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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JANUARY 26, 1998
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED __________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number _______
Minco Mining & Metals Corporation
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(Exact name of Registrant as specified in its charter)
N/A
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(Translation of Registrant's name into English)
Province of British Columbia, Canada
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(Jurisdiction of incorporation or organization)
Suite 1200 - 543 Granville Street, Vancouver, B. C., Canada V6C 1X8
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(Address of principal executive offices)
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each Name of each exchange
class on which registered
N/A N/A
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Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares without par value
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(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
N/A
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(Title of Class)
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. N/A
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [ ] Not applicable
Indicate by check mark which financial statement item the registrant has
elected to follow: Item 17 [X] Item 18 [ ]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ] Not applicable
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Except as otherwise noted, all dollar amounts are presented in Canadian
dollars. As of January 21, 1998, the exchange ratio of Canadian dollars into
United States dollars was $1.4437 Canadian to $1.00 United States dollar.
TABLE OF CONTENTS
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Part I ................................................................................... 7
Item 1. Description of Business............................................................ 7
Introduction....................................................................... 7
Background......................................................................... 7
Intercorporate Relationships....................................................... 8
The PCR Agreement.................................................................. 10
The Teck-Cominco Agreements........................................................ 11
Temco Option Agreement............................................................. 13
The FGEB Cooperation Agreement..................................................... 14
Financing.......................................................................... 15
Immediate Business Plan............................................................ 16
Risk Factors....................................................................... 16
People's Republic of China - Background Information................................ 20
Legal Framework for Chinese-Foreign Co-operative Joint Ventures.................... 25
Item 2. Description of Property............................................................ 29
General............................................................................ 29
Independent Consultants' Reports................................................... 29
The Chapuzi Property............................................................... 30
Acquisition................................................................. 30
Location and Description.................................................... 31
Exploration and Development History......................................... 32
Geology and Mineral Deposits................................................ 33
Proposed Exploration and Development Program................................ 34
Emperor's Delight Property......................................................... 36
Acquisition................................................................. 36
Location and Description.................................................... 38
Exploration and Development History......................................... 38
Geology and Mineral Deposits .............................................. 39
Proposed Exploration and Development Program................................ 40
Lengkou Properties................................................................. 42
Acquisition................................................................. 42
Exploration and Development History......................................... 43
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<TABLE>
<S> <C>
Geology and Mineral Deposits.................................................43
Exploration and Development Plan.............................................43
Changba-Lijiagou Property...........................................................44
Acquisition..................................................................44
Location and Description.....................................................45
Exploration and Development History..........................................46
Geology and Mineral Deposits.................................................46
Proposed Exploration and Development Program.................................47
Stone Lake Property.................................................................48
Acquisition..................................................................48
Location and Description.....................................................49
Exploration and Development History..........................................50
Proposed Exploration and Development Program.................................50
Crystal Valley Property.............................................................51
Acquisition..................................................................51
Location and Description.....................................................51
Exploration and Development History..........................................52
Geology and Mineral Deposits.................................................52
Other PRC Properties of the Registrant..............................................53
Tian Shan (or "Heavenly Mountains") Properties..............................53
Xifanping Property...........................................................56
White Silver Mountain Property...............................................57
Savoyardinski Gold Project, Kyrgyzstan..............................................57
Acquisition..................................................................57
Location and Description.....................................................58
Geology and Mineral Deposits.................................................58
Exploration and Development Plan.............................................58
Item 3. Legal Proceedings...................................................................59
Item 4. Control of Registrant...............................................................59
Performance Shares or Escrow Securities.............................................59
Item 5. Nature of Trading Market...........................................................62
Item 6. Exchange Controls and Other Limitations Affecting Security Holders..................63
People's Republic of China..........................................................63
Canada .............................................................................63
Item 7. Taxation............................................................................64
</TABLE>
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<TABLE>
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People's Republic of China..........................................................64
Canadian Federal Income Tax Considerations..........................................64
United States Tax Considerations....................................................66
Item 8. Selected Financial Data.............................................................68
Financial Statements................................................................68
Item 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................................71
General.............................................................................71
Liquidity and Capital Resources.....................................................72
Results of Operations...............................................................73
Expenditures on Properties of the Registrant........................................74
Outlook.............................................................................75
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.........................76
Item 10. Directors and Officers of Registrant...............................................76
Item 11. Compensation of Directors and Officers.............................................78
Item 12. Options to Purchase Securities from Registrant or Subsidiaries.....................79
Item 13. Interest of Management in Certain Transactions.....................................79
Part II ....................................................................................81
Item 14. Description of Securities to be Registered.........................................81
(a) Capital Stock To Be Registered.................................................81
Part III....................................................................................82
Item 15. Defaults Upon Senior Securities....................................................82
Item 16. Changes in Securities and Changes in Security for Registered Securities............82
Item 17. Financial Statements...............................................................82
Item 18. Financial Statements...............................................................83
</TABLE>
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<TABLE>
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Financial Statements and Exhibits...........................................................83
Exhibit Index.......................................................................83
Consolidated Financial Statements...................................................87
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
Minco Mining & Metals Corporation ("the Registrant") is a British Columbia
corporation, the stock of which is traded on the Vancouver Stock Exchange and
the Toronto Stock Exchange (trading symbol MMM), engaged in the acquisition of
base and precious metal mineral projects in the People's Republic of China
("PRC"). THE REGISTRANT HAS NO AFFILIATION WITH 3M CORPORATION. The Registrant's
wholly-owned subsidiary, Triple Eight Mineral Corporation ("Temco"), is a
British Virgin Islands corporation also engaged in the acquisition and
exploration of mineral projects in the PRC.
At present, none of the properties in which the Registrant has rights have a
known body of commercial ore, nor are any of such properties at the commercial
development or production stage and all such properties are in the exploration
stage. This fact increases the uncertainty and risks faced by investors. (See
"Risk Factors" and Item 2 - "Properties of the Registrant," below.)
BACKGROUND
The Registrant was incorporated under the laws of the Province of British
Columbia on November 5, 1982, under the name "Caprock Energy Ltd." Effective
September 14, 1989, the Registrant changed its name to "Consolidated Caprock
Resources Ltd.", consolidated its share capital on the basis of one new share
for every five old shares and increased its authorized capital to 20,000,000
common shares without par value. At some time prior to February 8, 1993, the
Registrant had become inactive and had no significant operations or assets.
Current management acquired its interest in the Registrant as a result of a
series of transactions in February 1993. At that time, the Registrant was a
"shell corporation;" it had been declared inactive and trading of its shares had
been suspended on the Vancouver Stock Exchange. The assets, management and
activities of the Registrant since February 8, 1993, have no continuity with its
assets, management or activities prior to that time. Current management has no
information regarding activities of the Registrant prior to February, 1993,
except that shown in official records, shareholder records and audited financial
statements for such prior periods.
Effective February 8, 1993, the Registrant changed its name to its current
name, consolidated its share capital on the basis of one new share for every
three old shares and increased its authorized capital to 20,000,000 common
shares without par value. In February, 1993, as part of the transactions by
which current management acquired its interest in the Registrant, the Registrant
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acquired the Chapuzi Property (see Item 2 - "The Chapuzi Property.") and was
reinstated as an active company on the Vancouver Stock Exchange. On February 19,
1993, the Registrant entered into three agreements, the "PCR Agreement," and the
"Teck-Cominco Agreements," both described below (See Item 1 - "The PCR
Agreement" and "The Teck-Cominco Agreements.") Effective July 8, 1996 the
Registrant increased its authorized capital to 100,000,000 common shares without
par value.
The Registrant completed two private placements of its securities in 1995 and
1996, involving a total investment of $9,660,000, followed by a registration on
the Vancouver Stock Exchange of the securities issued in the last such private
placement. Such investments also involved contractual alliances with certain
other major Canadian mining companies and the acquisition of various interests
in mineral projects located in China.
INTERCORPORATE RELATIONSHIPS
The Registrant has one wholly-owned subsidiary, Triple Eight Mineral Corporation
("Temco"), a corporation organized on September 1, 1995 under the laws of the
British Virgin Islands and having a statutory office at Arawak Chambers, P.O.
Box 173, Road Town, Tortola, British Virgin Islands. The Registrant initially
acquired a 60% equity interest in Temco pursuant to the PCR Agreement and later
acquired the balance of the equity interest from China Clipper Gold Mines, . See
"The PCR Agreement" below. Temco has the right to acquire a 55% equity interest
in a Chinese company, Chengde Huajia Mining Industry Co. Ltd. ("Huajia"),which
has been incorporated for the purpose of conducting the joint venture business
in respect to the Emperor's Delight Property (see Item 2 - "The Emperor's
Delight Property," below).
The following chart sets forth the Registrant's corporate structure,
including its subsidiary, their jurisdiction of incorporation, and the various
mineral properties held by each of them:
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Mining and Metals
Corporation
(British Columbia)
100% owned Option to earn up Option to earn up Option to earn Letter of 80% joint 80% joint
to 75% interest to 60% interest 75% interest Intent venture venture
interest interest
Triple Eight Chapuzi Property Changba-Lijiagou West Tian Shan Xifangping White Silver Savoyardinsky
Mineral (Mianning County, Property (Cheng Property Property Mountain Property
Corporation Sichuan Province) County, Gansu (Xinjiang Uygur (Sichuan Property (Kyrgyzstan)
(British Province Autonomous Province (Gansu Province)
Virgin Islands) Region,
Xinjiang
Province)
Option to earn Exclusive right Exclusive right
up to 55% to negotiate to negotiate
interest joint venture joint venture
agreement agreement
Chengde Huajia Stone Lake Crystal Valley
Mineral Property Property
Industry Co., (Hebei (Hebei
Ltd. (China) Province) Province)
Emperor's Lengkou Property
Delight (Hebei Province)
Property
(Chongli
County,
Hebei
Province
</TABLE>
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THE PCR AGREEMENT
On February 19, 1996, the Registrant entered into an agreement with Pacific
Canada Resources, Inc. ("PCR"). PCR was a private company controlled by Ken Cai
and Donald Hicks, both of whom became directors of the Registrant upon
completion of the transaction. Prior to that time PCR was not affiliated with
the Registrant. Pursuant to the PCR Agreement, the Registrant acquired rights to
PCR's portfolio of base and precious metal property agreements and acquisition
rights in China, some of which were held directly and some of which were held by
PCR's subsidiary, Temco. At that time, Temco was operated as a joint venture,
and China Clipper Gold Mines, Ltd. ("China Clipper"), a publicly traded Ontario
corporation, held a forty percent equity interest in Temco. On February 27,
1997, the Registrant purchased all of China Clipper's beneficial interest in
Temco for $175,000. As a result, all co-venture relationships between the
parties ended and all of China Clipper's interests and other rights that it may
have held in respect to joint venture businesses were transferred to the
Registrant. Prior to selling its interest in Temco, China Clipper had
contributed certain amounts to the capital of the joint venture or its
operations. See "Item 2 - Emperor's Delight Property"
Pursuant to the PCR Agreement, PCR assigned to the Registrant all of its
interests in and to the following agreements:
2. A Co-operation Agreement regarding certain mineral deposit properties, dated
November 24, 1994 between PCR, Patrician Gold Mines Ltd. and the First
Geoexploration Bureau of Ministry of Metallurgical Industry. The interests of
Patrician Gold Mines Ltd. were subsequently assigned to China Clipper and
later been assigned to Temco. See "The "FGEB Co-operation Agreement" below.
3. A Joint Venture Contract dated December 25, 1995 between Geoexploration
Corporation of the First Geoexploration Bureau ("GEC-FGEB"), a subsidiary of
the Ministry of Metallurgical Industry of the government of the PRC, and
Temco regarding the exploration and development of the Emperor's Delight
Property (the "Emperor's Delight Joint Venture Agreement.") See Item 2 - "The
Emperor's Delight Property."
4. An Option Agreement dated March 3, 1995 between PCR and Orient Gold Mines
Ltd. (the "Temco Option Agreement"). The Registrant has succeeded to the
interests of Orient gold Mines, Ltd., as well as its remaining obligations
thereunder, by its acquisition of all the equity interest in Temco.
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The Registrant's interests in the FGEB Co-operation Agreement and the Emperor's
Delight Joint Venture Agreement are held through the Registrant's subsidiary
Temco and are subject to the terms and conditions of the Temco Option Agreement.
See "Temco Option Agreement", below.
The PCR Agreement also granted the Registrant exclusive rights of first refusal
to all agreements relating to base and precious metal properties located in
China acquired by PCR over the succeeding four years. In consideration of the
transfer, the Registrant issued 7,280,000 common shares to PCR, 2,400,000 of
which were restricted for a period of one year and are now free trading. The
2,400,000 shares not subject to escrow restrictions were issued at a deemed
value of $0.97 per share on the basis of a valuation of the Emperor's Delight
Property by A.C.A. Howe International Limited dated March 14, 1995. The balance
of 4,800,000 shares are subject to the terms of an Escrow Agreement dated
February 19, 1996 and will only be released upon the Registrant satisfying
certain earn out requirements more particularly described in Item 4 below under
the subheading "Performance Shares or Escrow Securities". The escrowed shares
are subject to an earn-out at the rate of $0.97 per share, based on: (i) the
valuations of the properties acquired, as determined by a qualified independent
consultant; (ii) one share for each $1.81 of expenditures on exploration or
development of the properties; or (iii) cumulative cash flows from the
properties. As further consideration for the PCR Agreement, the Registrant
agreed to reimburse PCR for a total of $97,800 in legal, accounting and
consulting fees paid by PCR. Included in this amount is a total of $75,800 in
consulting fees paid to Kaisun Group (Canada) Inc. and 1066098 Ontario Inc.,
private companies controlled by Ken Cai and Donald Hicks, respectively.
Under the PCR agreement, PCR has the right to designate two (out of five)
directors of the Registrant and upon enlargement of the board to seven members,
one new member is to be a nominee of PCR. See Item 10 and Item 13, below.
The Temco acquisition has been treated by the Registrant as a reverse-take over
for accounting purposes. See "Financial Statements" attached hereto as Item 17.
THE TECK-COMINCO AGREEMENTS
Simultaneously, and in connection with the PCR agreement, the Registrant and PCR
entered into separate, but related agreements respectively dated February 19,
and February 20, 1996(collectively the "Teck-Cominco Agreements") with Teck
Corporation ("Teck") and Cominco Ltd. ("Cominco"), which are both major public
Canadian mining companies traded on the Toronto Stock Exchange. Pursuant to
these agreements, Teck and Cominco each invested $500,000 in the Registrant, and
received 625,000 units, each unit consisting of one common share of the
Registrant and one fifth of a non-transferrable common share purchase warrant,
each whole share purchase warrant entitling the holder to acquire one additional
common share at a price of $1.20 on or before February 20, 1997
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or $1.38 on or before February 20, 1998. The shares purchased by Teck and
Cominco were "restricted shares" under the rules of the British Columbia
Securities Commission until February 20, 1997. See Item 14. Teck exercised its
warrants prior to February 20, 1997. The warrants issued to Cominco are still
exercisable, at a price of $1.38 per share, until February 20, 1998.
As partial consideration for the investments by Teck and Cominco, they received
"earn-in rights" as to the Non-Chinese Interest ("NCI") in any two mineral
property rights acquired by the Registrant or PCR in the PRC, after the date of
the Teck-Cominco Agreements until March 1, 2004.
The Earn-In Rights provide that upon the Registrant or PCR procuring a base or
precious metal project, and after preliminary work by the Registrant, Teck and
Cominco shall first determine whether such project is to be governed by the
Teck-Cominco Agreements. If they determine that it is to be so governed, the
project shall automatically be transferred by PCR to the Registrant at cost and
Teck and Cominco shall hold Earn-In Rights in respect to such property. If Teck
and Cominco determine that the project is not to be governed by the Teck-Cominco
Agreements, the Registrant shall thereafter have the right to elect whether or
not to have the project assigned to it at cost.
If Teck and Cominco determine that a base or precious metal project is to be
governed by the Teck-Cominco Agreements, their Earn-In Rights shall be
exercisable in one of two ways, depending on whether the project is determined
to be a "development property" or an "exploration property" under the
Teck-Cominco Agreements, which determination is made solely by Teck and Cominco.
If determined to be a development property, Teck and Cominco shall have the
right to acquire 70% of the non-Chinese interest in such property and to become
the operator of the project by completing, at their sole cost, any further
project work and the final feasibility report on the project. Teck and Cominco
must then arrange for 70% of the costs required to be provided by the
non-Chinese parties to place the property into commercial production. Upon
completion of all of the foregoing, Teck and Cominco shall be deemed to have
exercised their Earn-In Rights in respect to the development project.
If a project is determined to be an exploration property, Teck and Cominco shall
have the right to acquire 51% of the non-Chinese interest in such exploration
property and to become the operator of programs on the property. To earn this
51% interest, Teck and Cominco must fund the final feasibility study on the
project and arrange for all financing required to be provided by the non-
Chinese parties to place the property into commercial production, as determined
in the feasibility study. Upon completion of all of the foregoing, Teck and
Cominco shall be deemed to have exercised their Earn-In Rights in respect to the
exploration project.
Each property for which Teck or Cominco have exercised an Earn-In Right shall be
governed by its own separate joint venture agreement which will include a
provision that if the Registrant's interest
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is diluted to 10% or less, such interest will be converted to a 1% net smelter
return royalty. The agreements further provide that Cominco (in the case of a
base metal property) or Teck (in the case of a precious metal property) shall be
the designated operator of the property on behalf of the joint venture which
shall be formed to exploit any such property.
The Teck-Cominco Agreements contain provisions under which Teck and Cominco
agree, subject to certain limitations, not to increase their share holdings in
the Registrant beyond 20% of the common shares, nor to reduce them beyond 50% of
their initial ownership, which limitations expire upon certain changes in
control of the Registrant. Teck and Cominco have a right of first refusal to
purchase common shares of the Registrant in any future offerings, so as to
maintain their percentage ownership of the Registrant.
After Teck and Cominco have exercised their Earn-In Rights in an aggregate of
two projects procured by PCR or the Registrant, Teck and Cominco shall have
further preferential rights of purchase in respect to further properties
identified by PCR or the Registrant for a period of three years after the
exercise of their Earn-In Rights. These preferential rights of purchase will
apply only in circumstances where PCR or the Registrant, if the Registrant has
elected to acquire a project identified by PCR, intend to offer an interest to
third parties or have received an offer to purchase, earn or acquire an interest
in such properties from third parties.
The rights of Teck and Cominco under the Teck-Cominco Agreements shall only
apply to projects secured by PCR or the Registrant on or before March 1, 2004.
TEMCO OPTION AGREEMENT
Pursuant to the Temco Option Agreement, PCR granted China Clipper's predecessor,
Orient Gold Mines Ltd., an option to earn a 40% equity interest in Temco by
expending $500,000 on the Chinese mineral properties which are the subject
matter of the GEC-FGEB Co-operation Agreement. China Clipper completed its
earn-in obligation and held 40% of the issued shares of Temco prior to these
shares being purchased by the Registrant in February of 1997.
The terms of the Temco Option Agreement provided that in order to maintain its
60% interest, the Registrant had the obligation to fund 40% of further
expenditures on the mineral properties underlying the GEC-FGEB Co-operation
Agreement until a total of $8,000,000 had been spent by the parties (excluding
the initial $500,000 expended by China Clipper). In order to maintain its 40%
interest, China Clipper had the obligation to fund 60% of further expenditures
until $8,000,000 in total has been spent. The GEC-FGEB Co-operation Agreement
further provides that 20% of such expenses shall be deemed to be credited to the
Registrant for the purposes of calculating each party's respective interests in
Temco until such time as $8,000,000 in total has been spent. Subsequent to
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the expenditure of $8,000,000, each party was to contribute based on its pro
rata interests in Temco. If either party had diluted down to less than a 20%
equity interest in Temco pursuant to a standard dilution formula, such diluted
party would have relinquished its remaining equity interest and received as
consideration therefor a 12.5% net profits royalty interest and a lump sum of
$100,000 also payable from net profits.
As the initial project being undertaken by Temco involves the Emperor's Delight
Property, China Clipper's funding obligations corresponded to the timing of
Temco's obligations to fund expenditures under the Emperor's Delight Joint
Venture Agreement. Pursuant to this Agreement, as at December 31, 1996, China
Clipper had paid U.S.$396,000 to Temco as part of its U.S.$2,640,000 exploration
commitment on the Emperor's Delight Property.
On February 27, 1997, the Registrant entered into an agreement with China
Clipper wherein its joint venture business with China Clipper was terminated by
mutual agreement. The Registrant purchased all of China Clipper's beneficial
interest in Triple Eight Mineral Corporation ("Temco") for $175,000. In so
doing, Temco became wholly-owned by the Registrant and, incidental thereto, all
co-venture relationships between the Registrant and China Clipper ended and all
of China Clipper's interests and other rights that it may have held in respect
to joint venture business were transferred to the Registrant.
THE FGEB COOPERATION AGREEMENT.
A coooperation agreement was entered into regarding certain mineral properties,
dated November 24, 1994, between PCR, Patrician Gold Mines, Ltd., and the First
Geoexploration Bureau of the Ministry of Metallurgical Industry ("GEC-FGEB"),
the interests of Patrician Gold Mines Ltd., having been subsequently assigned to
China Clipper Gold Mines, Ltd., and then to Temco. Under the FGEB Co-operation
Agreement, a framework was established for the negotiation of joint venture
agreements in respect to each of the Emperor's Delight, Stone Lake and Crystal
Valley Properties. See Item 2 - Properties of the Registrant, below.
At present, a joint venture agreement has been finalized only in respect to the
Emperor's Delight Property which is described in greater detail below. See Item
2 - "Emperor's Delight Property." This agreement supersedes the FGEB
Co-operation Agreement insofar as it relates to the Emperor's Delight Property.
The Registrant is still negotiating the terms of possible joint venture
agreements with FGEB in respect to each of the Stone Lake and Crystal Valley
Properties, which negotiations are expected to be concluded in 1997. However,
there is no assurance that such joint venture agreements will ever be concluded.
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Pursuant to the terms of the FGEB Co-operation Agreement, the Registrant has the
exclusive right to negotiate joint venture agreements on behalf of Temco with
GEC-FGEB in respect to the Stone Lake and Crystal Valley Properties, with such
right enduring for so long as the parties continue to negotiate in good faith.
Such joint venture agreements will require GEC-FGEB to contribute to the joint
ventures the exploration interests in the properties and the required
exploration and development permits, as well as all technical data available to
GEC-FGEB in respect to such mineral properties. Temco is required to contribute
certain technology as well as capital for the further exploration and
development of the subject properties. The joint venture agreements will entitle
Temco to earn no less than a 55% undivided interest in any joint venture
involving a gold property and a 60% undivided interest in any joint venture
involving a base metals property.
The extent of the capital contributions required to be made by Temco under the
to-be-negotiated new joint venture agreements will be a function of: (i) the
total amount of capital expended by GEC- FGEB, other levels of Chinese
government and other Chinese legal entities (the "Chinese Entities") on the
subject properties prior to the date of finalization of a joint venture
agreement; and, (ii) the percentage interest in the joint venture which Temco
may earn. For example, if the Chinese Entities have expended the equivalent of
U.S.$400,000 and if Temco is granted the right to earn a 60% interest in the
joint venture, then the amount required to be expended by Temco in order to earn
the 60% interest will be U.S.$600,000. After Temco has earned its initial equity
interest in the joint venture, each party to the joint venture will be required
to contribute additional capital based on their respective pro rata interests,
with standard dilution provisions applicable to non-contributing parties.
It is possible that any final joint venture agreements concluded will vary from
the terms set out in the FGEB cooperation Agreement, but the extent and nature
of any such variations cannot be predicted.
FINANCING
On June 27, 1996, the Registrant completed a private placement of 3.2 million
Special Warrants at a price of $2.55 per Special Warrant, for gross proceeds of
$8,160,000. Each unit consisted of one common share and one half of a
non-transferrable common share purchase warrant. Each whole share purchase
warrant entitled the holder to acquire one additional common share at a price of
$2.55 per share until one year after the date of issuance of the warrant upon
exercise of the Special Warrant. The expiration date of such warrants was
subsequently extended until 4:30 P.M. on June 30, 1998. Special Warrants were
automatically exercised without payment of further consideration five days after
issuance of a receipt for a final prospectus by the British Columbia Securities
Commission, relating to the qualification of the common shares, on December 20,
1996. Upon such qualification, the common shares became freely tradable in
British Columbia; prior to such date they were "restricted securities" under the
rules of the British Columbia Securities Commission. See Item 14.
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Proceeds of this private placement financing, as well as the earlier
investments by Teck and Cominco are intended to be used for exploration and
development expenditures in connection with the Registrant's mineral projects
located in the PRC, for working capital, and for acquisition of additional
projects. See "Immediate Business Plan," below.
IMMEDIATE BUSINESS PLAN
For the first six months of 1998, the Registrant's business plan is to conduct
exploration activities, as discussed in Item 2 below, with respect to each
individual property. Where results of exploration warrant, the Registrant will
proceed, on a property-by-property basis to take further steps toward the final
creation of a joint venture for each such property. Proposed budgets for
exploration work with respect to each property are discussed in Item 2 below.
The Registrant believes that the proceeds of its 1996 private placements of
special warrants together with possible contributions pursuant to the
Teck-Cominco Agreement will be sufficient to fund such work for 1997. The
Registrant may also enter into various agreements with other companies under
which these companies may fund various portions of exploration or development
work for a specific property and will earn interests in such properties to be
negotiated at the time. Such arrangements already exist in connection with the
Teck- Cominco Agreement; except for these arrangements, no such other agreements
have been entered into, and there can be no guarantee that any such other
agreements will be concluded on advantageous terms, or at all.
RISK FACTORS
The business of the Registrant is subject to a number of significant risk
factors associated with the business of mineral exploration generally, the fact
that the Registrant is in the exploration stage, specific factors relating to
the financial and competitive position of the Registrant, and the fact that all
its prospects are located in the PRC. The following discussion identifies
various risks in these categories, some of which are discussed at greater length
elsewhere herein. The order in which the various risks is discussed in not
intended to indicate their relative importance or likelihood of occurrence, nor
should it be assume that all possible risks are discussed. These factors should
be kept in mind when reviewing all the information contained herein.
1. MINERAL EXPLORATION INDUSTRY. The Registrant is engaged in the exploration
for minerals which always involves a high degree of geological, technical and
economic uncertainty.
2. EXPLORATION STAGE. The Registrant is in the exploration stage, none of the
properties in which it has interests are currently in commercial production, and
none of them contain proven reserves. In order to obtain more reliable
information on which to base decisions about possible
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development of a prospect, it is necessary to expend significant time and money,
and many of such prospects will turn out not to be worth further development.
The Registrant may thus expend significant amounts of financing and effort on
any or all of its properties without finding proven reserves or reaching a stage
of commercial production.
3. FINANCING. Although the Registrant believes that it has sufficient financing
to conduct its currently planned programs of exploration on existing prospects,
it does not have sufficient financial resources available to undertake
additional exploration or development programs. Further exploration or
commercial development, if warranted, would require additional financing. There
can be no assurance that needed future financing will be available in a timely
or economically advantageous manner, or at all.
4. TECK-COMINCO AGREEMENTS. The Teck-Cominco Agreements grant those companies
the right ("earn-in rights") to become the operators of an aggregate of two
future properties of the Registrant, on terms advantageous to them, as well as
certain preferential rights to other future projects for a period of three years
after exercise of their earn-in rights. The existence of these rights may
inhibit the Registrant's ability to obtain financing on future projects. See
"The Teck- Cominco Agreements" above.
5. MINERAL PRICES. The prices which the Registrant can obtain for any minerals
produced from any of its prospects will generally be subject to fluctuations in
the world commodity prices for any such minerals. Such fluctuations are neither
predictable nor controllable by the Registrant. Specific factors relating to the
Registrant's business, the quality of any minerals produced and factors peculiar
to doing business in the PRC may reduce the prices obtainable below those
prevailing on the world market.
6. COMPETITION. The Registrant competes and will compete with other companies
for the acquisition of mineral concessions and other interests. Many of such
companies are large established companies with greater financial, technical and
management resources than the Registrant.
7. POSSIBLE CONFLICTS OF INTEREST. Certain of the Registrant's officers and
directors, serve as officers, directors or employees of other mineral resource
companies, and to the extent that such other companies may compete for or
participate in mineral prospects in which the Registrant may have such
interests, such persons may have a conflict of interest. In this regard, it
should be noted that PCR and Tech-Cominco have the right to name persons to the
Registrant's Board of Directors. See "The PCR Agreement" and "the Teck-Cominco
Agreements," above.
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8. UNINSURED HAZARDS. The Registrant may become liable for hazards against which
it is not insured, either because insurance is unobtainable, or not available at
an economic cost.
9. ENVIRONMENTAL HAZARDS. Existing and possible future legislation could create
significant additional uninsured or uninsurable liabilities, and/or cause
additional expense and delay in the activities of the Registrant.
