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
XXX ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 For the transition period from to
Commission File Number: 0-27322
MOUNTAIN PROVINCE MINING INC.
(Exact name of Registrant as specified in its charter)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
1205-789 West Pender Street, Vancouver, British Columbia
Canada V6C 1H2
(Address of principal executive offices)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report. 42,376,810
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 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 ninety days. Yes ___ No XXX
Indicate by check mark which financial statement item the registrant has elected
to follow: Item 17 XXX Item 18 ___
Page 1 of 87
Index to Exhibits on Page 71
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MOUNTAIN PROVINCE MINING INC.
TABLE OF CONTENTS
PART I Page
Item 1. Description of Business......................... 2
Item 2. Description of Property......................... 13
Item 3. Legal Proceedings............................... 31
Item 4. Control of Registrant........................... 32
Item 5. Nature of Trading Market........................ 34
Item 6. Exchange Controls and Other Limitations
Affecting Security Holders...................... 36
Item 7. Taxation........................................ 38
Item 8. Selected Financial Data......................... 48
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 50
Item 10. Directors and Officers of Registrant............ 58
Item 11. Compensation of Directors and Officers.......... 61
Item 12. Options to Purchase Securities from Registrant
or Subsidiaries................................. 63
Item 13. Interest of Management in Certain Transactions.. 64
PART II
Item 14. Description of Securities to be Registered...... 65
PART III
Item 15. Defaults Upon Senior Securities................. 69
Item 16. Changes in Securities and Changes in Security
for Registered Securities....................... 69
PART IV
Item 17. Financial Statements............................ 69
Item 18. Financial Statements............................ 69
Item 19. Financial Statements and Exhibits............... 70
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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Introduction
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Mountain Province Mining Inc. (hereinafter also referred to as the "Registrant"
or the "Company") is a natural resource property exploration company. The
Company has several natural resource properties represented by a 90% interest in
the AK and CJ Claims located in the Northwest Territories; a 100% interest in
the Ketza River Project; a 50% interest in the Molanosa Diamond Project; a 50%
interest in 11 of the 598909 Saskatchewan Claims; a 25% interest in 4 of the
598909 Saskatchewan Claims; a 100% interest in 11 of the Northern Saskatchewan
Claims; a 50% interest in 32 of the Northern Saskatchewan Claims; a 25% interest
in mineral claim S-105084 located in the Tobin Lake Area; a 100% interest in the
Mary Dale Property, and a 100% interest in the Maris Project in Nye County,
Nevada.
The Company, as yet, does not have any resource properties on which commercial
mining operations exists.
The Company's U.S. office is located at Empire Towers I, 3633 East Inland Empire
Blvd., Suite 265, Ontario, California 91764. The telephone number is (909)
466-1411 and the facsimile number is (909) 466-1409.
The Company's Canadian office is located at 789 West Pender Street, Suite #1205,
Vancouver, British Columbia V6C 1H2. The telephone number is (604) 687-0122 and
the facsimile number is (604) 684-7208.
The contact persons are Dr. Paul Shatzko, Chairman and/or Dr. Jan W.
Vandersande, President.
The Company has 500,000,000 shares of common stock authorized; as of 3/31/98,
the end of the Company's most recent fiscal year, there were 42,376,810 shares
of common stock outstanding. As of 10/02/98 there were 42,444,760 shares of
common stock outstanding.
The Company's common stock trades on the Vancouver Stock Exchange under the
symbol "MPV" and within the NASDAQ system under the symbol "MPVIF".
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The Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the
periods presented with US GAAP except as noted in footnotes to the financial
statements.
References in this document to "$" and "Cdn$" refer to Canadian dollars, unless
otherwise specified; references to "US$" refer to U.S. dollars.
In this Registration Statement, unless otherwise specified, all dollar amounts
are expressed in Canadian Dollars (CDN$). The Government of Canada permits a
floating exchange rate to determine the value of the Canadian Dollar against the
U.S. Dollar (US$).
Table No. 1 sets forth the rate of exchange for the Canadian Dollar at the end
of the five most recent fiscal periods ended March 31st; the average rates for
the period; and, the range of high and low rates for the period.
For purposes of this table, the rate of exchange means 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. The table sets forth the
number of Canadian Dollars required under that formula to buy one U.S. Dollar.
The average rate means the average of the exchange rates on the last day of each
month during the period.
Table No. 1
U.S. Dollar/Canadian Dollar
Average High Low Close
Fiscal Year Ended 3/31/98 1.41 1.45 1.37 1.41
Fiscal Year Ended 3/31/97 1.36 1.38 1.33 1.38
Fiscal Year Ended 3/31/96 1.36 1.42 1.34 1.36
Fiscal Year Ended 3/31/95 1.38 1.41 1.34 1.40
Fiscal Year Ended 3/31/94 1.32 1.38 1.26 1.38
The value of the U.S. Dollar relative to the Canadian Dollar was 1.52 as of
9/30/98.
Background
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Incorporation Data
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The Company was incorporated under the laws of British Columbia on December 2,
1986 by registration of its Memorandum and Articles.
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Initial Public Offering
- -----------------------
The Company's initial public offering on the Vancouver Stock Exchange was
pursuant to a prospectus dated July 28, 1988 only to investors in the Province
of British Columbia, Canada. The Company issued 600,000 shares, raising
$189,000.
Business Combination
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Pursuant to an amalgamation agreement dated August 21, 1997, the Company and
444965 B.C. Ltd. agreed to merge under the name of Mountain Province Mining Inc.
to consolidate their respective interests in the AK/CJ claims. The transaction
was completed on November 1, 1997 through the issue of one common share of the
new amalgamated company for each existing common share in the former company,
and 16,951,696 common shares of the new company for 1,450,000 shares of 444965
B.C. Ltd. As a result of the amalgamation, the Company holds a 90% interest in
the AK/CJ claims in the Northwest Territories.
Historical Corporate Development
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Since incorporation, the Company has been involved in the exploration and, when
warranted, the development of natural resource properties.
During Fiscal 1993, the Company increased its land holdings and embarked on
several exploration programs. In August it acquired the CJ and AK properties
which encompass approximately 600,000 acres. Exploration work in the form of
soil sampling and aerial geophysical surveys were undertaken on these properties
during this period. The Company optioned a 40% interest in both the AK and CJ
claims to a private company in exchange for $680,000 and an agreement to expend
sufficient capital on the properties to complete a 200 ton bulk sample and
optioned another 10% interest in the claims to a public company in exchange for
shares and payment of a portion of exploration expenditures.
During the second half of Fiscal 1993, the Company obtained a 37.5% interest in
a 72,000 claim block in the Fort a la Corne area of the province of
Saskatchewan, and also acquired a 50% interest in 27 claims located in the
Molanosa Arch area of Saskatchewan.
During Fiscal 1994, the Company continued with its exploration programs
expanding them to include geochemical and geophysical analysis. In January, the
Company entered into a joint venture agreement with Camphor Ventures Inc. (a
public company trading on the Vancouver Stock Exchange) whereby the joint
venture purchased a number of claim blocks adjacent to the War Eagle Mining
discovery site near Candle Lake, in the central portion of the province of
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Saskatchewan. The joint venture also purchased a claim in another diamond
exploration region in central Alberta.
During Fiscal 1995, the Company focused the majority of its attention on the AK
Claim. In February diamondiferous kimberlite was discovered here and since the
discovery a program of delineation drilling and soil sampling has been ongoing.
Additional exploration consisting of regional sampling and high-sensitivity
magnetometer surveying was also undertaken on other areas of the AK Claim.
Activity during this period on the Company's other properties was minimal
because of the focus on the AK Claim.
During Fiscal 1996, the Company drilled 104 holes into the AK-5034 pipe,
including 37 for exploration, 42 for bulk sampling and 25 for delineation
drilling. A total of 5,800 kg of exploration drill hole kimberlite has been
processed by caustic fusion. A 10,000 foot delineation drilling program is
underway with completion scheduled for 1996.
Results, announced during Fiscal 1996, from the first 25 tonnes of the 100 tonne
mini-bulk sample, as processed by Canamera Geological Limited's dense media
separation plant, showed 75.9 carats in a total of 24.6 tonnes of processed
kimberlite. This equates to a grade of 3.09 carats per tonne. The kimberlite was
recovered from nine drill holes in the Southern and Central parts of the pipe.
The grade was roughly uniform from drill hole to drill hole and from top to
bottom in each of the holes.
During Fiscal 1997, the Company concluded a joint venture agreement with
Monopros Limited, a wholly-owned subsidiary of De Beers Consolidated Mines
Ltds., to develop the AK/CJ property. This agreement provided that Monopros can
earn a 60% interest in the project by conducting continuing exploration and bulk
sampling on one or more new kimberlite deposits. As well, Monopros must complete
a feasibility study and fund development and construction of a commercial-scale
mine.
Also during Fiscal 1997, the Company completed a 104-tonne mini-bulk sample from
the AK-5034 pipe. The results indicated an average grade of 2.48 carats per
tonne.
During the 1997 exploration season, Monopros discovered three new kimberlite
pipes on the AK property: Tesla, Tuzo and Hearne. All are diamondiferous. The
Company reported that initial tonnage and grade estimates place both the Tuzo
and Hearne pipes among the world's higher grade pipes. Tesla is considered of
lower grade but is expected to contribute to overall tonnnage.
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During the spring of 1998, De Beers conducted mini-bulk sampling on the three
new pipes as well as the AK-5034, the original pipe discovery on the AK
property. The 62-tonne Hearne sample contained 205 carats grading 3.28 carats
per tonne. A 60-tonne sample from the Tesla pipe produced 25.9 carats and an
overall grade of 0.43 carats per tonne. The 5034 pipe produced 101 carats from
56 tonnes grading 1.81 carats per tonne, while the Tuzo pipe produced 108 carats
from 48 tonnes, grading 2.24 carats per tonne.
For at least the last three years, the Company has financed its operations,
property acquisition, and property exploration primarily through the
distribution of equity capital. The six most recent significant financings are
described in the next six paragraphs.
In October of 1996, the Company completed a private placement financing which
consisted of 1,650,000 Series A Units and 1,025,000 Series B Units at $4.90 per
unit. Each Series A Unit consisted of one common share and one-half of one
non-transferable share purchase warrant. Each whole warrant entitled the holder
to purchase one additional common share at an exercise price of $5.75 until
December 31, 1997. Each Series B Unit consisted of one common share designated
as a "flow through" share under the income Tax Act (Canada) and one-half of one
share purchase warrant. Each whole warrant entitled the holder to purchase one
additional common share of the Company at an exercise price of $5.75 until
December 31, 1997.
On December 29, 1995, the Company completed a private placement whereby it sold
1,300,000 units and 193,000 flow through shares at $4.40 per unit or flow
through share, which netted the Company $5,159,000 after commissions. $2,459,000
of the net funds have been released to the Company and the balance of $2,700,000
will be released with the filing and acceptance of a Statement of Material Facts
with the Vancouver Stock Exchange. Each unit will be comprised on one common
share and one-half non-transferable share purchase warrant exercisable for a two
year period entitling the holder of each full warrant to acquire one common
share at a price of $4.40 per share in the first year and at $5.25 per share in
the second year.
The offerings described in the preceding paragraph commenced on December 20,
1995 and closed on December 29, 1995. The offerings were priced on December 20,
1995 and on that day the market price of the Company's stock was $4.45. The only
intermediary involved in the offering was Loewen Ondaatje McCutcheon Limited, a
Canadian investment banking firm. Loewen Ondaatje McCutcheon Limited acted
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as agents for the Special Warrant Offering; for the flow-through offering there
was no agent or intermediary. All of the flow-through shares were purchased by
Canadian citizens resident in Canada and the entire Special Warrant Offering was
purchased by Societe Generale of Paris, France. None of the securities sold by
the flow-through share offering have been resold in the United States. Upon
receipt of a prospectus filed on April 25, 1996, with the British Columbia
Securities Commission, 1,300,000 shares and 650,000 share purchase warrants were
issued as the special warrants were exercised.
Effective March 29, 1995 the Company issued 1,000,000 units for $0.44 per unit.
Each unit consisted of one common share and one non-transferable share purchase
warrant. The warrant is exercisable for a two year period and the holders
thereof require one warrant to acquire on common share at a price of $0.44 per
share in the first year and at a price of $0.50 per share in the second year.
On July 26, 1993 the Company completed a private placement whereby it sold
1,571,590 units at a price of $0.88 per unit. 1,164,497 of the units consisted
of one flow-through common share and one two-year non-transferable share
purchase warrant entitling the holder thereof to purchase one additional common
share for Cdn$0.88 at any time on or before July 22, 1994 and for $1.01 at any
time after July 22, 1994 and on or before July 22, 1995. Any shares issued
pursuant to an exercise of the warrants occurring on the first anniversary date
of their issue could become, at the discretion of the holder of such warrants,
"flow-through" shares. 111,900 of the units were "finders fee" units which were
comprised of one common share and one two-year non-transferable share purchase
warrant entitling the holder thereof to purchase on additional common share for
$1.10 at any time on or before July 22, 1994 and for $1.26 at any time after
July 22, 1994 and on or before July 22, 1995. The balance of the units consisted
of one common share and one two-year non-transferable share purchase warrant
entitling the holder thereof to purchase one additional common share for $0.88
at any time on or before July 22, 1994 and for $1.01 at any time after July 22,
1994 and on or before July 22, 1995.
On April 28, 1993, the Company completed a private placement whereby it sold
200,000 units at $0.66 per unit. Each unit consisted of one common share and one
non-transferable Series "K" share purchase warrant with each warrant exercisable
at a price of $0.66 per share at any time on or before April 19, 1994, and
thereafter at a price of $0.76 per share on or before April 19, 1995. The hold
period for these shares expired on April 20, 1994.
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On January 20, 1993, the Company completed a private placement whereby it sold
200,000 units at $0.50 per unit. Each unit consisted of one common share and one
non-transferable Series "J" share purchase warrant with each warrant exercisable
at a price of $0.50 per share at any time on or before December 31, 1993, and
thereafter at a price of $0.60 per share on or before December 31, 1994. the
hold period for the shares expired on December 31, 1993. The units were
comprised solely of flow-through shares and warrants which entitled the holder,
at his option, to acquire additional
flow-through shares. The flow-through shares and any additional flow-through
shares issued on the exercise of the warrants entitled the holders of those
shares to the benefit of the exploration expense incurred with the funds
received by the Company on the sale of those shares.
During the fiscal year ended 3/31/97, 1,074,000 share purchase options were
exercised netting the Company $4,644,498, and 1,300,000 share purchase warrants
were exercised netting the Company $5,266,658. An additional 166,875 shares were
issued pursuant to the exercise of agent's options and warrants netting the
Company $781,531.
As of March 31, 1998, the end of the Company's most recent fiscal year, there
were 42,376,810 shares of common stock outstanding. As of 10/02/98 there were
42,444,760 shares of common stock outstanding.
Competition
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There is competition from other mining exploration and development companies
with operations similar to those of the Company's. Many of the mining companies
with which the Company competes have operations and financial strength many
times that of the Company. Nevertheless, the market for the Company's possible
future production of minerals tends to be commodity oriented, rather than
company oriented. Accordingly, the Company expects to compete by taking
advantage of the market for all minerals present in its properties to offset the
primarily fixed costs of mining any one of the jointly-occurring minerals.
Commodity prices fluctuate and there is no guarantee that market prices at any
one time will be higher than production costs.
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Risks of Mining
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Regulations and Government Rules
- --------------------------------
The mining industry has been subject to increasing government controls and
regulations in recent years. The Company has obtained all the necessary permits
for exploration work performed to date and anticipates no material problems
obtaining the necessary permits to proceed with further development.
Risks Inherent in Mining
- ------------------------
Exploration for economic deposits of minerals is subject to a number of risk
factors. While the rewards for mining companies can be substantial if an
economically viable discovery is made, few of the properties which are explored
are ultimately developed into producing mines.
There is no known body of ore on the Company's mineral property. The purpose of
the current work program is to carry out exploration on the property with the
objective of establishing an economic body of ore.
The Company's ability to continue exploration and development of its properties
will be dependent upon its ability to raise significant additional funds in the
future. Should the Company not be able to obtain such financing, a portion of
its interest in properties may be needed to be transferred to potential joint
venture partners, or its properties may be lost entirely. Refer to Item #2 for
discussion of mining properties.
The Company's mining operations will be subject to governmental legislation,
policies and controls relating to prospecting, development, production,
environmental protection, mining taxes and labor standards. In addition, the
profitability of a particular mining prospect will be affected by the market for
base, strategic, and precious metals, which entails the assessment of many
factors, some of which include changing production costs, the supply and demand
for base, strategic and precious minerals, the rate of inflation, the capacity
of base, strategic and precious mineral producing corporations, the political
environment and changes in international investment patterns.
If the Company's exploration programs are successful, additional capital will be
required for the development of an economic ore body and to place it in
commercial production. The only sources of future funds presently available to
the Company are the sale of
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equity capital, or the offering by the Company of an interest in its property to
be earned by another party or parties carrying out further exploration or
development thereof.
There is also the possibility that the Company's properties may be subject to
prior unregistered agreements or transfers or land claims, and title may be
affected by undetected defects.
Exploration for minerals is a speculative venture necessarily involving some
substantial risk. There is no certainty that the expenditures to be made by the
Company in the acquisition of the interest in its mineral properties will result
in discoveries of commercial quantities of ore.
Resource exploration and development is a speculative business and involves a
high degree of risk. The marketability of natural resources which may be
acquired or discovered by the Company will be affected by numerous factors
beyond the control of the Company. These factors include market fluctuations,
the proximity and capacity of natural resource markets and processing equipment,
government regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, importing and exporting of minerals and
environmental protection. The exact effect of these factors cannot be accurately
predicted, but the combination of these factors may result in the Company not
receiving an adequate return on invested capital. Mining operations generally
involve a high degree of risk. Hazards such as unusual or unexpected formations
and other conditions are involved. The Company may become subject to liability
for pollution, cave-ins or hazards against which it cannot insure or against
which it may elect not to insure. The payment of such liabilities may have a
material, adverse effect during several phases of property exploration on the
Company's financial position.
