for services by the Grosso Group while in 2004 the Company
directly employed its staff); (ii) Administrative and management services
decreased by $89,744 due to some of the services provided by consultants in 2004
were provided by employees of the Grosso Group during 2005 and are included in
salaries (iii) there are no cost recoveries (for shared administrative costs and
rent) from Amera or Golden Arrow in 2005; (iv) Corporate development and
investor relations increased $207,951, as the Company has made its shareholders
and others more aware of its Navidad project and its potential, (v) Office and
Sundry increased $40,337 mainly due to the increase in insurance premiums and an
increase in activity, (vi) Transfer agent and regulatory fees increased $141,972
mainly due to the costs of the Company's listing on the American Stock Exchange,
(vii) General exploration decreased by $173,047 as the Company's focus is on
Navidad property for which costs are included in capitalized mineral property
expenditures, (viii) Travel increased $52,444 due to travel related to
conferences and investor presentations as well as to South America.
In 2005 the Company recorded interest income of $150,406 compared to $101,589 in
2004, primarily as a result of increase of funds on deposit. In 2005 there were
no reorganization costs recorded by the Company, in 2004 reorganization costs of
$346,103 were recorded. There was no gain on the optioning of properties to
other mining exploration companies, in 2004 a gain of $328,346 was recognized.
No write down for the carrying value of marketable securities in 2005 was
recognized while a $99,762 write down for the carrying value of marketable
securities was recorded in 2004. A gain of $232,954 for foreign exchange was
recorded in 2005 compared to loss of 195,285 in 2004. The foreign exchange
adjustment in 2005 is a result of a continued strengthening of the Canadian
dollar compared to US dollar and due to the exchange movements between expenses
being incurred in US$ and amounts exchanged to settle such payables. No gain or
loss was allocated to spin-off assets in 2005, in 2004 a loss of $131,232 was
recorded.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at December 31, 2005 was $7,731,395, an increase of
$2,504,041 from December 31, 2004. Total assets increased to $23,191,738 at
December 31, 2005 from $12,221,856 at December 31, 2004. This increase is mainly
due to the increase in Navidad carrying value and in cash balance. During fiscal
2005, the Company completed a brokered private placement for 3,333,340 units at
$3.00 per unit, for proceeds of $9,263,283 net of $600,001 agent's commission
and $136,736 of related issue costs. Each unit consisted of one common share and
one half common share purchase warrant. Each full warrant entitles the holder
thereof to purchase one additional common share at a price of $3.45 per share
until September 14, 2009. In addition to the cash commission the underwriters
were granted as commission 233,334 underwriter's warrants, representing 7% of
the number of units issued. Each underwriter's warrant is exercisable for one
share at a price of $3.25, for a period of twenty four months, expiring on
F-34
September 12, 2007. The underwriter's warrants were valued using the
Black-Sholes Pricing Model. The warrants were valued at $0.76 per warrant for a
total value of $177,333 and have been recorded as share issue costs with a
corresponding increase to contributed surplus. At March 29, 2006, no
underwriter's warrants had been exercised.
On March 21, 2006 the Company completed a syndicated brokered private placement
financing of 2,865,000 special warrants at $3.50 per warrant for gross proceeds
of $10,027,500. Each special warrant will entitle the holder to acquire one unit
consisting of one common share and one half common share purchase warrant. Each
full warrant entitles the holder thereof to purchase one additional common share
in the capital of the Company at a price of $3.80 per share until March 21,
2010. In addition to a cash commission of 6% the underwriters were granted
171,900 agents' warrants, representing 6% of the number of special warrants
issued. Each agents' warrant is exercisable for one share at a price of $3.80,
for a period of twenty four months, expiring on March 21, 2008.
Options and warrants were exercised which resulted in cash proceeds of
$4,215,145 during 2005. The Company paid $145,866 to Golden Arrow from the
exercise of warrants that resulted in the issue of Golden Arrow's shares as
required by the terms of the reorganization. As all warrants that were
outstanding as of the effective date of the reorganization have been exercised
the Company has no further obligation to pay amounts to Golden Arrow for the
issue of its shares on the exercise of the Company's warrants.