10. ENFORCEMENT OF CIVIL LIABILITIES. As substantially all of the assets of the
Registrant and its subsidiary, as well as the Registrant's jurisdiction of
incorporation and the residences of its officers and directors are located
outside of the United States, it may be difficult or impossible to enforce
judgments granted by a court in the United States against the assets of the
Registrant and its subsidiaries or the directors and officers of the Registrant
resident outside of the United States.
11. RISKS RELATED TO DOING BUSINESS IN THE PRC. Various matters which are
specific to doing business in the PRC may create additional risks or increase
the degree of such risks associated with the Registrant's activities. Such
factors, some of which are discussed at greater length below (See "Doing
Business in the PRC",) are:
Governmental Approvals. The establishment, operation and terms of the joint
ventures through which any mineral particular mineral property is to be explored
or operated are all subject to obtaining PRC governmental approvals at various
levels and for particular matters, including mining rights, importation of
equipment, hiring of labor, environmental regulations and the like. Depending on
the scope of the operation, its location, and the particular issues involved,
the level of government from which approvals must be sought and the process
involved will vary. Neither the time required, the costs involved (both of which
could be significant), nor the ultimate probability of obtaining any such
approvals can be predicted.
Gold Prices and Sales In addition to fluctuations in the world price and
demand for gold, any gold produced in the PRC is subject to mandatory sale to
the People's Bank of China at prices which have recently approximated 90% of the
price of gold as fixed by the London Metals Market, but which could change
unfavorably in the future.
Currency Prices and Convertibility. The PRC's currency, the Renminbi ("RMB"),
is not freely convertible into foreign currency. China's central bank publishes
daily the RMB exchange rate against the U.S. dollar and other major
international currencies, largely entirely, based on supply and demand of
foreign currency. In recent years, there has been significant devaluation of the
RMB against the U.S. dollar. Economic and legal restrictions on the availability
of foreign
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currency and the right to repatriate funds may adversely affect the performance
of the Registrant when measured in terms of U.S. dollars.
Environmental Regulations The Registrant's operations are subject to
environmental regulations promulgated by various PRC government agencies from
time to time. Although PRC environmental regulations are currently apparently
less stringent than those in the United States, this fact may change. Violation
of existing or future PRC environmental rules may result in various fines and
penalties. The Changba-Lijiagou Project may present a particular risk as the
environmental conditions in the smelter town of Baiyin are appalling by North
American standards. The cost of compliance with existing or future environmental
regulations may adversely affect the results of Registrant's operations.
Politics of China The Registrant's investments may be adversely affected by
political, economic and social uncertainties in the PRC. Although the PRC
central government has pursued economic reform policies for the past 18 years
and has repeatedly reiterated its commitment to such policies, no assurance can
be given that it will continue to pursue those policies or that any such
policies, including, but not limited to, laws regarding taxation, may not be
significantly and adversely altered, especially in the event of a change of
leadership, social or political disruption or unforeseen circumstances affecting
China's political, economic and social structure. The possibility of such
changes, and their unpredictability may be exacerbated by the authoritarian, one
party nature of the PRC regime.
Legal System Despite considerable activity in recent years to develop the PRC
legal system and to protect rights of foreign enterprises, the PRC does not yet
have a comprehensive system of laws. In addition, enforcement, operation and
interpretation of existing laws may be uncertain, sporadic or inconsistent.
China's judiciary is relatively inexperienced in enforcing laws that do exist,
leading to a higher than usual degree of uncertainty as to the outcome of any
litigation. Even where adequate law exists in China, it may be impossible to
obtain swift and equitable enforcement of such law, or to obtain enforcement of
the judgment by a court of another jurisdiction. The interpretation of the laws
of China may be subject to policy changes reflecting domestic political changes.
The ability of the PRC judiciary to review or control administrative agencies or
their actions is uncertain.
Economic Planning The economy of the PRC is a planned economy subject to five
year plans, with national economic goals adopted by the central government. At
present, the PRC Economic and Trade Office has emphasized greater
decentralization and utilization of market forces for allocation of resources.
The central government has repeatedly said that economic development will follow
a model of market economy under socialism. It is expected that the
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PRC will continue to strengthen economic ties with foreign countries and that
development in China will follow market forces, but there can be no guarantee of
that.
Title Matters and Surveys. The Registrant's interests in all its prospects
are subject to the Mineral Resources Law of the PRC enacted March 19, 1986 and
amended effective January 1, 1997, which provides that "Mineral resources shall
be owned by the State." and "The State's ownership of mineral resources shall be
exercised by the State Council." Title investigation is difficult or impossible
in the PRC and thus the level of title investigation in respect to most, or all,
of the Registrant's properties has been limited. Although the Registrant is not
aware of any specific title defects, this should not be construed as a guarantee
of title. Title to the properties may be affected by undetected defects such as
unregistered agreements or transfers. So far as Registrant is aware, none of the
properties in which it has an interest has been surveyed, and their actual
extent and location may therefore be in doubt.
Reliability of Information. The information herein regarding the PRC, its
government, economy and industries has been obtained from a variety of PRC
government and industry officials and sources. Independent verification of this
information is not available. Official statistics in relation to the PRC,
including its economy and industries may also be produced on a basis different
from that used in more developed countries or countries with different political
systems. If such official statistics are materially inaccurate, or not easily
comparable to those of the United States, the present and future economic
prospects of the PRC, including its economy and industries, as well as the
prospects for the Registrant's business, could be materially and adversely
affected. Much of the information on which the Registrant and its consultants
have based their decisions regarding the Registrant's mineral prospects is also
based on information provided by PRC governmental officials, geologists and
mining engineers, and cannot be independently confirmed. Accordingly, the
reliability of geological and mineral information regarding the properties, the
costs of labor, operation and construction may be less than if it were based on
information independently obtained by the Registrant.
PEOPLE'S REPUBLIC OF CHINA - BACKGROUND INFORMATION
The following is a general description of China's governmental organization,
currency regulation, foreign investment in China and the history of gold mining
therein and has been compiled by the Registrant from various sources:
General Information
The People's Republic of China is located in the eastern part of Asia. It is
bordered by fourteen countries, including India, Kazakhstan, Mongolia, and
Russia. It has an area of 9,561,000 square
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kilometers with an estimated population, as at 1994, of over 1.17 billion
people. The language is mainly Putonghua (Mandarin) with several local dialects.
Governmental Organization
China is a centralized state power. China's Head of State is its President. The
Central Government of China is organized pursuant to the Constitution of China,
the most recent form of which was adopted by the National People's Congress (the
"NPC") in December, 1982, with amendments made in 1988 and 1992.
The unicameral NPC is the "highest organ of state authority" and exercises
legislative power in the country. About 3,000 members of the NPC are elected by
the provinces, autonomous regions, those municipalities which are directly under
the Central Government, and the armed forces. The NPC meets once a year, and
when it is not in session it exercises its powers through its Standing Committee
with some 250 members.
Local people's congresses are established at various levels, including within
provinces, autonomous regions, municipalities, counties, districts, towns and
townships. Local people's congresses are "local organs of state power". They are
empowered to promulgate local laws, rules and regulations and to approve local
economic plans and budgets. In addition, they elect governors, mayors and other
local government heads.
The State Council is the "executive agency" of the NPC, and in effect, the
cabinet. It usually has 15 members, composed of the Premier, Deputy Premiers,
State Councilors and a Secretary- General. There are over 40 ministries and
commissions, including the People's Bank of China, as well as a number of
important state-owned corporations under the authority of the State Council. The
State Council has the authority to promulgate administrative rules, orders and
regulations, and to rescind or amend administrative rules, orders and
regulations issued by administrative agencies at both the central and provincial
government levels. The State Council also prepares and supervises the
implementation of national economic plans and budgets and co-ordinates the
administrative agencies at both the central and provincial government levels.
The Chinese Communist Party (the "CCP") has a constitutional role in the
government organization of China. Although the state and the CCP structures are
technically separate, there is a considerable overlap between the
decision-making functions of the state organs and the CCP organs. In practice,
the NPC has never acted as the true source of power. It approves decisions made
by the Communist Party. Basically China's political structure remains that of an
authoritarian one-party state.
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Currency
The Chinese currency is the Renminbi yuan ("RMB" or "Rmb"). It is not freely
convertible although the Chinese government has emphasized that full
convertibility is the long-term goal. Full convertibility, probably after some
transitional period, will be a condition precedent to membership in the World
Trade Organization, for which China has applied. The People's Bank of China,
China's central banking authority, publishes the Renminbi exchange rate against
the U.S. dollar every day based on the trading price between the two currencies
of the previous day on the Inter-Bank Foreign Exchange Market established in
Shanghai in 1994. In addition, the People's Bank of China publishes the Renminbi
exchange rates against other major foreign currencies. Designated banks
participate on the Inter-Bank Foreign Exchange Market through a computer network
connected with major cities in China.
Foreign exchange is administered by the State Administration of Exchange Control
(SAEC), and its local branch offices, all of which are subject to the
supervision of the People's Bank of China. The SAEC has established regulations
relating to outward remittance by foreign investors of their share of net
profits or dividends and final repatriation of their investments, in foreign
currency. Subject to payment of applicable taxes, foreign investors may remit
out of China, in foreign exchange, profits or dividends derived from a source
within China. However, foreign-invested enterprises are required to secure their
own sources of foreign exchange, and the foreign exchange adjustment Centers
(commonly known as Swap Centers) may be used for this purpose. The Swap Centers
were established to assist foreign investment enterprises to balance their
foreign currency income and expenses by converting surplus local currency
earnings into foreign exchange and vice versa without their having to wait for
central allocation. The central foreign exchange adjustment center is in Beijing
and other centers have been established in the coastal cities, Special Economic
Zones and other major cities, municipalities and autonomous regions. Remittance
by foreign investors of any other amounts (including, for instance, principal
and interest on debt and proceeds of sale arising from a disposal by a foreign
investor of any of its or his investments in China) out of China is subject to
the approval of the SAEC.
Foreign Investment
China is in the process of developing a comprehensive system of laws for the
development of a market-oriented economy. Since 1979, a significant number of
laws and regulations dealing with foreign investment and matters related to
foreign investment have been promulgated.
The Constitution authorizes and encourages foreign investment and protects the
"lawful rights and interests" of foreign investors in China. The Civil Procedure
Law of China (the "Civil Procedure Law"), effective April 9, 1991, provides that
if there is a conflict between the provisions of international treaties, to
which China is a signatory, and domestic Chinese law, the
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treaty provisions will prevail. In addition, the Foreign Economic Contract Law
of China (the "FECL"), effective July 1, 1985, provides that matters not covered
by Chinese law will be dealt with by reference to international practices.
Direct foreign investment in China usually takes the form of equity joint
ventures ("EJVs"), cooperative joint ventures ("CJVs") and wholly foreign-owned
enterprises. These investment vehicles are collectively referred to as foreign
investment enterprises ("FIEs").
An EJV is a Chinese legal person and consists of at least one foreign party and
at least one Chinese party. The EJV generally takes the form of a limited
liability company. It is required to have a registered capital, to which each
party to the EJV subscribes. Each party to the EJV is liable to the EJV up to
the amount of the registered capital subscribed by it. The profits, losses and
risks of the EJV are shared by the parties in proportion to their respective
contributions to the registered capital. There are also rules and regulations
governing specific aspects of EJVs or FIEs, including capital contribution
requirements, debt-equity ratio, foreign exchange control, labor management,
land use and taxation.
Unlike an EJV, a CJV may be, but need not be, incorporated as a separate legal
entity. The relationship between the parties is contractual in nature. The
rights, liabilities and obligations of the parties are governed by the CJV
contract, as is each party's share of the goods produced or profits generated. A
CJV is considered a legal person with limited liability.
The establishment of FIEs requires the approval of various Chinese government
authorities. Generally speaking, the approval authority is determined on the
basis of the total amount of investment involved and the location of the project
in question. The State Council must approve any foreign investment projects
having an investment of U.S. $100 million or more. The State Planning Commission
and the Ministry of Foreign Trade and Economic Co-operation are authorized by
the State Council to approve foreign investment projects of less than U.S.$100
million. Provincial authorities, usually the provincial commissions of foreign
trade and economic co-operation, are also authorized to approve projects up to
certain pre-determined amounts.
Tax System
Foreign investment enterprises and their employees are subject to a variety of
taxes in China. Each tax levied is based on a separate law. The most significant
taxes imposed are income tax, value added tax, business tax, consumption tax,
land appreciation tax, real estate tax, vehicle and vessel license tax, stamp
duties and customs duties. Various tax incentives are provided under the income
tax law and regulations.
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The Law of China on income tax of Chinese-Foreign Joint Ventures and
Foreign-Capital Enterprises stipulates that foreign enterprises and joint
ventures shall be taxed at a standard rate of 30% plus a local tax of 3%. In
addition, Chinese mining enterprises are required to pay a mineral compensation
fee which, for gold mining, is up to 4% of income from gold sales.
The Chinese government has recently announced that it plans to reform the
existing Chinese tax system (including the value added tax) and particularly its
tax preference policies applicable to foreign enterprises. The aim of such
future reforms will be to unify and simplify China's existing tax system. No
timetable for implementing such reforms has been announced by the Chinese
government nor has any legislation been introduced.
Inflation and the Chinese Government Austerity Plan
The Chinese economy has experienced rapid growth which has led to a significant
growth in money supply and rising inflation. In September, 1993, total money
supply had grown by 34% on an annual basis. The average inflation rate in the
first quarter of 1995 was recorded at an annualized rate of approximately 23%.
If revenues generated by the Registrant do not rise sufficiently to compensate
for the rate of inflation, profitability may be adversely affected.
In order to control inflation, the Chinese government recently reinstated
controls on bank credits, limits on loans for fixed assets and restrictions on
state bank lending. This austerity plan, first announced in June of 1993, seemed
to have been relaxed during the last quarter of 1993. In early 1994, the Chinese
government announced that it intended to reimpose its austerity measures,
including a ban on fixed asset investments.
The Chinese government announced in March of 1994 that the People's Bank of
China will begin examining all loans made for fixed asset investments and any
financial institutions which have exceeded their lending quota or granted loans
to non-state planned projects, unapproved development zones or real estate
speculators, will be strictly punished. The Registrant does not believe that
these recent announcements should have a material effect on the business of the
Registrant.
Gold Mining in China
Gold has been produced in China for over 4,000 years. In 1994, China was the
world's 6th largest producer of gold at a reported 130 tonnes, immediately
following Canada which was then the fifth largest producer of gold. It is
presumed that early Chinese production was from placer deposits, and placer
reserves still account for over 15% of China's total gold reserves. Gold mining
is currently active in all of China's provinces, with over 460 official
operations.
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However, only 40 of these have reported annual production over 10,000 ounces of
gold and only 10 have facilities capable of processing over 500 tonnes of ore
per day.
The Chinese mining industry has traditionally been closed to foreign
participation. However, a change in the Mineral Resources Law has been
implemented by the PRC's Central Government which permits foreign participation.
The regulation of mining, including gold mining, in the PRC is in a state of
evolution from a totally planned, state-controlled condition to free market
conditions as experienced in developed and most developing countries. Ultimate
control is in the hands of the State Council. Policy is developed for the State
Council by its State Planning Commission ("SPC"). The State Gold Bureau ("SGB"),
a branch of the Ministry of Metallurgical Industry ("MMI"), regulates the gold
mining industry.
The Ministry of Geology and Mineral Resources ("MGMR") administers geological
exploration and also carries out exploration through its own personnel. There
are at present over one million people engaged in mineral exploration, including
petroleum exploration, in China, of which over 400,000 are employed by MGMR and
its provincial affiliates.
LEGAL FRAMEWORK FOR CHINESE-FOREIGN CO-OPERATIVE JOINT VENTURES.
The following is a general description of the legal framework for Sino-foreign
co-operation joint ventures pursuant to which the business of the Registrant is
carried on in China or will be regulated. This description has been compiled by
the Registrant from various sources.
Legal Framework
Each of the various joint venture entities through which the Registrant will
carry on business in China has been or will be formed under the laws of China as
a Chinese-foreign co-operative joint venture enterprise and is or will be a
"legal person" with limited liability. All joint ventures entered into, or to be
entered into, by the Registrant must be approved by both the Ministry of Foreign
Trade and Economic Co-operation ("MOFTEC") and the State Planning Commission
("SPC") in Beijing or their provincial bureaus. Such approvals have not yet been
obtained by the Registrant except for its Emperor's Delight Property.
The establishment and activities of each of the Registrant's joint venture
entities are governed by the Law of the People's Republic of China on
Chinese-foreign Co-operative Joint Ventures and the regulations promulgated
thereunder (the "China Joint Venture Law"). As with all Chinese-foreign
co-operative joint venture enterprises, the Registrant's joint venture
enterprises will be subject to an extensive and reasonably well-developed body
of statutory law relating to matters such as
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establishment and formation, distribution of revenues, taxation, accounting,
foreign exchange and labor management.
On January 1, 1997, an amendment to the Mineral Resources Law of China became
effective. Among other things, the amended law deals with foreign ownership of
Chinese mines and mineral rights, and allows, under some circumstances, the
transfer of exploration rights and mining rights. Pursuant to this law,
regulations are being drafted which are expected to set out in more detail
provisions related to foreign investment and development of Chinese mines. These
regulations are expected to be promulgated in 1997.
Under existing laws, in order to form a mining joint venture, foreign companies
must complete three levels of agreements which are subject to approval by
various government authorities depending upon the scale of the proposed
investment and the mineral commodities involved in the project. Larger projects
are submitted to Provincial or Central government authorities and smaller
projects are submitted to Local government authorities.
In general, the first level of agreement is a Letter of Intent or a Memorandum
of Understanding, which sets forth broad areas of "mutual co-operation". The
second level of agreement is a more detailed Co-operation Agreement which
outlines the essential terms of the joint venture which ultimately will be
formed. The third level of agreement is a Joint Venture Contract which sets out
the entire agreement among the parties and contemplates the establishment of a
"Chinese Legal Person", a separate legal entity.
Before a joint venture can be created, an assessment or feasibility study of the
proposed joint venture must be prepared and approved by the State Planning
Commission (the "SPC"). Therefore, upon completing a Co-operation Agreement, the
parties prepare a feasibility study of the proposed joint venture and submit
this feasibility study along with the Co-operation Agreement to the SPC for what
may be described as an approval in principle, the granting of which depends upon
whether the proposed project broadly conforms to the economic policy issued by
the government and any prescribed regulations. As part of this approval process,
the SPC consults with the Ministry of Geology and Mineral Resources (the "MGMR")
and with the government agency directly concerned with the specific mineral
commodity; for example, in the case of gold, with the Gold Bureau of the
Ministry of Metallurgical Industry.
Upon receiving this approval in principle, the parties then negotiate and
prepare a Joint Venture Contract and then submit it to the Ministry of Foreign
Trade and Economic Co-operation ("MOFTEC") which approves the specific terms of
all Joint Venture Contracts between Chinese and foreign parties. Within one
month after the receipt of a certificate of approval from MOFTEC, a joint
venture must register with the State Administration of Industry and Commerce
(the "SAIC").
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Upon registration of the joint venture, a business license is issued to the
joint venture. The joint venture is officially established on the date on which
its business license is issued. Following the receipt of its business license,
the joint venture applies to MGMR to approve and grant to the joint venture its
exploration permits and/or mining licenses. As part of this approval process,
the MGMR consults with the military authorities to confirm that no military
reserves lie within the areas of interest.
Governance and Operations
Governance and operations of a Sino-foreign co-operative joint venture
enterprise are governed by the China Joint Venture Law and by the parties' joint
venture agreement and the Articles of Association of each joint venture entity.
Pursuant to relevant Chinese laws, certain major actions of the joint venture
entity require unanimous approval by all of the directors present at the meeting
called to decide upon actions such as: amendments to the joint venture agreement
and the Articles of Association; increase in, or assignment of, the registered
capital of the joint venture; a merger of the joint venture with another entity;
or the termination and dissolution of the joint venture enterprise.
Term
Under the joint venture agreement, the parties will agree to a term of the joint
venture enterprise from the date a business license is granted. However, the
term may be extended with the unanimous approval of the board of directors of
the joint venture entity and the approval of the relevant Chinese governmental
entities.
Employee Matters
Each joint venture entity is subject to the Chinese-Foreign Co-operative Joint
Venture Enterprise Labor Management Regulations. In compliance with these
regulations, the management of the joint venture enterprise may hire and
discharge employees and make other determinations with respect to wages,
welfare, insurance and discipline of its employees.
Generally, in the joint venture agreement, the standard of salary, social
welfare insurance and travelling expenses of senior management will be
determined by the board of directors of the joint venture entity. In addition,
the joint venture will establish a special fund for enterprise development,
employee welfare and incentive fund, and a general reserve. The amount of
after-tax profits allocated to the special funds is determined at the discretion
of the board of directors on an annual basis.
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Distributions
After provision for a reserve fund, enterprise development fund and employee
welfare and incentive fund, and after provision for taxation, the profits of a
joint venture enterprise will be available for distribution to the Registrant
and the relevant Chinese governmental entity, such distribution to be authorized
by the board of directors of the joint venture entity.
Assignment of Interest
Under joint venture agreements and the China Joint Venture Law, any assignment
of an interest in a joint venture entity must be approved by the relevant
governmental authorities. The China Joint Venture Law also provides for
pre-emptive rights and consent of the other party for proposed assignments by
one party to a third party.
Liquidation
Under the China Joint Venture Law and joint venture agreements, the joint
venture entity may be liquidated in certain limited circumstances including the
expiry of its term or any term of extension, inability to continue operations
due to severe losses, failure of a party to honor its obligations under the
joint venture agreement and Articles of Association in such a manner as to
impair the operations of Chinese governmental entitles and force majeure.
Resolution of Disputes
In the event of a dispute between the parties, attempts will be made to resolve
the dispute through friendly consultation. This is the practice in China and the
Registrant believes that its relationship with Chinese governmental entities is
such that it will be able to maintain a good working relationship with respect
to the operations of its joint venture enterprises. In the absence of a friendly
resolution of any dispute, the parties have agreed or will agree that the matter
will first be referred to the Foreign Economics and Trade Arbitration Commission
of China Council ("FETAC") for the Promotion of International Trade for
Arbitration. Awards of FETAC are enforceable in accordance with the laws of
China before Chinese courts. Resort to Chinese courts to enforce a joint venture
contract or to resolve disputes between the parties over the terms of the
contract is permissible. However, the parties may jointly select another
internationally recognized arbitration institution to resolve disputes.
Expropriation
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The Chinese Joint Venture Law also provides that China generally will not
nationalize and requisition enterprises with foreign investment. However, in
special circumstances where demanded by social public interest, enterprises with
foreign investment may be requisitioned by legal procedures, but appropriate
compensation will be paid.
ITEM 2. DESCRIPTION OF PROPERTY.
GENERAL
The bulk of the Registrant's properties are located in the PRC, and these fall
into two general groups: the Chapuzi, West Tian Shan and Xinjiang properties
were acquired by direct negotiations and agreements between the Registrant and
the PRC authorities concerned. The Emperors' Delight, Changba-Lijiagou, Stone
Lake and Crystal Valley properties were acquired in connection with the PCR
Agreement. See Item 1 - "The PCR Agreement" above. The Registrant also has one
agreement pertaining to a property located in Kyrgyzstan.
INDEPENDENT CONSULTANTS' REPORTS
The Emperor's Delight, Stone Lake and Crystal Valley Properties are the subject
matter of a geological report prepared by A.C.A. Howe International Limited
("A.C.A. Howe") entitled, "Evaluation Report on the Crystal Valley, Stone Lake
and Emperor's Delight Gold Projects, Hebei Province, The People's Republic of
China" dated March 13, 1995 and as updated by two reports, also prepared by
A.C.A. Howe, entitled "Valuation of the Emperor's Delight Joint Venture
Property, Hebei Province, The People's Republic of China", dated November 15,
1995 and "Update of Work Performed on the Emperor's Delight, Crystal Valley and
Stone Lake Properties" dated December 9, 1996 (collectively the "A.C.A. Howe
Report"). The descriptions which follow in this section concerning these
properties have been prepared on the authority of A.C.A. Howe International
Limited and, in some cases, are extracts from the A.C.A. Howe Report. A.C.A.
Howe International Limited was commissioned by PCR (Pacific Canada Resources,
Inc.) to evaluate the potential of the various properties to host viable mineral
deposits. Furthermore, the consulting firm was also mandated by PCR to assess
the fair value of the Emperor's Delight Property for the purpose of defining the
amount required to be spent for earn-in purposes.
The Chapuzi Property is the subject of an independent consultant's report titled
"Chapuzi Gold Occurrence Report for Minco Mining and Metals Corporation"
prepared by H.A. Simons Ltd. of Calgary, Alberta dated December, 1996 (the "H.A.
Simons Report"). The descriptions that follow are based primarily on these
reports and on observations made during a site visit made to the property in
July of 1995 by management of the Registrant. The description which follows in
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this Item 2 concerning the Chapuzi Property has been prepared on the authority
of H.A. Simons Ltd. and, in some cases, are extracts from the H.A. Simons
Report.
The Changba-Lijiagou Property is the subject matter of two reports prepared by
H.A. Simons Ltd. entitled "Technical Site Visit to Smelters and Mine Facilities
of Baiyin Non-Ferrous Metals Corporation, Ganzu Province, People's Republic of
China" dated December, 1995 and "Proposed Development Strategy for the Changba
Lijiagou Underground Mine" dated December 9, 1996 (collectively, the "CBLG
Technical Reports"). The description which follows in this Item 2 concerning the
Changba-Lijiagou Property has been prepared using information from the CBLG
Technical Reports.
Much of the information contained in the Consultants' Reports is based on
information provided by Chinese governmental officials, geologists and mining
engineers. Accordingly, the reliability of geological and mineral information
regarding the properties, the costs of labor, operation and construction
provided by Chinese government officials, geologists and mining engineers cannot
be assured.
THE CHAPUZI PROPERTY
Acquisition
The Registrant acquired its interest in the Chapuzi Property pursuant to an
agreement (the "Chapyzi Agreement") resulting from negotiations with the
Sichuan Bureau of the Ministry of Geology and Mineral Resources (the
"MGMR-Sichuan"). The Chapuzi Property is the subject of a report prepared by
H.A. Simons Ltd. dated December, 1996 (the "H.A. Simons Report").
Pursuant to the Chapuzi Agreement, the Registrant and MGMR-Sichuan agreed to
create a joint venture in respect to the exploration and development of the
Chapuzi Property located in Mianning County, Sichuan Province. Under the Chapuzi
Agreement, MGMR-Sichuan has designated the Panxi Geological Investigation
Institute of Xichang, Sichuan Province ("Panxi"), as its representative in the
joint venture. The joint venture shall be conducted through a joint venture
corporation to be incorporated pursuant to the Joint Venture Law of China. The
original Cooperation Agreement was entered into between the Registrant and
MGMR-Sichuan dated July 7, 1995, as amended October 11, 1995 and supplemented by
a new Co-operation Agreement dated July 27, 1996. The final joint venture
agreement has not yet been negotiated and approved, pending completion of a
final feasibility study.
As its contribution to the joint venture, the Registrant has agreed to provide
all funding required for the exploration and development of the Chapuzi
Property. In addition, the Registrant will
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serve as operator of all exploration and development programs to be conducted by
the joint venture. MGMR-Sichuan and Panxi have agreed to transfer all their
rights and interests in and to the Chapuzi Property, make available certain
exploration and mining equipment as well as local technicians and other
necessary personnel, at wages consistent with prevailing local market
conditions, provide all necessary geological information and arrange for all
necessary regulatory and governmental approvals required for the joint venture.
Upon expending the sum of Cdn. $5,000,000, the Registrant shall have earned a
51% equity interest in the joint venture corporation. If the Registrant finances
the construction of a mine and plant on the Chapuzi Property, its equity
interest in the joint venture corporation will, effective on the commencement of
commercial production from such mine and plant, be increased to 75%. The Chapuzi
Agreement further provides that all funds advanced by the Registrant to the
joint venture corporation shall be treated as non-interest bearing loans, to be
repaid to the Registrant from profits of the joint venture corporation prior to
any annual pro-rata distribution of income to the joint venture partners. Once
the loans are paid, profits will be distributed annually based upon the equity
shares held in the joint venture corporation.
The Chapuzi Agreement further provides that if the Registrant advances less than
Cdn. $5,000,000 to the joint venture and if a final feasibility report obtained
by the Registrant concludes that it is uneconomic to construct a mine and plant
on the Chapuzi Property, then the Registrant's equity interest in the joint
venture corporation shall be determined as that percentage which is equal to 51%
multiplied by a fraction in which the numerator is the amount of funds expended
by the Registrant and the denominator is Cdn. $5,000,000. Thereafter,
MGMR-Sichuan and Panxi shall have the right to enter into an agreement with any
third party to continue exploration and development work on the Chapuzi Property
provided that such third party first reimburses the Registrant for all prior
expenditures made by the Registrant. No title opinion or survey in respect to
the Chapuzi Property has been obtained by the Registrant.
The following information respecting the Chapuzi Property was derived from the
H.A. Simons Report which report relied heavily on a report prepared by the
Sichuan Bureau of the Ministry of Geology and Mineral Resources dated April 3,
1995 and entitled "Brief Introduction of Chapuzi Gold Deposit, Mianning County,
Sichuan Province".