While the Company has been successful in raising the necessary funds in the
past, there can be no assurance it can continue to do so. In such funds cannot
be secured, the Company will be forced to curtail its exploration efforts to a
level for which funding can be secured or relinquish certain of its properties
or allow its interest to be diluted pursuant to the terms of the respective
joint venture agreements.
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Plan of Operations
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Source of Funds for Fiscal 1999
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The Company had a working capital balance of $6,217,243 as of the end of the
first three months of Fiscal 1999 (6/30/98). The Company believes that it has
sufficient working capital for the remainder of Fiscal 1999.
Use of Funds for Fiscal 1999
- ----------------------------
At year end Fiscal 1998 (3/31/98) and through the first three months of Fiscal
1999 (ending 6/30/98), the Company had met all its expenditure requirements
under the various mineral agreements it holds or has interests in. These
expenditure requirements are more fully discussed in ITEM 2, "DESCRIPTION OF
PROPERTIES".
During the balance of Fiscal 1999, the Company anticipates that
exploration on the AK/CJ Property will continue by its joint venture partner,
Monopros Limited. A major bulk sampling program is planned during the winter of
1998-1999. Initial plans call for the extraction of approximately 500 tonnes
from each of the Hearne, Tuzo and 5034 pipes, with a lesser amount from the
Tesla pipe. This tonnage is expected to produce between 1,000 and 2,000 carats
for each of the three pipes and form the basis of a pre-feasibility study.
Anticipated Changes to Facilities/Employees
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There are no plans to add any additional personnel, other than independent
contractors retained to assist in the exploration of the Company's mineral
properties.
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USA vs. Foreign Sales/Assets
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At 3/31/98, nearly all of the Company's assets were located in Canada, with the
exception of an interest comprising less than 1% located in Nevada, U.S.A. At
3/31/97, all of the Company's assets were located in Canada.
During Fiscal 1998/1997/1996 ended March 31, the Company generated no revenue
from operations.
Staffing
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As of 10/02/98, the Company had seven full time and six part time employees, in
addition to six directors (of which three were officers of the Company). None of
the Company's employees are covered by a collective bargaining agreement.
Manufacturing/Marketing
- -----------------------
Not Applicable.
Research and Development
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Not Applicable.
Reliance Upon Significant Customers/Suppliers
- ---------------------------------------------
Not Applicable.
Seasonality
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Not Applicable.
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ITEM 2. DESCRIPTION OF PROPERTY
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Executive Offices
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The Company's executive offices are located in rented premises of approximately
1,870 sq. ft. at 789 West Pender Street, Suite #1205, Vancouver, British
Columbia
V6C 1H2. The Company considers these premises suitable for current needs.
The Company also maintains an office in the United States at Empire Tower I,
3633 E. Inland Empire Blvd., Suite 265, Ontario, California 91764.
AK/CJ Claims
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The AK Property
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The AK Property is the subject of a summary report dated November 11, 1996 (the
"Evans Report") entitled "Summary Report on the AK Property" prepared by Bruce
T. Evans. The following discussion of the AK Property is based, in part, upon
information set forth in the Evans Report and all of the following discussion
has been approved by Mr. Evans.
As the Company acquired the AK and CJ Properties together, and has since entered
into a number of agreements relating to both properties, portions of the
following discussion relate to both properties.
Location and Access
The AK Property is located in the Mackenzie District of the Northwest
Territories, centered at latitude 63' 30' north; longitude 109' 30' west, and is
situated between Fletcher and Walmsley Lakes to the east, Kirk Lake to the north
and Margaret Lake to the west. The property lies 115 km southeast of Lac de Gras
and 320 km northeast of Yellowknife.
Two exploration camps have been established to service the property. Both camps
are accessible by light float or wheel equipped planes. Larger aircraft can land
at an airstrip at Tundra-Salmita, approximately 120 km northwest of the
property. The Echo Bay Mines' winter road to the Lupin mine site runs from
Yellowknife along MacKay Lake, approximately 35 km northwest of the property.
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The AK Property presently consists of 119 contiguous mining claims (mining claim
nos. AK 1 through AK 119 inclusive) totaling 301,119.5 acres. The AK Property
originally comprised 144 mining claims (mining claim nos. AK 1 though AK 144
inclusive), however 25 of these mining claims lapsed (mining claim nos. AK 120
though AK 144 inclusive).
The expiry date for mining claims nos. CJl to CJ34 inclusive, CJ36 to CJ44
inclusive, CJ49 to CJ68 inclusive, CJ84 to CJIO4 inclusive, CJ127 to CJI44
inclusive (collectively, the "CJ Property") and AK5, 5, 7, 11, 14, 15, 17, 18,
19, 24, ' )4 to 37 inclusive, 41, 44, 46, 47, 48, 52, 55, 56, 58 to 61
inclusive, 71, 84 and 89 was August 17, 1996. Reports of Work in respect of
these claims have been filed. Due to a backlog in the Mining Recorder's Office,
a Certificate of Work for 1996 has not yet been issued in respect of these
claims and therefore the date to which the expiry date for these mining claims
may have been extended is uncertain. However, to the best of the Company's
knowledge, the Reports of Work show that the Company has completed enough work
in respect of each of the claims to extend the expiry date to at least August
17, 1997. The remainder of the claims have expiry dates between August 17, 1997
and August 17, 2002.
In April 1995, Inukshuk Capital Ltd. ("Inukshuk") staked mining claims nos.
AK145 through AK157 inclusive. Inukshuk provided the Company with executed
transfer documents for these 13 claims and the Company filed for the legal
transfer to the Company of an undivided 60% interest in these claims at the
Mining Recorder's Office. The remaining 40% undivided interest in these claims
were transferred by Inukshuk to 444965. The additional mining claims are subject
to the terms of the Triparty Agreement (as defined below), the AK-CJ Joint
Venture Agreement (as defined below), the Camphor Option Agreement (as defined
below), the Glenmore Sub-Option Agreement (as defined below) and the Monopros
Option Agreement (as defined below).
Ownership
The Company holds a 90% interest in each of the AK and CJ Properties. The
balance of each is owned by Camphor, as to 10%.
The majority of the claims comprising the AK and CJ Properties were staked in
the summer of 1992 by Inukshuk. The AK 145 through AK 157 claims were staked in
April 1995.
Under an option agreement (the "Company Option Agreement") dated August 18, 1992
and amended November 13, 1992 and January 8, 1993
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between the Company and Inukshuk, a company at arm's length to the Company, the
Company purchased an option to acquire a 100% interest in the AK and CJ
Properties. The Company subsequently earned its interest in both properties by
paying to Inukshuk a total of $380,000, issuing to Inukshuk 200,000 common
shares of the Company, and spending $1,500,000 on the properties. Under the
terms of the Company Option Agreement, both properties are subject to a 3% gross
overriding royalty (the "Gross Overriding Royalty") in favor of Inukshuk with a
minimum advance royalty of $200,000 per year commencing November25, 1999. This
royalty may be purchased for $5 million at any time until November 25, 1999. The
Company, Camphor and 444965 purchased the Gross Overriding Royalty in June 1997
in the course of settlement of the litigation with Inukshuk. See the discussion
below concerning the Monopros Option Agreement.
The Company granted an option to acquire up to 50% of its interest in the AK and
CJ Properties to 444965, a subsidiary of Glenmore under an agreement (the
"Glenmore Sub-Option Agreement") dated August 9, 1993. Under the Glenmore
Sub-Option Agreement, 444965 acquired a 40% interest in the AK and CJ Properties
and had a right to acquire an additional 1 0% interest in such properties by
spending certain amounts on exploration work on such properties. In a letter
agreement dated June 17, 1994, between the Company and 444965, 444965 waived its
right to earn an additional 10% interest in the AK and CJ Properties.
On November 18, 1993, the Company, Inukshuk and 444965 entered into an agreement
(the "Triparty Agreement") providing for the further development of the AK and
CJ Properties. The Triparty Agreement was amended on January 4, 1994 and
February 25, 1996. The Triparty Agreement clarified the relationship among the
parties and amended some of the terms of the Glenmore Sub-Option Agreement.
Attached as schedules to the Triparty Agreement were the forms of operator and
joint venture agreements which were subsequently entered into by the Company and
444965. The Triparty Agreement provides that any proposed transfer of an
interest in the AK or CJ Properties by either the Company or 444965 shall be
subject to a right of first refusal in favor of the other party.
In accordance with the terms of the Triparty Agreement, the Company and 444965
entered into a joint venture agreement effective November 18, 1993 (the "AK-CJ
Joint Venture Agreement") setting forth the basis on which further exploration
work on the AY, and CJ Properties would be undertaken. The AK-CJ Joint Venture
Agreement provides that each party must contribute to
15
<PAGE>
exploration expenditures in accordance with each party's proportionate interest
in the properties. If a party fails to make required expenditures, that party's
interest in the properties will be reduced and, if a party's interest in the
joint venture is reduced to 10%, its interest will be automatically converted to
a 5% net profits interest which will entitle such party to receive 5% of the net
profits generated from the AK and CJ Properties as calculated in accordance with
a specified formula set forth in the AK-CJ Joint Venture Agreement.
Under the terms of a purchase and sale agreement (the "Camphor Option
Agreement") dated August 16, 1994, as amended February 10, 1995 between the
Company and Camphor, the Company granted to Camphor an option to acquire from
the Company a 10% interest in the AK and CJ Properties. Camphor is an
exploration and development company based in Vancouver, British Columbia and
listed on the VSE. Camphor earned its interest under the Camphor Option
Agreement by issuing an aggregate of 400,000 common shares of Camphor to the
Company; spending $200,000 towards exploration on the AK and CJ Properties; and
agreeing to fund 10% of future exploration work on the AK and CJ Properties.
Under the terms of the Camphor Option Agreement, Camphor's interest is held in
trust by the Company. Certain directors and officers of the Company are also
directors and officers of Camphor.
Following the acquisition by Camphor of its 10% interest in the properties the
Company, Camphor, Inukshuk and 444965 entered into a letter agreement (the
"Camphor Agreement") dated May 5, 1995 under which, among other things, Camphor
acknowledged that its interest in the properties would be subject to the rights
of 444965 and Inukshuk under the Company Option Agreement, the Glenmore
Sub-Option Agreement, the Triparty Agreement and the AK-CJ Joint Venture
Agreement.
On March 6, 1997, the Company, Mountain Province, 444965 and Glenmore entered
into the "Monopros Option Agreement" with Monopros, whereby Monopros was
appointed as the operator of the joint venture with respect to both the AK and
CJ Properties. The Monopros Option Agreement contemplates a number of stages of
exploration and development of the AK and CJ Properties as follows:
(a) Stage #1 consists of prospecting and exploration for new kimberlite pipes
in addition to the 5034 kimberlite pipe.
(b) Stage #2 consists of preliminary evaluation of any additional pipes,
including minibulk sampling. Monopros is entitled at any time to abandon
the project. The
16
<PAGE>
anticipated cost of Stages 91 and #2 is $5,000,000. Stages #1 and #2 are to
be concluded no later than May 31, 2000. The existing joint venture (the
"Existing Joint Venture") among the Company, Mountain Province and 444965
is obliged to contribute the cost of Stages #1 and #2 in proportion to
their existing interests (the Company: 50%; 444965: 40%; Camphor: 1O%),
with Monopros paying any amount in excess of $5,000,000.
(c) If Monopros elects to proceed further, Stage #3' ) involves full evaluation
of any additional pipes, including bulk sampling, to be completed within a
further two years. The cost of Stage #3, which is estimated not to exceed
$18,000,000, will be paid by Monopros with any excess to be paid by
Monopros (51%) and the Existing Joint Venture (49%). On the completion of
Stage #3, Monopros will be entitled to a 51% undivided interest in the AK
and CJ Properties, while the combined interest of the Existing Joint
Venture is reduced to 49% (the Company: 24.5%; 444965: 19.6%; Camphor:
4.9%).
(d) If Monopros elects not to proceed to Stage #4, the co-ownership interests
of Monopros and the Existing Joint Venture are adjusted such that Monopros
will have a O% interest and the Existing Joint Venture will have a 70%
interest. If Monopros elects to proceed to Stage #4, Stage #4 consists of a
fall feasibility study for development of a mine. The Existing Joint
Venture is entitled to contribute its share of related costs (49%), but
otherwise the interest of Monopros increases from 51% to 55 % upon
completion of Stage #4 (with the Existing Joint Venture's interest
declining from 49% to 45%).
(e) If the feasibility study (Stage #4) is positive in the sense that a 15%
internal rate of return can be realized, the parties will proceed with
Stage 45, being the development of a mine on the AK and CJ Properties, to
be financed by Monopros. Upon completion of Stage #5, the interest of
Monopros would be increased by 5% (i.e. to 56% or 60%, depending on whether
the Existing Joint Venture has contributed to the Stage 44 feasibility
study), with a corresponding decrease in the interest of the Existing Joint
Venture (i.e. 44% or 40%).
On March 26, 1997, Inukshuk commenced an action in British Columbia Supreme
Court against the Company, Camphor, 444965 and Monopros, asserting that it was
entitled to a right of first
17
<PAGE>
refusal (the "Right of First Refusal") to acquire any interest in the AK and CJ
Properties from the Company, Camphor and 444965. This action and related
arbitration proceedings were settled and resolved under the terms of an
agreement (the "Sale and Settlement Agreement") dated June 18, 1997 among
Inukshuk, Canamera. Muskox Holdings Ltd. ("Muskox") (an affiliate of Inukshuk
and Canamera), John Dupuis, the Company, Camphor, 444965 and Glenmore. Under the
terms of the Sale and Settlement Agreement:
(a) the Company, Camphor and 444965 acquired certain fixed assets at the
Kennedy Lake Camp from Canamera;
(b) the Company, Camphor and 444965 acquired the Gross Overriding Royalty from
Muskox for $3,000,000;
(c) the Company, Camphor and 444965 acquired the Right of First Refusal from
Inukshuk for $500,000;
(d) the Company, Camphor and 444965 paid to Canamera the sum of $250,000 by way
of termination fee in respect of the termination of Canamera Operator
Agreement;
(e) the Company, Camphor and 444965 paid to Mr. Dupuis the sum of $250,000 by
way of compensation for alleged loss of reputation;
(f) the Company, Camphor and 444965 paid to Canamera the sum of $200,000 in
settlement of any actual or anticipated expenses incurred by Canamera
respecting camp demobilization and other expenses;
(g) the B.C. Supreme Court action and related arbitration proceedings were
dismissed by consent and abandoned; and
(h) the parties exchanged comprehensive releases.
The Company, Camphor and 444965 have granted to Monopros the option to acquire a
51% interest in the Gross Overriding Royalty for 51% of $3,000,000, such option
exercisable on or before November 30, 1997. If Monopros does not exercise this
option within such time, its purchase price for a 51% interest in the Gross
Overriding Royalty would revert to 51% of $5,000,000 as governed by the Monopros
Option Agreement.
In November 1997, the Company completed its amalgamation with 444965 BC Ltd.,
which held 40% of the AK/CJ claims. As a result, the Company now holds 90% of
the AK/CJ property with 10% held by
18
<PAGE>
Camphor Ventures. Monopros has the right to earn up to a 60% interest in the
property by bringing it to production.
History
The first systematic geological investigation of the Walmsley Lake area was
reconnaissance geological mapping conducted by the Geological Survey of Canada
in 1949. Historically, mineral exploration in the southeastern Slave Structural
Province focused on gold and base metals within Yellowknife Supergroup
metavolcanic and metasedimentary rocks in the MacKay, Aylmer, and Clinton-Golden
Lake areas. The initial claims comprising the AK and CJ Properties were staked
in June 1992. The properties cover terrain in the Slave Structural Province
which, at the time they were staked, were thought to be prospective for diamonds
based on the then recent discoveries to the north of Lac de Gras made by Dia-Met
Minerals Ltd. and the Canadian subsidiary of Broken Hill Pty. Co. Ltd. in 1991.
Prior to the staking of the AK Property, there had been no significant recorded
exploration activity on the AK Property.
Exploration Activity
During 1996 a total of 1842 heavy mineral till samples were collected from
throughout the AK Property on a follow - up basis to previously defined
anomalous areas. 1574 samples were analyzed and 171 samples were found to
contain kimberlite indicator minerals, predominantly pyrope garnet. The results
of heavy mineral till sampling has refined target areas in addition to 5034,
these areas are referred to as AK East, 50-'14 North, N5-A and N5-B, AK West
(N5-C & N5-D), and 7101 (AK Central).
Following the heavy mineral till sampling programs, continued ground and
airborne geophysical surveys were conducted over areas previously defined by
airborne geophysics as possible kimberlite targets. Detailed ground magnetometer
surveys were completed with line spacing between 25 and 50 metres, and data
collection every 12.5 metres. A total of 19 ground surveys were completed over
26 individual targets for 23' ).8 line kilometres of survey. The original Dighem
airborne geophysical survey was flown at line spacing of 250 metres. The 250
metre line spacing was determined by the partners to be too "coarse" and
therefore an airborne geophysical program which covered five continuous grids
across the southern half of the AK Property was completed. The airborne program
utilized a high sensitivity magnetometer which was flown a very low level and on
grid lines with 50 metre spacing. A total of 9,491 kilometres of survey were
flown.
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During the first half of 1996 a "mini" bulk sample test of the 5034 kimberlite
was completed. The method employed to collect the bulk sample at the 5034 pipe
was by use of large core diameter diamond. The program was conducted between
February and June 1996. A total of 43 large diameter holes were completed for a
total meterage of 11,494 metres of drilling. From this drilling a sample weight
of 104 tonnes was collected. The "drilling" bulk sample tested the 5034
kimberlite to a vertical depth of 3 5 0 metres.