The Company has received $172,900 from the exercise of options from January 1 to
March 29, 2006. As at March 29, 2006, the Company had working capital of
approximately $14,000,000.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently may not have sufficient working capital to fund all of
its planned exploration and development work. The Company will continue to rely
on successfully completing additional equity financing to further exploration
and development of Navidad. There can be no assurance that the Company will be
successful in obtaining the required financing. The failure to obtain such
financing could result in the loss of or substantial dilution of its interest in
its properties.
Except as disclosed the Company does not know of any trends, demand,
commitments, events or uncertainties that will result in, or that are reasonably
likely to result in, its liquidity either materially increasing or decreasing at
present or in the foreseeable future. Material increases or decreases in
liquidity are substantially determined by the success or failure of the
exploration programs.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
OPERATING CASH FLOW
Cash outflow from operating activities for the year ended December 31, 2005 was
$3,849,618, compared to cash outflow for 2004 of $2,961,734 as a result of
increases in activities and changes in non-cash working capital.
FINANCING ACTIVITIES
During the year ended December 31, 2005, the Company received $14,215,165 from
the issue of common shares from a brokered private placement and on the exercise
of warrants and options less costs of $736,737, compared to $9,707,897, less
costs of $411,237, for the year ended December 31, 2004.
INVESTING ACTIVITIES
Investing activities required cash of $6,978,903 during 2005, compared to
$4,509,717 for 2004, these investing activities were primarily for additions to
the Navidad project in Argentina.
RELATED PARTY TRANSACTIONS
Effective January 1, 2005 the Company engaged the Grosso Group to provide
services and facilities to the Company. The Grosso Group is a private company
owned by the Company, Golden Arrow, Amera and Gold Point, each of which owns one
share. The Grosso Group provides its shareholder companies with geological,
corporate development, administrative and management services on a cost recovery
basis. During fiscal 2005, the Company incurred fees of $730,802 to the Grosso
Group: $764,012 was paid in twelve monthly payments and $33,210 is included in
the Accounts receivable, prepaids and deposits as a result of a review of the
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allocation of the Grosso Group costs to the member companies for the year. In
addition, included in the Accounts receivable, prepaids and deposits is a
$205,000 deposit to the Grosso Group. The deposits from the member companies
were used for the purchase of equipment and leasehold improvements and for
operating working capital.
CRITICAL ACCOUNTING ESTIMATES
Reference should be made to the Company's significant accounting policies
contained in Note 3 of the Company's consolidated financial statements for the
year ended December 31, 2005. These accounting policies can have a significant
impact of the financial performance and financial position of the Company. As
disclosed previously, the Company has not made any provision for any potential
loss in the event of an adverse judgement related to the Aquiline legal action.
RECENT ACCOUNTING PRONOUNCEMENTS
Reference should be made to the recent accounting pronouncements in Canada and
in US that described in Note 10 of the Company's consolidated financial
statements for the year ended December 31, 2005.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
annual consolidated financial statements, direct costs related to the
acquisition and exploration of mineral properties held or controlled by the
Company have been capitalized on an individual property basis. For certain
acquisitions and related payments for mineral property interests, the Company
records a future income tax liability and a corresponding adjustment to the
related asset carrying amount if the expenditures do not have the corresponding
tax basis. It is the Company's policy to expense any exploration associated
costs not related to specific projects or properties. Management of the Company
periodically reviews the recoverability of the capitalized mineral properties.
Management takes into consideration various information including, but not
limited to, results of exploration activities conducted to date, estimated
future metal prices, and reports and opinions of outside geologists, mine
engineers and consultants. When it is determined that a project or property will
be abandoned or its carrying value has been impaired, a provision is made for
any expected loss on the project or property. In 2005 and in 2004 no impairment
of long-lived assets was identified.
FINANCIAL INSTRUMENTS
The Company's financial instruments consisting of cash and cash equivalents,
accounts receivable and accounts payable and accrued liabilities approximate
their carrying values due to the short-term nature of those instruments. As of
December 31, 2005, the market value of marketable securities was $270,000 (2004
- $270,000).
RISK FACTORS
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. Exploration for mineral resources involves a high degree of risk. The
cost of conducting programs may be substantial and the likelihood of success is
difficult to assess.
METAL PRICE RISK: The Company's portfolio of properties has exposure to
predominantly silver and lead. The prices of these metals, especially silver,
greatly affect the value of the Company and the potential value of its
properties and investments.