Location and Description
The 120 square kilometer Chapuzi Property is located within Mianning County,
Sichuan Province, approximately 350 kilometers southwest of Chengdu, the
provincial capital. The property is located west of the Yangtze Platform at an
elevation of about 3,000 meters in a region of moderate to strong local relief.
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To get to this property one can travel from Beijing to Chengdu and on to Xichang
by regular scheduled flights. From Xichang there is a 150 kilometer drive on
paved roads to the Mofangou Hydroelectric Power Station at the southern end of
the property, approximately a five hour journey. The paved road ends after
crossing the Yalong River. To get to the area of interest on the property one
needs to go by horseback up mountain trails used by the local subsistence level
farmers - a journey of approximately five to six hours. A new 25 Megawatt
hydroelectric power station is being constructed approximately 5 kilometers
north of the Mofangou Power Station.
The known gold deposits on the property are hosted in moderately to strongly
altered basic volcanic rocks of the Permian age Chapuzi formation. Gold is
associated with pyrite mineralization within the altered volcanic rocks which
may be related to a broad brittle-ductile shear zone that trends north-south
through the area. The property covers a 20 kilometer stretch of the prospective
zone. The target is a shear-hosted gold deposit within the volcanic rocks of the
Chapuzi Formation.
Exploration and Development History
Gold deposits were first discovered in the area in 1961 after follow-up work on
a regional geochemical anomaly was initiated by a division of MGMR-Sichuan.
MGMR-Sichuan has carried out regional geological mapping and geochemical
surveying at a scale of 1:200,000 and more detailed geochemical surveying at a
1:50,000 scale. Between 1977 and 1983, more detailed work, including 58,200
cubic meters of trenching, 1,420 meters of underground cross-cutting and 2,770
meters of diamond drilling, has resulted in the delineation of the resources on
the property. Detailed geological maps, at a scale of 1:2,000, showing drill
hole sand trench locations were complied at this stage. During this time some
metallurgical testing was performed by the MGMR- Sichuan on the mineralization.
MGMR-Sichuan's conclusions from all their work completed to date is that the
known mineralization is amenable to open pit mining methods and to heap leach
extraction methods.
Due to a lack of capital and the fact that the deposit had a relatively low
grade (2.68 grams / tonne), no further work was completed by the MGMR-Sichuan on
the property since 1983. Some small-scale illegal recovery of gold from
development dumps has been carried out intermittently by local farmers.
The Registrant began paying for and supervising work on the property in 1995.
Work completed by the Registrant to date includes: a site visit evaluation of
the property by H. A. Simons in July 1995; comparison of the Chinese gold
analytical results for 100 samples from the property with those obtained by fire
assay in Vancouver, Canada in 1995; soil geochemical survey over the southern
thirty three square kilometers of the property in the Fall of 1996; follow-up
trenching
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on gold anomalies in soil during the Summer of 1997; induced
polarization/resistivity test profiles over the main deposit and over the
southern gold anomalies to be completed in 1997.
The Chapuzi Property does not contain a known body of commercial ore and the
Registrant's proposed work program is an exploratory search for ore only.
Geology and Mineral Deposits
Tectonically the Chapuzi Property is located in front of the Muli-Yanyuan nappe
zone to the west of the Yangtze Platform. On the property, gold mineralization
is hosted by structurally altered, metasomatized basic volcanic rocks
intercalated with volcanic tuffs and dolomitic marbles of the Permian age
Chapuzi Formation. The host Chapuzi Formation rocks occupy a zone, approximately
two kilometers wide by fifty kilometers long, which forms the core of a
north-trending synclinal structure. This north-south structural trend is the
dominant feature on the property.
On the Chapuzi Property, two mineralization types are present; (1) gold-bearing,
polymetallic sulphide, quartz vein mineralization and (2) disseminated,
gold-bearing, pyrite and carbonate mineralization. Within the vein type
mineralization minerals are mainly pyrite and limonite with secondary
tetrahedrite, galena, sphalerite, chalcopyrite, pyrrhotite and bornite in a
gangue of ferroan dolomite and quartz. Within the disseminated pyrite-gold
mineralization the only sulphide present is pyrite in a
quartz/sericite/carbonate altered host rock. This latter type of gold
mineralization is by far the most important on the property. The gold occurs as
native, fine- grained lamellar and platy grains situated within cracks in the
pyrite and limonite crystals or occupying sites between quartz and limonite
crystals. Gold grain size range from 0.01 - 0.02 mm.
The mineralized lenses that make-up the known deposits on the Chapuzi Property
appear as lenticular shaped zones, which dip 30 Degree to 50 Degree to the west,
that are parallel to the fabric in the host rock. Twenty-nine individual
mineralized bodies have been identified to date within a 7.0 kilometer long by
1.2 kilometer wide zone. The length of individual lenses can vary from several
tens of meters to 330 meters and their width can vary from about 2 to 40 meters.
Of those mineralized zones that have been investigated at depth the down dip
continuity has ranged from 10 to 160 meters.
The known mineralized zones on the Chapuzi Property are subdivided into seven
main blocks from north to south: Sujiaping, Maidigen, Qiankuangbao, Yangliuwan,
Baimachang, Jinchuan and Lagushan. The Maidigen block has been systematically
explored with 40 meter spaced surface trenching, two underground adits, at the
2,960 meter and 2,920 meter elevations, and fourteen 40 to 80 meter spaced
diamond drill holes. The Sujiaping, Yangliuwan and the Baimachang
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blocks have been covered by 80 meter spaced trenches across the mineralized
zone. The Jinchuan and an area south of Lagushan has been trenched at 100 meter
intervals. The Qiankuangbao block which covers a gold-bearing, polymetallic vein
type lead-zinc deposit in the footwall of the main disseminated gold-pyrite
mineralization has been systematically explored by 40 meter spaced trenching and
some underground openings.
Surface trenching has been the main exploration tool used to date. Of the seven
blocks the two southern areas, Jinchuan and Lagushan, have been tested along
strike by 100 meter spaced trenches. The Sujiaping, Yangliuwan and Baimachang
blocks have trenches spaced at 80 meters, while the Maidigen and Qiankuangbao
blocks have trenches spaced at 40 meters. Examination of outcrop shows very
prominent, continuous channel samples cut approximately 10 cm wide and 5 cm deep
into the exposure.
Fourteen diamond drill holes have been completed for a total of 2,771.9 meters.
Ten of the holes are within a 300 meter strike length, on four cross sections,
in the most northerly Maidigen block. The holes are on cross-sections spaced
approximately 80 meters apart and the holes are drilled between 40 and 80 meters
apart along the sections.
No proven or probable reserves have been found on the property as a result of
the exploration performed to date.
Proposed Exploration and Development Program
The Registrant believes that the mineralized material known to exist on the
Chapuzi Property would not be sufficient in itself to justify construction of a
mine at Chapuzi. Consequently the Registrant has initiated field programs to
evaluate the potential of the remainder of the property. The Registrant has
allocated $700,000 from the proceeds of its private placement financings to
conduct such work programs.
The registrant initiated and paid for a Phase I work program to help evaluate
the southern 33 square kilometers of the property, centered over the Chapuzi
Formation, begun in September, 1996. Previous regional geochemical surveys in
this area had defined soil anomalies in gold, copper, lead, zinc and arsenic.
The Phase I work program consisted of the collection of 4,611 soil samples and
259 rock samples on a more detailed 100 meters by 20 meters grid, centered over
the two kilometer wide prospective zone. These samples were analyzed for gold,
arsenic, antimony and zinc. Five gold anomalous zones were defined by this work,
with associated anomalies in arsenic and antimony. The cost of the initial
programs was $114,216. Phase II work programs consisting of the opening of five
trenches across the anomalous zones and later geophysics surveys (Induced
Polarization) were initiated as a follow-up. The new trenches were
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continuously sampled by digging into the bedrock to a 20-80 cm. depth. A total
of 257 samples of 10 m. length were taken and analyzed. Trenches #1, 2 and 3
returned significant anomalies in gold and most of these had associated
anomalous values in arsenic and antimony. A subsequent re-assay on all of the
analyses exceeding 100 ppb gold (i.e., exceeding 0.1 gram per tonne) revealed
that the highest sample value assayed 1.80 grams per tonne. The anomalous zone
defined by the detailed geochemistry and by the follow-up trenching is
approximately 2,000 m. long and up to 140 m. wide. In order to define the zone
at depth in preparation for a diamond drilling program an IP survey was defined.
A total of 3,000 lineal meters of IP survey was laid out over the known
mineralization zone in the northern part of the property and the newly
discovered zone in the southern part of the property. The survey was recently
completed. The results are being interpreted and will play a leading role in
planning a diamond drilling program. Any diamond drilling generated by this work
will likely be expanded to include a program to upgrade information regarding
known deposits of mineralized material. The complete Phase II Budget is as
follows:
PHASE II PROGRAM BUDGET
<TABLE>
<S> <C>
Geological and Metallurgical consulting $50,000
Trenching program 57,000
Geophysics/IP surveys 25,000
Diamond drilling 350,000
Aditing/Underground investigation 150,000
Travel, accommodation, field equipment and 30,000
transport, report preparation
Contingency 38,000
--------
TOTAL PHASE II PROGRAM $700,000
========
</TABLE>
To December 31, 1996, the Registrant has spent approximately $288,617 on the
investigation and exploration of the Chapuzi Property, as follows:
<TABLE>
<CAPTION>
Expenditures AMOUNT
- ------------ ------
<S> <C>
Property Investigation(1) $135,201
Geological Consulting 26,600
Travel and Accommodation 7,198
</TABLE>
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<TABLE>
<S> <C>
Miscellaneous 5,402
Geochemical Survey & Assay 114,216
--------
TOTAL $288,617
========
</TABLE>
(1) Expensed in the year ended December 31, 1996
The Chapuzi Property does not contain a known body of commercial
minerals and the Registrant's proposed work program is an exploratory search
only.
EMPEROR'S DELIGHT PROPERTY
Acquisition
The Registrant acquired its interests in the Emperor's Delight Property pursuant
to the PCR Agreement. See Item 1, "the PCR Agreement". PCR held its interest in
the Emperor's Delight Property through its 60% interest in Temco, which was
operated as a joint venture. The Registrant initially acquired this 60% interest
and later acquired the remaining 40% in Temco from China Clipper Gold Mines,
Ltd., an unaffiliated party, on February 27, 1997, for $175,000. By this
purchase, all co-venture relationships between the parties ended and all of
China Clipper's interests and other rights that it may have held in respect to
the joint venture business were transferred to the Registrant. The Registrant
intends to expend a material portion of the net proceeds of its 1996 private
placements on such property.
The Emperor's Delight Property is the subject matter of a report prepared by
Dr. Wayne Ewert of A.C.A. Howe International Limited dated March 13, 1995 and
updated pursuant to an addendum dated December 9, 1996.
Joint Venture Agreement
The Emperor's Delight Property is the subject matter of the Emperor's Delight
Joint Venture Agreement between Temco and GEC-FGEB, a subsidiary of the Ministry
of Metallurgical Industry. The parties agreed that the total initial investment
and registered capital of the Joint Venture is U.S.$8,000,000. GEC-FGEB has
contributed the exploration rights it holds in respect to the Emperor's Delight
Property as well as all geological data and research results relating thereto,
having a total deemed value of U.S.$3,600,000 (as determined by negotiations
between Temco and GEC-FGEB) and representing a 45% interest in the Joint
Venture. Temco has agreed to fund expenditures up to U.S.$4,400,000 on or before
five years from the date on which the Business License for the Joint Venture was
issued, in order to earn a 55% interest in the Joint Venture. After the
investment of the initial total of
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U.S.$8,000,000, further expenditures will be made by both parties to the extent
of their interests in the Joint Venture. Failure by a party to contribute its
pro rata share of expenditures will result in a dilution of such party's
interests. If a party's interest in the Joint Venture is diluted to a 10%
interest or less, such party's interest shall be converted to a 10% carried
interest. At any particular point in time, Temco's beneficial interest will be
equal to the 55% multiplied by a fraction in which the numerator is the total
expenditures made by Temco to date and the denominator is U.S.$4,400,000.
GEC-FGEB's interest at such point in time will be 100% minus Temco's beneficial
interest.
Notwithstanding that Temco's beneficial interest will not fully vest until it
has funded expenditures totalling U.S. $4,400,000 and provided that Temco
contributes expenditures in a timely fashion under the Agreement, Temco has and
shall continue to have a 55% voting interest in the Joint Venture.
Temco has the right at any time to cap its contributions to the Joint Venture by
written election to GEC-FGEB. On the effective date of the election to cap
contributions, the beneficial interest of Temco shall be frozen at the level
calculated at the completion of the last work program towards which Temco has
completed its contribution. The voting interest of Temco in the Joint Venture
shall also be reduced to the percentage level at which its beneficial interest
has been capped. However, Temco's interest shall be subject to dilution if it
fails to contribute its share of expenditures after the effective date of its
election to cap contributions. In addition, an election by Temco to cap its
contributions will not relieve Temco from liability for its share of
expenditures required pursuant to a previously approved work program or budget.
China Clipper previously owned a forty percent interest in Temco, pursuant to an
earlier agreement with PCR under which China Clipper expended $500,000 on behalf
of Temco. In order to maintain its forty percent interest, China Clipper was
required to contribute 60% of expenditures on behalf of Temco, and the
Registrant was required to contribute 40% of such expenditures, up to a total of
$8,000,000, after which time contributions were to be on the basis of respective
beneficial interests. The amount of a party's beneficial interest was subject to
increase or dilution, depending on each party's election to contribute to
certain voluntary expenditures of Temco. As of April 30, 1996, China Clipper had
paid US$ 396,000 to Temco as part of its $2,640,000 exploration commitment on
the Emperor's Delight property.
The Emperor's Delight Joint Venture Agreement also provides Temco with a right
of first refusal with respect to any proposed disposition by GEC-FGEB of the
Wenjiagou Mine which is located adjacent to the Emperor's Delight Property.
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<PAGE> 38
Pursuant to the Emperor's Delight Joint Venture Agreement, Temco and GEC-FGEB
have created a co-operative joint venture as a separate legal entity, operating
under Chinese law, the English name of which is Chengde Huajia Mining Industry
Co., Ltd. ("Huajia"). The Board of Directors of Huajia, comprised of four
representatives of Temco and three representatives of GEC-FGEB, is responsible
for establishing and implementing policies and for approving programs and
budgets for the Joint Venture. Huajia has opened an office in Chengde City to
conduct the exploration program on the Emperor's Delight Property. A resident
manager and experienced exploration staff have been seconded from GEC-FGEB to
run the programs under the supervision of Colin McAleenan, the Registrant's Vice
President, Exploration. Funds advanced to Huajia by Temco are advanced into an
investment account maintained by Huajia, the authorized signatures on such
account being the Registrant's President, Ken Cai, and a representative of
GEC-FGEB, signing together. Funds from the investment account are transferred as
required and approved by the Board of Directors of Huajia from time to time into
an operator's account to fund ongoing work on the Emperor's Delight Project. The
term of the Emperor's Delight Agreement is thirty (30) years and may be
extended. It is expected that Huajia will also continue the exploration and
development of the Stone Lake and Crystal Valley properties and pursue other
projects in Hebei Province. See "The Crystal Valley Property" and "The Stone
Lake Property" below.
No title opinion or survey in respect to the Emperor's Delight Property has been
obtained by the Registrant.
Location and Description
The Emperor's Delight Property covers a 120 square kilometer area located about
130 kilometers northeast of Beijing in north Chengde region, Hebei Province. The
property, which is easily accessible by road, is approximately 30 kilometers
from a railhead. The main targets on the property are Archean lode gold deposits
or porphyry related gold deposits.
The Emperor's Delight Property lies along the northern margin of the Deep Fault
Zone ("DFZ"), a prominent geologic feature of northeast China, and covers
approximately 25 kilometers of strike length of a fracture system extending from
the village of Wenjiagou in the west to the mining camp of Dong Shan in the
east. The principal bedrock of the area consists of a succession of metamorphic
rocks of Archean age which predominate in the northern portion of the property
that host gold mineralization which is thought to predate later-stage volcanic
activity. Volcanic rocks, which are much later in age and lie to the south, host
silver- bearing, base metal mineralization found in veins.
Exploration and Development History
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Several narrow lead/zinc veins with high grade silver values were exploited by
the Japanese during the occupation of this part of the country during the 1930s
and 1940s. Some of these workings fall within the Emperors Delight Property,
near the eastern boundaries. Gold was first discovered on the Emperors Delight
Property in 1989 as a result of the follow-up of a regional stream sediment
geochemical survey. A number of geochemical anomalies outlined by this survey
were the basis for originally establishing the Emperors Delight Property. To
date, over thirty gold occurrences, hosted within altered and highly fractured
zones, have been found on the property. The general regional trend of this
mineralization is approximately ease- west with two known deposits developed
close to, but outside, the property boundaries, i.e. the northern boundary
(Guzhigou Mine) and the western boundary (Wenjiagou Mine). The Guzhigou Mine was
developed in 1989 and is a 100 tonne per day silver/base metal producer with
minor gold. The Wenjiagou Mine is also a small scale silver/base metal producer,
but with significant gold values. Both of these deposits are narrow vein type
within altered felsic tuffs and breccias. Most of the more recent field work
carried out by the GEC-FGEB concentrated on the HS-141 area, which straddles the
southwest boundary of the property close to the Wenjiagou Mine.
Geology and Mineral Deposits
Regionally the Chengde area hosts base and precious metal mineralization
intimately associated with structural breaks. Archaean age metamorphic rocks
dominate the north portion of the property and have potential to host lode-type,
Archaean gold mineralization. Mesozoic age volcanic rocks dominate the southern
portion of the property and act as potential hosts to secondary, structurally
controlled, silver enriched polymetallic vein mineralization. The Great Wall
Formation, with its overlying sandstone cap, is believed to have acted as
impermeable barrier to rising mineralized fluids along the DFZ. All known
deposits in the region are associated with this formation.
Within the property boundaries, the following three areas are believed to
represent the best potential for the discovery of commercial quantities of
mineralization:
(1) The Porphyry Showing, is found in an area between the Wenjiagou and Guzhigou
deposits and is characterized by a sequence of highly fractured and carbonate
altered, quartz-eye schists. This altered schist unit (25 meters wide) contains
irregular semi-massive sulphide horizons. The sulphide was sampled and returned
values of 0.029 oz. gold per ton, while the altered schist itself assayed 0.079
oz. gold per ton. Some copper staining is present, but the rocks have not been
analyzed for copper. This showing represents a low grade gold, bulk tonnage
target on the property.
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(2) The Yian Tong Shan area is in the central part of the property and contains
at least four vein systems that trend parallel to the DFZ and are characterized
by silver, lead, zinc and gold mineralization. These vein systems define a zone
that is approximately 400 meters wide and 1,500 meters long, containing
individual veins ranging in width from 0.4 to 1.0 meters wide. The individual
veins are spaced from 20 to 30 meters apart with veinlet and disseminated
sulphide mineralization throughout the intervening country rock. These veinlets
are too narrow to be exploited individually. The country rock and sulphide
alteration remains untested in this area The potential for a lower grade bulk
tonnage target is present in the area because of the alteration and
mineralization of the intervening rock mass.
(3) The eastern portion of the property contains a broad zone of mineralization
situated south of the main DFZ. Within this secondary structural feature three
significant zones of mineralization were discovered by stream sediment sampling.
Area I consists of an 1,800 meter long fracture zone maintaining a width of
between 0.5 and 1.0 meter for most of its length. Associated with this fracture
system is a zone of alteration, silification and sericitization of the Mesozoic
volcanic host rock that is 0.5 to 6.-0 meters wide. Within the fracture zone,
mineralization consists of 1 to 3 mm. wide stringers of sulphides at a density
of 6-8 per meter of width. Less frequent and more poorly developed stringers are
present in the alteration envelope. Trench sampling by the GEC-FGEB within the
fracture zone indicates average grades of between 16-40 grams per tonne silver
with no gold and more localized high grade material to 560 grams/tonne silver.
Two known samples of wall-rock yielded gold and silver values. Area II consists
of narrow veins over an 800 meter strike length with grades of up to 49.5 grams
silver per tonne. The mineralization on surface is spotty over this length. Area
III consists of a pair of parallel veins containing semi-massive to massive
pyrite and base metal sulphide mineralization separated by two to three meters
of faulted and altered wallrock. A third vein has been recently discovered 5-10
meters south of the zone and is presently being mined by local farmers. Samples
of this new vein, taken by GEC-FGEB and assayed by them, returned very high
grades of silver and modest gold grades. Samples of this new vein and the
original two veins were taken on a field visit in 1995 by A.C.A. Howe. The high
grade silver values from the new vein were confirmed by XRAL Laboratories in
Toronto, while the other veins returned modest silver values.
Proposed Exploration and Development Program
A multiphased exploration program is proposed to explore the numerous targets on
the Emperor's Delight Property. The Registrant plans to carry out programs of
exploration largely as recommended in the A.C.A. Howe Report which will be
financed by the Registrant.
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As pointed out in the A.C.A. Howe Report the strike extensions of those
structures which give rise to the known mineralized bodies adjacent to the
property (the Guzhigou and Wenjiagou deposits) are prime areas of potential to
host precious and base metals on the Emperor's Delight Property. Also, as
indicated in the A.C.A. Howe Report, the area has only been examined from the
perspective of high-grade vein type mineralization by the local explorers. The
potential for large, lower-grade deposits has not been examined.
With these main considerations in mind, the Registrant has targeted two areas
for more detailed study; the Qiujiayiang Area and the area east of the Guzhigou
Mine.
Qiujiayiang Area (7 sq. km.)
This area lies east of the Wenjiagou polymetallic mine, overlapping with the
HS-141 detailed study area, and is situated between two major faults. There are
some significant geochemical signatures based on widely spaced sampling. The
purpose of this phase of work is to collect data in sufficient detail to allow
definition of mineralized structures for follow up with diamond drilling and/or
adit entry for underground Investigation. The following work is planned:
- - Six profiles will be measured across the structural strike in the area
320 meters apart.
- - Samples of bedrock will be taken at 10 meter intervals within each
profile. Where geology dictates, sample spacing will be tightened to 2-5
meters.
- - IP surveys will be conducted along each profile.
- - Samples of mercury vapor will be collected along each profile.
- - A soil sampling grid at 100 meters x 20 meters will be established
outside the central area to provide coverage for a total of 7 sq. km.
area.
East Guzhigou (4 sq. km.)
This area contains an extension of the main E-W structure being mined at the
Guzhigou Polymetallic Mine. Work planned here is designed to define the
structure under the overburden and to test a significant strike length of the
zone for mineralization.
- - Establish a 100 m x 20 m grid across the main trend.
- - IP survey (100 m x 20 m).
- - Soil geochemical sampling on the same grid.
-41-
<PAGE> 42
All samples collected will be analyzed by atomic absorption methods followed by
a full assay method for values exceeding certain minimum values. A follow-up
diamond drilling program based on positive results is envisaged.
The field work relating to these detailed studies on the aforementioned two
areas of the Emperor's Delight Property has substantially been completed and the
Registrant is currently awaiting analytical results of the samples taken during
such field work. An evaluation of the results of the field work program will be
completed in 1997 after all analytical results are obtained by the Registrant.
If warranted, an attempt to mobilize a follow-up drilling program is anticipated
later in 1997.
To December 31, 1996, on a consolidated basis, the Registrant has spent
approximately $451,392 on exploration of the Emperor's Delight Property, as
follows:
<TABLE>
<CAPTION>
EXPENDITURES AMOUNT
- ------------ ------
<S> <C>
Assaying 39,847
Drilling / Trenching 79,363
Site Vehicles 73,557
Field Office Rent 25,968
Miscellaneous 20,421
Equipment 35,239
Geological Consulting 7,820
Travel and Accommodation 59,856
Labor 55,319
Project Management 10,953
Engineering 16,614
Field-office administration 26,435
--------
TOTAL $451,392
========
</TABLE>
The Emperor's Delight Property does not contain a known body of commercial ore
and the Registrant's proposed work program is an exploratory search only.
LENGKOU PROPERTIES
Acquisition
-42-
<PAGE> 43
following reports of significant illegal gold mining activities along a new
trend in Hebei Province, the Registrant, through Huajia, investigated the gold
potential of the region. four properties were subsequently acquired in the area
by GEC-FGEB on Huajia's behalf. These grassroots exploration projects are to be
legally transferred to the Huajia Joint Venture in 1997. They comprise a total
of over 58 square kilometers.
Exploration and Development History
These properties are on a recently discovered mineralization trend which was
found by the local farmers, rather than by one of the exploration organizations
in China. consequently, there are no records of systematic sampling in the area.
In 1994-1995, villagers began mining strongly oxidized material from several
points along a northwest trending structure. The material was easily mined by
open pit methods and the very fine gold was extracted through standard heap
leach extraction methods. Zones as wide as 80 meters were mined by open pit
methods and some narrower structures were mined by underground methods. Past
regional geochemical surveys did not reveal any geochemical gold anomalies in
the area. The likely explanation for this situation is believed to be that the
sample preparation methods employed in these surveys were designed for the more
common coarse gold type deposits found in the region and not the fine gold found
in these deposits. A Hong Kong based company formed a joint venture with one of
the local governments in the area and began acquiring properties along the
trend. Huajia established criteria for locating favorable ground along the 28
kilometer long trend and began to compete with this company for properties in
1996.
Geology and Mineral Deposits
The gold mineralization located to date along the trend is associated with a
brecciated Proterozic aged limestone unit. The limestone unit belongs to the
Great Wall Formation which is associated with many of the conventional gold
deposits in this part of Hebei Province. The northwest structural trend appears
to be related to a tangential fault to a large Cretaceous aged intrusive body
located to the north-northeast of the area. Each of the four properties is
underlain by coincident, regional northwest trending structures and the
prospective limestone unit.
Exploration and Development Plan
Reconnaissance exploration programs including geological mapping and
lithogeochemical sampling have been completed on each of these properties.
Follow-up geochemical surveys and geophysical surveys are underway on some
target areas within the properties. If results from these surveys are
encouraging, percussion and/or diamond drilling programs will follow. A budget
of $150,000 was allocated to cover the initial exploration expenditures on these
four
-43-
<PAGE> 44
properties. Any subsequent drilling program will be budgeted separately.
The Lengkou Properties do not contain a known body of commercial ore and the
Registrant's program is an exploratory search only.
CHANGBA-LIJIAGOU PROPERTY
Acquisition
Baiyin Non-Ferrous Metals Company ("Baiyin") is the largest subsidiary of the
China National Non-Ferrous Metals Industry Corporation (CNNC) and in 1994 had
revenues exceeding $500 million. Baiyin is seeking foreign partners with capital
and expertise to expand production at its mining and smelting operations, and in
response to this the Registrant, through the PCR Agreement, became involved in
the Changba-Lijiagou project.
The Registrant acquired its interest in the Changba-Lijiagou Property pursuant
to the PCR Agreement. See Item 1 - "The PCR Agreement" above. The consideration
payable to PCR by the Registrant for the Changba-Lijiagou, the Stone Lake and
the Crystal Valley Properties consisted primarily of 4,880,000 escrow shares
which will only be released upon the Registrant satisfying certain earn-out
requirements (see Item 4 - "Performance Shares or Escrow Securities").
The Changba-Lijiagou Property is the subject matter of a report prepared by H.A.
Simons, Ltd. entitled "Technical Site Visit to Smelters and Mine Facilities of
Baiyin Non-Ferrous Metals Corporation, Ganzu Province, People's Republic of
China" dated December 9, 1996 (the "Simons Report").
The original letter of intent which comprised the CBLG Agreement and which was
assigned to the Registrant pursuant to the PCR Agreement has been replaced by a
Co-operation Agreement dated October 18, 1996 made between the Registrant and
Baiyin (the "CBLG Co-operation Agreement"). Teck Exploration Ltd. which was a
party to the original CBLG Agreement has elected not to become a party to the
CBLG Co-operation Agreement and has waived all interest in the property. Cominco
Ltd., which also had an interest in the properties, has waived all rights to
such interests.
The CBLG Co-operation Agreement, which has recently been amended, grants the
Registrant an exclusive right to acquire a 75% interest from Baiyin in the
Changba-Lijiagou lead-zinc deposits located in Gansu Province, China. Under the
CBLG Co-operation Agreement, Baiyin has agreed to prepare a detailed
application for approval of a joint venture to the appropriate governmental
authorities. After approval of the joint venture, the Registrant will be able
to earn a 75% equity interest in the joint venture company by placing the
property in production at a rate of 3,500 tonnes per day. The amount of capital
required is yet to be determined. Baiyin is contributing the resources defined
in the deep Changba area, the Lijiagou area and the Joint Area (all part of the
Changba-Lijiagou property), the on-site 3,500 tonnes per day mill, the tailings
disposal site and all related infrastructure. It is intended that the parties
will enter into an equity joint venture through a new Chinese limited liability
company. The joint venture agreement, once established, will have a term of 30
years.