Analysis of the kimberlite drill core from the delineation and "mini bulk"
sample drilling was conducted by Canamera at its North Vancouver laboratory. The
sample material treated totaled 103,700 kilograms. The analytical method used
was by dense media separation. An initial 25,000 kilograms of material was
subjected to a rigorous crushing and processing designed to optimize recovery of
diamonds 0.5mm and larger, while the remaining 78,700 kilograms were processed
in manner to: (a) optimize recovery of diamonds greater in size than 1.0 mm; and
(b) optimize cost efficiency of recovery of larger diamonds deemed to have more
economic significance. At the end of the 1996 5034 kimberlite bulk sample the
diamond grade stands at 2.67 carats per tonne for macro-diamonds 0.5mm and
larger and 2.56 carats per tonne for macrodiamonds 1.0 mm and larger.
4,738 diamonds which measured greater than 1.0 mm in size were recovered from
the 103,700 kilograms of sample processed by the Canamera DMS method. From this
group of diamonds, three were recovered which weighed more than 2.0 carats each,
eight were recovered which weighed more than 1.5 carats each, 43 were recovered
which weighed more than 0.5 carats each, and 566 were recovered which weighed
more than 0.1 carats each. The largest stone recovered from this sample weighted
2.88 carats.
Between April and August of 1996 exploration drilling continued on the AK
property independent of the 5034 pipe. A total of 29 exploration drill holes
were completed for 6,800 metres of drilling. The exploratory drilling was
conducted at four target areas (5034, 5034 North, AK East, and N5-A), however,
no new kimberlite occurrences were discovered.
After the completion of the Evans Report the Company received results from its
fall drilling program on the central part of the AK Property which had never
been drilled before. Four drill holes which were drilled up ice from the most
prominent indicator mineral trains intersected several (up to seven) narrow
kimberlite dykes at depths of approximately 30 to 60 metres with a maximum
thickness of 2.65 metres. Several micro diamonds were
20
<PAGE>
recovered by caustic fusion from a very small sample (several kilograms) of
kimberlite from one of the dykes. In April, 1997, Monopros conducted a
helicopter airborne survey, both magnetic and electromagnetic, on closely spaced
(50 meters) flight lines over the complete southern half of the AK Claim block,
covering approximately 50 km by 15 km. This area contains many of the
kimberlitic indicator minerals recovered so far as well as a number of
well-defined indicator mineral trains. One of the purposes of the survey was to
locate geophysical anomalies, using infield processing and interpretations, at
the heads of these trains. Land-based targets will be drilled during the course
of the summer when Monopros will also carry out additional till sampling. The
helicopter survey was completed in early May, at which time drilling of lake
based targets started.
In addition, Monopros started with an in-depth review of all previous work,
including the 5034 pipe. It is anticipated that, for the reasons of economy of
scale, any future bulk sampling of the 5034 pipe will be carried out at the same
time as bulk sampling of any newly discovered kimberlites. The need for and
extent of further sampling of 5034 will be decided following Monopros' review.
The diamonds recovered from the 5034 mini-bulk sample were shipped to
Johannesburg for evaluation. The results of the Monopros evaluation and analysis
will be reported when available.
A total of 857 garnets recovered from glacial sediment samples taken during the
previous prospecting programs on the AK and CJ claim blocks have been analyzed
by electron microprobe at the Anglo American Research Laboratories in
Johannesburg, South Africa. A significant proportion of the analysis (169
grains) plots within the high interest GIO garnet field. More detailed analysis
of the results in relation to specific anomalous areas within the claim blocks
is being carried out by Monopros.
On May 26, 1997, Monopros advised the Company that kimberlite was intersected
while drilling a lake-based geophysical target generated from the recently flown
high resolution helicopter magnetic and electromagnetic survey of the southern
AK claim block. The target is located approximately 1.8 km northwest of the AK
5034 kimberlite pipe. The drill hole was inclined at 50' and intersected at 51.5
meters of continuous kimberlite. The drill hole was stopped in kimberlite at
187.5 meters due to difficult ground conditions. Samples of the kimberlite were
forwarded by Monopros to the De Beers Laboratories in South Africa for
microdiamond, mineral chemistry and other analysis. The results of the
microdiamond analysis was reported on July 15, 1997. Monopros advised the
Company that caustic fusion analysis
21
<PAGE>
by De Beers of 66 kgs of kimberlite from the Telsa pipe has yielded 109
microdiamonds. The diamonds were recovered from three samples of 22 kgs each
taken at different intervals in the drill hole. The results are summarized as
follows:
Sample
(kg) Total Diamonds Kimberlite Weight
------ -------------- -----------------
1 22 62
2 22 10
3 22 37
The variation in the number of diamonds from sample to sample is very likely due
to the small size of the samples. De Beers classifies microdiamonds according to
various square mesh aperture screen sizes. Eight of the diamonds recovered were
larger than the 1/2x V2nun screen size. However, this should not be confused
with the commonly used definition of macros: those diamonds whose largest
dimension exceeds Y2mm. Some such macros may pass through a 1/2 by 1/2 mm
screen.
Based on these good results, Monopros, in early August, commenced with a
drilling program from the shore into the Telsa pipe to recover additional
kimberlite for analysis and to better delineate the pipe.
The summer exploration program is nearing completion. 400 glacial sediment
samples have been collected on the CJ claims and to date 300 samples have been
taken on the AK claims where sampling is continuing. Approximately 2,000 samples
will be taken during the field season. The results from these samples plus those
of approximately 1400 previously untreated or partially treated samples will
help to better define the many indicator mineral trains identified so far.
Interpretation of the recently flown, 14500 line kilometre, high resolution
helicopter magnetic and electromagnetic survey of the southern part of the AK
claim block is nearly completed. Besides numerous lake based targets, 23 land
targets have been identified so far on the eastern part of the claim block.
Additional targets are expected to be identified on the central and western
parts. The geophysical results will be combined with the sampling results
(indicator mineral trains) to choose the most promising targets. Drilling of
these targets started in early August, 1997 using a RC heliportable drill and
conventional diamond drilling. Drilling will continue throughout the summer.
22
<PAGE>
The 1998 winter program, which commenced on January 12, consisted of
delineation, exploration, and test sample drilling. On April 21, 1998, the
Company announced that Monopros had completed a test sample of four pipes:
Hearne, Tesla, Tuzo and 5034, ahead of schedule. Approximately 50 tonnes of
kimberlite were recovered from each of the pipes. The kimberlite was treated in
Monopros' DMS plant at Grand Prairie, Alberta. The concentrates produced
were then shipped to South Africa for diamond recovery and preliminary
evaluation. The number of diamonds recovered and resulting grades for the four
pipes are summarized as follows:
Hearne Pipe: 205 carats were recovered from 62.5 tonnes, at a grade of 3.28
carats per tonne. The two largest diamonds recovered were 1.87 and 1.80 carats.
Also recovered were seven diamonds equal to or greater than 1 carat, 24 greater
than 50 points (0.5 carat), and 160 diamonds greater than 20 points (0.2 carat)
in weight.
5034 Pipe: 101 carats were recovered from 55.8 tonnes of kimberlite, grading
1.81 carats per tonne. The two largest diamonds recovered were 1.90 and 1.69
carats. Also recovered were five diamonds greater than 80 points (0.8 carat).
Based on the results of a previous mini-bulk sample, Monopros estimated the
grade and value of the 5034 pipe to be 1.5 carats per tonne, with a value of
U.S.$55 per carat.
Tesla Pipe: 25.9 carats were recovered from 60 tonnes of kimberlite, for a grade
of 0.43 carats per tonne. Results were consistent with Monopros' modeling
predictions based on previously reported caustic fusion results from the
exploration drill holes. The Tesla pipe is considered to be the smallest of the
four pipes, however further delineation is considered necessary to establish the
exact sizes of all four pipes.
Tuzo Pipe: 108 carats were recovered from the processing of 48 tonnes of
kimberlite from the Tuzo pipe for a grade of 2.24 carats per tonne. The two
largest diamonds were 2.34 and 1.85 carats. Also recovered were 10 diamonds
greater than 80 points (0.8 carat).
Both the Company and Monopros, the operator, believe that the results from these
four pipes warrant advancement of the project to the bulk sampling stage, which
is expected to commence in early 1999.
Currently, the commercial viability of the extraction of diamonds from the AK/CJ
claims has not been proven and the claims are without a known body of commercial
ore.
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Ketza River Project
- -------------------
Acquisition of Interest
- -----------------------
The Company is the registered owner of certain mining claims situated in the
Ketza River Gold Camp, Watson Lake Mining District, Yukon Territory, Canada,
otherwise knows as the "Ketza River Project".
The claims comprising the Ketza River Project were staked by the Company during
the fiscal year ended 3/31/88 at a total cost of $30,582.
Ketza River Project Property Description
- ----------------------------------------
Location:
- ---------
The Ketza River Project consists of two separate properties of approximately
8,100 acres situated in the Ketza River Gold Camp, Ketza River Area, Watson Lake
Mining District, Yukon Territory, Canada approximately 45 kilometers south of
Ross River, Yukon Territory. These claims are known as the White Claims and the
Wild-Eve Property.
History:
- --------
Exploration was initiated in the Ketza River area in the late 1940s by
prospectors working for Hudson Bay Mining and Smelting. Exploration work in the
mid 1950s by Conwest Exploration Co. Ltd. resulted in the discovery of
auriferous lenses of massive pyrrhotite-arsenopyrite mineralization.
Contemporaneous with Conwest's discovery, other groups located silver-lead veins
in the area. Exploration resulted in the definition of one mineable reserve at
the Ketza River Mine.
The Ketza River Project claims cover favorable structural and geological trends
extending westerly from the mineralized zones on the Ketza River Mine. Since
1987 the Company has incurred expenditures of $725,000 on the project in
conducting exploration and development work consisting of prospecting,
geological mapping, geochemical soil and rock sampling, induced polarization and
magnetometer surveys, trenching, and diamond drilling.
The White Claims
- ----------------
The exploration work performed on the White Claims has produced the following
results: discovery of the East zone where trenching
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<PAGE>
uncovered a zone that assayed 0.356 ox/ton gold across 2.10 meters; discovery of
the Lake zone where trenching located silver-lead mineralization assaying up to
36.64 oz/ton silver, 0.013 oz/ton gold and 57.9% lead; discovery of the West
zone where trenching uncovered oxidized material assaying 0.173 oz/ton across
1.0 meters. The West zone was found to be surrounded by a gold-arsenic-copper
soil anomaly approximately 400 meters by 1,000 meters in size. Stratigraphic
correlation's indicate that the East, Lake and West zone are in the same
formation as that which hosts gold deposits on the adjacent ground of YGC
Resources Inc.
During the 1995 field season a program of limited hand trench was undertaken at
the West zone. The results of this work uncovered two oxide zone samples from
which analyzed up to 720 ppb gold and 53,301 ppm As. Further follow-up trenching
is recommended for these zones in the 1996 field season.
Wild-Eve Property
- -----------------
This property was first acquired by Cyprus Anvil Mining Corp. in August 1976.
During the 1977 field season a program of soil sampling and geophysics was
undertaken on the property. In 1978 one vertical diamond drill hole was put into
the property. Cyprus Anvil subsequently allowed these claims to lapse.
In 1986 the Company acquired the ground by staking it and conducted further
geochemical soil sampling and geophysics on the claims in 1987 and 1989. Results
of this work outlined a ferricrete gossan and an associated zone containing
anomalous Pb, Zn, Ag, Cu, As and Au in soil. The source of the gossan and
anomalous geochemistry has not been determined. In 1993, the drill core of the
Cyprus Anvil hole was relogged by the Company. One of the conclusions of this
work was that the drilling may have passed through the oxidized sulphide horizon
without recovering any core. In September 1994, an additional 36 mineral claims
were added to the claim block to cover possible northern extensions of the Ketza
River Project.
The ground is situated in an area underlain by Upper Cambrian to
Devono-Mississippian shales and Mississippian volcanics. A strong
silver-lead-zinc soil anomaly is associated with Devon-Mississippian shales and
volcanics at the North zone. Diamond drilling in 1978 by the previous mineral
tenure holder was not successful in explaining the anomalous geochemistry. A
weathered sulphide zone may have been penetrated during drilling and mistaken
for overburden. The highly anomalous soil combined with the favorable
stratigraphic setting suggests that there is potential
25
<PAGE>
for locating a volcanogenic polymetallic massive sulphide deposit at the North
zone.
In 1995 a program of limited soil sampling was undertaken to evaluate the
Wild-Eve claims and to determine a geochemical cut-off point at the North zone.
The work was successful in locating float from pyritic tuff horizons, however,
more detailed sampling will be required in order to determine the extent and
source area of the North zone anomaly.
Approximately $725,000 in exploration costs has been spent on the properties
through August 1995.
The Company entered into an agreement dated November 11, 1995 with Artemius
Ventures Inc. ("Artemius") pursuant to which Artemius will be entitled to earn
an undivided 50% interest in the Ketza River Properties.
At this time, the Company does not have any specific exploration plans for the
Ketza River Project. The Ketza River Project is without a known body of
commercial ore.
Molanosa Diamond Project
- ------------------------
Acquisition of a 50% Interest
- -----------------------------
The Company is the beneficial owner of a 50% right, title and interest in 27
mineral dispositions located in the Northern Mining District, Saskatchewan.
Pursuant to an earning option agreement with Consolidated Pine Channel Gold
Corp. ("Pine Channel") dated 3/8/93 the Company acquired a 50% interest in 5
mineral claims situated in the Northern Mining District, Province of
Saskatchewan. As consideration, the Company advanced $220,000 for exploration
expenditures. In addition the Company staked 22 additional mineral claims which
have been added to this option.
The Company and Pine Channel operate the Molanosa claims under a joint venture
agreement between the Company and Pine Channel dated 3/8/93, which contains
standard dilution and other joint venture operating provisions.
The Molanosa claims are part of a larger 22,762 hectare claim block held by Pine
Channel in Saskatchewan in respect of which Pine Channel has entered into
various earning option and joint venture
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<PAGE>
agreements similar to the Molanosa option with other mining companies besides
the Company.
Molanosa Diamond Project Property Description
- ---------------------------------------------
Location:
- ---------
The Molanosa Diamond Project is located in the Molanosa Arch area of central
Saskatchewan, Canada. The area lies just east of the Molanosa Arch, along a
well-defined linear magnetic low, probably a splay fault related to major fault
systems to the west. The east side of the area is near Ballantyne Bay,
Deschambeault Lake, and the west side impinges on the eastern slopes of the
Wapawekka Hills. It is centered about 85 kilometers southeast of the Town of
LaRonge.
Access to the general area can be gained along Highway 165, an east-west
connector between Highways 2 and 106. Several claims are directly road
accessible, however, the greater number are only accessible by helicopter.
The eastern 2/3 of the property is underlain by outwash plain on a gentle
eastward slope down to Deschambeault Lake. It is a relatively featureless,
swampy area interspersed with low glacial ridges and hills. Beach deposits and
offshore bars form long ridges in the southwest portion. The western 1/3 is
along the eastern slopes of the Wapawekka Hills, a highland rising 1,200 feet
above the surrounding lands. The whole area is heavily forested with white
spruce, aspen, and jackpine on the higher ground, while black spruce and alder
predominate lower areas.
History:
- --------
The first diamond find in Saskatchewan was reported in newspapers in March 1948.
The latest phase of diamond exploration began in 1988, with a find at Sturgeon
Lake, about 30 kilometers northwest of Prince Albert. A second kimberlite body
was discovered by Corona Corp. about 3 kilometers northwest that discovery, and
a joint venture drill-tested the target. The Molanosa Arch area is about 140
kilometers up-ice from the Sturgeon Lake body.
Other sampling has been done in Fort a la Corne area, resulting in De Beers
becoming a joint venture partner with Cameco Corporation and Uranerz Exploration
and Mining, both of Saskatoon.
Information coming into the public domain now suggests that the diatremes in the
Fort a la Corne area are preserved to very high erosion levels with their age
now thought to be Upper Cretaceous.
27
<PAGE>
There is also a suggestion of the possibility of older (Devonian) diatreme
activity, which opens the possibility of encountering pipes in the Devonian
carbonates and/or paleoplacer diamonds in the Mannville sandstones. The Molanosa
Project claims are underlain mainly by Lower Cretaceous sandstones of the
Mannville Formation.
During the period 4/18/93 through 5/17/93, Pine Channel commissioned a total
field, high resolution magnetic survey over the entire Molanosa Arch properties.
Magnetic ground surveys were carried out from 3/8/93 through 4/27/93 on these
properties. On the Company's joint venture properties, 28 anomalies have been
surveyed. Geophysical interpretation has indicated that the target anomolies are
moderately magnetic, falling within the magnetic parameters of known kimberlites
in Saskatchewan, and that they are at a relatively shallow depth. Seventeen
first priority, and one second priority holes have been recommended for
drilling.
During 1994, diamond drilling in 5 holes was undertaken to test magnetic
anomalies for kimberlite. This work failed to intersect kimberlite.
Approximately $615,000 in exploration costs has been spent on the properties
through August 1995 by the Company and Pine Channel.
Further drill holes are recommended, however, the Company and Pine Channel have
currently suspended operations on the Molanosa claims and the program is being
reviewed. The Molanosa claims are without known commercial mineralization.
Other Saskatchewan Claims
- -------------------------
598909 Saskatchewan Claims and Northern Saskatchewan Claims
- -----------------------------------------------------------
Pursuant to an agreement dated 1/17/94, the Company acquired a 50% interest in
15 mineral claims located in the Province of Saskatchewan, known as the 598909
Saskatchewan claims. As consideration, the Company paid $15,000 and issued
100,000 shares. In addition, the Company is required to incur approximately
$24,000 of exploration expenditures. The claims are subject to a 1% net smelter
return and a 3% gross overriding royalty.