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FINANCIAL MARKETS: The Company is dependent on the equity markets as its sole
source of operating working capital and the Company's capital resources are
largely determined by the strength of the junior resource markets and by the
status of the Company's projects in relation to these markets, and its ability
to compete for the investor support of its projects.
POLITICAL RISK: Exploration is presently carried out in Argentina. This exposes
the Company to risks that may not otherwise be experienced if all operations
were domestic. Political risks may adversely affect the Company's existing
assets and operations. Real and perceived political risk in some countries may
also affect the Company's ability to finance exploration programs and attract
joint venture partners, and future mine development opportunities.
CURRENCY RISK: Business is transacted by the Company in a number of currencies.
Fluctuations in exchange rates may have a significant effect on the cash flows
of the Company. Future changes in exchange rates could materially affect the
Company's results in either a positive or negative direction.
ENVIRONMENTAL RISK: The Company seeks to operate within environmental protection
standards that meet or exceed existing requirements in the countries in which
the Company operates. Present or future laws and regulations, however, may
affect the Company's operations. Future environmental costs may increase due to
changing requirements or costs associated with exploration and the developing,
operating and closing of mines. Programs may also be delayed or prohibited in
some areas. Although minimal at this time, site restoration costs are a
component of exploration expenses.
TITLE RISK: 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. In addition, Navidad properties
title has being challenged in Aquiline legal action as previously discussed.
DISCLOSURE CONTROL AND PROCEDURES
Disclosure controls and procedures are defined under Multilateral Instrument
52-109 - Certification of Disclosure Controls in Issuers' Annual and Interim
Filings ("MI 52-109") as "... controls and other procedures of an issuer that
are designed to provide reasonable assurance that information required to be
disclosed by the issuer in its annual filings, interim filings or other reports
filed or submitted by it under provincial and territorial securities legislation
is recorded, processed, summarized and reported within the time periods
specified in the provincial and territorial securities legislation and include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in its annual filings, interim filings or
other reports filed or submitted under provincial and territorial securities
legislation is accumulated and communicated to the issuer's management,
including its chief executive officers and chief financial officers (or persons
who perform similar functions to a chief executive officer or a chief financial
officer), as appropriate to allow timely decisions regarding required
disclosure". The Company has conducted a review and evaluation of its disclosure
controls and procedures, with the conclusion that it has an effective system of
disclosure controls, and procedures as defined under MI 52-109. In reaching this
conclusion, the Company recognizes that two key factors must be and are present:
a) the Company is very dependant upon its advisors and consultants
(principally its legal counsel) to assist in recognizing, interpreting,
understanding and complying with the various securities regulations
disclosure requirements; and
b) an active Board and management with open lines of communication.
The Company has a small staff with varying degrees of knowledge concerning the
various regulatory disclosure requirements. The Company is not of a sufficient
size to justify a separate department or one or more staff member specialists in
this area. Therefore the Company must rely upon its advisors and consultants to
assist it and as such they form part of the disclosure controls and procedures.
Proper disclosure necessitates that one not only be aware of the pertinent
disclosure requirements, but one is also sufficiently involved in the affairs of
the Company and/or receives the communication of information to assess any
necessary disclosure requirements. Accordingly, it is essential that there be
proper communication among those people who manage and govern the affairs of the
Company, this being the Board of Directors and senior management. The Company
believes this communication exists.
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While the Company believes it has adequate disclosure controls and procedures in
place, lapses in the disclosure controls and procedures could occur and/or
mistakes could happen. Should such occur, the Company will take whatever steps
necessary to minimize the consequences thereof.
SHARE DATA INFORMATION
As of March 29, 2006 there were 48,933,065 common shares, 2,071,904 warrants and
4,761,000 stock options outstanding. As a result of a private placement
completed on March 21, 2006, the Company has 2,865,000 special warrants
outstanding. Each special warrant will entitle the holder to acquire one unit,
without payment of additional consideration, consisting of one common share and
one half common share purchase warrant. Each full warrant entitles the holder
thereof to purchase one additional common share in the capital of the Company at
a price of $3.80 per share until March 21, 2010.
INVESTOR RELATIONS
The Company currently does not engage any outside investor relations
consultants. Mr. Sean Hurd is the Company's Vice-President, Investor Relations
and coordinates investor relations' activities.
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