-44-
<PAGE> 45
an independent valuation of the project and through negotiation. Upon agreement
the parties will enter into an equity joint venture through a new Chinese
limited liability company. The joint venture agreement, once established, will
have a term of 30 years.
A title opinion in respect to the Changba-Lijiagou Property has not been
obtained by the Registrant.
Location and Description
The Changba-Lijiagou lead-zinc deposits are located approximately 350 kilometers
east of Lanzhou, the provincial capital of Gansu Province. This region has
temperate climate. The area attains elevations of approximately 2,000 meters
with local relief of between 800 to 1,000 meters. The hills are vegetated and
terraced and the valleys are fertile.
Infrastructure is generally well developed in the region. Power is made
available to the Changba mill site from the national power grid. Water supply is
plentiful. The town of Changba existed prior to the mine but has been enlarged
to accommodate the 800 employees and their families. Services supported by the
mine include schools and a hospital.
The deposits consist of a series of moderately to steeply dipping massive and
semi-massive sulphide lenses contained within a Devonian age sequence of
metamorphosed carbonate and clastic rocks. The primary sulphide minerals are
pyrite, sphalerite and galena.
The open pit Changba Mine is located two kilometers south of the concentrator
facilities. A two kilometer haulage tunnel is used to transport the ore to the
concentrator from the pit. The Lijiagou deposits are located less than two
kilometers east of the Changba pit and are expected to be mined by underground
mining methods.
The concentrator comprises a conventional flotation circuit producing selective
lead and zinc concentrates from the treatment of the Changba ore. The present
capacity is being expanded to handle 3,500 tonnes of ore per day. The expansion
forms part of the planned Phase II development. Concentrates are first
transported by truck to a railhead (138 kilometers) and then on to Baiyin's
smelters in Baiyin City, Gansu Province, a total distance of 400 kilometers from
the mine site. The transfer station at the railhead at Tian Shui has an annual
capacity of 200,000 tonnes of concentrate. Baiyin is planning to construct a new
transfer station facility capable of handling 500,000 tonnes per year.
-45-
<PAGE> 46
Exploration and Development History
Baiyin has been operating in the area since its foundation in 1943 when it was
exploiting two open pit copper deposits. These open pit copper mines have long
since gone underground and reserves are practically exhausted. Attempts to find
additional copper reserves in the area have failed and more recently Baiyin has
been concentrating on developing the lead-zinc resources of the region.
The Changba-Lijiagou deposits were first drilled in 1966. Since that time a
large database of analytical results from hundreds of diamond drill holes and
underground sampling programs has been built up. These data support the current
reserve calculation. The completion of Phase I of the project development in
1988 entailed the stripping of waste from the Changba pit and the installation
of a flotation milling facility on the site. The production capacity is being
raised from its initial planned 1,500 tonnes per day to 3,500 tonnes per day as
part of the Phase II capital expansion program. The underground reserves at
Lijiagou have not been developed, but form part of the Phase III expansion
expected to be in operation early in the next century.
Geology and Mineral Deposits
The Changba and Lijiagou deposits on the property are either Sedex or
Mississippi Valley type lead-zinc deposits. They bear some similarities to the
lead-zinc deposits of Ireland. These two deposits occur in the Ii Chang Ore
Field, which is a mineralized zone measuring approximately 100 kilometers
east-west by 30 kilometers north-south, and which contains a large number of
similar deposits. At least five of these other deposits are in production and
two of them appear to contain significant reserves. Baiyin only operates the
Changba open pit mine and plans to develop the Lijiagou deposit into an
underground mining operation. The deposits consist of a series of stratabound,
well banded to disseminated sulphide lenses. Lenses are up to 1,000 meters long,
1 to 70 meters thick and have been traced by drilling to 650 meters down dip.
The mineralization is hosted in metamorphic carbonate and clastic rocks of mid
Devonian age. The rocks have been folded along an east-west axis and have been
metamorphosed to an upper greenschist assemblage. The carbonate rocks are now
marbles ant the clastic rocks have been changed to quartz-biotite schist and
quartzite. The deposits are on the north limb of a large antiform structure, the
sulphide-rich lenses have been overturned and maintain southerly dips of 40 to
85 degrees. The shallower dips are mainly found at Changba, i.e. in the area of
the open pit. The main sulphides are fine to coarse pyrite, sphalerite and
galena in a gangue of quartz, mica and calcite. Other contained metallic
elements are silver, cadmium, gallium, germanium, indium and tellurium. A series
of north-east trending faults cut the stratigraphy in the area of the Changba
mine. One of these faults separates the Changba and Lijiagou deposits. The
Lijiagou deposits appear to be a continuation of the Changba deposits across
this reverse fault. At least ten mineralized zones have been defined at Changba,
however,
-46-
<PAGE> 47
the bulk of the reserves are contained in Zones I and II. Based on the estimate
made by Baiyin in January 1995, the remaining Minable Reserve for the Changba
deposit is 19,550,000 tonnes, 1.51% lead and 9.29% zinc.
Lijiagou lies along strike to the east of the Changba deposits and consists of
three steeply dipping sulphide lenses. All zones dip at 75 to 80 degrees to the
south. The Minable Reserve for Lijiagou was re-calculated by Baiyin in late 1995
as being 13,560,000 tonnes, 2.10% lead and 12.48% zinc. The exploration
potential in the immediate vicinity of the Changba-Lijiagou deposits is
considered good as both deposits are open down dip. In addition, there is some
evidence that further deposits are located in the area between both deposits.
Illegal mining activity along strike to the ease of the Lijiagou deposit bodes
well for exploration potential in this area also.
Proposed Exploration and Development Program
The Registrant has allocated $600,000 from the proceeds of its 1996 private
placements to conduct preliminary assessments of the Changba and Lijiagou
deposits as recommended in the CBLG Technical Report. These pre-feasibility
studies will include evaluation of the accuracy of the current information
regarding deposits of mineralized material, as well as the need for, and the
extent of, an infill diamond drilling program on the deposits. More detailed
recommendations are contained in the report prepared by H.A. Simons Ltd. titled
"Proposed Development Strategy for the Lijiagou Underground Mine":
The recommendations are broken into two groups or phases. The first phase
encompasses those activities which should be undertaken to enable the completion
of a preliminary economic analysis of the property. All costs are estimates
only.
The second group encompasses those activities which would form the logical "next
step" for the investigation of the property, provided the economic analysis is
favorable. No costs have been calculated for the second phase of this work.
<TABLE>
<CAPTION>
PHASE I
<S> <C> <C>
Metallurgical $120,000
Geology $260,000 (including limited diamond drilling to confirm
Baiyin drilling, to provide core for geotechnical core
logging, ore body definition and continuity and
geological and grade modelling of the deposit)
Mining $70,000
</TABLE>
-47-
<PAGE> 48
<TABLE>
<S> <C>
Geotechnical $40,000
Revenue Study $10,000
Other $90,000 (concentrate haulage and infrastructure studies)
--------
TOTAL $590,000
</TABLE>
This work is expected to extend over a period of 12 - 18 months. H.A. Simons
Ltd. has just recently started the construction of an economic model of the
project to generate the revenue study.
To December 31, 1996, the Registrant has spent approximately $27,965 on the
exploration and development of the Changba-Lijiagou Property, as follows:
<TABLE>
<CAPTION>
EXPENDITURES AMOUNT
- ------------ ------
<S> <C>
Geological Consulting $10,862
Travel and Accommodation 0
Labor 0
Licenses & Permits 0
Property Investigation 0
Assaying 0
Engineering 17,103
-------
TOTAL $27,962
=======
</TABLE>
The Changba-Lijiagou Property is known to contain commercial lead-zinc deposits.
The Registrant's work program is designed to assess the accuracy of the current
estimates regarding such deposits and to identify additional deposits.
STONE LAKE PROPERTY
Acquisition
The Registrant acquired its interest in the Stone Lake Property pursuant to the
PCR Agreement. See Item 1 - "The PCR Agreement" above. The consideration payable
to PCR by the Registrant for the Stone Lake, Changba-Lijiagou and Crystal Valley
Properties consisted primarily of 4,880,000 escrow shares which will only be
released upon the Registrant satisfying certain earn-
-48-
<PAGE> 49
out requirements (see "Item 4 - "Performance Shares or Escrow Securities"). The
Stone Lake Property is the subject matter of a report prepared by Dr. Wayne
Ewert of A.C.A. Howe International Limited dated March 13, 1995 and updated
pursuant to an addendum dated December 9, 1996.
As discussed under the heading "Emperor's Delight Property" above, the
Registrant has certain rights in respect to this property under the FGEB
Co-operation Agreement. This agreement provides Temco with an "exclusive right"
to negotiate and enter into a Joint Venture Contract with GEC-FGEB with respect
to the Stone Lake Property located in Hebei Province, China (as well as the
Emperor's Delight and Crystal Valley prospects) providing for a 55% interest in
the project in favor of Temco. Detailed study of this area has just begun
pursuant to the FGEB Co-operation Agreement. The expenditure requirements on the
Stone Lake Property are to be formulated in a Joint Venture Agreement to be
negotiated with GEC-FGEB in 1997 (for further details regarding the FGEB
Co-operation Agreement see "Emperor's Delight Property"). Although it is
currently the unwritten policy of the Chinese government that Chinese entities
be given preference over foreign entities in developing high-grade easily
minable ore deposits, such as the Stone Lake deposit it is expected that new
regulations to be formulated in 1997 pursuant to the new Mineral Resources Law
of China will remove such restrictions on foreign investment.
No title opinion or survey in respect to the Stone Lake Property has been
obtained by the Registrant.
Location and Description
The Stone Lake Property lies about 320 kilometers south of Beijing in the
northwest part of Lingshou county, Hebei Province, and is situated about 96
kilometers northwest of Shijiazhuan City, the capital of Hebei province.
Shijiazhuan is a major train station on the Jin-Guan railway and two major
roads, the Shijiazhuan-Datong and Shijiazhuan-Fuping highways, pass within
several kilometers of the property. Secondary roads off these main highways
provide excellent access to the property. The local infrastructure is
acceptable.
The property covers a 120 square kilometer area, consisting of the following
three detailed study sections: Shihu, Tolin, and Dahuang Shang.
The property lies at the central portion of the Taihang mountain chain at an
altitude varying from 600 to 995 meters above sea level. The region is
characterized by medium to low mountainous terrain and a continental, semi-arid
climate. Vegetation is not well developed due to a poor soil cover and
widespread exposure of bedrock. The property covers a 120 square kilometer area
with the focus of work currently on three detailed study areas. Since 1981,
reconnaissance exploration
-49-
<PAGE> 50
has revealed a large number of quartz vein structures. Virtually all detailed
exploration work, including diamond drilling and exploration drifting and
sampling, has concentrated on two of these structures, the No. 116 and the No.
101 veins. All of the established resources on the property are present on these
two structures. The Stone Lake Project displays significant local and regional
exploration potential and a multi-phase exploration program has been recommended
by A.C.A. Howe in its evaluation Report dated March 13, 1995. The Registrant
will not expend significant funds, nor will it allocate further funds to the
Stone Lake Property, until such time as it has had an opportunity to review and
assess the pending regulations supporting the new Mineral Resources Law,
expected to be released in late 1997. The Registrant hopes to see clear policy
by the Chinese government on the exploitation of high-grade, easily minable gold
deposits by foreign entities. Previously, foreign entities have been excluded
from participating in the exploitation of such deposits. To December 31, 1996,
the Registrant has spent no funds on the acquisition and exploration of the
Stone Lake Property.
Exploration and Development History
In the early 1980's the GEC-FGEB conducted a regional geological prospecting and
mapping survey over a 35 square kilometer area south of the Mapong intrusive to
search for gold-bearing quartz veins.
From 1981 to 1983, the study identified approximately 23 major vein structures,
including the No. 101 and No. 116 veins, the two most promising structures
discovered to date. Subsequently, the survey area was expanded and a
reconnaissance exploration program was undertaken to document the distribution,
size, quality and quantity of all quartz veins within the 120 square kilometer
area surrounding the Stone Lake Property. A total of over 242 individual vein
structures have been discovered. Only reconnaissance exploration has been
conducted on any of these peripheral veins. Virtually all exploration efforts
have concentrated on delineating potential deposits on the No. 101 and No., 116
veins. Detailed geological, geophysical and geochemical exploration on these two
veins was carried out from 1984 to 1987. Diamond drilling and underground
exploration of veins No. 101 and No. 116 was conducted intermittently from 1988
to 1993.
Proposed Exploration and Development Program
The Stone Lake property does not contain a known body of commercial ore and any
work program on the property will be designed to define such a body. The
property displays significant exploration potential and a multi-phase
exploration program has been recommended by A.C.A. Howe in its evaluation Report
dated March 13, 1995. The Registrant will not expend significant funds, nor will
it allocate further funds to the Stone Lake Property, until such time as it has
had an opportunity to review and assess the pending regulations supporting the
new Mineral Resources
-50-
<PAGE> 51
Law, expected to be released in late 1997. The Registrant hopes to see clear
policy by the Chinese government on the exploitation of high-grade, easily
minable gold deposits by foreign entities. Previously, foreign entities have
been excluded from participating in the exploitation of such deposits.
To December 31, 1996, the Registrant has spent no funds on the acquisition and
exploration of the Stone Lake Property.
CRYSTAL VALLEY PROPERTY
Acquisition
The Registrant acquired its interest in the Crystal Valley Property pursuant to
the PCR Agreement. See Item 1 - "The PCR Agreement", above. The consideration
payable to PCR by the Registrant for the Crystal Valley, the Changba-Lijiagou
and the Stone Lake Properties consisted primarily of 4,880,000 escrow shares
which will only be released upon the Registrant satisfying certain earn-out
requirements (see Item 4 - "Performance Shares or Escrow Securities"). The
Crystal Valley Property is the subject matter of a report prepared by Dr. Wayne
Ewert of A.C.A. Howe International Limited dated March 13, 1995 and updated
pursuant to an addendum dated December 9, 1996.
As discussed under the heading "Emperor's Delight Property" above, PCR has
certain rights in respect to this property under the GEC-FGEB Co-operation
Agreement. This agreement provides Temco with an "exclusive right" to negotiate
and enter into a Joint Venture Contract with GEC- FGEB with respect to the
Crystal Valley Property in Hebei Province, China (as well as the Emperor's
Delight and Stone Lake prospects) providing for a majority interest in the
project in favor of Temco. The expenditure requirements are to be set forth in a
Joint Venture Agreement to be negotiated with the GEC-FGEB in 1997 (for further
details regarding the FGEB Cooperation Agreement see "Emperor's Delight
Property"). Although it is currently the unwritten policy of the Chinese
government that Chinese entities be given preference to foreign entities in
developing high-grade easily minable ore deposits, such as the Crystal Valley
deposit, new regulations to be published pursuant to the Mineral Resources Law
of China may remove such restrictions on foreign investment.
No title opinion or survey in respect to the Crystal Valley Property has been
obtained by the Registrant.
Location and Description
-51-
<PAGE> 52
The Crystal Valley Property consists of a 120 square kilometer area granted to
the Ministry of Metallurgical Industry, the Chinese ministry responsible for
much of China's gold production, that is located approximately 110 kilometers
north of Beijing in Chongli County, Hebei Province. Road access to the property
is very good and the local infrastructure such as electricity, water,
transportation and labor is adequate.
The Crystal Valley Property lies in a semi-arid mountainous terrain at an
altitude that varies from 1,000 to 1,600 meters above sea level. The Qinshui
river which lies 1.5 kilometers east of the property provides the area with a
stable, year round water supply. The region has a moderately severe winter
season which produces a maximum freezing depth of 2 meters. Agriculture is the
predominant form of employment in the region although there is a locally diverse
mining and manufacturing base including gold mines, coal mines and large cement
plants, which are all operated by local governments.
Exploration and Development History
Early reconnaissance work in this region (1986) consisted mainly of regional
stream sediment surveys. The results of these surveys indicated that gold
deposits in this region are closely related to the stream sediment anomalies.
The Crystal Valley Property was established as a result of a regional survey in
order to investigate one of the larger anomalies. Based on the magnitude of the
geochemical anomalies, the area is considered to have excellent potential to
host significant gold mineralization. The gold deposits in the region are
generally of vein type, usually associated with the Cretaceous age igneous
intrusive rocks. On the property, the mineralized structures dip at
approximately 70 degrees and are persistent features with strike lengths of up
to 3,000 meters and have average widths of about 13 meters. There have been
twenty such structures identified on the property and no deposit definition work
has been attempted on eighteen of these. Only the No. 2 vein and parts of the
No. 3 Vein, have been fully explored and, in keeping with traditional Chinese
practice, just to a depth of 300 meters. To date a total of over 20 major veins
have been identified on the property, with ten of these initially selected for
further detailed evaluation or exploration stage work.
Geology and Mineral Deposits
The Crystal Valley property does not contain a known body of commercial ore and
any work program on the property will be designed to define such a body. The
property displays significant local and regional exploration potential and a
multi-phase exploration program has been recommended by A.C.A. Howe in its
evaluation Report dated March 13, 1995. The Registrant will not expend
significant funds, nor will it allocate further funds to the Crystal Valley
Property, until such time as it has had an opportunity to review and assess the
pending regulations
-52-
<PAGE> 53
supporting the new Mineral Resources Law, expected to be released in late 1997.
The Registrant hopes to see clear policy by the Chinese government on the
exploitation of high-grade, easily minable gold deposits by foreign entities.
Previously, foreign entities have been excluded from participating in the
exploitation of such deposits.
To December 31, 1996, the Registrant has spent no funds on the acquisition and
exploration of the Crystal Valley Property.
OTHER PRC PROPERTIES OF THE REGISTRANT
Tian Shan (or "Heavenly Mountains") Properties
The May 27, 1996 Co-operation Agreement with the Xinjiang Bureau of the Ministry
of Geology and Mineral Resources ("MGMR-Xinjiang") gives the Registrant an
exclusive right to choose specific areas, from within six property areas
covering over 36,000 square kilometers of the Tian Shan, or "Heavenly
Mountains", on which to negotiate joint venture agreements.
Xinjiang Uygur Autonomous Region of Northwestern China is a neighbor to the
Central Asian Republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.
This area of Asia, and in particular the geologic terrane known as the Tian Shan
Orogenic Belt, hosts exceptional mineral deposits.
In the Chinese Tian Shan, the six properties cover relatively unexplored ground
which has the same geologic terrane that hosts the mineral deposits in the
neighboring Central Asian Republics. In this region of China, however, very
little mineral exploration has taken place. The six designated property areas in
Tian Shan are defined by the following sets of coordinate points:
-53-
<PAGE> 54
<TABLE>
<CAPTION>
=============================================================================================================================
AREA NAME AREA LATITUDE/LONGITUDE POINTS ON BOUNDARY APPROXIMATE SIZE (KM2)
NUMBER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wulansayi 1 N42 Degrees 00'00"/E84 Degrees 45'00" 11,000
N42 Degrees 37'00"/E86 Degrees 00'00"
N42 Degrees 37'00"/E84 Degrees 00'00"
N42 Degrees 00'00"/E86 Degrees 00'00"
N42 Degrees 57'00"/E84 Degrees 41'00"
N42 Degrees 25'00"/E84 Degrees 45'00"
- -----------------------------------------------------------------------------------------------------------------------------
Baluntai 2 N43 Degrees 00'00"/E86 Degrees 00'00" 2,950
N42 Degrees 40'00"/E86 Degrees 00'00"
N43 Degrees 00'00"/E86 Degrees 30'00"
N42 Degrees 40'00"/E86 Degrees 30'00"
- -----------------------------------------------------------------------------------------------------------------------------
Aikendaban 3 N43 Degrees 37'00"/E84 Degrees 00'00" 9,200
N43 Degrees 00'00"/E84 Degrees 00'00"
N43 Degrees 00'00"/E86 Degrees 00'00"
N43 Degrees 20'00"/E86 Degrees 00'00"
- -----------------------------------------------------------------------------------------------------------------------------
Kushitai 4 N42 Degrees 19'00"/E81 Degrees 05'00" 6,750
N42 Degrees 36'00"/E82 Degrees 00'00"
N43 Degrees 13'00"/E82 Degrees 45'00"
N42 Degrees 26'00"/E82 Degrees 00'00"
N42 Degrees 41'00"/E82 Degrees 45'00"
N42 Degrees 45'00"/E81 Degrees 05'00"
- -----------------------------------------------------------------------------------------------------------------------------
Muzhate 5 N42 Degrees 46'00"/Ntl. Boundary with Kazakhstan 3,590
N42 Degrees 16'00"/Ntl. Boundary with Kazakhstan
N42 Degrees 46'00"/E81 Degrees 00'00"
N42 Degrees 16'00"/E81 Degrees 00'00"
- -----------------------------------------------------------------------------------------------------------------------------
Yishijilike 6 N42 Degrees 46'00"/Ntl. Boundary with Kazakhstan 2,750
N42 Degrees 16'00"/Ntl. Boundary with Kazakhstan
N42 Degrees 46'00"/E81 Degrees 00'00"
N42 Degrees 16'00"/E81 Degrees 00'00"
- -----------------------------------------------------------------------------------------------------------------------------
APPROXIMATE TOTAL AREA = 36,240 KM2
=============================================================================================================================
</TABLE>
To the best of the Registrant's knowledge, the MGMR-Xinjiang is the single
largest player in Tian Shan and it believes that most of the ground covered by
the six properties is under the control of the MGMR-Xinjiang. The Registrant's
agreement with the MGMR-Xinjiang protects these six areas from encroachment by
other foreign companies. All open ground and existing MGMR-
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<PAGE> 55
Xinjiang projects within these areas can be the subject of joint ventures with
the Registrant after the Registrant has reviewed all available Chinese data,
generated its own data and ultimately makes a decision regarding which specific
detailed areas are to be applied for at the 1:10,000 scale. Once the
Registrant chooses the specific detailed project areas, each constituting
blocks of approximately 100 square kilometers area, applications will be filed
with the authorities in Xinjiang and with the Central Government in Beijing.
Upon approvals, these areas will be fully protected and the Registrant can
explore for and develop mineral deposits on the property.
The co-operation agreement gives the Registrant the exclusive right to
negotiate and enter into joint venture contracts wherein the Registrant can
earn a 76% equity interest in joint ventures relating to the specific chosen
detailed project areas by investing yet-to-be defined amounts in these
projects. The amounts will be determined following an independent valuation of
the projects and by negotiations, to be conducted after receiving appropriate
governmental approvals to enter into the joint venture agreements.
The Registrant has agreed to examine all available data and information with
respect to the properties in a timely fashion and confirm to MGMR-Xinjiang its
level of interest in the properties. The Registrant has assembled as much data
as possible on each of the designated areas covered by the agreement. This
data acquisition included: regional scale geochemical data from the MGMR;
remote sensing data from Canadian, American and/or Chinese suppliers; and the
processing of this data to generate new information on these areas. The
Registrant has combined all of the ground information with the satellite remote
sensing data to help choose the specific areas for joint venture agreements
with the MGMR. The Registrant cannot formulate proposals for field programs
until it knows what work has been completed to date. Much of this information
will be available after the Registrant signs the next agreements with the
MGMR-Xinjiang.
To date, the Registrant's geologists have extensively reviewed Landsat TM
remote sensing satellite data to help define exploration targets. This work
has lead to the expedient and cost-effective identification of eleven specific
detailed project areas having iron-oxide and clay alteration anomalies;
features which are commonly associated with gold mineralization. Most of these
alteration zones are coincident with structural features (also visible on the
Landsat imagery) and with regional geochemical gold anomalies previously
identified by the MGMR-Xinjiang.
As its contribution in the joint ventures, for a 24% interest, MGMR will
contribute its interest in the properties including the exploration permits for
the properties, and the data and results which have been collected or created
to date on the properties. The Registrant will contribute to the joint
ventures certain advanced equipment and technology for mineral exploration,
development and production phases. After a feasibility study has been
conducted, all capital required will be contributed as to 19% by MGMR-Xinjiang
and as to 81% by the Registrant in order to maintain
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<PAGE> 56
their respective 24% and 76% equity interest in each joint venture. The term
of the joint ventures shall continue for a period of thirty years from the date
upon which the joint ventures is established.
Preliminary reconnaissance fieldwork commenced on several of the properties in
the summer of 1997. Results from this work are being evaluated. The
Registrant had allocated approximately $250,000 from the proceeds of its 1996
private placements for investigative costs, but believes that actual costs will
exceed this amount.
No title opinion or survey in respect to the Tian Shan Properties has been
obtained by the Registrant.
To December 31, 1996, the Registrant has spent and deposited for further
expenditures a total of approximately $153,303 for the exploration of the Tian
Shan Properties, as follows:
<TABLE>
<CAPTION>
EXPENDITURES AMOUNT
------------ ------
<S> <C>
Deposit $68,801
Remote Sensing 22,528
Geological Consulting 31,420
Travel and Accommodation 24,572
Other Expenditures 5,982
-------
TOTAL $153,303
========
</TABLE>
Xifanping Property
In October of 1996, the Registrant entered into a Letter of Intent with the
Sichuan Bureau of the Ministry of Geology and Mineral Resources
("MGMR-Sichuan") regarding the Xifanping copper-gold porphyry project in
southwest Sichuan Province (the "Xifanping Project"). This Letter of Intent
marks the second agreement between the Registrant and MGMR-Sichuan, the first
agreement being in respect to the Chapuzi Property.
The Xifanping Project covers a 50 square kilometer area hosting numerous
porphyry systems and is located about 130 kilometers southwest of the city of
Zichang in south central China. The property is situated within the same
mineralization belt that hosts the Yulong copper porphyry deposit.
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<PAGE> 57
Pursuant to the Letter of Intent, the MGMR-Sichuan began a program of detailed
geological mapping, soil sampling and induced polarization surveys to cover the
entire Xifanping Project area. The Registrant is providing consulting and
direction to the programs, which are scheduled for completion in 1997. The
Registrant has until November, 1997 to review all data and make a decision
regarding further participation in this project. If the Registrant elects to
proceed with the project, the Registrant will be granted an exclusive right to
the project. The Registrant anticipates that an agreement similar to the
Chapuzi property agreement may be reached, whereby the Registrant can earn a
75% interest by placing the property into production.
The Registrant does not intend to expend a material portion of the proceeds of
its 1996 private placements on the Xifanping Project over the next twelve
months.
The registrant holds rights of first refusal on all Sichuan Province projects
owned or generated by the Sichuan Bureau of the Ministry of Geology and Mineral
Resources ("MGMR-Sichuan"). Pursuant to these rights, the Registrant will
conduct, from time to time, project evaluations in the province of Sichuan for
possible acquisitions. The Registrant is also searching for a suitably
advanced gold project in other parts of China.
WHITE SILVER MOUNTAIN PROPERTY
On November 17, 1997, the Registrant entered into a Cooperation Agreement for
Mineral Exploration and Development with Baiyin Non-Ferrous Minerals Corporation
("Baiyin"). The agreement provides for formation of a joint venture to be 80%
owned by the Registrant to exploit mineral resources in an approximately 35
square kilometer area located in the Baiyin region of Gansu Province, China.
Baiyin will contribute the property, mineral rights on the property (including
discovery rights, exploration permits and privilege mining rights, and data and
results which has been collected or created to date on the property. The
Registrant can earn its 80% interest by contributing certain advanced equipment
and capital, in an amount not yet determined, necessary to undertake an
exploration program and feasibility study as to one mineral deposit on the
property. The area subject to the agreement includes exploration areas in and
around a number of past and present producing properties in the vicinity of
Baiyin City, but does not include any mineralized body of proven commercial
value. It does cover dip and/or strike extensions of known deposits which have
been or are known producers. No firm plans or expenditures have yet been fixed
by the Registrant for this project. Early in 1998, The Registrant will
commission a geological study of the region to assess its overall exploration
potential.
SAVOYARDINSKI GOLD PROJECT, KYRGYZSTAN
Acquisition
The Registrant has entered into an agreement with the South Kyrgyz Geological
Expedition ("SKGE") and Magko, a Moscow based mineral exploration company, on a
1,800 square kilometer property abutting the Chinese border in southern
Kyrgyzstan. The joint ownership, with Minco having an 80% interest, SKGE with
a 10% interest and Magko with a 10% interest has been granted a License for
Mineral Wealth Usage Rights by the Kyrgyz government, that expires on December
31, 1999. The Registrant has agreed to fund all exploration on the property
for the three year term of the license. The costs of acquiring the permit have
been the payment of US $50,000 for the preparation of the submission to the
Kyrgyz government to support the application for the license, a US $35,000 cash
payment and 35,000 common shares of the Registrant's stock, paid to a third
party as a finder's fee. following direct expenditures of US $1,000,000 on the
property, an additional 75,000 common shares of the Registrant's stock is
payable; following aggregate expenditures of US $2,000,000 on the property a
final payment of 75,000 common shares of the Registrant's stock is payable as
the finder's fee.