Subject to agreements dated 2/22/94, the Company acquired a 100% undivided
interest in 43 mineral claims located in the Province of Saskatchewan, known as
the Northern Saskatchewan claims. As consideration, the Company paid $25,000 and
issued 200,000 shares. The claims are subject to a 1% net smelter return and a 3
% gross overriding royalty.
28
<PAGE>
Pursuant to agreements dated 4/8/94 and 3/15/95, the Company optioned 90% of its
interest in 4 of the 598909 Saskatchewan claims and 32 of the Northern
Saskatchewan claims. As consideration, the Company has received 35,000 common
shares of War Eagle Mining Company Inc. and 35,000 common shares of Great
Western Gold Corp. The Company will receive an additional 40,000 common shares
of each company upon discovery of a diamondiferous kimberlite on the claims and
an additional 20,000 common shares of each company upon the preparation and
release of a feasibility study giving positive recommendation for entering into
production. The result is a partnership, Candle Lake Joint Venture Partnership
in which the Company and its partners, Camphor Ventures Inc., War Eagle Mining
and Great Western Gold, each held a 25% interest.
Under a new agreement, Kennecott Canada Inc. will earn a 60% interest in the
claims leaving each of the four other joint venture partners with a 10%
interest. After Kennecott has earned its
interest, each company could further reduce its interest to a 7.5% carried
interest through a positive feasibility study. Kennecott has begun an
exploration program.
Tobin Lake Area Claim
- ---------------------
Pursuant to an agreement dated 1/24/94, the Company acquired a 25% interest in a
mineral claim in the Tobin Lake Area, Province of Saskatchewan. As
consideration, the Company issued 38,400 shares and agreed to issue an
additional 38,400 shares in the event that kimberlite is intersected at bedrock
on the property. The claim is subject to a 3% gross overriding royalty. Under
the terms of the agreement, the Company has the right to acquire 50% of the
gross overriding royalty for $1.5 million.
At this time, the Company does not have any specific exploration plans for the
Tobin Lake Area claim and it is without a known body of commercial ore.
Mary Dale Property
- ------------------
Pursuant to an agreement dated 6/13/94, the Company acquired a 100% interest in
three mineral claims located in the Northern Mining District, Province of
Saskatchewan. As consideration, the Company paid $10,000 and issued 100,000
shares. The claims are subject to a 3% gross overriding royalty.
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At this time, the Company does not have any specific exploration plans for the
Mary Dale Property and it is without a known body of commercial ore.
Maris Project
- -------------
The Company owns a 100% interest in 99 Lode claims totaling approximately 2,045
acres, located in Nye County, Nevada. The claims are subject to a 1.5% net
smelter return royalty payable to a company belonging to a director of the
Company, and two other persons. Under the terms of an agreement, the Company can
acquire the royalty for $1,500,000.
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ITEM 3. LEGAL PROCEEDINGS
- -------------------------
The Company knows of no material, active or pending, legal proceedings against
them; nor is the Company involved as a plaintiff in any material proceeding or
pending litigation.
The Company knows of no active or pending proceedings against anyone that might
materially adversely affect an interest of the Company.
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ITEM 4. CONTROL OF REGISTRANT
- -----------------------------
The Registrant is a publicly owned corporation, the shares of which are owned by
Canadian residents, US residents, and residents of other countries. The
Registrant is not controlled directly or indirectly by another corporation or
any foreign government, except as described below.
Table No. 2 lists, as of 10/02/98, persons and/or companies holding 10% or more
beneficial interest in the Registrant's outstanding common stock.
Table No. 2
10% or Greater Shareholders
Title Amount and Nature Percent
of Name and Address of Beneficial of
Class of Owner Ownership Class #
- -----------------------------------------------------------------------------
Common Glenmore Highlands Inc. (1) 16,441,696 38.74%
(1) David Whittle, a director of the Company, is the President and a director of
Glenmore Highlands Inc. and D.H.W. Dobson, a director of the Company, is also a
director of Glenmore Highlands Inc.
# Based on 42,444,760 shares of common stock outstanding as of 10/02/98 and
currently exercisable stock options owned by each beneficial holder.
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Table No. 3 lists, as of 10/02/98, Directors and Executive Officers who
beneficially own the Registrant's voting securities and the amount of the
Registrant's voting securities owned by the Directors and Executive Officers as
a group.
Table No. 3
Shareholdings of Directors and Executive Officers
Title Amount and Nature Percent
of Beneficial of
Class Name of Beneficial Owner Ownership Class #
- ----------------------------------------------------------------------------
Common Paul Shatzko, M.D.(1) 992,000 2.3%
Common Jan W. Vandersande (2) 550,100 1.3%
Common Jesus R. Martinez (3) 389,000 0.9%
Common Carl Verley (4) 223,521 0.5%
Common D.H.W. Dobson (5) 200,000 0.4%
Common David Whittle (6) 200,000 0.4%
Common Pradeep Varshney (7) 32,100 0.0%
Total Directors/Officers 2,586,721
(1) 630,000 of these shares represent currently exercisable stock options.
(2) 537,000 of these shares represent currently exercisable stock options.
(3) 74,000 of these shares represent currently exercisable stock options.
(4) 10,000 of these shares represent currently exercisable stock options.
(5) 200,000 of these shares represent currently exercisable stock
options.
(6) 200,000 of these shares represent currently exercisable stock options.
(7) 23,000 of these shares represent currently exercisable stock options.
# Based on 42,444,760 shares of common stock outstanding as of 10/02/98 and
currently exercisable stock options owned by each beneficial holder.
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ITEM 5. NATURE OF TRADING MARKET
- --------------------------------
The Company's common shares trade on the Vancouver Stock Exchange ("VSE") in
Vancouver, British Columbia, Canada, having the trading symbol "MPV" and CUSIP
#62426E105. The Company's common shares commenced trading on the VSE on 7/28/88.
Table No. 4 lists the volume of trading and high, low and closing sales prices
on the VSE for shares of the Company's common stock for the last ten fiscal
quarters.
Table No. 4
Vancouver Stock Exchange Stock Trading Activity
- Sales -
Period Canadian Dollars
Ended Volume High Low Closing
- -------------------------------------------------------------------------
6/30/98 2,443,950 $5.60 $3.20 $3.55
3/31/98 2,435,767 $5.90 $3.80 $5.00
12/31/97 3,720,610 $6.50 $3.95 $4.50
9/30/97 7,850,891 $6.30 $2.50 $4.60
6/30/97 3,471,878 $3.30 $2.15 $2.50
3/31/97 2,509,698 $5.60 $3.05 $3.30
12/31/96 2,458,399 $5.10 $3.90 $4.20
9/30/96 3,590,577 $5.35 $3.80 $4.60
6/30/96 5,599,900 $9.75 $5.00 $5.25
3/31/96 7,328,100 $9.00 $4.70 $9.00
Price Fluctuations: Share Price Volatility
- -------------------------------------------
In recent years, securities markets in Canada have experienced a high level of
price and volume volatility, and the market price of many resource companies,
particularly those considered speculative exploration companies, have
experienced wide fluctuations in price which have not necessarily been related
to operating performance or underlying asset values on prospects of such
companies. In particular, the Company's shares fluctuated from a low of $2.50
during Fiscal 1997 to a high of $6.50, and from a high of $5.90 to a low of
$3.55 during Fiscal 1998. Exploration for diamonds is considered high risk and
highly speculative in the resource industry and the trading market for diamond
exploration companies is characteristically volatile, with wide fluctuations of
price and volume only in part related to progress of exploration. There can be
no assurance that continual fluctuations in the Company's share price and volume
will not occur.
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The Registrant's common stock is issued in registered form and the following
information is from the Registrant's registrar and transfer agent, Montreal
Trust Company, located in Vancouver, British Columbia, Canada.
The Registrant has researched the indirect holdings by depositories and other
financial institutions and believes it has in excess of 600 shareholders of its
common stock.
The Company's common shares began trading on the Nasdaq market on May 1, 1996,
under the trading symbol "MPVIF". During the period of May 1, 1996 through
August 31, 1996, 1,386,767 shares traded on Nasdaq with a high price of US
$6.125, a low price of US $2.75, and a closing price of US $3.73.
The Registrant has not declared any dividends for the last five years and does
not anticipate that it will do so in the foreseeable future. The present policy
of the Registrant is to retain future earnings for use in its operations and the
expansion of its business.
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ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
- --------------------------------------------------------------------------
There are no governmental laws, decrees or regulations in Canada relating
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 shares. Any remittance 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 common shares of the Company) pursuant to
Article X of the reciprocal treaty between Canada and the United States.
Except as provided in the Investment Canada Act, there are no limitations under
the laws of Canada, the Province of British Columbia or in the Articles of
Incorporation of the Company on the right of foreigners to hold or vote the
common shares of the Company.
The Investment Canada Act (the "ICA"), which became effective on 6/30/85,
regulates the acquisition by non-Canadians of control of a Canadian business
enterprise. In effect, the ICA required review by Investment Canada, the agency
which administers the ICA, and approval by the Canadian government in the case
of an acquisition of control of a Canadian business by a non-Canadian where: (i)
in the case of acquisition (for example, through a share purchase or asset
purchase), the assets of the business are $5 million or more in value; or (ii)
in the case of an indirect acquisition (for example, the acquisition of the
foreign parent of the Canadian business) where the Canadian business has assets
of $50 million or more in value or if the Canadian business represents more than
50% of the assets of the original group and the Canadian business has assets of
$5 million or more in value. Review and approval are also required for the
acquisition or establishment of a new business in areas concerning "Canada's
cultural heritage or national identity" such as book publishing, film production
and distribution, television and radio, production and distribution of music,
and the oil and natural gas industry, regardless of the size of the investment.
In the context of the Company, in essence, three methods of acquiring control of
a Canadian business are regulated by the ICA: (i) the acquisition of all or
substantially all of the assets used in carrying on the Canadian business; (ii)
the acquisition, directly or indirectly, of voting shares of a Canadian
corporation carrying on the Canadian business; (iii) the acquisition of voting
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of an entity which controls, directly or indirectly, another entity carrying on
a Canadian business. An acquisition of a majority of the voting interests of an
entity, including a corporation, is deemed to be an acquisition of control under
the ICA. An acquisition of less than one- third of the voting shares of a
corporation is deemed not to be an acquisition of control. An acquisition of
less than a majority, but one-third or more, of the voting shares of a
corporation is presumed to be an acquisition of control unless it can be
established that on the acquisition the corporation is not, in fact, controlled
by the acquirer through the ownership of voting shares. For partnerships,
trusts, joint ventures or other unincorporated entities, an acquisition of less
than a majority of the voting interests is deemed not to be an acquisition of
control.
In 1988, the ICA was amended pursuant to the Free Trade Agreement dated 1/2/88
between Canada and the United States to relax the restriction of the ICA. As a
result of these amendments, except where the Canadian business is in the
cultural, oil and gas, uranium, financial services or transportation sectors,
the threshold for direct acquisition of control by U.S. investors and other
foreign investors acquiring control of a Canadian business from U.S. investors
has been raised from $5 million to $150 million of gross assets, and indirect
acquisitions are not reviewable.
In addition to the foregoing, the ICA requires that all other acquisitions of
control of Canadian businesses by non-Canadians are subject to formal
notification to the Canadian government. These provisions require a foreign
investor to give notice in the required form, which notices are for information,
as opposed to review, purposes.
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ITEM 7. TAXATION
- ----------------
The following summary of the material Canadian federal income tax considerations
generally applicable in respect of the common stock reflects the Company's
opinion. The tax consequences to any particular holder of common stock will vary
according to the status of that holder as an individual, trust, corporation or
member of a partnership, the jurisdiction in which that holder is subject to
taxation, the place where that holder is resident and, generally, according to
that holder's particular circumstances. This summary is applicable only to
holders who are resident in the United States, have never been resident in
Canada, deal at arm's length with the Company, hold their common stock as
capital property and who will not use or hold the common stock in carrying on
business in Canada. Special rules, which are not discussed in this summary, may
apply to a United States holder that is an issuer that carries on business in
Canada and elsewhere.
This summary is based upon the provisions of the Income Tax Act of Canada and
the regulations thereunder (collectively, the "Tax Act" or "ITA")and the
Canada-United States Tax Convention (the "Tax Convention") as at the date of the
Registration Statement and the current administrative practices of Revenue
Canada, Taxation. This summary does not take into account provincial income tax
consequences.
This summary is not exhaustive of all possible income tax consequences. It is
not intended as legal or tax advice to any particular holder of common stock and
should not be so construed. Each holder should consult his own tax advisor with
respect to the income tax consequences applicable to him in his own particular
circumstances.
Disposition of Common Stock.
If a non-resident were to dispose of common stock of the Company to another
Canadian corporation which deals or is deemed to deal on a non-arm's length
basis with the non-resident and which, immediately after the disposition, is
connected with the Company (i.e., which holds shares representing more than 10%
of the voting power and more than 10% of the market value of all issued and
outstanding shares of the Company), the amount by which the fair market value of
any consideration (other than any shares of the purchaser corporation) exceeds
the paid-up capital of the common stock sold will be deemed to be taxable as a
dividend paid by the purchasing corporation, either immediately or eventually by
means of a
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<PAGE>
deduction in computing the paid-up capital of the purchasing corporation, and
subject to withholding taxes as described below.
Under the Tax Act, a gain from the sales of common stock by a non-resident will
not be subject to Canadian tax, provided the shareholder (and/or persons who do
not deal at arm's length with the shareholder) have not held a "substantial
interest" in the Company (25% or more of the shares of any class of the
Company's stock) at any time in the five years preceding the disposition.
Generally, the Tax Convention will exempt from Canadian taxation any capital
gain realized by the resident of the United States, provided that the value of
the common stock is not derived principally from real property situated in
Canada.
Dividend. In the case of any dividends paid to non-residents, the Canadian tax
is withheld by the Company, which remits only the net amount to the shareholder.
By virtue of Article X of the Tax Convention, the rate of tax on dividends paid
to residents of the United States is generally limited to 15% of the gross
dividend (or 10% in the case of certain corporate shareholders owning at least
10% of the Company's voting shares). In the absence of the treaty provisions,
the rate of Canadian withholding tax imposed on non-residents is 25% of the
gross dividend. Stock dividends received by non-residents from the Company are
taxable by Canada as ordinary dividends.
Where a holder disposes of common stock to the Company (unless the Company
acquired the common stock in the open market in the manner in which shares would
normally be purchased by any member of the public) will result in a deemed
dividend to the U.S. holder equal to the amount by which the consideration paid
by the Company exceeds the paid-up capital of such stock, the amount of such
dividend will be subject to withholding tax as described above.
Capital Gains
A non-resident of Canada is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a share of a class that is listed
on a prescribed stock exchange unless the share represents "taxable Canadian
property" to the holder thereof. A common share of the Company will be taxable
Canadian property to a non-resident holder if, at any time during the period of
five years immediately preceding the disposition, the non-resident holder,
persons with whom the non-resident holder did not deal at arm's length, or the
non-resident holder and persons with whom he/she did not deal at arm's length
owned 25% or more of the issued
39
<PAGE>
shares of any class or series of the Company. 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 tax will be payable on a capital
gain realized on such shares by reason of the Canada-United States Income Tax
Convention 1980) (the "Treaty") unless the value of such shares is derived
principally from real property situated in Canada or the non-resident holder
previously held the shares while resident in Canada. However, in such a case,
certain transitional relief under the Treaty may be available.
Certain United States Federal Income Tax Consequences
The following is a discussion of certain possible United States Federal income
tax consequences, under the law, generally applicable to a U.S. Holder (as
defined below) of common shares of the Company. This discussion does not address
all potentially relevant Federal income tax matters and it does not address
consequences peculiar to persons subject to special provisions of Federal income
tax law, such as those described below as excluded from the definition of a U.S.
Holder. 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, possible on a retroactive basis, at any time.
In addition, the discussion does not consider the potential effects, both
adverse and beneficial, or recently proposed legislation which, if enacted,
could be applied, possibly on a retroactive basis, at any time. The following
discussion is for general information only and is not intended to be, nor should
it be construed to be, legal or tax advice to any holder or prospective holder
of common shares of the Company and no opinion or representation with respect to
the United States Federal income tax consequences to any such holder or
prospective holder is made. Accordingly, holders and prospective holders of
common shares of the Company should consult their own tax advisors about the
federal, state, local, and foreign tax consequences of purchasing, owning and
disposing of common shares of the Company.
U.S. HOLDERS
As used herein, a ("U.S. Holder") includes a holder of common shares of the
Company who is a citizen or resident of the United
40
<PAGE>
States, a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof and any other person or entity
whose ownership of common shares of the Company is effectively connected with
the conduct of a trade or business in the United States. A U.S. Holder does not
include 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, non-resident alien individuals or foreign
corporations whose ownership of common shares of the Company is not effectively
connected with the conduct of a trade or business in the United States and
shareholders who acquired their stock through the exercise of employee stock
options or otherwise as compensation.
Distribution on Common Shares of the Company
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to common shares of the Company 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 shares and thereafter as gain from the sale or
exchange of the common 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 common shares of the Company will not generally be
eligible for the dividends received deduction provided to corporations. A U.S.
Holder which is a corporation may, under certain circumstances, be entitled to a
70% deduction of the United States source portion of dividends received from the
Company (unless the Company qualifies as a "foreign personal holding company" or
a "passive foreign investment company", as defined below) if such U.S. Holder
owns shares representing at least 10% of the voting power and value of the
Company. The availability of
41
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this deduction is subject to several complex limitations which are beyond the
scope of this discussion.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of common shares of the Company 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 income taxes (or taxes in lieu of income tax) paid by (or withheld from)
the U.S. Holder during the year. There are significant and complex limitations
which apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's United States income
tax liability that the U.S. Holder's foreign source income bears to his/her or
its application of this limitation. The various items of income and deduction
must be classified into foreign and domestic sources. Complex rules govern this
classification process. There are further limitations on the foreign tax credit
for certain types of income such as "passive income", "high withholding tax
interest", "financial services income", "shipping income", and certain other
classifications of income. 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 shares of the Company should consult their own tax
advisors regarding their individual circumstances.
Disposition of Common Shares of the Company
A U.S. Holder will recognize gain or loss upon the sale of common shares of the
Company 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 shares of the Company. This gain or loss will be capital gain or
loss if the common shares are capital assets in the hands of the U.S. Holder,
which will be a short-term or long-term capital gain or loss depending upon the
holding period of the U.S. Holder. 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 which are individuals, any unused
portion of such net capital loss may be carried over to be used in
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later tax years until such net capital loss is thereby exhausted. For U.S.
Holders which are corporations (other than corporations subject to Subchapter S
of the Code), an unused net capital loss may be carried back three years from
the loss year and carried forward five years from the loss year to be offset
against capital gains until such net capital loss is thereby exhausted.
Other Considerations
In the following circumstances, the above sections of the discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of common shares of the Company.
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Company's outstanding shares is owned, actually
or constructively, by five or fewer individuals who are citizens or residents of
the United States and 60% or more of the Company's gross income for such year
was derived from certain passive sources (e.g. from dividends received from its
subsidiaries), the Company would be treated as a "foreign personal holding
company." In that event, U.S. Holders that hold common shares of the Company
would be required to include in gross income for such year their allowable
portions of such passive income to the extent the Company does not actually
distribute such income.
Foreign Investment Company
If 50% or more of the combined voting power or total value of the Company's
outstanding shares are held, actually or constructively, by citizens or
residents of the United States, United States domestic partnerships or
corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(31), and the Company is found to be engaged
primarily in the business of investing, reinvesting, or trading in securities,
commodities, or any interest therein, it is possible that the Company might be
treated as a "foreign investment company" as defined in Section 1246 of the
Code, causing all or part of any gain realized by a U.S. Holder selling or
exchanging common shares of the Company to be treated as ordinary income rather
than capital gains.
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Passive Foreign Investment Company
As a foreign corporation with U.S. Holders, the Company could potentially be
treated as a passive foreign investment company ("PFIC"), as defined in Section
1296 of the Code, depending upon the percentage of the Company's assets which is
held for the purpose of producing passive income.
Certain United States income tax legislation contains rules governing PFICs
which can have significant tax effects on U.S. Shareholders of foreign
corporations. These rules do not apply to non-U.S. shareholders. Section 1296 of
the Code defines a PFIC as a corporation that is not formed in the United States
and, for any taxable year, either (i) 75% or more of its gross income is
"passive income", which includes interest, dividends and certain rents and
royalties or (ii) the average percentage, by fair market value or, if the
Company is a controlled foreign corporation or makes an election, by adjusted
tax basis, of its assets that produce or are held for the production of "passive
income", is 50% or more.
A U.S. shareholder who holds stock in a foreign corporation during any year in
which such corporation qualifies as a PFIC is subject to U.S. Federal income
taxation under one of two alternative tax regimes at the election of each such
U.S. shareholder. The following is a discussion of such two alternative tax
regimes applied to such U.S. shareholders of the Company.
A U.S. shareholder who elects in a timely manner to treat the Company as a
Qualified Electing Fund ("QEF"), as defined in the Code (an "Electing U.S.
Shareholder"), will be subject, under Section 1293 of the Code, to current
federal income tax for any taxable year in which the Company qualifies as a PFIC
on his pro-rata share of the Company's (i) "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), which will be taxed as
long-term capital gain to the Electing U.S. Shareholder and (ii) "ordinary
earnings" (the excess of earnings and profits over net capital gain), which will
be taxed as ordinary income to the Electing U.S. Shareholder, in each case, for
the shareholder's taxable year in which (or with which) the Company's taxable
year ends, regardless of whether such amounts are actually distributed.
The effective QEF election also allows the Electing U.S. Shareholder to (i)
generally treat any gain realized on the disposition of his Common Shares (or
deemed to be realized on the pledge of his Common Shares) as capital, (ii) treat
his share of
44
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the Company's net capital gain, if any, as long-term capital gain instead of
ordinary income, and (iii) either avoid interest charges resulting from PFIC
status altogether, or make an annual election, subject to certain limitations,
to defer payment of current taxes on his share of the Company's annual realized
net capital gain and ordinary earnings subject, however, to an interest charge
on the deferred taxes. If the Electing U.S. Shareholder is not a corporation,
such an interest charge would be treated generally as "personal interest" that
can be deducted only when it is paid or accrued an is only 10% deductible in
taxable years beginning in 1990 and not deductible at all in taxable years
beginning after 1990.
The procedures a U.S. Shareholder must comply with in making an effective QEF
election will depend on whether the year of the election is the first year in
the U.S. Shareholder's holding period
in which the Company is a PFIC. If the U.S. Shareholder makes a QEF election in
such first year, i.e. a timely QEF election, then the U.S. Shareholder may make
the QEF election by simply filing the appropriate documentation at the time the
U.S. Shareholder files its tax return for such first year. If, however, the
Company qualified as a PFIC in a prior year during such shareholder's holding
period, then in addition to filing documents, the U.S. Shareholder must elect to
recognize (i) (under the rules of Section 1291 discussed below), any gain that
he would otherwise recognize if the U.S. Shareholder sold his stock on the
application date or (ii) if the Company is a controlled foreign corporation, and
such shareholder so elects, his/her allocable portion of the Company's post-1986
earnings and profits.
When a timely QEF election is made, if the Company no longer qualifies as a PFIC
in a subsequent year, normal code rules will apply. It is unclear whether a new
QEF election is necessary if the Company thereafter re-qualifies as a PFIC. U.S.
Shareholders should seriously consider making a new QEF election under those
circumstances.
If a U.S. Shareholder does not make a timely QEF election in the year in which
it holds (or is deemed to have held) the shares in question and the Company is a
PFIC (a "Non-resident U.S. shareholder"), then special taxation rules under
Section 1291 of the Code will apply to (i) gains realized on disposition (or
deemed to be realized by reason by of a pledge) of his/her common shares and
(ii) certain "excess contributions", as specially defined, by the Company.
Non-electing U.S. shareholders generally would be required to pro-rata all gains
realized on the disposition of his/her common shares
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and all excess distributions over the entire holding period for the common
shares. All gains or excess distributions allocated to prior years of the U.S.
shareholder (other than years prior to the first taxable year of the Company
during such U.S. Shareholder's holding period and beginning after January 1,
1987 for which it was a PFIC) would be taxed at the highest tax rate for each
such prior year applicable to ordinary income. The Non-electing U.S. Shareholder
also would be liable for interest on the foregoing tax liability for each such
prior year calculated as if such tax liability had been due with respect to each
such prior year. A Non-electing U.S. Shareholder that is not a corporation must
treat this interest charge as "personal interest" which, as discussed above, is
partially or wholly non-deductible. The balance of the gain or the excess
distribution will be treated as ordinary income in the year of the disposition
or distribution, and no interest charge will be incurred with respect to such
balance.
If the Company is a PFIC for any taxable year during which a Non-electing U.S.
Shareholder holds common shares, then the Company will continue to be treated as
a PFIC with respect to such common shares, even if it is no longer
definitionally a PFIC. A Non-electing U.S. Shareholder may terminate this deemed
PFIC status by electing to recognize a gain (which will be taxed under the rules
discussed above for Non-electing U.S. Shareholders) as if such common shares had
been sold on the last day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued
proposed regulations that would treat as taxable certain transfers of PFIC stock
by Non-electing U.S. Shareholders that are generally not otherwise taxed, such
as gifts, exchanges pursuant to corporate reorganizations, and transfers at
death.
Certain special, generally adverse, rules will apply with respect to the common
shares while the Company is a PFIC whether or not it is treated as a QEF. For
example under Section 1297(b)(6) of the Code, a U.S. shareholder who uses PFIC
stock as security for a loan (including a margin loan) will, except as may be
provided in regulations, be treated as having made a taxable disposition of such
stock.
The foregoing discussion is based on existing provisions of the Code, existing
and proposed regulations thereunder, and current administrative ruling and court
decisions, all of which are subject to change. Any such change could affect the
validity of this discussion. In addition, the implementation of certain aspects
of the PFIC rules requires the issuance of regulations which in many instances
have not been promulgated and which may have retroactive
46
<PAGE>
effect. There can be no assurance any of these proposed regulations will be
enacted or promulgated, and if so, the form they will take or the effect that
they may have on this discussion. Accordingly, and due to the complexity of the
PFIC rules, U.S. persons who are shareholders of the Company are strongly urged
to consult their own tax advisors concerning the impact of these rules on their
investment in the Company.
Controlled Foreign Corporation
If more than 50% of the voting power of all classes of stock or the total value
of the stock of the Company is owned, directly or indirectly, by citizens or
residents of the United States, United States domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom own 10% or more of the total combined voting power of all classes of stock
of the Company or the total value of the stock of ("United States Shareholder")
the Company, could be treated as a "controlled foreign corporation" under
Subpart F of the Code. This classification would effect many complex results
including the required inclusion by such United States shareholders in income of
their pro rata shares of "Subpart F income" (as specially defined by the Code)
of the Company and the Company's earnings invested in U.S. property and earnings
invested "excess passive assets" (as specifically defined by the Code). In
addition, under Section 1248 of the Code, gain from the sale or exchange of
common shares of the Company by a U.S. person who is or was a United States
shareholder (as defined in the Code) at any time during the five year period
ending with the sale or exchange is treated as ordinary dividend income to the
extent of earnings and profits of the company attributable to the stock sold or
exchanged. Because of the complexity of Subpart F., and because it is not clear
that the Company is a controlled foreign corporation, a more detailed review of
these rules is outside of the scope of this discussion.
47
<PAGE>
ITEM 8. SELECTED FINANCIAL DATA
- -------------------------------
The selected financial data of the Company for Fiscal 1998 and Fiscal 1997 ended
March 31 was derived from the financial statements of the Company which have
been audited by Minni, Bella & Company, certified general accountants as
indicated in their report which is included elsewhere in this Registration
Statement. The selected financial data of the Company for Fiscal 1996, Fiscal
1995, and Fiscal 1994 ended March 31st was derived from the audited financial
statements, not included herein.
The information in Table No. 5 was extracted from the more detailed consolidated
financial statements and related notes included herein and should be read in
conjunction with such financial statements and with the information appearing
under the heading "ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS".
Reference is made to Note 13 of the consolidated financial statements of the
Company included herein for a discussion of the material differences between
Canadian GAAP and 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.
While the Company believes it has sufficient capital and liquidity to finance
current operations, nevertheless, its ability to continue operations is
dependent on the ability of the Company to obtain additional financing. Refer to
"ITEM 1, PLAN OF OPERATIONS" and see ITEM 9 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
48
<PAGE>
<TABLE>
<CAPTION>
Table No. 5
Selected Financial Data
(CDN$ in 000, except per share data)
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
3/31/98 3/31/97 3/31/96 3/31/95 3/31/94 3/31/93
<S> <C> <C> <C> <C> <C> <C>
Revenue $299 $255 $98 $29 $10 $2
Net Income (Loss) (1) ($3,277) ($1,768) ($961) ($864) ($639) ($534)
Earn (Loss) per Share ($0.10) ($0.08) ($0.05) ($0.07) ($0.06) ($0.09)
Dividends per Share 0 0 0 0 0 0
Wtg. Avg. # of Shares 21,234 17,865 12,348 10,646 6,779
Working Capital $6,780 $11,960 ($1,818) $1,549 $1,194 $268
Resource Properties(2) $34,727 $15,286 $8,012 $3,262 $2,202 $1,558
Long Term Debt 0 0 0 0 0 0
Shareholders' Equity $41,614 $27,363 $6,248 $4,855 $3,423 $1,828
Total Assets $12,852 $5,381 $3,585 $1,987
Net Income(Loss) ($1,768) ($961) ($864) ($639) ($534)
U.S. GAAP (3)
EPS - U.S. GAAP (3) ($0.08) ($0.05) ($0.06) ($0.05) ($0.08)
</TABLE>
(1) Cumulative Net Loss from date of incorporation has been ($8,479,927).
(2) Mineral properties, exploration and development costs are deferred as
exploration expenditures until the property to which they relate is placed
into production, sold, or abandoned. Deferred costs will be amortized over
the useful life of the orebody following commencement of production or
written off if the property is sold or abandoned.
(3) See Note 13 to the Audited Financial Statements for Fiscal 1998/1997.
49
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
The Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the periods presented with United States GAAP. The value
of the U.S. Dollar in relationship to the Canadian Dollar was 1.52 as of
9/30/98.
The Company has for the past five years financed its activities through the
distribution of equity capital. The timing of such distributions was dependent
on the requirements of the Company and the economic climate. The Company
anticipates having to raise additional funds by equity issuance in the next
several years, as the Company does not expect to generate material revenue from
mining operations or to achieve self-sustaining commercial mining operations for
several years. Nevertheless, the Company anticipates that existing working
capital will be sufficient to carry out operations during the next twelve
months.
The six most recent significant financings are described in the following
paragraphs.
In October of 1996, the Company completed a private placement financing which
consisted of 1,650,000 Series A Units and 1,025,000 Series B Units at $4.90 per
unit. Each Series A Unit consisted of one common share and one-half of one
non-transferable share purchase warrant. Each whole warrant entitled the holder
to purchase one additional common share at an exercise price of $5.75 until
December 31, 1997. Each Series B Unit consisted of one common share designated
as a "flow through" share under the income Tax Act (Canada) and one-half of one
share purchase warrant. Each whole warrant entitled the holder to purchase one
additional common share of the Company at an exercise price of $5.75 until
December 31, 1997.
On December 29, 1995, the Company completed a private placement whereby it sold
1,300,000 units and 193,000 flow through shares at $4.40 per unit or flow
through share, which netted the Company $5,159,000 after commissions. $2,459,000
of the net funds have been released to the Company and the balance of $2,700,000
will be released with the filing and acceptance of a Statement of Material Facts
with the Vancouver Stock Exchange. Each unit will be
50
<PAGE>
comprised on one common share and one-half non-transferable share purchase
warrant exercisable for a two year period entitling theholder of each full
warrant to acquire one common share at a price of $4.40 per share in the first
year and at $5.25 per share in the second year.
Effective March 29, 1995 the Company issued 1,000,000 units for Cdn$0.44 per
unit. Each unit consisted of one common share and one non-transferable share
purchase warrant. The warrant is exercisable for a two year period and the
holders thereof require one warrant to acquire on common share at a price of
Cdn$0.44 per share in the first year and at a price of Cdn$0.50 per share in the
second year.
On July 26, 1993 the Company completed a private placement whereby it sold
1,571,590 units at a price of Cdn$0.88 per unit. 1,164,497 of the units
consisted of one flow-through common share and one two-year non-transferable
share purchase warrant entitling the holder thereof to purchase one additional
common share for Cdn$0.88 at any time on or before July 22, 1994 and for
Cdn$1.01 at any time after July 22, 1994 and on or before July 22, 1995. Any
shares issued pursuant to an exercise of the warrants occurring on the first
anniversary date of their issue could become, at the discretion of the holder of
such warrants, "flow-through" shares. 111,900 of the units were "finders fee"
units which were comprised of one common share and one two-year non-transferable
share purchase warrant entitling the holder thereof to purchase on additional
common share for Cdn$1.10 at any time on or before July 22, 1994 and for
Cdn$1.26 at any time after July 22, 1994 and on or before July 22, 1995. The
balance of the units consisted of one common share and one two-year
non-transferable share purchase warrant entitling the holder thereof to purchase
one additional common share for Cdn$0.88 at any time on or before July 22, 1994
and for Cdn$1.01 at any time after July 22, 1994 and on or before July 22, 1995.
On April 28, 1993, the Company completed a private placement whereby it sold
200,000 units at Cdn$0.66 per unit. Each unit consisted of one common share and
one non-transferable Series "K" share purchase warrant with each warrant
exercisable at a price of Cdn$0.66 per share at any time on or before April 5,
1994, and thereafter at a price of Cdn$0.76 per share on or before April 5,
1995. The hold period for these shares expired on April 20, 1994.
On January 20, 1993, the Company completed a private placement whereby it sold
200,000 units at Cdn$0.50 per unit. Each unit consisted of one common share and
one non-transferable Series "J"
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<PAGE>
share purchase warrant with each warrant exercisable at a price of Cdn.$0.50 per
share at any time on or before December 31, 1993, and thereafter at a price of
Cdn.$0.60 per share on or before December 31, 1994. The hold period for the
shares expired on December 31, 1993. The units were comprised solely of
flow-through shares and warrants which entitled the holder, at his option, to
acquire additional flow-through shares. The flow-through shares and any
additional flow-through shares issued on the exercise of the warrants entitled
the holders of those shares to the benefit of the exploration expense incurred
with the funds received by the Company on the sale of those shares.
On January 29, 1993 the Company completed a private placement whereby it sold
350,000 units at Cdn$0.50 per unit. Each unit consisted on one common share and
one non-transferable Series "I" share purchase warrant with each warrant
exercisable at a price of Cdn$0.50 per share at any time on or before January
14, 1994, and thereafter at a price of Cdn$0.60 per share on or before January
14, 1995. The hold period for these shares expired on January 15, 1994.