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<PAGE> 58
Location and Description
The property is located in the Osh Oblast of South Kyrgyzstan and abuts the
border with China. The region is situated on the northern slopes of the
Aleiskii Range within the Tian Shan Mountain belt. The region has been
geologically mapped to a scale of 1:50,000, completed in 1980, with localized,
more detailed mapping, to the 1:5,000 and 1:2,000 scales. The property does
not include the area of the Savoyardy gold/antimony deposits, which comprises
an approximately five square kilometer mining permit area totally enclosed by
the Savoyardinsky property. The mining permit holder is the Kadamdjai Antimony
Combine of Kyrgyzstan. The area is typically mountainous with maximum
elevations to about 3,600 meters. Access from the regional capital of Osh is
provided by a reasonable network of roads through the property. The Registrant
sought the property in 1996 after learning about a substantial gold find on the
Chinese side of the border. The Chinese discovery, a couple of kilometers
inside the border, trends northeast across the border and into Kyrgyzstan. The
Registrant sought and acquired the ground covering the strike extension of the
Chinese discovery.
Geology and Mineral Deposits
The area is underlain by Paleozoic and Mesozoic aged rocks. The Paleozoic
rocks are primarily Silurian to Carboniferous volcanoclastic and carbonate
sequences while the Mesozoic is represented mostly by Lower to Middle
Cretaceous sediments. Jurassic sediments are also present but are poorly
represented and are not considered to have any mineralization potential. The
area is subdivided by northeast trending regional faults. Each of these
tectonic zones is characterized by its own metallogeny. For instance, the
Irkesh-Savoyardy belt in the southeast corner of the property is characterized
by the presence of antimony-gold-polymetallic mineralization. The Cretaceous
sediments of the Oitalsky trough contain copper mineralization within the
so-called blue-horizon. However, there are no known commercial mineral
deposits on the property.
Exploration and Development Plan
The Registrant intends to fund an evaluation of the gold potential of the
property. Initially, the efforts will concentrate on locating the extension of
the Chinese deposits across the border. The initial exploration methods to be
used are geological mapping, geochemical sampling and geophysical surveying
(most likely to be induced polarization methods) is greater than
These surveys will be conducted during 1997/1998. If suitable targets are
discovered, drilling will commence in 1998/1999. To maintain the property in
good standing, the Registrant must spend US $180,000 per annum (i.e. US $100 per
square kilometer per year). This will be the exploration budget for each of the
first two years of the program. A separate budget for diamond drilling will be
established following the definition of suitable targets.
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<PAGE> 59
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Registrant, or any of its
subsidiaries, is a party to, or to which any of their properties is subject.
ITEM 4. CONTROL OF REGISTRANT.
As far as known to the Registrant, and except as disclosed herein, the
Registrant is not directly or indirectly owned or controlled by another
corporation(s) or by any foreign government. As disclosed below, Pacific Canada
Resources Inc., a private company controlled by a director and a former
director of the Registrant, owns approximately 49.5% of the issued and
outstanding shares of the Registrant's common stock.
The following table sets forth, as of January 21, 1998, information with
respect to (i) any person who is known to the Registrant to be the owner of
more than 10% of any class of the Registrant's outstanding voting securities
and (ii) the total amount of any class of the Registrant's voting securities
owned by the officers and directors as a group.
<TABLE>
<CAPTION>
Title of Class Identity of Holder Amount owned Percent of Class
<S> <C> <C> <C>
Common Shares Pacific Canada Resources 7,030,000 45.7%
Inc.(1)
Common Shares All officers and 7,530,167(2) 49%
directors as a group,
(seven persons)
</TABLE>
1. Ken Cai a director and officer of the Registrant, and Donald
Hicks, a former director and officer of the Registrant,
collectively are the beneficial owners of 56% of Pacific
Canada Resources Inc., a private company. See Item 10 and
Item 13.
2. includes Ken Cai's and Donald Hicks's 56% beneficial interest
in shares owned by Pacific Canada Resources, Inc.
PERFORMANCE SHARES OR ESCROW SECURITIES
Currently, there are a total of 5,442,500 common shares of the Registrant held
at Montreal Trust Company of Canada, 510 Burrard Street, Vancouver, British
Columbia, subject to escrow share restrictions under a Performance Escrow
Agreement dated August 17, 1995 (the "1995 Escrow Agreement") and an Escrow
Agreement dated February 19, 1996 (the "1996 Escrow
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<PAGE> 60
Agreement"). The escrow shares represent 35.51 % of the total issued and
outstanding shares of the Registrant.
<TABLE>
<CAPTION>
NAME OF ESCROW SHAREHOLDER NUMBER OF ESCROW SHARES
<S> <C>
PETER TSAPARAS Chairman, Chief Financial Officer 262,500
and Director
COLIN MCALEENAN, Vice-President, Explorations 90,000
and Director
FOTIOS KANDIANIS, Past Director 60,000
PETROS TSAPARAS, Past Director 60,000
HANS WICK, Director 90,000
PACIFIC CANADA RESOURCES INC 4,880,000
</TABLE>
Each of the holders of escrow shares subject to the 1995 Escrow Agreement
qualify or have in the past qualified as a principal as defined in Local Policy
Statement 3-07 of the British Columbia Securities Commission as they are all
directors or former directors of the Registrant as of the date of receipt of
the escrow shares. In addition, the terms of the 1995 Escrow Agreement provide
that an escrow shareholder who ceased to be a principal, dies or becomes
bankrupt, shall be entitled to retain any escrowed shares then held by him and
shall not be obligated to transfer or surrender the escrowed shares to the
Registrant or any other person. These escrow shares are subject to the
direction and determination of the British Columbia Securities Commission and
the Exchange (the "Regulatory Authorities"). The release of the 1995 Escrow
Shares will be based on expenditures made by the Registrant on the exploration
and development of its mineral properties.
Pursuant to the 1996 Escrow Agreement, 4,880,000 escrow shares are held by
Pacific Canada Resources Inc. ("PCR"), a private Ontario company in respect of
which Ken Cai and Donald Hicks collectively own 56% of the issued and
outstanding shares.
The escrow shares held by PCR hereunder shall be released to PCR, subject in
each case to the prior consent of the Vancouver Stock Exchange, on the
following basis:
1. one escrow share for each $0.97 in the value of the interests in the
mineral properties acquired by the Registrant from PCR pursuant to the PCR
Agreement (the "PCR
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<PAGE> 61
Properties"), based on a valuation report to be prepared by a qualified
independent consultant, less any expenditures required to be made by the
Registrant, pursuant to the PCR Agreement or otherwise, in order to earn
its interests in the PCR Properties (provided that all required Chinese
governmental approvals in order to perfect the interests to be acquired by
the Registrant hereunder have been obtained for each of the PCR Properties
that are the subject of the valuation report);
2. one escrow share for each $0.97 in the value of the interest in any new
mineral properties acquired by the Registrant pursuant to the PCR
Agreement or the TCIP Agreements ("New Projects"), such value to be
determined on the same basis and subject to the same provisions as
described in 1 above;
3. one escrow share for every $1.81 expended by the Registrant, PCR, Teck,
Cominco, Temco or any other third party expending monies on exploration
and development of the PCR Properties or of any New Projects, exclusive of
general and administrative expenses, determined in accordance with the
provisions applicable to natural resources issuers under Local Policy
Statement #3-07 of the British Columbia Securities Commission; and
4. one escrow share for every $0.97 in cumulative Cash Flow, as hereinafter
defined, from the operations of the Registrant on the PCR Properties and
any New Projects and as determined in accordance with generally accepted
accounting principles and by reference to the Registrant's annual audited
financial statements, provided that each PCR Property and each New Project
will be considered separately without taking into account any negative
cash flow that may exist in any other PCR Property or New Project.
For the purposes of the foregoing, "Cash Flow" means net profit for a fiscal
year of the Registrant adjusted for the following add backs: depreciation,
amortization of goodwill, deferred income taxes, and amortization of research
and development costs, plus any other capitalization charges as may be
permitted by the Vancouver Stock Exchange. Cumulative Cash Flow, less any
amounts used in prior escrow share releases, divided by $0.97 per share, equals
the total number of escrow shares which may be released under the 1996 Escrow
Agreement in any twelve-month period.
If all of the escrow shares are not released to PCR within ten years of
issuance, all unreleased escrow shares shall be forfeited by PCR and cancelled.
The foregoing escrow shares are held subject to the direction and determination
of the Regulatory Authorities.
The material terms of the 1995 and 1996 Escrow Agreements require that the
escrow shares may not be dealt with in any manner (including transfer or
release from escrow) without the prior consent of the Vancouver Stock Exchange,
that the escrow shares may be voted by the registered
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<PAGE> 62
holder at all meetings of shareholders and that the escrow shareholders will
have all of the rights, benefits and ownership of the forgoing escrow shares as
they pertain to all shareholders of the Registrant save and except that while
the shares are subject to the 1995 and 1996 Escrow Agreements, as the case may
be, the holders may not vote the escrow shares on any resolution to cancel such
shares and in respect of such escrow shares and may not receive any dividends
or participate in any distribution of assets by the Registrant.
ITEM 5. NATURE OF TRADING MARKET.
The common shares of the Registrant (the "Common Shares") are listed on the
Vancouver Stock Exchange ("VSE"), in British Columbia, Canada. On September 20,
1996 the Registrant's Common Shares began trading during the VSE's extended
evening hours which link the Asia Pacific stock markets, including Australia and
Hong Kong, with North America. This extended trading day is pursuant to
Vancouver International Securities Trading Access or "VISTA". With VISTA, the
VSE re-opens for real time trading between the hours of 6:30 p.m. to 8:30 p.m.
Pacific Daylight Time or 5:30 p.m. to 7:30 p.m. Pacific Standard Time to
coincide with the early hours of the Hong Kong and Australian exchanges. The
trading symbol for the Common Shares of the Registrant is MMM. Effective
December 12, 1997 the Registrant received a conditional listing for trading of
its common shares on the Toronto Stock Exchange.
The Registrant's shares are not currently trading on any U.S. stock exchange or
in the over-the-counter market, and accordingly, there is currently no public
market for the common stock of the Registrant in the United States. There can
be no assurance that such a market will develop after the effectiveness of this
registration statement. Since a portion of the Registrant's shares are held by
agents in street name, the Registrant is unaware of how many of its
outstanding common shares are held by United States residents. As of November
19, 1997, the Registrant's share register indicates that 430,070 of the issued
and outstanding shares were held by sixteen shareholders with addresses in the
United States.
The following table sets forth the reported high and low prices for the Common
Shares as quoted on the Vancouver Stock Exchange for each full quarterly
period, commencing from the first quarter of 1995:
<TABLE>
<CAPTION>
YEAR AND QUARTER HIGH LOW
---------------- ---- ---
<S> <C> <C>
1997 - Fourth Quarter 1.85 1.15
1997 - Third Quarter 1.60 1.27
1997 - Second Quarter 2.45 1.30
1997 - First Quarter 3.05 1.35
</TABLE>
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<PAGE> 63
<TABLE>
<S> <C> <C>
1996 - Fourth Quarter 3.15 2.25
1996 - Third Quarter 3.55 2.50
1996 - Second Quarter 4.20 2.70
1996 - First Quarter 2.84 1.10
1995 - Fourth Quarter 1.30 0.95
1995 - Third Quarter 1.50 1.00
1995 - Second Quarter 1.25 0.70
</TABLE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.
PEOPLE'S REPUBLIC OF CHINA
See the discussion in Item 1, under the captions "Risk Factors" "People's
Republic of China - Background Information" and "Legal Framework for
Chinese-Foreign Co-operative Joint Ventures" as to matters involving Chinese
law.
CANADA
There is no law, governmental decree or regulation in Canada that restricts
the export or import of capital, or affects the remittance of dividends,
interest or other payments to a non-resident holder of common shares, other
than withholding tax requirements. Any such remittances to United States
residents are subject to withholding tax. See "Taxation."
There is no limitation imposed by the laws of Canada or by the charter or other
constituent documents of the Registrant on the right of a non- resident to hold
or vote the Common Shares, other than as provided in the Investment Canada Act,
(the "Investment Act"). The following discussion summarizes the principal
features of the Investment Act for a non-resident who proposes to acquire the
common shares. It is general only, it is not a substitute for independent
advice from an investor's own advisor, and it does not anticipate statutory or
regulatory amendments.
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture (each an "entity") that is not a "Canadian"
as defined in the Investment Act (a "non-Canadian"), unless after review, the
Director of Investments appointed by the minister responsible for the
Investment
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<PAGE> 64
Act is satisfied that the investment is likely to be of net benefit to Canada.
An investment in the Common Shares by a non-Canadian other than a "WTO
Investor" (as that term is defined by the Investment Act, and which term
includes entities which are nationals of or are controlled by nationals of
member states of the World Trade Organization) when the Registrant was not
controlled by a WTO Investor, would be reviewable under the Investment Act if
it was an investment to acquire control of the Registrant and the value of the
assets of the Registrant, as determined in accordance with the regulations
promulgated under the Investment Act, was $5,000,000 or more, or if an order
for review was made by the federal cabinet on the grounds that the investment
related to Canada's cultural heritage or national identity, regardless of the
value of the assets of the Registrant. An investment in the Common Shares by a
WTO Investor, or by a non-Canadian when the Registrant was controlled by a WTO
Investor, would be reviewable under the Investment Act if it was an investment
to acquire control of the Registrant and the value of the assets of the
Registrant, as determined in accordance with the regulations promulgated under
the Investment Act was not less than a specified amount, which for 1996 was any
amount in excess of Cdn. $168 million. A non-Canadian would acquire control of
the Registrant for the purposes of the Investment Act if the non-Canadian
acquired a majority of the Common Shares. The acquisition of one third or more,
but less than a majority of the Common Shares would be presumed to be an
acquisition of control of the Registrant unless it could be established that,
on the acquisition, the Registrant was not controlled in fact by the acquirer
through the ownership of the Common Shares.
Certain transactions relating to the Common Shares would be exempt from the
Investment Act, including: (a) an acquisition of the Common Shares by a person
in the ordinary course of that person's business as a trader or dealer in
securities; (b) an acquisition of control of the Registrant in connection with
the realization of security granted for a loan or other financial assistance
and not for a purpose related to the provisions of the Investment Act; and (c)
an acquisition of control of the Registrant by reason of an amalgamation,
merger, consolidation or corporate reorganization following which the ultimate
direct or indirect control in fact of the Registrant, through the ownership of
the Common Shares, remained unchanged.
ITEM 7. TAXATION.
PEOPLE'S REPUBLIC OF CHINA
See the discussion in Item 1, under the caption "People's Republic of China -
Background Information Tax System" as to matters involving Chinese law.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
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<PAGE> 65
The following summarizes the principal Canadian federal income tax
considerations applicable to the holding and disposition of Common Shares in
the capital of the Registrant by a holder of Common Shares who is resident in
the United States of America and not in Canada, and who holds Common Shares
solely as capital property (a "U.S. Holder"). This summary is based on the
current provisions of the Income Tax Act (Canada) (the "Tax Act"), the
regulations thereunder, all amendments thereto publicly proposed by the
government of Canada, the published administrative practices of Revenue Canada,
Customs, Excise and Taxation, and on the current provisions of the
Canada-United States Income Tax Convention, 1980, as amended (the "Treaty").
Except as otherwise expressly provided, this summary does not take into account
any provincial, territorial or foreign (including without limitation, any U.S.)
tax law or treaty. It has been assumed that all currently proposed amendments
will be enacted substantially as proposed and that there is no other relevant
change in any governing law or practice, although no assurance can be given in
these respects.
This summary is of a general nature and is not, and should not be construed as,
advice to any particular U.S. Holder as to Canadian tax consequences applicable
to such U.S. Holder. Each U.S. Holder is advised to obtain tax and legal advice
applicable to such U.S. Holder's particular circumstances.
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend
that is or is deemed to be paid or credited to the U.S. Holder on the U.S.
Holder's Common Shares. The statutory rate of withholding tax is 25% of the
gross amount of the dividend paid. The Treaty reduces the statutory rate with
respect to dividends paid to a U.S. Holder who is a resident of the United
States for the purposes of the Treaty. Where applicable, the general rate of
withholding tax under the Treaty is 15% of the gross amount of the dividend,
but if the U.S. Holder is a company that owns at least 10% of the voting stock
of the Registrant and beneficially owns the dividend, the rate of withholding
tax is 5% for dividends paid or credited after 1996 to such corporate U.S.
Holder. The Registrant is required to withhold the applicable tax from the
dividend payable to the U.S. Holder, and to remit the tax to the Receiver
General of Canada for the account of the U. S. Holder.
Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital
gains tax on any capital gain realized on an actual or deemed disposition of a
Common Share, including a deemed disposition on death, provided that the U.S.
Holder did not hold the Common Share as capital property used in carrying on a
business in Canada, and that neither the U. S. Holder nor persons with whom the
U.S. Holder did not deal a arms length (alone or together) owned or had the
right or an option to acquire 25% or more of the issued shares of any class of
the Registrant at any time in the five years immediately preceding the
disposition.
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<PAGE> 66
UNITED STATES TAX CONSIDERATIONS
Passive Foreign Investment Companies
The Treaty essentially calls for taxation of shareholders by the shareholder's
country of residence. In those instances in which a tax may be assessed by the
other country, a corresponding credit against the tax owed in the country of
residence is generally available, subject to limitations.
Under Section 1296, of the Internal Revenue Code of the United States, a
foreign investment corporation is treated as a passive foreign investment
company (a "PFIC") if it earns 75% or more of its gross income from passive
sources or if 50% or more of the value of its assets produce passive income.
Each U.S. shareholder of the Registrant should consult a tax advisor with
respect to how the PFIC rules may affect such shareholder's tax situation. In
particular, a U.S. shareholder should determine whether such shareholder should
elect to have the Registrant be treated as a Qualified Electing Fund if the
Registrant is a PFIC. This might avoid adverse U.S. federal income tax
consequences that may otherwise result from the Registrant should it be treated
as a PFIC.
Other Considerations
To the extent a shareholder is not subject to the tax regimes outlined above
with respect to foreign corporations that are PFICs, the following discussion
describes the United States federal income tax consequences arising from the
holding and disposition of the Registrant's Common Shares.
U.S. Holders
As used herein, a "U.S. Holder", includes a holder of Common shares who is a
citizen or resident of the United 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 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 laws, such as tax exempt organizations, qualified retirement plans,
financial institutions, insurance companies, real estate investment trusts,
regulated investment companies, broker-dealers, nonresident alien individuals
or foreign corporations whose ownership of Common Shares 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 of Common Shares
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<PAGE> 67
U.S. Holders receiving dividend distributions (including constructive
dividends) with respect to the Registrant's Common Shares are required to
include in gross income for United States federal income tax purposes the gross
amount of such distribution to the extent that the Registrant has current or
accumulated earnings or 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 income tax by those who itemize deductions.
(See more detailed discussions at "Foreign Tax Credit" below). to the extent
that distributions exceed current or accumulated earnings and profits of the
Registrant, 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 such shares. Preferential tax rates for the 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 Registrant's Common Shares will not generally be eligible
for the dividends received deduction provided to corporations receiving
dividends from certain United States 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 Registrant if
such U.S. Holder owns shares representing at least 10% of the voting power and
value of the Registrant. The availability of 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 distribution) Canadian income tax
with respect to the ownership of the Registrant's common shares 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 tax 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 generally applies to all foreign income taxes paid by
(or withheld from) the U.S. Holder during that 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 or its worldwide taxable income. In the
determination of the 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",
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<PAGE> 68
"shipping income", and certain other classifications of income. The
availability of foreign tax credit and the application of the limitations on
the credit are fact specific and holders and prospective holders of Common
Shares should consult their own tax advisors regarding their individual
circumstances.
Disposition of Common Shares
A U.S. Holder will recognize gain and loss upon the sale of the Common shares
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. The gain or loss will be capital gain or loss if the shares
are a capital asset in the hands of the U.S. Holder, and will be a short-term
or long-term capital gain or loss depending on each U.S. Holder's holding
period. Gains and losses are netted and combined according to special rules in
arriving at the overall capital gain or loss for a particular tax year.
Deductions for net capital losses are subject to significant limitations. For
U.S. Holders who are individuals, any unused portion of such net capital loss
may be carried over to be used in later tax years until such net capital loss
is thereby exhausted. For U.S. Holders which are corporations (other than
corporations subject to Subchapter S of the Code), an unused 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.
The foregoing discussion is based upon the sections of the Code, Treasury
Regulations, published Internal Revenue Service rulings, published
administrative positions of the Internal Revenue Service and court decisions
that are currently applicable, any or all of which could be materially
adversely changed, possibly on a retroactive basis, at any time. In addition,
this discussion does not consider the potential effects, both adverse and
beneficial, of recently proposed legislation which, if enacted could be
applied, possibly on a retroactive basis, at any time. The foregoing
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 the Registrant's Common Shares and no opinion or representation with
respect to the United States federal income tax consequences is expressed
hereby to any such prospective holders of the Registrant's Common Shares. A
holder or prospective holder of the Registrant's Common Shares should consult
his or her own tax advisors about federal, state local and foreign tax
consequences of purchasing, owning and disposing of the Common Shares of the
Registrant.
ITEM 8. SELECTED FINANCIAL DATA.
FINANCIAL STATEMENTS
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<PAGE> 69
The following selected financial information for the fiscal years ended
December 31, 1996, 1995, 1994, 1993 and 1992 are derived from the financial
statements of the Registrant and should be read in conjunction with such
financial statements and the notes thereto included elsewhere in this
Registration Statement. The Registrant's financial statements are prepared in
accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and
the financial information presented in the following tables is presented in
accordance with Canadian GAAP. Canadian GAAP conforms to GAAP in the United
States in most respects. The only significant differences which are relevant
here are in calculation of the loss per share. United States GAAP requires
escrow shares which are contingently cancelable to be excluded from the
calculation of loss per share. The loss per share shown in the following
tables is accordingly calculated according to both Canadian and United States
GAAP. Total assets, total liabilities and loss for the following years
calculated according to United States GAAP is not materially different from the
amounts determined in accordance with Canadian GAAP. To date, the Registrant
has not paid any cash or other dividends on its common shares. All amounts are
stated in Canadian dollars.
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<PAGE> 70
Balance Sheets at December 31
-----------------------------
<TABLE>
<CAPTION>
Temco
Minco After Before
RTO RTO Minco Before RTO
---------------------- ---------------------------------------------
1996(1) 1995(1) 1995 1994(2) 1993(2) 1992
--------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total assets 8,326,356 39,072 257,186 140,026 102,204 116,010
Total Liabilities 763,008 49,458 99,908 58,550 28,254 92,043
Share Capital 8,662,468 810 3,026,474 2,526,474 2,416,474 2,290,224
Deficit 1,099,120 (11,196) 2,869,196 2,444,998 2,342,524 2,266,257
</TABLE>
Operating Statements for Years Ended December 31
------------------------------------------------
<TABLE>
<CAPTION>
Temco
Minco After Before
RTO RTO Minco Before RTO
----------------------- -------------------------------------------------
1996(1) 1995(1) 1995 1994(2) 1993(2) 1992
---------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Interest income 119,190 -- 9,289 2,795 1,400 7,340
Income (loss) (1,087,924) (11,196) (424,198) (102,274) (76,267) (160,672)
Income (loss)
from continuing
operations (1087,924) (11,196) (424,198) (102,274) (76,267) (160,672)
Income (loss)
from continuing
operations per
common share
(Canadian GAAP) (0.11) (.00) (0.17) (0.04) (0.04) (0.04)
Income (loss)
from continuing
operations per
common share
(United States GAAP)(3) (0.20) (0.00) (0.18) (0.06) (0.05) (0.05)
</TABLE>
(1)In February of 1996, the Registrant completed an acquisition of a 60%
interest in Triple Eight Minerals Corporation, ("Temco") which has been treated
for accounting purposes as a reverse takeover ("RTO"), and the financial
statements for 1996 have been prepared to treat Temco as the accounting parent.
This affects comparability of information for the years before and after such
acquisition. See Item 1 - "The PCR Agreement" and Item 17 - "Notes to
Financial Statements"
(2) The Registrant was reorganized in 1993, following a period of inactivity.
Such reorganization involved a one-for-three share consolidation, a change of
name and change of management. There
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<PAGE> 71
is essentially no continuity between the activities and operations of the
Registrant before and after such reorganization. See Item 1 "Business of the
Registrant - Organization and Subsidiary."
(3) The weighted average number of shares for purposes of calculating loss per
share according to United States GAAP was as follows: 1996 - 5,582,498; 1995 -
2,386,900; 1994 - 1,798,593; 1993 - 1,660,873; 1992 - 3,274,284.
EXCHANGE RATES
On January 21, 1998, the rate for Canadian dollars was $1.00 U.S.:$1.4337 Cdn.
The following table sets forth, for the periods and dates indicated, certain
information concerning exchange rates of United States dollars and Canadian
dollars:
<TABLE>
<CAPTION>
Year ending 12/31 End of Period Average High Low
<S> <C> <C> <C> <C>
1993 1.3255 1.2902 1.3390 1.2428
1994 1.4030 1.3664 1.4078 1.3103
1995 1.3655 1.3725 1.4238 1.3285
1996 1.3697 1.3638 1.3822 1.3310
1997 1.4288 1.3849 1.4398 1.3407
</TABLE>
The high and low figures are selected from weekly average figures reported in
Federal Reserve Bank weekly releases at www.bog.frb.fed.us/releases/.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion and analysis of the operating results and the financial
position of the Registrant for each of the three years ended December 31, 1996,
1995 and 1994 should be read in conjunction with the Consolidated Financial
Statements and the related Notes included in Item 17.
GENERAL
Since the signing of its first Co-operation Agreement on a property in China in
July of 1995 the Registrant has concentrated on building a portfolio of mineral
projects in the People's Republic of China.
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<PAGE> 72
On February 19, 1996 the Registrant acquired all of the property interests in
China of Pacific Canada Resources Inc., most of whose property interests were
held by Temco, under the terms of the PCR Agreement. Also in February, 1996
the Registrant closed an Investment and Participation Agreement with Teck
Corporation and Cominco Ltd. See Item 1 - "The PCR Agreement" and "The
Teck-Cominco Agreements". By these transactions, the Registrant acquired
interests in various properties. As part of the Teck-Cominco transaction, the
Registrant received cash investments from two private placements of its common
shares. See "Liquidity and Capital Resources," below, Item 1 - "Recent
Financing" and Item 17 - Notes to Financial Statements.
(a) LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Registrant maintained adequate liquidity. At year end, the
Registrant had working capital of $7,238,944. Also during 1996, the year end
change in cash or cash position increased from $229,304 to $6,832,801.
Operating and administrative expenses amounted to $1,236,295, and $786,076 was
expended on the exploration and development of the Registrant's Chinese
properties. Financing activities included $8,594,811 (net of share issuance
costs) received from the issuance of 1,250,000 units, each unit comprised of
one common share and one/fifth of a share purchase warrant, pursuant to a
private placement completed in February, 1996; the issuance of 3,200,000 units,
each unit comprised of one common share and one/half of a share purchase
warrant, pursuant to a private placement completed June 26, 1996, an Exchange
Offering Prospectus dated December 20, 1996 qualifying those units issued
pursuant to the June 26, 1996 private placement; and the exercise of 148,750
options at a price of $1.00 per common share. After December 31, 1996, and
before the end of February, 1997, 125,000 share purchase warrants were
exercised at a price of $1.20 per share, for net proceeds of $150,000.
At February 28, 1997, the Registrant had working capital of approximately
$6,806,604. Management considers the Registrant to have adequate liquidity to
conduct its business activities as planned for 1997.
The Registrant's capital resources continue to comprise primarily private
investors, consisting of wealthy individuals, resource investment groups,
senior mining companies and public financing through the facilities of the
Vancouver Stock Exchange. There can, however, be no assurance that the
Registrant's future capital requirements can be met in the long term. The
Registrant's access to capital is always dependent upon future financial market
conditions, especially those which pertain to venture capital situations such
as mining exploration companies. There can be no guaranty that the Registrant
will be successful in obtaining future financing, when necessary, on
economically acceptable terms, or at all.
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<PAGE> 73
(b) RESULTS OF OPERATIONS
To date the Registrant has not entered into a final agreement on a producing
property. Consequently, the Registrant has not generated a cash flow from
operations. In management's opinion, given that the nature of the Registrant's
business consists of mineral exploration, development and the evaluation of
resource properties, meaningful financial information consists primarily of the
Registrant's liquidity and solvency. The results of operations of an
exploration company are almost entirely measured by the extent and quality of
the mineralization discovered compared with the related costs of such
discoveries. Estimates of mineralization are not contained in the financial
statements.
On November 28, 1996, the Registrant announced that it had revised the
accounting treatment given to its acquisition of various mineral property
interests held in Temco from Pacific Canada Resources, Inc. pursuant to an
agreement dated February 19, 1996 which acquisition included a 60% equity
interest in Triple Eight Mineral Corporation ("Temco"), a British Virgin Island
company. See Item 1 - "Pacific Canada Resources Agreement." For accounting
purposes, the acquisition is now being treated as a reverse take-over, with
Temco being treated as the Registrant's accounting parent. Interim unaudited
financial statements previously issued incorrectly treated Temco as a
subsidiary for accounting purposes. As such, the Registrant retracted its
quarterly report and financial statements for the three-month period ended
March 31, 1996 and for the six-month period ended June 30, 1996. The change of
accounting method reduced the book value of the Registrant's mineral property
interests by approximately $2,000,000, share capital by approximately
$5,000,000 and deficit by approximately $3,000,000. The Registrant has revised
its March 31, 1996 and June 30, 1996 financial statements to effect these
changes and has reissued them.