During the Fiscal year ended 3/31/97, 1,074,000 share purchase options were
exercised netting the Company Cdn$4,644,498, and 1,300,000 share purchase
warrants were exercised netting the Company Cdn$5,266,658. An additional
2,675,000 shares were issued pursuant to a prospectus netting the Company
$12,189,975 and 166,875 shares were issued pursuant to the exercise of agent's
options and warrants netting the Company $781,531.
During the Fiscal year ended 3/31/98, the Company completed its amalgamation
with 444965 B.C. Ltd. The transaction was accounted for using the purchase
method whereby the Company was identified as the acquirer. The net assets
acquired, in consideration of the issuance of 16,951,696 shares, was
$12,100,000.
During the Fiscal year ended 3/31/98, 1,100,350 share purchase options were
exercised netting the Company Cdn$3,462,580, and 50,000 share purchase warrants
were exercised netting the Company Cdn$2875,266. An additional 209,644 shares
were issued pursuant to a private placement netting the Company $1,000,000 and
138,500 shares were issued pursuant to the exercise of agent's options and
warrants netting the Company $678,650.
Subsequent to the Fiscal year ended 3/31/98, 67,950 stock options were
exercised, netting the Company $190,260.
52
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary source of funds since incorporation has been through the
issue of its common stock and the sale of common stock options and common stock
share purchase warrants. The Company has no revenue from mining to date and does
not anticipate mining revenues in the foreseeable future.
In Fiscal 1998 and 1997, the Company raised $17,528,730 and $22,882,668
respectively, through the issue of common stock and through the exercise of
options and warrants.
The Company's cash position at 3/3/198 was $6,680,164 compared to $11,812,265 at
3/31/97. Aside from such cash, the Company has marketable securities entered on
the balance sheet on 3/31/98 at the lower of cost or market value of $58,674
compared to $145,604 of marketable securities on 3/31/97.
The Company recorded a net loss for Fiscal 1998 of ($3,277,104) compared to
($1,768,267) in Fiscal 1997. After subtracting the non-cash component of the
Fiscal 1998 loss ($29,856 in amortization, a loss from the write down of
marketable securities to market value of ($86,930), and the write-off of
$113,808 in acquisition costs and deferred exploration costs on the Pipe Claims
in the Northwest Territories) the net reduction of cash for the operating
components of the Company was $3,046,510 for Fiscal 1998, compared to $1,697,799
for Fiscal 1997.
Deferred exploration costs required $4,723,676 in Fiscal 1998 compared to
$7,272,165 in Fiscal 1997, representing a decrease of $2,548,489.
At 3/31/98, the Company had a positive working capital position of $6,680,401,
and at 3/31/97, a positive working capital position of $11,960,227.
Subsequent to Fiscal 1998, 67,950 stock options were exercised, netting the
Company $190,260.
During the three months ended June 30, 1998 the Company incurred $158,101 in
expenditures on mineral properties. Of this amount, $109,847 was spent on
drilling; $24,927 was spent on technical and geological consulting services;
$16,283 was spent on travel and supplies; and $5,044 was spent on sampling and
processing.
53
<PAGE>
At 6/30/98 the Company had working capital of $6,217,243 and a cash balance of
$6,097,551.
At year end Fiscal 1998 (3/31/98) and through 6/30/98, the Company has met all
its expenditure requirements under the various mineral agreements it holds or
has interests in. These expenditure requirements are more fully discussed in
"ITEM 2, DESCRIPTION OF PROPERTIES" above.
During Fiscal 1999 the Company anticipates concentrating its exploration on the
AK/CJ Property.
The Company had a working capital balance of over $6,000,000 as of 6/30/98. The
Company anticipates that it has sufficient working capital to meet all of its
requirements through the end of Fiscal 1999.
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,
the Company's liquidity either materially increasing or decreasing at present or
in the foreseeable future. Material increases or decreases in the Company's
liquidity are substantially determined by the success or failure of the
Company's exploration programs or the future acquisition of projects.
Significant Uncertainties
The Company plans to invest substantial funds in developing mining properties in
Canada. These projects may be subject to substantial regulatory hurdles,
financing needs, and economic uncertainties. There is no assurance that the
Company can finance the additional funds necessary to complete the development
work and, if warranted, to bring the property into production. There is also no
assurance that the properties will prove to be profitable if they are brought
into production.
RESULTS OF OPERATIONS
- ---------------------
The Company is in the business of acquiring and exploring mineral properties
with the aim of developing them to a stage where they can be exploited at a
profit. At that stage, the Company's operations would to some extent be
dependent on the world market prices of any minerals mined. The Company does not
have producing properties and operations on its properties are exploratory
searches for minable deposits.
54
<PAGE>
Three Months Ended 6/30/98 (Unaudited)
For the three months ended 6/30/98, the Company incurred a loss of ($592,107) on
revenues of $38,416. The revenues consisted of interest income. Expenses during
the period were $630,523. As a
result of the loss, the deficit as a 6/30/98 increased to $9,072,034. In the
corresponding three month period ended 6/30/97, the Company had interest income
of $83,986, expenses of $535,852, and a loss of ($951,866). Deferred exploration
costs for the three months ended 6/30/98 were $158,101 compared with $653,162
for the three months ended 6/30/97.
Fiscal Years Ended 3/31/98, 3/31/97, and 3/31/96
During fiscal years 1994, 1995, and 1996, the Company steadily increased its
land position in Canada's diamond exploration regions. In 1992, the Company
acquired holdings in all three of Canada's major diamond discovery areas; Lac de
Gras in the Northwest Territories (the AK/CJ Property), and the Molanosa Arch
(the Molanosa Diamond Property) and Fort a la Corne in Saskatchewan. The
activities during Fiscal 1997 have been focused on exploration of the AK/AJ
Property.
The activities of the Company can be seen as generally increasing during this
time as the properties were acquired and exploration activities started.
Deferred exploration costs were $1,514,862 in Fiscal 1994, $1,159,028 in Fiscal
1995, $5,024,958 in Fiscal 1996, $7,272,165 in Fiscal 1997, and $4,723,676 in
Fiscal 1998. Expenses showed a similar increase with $596,517 in Fiscal 1994,
$601,887 in Fiscal 1995, $1,284,796 in Fiscal 1996, $1,975,163 in Fiscal 1997
and $2,475,929 in Fiscal 1998. These expense increases follow the pattern of
increased Company activity in acquisition and exploration beginning in Fiscal
1994.
During the first half of Fiscal 1995, exploration comprised of regional sampling
and high-sensitivity magnetometer surveys was carried out on the AK/CJ
Properties in the Northwest Territories. In February 1995 a discovery was made
of diamondiferous kimberlite on the 5034 AK claim.
Since that discovery, the Company's activities are focused on this property and
activity was limited on the Company's other properties. In Saskatchewan,
management consolidated the Company's landholdings as geophysical testing
revealed that certain claims carried insufficient potential to warrant further
work. Also in Saskatchewan, an amendment to the joint venture agreement at
Candle
55
<PAGE>
Lake lowered the Company's working interest on several claims in the area.
The loss for Fiscal 1998 ended 3/31/98 was ($3,277,104), compared to a loss of
($1,768,267) for Fiscal 1997 ended 3/31/97, and a loss of $960,613 for Fiscal
1996 ended 3/31/96. The loss for Fiscal 1998 includes a write-off of mineral
properties and related
deferred exploration costs of $113,808 and a loss from the write-down of
marketable securities of $86,930.
During Fiscal 1998, the Company paid $2,700,000 for its 90% share of the
purchase of the 3% gross overriding royalty pursuant to the sale and settlement
agreement regarding the AK/CJ claims, as described in ITEM 2 "DESCRIPTION OF
PROPERTIES".
Expenses increased in most activities in Fiscal 1998 compared to Fiscal 1997,
reflecting the increased activities of the Company, as it sought to heighten its
visibility through investor relations. Most of the increased expenses for Fiscal
1998 compared to Fiscal 1997 came in the following areas: trade and road shows
of $124,053 compared to nil for Fiscal 1997; investor relation fees of $114,160
compared to nil for Fiscal 1997; wages up $96,218; consulting fees up $72,003;
and travel expenses up $68,233.
Loss was $0.10 per share for Fiscal 1998, $0.08 per share for Fiscal 1997, and
$0.05 per share for Fiscal 1996.
Variation in Operating Results
The Company is presently exploring its properties for sufficient reserves to
justify production. None of its properties are yet in production and
consequently, the properties do not produce any revenue. As a result there is
little variation expected in operating results from year to year and little is
to be expected until such time, if any, as a production decision is made on one
of its properties.
The Company derives interest income on its bank deposits, which depend on the
Company's ability to raise funds.
Management periodically through the exploration process, reviews results both
internally and externally through mining related professionals. Decisions to
abandon, reduce or expand exploration efforts is based upon many factors
including general and specific assessments of mineral deposits, the likelihood
of increasing or decreasing those deposits, land costs, estimates of future
mineral prices, potential extraction methods and costs, the likelihood of
56
<PAGE>
positive or negative changes to the environment, permitting, taxation, labor and
capital costs. There cannot be a predetermined hold period for any property as
geological or economic circumstances render each property unique.
The Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the
periods presented with United States GAAP except as noted in footnotes to the
financial statements. The value of the U.S. Dollar in relationship to the
Canadian Dollar was 1.52 as of 9/30/98.
The Company has for the past five years financed its activities through the
distribution of equity capital. The timing of such distributions was dependent
on the requirements of the Company and the economic climate. The Company
anticipates having to raise additional funds by equity issuance in the next
several years, as the Company does not expect to generate material revenue from
mining operations or to achieve self-sustaining commercial mining operations for
several years.
US GAAP Reconciliation
- ----------------------
Under U.S. GAAP, the Company would classify its marketable securities with
respect to a holding period, determined by management. This method requires that
temporary investments are carried at the lower of cost and market value. The
marketable securities held by the Company are considered a temporary investment
and are carried at the lower of cost and market which is in accordance with U.S.
GAAP.
Also under U.S. GAAP, the Company would be required to write down or write off
capitalized amounts when a property is not economically supportable for all
financial statements issued subsequent to December 31, 1995. This method may
require the Company to write down its mineral properties in subsequent periods.
The effect of this write down that may be required from generally accepted
accounting principles applicable to subsequent periods has not been determined.
57
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
- -------------------------------------------------
Table No. 6 lists as of 10/02/98 the names of the Directors of the Company. The
Directors have served in their respective capacities since their election and
will serve until the next Annual General Meeting or until a successor is duly
elected, unless the office is vacated in accordance with the Articles/By-Laws of
the Company.
Table No. 6
Directors
Date First
Name Age Elected
- ---------------------------------------------------------------
Paul Shatzko (1) 65 12/02/86
Jan W. Vandersande 52 5/22/96
Jesus R. Martinez 60 12/02/86
Carl Verley (1) 48 12/02/86
David Whittle (1) 34 11/01/97
D.H.W. Dobson 50 11/01/97
(1) Members of the Audit Committee of the Board of Directors.
Table No. 7 lists as of 10/02/98 the names of the Executive Officers of the
Company. The Executive Officers are appointed by the Directors and serve until
the earlier of their resignation or removal with or without cause by the
Directors.
Table No. 7
Executive Officers
Name Age Title Date First Affiliated
- ---------------------------------------------------------------
Jan W. Vandersande 51 President 5/22/96
Jesus R. Martinez 59 Secretary 09/30/91
Paul Shatzko, M.D., Chairman of the Company, is a resident of British Columbia,
Canada. Dr. Shatzko is a graduate of The University of British Columbia Medical
School. He received his medical degree in May of 1960. From 1961 to 1966, he
practiced as a family physician. From 1966 to 1970 he did a residency in
radiology and in November 1970 he received the designation of Diagnostic
Radiologist. Since that time he has been a practicing radiologist in the city of
Vancouver. In addition to his work as a physician, Dr. Shatzko has been involved
in the mining industry
58
<PAGE>
since 1987. Since March 2, 1987 he has served as the Corporate Secretary and on
the Board of Directors of Valpar Resources Inc. From November 10, 1986 until
November 2, 1990, he served as the President and on the Board of Directors of
Trans-Asian Resources Ltd. From March 4, 1987 until October 12, 1992, he served
on the Board of Directors of Excellon Resources Inc. Since August 20, 1990, he
has been the Corporate Secretary and served on the Board of Directors of
Ricafuerte Mining Corp. From October 2, 1990 until March 28, 1992, he served on
the Board of Directors of Quattro Resources Ltd. Since May 1994 he has been a
director of Camphor Ventures Inc. and since January 1995 he has been a director
of Blue Sky Resources Ltd. Dr. Shatzko currently spends 90% of his time on the
affairs of the Company.
Jan W. Vandersande, President and a Director of the Company, is a U.S. citizen
and has a BA from Swarthmore College, a M.Sc. (Physics) from Cornell University
and a Ph.D. (Solid State Physics) from the University of the Witwatersrand,
South Africa. His thesis was on the properties of natural diamonds. While in
South Africa, he worked closely with De Beers Diamond Research Laboratory. He is
a former Associate Professor of Physics at Cornell University and the University
of the Witwatersrand where he performed research relating to the conductivity of
rocks and minerals, including diamonds. He is the author of over 30 published
articles, including book contributions, on the properties of natural diamonds
and diamond films. He is a former financial and scientific consultant and mining
analyst. He has provided financial advice to brokerage firms, money managers and
private clients on natural resource companies and commodities. Dr. Vandersande's
responsibilities include overseeing the Company's day to day operations, the
development of the AK-5034 diamondiferous kimberlite, and the Company's mineral
exploration programs. He spends approximately 100% of his time on the affairs of
the Company.
Jesus R. Martinez, Secretary and a Director of the Company, is a resident of
British Columbia, Canada. He received a Bachelor of Science Degree in Mining
Engineering from the Mapua Institute of Technology in the Philippines in 1961.
He received a Bachelor of Science Degree in Geology from the University of the
Philippines in 1963. He received a Master of Science Degree in Mining
Engineering from McGill University in 1971. Mr. Martinez holds the following
professional designations: Professional Engineer granted by the Association of
Professional Engineers of British Columbia and Professional Engineer granted by
the Association of Professional Engineers and Geophysists of Alberta. From
November of 1986 until November of 1990, he was the Secretary and a member of
the Board of Directors of Pacific Falkon Resources Corp. He has served as the
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<PAGE>
president and a member of the Board of Directors of Valpar Resources, Inc. since
March of 1987. From March of 1987 until October of 1992, he was the Secretary
and a member of the Board of Directors of Excellon Resources Inc. And, from
April of 1987 he has served as the President and member of the Board of
Directors of Gee-Ten Ventures Inc. Mr. Martinez spends about 33% of his time on
the affairs of the Company.
Carl G. Verley, P. Geol. a Director of the Company is a resident of British
Columbia, Canada. Mr. Verley is a graduate of the University of British Columbia
where he received his Bachelor of Science Degree in May of 1974. Since August of
1990, he has served on the Board of Directors of Gee-Ten Ventures Inc. In August
of 1991 the Association of Professional Engineers and Geoscientists of British
Columbia awarded him the professional designation of Professional Geologist. He
has been a self-employed geologist since 1982. Mr. Verley spends 40% of his time
on the affairs of the Company.
David Whittle, a Director of the Company, is a resident of British Columbia,
Canada. A Chartered Accountant, Mr. Whittle was associated with Coopers &
Lybrand, Chartered Accountants, from 1987 to 1992. Since 1992, Mr. Whittle has
served as Operator of a financial consulting and chartered accounting practice;
President and Director of Glenmore Highlands Inc.; and President and Director of
444965 B.C. Ltd., one of the Company's amalgamating companies. From November
1997 to April 1998, Mr. Whittle served as Secretary of the Company.
D.H.W. Dobson, a Director of the Company, is a resident of Scotland. Mr. Dobson
was the founder and chairman of American Pacific Mining Company Inc.; and a
director of Breakwater Resources Ltd. until 1991. Subsequent to 1991, Mr. Dobson
served as Deputy Chairman of the Board and a director of Lytton Minerals Ltd. He
is a former officer and director of 444965 B.C. Ltd., one of the Company's
amalgamating companies; and serves as a director of Glenmore Highlands Inc.
There are no family relationships between any two or more Directors or Executive
Officers. There are no material arrangements or understandings between any two
or more Directors or Executive Officers.
60
<PAGE>
ITEM 11. COMPENSATION
- ---------------------
The Company has no formal plan or standard arrangements for compensating its
Directors for their service in their capacity as Directors other than the
granting of stock options; refer to item #12 "Options to Purchase Securities
from Registrant or Subsidiaries". As per Canadian law the difference between the
exercise price of the option and the market closing price of the stock on the
date the option is exercised is deemed as employment income of the person who
exercises the options. As per Canadian law the Company is required to inform the
government about this deemed employment income earned by all the persons who
exercise the options.
The Company may grant stock options to Executive Officers and employees; refer
to Item #12 "Options to Purchase Securities from Registrant or Subsidiaries".
Pursuant to a management services agreement with Paul Shatzko, Dr. Shatzko,
Chairman/Director for the Company, receives compensation of U.S.$14,000 per
month.
Pursuant to a consulting services agreement with Jan Vandersande, Dr.
Vandersande, President/Director for the Company, receives compensation of
U.S.$10,600 per month for consulting services.
Pursuant to a management services agreement with Jan Vandersande, Dr.
Vandersande, President/Director for the Company, receives U.S.$14,000 per month
for management and administrative services.
During Fiscal 1998 ended 3/31/98, no Director and/or Executive Officer received
and/or accrued compensation (cash or otherwise) in excess of US$60,000 other
than that described above.
No funds were set aside or accrued by the Company during Fiscal 1998 to provide
pension, retirement or similar benefits for Directors
or Executive Officers.
The Company has no plans or arrangements in respect of remuneration received or
that may be received by Executive Officers of the Company for Fiscal 1998 to
compensate such officers in the event of termination of employment (as a result
of resignation, retirement, change of control) or a change of responsibilities
following a change of control, where the value of such compensation exceeds
US$60,000 per Executive Officer.
61
<PAGE>
No Executive Officer or Director received other compensation in excess of the
lesser of US$25,000 or 10% of such officer's cash compensation as reported
above, and all Executive Officers and Directors as a group did not receive other
compensation which exceeded US$25,000 times the number of persons in the group
or 10% of the compensation reported above.
62
<PAGE>
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
- -----------------------------------------------------------------------
Incentive Stock Options to purchase securities from the Registrant are granted
to Directors and Employees of the Company on terms and conditions acceptable to
the regulatory authorities in Canada, notably the Vancouver Stock Exchange. The
Company has no formal written stock option plan.
Under the stock option program, incentive stock options for up to 10% of the
number of issued and outstanding shares of common stock may be granted from time
to time, provided that incentive stock options in favor of any one individual
may not exceed 5% of the issued and outstanding shares of common stock. No
incentive stock option granted under the stock option program is transferable by
the optionee other than by will or the laws of descent and distribution, and
each incentive stock option is exercisable during the lifetime of the optionee
only by such optionee.
The exercise price of all incentive stock options granted under the stock option
program must be at least equal to the fair market value of such shares of common
stock on the date of grant, and the maximum term of each incentive stock option
may not exceed five years.
The exercise prices for incentive stock options were determined in accordance
with Vancouver Stock Exchange ("VSE") guidelines and reflect the average closing
price of the Company's common stock for the ten trading days on the VSE
immediately preceding the day on which the Directors granted and publicly
announced the incentive stock options.
The names and titles of the Directors and Executive Officers of the Registrant
to whom outstanding stock options have been granted and the number of common
shares subject to such options are set forth in Table No. 8 as of 10/02/98, as
well as the number of options granted to Directors and all employees as a group.
The exercise price of the options is stated in Canadian Dollars.
64
<PAGE>
Table No. 8
Stock Options Outstanding
Number of Shares Exer. Expiration
Name of Common Stock Price Date
- ---------------------------------------------------------------------
Paul Shatzko 480,000 $2.80 07/17/02
150,000 $5.83 11/03/02
Jan W. Vandersande 387,000 $2.80 07/17/02
150,000 $5.83 11/03/02
Jesus R. Martinez 64,000 $2.80 07/17/02
10,000 $5.83 11/03/02
Carl G. Verley 10,000 $5.83 11/03/02
David Whittle 200,000 $5.83 11/03/02
D.W.H. Dobson 200,000 $5.83 11/03/98
Pradeep Varshney 13,000 $2.80 07/17/02
10,000 $5.83 11/03/02
Total Officers/Directors 1,674,000
Outstanding Warrants
The Company issued a total of 209,644 share purchase warrants, each entitling
the holder thereof to purchase one additional common share in the capital of the
Company at an exercise price of $6.36 until March 6, 1999.
The Company, Glenmore, 444965 and Camphor have entered into a joint venture
agreement with Monopros dated March 6, 1997, pursuant to which, among other
things, Monopros has subscribed for 209,644 units of the Company at a price of
$4.77 per unit. Each unit consists of one common share in the capital of the
Company and one non-transferable common share purchase warrant entitling
Monopros to purchase one additional common share at a purchase price of $6.36
per share at any time during the two year term of the warrant.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
- -------------------------------------------------------
None of the persons who where directors or officers of the Company at any time
during the Company's last fiscal year, the insiders of the Company or the
associates or affiliates of those persons has had any material interest, direct
or indirect, by way of beneficial ownership of securities or otherwise.
64
<PAGE>
Pursuant to a management services agreement with Paul Shatzko, Dr. Shatzko,
President/Director for the Company, receives compensation of $14,000 per month.
Pursuant to a consulting services agreement with Jan Vandersande, Dr.
Vandersande receives compensation of U.S.$10,600 per month.
Pursuant to a management services agreement with Jan Vandersande, Dr.
Vandersande, President/Director for the Company, receives U.S.$14,000 per month
for management and administrative services.
65
<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
- ---------------------------------------------------
The authorized capital of the Company is 500,000,000 shares of common stock
without par value. As of 3/31/98, the end of the Company's last fiscal year,
42,376,810 shares were outstanding. As of 10/02/98, 42,444,760 shares were
outstanding.
All of the authorized shares of common stock of the Company are of the same
class and, once issued, rank equally as to dividends, voting powers, and
participation in assets. Holders of common stock are entitled to one vote for
each share held of record on all matters to be acted upon by the shareholders.
Holders of common stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors, in its discretion, out of
funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of common
stock are entitled to receive pro rata the assets of Company, if any, remaining
after payments of all debts and liabilities. No shares have been issued subject
to call or assessment. There are no preemptive or conversion rights and no
provisions for redemption or purchase for cancellation, surrender, or sinking or
purchase funds.
Provisions as to the modification, amendment or variation of such shareholder
rights or provisions are contained in the Company Act of British Columbia.
Unless the Company Act or the Company's Articles or memorandum otherwise
provide, any action to be taken by a resolution or the members may be taken by
an ordinary resolution or by a vote of a majority of more of the shares
represented at the shareholders' meeting.
The Company's Articles and the B.C. Company Act contain provisions which require
a "special resolution" for effecting certain corporate actions. Such a "special
resolution" requires a three-quarters vote of shareholders rather than a simple
majority for passage. The principle corporate actions that require a "special
resolution" include:
a. Transferring the Company's jurisdiction from British Columbia to another
jurisdiction;
b. Giving financial assistance under certain circumstances:
c. Certain conflicts of interest by Directors;
66
<PAGE>
d. Disposing of all or substantially all of the Company's undertakings;
e. Removing a Director before the expiration of his term of office;
f. Certain alterations of share capital;
g. Changing the Company name;
h. Altering any restrictions of the Company's business; and,
i. Certain reorganizations of the Company.
There are no restrictions on the repurchase or redemption of shares of the
common stock of the Company while there is any arrangement in the payment of
dividends or sinking fund installments.
67
<PAGE>
Principal Escrow Shares
- -----------------------
Not applicable
Debt Securities to be Registered
- --------------------------------
Not applicable.
American Depository Receipts
- ----------------------------
Not applicable.
Other Securities to be Registered
- -----------------------------------
Not applicable.
68
<PAGE>
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not Applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
- --------------------------------------------------------------------------------
Not Applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
- -----------------------------
The Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the periods presented with United States GAAP. The value
of the U.S. Dollar in relationship to the Canadian Dollar was 1.52 as of
9/30/98.
The financial statements as required under Item 17 are attached hereto and found
immediately following the text of this Registration Statement. The reports of
Minni, Bella & Co., Certified General Accountants, are included herein
immediately preceding the financial statements.
Audited Financial Statements
for Fiscal 1998/1997/1996 Ended March 31st
ITEM 18. FINANCIAL STATEMENTS
- ---------------------------------------
The Registrant has elected to provide financial statements pursuant to Item #17.
69
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
- ------------------------------------------
(A) The financial statements as required under Item 17 are attached hereto and
found immediately following the text of this Registration Statement. The
Auditors Report of Minni, Bella & Co., Certified General Accountants for the
audited financial statements are included herein immediately preceding the
audited financial statements.
A-1 Audited Financial Statements:
(a) Auditor's Report, dated 7/5/98
Balance Sheets at 3/31/98 and 3/31/97
Statements of Loss and Deficit
for the Years ended 3/31/98, 3/31/97 and 3/31/96
and Cumulative Since Incorporation
Statement of Changes in Cash Flows for the Years ended 3/31/98, 3/31/97
and 3/31/96 and Cumulative Since Incorporation
Statements of Deferred Exploration
for the Years ended 3/31/98, 3/31/97 and 3/31/96
and Cumulative Since Incorporation
Notes to Financial Statements
70
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS (CONT.)
- --------------------------------------------------
(B) Exhibits:
1. Incorporated by reference to Form 20-F Registration Statement
(as amended) and Form 6-K's.
2. Refer to Exhibit No. 1
3. Incorporated by reference to Form 20-F Registration Statement
(as amended) and Form 6-K's.
4. Not Applicable
5. Not Included
6. Incorporated by reference to Form 20-F Registration Statement
(as amended) and Form 6-K's.
SIGNATURE PAGE Page 87
71
<PAGE>
MOUNTAIN PROVINCE MINING INC.
FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF LOSS AND DEFICT
CONSOLIDATED STATEMENTS OF DEFERRED EXPLORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
MINNI, BELLA & CO. SUITE 1104-750 WEST PENDER ST.
CERTIFIED GENERAL ACCOUNTANTS VANCOUVER, BRITISH COLUMBIA
CANADA V6C 2T8
TELEPHONE: (604) 683-0343
FAX: (604) 683-4499
AUDITORS' REPORT
To the Shareholders,
Mountain Province Mining Inc.
We have audited the consolidated balance sheets of MOUNTAIN PROVINCE MINING INC.
as at March 31, 1998 and 1997 and the consolidated statements of loss and
deficit, deferred exploration and changes in financial position for each of the
years in the three year period then ended, and in addition, cumulative amounts
from the Company's inception for each of the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. 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 March 31, 1998
and 1997 and the results of its operations and the changes in its financial
position for each of the years in the three year period then ended, and in
addition, cumulative amounts from the Company's inception for each of the years
then ended, in accordance with generally accepted accounting principles in
Canada. As required by the Company Act of British Columbia, we report that, in
our opinion, these principles have been applied on a basis consistent with that
of the preceding year.
/s/MINNI, BELLA & CO.
CERTIFIED GENERAL ACCOUNTANTS
Vancouver, B.C.
July 5, 1998
COMMENTS FOR UNITED STATES READERS ON CANADA-UNITED STATES REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant uncertainty such as that referred to in
Note 1 of these financial statements. Our opinion is expressed in accordance
with Canadian reporting standards which do not permit a reference to such an
uncertainty in the auditors' report when the uncertainty is adequately disclosed
in the consolidated financial statements.
/s/MINNI, BELLA & CO.
CERTIFIED GENERAL ACCOUNTANTS
Vancouver, B.C.
July 5, 1998
<PAGE>
MOUNTAIN PROVINCE MINING INC.
CONSOLIDATED BALANCE SHEETS AS AT MARCH 31, 1998 AND 1997
(In Canadian Dollars)
ASSETS
1998 1997
---- ----
CURRENT
Cash $ 6,680,164 $ 11,812,265
Trust funds - 41,860
Accounts receivable 61,740 206,762
Marketable securities (Note 4) 58,674 145,604
Advances and prepaid expenses 49,164 32,139
-------------- --------------
6,849,742 12,238,630
MINERAL PROPERTIES (Note 5) 4,003,818 455,900
DEFERRED EXPLORATION (Note 5) 30,717,844 14,830,212
CAPITAL ASSETS, at cost net of accumulated
amortization of $75,414 (1997 - $45,558) 110,279 114,377
INCORPORATION COSTS 2,099 2,099
-------------- -------------
$ 41,683,782 $ 27,641,218
============== ==============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 50,863 $ 168,563
Due to related parties - 109,840
Taxes payable 18,478 -
-------------- --------------
69,341 278,403
-------------- --------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6)
Authorized:
500,000,000 common shares (1997-100,000,000) without par value
Issued and fully paid:
42,376,810 common shares (1997 - 23,926,620
common shares) 50,094,368 32,565,638
DEFICIT (8,479,927) (5,202,823)
--------------- -------------
41,614,441 27,362,815
--------------- -------------
$ 41,683,782 $ 27,641,218
=============== ==============
APPROVED BY THE DIRECTORS:
/s/Paul Shatzko
- ------------------------------
/s/Jesus Martinez
- ------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
MOUNTAIN PROVINCE MINING INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(In Canadian Dollars)
(Note 10)
Cumulative
1998 1997 1996 (December 2, 1986)
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
REVENUE $ 299,563 $ 254,744 $ 97,870 $ 699,427
----------- ----------- --------- -----------
EXPENSES
Amortization 29,856 22,620 12,295 75,414
Consulting 349,591 277,588 79,006 963,517
Large corporation and capital taxes 57,821 22,718 7,577 93,897
Interest and bank charges 2,578 2,444 1,500 21,890
Investor relations 114,160 - - 114,160
Loan fee - - - 15,576
Management fees 160,000 174,920 75,000 615,420
Office and telephone 295,173 268,975 230,169 1,085,574
Professional fees 281,904 452,446 334,841 1,451,223
Printing 80,660 45,591 20,712 206,803
Project evaluation costs 16,486 - - 85,200
Promotion and shareholder relations 204,165 154,761 238,204 866,076
Rent 86,438 74,155 32,267 270,162
Trade and road shows 124,053 - - 124,053
Transfer agent and regulatory fees 95,450 65,802 37,244 295,270
Travel 304,279 236,046 182,615 895,594
Wages and benefits 273,315 177,097 33,366 483,778
----------- ----------- --------- -----------
2,475,929 1,975,163 1,284,796 7,663,607
----------- ----------- --------- -----------
(LOSS) BEFORE THE UNDERNOTED ITEMS (2,176,366) (1,720,419) (1,186,926) (6,964,180)
GAIN (LOSS) FROM WRITE DOWN OF
MARKETABLE SECURITIES (86,930) - 316,313 182,597
SETTLEMENT COSTS (Note 7) (900,000) - (900,000)
(LOSS) FROM WRITE-OFF OF MINERAL
PROPERTIES AND RELATED
DEFERRED EXPLORATION (113,808) (47,848) (90,000) (798,344)
----------- ----------- --------- -----------
NET (LOSS) FOR THE YEAR (3,277,104) (1,768,267) (960,613) (8,479,927)
DEFICIT, BEGINNING OF YEAR (5,202,823) (3,434,556) (2,473,943) -
----------- ----------- --------- ------------
DEFICIT, END OF YEAR $(8,479,927) $(5,202,823) $(3,434,556) $(8,479,927)
=========== =========== =========== ============
LOSS PER SHARE $ (0.10) $ (0.08) $ (0.05)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
MOUNTAIN PROVINCE MINING INC.
CONSOLIDATED STATEMENTS OF DEFERRED EXPLORATION
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(In Canadian Dollars)
(Note 10)
Cumulative
1998 1997 1996 (December 2, 1986)
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
EXPLORATION
Camp demobilization $ 100,000 - $ - $ 100,000
Consulting and other professional service 265,677 - - 265,677
Geophysical and airborne survey 2,124,169 151,469 325,053 3,269,790
Environmental work - 119,253 23,398 142,651
Sampling and assaying 374,247 1,830,793 1,605,026 5,092,218
Geological consulting and supplies - - - 486,348
Drilling 800,032 410,088 2,681,464 8,580,645
Equipment rental and miscellaneous - - - 18,487
Line cutting - - 125,532
Travel, supplies and support cost 445,815 732,438 350,902 1,744,685
Report and filing fees 22,933 28,124 39,115 179,727
Camp site office and general expenses 590,803 - - 590,803
-------------- ------------ ------------ ------------
4,723,676 7,272,165 5,024,958 20,596,563
Less: Incentive grant - - - (23,014)
-------------- ------------ ------------ ------------
4,723,676 7,272,165 5,024,958 20,573,549
DEFERRED EXPLORATION TRANSFERRED
ON AMALGAMATION (Note 3) 11,163,956 - - 11,163,956
-------------- ------------ ------------ ------------
DEFERRED EXPLORATION FOR THE YEAR 15,887,632 7,272,165 5,024,459 31,737,505
DEFERRED EXPLORATION , BEGINNING
OF YEAR 14,830,212 7,596,474 2,571,516 -
WRITE-OFF OF DEFFERED EXPLORATION - (38,427) - (132,873)
RECOVERY OF EXPLORATION EXPENDITURES
FOR AK/CJ CLAIMS (Note 5(c)) - - - (886,788)
-------------- ------------ ------------ ------------
DEFERRED EXPLORATION, END OF YEAR $ 30,717,844 $ 14,830,212 $ 7,596,474 $ 30,717,844
============== ============ ============= ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MOUNTAIN PROVINCE MINING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(In Canadian Dollars)
(Note 10)
Cumulative
1998 1997 1996 (December 2, 1986)
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss for the year $ (3,277,104) $ (1,768,267) $ (960,613) $ (8,479,927)
Deferred exploration costs (net of recovery) (4,723,676) (7,272,165) (5,024,958) (19,686,761)
------------- ------------- ------------- -------------
(8,000,780) (9,040,432) (5,985,571) (28,166,688)
Add items not involving cash:
Amortization 29,856 22,620 12,295 75,414
Loss from write-off of mineral properties
and related deferred exploration 113,808 47,848 90,000 780,082
Loss from write-down of marketable securities 86,930 - - 86,930
------------- ------------- ------------- --------------
(7,770,186) (8,969,964) (5,883,276) (27,224,262)
Add (deduct) items involving cash:
Accounts receivable 145,022 122,628 (115,629) (61,740)
Marketable securities - - - (98,575)
Advances and prepaid expenses (17,025) 12,997 23,396 (49,164)
Accounts payable and accruals (117,700) (1,022,822) 746,019 226,193
Due to related parties (109,840) 17,189 12,100 (4)
Taxes payable 18,478 - - 18,478
------------- ------------- ------------- --------------
(7,851,251) (9,839,972) (5,217,390) (27,189,074)
-------------- -------------- ------------- --------------
FINANCING ACTIVITIES
Share subscriptions - (5,319,600) 5,319,600 -
Shares issued for cash, net of commissions 5,428,730 22,882,662 2,353,911 37,112,857
Shares issued for non-cash consideration (Note 3) 12,100,000 - - 2,100,000
Proceed from sale of marketable securities 3,000 - - 3,000
Marketable securities received for
mineral properties - - 137,971 137,971
------------- ------------- ------------- --------------
17,531,730 17,563,062 7,811,482 49,353,828
------------- ------------- ------------- --------------
INVESTING ACTIVITIES
Business combination (Note 3) (12,100,000) - - (12,100,000)
Acquisition of mineral properties (2,728,682) (50,000) - (3,196,798)
Acquisition of capital assets (25,758) (84,188) (22,895) (185,693)
Incorporation costs - - - (2,099)
------------- ------------- ------------- --------------
(14,854,440) (134,188) (22,895) (15,484,590)
------------- ------------- ------------- --------------
(DECREASE) INCREASE IN CASH (5,173,961) 7,588,902 2,571,197 6,680,164
CASH, BEGINNING OF YEAR 11,854,125 4,265,223 1,694,026
------------- ------------- ------------- --------------
CASH, END OF YEAR $ 6,680,164 $ 11,854,125 $ 4,265,223 $ 6,680,164
============= ============= ============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ - $ - $ - $ 6,488
Taxes 39,343 22,718 7,577 75,419
SUPPLEMENTAL SCHEDULE ON NON-
CASH FINANCING ACTIVITIES
Shares issued for mineral properties $ 12,100,000 $ - $ - $ 12,806,185
Shares issued for settlement of debt - - - 159,000
Shares issued for loan fee - - - 16,326
------------- ------------- ------------- --------------
$ 12,100,000 $ - $ - $ 12,981,511
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND NATURE OF OPERATIONS
As described in Note 3, on November 1, 1997, Mountain Province Mining Inc.
merged with 444965 B.C. Ltd., resulting in the formation of a new entity
which is operating under the name of Mountain Province Mining Inc.