In summary, the net effect of treating Temco as the parent instead of treating
it as a subsidiary for accounting purposes is the following: The book value of
the mineral interests owned by Temco were previously recorded at a deemed value
of approximately $2,000,000, the book value of these mineral interests will now
be carried at Temco's cost of $100.00. Similarly, under this revised
accounting treatment, the Registrant's accumulated deficit of approximately
$3,000,000 at the date of the share exchange (February 19, 1996) has been
eliminated and deducted from the Registrant's share capital.
The above changes pertain to accounting procedures only and have no effect as
to the Registrant's current cash position and asset value, nor do they have any
impact on the business of the Registrant. The Registrant's audited financial
statements for the year ended December 31, 1996 show current assets of
$7,460,563, total assets of $8,326,356, current liabilities of $221,619 and
Shareholders' equity of $7,563,348.
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<PAGE> 74
Fiscal 1996 Compared with Fiscal 1995
The Registrant's loss per share of $0.17 per share in 1995 decreased to a loss
per share of $0.11 in fiscal 1996, based on a net loss for the year of
$1,087,924 compared with a net loss of $424,198 in 1995. The number of common
shares issued and outstanding increased from 2,785,873 in 1995 to 15,202,123 in
1996. Due to increased operating activities during 1996, general and
administrative expenses increased during the year to $1,236,295 compared to
$433,487 in 1995. Interest revenue increased from $8,754 in 1995 to $119,190
in 1996 due to increased cash and cash equivalent balances resulting from
financing activities.
Fiscal 1995 Compared with Fiscal 1994
The Registrant's loss per share of $0.04 in 1994 increased to a loss per share
of $0.17 in fiscal 1995 based on a net loss for the year of $424,198 compared
with a net loss of $102,474 in 1994. The number of common shares issued and
outstanding increased from 2,285,873 in 1994 to 2,785,873 in 1995. Due to
increased operating activities during 1995, general and administrative expenses
increased to $433,487 in 1995, compared to $105,269 in 1994. Interest revenue
increased from $2,795 in 1994 to $8,754 in 1995.
EXPENDITURES ON PROPERTIES OF THE REGISTRANT
The single largest commitment made on mineral properties over the past twelve
months by the Registrant was to the Temco Joint Venture. This joint venture
involved the Geoexploration Corporation of the First Geoexploration Bureau
("GEC-FGEB"), a subsidiary of China's Ministry of Metallurgical Industry (the
"MMI")) as to 45 % and Temco (the Registrant's wholly owned subsidiary) which
holds a 55% interest. Temco and the MMI have formed a co-operative joint
venture enterprise known as Chengde Huajia Mining Industry Co. Ltd. ("Huajia" )
based in Hebei Province. The issued capital of Huajia is held by MMI with
Temco holding the right to acquire a 55% interest in Huajia upon making certain
expenditures (see "Emperor's Delight Project"). Huajia is to operate the
Emperor's Delight gold-silver project and to acquire and explore additional
properties such as Stone Lake and Crystal Valley gold projects. According to
the Chinese regulations, where capital contributions are to be made in
installments, the first instalment must consist of not less than 15% of the
total registered capital, must be contributed within 90 days after the issue of
the business license and is non-refundable. The capital contribution has been
made and the Registrant is the operator of the joint venture.
As of December 31, 1996, the Registrant and China Clipper gold Mines Ltd., had
expended $451,392 on the Emperor's Delight Property through Temco. Huajia
received a total of approximately $900,000 from Temco as of December 31, 1996.
Of this amount $537,500
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<PAGE> 75
remained unexpended but committed for additional exploration programs on the
Emperor's Delight and/or other properties. See Item 2 - "Emperor's Delight
Property".
On the Chapuzi Property a total of $153,416 has been spent on exploration and
metallurgical testing as of December 31, 1996. To fully earn its 51% interest
in the property the Registrant will be required to spend $5,000,000. The
Registrant can earn an additional 24% of the property interest, for a total of
75%, by spending the funds required to put the property into commercial
production (see Item 2 - "Chapuzi Property").
On the Changba-Lijiagou Property a total of $27,965 has been spent on property
investigation as of December 31, 1996 (see Item 2 - "Changba-Lijiagou
Property").
On the Stone Lake Property no funds were spent on exploration as of December
31,1996 (see Item 2 - "Stone Lake Property").
On the Crystal Valley Property no funds were spent on exploration as of
December 31, 1996 (see Item 2 - "Crystal Valley Property").
On the Tian Shan Properties a total of $153,303 has been spent on the property
investigation as of December 31, 1996 (see "Tian Shan Properties").
On the Gala Property no funds were spent on property exploration as of December
31, 1996 (see Item 2 - "Gala Property").
On the Xifanping Property no funds were spent on the property exploration as of
December 31, 1996 (see "Xifanping Property").
OUTLOOK
The Registrant at present has no material income from its operations. The
Registrant's ability to finance the exploration and development of its mineral
properties, to make concession payments and to fund general and administrative
expenses in the medium and long term is therefore dependent upon the
Registrant's ability to secure equity financing. The equity markets for junior
mineral exploration companies are unpredictable. Alternatively, the Registrant
may enter into cost sharing arrangements through joint venture agreements, but
while management believes that the quality of the concessions now held by the
Registrant will attract joint venture partners in the short term and medium
term, there is no guarantee that the terms would be as favorable as management
would like. While as of the date of this Registration Statement, the
Registrant has sufficient working capital to fund the exploration work
commitments on the currently held property
EXCHANGE RATES AND CURRENCY RISKS
The Registrant's operations are expected to be conducted largely in China. Its
operations are conducted primarily in Canadian dollars. See Item 1, "Risk
Factors" and "Peoples Republic of China - Background Information" for a
discussion of certain matters relating to the convertibility and repatriation
of the PRC currency. See Item 8 for information relating to exchange rates of
United States and Canadian currency.
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<PAGE> 76
concessions for the next two years, it cannot be determined what the funding
requirements will be beyond that time and the Registrant will require
additional financing to meet such requirements.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.
The following table sets forth all current directors and executive officers of
the Registrant, with each position and office held by them in the Registrant,
their terms of office and the period of service as such:
<TABLE>
<CAPTION>
Officer or Term of
Name Positions held Director since: Office
<S> <C> <C> <C>
Ken Z. Cai President, Chief Executive Officer February, 1996 3 years
and Director
Peter P. Tsaparas Chairman Chief Financial Officer and May, 1992 3 years
Director
Colin McAleenan Vice President - Explorations and June, 1995 1 year
Director
Donald Hicks former Director and former Vice February, 1996 1 year
President - Corporate Development
Wayne Spilsbury Director February, 1996 1 year
Hans Wick Director February, 1997 1 year
Robert Callander Director September, 1996 1 year
</TABLE>
Mr. Peter P. Tsaparas, Dr. Ken Z. Cai., Mr. Colin McAleenan and Mr. Donald
Hicks were elected to their positions as officers and directors pursuant to a
shareholders agreement dated February 19, 1996, between Mr. Tsaparas, Mr.
McAleenan, the Registrant and Pacific Canada Resources, which was entered into
in connection with the PCR Agreement discussed in Item 1 of this Registration
Statement. Pursuant to such shareholders' agreement, which has a term of one
year, the parties bound themselves to vote for Mr. Cai and Mr. Tsaparas as
directors and officers
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<PAGE> 77
of the Registrant for terms of three years, and to vote for Mr. McAleenan and
Mr. Hicks as directors and officers of the Registrant for terms of one year.
Mr. Tsaparas and Mr. McAleenan served as officers and directors of the
Registrant prior to such agreement.
Mr. T. Wayne Spilsbury was elected a director of the Registrant pursuant to an
agreement dated February 19, 1996, between the Registrant, Teck Corporation and
Cominco, Ltd., discussed in Item 1 of this Registration Statement. Teck and
Cominco are jointly entitled to name one director of the Registrant pursuant to
the terms of such agreement.
The business background and principal occupations of the Registrant's officers
and directors for the preceding five years are as follows:
Peter P. Tsaparas; Mr. Tsaparas has been a director of the Registrant since
May 1, 1992 and holds an Earth Science Degree from the University of Athens,
Greece. Mr. Tsaparas is a Professional Engineer registered with the
Professional Engineers and Geoscientists of British Columbia with 35 years of
exploration experience in North America and abroad. During the past five
years, Mr. Tsaparas has served as a director of several publicly-traded junior
resource companies.
Ken Z. Cai, Mr. Cai holds a Ph.D. in mineral economics from Queens University
in Kingston, Ontario, Canada. Mr. Cai is a geologist and has 12 years of
experience as a project geologist in China and North America. He has been
largely responsible for identifying the Registrant's Chinese projects and
negotiating the agreements with Chinese entities resulting in the property
rights now held by the Registrant. During the past five years, Mr. Cai has, in
addition to working as an independent geological consultant, served as a
research assistant at Queens University while completing his Ph.D.
Colin H. McAleenan, Mr. McAleenan holds an Honors Geology Degree from Trinity
College, University of Dublin, Ireland. Mr. McAleenan is a Professional
Geologist registered with the Professional Engineers and Geoscientists of
British Columbia and has 18 years of exploration and mining geology experience
as a full-time employee with a number of major and junior mining companies.
T. Wayne Spilsbury, Mr. Spilsbury holds an M.Sc. in Applied Geology from
Queens University, Kingston, Ontario, Canada. Mr. Spilsbury is a professional
geologist and since 1990 has served as a Vice-President with Teck Exploration
Ltd. based first in Vancouver and subsequently in Singapore. He has worked in
the industry for 23 years.
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<PAGE> 78
Robert Callander, Mr. Callander holds an MBA from York University, Toronto,
Ontario, Canada as well as a CFA from the Institute for Investment Management,
Charlotte, Virginia. Mr. Callander has worked for Caldwell Securities Ltd.
since 1992 and currently serves as a Vice-President with that firm. Prior to
his engagement with Caldwell Securities Ltd., Mr. Callander served as a
corporate finance analyst with Nesbitt Burns. He has worked in the investment
industry for 25 years.
Hans J. Wick, Mr. Wick of Zurich, Switzerland has rejoined the board of
directors of the Company. Mr. Wick, an independent portfolio manager who has
held senior management positions with a Swiss bank, brings to the board an
in-depth knowledge of international finance, particularly as it relates to the
development of mineral resource projects.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
The aggregate direct or indirect remuneration paid to the directors and
officers of the Registrant, as a group during the fiscal year ended December
31, 1996, for service to the Registrant in all capacities, was $346,908.
Certain information about payments to particular officers and directors is set
out in the following table:
<TABLE>
<CAPTION>
Name and Principal Position Salary Other annual All Other
compensation Compensation
<S> <C> <C> <C>
KEN CAI, President, Chief Executive Officer Nil $8,333/Month Nil
and Director
PETER P. TSAPARAS, Chairman, Chief Financial Nil $2,000/Month Nil
Officer and Director
COLIN MCALEENAN, Vice-President - Explorations Nil $7,000/Month Nil
and Director
DONALD HICKS, former Director and Former Vice- Nil $6,600/Month Nil
President - Corp. Development
</TABLE>
During the fiscal year of the Registrant ended December 31, 1996, no amounts
were set aside or accrued by the Registrant or its subsidiaries during such
year to provide pension, retirement or similar benefits for directors and
officers of the registrant, pursuant to any existing plan provided or
contributed to by the Registrant or its subsidiaries.
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<PAGE> 79
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
The following table set forth, as of December 31, 1996, all outstanding options
to purchase common shares of the Registrant, there are no options to purchase
shares of any other class of security:
<TABLE>
<CAPTION>
Name of Optionee Number of shares Exercise price Expiration date
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C>
Ken Z. Cai 383,000 $1.45/share June 20, 2007
Peter Tsaparas 310,000 $1.45/share June 20, 2007
T. Wayne Spilsbury 191,000 $1.45/share June 20, 2007
Colin McAleenan 190,500 $1.45/share June 20, 2007
Robert Callander 100,000 $1.45/share June 20, 2007
Hans Wick 100,000 $1.45/share June 20, 2007
Douglas Walker 250,000 $1.45/share June 20, 2027
All officers and 1,274,500 $1.45/share June 20, 2007
directors as a group
(seven persons)
</TABLE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
During 1996, the Registrant entered into an agreement, "the PCR Agreement",
with Pacific Canada Resources Inc., a private corporation controlled by Ken Cai
and Donald Hicks, pursuant to which the Registrant acquired 60% interests in
mineral properties in the People's Republic of China. These mineral interests
were held in Temco, a British Virgin Islands corporation. The consideration
paid by the Registrant to Pacific Canada Resources Inc. for these property
interests was 7,280,000 common shares of the Registrant and was established
pursuant to arms length negotiations between the Registrant and Pacific Canada
Resources Inc. Of these shares, 4,880,000 shares are subject to the terms of
an escrow agreement and will only be released upon the Registrant satisfying
certain earn out requirements (see Item 4 - "Performance Shares or Escrow
Securities"). The balance of 2,400,000 shares issued to Pacific Canada
Resources Inc. were issued at a deemed price of $0.97 per share based on a
valuation of the Emperor's Delight Property prepared by A.C.A. Howe
International dated March 13, 1995. These amounts are not reflected in the
financial statements because Temco is treated as the accounting parent;
therefore the mineral interests are carried at Temco's costs. Upon the
completion of the acquisition of the
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<PAGE> 80
60% interest in the Chinese mineral properties held in Temco from Pacific
Canada Resources Inc., Ken Cai and Donald Hicks became directors and officers
of the Registrant (see Item 10 - "Directors and Officers of the Registrant").
In addition, the Registrant agreed to reimburse PCR for a total of $97,800 in
legal, accounting and consulting fees paid by PCR. This amount was recorded as
Temco's liability. Included in this amount is a total of $75,800 in consulting
fees paid to Kaisun Group (Canada) Inc. and 1066098 Ontario Inc., private
companies controlled by Ken Cai and Donald Hicks, respectively.
During the twelve-month period ended December 31, 1996, the Registrant incurred
the following expenses to its directors or corporations controlled by its
directors:
Accounting - $7,100;
Management fees & Consulting- $292,488;
Salary - $40,300;
Rent - $7,020.
In addition, during 1996, the Registrant was a party to the following
agreements involving its officers and directors:
1. Consulting Agreement dated as of June 25, 1996 between the Registrant and
a private company controlled by Ken Cai, the Registrant's current
President and Chief Executive Officer, under the terms of which such
company receives $8,333 per month in exchange for consulting, management
and supervision services in connection with the development of overall
corporate strategy. The term of the Consulting Agreement expires on June
25, 1999.
2. Consulting Agreement dated as of June 25, 1996 between the Registrant and
Peter Tsaparas, the Registrant's current Chairman and Chief Financial
Officer, under the terms of which the Chairman and Chief Financial Officer
receives $2,000 per month in exchange for consulting, management and
supervision services in connection with the development of overall
corporate strategy. The term of the Consulting Agreement is month to
month. In addition to this Consulting Agreement, the Registrant has
entered into an Employment Agreement dated November 1, 1996 with the
Chairman and Chief Financial Officer under which the Chairman and Chief
Financial Officer receive $2,000 per month for serving as the Registrant's
Chairman on a part-time basis.
3. Consulting Agreement dated as of June 25, 1996 between the Registrant and
Colin McAleenan, the Registrant's current Vice-President, Exploration
under the terms of which the Vice-President, Exploration receives $7,000
per month in exchange for consulting,
-80-
<PAGE> 81
management, supervision and resource exploration and development services.
The term of the Consulting Agreement expires on June 25, 1997.
4. Consulting Agreement dated as of June 25, 1996 between the Registrant and
a private company controlled by Donald Hicks, the Registrant's former
Vice-President, Corporate Development under the terms of which such company
received $6,600 per month in exchange for consulting, management, supervision
and administration services. The term of the Consulting Agreement expired on
December 31, 1996.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
(a) CAPITAL STOCK TO BE REGISTERED.
The Registrant's common shares without par value are the only class of capital
stock to be registered. Pursuant to an amendment to the Registrant's Articles
of Incorporation adopted June 29, 1996 the Registrant has 100,000,000 common
shares authorized, of which 15,202,123 were issued and outstanding as of
December 31, 1996 and 15,327,123 as of April 15, 1997.
Each of the common shares has equal dividend, liquidation and voting rights.
Voters of the common shares are entitled to one vote per share on all matters
that may be brought before them. Holders of the common shares are entitled to
receive dividends when declared by the Board of Directors from funds legally
available therefor. The common shares are not redeemable, have no conversion
rights and carry no pre-emptive or other rights to subscribe for additional
shares. The outstanding common shares are fully paid and nonassessable.
Certain regulations of British Columbia and the Vancouver Stock Exchange create
a distinction between "free trading common shares," "restricted shares" and
common shares required to be placed in escrow or in a "pool."
"Free trading" common shares are not subject to any restrictions on resale, and
can be traded without regulatory approval. Free trading shares are generally
qualified by prospectus and issued to the public.
Shares issued by way of "private placement" to certain investors and not to the
public are usually subject to a one-year holding period and cannot be traded
until the relevant holding period has expired. Once the holding period
expires, the shares would become free trading shares. As of
-81-
<PAGE> 82
March, 31, 1997, all previously issued restricted outstanding shares had become
free trading. See Item 1 - "Recent Financing."
5,442,500 of the currently outstanding Common Shares are held in escrow,
subject to release or cancellation upon certain conditions. See Item 4
"Performance Shares or Escrow Securities."
The transfer agent and registrar for the common shares of the Registrant is
Montreal Trust Company of Canada, 510 Burrard Street, Vancouver, B.C. V6B
5A1.
(b) DEBT SECURITIES TO BE REGISTERED
Not applicable
(c) AMERICAN DEPOSITORY RECEIPTS
Not applicable
(d) OTHER SECURITIES TO BE REGISTERED
Not applicable
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 following financial statements, prepared under reverse takeover accounting
(See Notes 1 and 2 to the Financial Statements) of the
Registrant are attached to this Registration Statement.:
Consent of Independent Accountants
Auditors' Report
Consolidated Balance Sheets at December 31, 1994, 1995 and 1996
-82-
<PAGE> 83
Consolidated Statements of Operations and Deficit for the years ending
December 31, 1994, 1995 and December 31, 1996
Consolidated Statement of Changes in Financial Position for the years ending
December 31, 1994, 1995 and December 31, 1996
Unaudited Consolidated Balance Sheets at September 30, 1996 and 1995
Unaudited Consolidated Statements of Operations and Deficit for the nine months
ended September 30, 1996 and 1997
Consolidated Statement of Changes in Financial Position for the nine months
ending September 30, 1996 and 1997
Notes to Consolidated Financial Statements
Consolidated Schedule of Deferred Exploration Costs.
ITEM 18. FINANCIAL STATEMENTS.
Not applicable
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
*3.(i) Articles of Incorporation and all amendments
*3.(ii) Bylaws
**10.1 Assignment of Contracts and Share Purchase Agreements Between
Registrant and Pacific Canada Resources, Inc., dated February 19,
1996
**10.2 Sale and Purchase Agreement between Registrant and China Clipper Gold
Mines, Ltd., dated February 27, 1997
**10.3 Cooperation Agreement Between Registrant and Baiyin Non-Ferrous
Metals Company dated October 18, 1996 regarding the Changba-Lijiagou
Lead-Zinc Deposit
**10.4 Cooperation Agreement Between Pacific Canada Resources, Inc.,
Patrician Gold Mines, Ltd. and the First Geoexploration Bureau of
Ministry of Metallurgical Industry dated November 17, 1994
**10.5 Joint Venture Agreement between Geoexploration Corporation of the
First Geoexploration Bureau and Triple Eight Minerals Corporation
dated December 25, 1995
**10.6 Cooperation Agreement Between Sichuan Bureau of Geology and Mineral
Resources and Registrant dated July 27, 1996
</TABLE>
-83-
<PAGE> 84
<TABLE>
<S> <C>
**10.7 Cooperation Agreement Between Registrant and Bureau of Geology and
Mineral Resources of Xinjiang Uygur Autonomous Region dated May 27,
1996
**10.8 Letter of Intent Among Pacific Canada Resources, Inc., Teck
Exploration Ltd. and Baiyin Non-Ferrous Metals Corporation dated June
6, 1995
**10.9 Investment and Participation Agreement dated February 20, 1996 Among
the Registrant, Teck Corporation and Cominco Ltd.
**10.10 Letter of Intent Between Sichuan Bureau of Geology and Mineral
Resources and Registrant dated October 15, 1996
**10.11 Consulting Agreement dated June 25, 1996 between Registrant and
Kaisun Group Canada, Inc.
**10.12 Consulting Agreement dated June 25, 1996 between Registrant and Peter
Tsaparas
**10.13 Employment Agreement dated November 1, 1996 between Registrant and
Peter Tsaparas
**10.14 Consulting Agreement dated June 25, 1996 between Registrant and Colin
McAleenan
**10.15 Consulting Agreement dated June 25, 1996 between Registrant and
1066098 Ontario, Inc.
**10.16 Stock Option Agreement between Registrant and Petros Tsaparas dated
June 2, 1995. Identical, except for price and number of shares to
stock option agreements entered into between Registrant and other
officers and directors
**10.17 Stock Escrow Agreement dated December 24, 1993 between Montreal Trust
Company of Canada, Consolidated Caprock Resources, Ltd. and certain
shareholders of Consolidated Caprock Resources, Ltd.
**10.18 Performance Shares Escrow Agreement dated August 17, 1995 between
Registrant, Montreal Trust Company of Canada and certain shareholders
of Registrant
10.19 Assignment dated January 17, 1997 from Magko to Registrant
10.20 Letter of Intent dated May 13, 1997 between Registrant, Magko and
South Kyrgyz Geological Expedition
</TABLE>
-84-
<PAGE> 85
<TABLE>
<S> <C>
10.21 License dated April 11, 1997 from the Agency for Geology and Mineral
Resources of the Government of the Kyrgyz Republic to Magko
10.22 Assignment dated April 17, 1997 between Triple Eight Minerals
Corporation and Geoexploration Corporation of the First
Geoexploration Bureau of the People's Republic of China
10.23 Agreement dated July 16, 1997 between Registrant and Camden Financial
10.24 Cooperation Agreement dated November 17, 1997 between Registrant and
Baiyin Non-Ferrous Metals Company
23.1 Consent of Independent Accountants dated February 12, 1996
23.2 Consent of Independent Accountants dated January 27, 1997
23.3 Consent of Independent Geological Consultant - A.C.A. Howe
International, Limited
23.4 Consent of Independent Geological Consultant - H.A. Simons, Ltd.
23.5 Consent of XRAL Laboratories
</TABLE>
*Incorporated herein by reference to the corresponding exhibit filed with
Registrant's original form 20F filed May 29, 1997, withdrawn July 21, 1997
**Incorporated herein by reference to exhibits 3a through 3r respectively,
filed with Registrant's original form 20F filed May 29, 1997, withdrawn
July 21, 1997
-85-
<PAGE> 86
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement [annual report] to
be signed on its behalf by the undersigned, thereunto duly authorized.
Minco Mining & Metals Corporation
--------------------------------------------
(Registrant)
/s/ Ken Z. Cai
--------------------------------------------
(Signature)
Ken Z. Cai, President and C.E.O.
--------------------------------------------
(Print name and title of signing officer)
Date: January 21, 1998
--------------------------------------------
-86-
<PAGE> 87
MINCO MINING & METALS CORPORATION
Consolidated Financial Statements
(IN CANADIAN DOLLARS)
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
INDEX
Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Operations and Deficit
Consolidated Statement of Changes in Financial Position
Notes to Consolidated Financial Statements
<PAGE> 88
AUDITORS' REPORT
TO THE SHAREHOLDERS OF
MINCO MINING & METALS CORPORATION
We have audited the consolidated balance sheets of MINCO MINING & METALS
CORPORATION as at December 31, 1996 and 1995 and the consolidated statements of
operations and deficit and changes in financial position for the periods 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
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 December 31, 1996
and 1995 and the results of its operations and the changes in its financial
position for the periods then ended in accordance with accounting principles
generally accepted in Canada.
Vancouver, Canada "ELLIS FOSTER"
January 27, 1997 Chartered Accountants
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada, which conforms with
the GAAP in United States in most aspects. Total assets and total liabilities
computed in accordance with U.S. GAAP are not materially different from the
amounts determined in accordance with Canadian GAAP. The significant differences
are summarized in Note 8 of the consolidated financial statements.
Vancouver, Canada "ELLIS FOSTER"
January 27, 1997 Chartered Accountants
<PAGE> 89
MINCO MINING AND METALS CORPORATION
Consolidated Balance Sheet
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Sept. 30 Sept. 30 Dec. 31 Dec. 31
1997 1996 1996 1995
- -----------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash and temporary investments $ 4,630,551 $ 7,380,932 $ 6,832,801 $ --
Funds restricted for mineral
exploration (Note 3a) 265,325 665,138 537,500 --
Accounts receivable 31,759 -- -- --
Refundable tax credits 40,054 17,201 21,454 --
Prepaid expenses and deposit 82,834 28,394 68,808 39,072
- -----------------------------------------------------------------------------------------------------
5,050,523 8,091,665 7,460,563 39,072
MINERAL INTERESTS (Note 3) 1,703,654 431,443 786,476 --
CAPITAL ASSETS (Note 4) 175,860 45,789 79,317 --
- -----------------------------------------------------------------------------------------------------
$ 6,930,037 $ 8,568,897 $ 8,326,356 $ 39,072
=====================================================================================================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 92,175 $ 102,171 $ 221,619 $ 49,458
Management fees payable -- 14,150 -- --
- -----------------------------------------------------------------------------------------------------
92,175 116,321 221,619 49,458
MINORITY INTEREST -- 544,433 541,389 --
- -----------------------------------------------------------------------------------------------------
92,175 660,754 763,008 49,458
- -----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 5) 8,872,968 8,739,468 8,662,468 810
DEFICIT (2,035,106) (831,325) (1,099,120) (11,196)
- -----------------------------------------------------------------------------------------------------
6,837,862 7,908,143 7,563,348 (10,386)
- -----------------------------------------------------------------------------------------------------
$ 6,930,037 $ 8,568,897 $ 8,326,356 $ 39,072
=====================================================================================================
</TABLE>
<PAGE> 90
MINCO MINING AND METALS CORPORATION
Consolidated Statement of Operations and Deficit
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Nine Nine Three
Months Months Year Months
Ended Ended Ended Ended
Sept. 30 Sept. 30 Dec. 31 Dec. 31
1997 1996 1996 1995
- -----------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST AND INVESTMENT INCOME $ 235,536 $ 42,600 $ 119,190 $ -
- -----------------------------------------------------------------------------------------------
ADMINISTRATIVE EXPENSES
Accounting 54,471 55,116 79,809 -
Advertising 14,632 11,185 31,143 -
Amortization 31,546 10,464 23,708 -
Automobile - - 11,784 -
Capital taxes 20,612 - -- -
Computer costs 1,903 - 21,559 -
Conference 42,269 36,936 50,608 -
Entertainment 45,884 6,914 16,939 -
Investor relations - consulting 110,883 75,800 65,087 -
Legal 51,249 90,154 108,170 11,736
Listing, filing and transfer agents 35,361 18,170 24,943 -
Management fees 66,446 165,695 261,845 -
Office and miscellaneous 70,670 50,207 49,633 -
Printing 75,142 97,928 29,223 -
Promotion and government relations 100,162 43,882 59,477 -
Property investigation 51,707 68,239 188,468 -
Rent 127,158 32,493 70,205 -
Salaries and benefits 152,264 48,393 43,496 -
Telephone 58,402 23,302 40,451 -
Travel 64,795 58,490 81,960 -
Foreign exchange gain (3,489) (4,502) (22,213) -
- -----------------------------------------------------------------------------------------------
1,172,067 888,866 1,236,295 11,736
- -----------------------------------------------------------------------------------------------
LOSS BEFORE MINORITY INTEREST (936,531) (846,266) (1,117,105) (11,736)
MINORITY INTEREST 545 26,137 29,181 540
- -----------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (935,986) (820,129) (1,087,924) (11,196)
DEFICIT, BEGINNING OF PERIOD (1,099,120) (11,196) (11,196) -
- -----------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD $(2,035,106) $ (831,325) $(1,099,120) $ (11,196)
===============================================================================================
LOSS PER SHARE $ (0.06) $ (0.08) $ (0.11) $ (0.00)
===============================================================================================
</TABLE>
<PAGE> 91
MINCO MINING AND METALS CORPORATION
Consolidated Statement of Changes in Financial Position
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Nine Nine Three
Months Months Year Months
Ended Ended Ended Ended
Sept. 30 Sept. 30 Dec. 31 Dec. 31
1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss for the period $ (935,986) $ (820,129) $(1,087,924) $ (11,196)
Items not involving cash
- amortization 31,546 10,464 23,708 -
- minority interest's share of loss (545) (26,137) (29,181) (540)
- --------------------------------------------------------------------------------------------------------------
(904,985) (835,802) (1,093,397) (11,736)
Net change in non-cash working capital (193,829) 60,340 120,971 10,386
- --------------------------------------------------------------------------------------------------------------
(1,098,814) (775,462) (972,426) (1,350)
- --------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES
Shares issued for the acquisition of subsidiary - 66,847 66,847 -
Shares issued for cash, net of issuance costs 158,000 8,671,811 8,594,811 1,350
Shares issued for finder's fee 52,500 - - -
Exploration fund contributed by minority interest - 570,570 570,570 -
- --------------------------------------------------------------------------------------------------------------
210,500 9,309,228 9,232,228 1,350
- --------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES
Acquisition of capital assets (128,089) (32,044) (78,816) -
Mineral interests acquisition costs (100,976) (300) (300) -
Acquisition of minority shareholder's
interest in Temco (175,000) - - -
Acquisition of capital assets and
mineral interests of subsidiary - (24,309) (24,309) -
Deferred exploration costs (1,182,046) (431,043) (786,076) -
Decrease (Increase) in funds restricted
for mineral exploration 272,175 (665,138) (537,500) -
- --------------------------------------------------------------------------------------------------------------
(1,313,936) (1,152,834) (1,427,001) -
- --------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (2,202,250) 7,380,932 6,832,801 -
CASH POSITION, beginning of period 6,832,801 - - -
- --------------------------------------------------------------------------------------------------------------
CASH POSITION, end of period $ 4,630,551 $ 7,380,932 $ 6,832,801 $ -
==============================================================================================================
</TABLE>
<PAGE> 92
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
a) Consolidation
These consolidated financial statements include the accounts of
Minco Mining & Metals Corporation ("Minco") and its British
Virgin Island subsidiary, Triple Eight Mineral Corporation
("Temco"). Temco was incorporated on September 1, 1995 and
commenced active business on October 1, 1995. All material
inter-company balances have been eliminated.