The Company is in the process of exploring its mineral properties and has
not yet determined whether these properties contain mineral reserves that
are economically recoverable. The recoverability of the amount shown for
mineral properties is dependent upon the existence of economically
recoverable reserves, the ability of the Company to obtain the necessary
financing to complete exploration and development, and upon future
profitable production or proceeds from disposition of such properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary, Mountain Province Mining Corp. (U.S.A.)
b) Deferred Exploration
--------------------
Exploration costs relating to mineral properties are deferred until
the property is brought into production, at which time the deferred
costs are to be amortized on a unit of production basis over proven
probable reserves, or until the property is abandoned or sold, at
which time the deferred costs are to be written off.
The amounts shown as mineral properties and deferred exploration
represent unamortized costs to date and do not necessarily reflect
present or future values.
c) General and Administrative Expenses
-----------------------------------
The Company charges all general and administrative expenses not
directly related to exploration activities to operations as
incurred.
d) Amortization
------------
Capital assets are amortized over their estimated useful lives at
20% - 30% declining basis. Further, only one-half the amortization
is taken on assets acquired during the year.
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 Page 2
e) Joint Ventures
--------------
Joint ventures are accounted for using the equity method.
f) Foreign Currency Translation
----------------------------
Monetary assets and liabilities expressed in foreign currency are
translated at rate of exchange in effect at the end of the year.
Revenue and expense items are translated at the average rates for
the months in which such items are recognized during the year.
Exchange gains and losses arising from the translation are included
in the operation.
3. BUSINESS COMBINATION
Pursuant to an amalgamation agreement dated August 21, 1997, Mountain
Province Mining Inc. ("MPV") and 444965 B.C. Ltd. agreed to merge under
the name of Mountain Province Mining Inc. The transaction was completed on
November 1, 1997 through the issue of one common share of the new company
for each existing MPV common share, and 16,951,696 common shares of the
new company for 1,450,000 shares of 444965 B.C. Ltd.
The transaction has been accounted for using the purchase method whereby
Mountain Province Mining Inc. was identified as the acquirer. The net
assets acquired and consideration given were as below:
Net assets acquired:
Mineral property $ 936,044
Deferred exploration costs 11,163,956
-----------------
12,100,000
Liabilities assumed -
-----------------
$ 12,100,000
=================
Consideration given:
Issuance of 16,951,696
common shares (Note 6) $ 12,100,000
=================
The 16,951,696 shares which were issued to Glenmore Highlands Inc., are
restricted as to trading in that no more than one third of the shares
could be sold or transferred within the first year from November 1, 1997,
and no more than two thirds within the second year.
4. MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost and market.
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 Page 3
5. MINERAL PROPERTIES AND DEFERRED EXPLORATION
Acquisition Costs:
1998 1997
---- ----
Ketza River Project $ 27,582 $ 30,582
Molanosa Diamond Project 5,000 5,000
AK/CJ Claims 3,847,553 211,510
598909 Saskatchewan & Northern
Saskatchewan Claims 95,000 95,000
Tobin Lake Area Claims - 23,808
Mary Dale Property - 90,000
Maris Project 28,683 -
------------ -------------
$ 4,003,818 $ 455,900
============ =============
Deferred Exploration:
Ketza River Project $ 777,186 $ 777,186
Molanosa Diamond Project 614,428 614,428
AK/CJ Claims 29,171,171 13,405,392
598909 Saskatchewan & Northern
Saskatchewan Claims 33,206 33,206
Maris Project 121,853 -
------------ -------------
$ 30,717,844 $ 14,830,212
============ =============
a) Ketza River Project
-------------------
The Company is the registered owner of certain mining claims
situated in the Ketza River Gold Camp, Watson Lake Mining District,
Yukon Territory. These claims were staked by the Company during the
year ended March 31, 1988, at a total cost of $30,582. The Ketza
River Project covers approximately 11,000 acres.
The Company entered into an agreement dated November 29, 1995
pursuant to which Artemis Ventures Inc. (Formerly Eurotech
Technologies Inc.) will be entitled to earn an undivided 50%
interest by expending $1,000,000 on the exploration, development
and mining of the Ketza River claims, and by issuing to the Company
a total of 200,000 of its common shares.
During the year, the Company received 25,000 shares of Artemis
Ventures Inc., which were disposed of for $3,000. (See Note 11).
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 Page 4
b) Molanosa Diamond Project
------------------------
Pursuant to an agreement dated March 8, 1993, the Company acquired
a 50% interest in 5 mineral claims situated in the Northern Mining
District, Province of Saskatchewan. As consideration, the Company
advanced $220,000 for exploration expenditures. In addition the
Company staked 22 additional mineral claims which have been added
to this option.
The Company formed a joint venture with the optionor pursuant to an
agreement dated March 8, 1993, which agreement contains the
standard dilution and other joint venture operating provisions.
c) AK/CJ Claims
------------
Pursuant to an agreement dated August 18, 1992 and amended November
13, 1992 and January 8, 1993, the Company entered into an option
with Inukshuk Capital Ltd. ("Inukshuk") to acquire a 100% undivided
interest in certain mineral claims located in the District of
Mackenzie, Northwest Territories. As consideration, the Company
paid $380,000, issued 200,000 shares and spent $1,500,000 for
exploration on the properties. The claims were subject to a 3%
gross overriding royalty with a minimum advance royalty of $200,000
per year commencing five years from the date the Company earned its
option in the claims. The Company had the right to acquire the 3%
gross overriding royalty for $5,000,000 at any time until November
25, 1999. During the year ended March 31, 1997 an additional
finder's fee of $50,000 was paid by the Company.
Pursuant to an agreement dated November 18, 1993 and subsequently
amended, the Company optioned 40% of its interest in the AK/CJ
claims to 444965 B.C. Ltd. As consideration the Company received
$1,151,144.
Pursuant to an agreement dated August 16, 1994 and subsequently
amended, the Company assigned another 10% of its interest in the
AK/CJ claims to Camphor Ventures Inc. As consideration Camphor
Ventures Inc. issued 400,000 of its shares to the Company, and
contributed $200,000 towards exploration expenditures and agreed to
fund 10% of future exploration work on the AK/CJ properties.
Pursuant to a joint venture agreement dated March 6, 1997 between
the Company, 444965 B.C. Ltd. and Camphor Ventures Inc.
(Collectively the "MP" Group) and Monopros Limited ("Monopros"),
Monopros was granted the right to earn up to a 60% interest in the
AK/CJ claims. As consideration Monopros subscribed for 209,644
units at a price of $4.77 each. Each unit consists of one common
share of the Company and one non-transferable warrant to purchase
one additional common share of the Company at $6.36 per share
exercisable before March 6, 1999. Further, Monopros agreed to
conduct an exploration program on the property, to complete a bulk
sampling program and a feasibility study on one or more new
kimberlites, and to fund the development and construction of a
commercial mine.
During the year the Company paid $2,700,000 for its 90% share of
the purchase of the 3% gross overriding royalty pursuant to the
sale and settlement agreement dated June 18, 1997 and the amendment
to the joint venture agreement dated September 17, 1997. (See Note
7).
As a result of the amalgamation as described in Note 3, the Company
holds a 90% interest in the AK/CJ Claims.
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 Page 5
d) 598909 Saskatchewan Claims & Northern Saskatchewan Claims
---------------------------------------------------------
Pursuant to an agreement dated January 17, 1994, the Company
acquired a 50% interest in 15 mineral claims located in the
Province of Saskatchewan. As consideration the Company paid $15,000
and issued 100,000 shares. In addition the Company incurred
approximately $24,000 of exploration expenditures. The claims are
subject to a 1% net smelter return and a 3% gross overriding
royalty. Pursuant to agreements dated February 22, 1994 the Company
acquired a 100% undivided interest in 43 mineral claims known as
Northern Saskatchewan claims located in the Province of
Saskatchewan. As consideration the Company paid $25,000 and issued
200,000 shares. The claims are subject to a 1% net smelter return
and a 3% gross overriding royalty.
Pursuant to the agreements dated April 8, 1994 and March 15, 1995
the Company optioned 50% of its interest in 4 of the 598909
Saskatchewan claims and 32 of the Northern Saskatchewan claims. As
consideration the Company received 35,000 common shares of War
Eagle Mining Company Inc. and 35,000 common shares of Great Western
Gold Corp. ("Candle Lake Joint Venture"). The Company will receive
an additional 40,000 common shares of each company upon discovery
of a diamondiferous kimberlite on the claims and an additional
20,000 common shares of each company upon the preparation and
release of a feasibility study giving a positive recommendation for
entering into production. Further, Kennecott Canada Inc. has agreed
to incur expenditures on these claims as part of the Candle Lake
Joint Venture to earn a 60% interest which would leave the Company
with a 10% interest. Total work commitment by Kennecott Canada Inc.
on the Candle Lake Joint Venture is $8,000,000. During the year
Kennecott Canada Inc. abandoned the project.
e) Tobin Lake Area Claims
----------------------
Pursuant to an agreement dated January 24, 1994, the Company
acquired a 25% interest in mineral claim S-105084 located in the
Tobin Lake Area, Province of Saskatchewan. As consideration the
Company issued 38,400 shares and agreed to issue an additional
38,400 shares in the event that kimberlite is intersected at
bedrock on the property. The claim is subject to a 3% gross
overriding royalty. Under the terms of the agreement, the Company
has the right to acquire 50% of the gross overriding royalty for
$1,500,000. During the year management had decided to abandon these
claims. Accordingly, the acquisition cost of $23,808 was written
off.
f) Mary Dale Property
------------------
Pursuant to an agreement dated June 13, 1994, the Company acquired
a 100% interest in three mineral claims located in the Northern
Mining District, Province of Saskatchewan. As consideration the
Company paid $10,000 and issued 100,000 shares. The claims are
subject to a 3% gross overriding royalty. During the year
management had decided to abandon this property. Accordingly, the
acquisition cost of $90,000 was written off.
g) Maris Project
-------------
The Company owns a 100% interest in 99 Lode claims, totalling
approximately 2045 acres, located in Nye County, Nevada, U.S.A. The
claims are subject to a 1.5% net smelter return royalty payable to
a company belonging to a director, and two other persons. Under the
terms of the agreement the Company can acquire the royalty for
$1,500,000.
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 Page 6
6. SHARE CAPITAL
a) Authorized
500,000,000 Common shares without par value.
b) Issued and fully paid
Number of
Shares Amount
Balance, March 31, 1996 18,710,745 $ 9,682,976
Issued pursuant to exercise
of special warrants 1,300,000 5,266,658
Issued pursuant to prospectus 2,675,000 12,189,975
Issued pursuant to exercise of
of stock options 1,074,000 4,644,498
Issued pursuant to exercise of
agents options and warrants 166,875 781,531
------------ -----------
Balance, March 31, 1997 23,926,620 32,565,638
Issued pursuant to a private placement 209,644 1,000,000
Issued pursuant to amalgamation (Note 3) 16,951,696 12,100,000
Issued pursuant to exercise of stock options 1,100,350 3,462,580
Issued pursuant to exercise of warrants 50,000 287,500
Issued pursuant to exercise of special
compensation options and warrants 138,500 678,650
------------ -----------
Balance, March 31, 1998 42,376,810 $50,094,368
============ ===========
See Note 11.
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 Page 7
c) Stock Options
As at March 31, 1998 the following stock options were outstanding:
Number of Shares Exercise Price Expiry Date
---------------- -------------- -----------
50,000 $ 2.72 April 15, 1999
55,650 2.80 July 17, 1999
1,083,000 2.80 July 17, 2002
130,000 5.83 November 3, 1999
720,000 5.83 November 3, 2002
30,000 5.05 February 23, 2000
25,000 5.05 February 23, 2003
d) Share Purchase Warrants
As at March 31, 1998 the following share purchase warrants were
outstanding:
Number of Shares Exercise Price Expiry Date
---------------- -------------- -----------
209,644 $ 6.36 March 6, 1999
7. SALES AND SETTLEMENT AGREEMENT
On March 27, 1997, Inukshuk Capital Ltd. ("Inukshuk") issued a petition in
the Supreme Court of British Columbia asserting that it held a valid right
of first refusal to purchase any interest in the AK/CJ claims and that the
MP Group had breached this right by entering into an agreement with
Monopros Limited ("Monopros") whereby it could earn up to a 60% interest
in the property. Inukshuk also obtained an injunction restraining the MP
Group and Monopros from disposing of the property.
On April 18, 1997 Inukshuk commenced arbitration proceedings against the
Company. The arbitration held in favour of Inukshuk, finding that its
right of first refusal was valid and subsisting. The petition, injunction
and arbitration were dismissed and cancelled in pursuance of a sales and
settlement agreement dated June 18, 1997 under which comprehensive mutual
releases were exchanged as follows:
o the MP Group paid $3,000,000 for the purchase of the 3% gross
overriding royalty and $500,000 for the right of first refusal from
Inukshuk;
o the MP Group paid to Canamera Geological Ltd. ("Canamera") $250,000 by
way of termination fee in respect of the termination by the MP Group of
the operator agreement, and $200,000 in full and final settlement of
actual or anticipated expenses relating to camp demobilization etc.;
o the MP Group paid John Dupuis $250,000 by way of compensation for
alleged loss of reputation; and
o Canamera will convey to the Company good and marketable title to the
camp assets.
See Note 5 (c).
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 Page 8
8. LEASING COMMITMENTS
The Company's total minimum rentals for two operating leases, which expire
on May 31, 1999 and July 15, 2001 are as follows:
1998 $ 43,277
1999 46,798
2000 38,738
2001 9,685
-----------------
$ 138,498
=================
9. RELATED PARTY TRANSACTIONS
o During the year the Company paid $160,000 (1997 - $174,920) for
management services to a director of the Company.
o During the year the Company paid $47,355 (1997 - $72,688) for
secretarial and public relations services to third parties related to a
director of the Company.
o During the year the Company paid $243,352 (1997 - $205,335) for
consulting, management and administration services to a director and to
a company in which another director has an interest.
o The Maris Project property acquired during the year is subject to a
1.5% net smelter royalty in which a director has an interest. See Note
5(g)).
o Included under accounts receivable is $8,490 (1997 - Nil) due by two
companies in which there are common directors.
10. COMPARATIVE FIGURES
The comparative figures for the year ended March 31, 1997 were in respect
of Mountain Province Mining Inc. prior to the amalgamation.
Cumulative amounts from the Company's inception (December 2, 1986)
included the accounts of Mountain Province Mining Corp. (U.S.A.) a
wholly-owned subsidiary written off during the year ended March 31, 1994.
(See Note 2(a)). The Subsidiary was reactivated during the year ended
March 31, 1998.
11. SUBSEQUENT EVENTS
o Subsequent to March 31, 1998, 67,950 stock options were exercised to
net the Company $190,260.
o Subsequent to March 31, 1998, Artemis Ventures Inc. had terminated the
joint venture agreement on the Ketza River project.
<PAGE>
MOUNTAIN PROVINCE MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 Page 9
12. INCOME TAXES
The Company has non-capital loss carry forwards available to reduce future
taxable income as follows:
Year of Expiry Amount
1999 $ 87,588
2000 397,322
2001 428,999
2002 586,350
2003 593,266
2004 1,659,784
2005 1,888,755
-----------
$ 5,642,064
===========
No recognition has been given in the consolidated accounts to the
potential future benefits that may arise on utilization of tax losses.
The Company has filed for Canadian Exploration Expenditures totalling
$22,138,265 and Canadian Development Expenditures totalling $4,697,168
which are available to reduce future taxable income.
13. DIFFERENCE BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND
THE UNITED STATES.
The Company follows Canadian generally accepted accounting principles
which are different in some respects from those applicable in the United
States and from practices prescribed by the United States Securities and
Exchange Commission. Under United States generally accepted accounting
principles the Company would classify its marketable securities with
respect to holding period, determined by management. This method requires
that temporary investments are carried at the lower of cost and market
value. The marketable securities held by the Company are considered a
temporary investment and are carried at the lower of cost and market which
is in accordance with United States generally accepted accounting
principles.
Also, under United States generally accepted accounting principles the
Company would be required to write down or write off capitalized amounts
when a property is not economically supportable for all financial
statements issued subsequent to December 31, 1995. This method may require
the Company to write down its mineral properties in subsequent periods.
The effect of this write down that may be required from generally accepted
accounting principles applicable to subsequent periods has not been
determined.