As disclosed in Note 2, Temco is the accounting parent. The
consolidated statement of operations includes Temco's results of
operations from October 1, 1995 and Minco's results of operations
from the effective date of the reverse takeover, being February
19, 1996.
b) Capital Assets
Amortization is provided as follows:
<TABLE>
<CAPTION>
<S> <C>
Motor vehicles 30% per annum, declining-balance basis
Mining equipment 30% per annum, declining-balance basis
Computer equipment 30% per annum, declining-balance basis
Office equipment and furniture 20% per annum, declining-balance basis
Leasehold improvement 20% per annum, straight-line basis
</TABLE>
c) Mineral Interests
The Company follows the method of accounting for its mineral
interests whereby all direct costs related to acquisition,
exploration and development are capitalized by property.
Management periodically reviews and obtains independent geologist
reports in determining if adjustments to the carrying values of
each of its mineral properties, on a property-by-property basis,
are required to record those properties at net realizable value.
The ultimate recoverability of the amounts capitalized for the
mineral properties is dependent upon the delineation of
economically recoverable ore reserves, the Company's ability to
obtain the necessary financing to complete their development and
realize profitable production or proceeds from the disposition
thereof. Management's estimates of recoverability of the
Company's investment in various projects have been based on
current conditions. However, it is reasonably possible that
changes could occur in the near term which could adversely affect
management's estimates and may result in future write-downs of
capitalized property carrying values.
On the commencement of commercial production, costs will be
amortized on the unit-of-production method over proven and
probable reserves.
The Company does not accrue the estimated costs of maintaining
its mineral interests in good standing.
<PAGE> 93
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
d) Conduct of Business
At present, the Company conducts majority of its mineral
exploration activities in China through joint ventures. All of
its joint venture agreements require the Company to spend certain
minimum amounts on exploration expenditures to earn interests in
mineral properties. Therefore, on a project-by-project basis, the
Company spends and records 100% of the exploration expenditures
until the interest is earned.
e) Property Option Agreements
From time to time, the Company may acquire or dispose of
properties pursuant to the terms of option agreements. Due to the
fact that options are exercisable entirely at the discretion of
the optionee, the amounts payable or receivable are not recorded.
Option payments are recorded as resource property costs or
recoveries when the payments are made or received.
f) Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at exchange rates in effect at
the balance sheet date for monetary items and at exchange rates
prevailing at the transaction dates for non-monetary items.
Revenues and expenses are translated at average exchange rates
prevailing during the period except for amortization which is
translated at historical exchange rates.
Gain and losses on translation are included as income for the
period except for those arising on translation of long-term
monetary items of Canadian and integrated foreign operations
which are deferred and amortized over the lives of those items.
g) Financial Instruments
The fair value of the Company's cash and temporary investments,
funds restricted for mineral explorations, accounts receivable,
refundable tax credits and accounts payable and accrued
liabilities were estimated to approximate their carrying values
due to the immediate or short term maturity of the financial
instruments. Unless otherwise noted, it is the management's
opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial statements.
<PAGE> 94
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
2. ACQUISITION OF TRIPLE EIGHT MINERAL CORPORATION ("TEMCO")
a) Pursuant to an assignment of contracts and share purchase
agreement dated February 19, 1996, the Company issued 2,400,000
free-trading shares and 4,880,000 escrow shares in exchange for
60% of the issued and outstanding shares of Temco and certain
contractual interests. Temco owns certain contractual rights in
respect of the following mineral properties in China:
i) Emperor's Delight
ii) Crystal Valley
iii) Stone Lake
This transaction resulted in the 60% former shareholder of Temco
owning the majority of the issued and outstanding shares of the
Company. Accounting principles applicable to reverse takeovers
have been applied to record this acquisition using the purchase
method of accounting. Under this basis of accounting, Temco has
been identified as the acquirer and, accordingly, the
consolidated entity is considered to be a continuation of Temco
with the net assets of the Company deemed to have been acquired
by Temco for a fair market value of $66,847.
The net assets of Minco acquired by Temco are summarized as
follows:
<TABLE>
<S> <C>
Cash $142,446
Mineral interests 100
Capital assets 24,209
Current liabilities (99,908)
--------------------------- ---------
$ 66,847
========
</TABLE>
b) The results of operations of Minco, the accounting subsidiary,
for the period January 1, 1996 to February 19, 1996 are
summarized as follows:
<TABLE>
<S> <C>
Interest income $ 1,167
--------------------------- --------
Expenses
Amortization 893
Filing and listing 3,560
Investor relations 6,935
Professional fees 40,132
Property investigation 2,817
Salaries and benefits 16,317
Management fees 3,333
General administration 17,611
------------------------- --------
91,598
--------
Loss for the period $(90,431)
--------------------------- ========
</TABLE>
<PAGE> 95
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
2. ACQUISITION OF TRIPLE EIGHT MINERAL CORPORATION ("TEMCO") (continued)
c) Pursuant to an assignment of contracts and share purchase
agreement dated March 27, 1997, the Company paid $175,000 in cash
to acquire the remaining 40% of the issued and outstanding shares
of Temco and certain contractual interests as stated above.
Purchase method of accounting has been applied to record the
acquisition. The fair value of net assets acquired are summarized
as follows:
<TABLE>
<S> <C>
Funds restricted for mineral exploration $ 146,809
Mineral interests (book value $416,128) 50,283
Current liabilities (22,092)
------------------------------------------------------
$ 175,000
======================================================
</TABLE>
3. MINERAL INTERESTS
<TABLE>
<CAPTION>
Sept. 30 Dec. 31
1996 1996
Sept. 30, 1997 (Unaudited) (Unaudited) (Audited)
--------------------------------------------- --------
Deferred
Acquisition Exploration Total Total Total
Costs Costs Costs Costs Costs
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Emperor's Delight $100 $189,371 $189,471 $258,244 $ 451,492
Lengkou - 128,502 128,502 - -
Crystal Valley 100 - 100 100 100
Stone Lake 100 - 100 100 100
Changba Lijiagou 100 35,460 35,560 11,072 28,065
Chapuzi, Gala and
Xifanping - 373,439 373,439 57,754 153,416
Heavenly Mountains - 577,976 577,976 - 153,303
Xinhui - 163,048 163,048 - -
Savoyardinskii 100,976 134,482 235,458 - -
- -----------------------------------------------------------------------------------------------------
$101,376 $1,602,278 $1,703,654 $431,443 $786,476
=====================================================================================================
</TABLE>
<PAGE> 96
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
3. MINERAL INTERESTS (continued)
a) The Emperor's Delight and Lengkou properties are located in Hebei
Province, China. Pursuant to the Joint Venture Agreement, Temco
can earn a 55% interest in the properties by spending US$4.4
million over a five-year period. The funds restricted for mineral
explorations, as shown in the financial statements, are funds
restricted for this joint venture.
b) The Crystal Valley and Stone Lake properties are located in Hebei
Province and the Changba Lijiagou Lead-Zinc Deposit is located in
Gansu Province. These projects are subject to the approval of the
appropriate Chinese government authorities.
c) The Chapuzi, Gala and Xifanping Gold Deposits are located in
Sichuan Province, China. The Company has entered into cooperative
agreements with the Sichuan Bureau of the Ministry of Geology and
Mineral Resources which is the holder of the exploration rights
to Chapuzi Gold Deposit.
Pursuant to an agreement, the Company shall have the right to
earn a 51% interest by spending $5 million on exploration and
development in the Chapuzi Gold Deposit. The Company may earn a
75% interest by placing the project into production.
Initial due diligence studies on the Gala and Xifanping projects
are being performed. The Company has an exclusive right to
negotiate and enter into joint venture contracts.
The joint venture is subject to the approval of the appropriate
Chinese government authorities.
d) The Heavenly Mountains properties are located in Xinjiang
Province. The Company has an exclusive right to negotiate and
enter into a joint venture contract with the Xinjiang Bureau of
the Ministry of Geology and Mineral Resources and to invest in
certain mineral properties located in Xinjiang Uygur Autonomous
Region in China.
e) The Xinhui properties are located in West Kunlun and West Tian
Shun regions of Xinjiang Province. The Company has entered into a
cooperation agreement with a subsidiary of China National
Non-Ferrous Metals Industry Corporation, to fund 100% of the
early stage exploration program and to invest in certain mineral
properties located in West Kunlun and West Tian Shun regions.
<PAGE> 97
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
3. MINERAL INTERESTS (continued)
f) The Company has acquired an 80% interest in a gold/antimony property
located in the Savoyardinskii area in Karakuldzinskii Region, Osh
Oblast, Kyrgyz Republic. The mineral exploration licence pertaining to
this property is held by the joint venture partners which own the
remaining 20% interest of the property. The licence is valid until
December 31, 1999 and is renewable.
A finder's fee comprising US$35,000 and 35,000 common shares of the
Company was paid and issued in connection with the acquisition of this
property interest. Following direct expenditures of US$1,000,000 on the
property, another finder's fee of 75,000 shares of the Company is
payable; following aggregate expenditures of US$2,000,000 on the
property, an additional finder's fee of 75,000 common shares of the
Company is payable.
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
Sept. 30 Sept. 30 Dec. 31
1997 1996 1996
(Unaudited) (Unaudited) (Audited)
-------------------------------------------------
<S> <C> <C> <C>
AT COST:
Computer equipment $ 51,427 $ 36,592 $ 37,774
Office equipment and furniture 64,305 19,660 39,604
Leasehold improvements 25,648 - 25,648
Motor vehicles 40,681 - -
Mining equipment 49,054 - -
----------------------------------------------------------------------------------------
231,115 56,252 103,026
Accumulated amortization (55,255) (10,463) (23,709)
----------------------------------------------------------------------------------------
NET BOOK VALUE $175,860 $ 45,789 $ 79,317
========================================================================================
</TABLE>
<PAGE> 98
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
5. SHARE CAPITAL
(a) Authorized: 100,000,000 common shares without par value
(b) Issued:
<TABLE>
<CAPTION>
Shares Amount
--------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1995 *2,785,873 $ *810
Shares issued to effect the acquisition of
subsidiary plus 100,000 shares for finder's fee **7,380,000 **66,847
Issued of escrow shares at $0.01 per share 437,500 4,375
Issued pursuant to exercise of options
at $1.00 per share 146,750 146,750
Issued pursuant to a private placement
at $0.80 per share 1,250,000 1,000,000
Issued pursuant to an Exchange Offering Prospectus
at $2.55 per share, net of commission
and professional fees of $639,314 3,200,000 7,520,686
--------------------------------------------------------------------------------------------
Balance, September 30,1996 15,200,123 8,739,468
Additional share issuance cost
pursuant to an -- (79,000)
Exchange Offering Prospectus
Issued pursuant to exercise of options
at $1.00 per share 2,000 2,000
--------------------------------------------------------------------------------------------
Balance, December 31, 1996 15,202,123 8,662,468
Issued pursuant to exercise of warrants
at $1.20 per share 125,000 150,000
Issued pursuant to exercise of
options at $1.00 per share 8,000 8,000
Issued for finder's fee at $1.50 per share 35,000 52,500
--------------------------------------------------------------------------------------------
Balance, September 30, 1997 15,370,123 $ 8,872,968
============================================================================================
</TABLE>
* The number of shares equals the shares outstanding in Minco and the capital
amount equals that of Temco (see Note 2)
**The $66,847 represent the fair market value of Minco's net assets (see Note 2)
(c) 5,442,500 of the shares issued are held in escrow, the release of
which is subject to the direction of the regulatory authorities.
<PAGE> 99
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
5. SHARE CAPITAL (continued)
(d) Stock options outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Number of Exercise Price Expiry Date
Shares
-------------------------------------------------------
<S> <C> <C>
1,274,500 $1.41 June 20, 2007
250,000 $1.45 July 16, 2007
---------
1,524,500
=========
</TABLE>
(e) Warrants outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Number of Exercise Price Expiry Date
Shares
-------------------------------------------------------------
<S> <C> <C>
125,000 $1.38 February 20, 1998
1,600,000 $2.55 December 23, 1997
---------
1,725,000
=========
</TABLE>
6. RELATED PARTY TRANSACTIONS
(a) The Company incurred the following expenses to its directors or
corporations controlled by its directors:
<TABLE>
<CAPTION>
Sept. 30 Sept. 30
1997 1996 Dec. 31 Dec. 31
(Unaudited) (Unaudited) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Administrative expenses:
Accounting $ -- $ 7,100 $ 7,100 $ --
Managemeng fees and salaries 79,000 205,328 275,078 --
Property investigation 16,526 -- 27,408 --
Rent -- 2,400 7,020 --
Investor relations -- consulting 2,760 -- -- --
Deferred exploration costs:
Geological consulting 48,992 -- 27,902 --
Project management 29,552 -- 2,400 --
- ----------------------------------------------------------------------------------------
$176,830 $214,828 $346,908 $ --
========================================================================================
</TABLE>
(b) Account payable of $49,458 (1996 - $49,458) is due to a
corporation controlled by a director of the Company.
<PAGE> 100
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
7. COMMITMENTS
The Company has commitments in respect of office leases requiring
minimum payments of $180,740 within the next five years, as follows:
<TABLE>
<S> <C>
1997 $ 36,148
1998 36,148
1999 36,148
2000 36,148
2001 36,148
-----------------------------------------------------
$180,740
=====================================================
</TABLE>
8. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
These consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles ("GAAP") which conforms
with the GAAP in United States in most aspects. Total assets and total
liabilities computed in accordance with U.S. GAAP are not materially
different from the amounts determined in accordance with Canadian GAAP.
The only significant differences are as follows:
a) Impairment of Long-lived Assets
In March 1995, the U.S. Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangible
assets being held and used by an entity be reviewed for impairment
by estimating the fair value of future cash flows from use and
disposition of the assets whenever circumstances indicate that the
carrying amount of such assets may not be recoverable. There was no
effect on the Company's consolidated financial statements of
adopting SFAS No. 121 as required by U.S. GAAP.
<PAGE> 101
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
8. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
b) Loss Per Share
In February 1996, Statement of Financial Accounting Standards No.
128 ("SFAS 128"), "Earnings per Share" was issued by the U.S.
FASB. SFAS No. 128 established standards for computing and
presenting earnings per share ("EPS") and simplifies the existing
standards. This standard replaced the presentation of primary EPS
with a presentation of basic EPS. It also requires the dual
presentation of basic and diluted EPS on the face of the
statement of operations for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. There was no effect
on the Company's consolidated financial statements in adopting
SFAS No. 128 as required by U.S. GAAP.
c) Escrow Shares
Escrow shares (see Note 5c) may be released, upon application, on
the basis of 15% of the original number of escrow shares for
every $100,000 expended on exploration and development of a
resource property provided that no more than 50% of the original
number of escrow shares may be released in any twelve-month
period. In addition, where administrative expenses exceed 33% of
total expenditures during the period of application, then the
release factor of 15% will be reduced to 7.5% and the percentage
of the original number of escrow shares available for release in
any twelve-month period will be reduced to 25%.
U.S. GAAP requires that the fair value of the shares at the time
they are released from escrow should be recognized as a charge to
income as a compensation expense.
There were no share released from escrow during the periods
presented.
As escrow shares are contingently cancellable, they are excluded from the
calculation of weighted average number of shares for purpose of loss per share
under U.S. GAAP. Its effect on the Company's consolidated financial statements
is presented in Note 8(e).
d) Stock Compensation Expense
In October 1995, the U.S. FASB issued Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes financial
accounting and reporting standards for stock-based employee
compensation plans. The statement encourages all entities to
adopt a fair value based method of accounting, but allows an
entity to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Stock compensation expense under stock option plan is
computed as the excess between the market value of shares and the
option's exercise price times the number of shares issuable when
the option is granted. The amount is then recognized in the
operations statement over the vesting period. The effect on the
Company's consolidated financial statements on
<PAGE> 102
adopting SFAS No. 123 as required by U.S. GAAP is presented in
Note 8(e).
e) Net loss for the period, share capital, weighted average number
of shares for purpose of loss per share and loss per share after
accounting for stock compensation expense and escrow shares, as
required by U.S. GAAP, are as follows:
<TABLE>
<CAPTION>
9 months 9 months
ended ended 12 months 3 months
Sept. 30 Sept. 30 ended ended
1997 1996 Dec. 31 Dec. 31
(Unaudited) (Unaudited) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss for the period
(Canadian GAAP) $ (935,986) $ (820,129) $(1,087,924) $ (11,196)
Release of escrow shares as -- -- -- --
compensation expense
Stock compensation expense (16,983) (12,250) (17,800) --
- -----------------------------------------------------------------------------------------------------------------------
$ (952,969) $ (832,379) $(1,105,724) $ (11,196)
=======================================================================================================================
Share capital (Canadian GAAP) $ 8,872,968 $ 8,739,468 $ 8,662,468 $ 810
Stock option compensation 121,000 105,000 111,000 --
Deferred stock compensation --
expense (86,217) (92,750) (93,200)
- -----------------------------------------------------------------------------------------------------------------------
Share capital (U.S. GAAP) 8,907,751 $ 8,751,718 $ 8,680,268 $ 810
=======================================================================================================================
Weighted average number of
shares for purposes
of loss per share (U.S. GAAP) 9,888,363 5,288,091 5,582,498 2,386,900
=======================================================================================================================
Loss per share (U.S. GAAP) $ 0.10 $ 0.16 $ 0.20 $ 0.00
=======================================================================================================================
</TABLE>
<PAGE> 103
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
8. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
f) U.S. GAAP requires additional disclosures of stock options, as
follows:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price Expiry Date
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1994
and 1995 156,750 $1.00 June 2, 2000
Options granted 1,050,000 $1.85 March 5, 2001
Options granted 100,000 $2.90 October 18, 2001
Options exercised (148,750) $1.00
----------
Balance, December 31, 1996 1,158,000
Options amended 1,059,000 $1.41 June 20, 2007
Options amended and expired (1,050,000) $1.85 March 5, 2001
Options amended and expired (100,000) $2.90 October 18, 2001
Options granted 215,500 $1.41 June 20, 2007
Options granted 250,000 $1.45 July 16, 2007
Options exercised (8,000) $1.00
----------
Balance, September 30, 1997 1,524,500 (see Note 5d)
==========
</TABLE>
<PAGE> 104
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
8. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
g) Consolidated Statement of Cash Flows:
The consolidated statement of cash flows, as required by U.S.
GAAP is as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
Nine Nine Three
Months Months Year Months
Ended Ended Ended Ended
Sept. 30 Sept. 30 Dec. 31 Dec. 31
1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net loss for the period $ (935,986) $ (820,129) $(1,087,924) $(11,196)
Items not involving cash
- amortization 31,546 10,464 23,708 --
- minority interest's share of loss (545) (26,137) (29,181) (540)
- ----------------------------------------------------------------------------------------------------------------------------
(904,985) (835,802) (1,093,397) (11,736)
Net change in non-cash working capital
- - account receivable (31,759) -- -- --
- - refundable tax credits (18,600) (17,201) (21,454) 49,458
- - prepaid expenses and deposits (14,026) 10,678 (29,736) (39,072)
- - accounts payable (129,444) (33,045) 72,253 --
- ----------------------------------------------------------------------------------------------------------------------------
(1,098,814) (875,370) (1,072,334) (1,350)
- ----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Cash balance of subsidiary when acquired -- 142,446 142,446 --
Shares issued for cash, net of issuance costs 158,000 8,671,811 8,594,811 1,350
Exploration fund contributed by minority interest -- 570,570 570,570 --
- ----------------------------------------------------------------------------------------------------------------------------
158,000 9,384,827 9,307,827 1,350
- ----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Acquisition of capital assets (128,089) (32,044) (78,816) --
Acquisition of mineral interests (48,476) (300) (300) --
Acquisition of minority shareholder's
interest in Temco (175,000) -- -- --
Deferred exploration costs (1,182,046) (431,043) (786,076) --
Decrease (Increase) in funds restricted
for mineral exploration 272,175 (665,138) (537,500) --
- ----------------------------------------------------------------------------------------------------------------------------
(1,261,436) (1,128,525) (1,402,692) --
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (2,202,250) 7,380,932 6,832,801 --
CASH POSITION, beginning of period 6,832,801 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
CASH POSITION, end of period $ 4,630,551 $ 7,380,932 $ 6,832,801 $ --
============================================================================================================================
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Shares issued for the acquisition of subsidiary $ -- $ 66,847 $ 66,847 $ --
Shares issued for finder's fees 52,500 255,000 255,000 --
Acquisition of capital assets and mineral interest
of subsidiary -- (24,309) (24,309) --
- ----------------------------------------------------------------------------------------------------------------------------
$ 52,000 $ 297,538 $ 297,538 $ --
============================================================================================================================
</TABLE>
<PAGE> 105
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (Audited)
September 30, 1997 and 1996 (Unaudited)
8. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
g) Consolidated Statement of Cash Flows: (continued)
U.S. GAAP requires the consolidated statement of cash flows to
disclose supplemental non-cash activities. In 1996, certain
share issuance costs, consisting of finder's fees and the
acquisitions of net assets of the subsidiary, valued at $255,000
and $66,847, respectively, were paid by way of issuing common
shares of the Company. In 1997, finder's fees for acquisition of
mineral interests were also paid by issuing common shares of the
Company. For Canadian GAAP, these transactions were included in
the cash provided by financing activities section of the
consolidated statement of changes in financial position.
<PAGE> 106
MINCO MINING & METALS CORPORATION
Financial Statements
(IN CANADIAN DOLLARS)
February 19, 1996 and
December 31, 1995 and 1994
INDEX
Auditors' Report
Balance Sheet
Statement of Operations and Deficit
Statement of Changes in Financial Position
Notes to Financial Statements
<PAGE> 107
AUDITORS' REPORT
TO THE SHAREHOLDERS OF
MINCO MINING & METALS CORPORATION
We have audited the balance sheets of MINCO MINING & METALS CORPORATION as at
December 31, 1995 and 1994 and the statements of operations and deficit and
changes in financial position for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1995 and 1994
and the results of its operations and the changes in its financial position for
the years then ended in accordance with accounting principles generally accepted
in Canada.
Vancouver, Canada "ELLIS FOSTER"
February 12, 1996 Chartered Accountants
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
These financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP") in Canada, which conforms with the GAAP in United
States in most aspects. Total assets and total liabilities computed in
accordance with U.S. GAAP are not materially different from the amounts
determined in accordance with Canadian GAAP. The significant differences are
summarized in Note 6 of the financial statements.
Vancouver, Canada "ELLIS FOSTER"
February 12, 1996 Chartered Accountants
<PAGE> 108
MINCO MINING & METALS CORPORATION
Balance Sheet
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Feb. 19 Dec. 31 Dec. 31
1996 1995 1994
$ $ $
- ----------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash 142,446 229,304 137,437
Marketable securities - - 600
Refundable tax credits - 2,680 1,989
Loan receivable - - -
- ----------------------------------------------------------------------------------
142,446 231,984 140,026
MINERAL INTERESTS (Note 2) 100 100 -
CAPITAL ASSETS (Note 3) 24,209 25,102 -
- ----------------------------------------------------------------------------------
166,755 257,186 140,026
==================================================================================
LIABILITIES
CURRENT
Accounts payable and
accrued liabilities 27,908 27,908 10,550
Management fees payable 12,000 12,000 48,000
Due to a director 60,000 60,000 -
Due to related entity - - -
Deposits from investors - - -
- ----------------------------------------------------------------------------------
99,908 99,908 58,550
- ----------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4) 3,026,474 3,026,474 2,526,474
DEFICIT (2,959,627) (2,869,196) (2,444,998)
- ----------------------------------------------------------------------------------
66,847 157,278 81,476
- ----------------------------------------------------------------------------------
166,755 257,186 140,026
==================================================================================
</TABLE>
<PAGE> 109
MINCO MINING & METALS CORPORATION
Statement of Operations and Deficit
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Jan. 1 -
Feb. 19
1996 1995 1994
$ $ $
- -------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
REVENUE
Interest income 1,167 8,754 2,795
Gain on sale of
marketable securities - 535 -
- -------------------------------------------------------------------------------------
1,167 9,289 2,795
- -------------------------------------------------------------------------------------
EXPENSES
Accounting and audit 8,310 21,830 11,958
Amortization 893 3,587 -
Bank charges - 852 230
Filing fees 3,560 7,840 4,171
Investor relations 6,935 19,863 3,683
Legal 31,822 18,409 4,746
Management and
consulting fees 13,233 45,684 24,000
Office and miscellaneous 15,256 19,625 1,075
Property investigation 2,817 143,078 51,287
Rent - 38,443 -
Salaries and benefits 6,417 57,621 -
Telephone 1,171 15,678 -
Transfer agent - 4,392 4,119
Transportation - 11,200 -
Travel and conference - 25,385 -
Writedown of marketable
securities - - -
- -------------------------------------------------------------------------------------
90,414 433,487 105,269
- -------------------------------------------------------------------------------------
OPERATING LOSS (89,247) (424,198) (102,474)
WRITEOFF OF RESOURCE
INTERESTS - - -
- -------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (89,247) (424,198) (102,474)
DEFICIT, beginning of period (2,869,196) (2,444,998) (2,342,524)
- -------------------------------------------------------------------------------------
DEFICIT, end of period (2,958,443) (2,869,196) (2,444,998)
=====================================================================================
LOSS PER SHARE (0.03) (0.17) (0.04)
=====================================================================================
</TABLE>
<PAGE> 110
MINCO MINING & METALS CORPORATION
Statement of Changes in Financial Position
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Jan. 1 -
Feb. 19
1996 1995 1994
$ $ $
- -------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
CASH PROVIDED BY (USED
FOR) OPERATING ACTIVITIES
Net loss for the period (90,431) (424,198) (102,474)
Items not involving cash:
- amortization 893 3,587 -
- writeoff of resource
interests - - -
- -------------------------------------------------------------------------------------
(89,538) (420,611) (102,474)
Net change in non-cash
working capital 2,680 41,267 91,705
- -------------------------------------------------------------------------------------
(86,858) (379,344) (10,769)
- -------------------------------------------------------------------------------------
CASH PROVIDED BY (USED
FOR) FINANCING ACTIVITIES
Shares issued for debts - - -
Shares issued for
consulting fees - - -
Shares issued for cash - 500,000 110,000
Investors' deposits - - -
- -------------------------------------------------------------------------------------
- 500,000 110,000
- -------------------------------------------------------------------------------------
CASH PROVIDED BY (USED
FOR) INVESTING ACTIVITIES
Acquisition of capital assets - (28,689) -
Acquisition of resource
interests - (100) -
- -------------------------------------------------------------------------------------
- (28,789) -
- -------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
CASH POSITION (86,858) 91,867 99,231
CASH POSITION,
beginning of year 229,304 137,437 38,206
- -------------------------------------------------------------------------------------
CASH POSITION,
end of year 142,446 229,304 137,437
=====================================================================================
</TABLE>
<PAGE> 111
MINCO MINING & METALS CORPORATION
Notes to Financial Statements
(IN CANADIAN DOLLARS)
February 19,1996 and
December 31, 1995 and 1994
1. SIGNIFICANT ACCOUNTING POLICIES
a) Capital Assets
Amortization is provided on a declining-balance basis as follows:
Computer equipment 30% per annum
Office equipment and furniture 20% per annum
b) Mineral Interests
The Company follows the method of accounting for its mineral
interests whereby all direct costs related to acquisition,
exploration and development are capitalized by property.
Management periodically reviews and obtains independent geologist
reports in determining if adjustments to the carrying values of
each of its mineral properties, on a property-by-property basis,
are required to record those properties at net realizable value.
The ultimate recoverability of the amounts capitalized for the
mineral properties is dependent upon the delineation of
economically recoverable ore reserves, the Company's ability to
obtain the necessary financing to complete their development and
realize profitable production or proceeds from the disposition
thereof. Management's estimates of recoverability of the Company's
investment in various projects have been based on current
conditions. However, it is reasonably possible that changes could
occur in the near term which could adversely affect management's
estimates and may result in future write-downs of capitalized
property carrying values.
On the commencement of commercial production, costs will be
amortized on the unit-of-production over proven probable reserves.
The Company does not accrue the estimated costs of maintaining its
mineral interests in good standing.
c) Property Option Agreements
From time to time, the Company may acquire or dispose of properties
pursuant to the terms of option agreements. Due to the fact that
options are exercisable entirely at the discretion of the optionee,
the amounts payable or receivable are not recorded. Option payments
are recorded as resource property costs or recoveries when the
payments are made or received.
<PAGE> 112
MINCO MINING & METALS CORPORATION
Notes to Financial Statements
(IN CANADIAN DOLLARS)
February 19,1996 and
December 31, 1995 and 1994
2. MINERAL INTERESTS
The Company has entered into a joint venture agreement with the Sichuan
Bureau of Geology and Mineral Resources ("SBGMR"). SBGMR is the holder of
exploration rights to the Chapuzi Gold Deposit in Sichuan Province,
China.
Pursuant to the agreement, the Company shall have the right to earn a 51%
interest by spending CDN$5 million on exploration and development.
As at December 31, 1995, the Company has incurred $135,201 in connection
with the expenses of investigation and signing of the joint venture
agreement. These costs have been expensed together with other property
investigation.
The mineral interest is carried at a minimal amount of $100.
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
February 19, 1996 Net Book Value,
---------------------------------------------
December 31
-------------
Net
Accumulated Book
Cost Amortization Value 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Computer equipment $14,358 $2,690 $11,668 $12,204 $ -
Office equipment
and furniture 14,331 1,790 12,541 12,898 -
- -------------------------------------------------------------------------------------
$28,689 $4,480 $24,209 $25,102 $ -
=====================================================================================
</TABLE>
4. SHARE CAPITAL
a) Authorized: 20,000,000 common shares without par value.
b) Issued:
<TABLE>
<CAPTION>
Shares Amount
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1993 1,785,873 2,416,474
Issued pursuant to exercise of warrants at $0.22 per 500,000 110,000
share
- -----------------------------------------------------------------------------------------
Balance, December 31, 1994 2,285,873 2,526,474
Issued pursuant to a private placement 500,000 500,000
- -----------------------------------------------------------------------------------------
Balance, February 19, 1996 and December 31, 1995 2,785,873 3,026,474
=========================================================================================
</TABLE>
4. SHARE CAPITAL (continued)
<PAGE> 113
MINCO MINING & METALS CORPORATION
Notes to Financial Statements
(IN CANADIAN DOLLARS)
February 19,1996 and
December 31, 1995 and 1994
c) 125,000 of the shares issued are held in escrow, the release of
which is subject to the direction of the regulatory authorities.
d) The Company has granted incentive stock options to directors and
employees for 156,750 shares exercisable at $1.00 per share,
expiring June 2, 2000.
e) The Company has agreed to issue 437,500 additional escrow shares to
its directors at $0.01 per share. These shares were issued
subsequent to the year-end.
f) The Company has agreed to issue, subject to regulatory approval,
200,000 shares as finder's fees in connection with the joint
venture as described in Note 2.
5. REMUNERATION OF DIRECTORS AND SENIOR OFFICERS
<TABLE>
<CAPTION>
Jan. 1 - Feb. 19 Year Ended
---------------- ----------------
December 31
-----------
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Accounting services $ 1,425 $10,400 $ -
Management and consulting fees 13,233 45,864 24,000
Office and miscellaneous - - -
Salaries 4,520 33,000 -
- ----------------------------------------------------------------------------
$19,178 $89,264 $24,000
============================================================================
</TABLE>
6. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These financial statements are prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") which conforms with the
GAAP in United States in most aspects. Total assets and total liabilities
computed in accordance with U.S. GAAP are not materially different from
the amounts determined in accordance with Canadian GAAP. The only
significant differences are as follows:
a) Impairment of Long-Lived Assets
In March 1995, the U.S. Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangible
assets being held and used by an entity be reviewed for impairment
by estimating the fair value of future cash flows from use and
disposition of the assets whenever circumstances indicate that the
carrying amount of such assets may not be recoverable. There was no
effect on the Company's financial statements of adopting SFAS No.
121 as required by U.S. GAAP.
<PAGE> 114
MINCO MINING & METALS CORPORATION
Notes to Financial Statements
(IN CANADIAN DOLLARS)
February 19,1996 and
December 31, 1995 and 1994
6. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
b) Loss Per Share
In February 1996, Statement of Financial Accounting Standards No.
128 ("SFAS 128"), "Earnings per Share" was issued by the U.S. FASB.
SFAS No. 128 established standards for computing and presenting
earnings per share ("EPS") and simplifies the existing standards.
This standard replaced the presentation of primary EPS with a
presentation of basic EPS. It also requires the dual presentation
of basic and diluted EPS on the face of the statement of operations
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. There was no effect on the Company's consolidated
financial statements in adopting SFAS No. 128 as required by U.S.
GAAP.
c) Escrow Shares
Escrow shares (see Note 4c) may be released, upon application, on
the basis of 15% of the original number of escrow shares for every
$100,000 expended on exploration and development of a resource
property provided that no more than 50% of the original number of
escrow shares may be released in any twelve-month period. In
addition, where administrative expenses exceed 33% of total
expenditures during the period of application, then the release
factor of 15% will be reduced to 7.5% and the percentage of the
original number of escrow shares available for release in any
twelve-month period will be reduced to 25%.
U.S. GAAP requires that the fair value of the shares at the time
they are released from escrow should be recognized as a charge to
income as a compensation expense.
There were no share released from escrow in from 1992 to 1996.
As escrow shares are contingently cancellable, they are excluded
from the calculation of weighted average number of shares for
purpose of loss per share under U.S. GAAP. Its effect on the
Company's financial statements is presented in Note 6(e).
d) Stock Compensation Expense
In October 1995, the U.S. FASB issued Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes financial
accounting and reporting standards for stock-based employee
compensation plans. The statement encourages all entities to adopt
a fair value based method of accounting, but allows an entity to
continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Stock
compensation expense under stock option plan is computed as the
excess between the market value of shares and the option's exercise
price times the number of shares issuable when the option is
granted. The amount is then recognized in the operations statement
over the vesting period. There was no effect on the Company's
financial statements in adopting SFAS No. 123 as required by U.S.
GAAP.
<PAGE> 115
MINCO MINING & METALS CORPORATION
Notes to Financial Statements
(IN CANADIAN DOLLARS)
February 19,1996 and
December 31, 1995 and 1994
6. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
e) Net loss for the period, share capital, weighted average number of
shares for purpose of loss per share and loss per share after
accounting for stock compensation expense and escrow shares, as
required by U.S. GAAP, are as follows:
<TABLE>
<CAPTION>
Jan. 1 -
Feb. 19
1996 1995 1994
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Net loss for the period
(Canadian GAAP) $ (89,247) $(424,198) $(102,474)
Release of escrow shares as
compensation expense - - -
Stock compensation expense - - -
- -------------------------------------------------------------------------------------
Net loss for the period
(U.S. GAAP) (89,247) (424,198) (102,474)
=====================================================================================
Share capital (Canadian GAAP) 3,026,474 3,026,474 2,526,474
Stock option compensation - -
Deferred stock compensation
expense - - -
- -------------------------------------------------------------------------------------
Share capital (U.S. GAAP) 3,026,474 3,026,474 2,526,474
=====================================================================================
Weighted average number of
shares for purpose of loss
per share (U.S. GAAP) 2,386,900 2,386,900 1,798,583
=====================================================================================
Loss per share (U.S. GAAP) (0.04) (0.18) (0.06)
=====================================================================================
</TABLE>
f) U.S. GAAP requires additional disclosures of stock options, as
follows:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price Expiry Date
------ ----- -----------
<S> <C> <C> <C>
Balance, December 31, 1994 -
Options granted 156,750 $1.00 June 2, 2000
-------
Balance, December 31, 1995
and February 19, 1996 156,750
=======
</TABLE>
<PAGE> 116
MINCO MINING & METALS CORPORATION
Notes to Financial Statements
(IN CANADIAN DOLLARS)
February 19,1996 and
December 31, 1995 and 1994
6. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
g) Consolidated Statement of Changes in Financial Position and
Consolidated Statement of Cash Flows
U.S. GAAP requires the statement of cash flows to disclose
supplemental non-cash activities. For 1993, certain debts and
consulting fees valued at $20,000 and $11,250, respectively, were
paid by way of issuing common shares of the Company. For Canadian
GAAP, these transactions were included as part of the issuance of
share capital in the financing activities section fo the statement
of changes in financial position.
Apart from the disclosure of supplementary non-cash activities in
1993, the statement of cash flows, as required by U.S. GAAP, of all
periods are not materially different from the statement of changes
in financial position.
<PAGE> 117
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
*3.(i) Articles of Incorporation and all amendments
*3.(ii) Bylaws
**10.1 Assignment of Contracts and Share Purchase Agreements Between
Registrant and Pacific Canada Resources, Inc., dated February 19,
1996
**10.2 Sale and Purchase Agreement between Registrant and China Clipper Gold
Mines, Ltd., dated February 27, 1997
**10.3 Cooperation Agreement Between Registrant and Baiyin Non-Ferrous
Metals Company dated October 18, 1996 regarding the Changba-Lijiagou
Lead-Zinc Deposit
**10.4 Cooperation Agreement Between Pacific Canada Resources, Inc.,
Patrician Gold Mines, Ltd. and the First Geoexploration Bureau of
Ministry of Metallurgical Industry dated November 17, 1994
**10.5 Joint Venture Agreement between Geoexploration Corporation of the
First Geoexploration Bureau and Triple Eight Minerals Corporation
dated December 25, 1995
**10.6 Cooperation Agreement Between Sichuan Bureau of Geology and Mineral
Resources and Registrant dated July 27, 1996
</TABLE>
<PAGE> 118
<TABLE>
<S> <C>
**10.7 Cooperation Agreement Between Registrant and Bureau of Geology and
Mineral Resources of Xinjiang Uygur Autonomous Region dated May 27,
1996
**10.8 Letter of Intent Among Pacific Canada Resources, Inc., Teck
Exploration Ltd. and Baiyin Non-Ferrous Metals Corporation dated June
6, 1995
**10.9 Investment and Participation Agreement dated February 20, 1996 Among
the Registrant, Teck Corporation and Cominco Ltd.
**10.10 Letter of Intent Between Sichuan Bureau of Geology and Mineral
Resources and Registrant dated October 15, 1996
**10.11 Consulting Agreement dated June 25, 1996 between Registrant and
Kaisun Group Canada, Inc.
**10.12 Consulting Agreement dated June 25, 1996 between Registrant and Peter
Tsaparas
**10.13 Employment Agreement dated November 1, 1996 between Registrant and
Peter Tsaparas
**10.14 Consulting Agreement dated June 25, 1996 between Registrant and Colin
McAleenan
**10.15 Consulting Agreement dated June 25, 1996 between Registrant and
1066098 Ontario, Inc.
**10.16 Stock Option Agreement between Registrant and Petros Tsaparas dated
June 2, 1995. Identical, except for price and number of shares to
stock option agreements entered into between Registrant and other
officers and directors
**10.17 Stock Escrow Agreement dated December 24, 1993 between Montreal Trust
Company of Canada, Consolidated Caprock Resources, Ltd. and certain
shareholders of Consolidated Caprock Resources, Ltd.
**10.18 Performance Shares Escrow Agreement dated August 17, 1995 between
Registrant, Montreal Trust Company of Canada and certain shareholders
of Registrant
10.19 Assignment dated January 17, 1997 from Magko to Registrant
10.20 Letter of Intent dated May 13, 1997 between Registrant, Magko and
South Kyrgyz Geological Expedition
</TABLE>
<PAGE> 119
<TABLE>
<S> <C>
10.21 License dated April 11, 1997 from the Agency for Geology and Mineral
Resources of the Government of the Kyrgyz Republic to Magko
10.22 Assignment dated April 17, 1997 between Triple Eight Minerals
Corporation and Geoexploration Corporation of the First
Geoexploration Bureau of the People's Republic of China
10.23 Agreement dated July 16, 1997 between Registrant and Camden Financial
10.24 Cooperation Agreement dated November 17, 1997 between Registrant and
Baiyin Non-Ferrous Metals Company
23.1 Consent of Independent Accountants dated January 20, 1998
23.2 Consent of Independent Accountants dated January 20, 1998
23.3 Consent of Independent Geological Consultant - A.C.A. Howe
International, Limited
23.4 Consent of Independent Geological Consultant - H.A. Simons, Ltd.
23.5 Consent of XRAL Laboratories
</TABLE>
*Incorporated herein by reference to the corresponding exhibit filed with
Registrant's original form 20F filed May 29, 1997, withdrawn July 21, 1997
**Incorporated herein by reference to exhibits 3a through 3r respectively,
filed with Registrant's original form 20F filed May 29, 1997, withdrawn
July 21, 1997
<PAGE> 1
EXHIBIT 10.19
THIS ASSIGNMENT AGREEMENT made as of the 17th day of January, 1997.
BETWEEN:
MAGKO, an international joint stock geological company having an
office at Ulitsa Miklukho-Maklaya 23, Moscow, Russia
(hereinafter called "Magko")
OF THE FIRST PART
AND:
MINCO MINING & METALS CORPORATION, a company duly incorporated
pursuant to the laws of British Columbia, and having an office at
Suite 1870, 401 West Georgia Street, Vancouver, British Columbia,
Canada
(hereinafter called "Minco")
OF THE SECOND PART
WHEREAS:
A. Pursuant to a General Agreement dated August 27, 1995 made between
Magko and the Ministry of Geology and Mineral Resources of the Kyrgyz Republic
(the "Ministry"), and a Certificate for Mineral Wealth Usage Rights granted by
the Ministry to the Assignor copies of which (both the Russian versions and the
English translations) are attached hereto as Schedules "A" and "B" respectively
(the "General Agreement" and "Certificate" respectively), Magko acquired the
exclusive right to conduct certain exploration work on a mineral exploration
property in southwest Khirghizistan (the "Property");
B. Magko wishes to assign an 80% undivided interest in and to the
Property and the General Agreement and the Certificate to Minco and Minco has
agreed to such assignment;
C. Magko and Minco wishes to form a joint venture in respect to the
exploration and development of the Property, which joint venture may include
the Khirghizistan government as a joint venture partner (the "Proposed Joint
Venture");
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of
Minco paying to Magko the sum of One Dollar ($1.00) and other good and valuable
consideration, the receipt and sufficiency whereof is hereby acknowledged by
Magko, the parties hereto covenant and agree each with the other as follows:
<PAGE> 2
- 2 -
1. Magko hereby grants, assigns, transfers and sets over onto Minco, its
successors and assigns, an 80% undivided interest in and to the Property and
the General Agreement, the Certificate and all right, benefit, title and
interest of Magko in and to the Property and the General Agreement, the
Certificate and any other interests that Magko may have or hereinafter acquire
in the Property including, without limitation, the right to take legal action to
enforce the terms of the General Agreement and the Certificate in the name of
Magko, if required.
2. Magko hereby covenants with Minco as follows:
a. there are no existing defaults on the part of Magko under the General
Agreement or the Certificate;
b. Magko has performed all obligations and requirements to be performed
by it pursuant to the terms of the General Agreement or the
Certificate;
c. Magko is the lawful owner of all right, title and interest in and to
the General Agreement and the Certificate, and has the right to assign
the General Agreement and the Certificate and its title and interest
therein to Minco;
d. the General Agreement and the Certificate are valid and binding
agreements and are fully enforceable in accordance with their terms;
e. Magko has not done nor permitted any act, matter or thing whereby the
General Agreement or the Certificate have been assigned, in whole or
in part, or encumbered; and
f. there are no disputes of which Magko is aware between Magko and the
Ministry relating to the General Agreement or the Certificate.
3. Magko hereby covenants with Minco that Magko will, at the request of
Minco, perform and execute every act, matter or thing, instrument,
document, writing, agreement or covenant necessary, desirable or
useful in connection with the full performance of this Agreement.
4. Minco covenants with Magko that it will observe and perform all
obligations, covenants and requirements to be performed by Magko
pursuant to the General Agreement and the Certificate when required to
be performed.
5. The parties agree that the only parties to the Proposed Joint Venture
shall be Minco, Magko and, possibly, the Ministry, unless otherwise
agreed to by the parties in writing.
6. The parties acknowledge and agree that Taly Keren ("Keren") has been
instrumental in introducing the Property and Magko to Minco and that,
pursuant a finder's fee
<PAGE> 3
- 3 -
agreement made between Minco and Taly Keren, a finders fee may be payable by
Minco to Keren.
7. The parties agree that Minco shall, for the duration of the Proposed Joint
Venture, have a right of first refusal in respect to any proposed sale or
other disposition by Magko of the remaining interests held by Magko in the
Proposed Joint Venture subsequent to the completion of this Agreement.
8. The parties agree that this Agreement will be translated into the Russian
language and that the English language and the Russian language versions shall
be of equal authority.
9. This Agreement shall enure to the benefit of and be binding upon the
successors and assigns of the parties hereto, and shall be governed by and
construed in accordance with the laws of the Province of British Columbia,
Canada.
IN WITNESS WHEREOF THIS AGREEMENT has been executed by the parties hereto on the
day and year first above written.
THE CORPORATE SEAL of MAGKO was )
hereunto affixed in the presence of: )
)
) [CORPORATE SEAL]
[SIG] )
- --------------------------------------- )
Authorized Signatory )
)
) c/s
[SIG] )
- --------------------------------------- )
Authorized Signatory
THE CORPORATE SEAL of MINCO was )
hereunto affixed in the presence of: )
)
)
[SIG] )
- --------------------------------------- )
Authorized Signatory )
)
) c/s
[SIG] )
- --------------------------------------- )
Authorized Signatory
<PAGE> 1
EXHIBIT 10.20
MINCO MINING AND METALS CORPORATION
Suite 1200
543 Granville Street
Vancouver, B.C.
V6C 1X8
May 13, 1997
MAGKO and SOUTH KYRGYZ GEOLOGICAL EXPEDITION
c/o Ulitsa Miklukho - Maklaya 23
Moscow, Russia
Dear Sirs:
RE: License for Mineral Wealth Usage Rights dated April 11, 1997 (the
"License") issued by the Kyrgyz Republic to Magko ("Magko"), an
international joint stock company, and Minco Mining and Metals Corporation
("Minco") pertaining to certain lands located in the Savovardinskii
high-gold potential area in Karakuldzinskii Region, Osh Oblast, Kyrgyz
Republic (the "Property")
This Letter of Intent will confirm our understanding as to an establishment of a
joint venture between Minco, Magko and South Kyrgyz Geological Expedition
("SKGE") for the geological exploration of the Property, with subsequent
development of economic deposits found within the confines of the Property (the
"Work"), on the following terms and conditions:
1. Magko and SKGE represent and warrant that the License, a copy of which is
attached hereto as Schedule "A", is free and clear of all liens, charges and
encumbrances, and has been validly issued in accordance with the laws of the
Kyrgyz Republic.
2. Each of the parties represents and warrants it has the absolute right to
enter into this Letter of Intent without first obtaining the consent of any
other person or body corporate and no other person or body corporate has any
agreement, option, right or privilege capable of becoming an agreement for
acquiring an interest in the License.
3. Each of the parties has completed all necessary and proper corporate acts and
procedures to enter into this Letter of Intent and carry out its terms to the
full extent.
4. The parties agree to associate on a joint venture basis for the conduct of
the Work each party to contribute such resources, skills, capital, geological
information and technology as specified herein (the "Joint Venture"). The Joint
Venture business shall be conducted through a joint venture corporation to be
incorporated pursuant to Kyrgyz laws and registered in Osh, Republic of Kyrgyz
("the JV Corporation"). The parties agree that Minco will be the controlling
shareholder of the JV Corporation beneficially holding 80% of the registered
capital with each of Magko, and SKGE beneficially holding 10% of the registered
capital.
5. The parties agree to transfer all their right, title and interest in and to
the License and any other interest relating to the Property to the JV
Corporation forthwith following the incorporation of the JV Corporation. No
modifications to the total investment in the JV Corporation or to the registered
capital of the JV Corporation shall be made subsequent to the creation of the JV
Corporation without the written consent of the parties.
<PAGE> 2
-2-
6. Upon incorporation of the JV corporation, the parties shall vote their shares
in the JV Corporation so that the board of directors of the JV Corporation shall
be comprised of five (5) directors, three (3) of which shall be nominees of
Minco, one (1) of which shall be a nominee of Magko, and one (1) of which shall
be a nominee of SKEG. Thereafter, during the term of the Joint Venture and
irrespective of the Parties equity interests in the JV Corporation, the parties
agree to at all times vote their shares in the JV Corporation so that the board
of directors of the JV Corporation remains constituted as aforesaid.
7. Save for the provisions of paragraph 12 herein and except when precluded or
otherwise prohibited by the terms of any debt financing and to the extent
permitted by law, the net profits of the JV Corporation available for
distribution, after making such provisions and transfers to reserves as shall be
required by the board of directors of the JV Corporation to meet expenses or
anticipated expenses, shall be distributed annually (or at such other times as
may be determined by the board of directors), firstly by way of repayment of any
loans, on a pro rata basis, made to the JV Corporation by any of the parties and
secondly by way of dividend or any other allocation or distribution based upon
the equity shares held in the JV Corporation by the parties.
8. In the event that the parties hereinafter agree to enter into further joint
ventures with respect to conducting Work on other high potential mineral
properties which Magko or SKGE hold interests in, such joint ventures shall be
conducted through the JV Corporation on the same terms and conditions as are
herein applicable to the Property, except as otherwise agreed to by the parties.
In this regard, the parties further agree that it shall not be a requirement
that the relative interests in the Joint Venture as described in paragraph 4
herein be modified as result of an agreement to add a new mineral property to
the JV Corporation for purposes of conducting Work on such properties.
9. As its contribution to the Joint Venture and subject to paragraph 12 hereof,
Minco agrees to the following:
(a) to serve as operator of the programs for Work to be undertaken by
the JV Corporation on the Property and, as such, to provide
management and consulting services to the JV Corporation including
but not limited to investigating, prospecting, exploring,
developing, property maintenance, preparing reports, estimates and
studies, designing, equipping, improving, surveying, construction
and mining, milling, concentrating, rehabilitation, reclamation, and
environmental protection, provided that Minco shall be entitled to
charge to the JV Corporation a reasonable amount for overheads equal
to 10% of all costs and expenses incurred by Minco as operator, such
charges to be accrued as shareholders loans in accordance with
paragraph 12; and
(b) to arrange and obtain all financing necessary to fund programs of
Work on the Property, including but not limited to all costs in
connection with the employment of technicians and other personnel,
the lease or purchase of exploration and mining equipment and
payments to contractors and consultants.
<PAGE> 3
-3-
10. As its contribution to the Joint Venture, Magko agrees to undertake the
following:
(a) make applications for and obtain all necessary regulatory and
governmental approvals from the government of the Kyrgyz Republic in
respect of the Joint Venture, including but not limited to the
incorporation of the JV Corporation and the issuance to the JV
Corporation of such additional exploration and development permits
and licenses in respect of the Property as may be required in order
to advance the business of the Joint Venture,
(b) provide to the JV Corporation and to Minco all necessary geological
information in respect to the Property and the regions surrounding
the Property;
(c) serve as manager of programs of Work on the Property, reporting at
all times to Minco, and arrange and make available to the JV
Corporation the services of all local technicians and other
personnel as may reasonably be required by the JV Corporation and
Minco to carry out such programs of Work, such technicians and
personnel to be employed by the JV Corporation at fair and
reasonable wage rates having regard to prevailing local labour
market conditions at the time of the engagement of such technicians
or personnel; and
(d) make available to the JV Corporation such exploration and mining
equipment owned or under the control of Magko as may reasonably be
required by the JV Corporation to carry out programs of Work on the
Property, such equipment to be rented or sold by Magko to the JV
Corporation at fair and reasonable rates having regard to prevailing
local market conditions at the time of rental or sale.
11. As its contribution to the Joint Venture, SKGE agrees to undertake the
following:
(a) serve as independent contractor to carry out programs of Work on
the Property as may be implemented, reporting at all times to Minco,
and arrange and make available to the JV Corporation the services of
all local technicians and other personnel as may reasonably be
required by the JV Corporation and Minco to carry out such programs
of Work, such technicians and personnel to be employed by the JV
Corporation at fair and reasonable wage rates having regard to
prevailing local labour market conditions at the time of the
engagement of such technicians or personnel.
12. The parties agree that all cash advanced by Minco to the JV Corporation to
fund its obligations pursuant to the terms of this Letter of Intent and all
amounts payable to Minco for overhead charges calculated in accordance with
subparagraph 9(a) shall be accrued as a noninterest bearing shareholder loan to
the JV Corporation, with no fixed terms of repayment. The shareholders loan
shall be repaid to Minco from profits of the JV Corporation prior to any
dividends or other allocations or distributions of profit being made to the
parties as shareholders of the JV Corporation.
13. At all times during the subsistence of the Joint Venture a party or its duly
authorized representative shall, at its sole risk and expense and at reasonable
intervals and times,
<PAGE> 4
-4-
have access to the Property and to all technical records and other factual
engineering data and information relating to the Property which is in the
possession of the other party.
14. All information and data concerning or derived from the operations of the
Joint Venture shall be kept confidential by the parties and, except to the
extent required by law or by regulation of any Securities Commission, Stock
Exchange or other regulatory body having jurisdiction, shall not be disclosed by
a party to any person without the prior consent of the other party, which
consent shall not unreasonably be withheld.
15. No party shall transfer, convey, assign, mortgage or grant an option in
respect of or grant a right to purchase or in any manner transfer or alienate
all or any portion of its interest in the License, Property or in the JV
Corporation or in its rights under this Letter of Intent without the written
consent of the other party, which consent shall not be unreasonably withheld.
16. In the event either Magko or SKGE wish to sell or otherwise dispose of all
or any of their portion of their interest in and to the Joint Venture or the JV
Corporation, Minco shall have a right of first refusal respecting any such sale
or disposition thereof.
17. The parties hereto agree to do or cause to be done all acts or things
necessary to implement and carry into effect the provisions and intent of this
Letter of Intent, and without limiting the generality of the foregoing, the
parties agree to use their best efforts to execute a formal shareholders
agreement forthwith following the incorporation of the JV Corporation.
18. This Letter of Intent will be governed and construed in accordance with the
laws of the Province of British Columbia.
19. This Letter to Intent is intended to create binding legal relations among
the parties and will enure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns as the case may be, until
replaced by the JV Agreement. Until the execution and delivery of a formal
shareholders agreement in respect to the JV Corporation, this Letter of Intent
will remain binding and in effect.
20. In the event that any provision of this Letter of Intent is held
unenforceable or invalid by court of law having jurisdiction, this Letter of
Intent will be read as if such unenforceable or invalid provision were removed.
21. The rights and obligations of the parties created by this Letter of Intent
are not assignable by any party without the prior written consent of the other
parties, not to be unreasonably withheld, except for any transfer or assignment
to a wholly owned subsidiary of the party or pursuant to an amalgamation,
merger, or corporate reorganization or arrangement of the party.
22. This Letter of Intent shall be written in duplicate in both English and
Russian, and both versions shall have equal weight and authority,
23. This Letter of Intent is subject to the prior acceptance for filing of the
Vancouver Stock Exchange on behalf of Minco. Minco will use its best efforts to
obtain such acceptance within sixty (60) days of the execution of this Letter of
Intent.
<PAGE> 5
-5-
If the foregoing terms and conditions, and the attached schedules which form a
part of this Letter of Intent, accurately set out our mutual understandings,
please indicate your acceptance by signing this letter where indicated below and
returning to us the enclosed copy duly signed.
Yours very truly,
MINCO MINING AND METALS CORPORATION
Per: c/s
Peter Tsaparas, Chairman of the Board
Terms and conditions agreed to this ___day of May, 1997.
Magko
Per: c/s
[SIG]
- ---------------------------------------
Authorized Signatory
South Kyrgyz Geological Expedition
Per: c/s
[SIG]
- ---------------------------------------
Authorized Signatory
<PAGE> 6
This is Schedule "A" to the Letter of Intent
dated May 13, 1997 made between Minco Mining and Metals Corporation,
Magko and South Kyrgyz Geological Expedition
[ADD COPY OF LICENSE DATED APRIL 11, 1997]
<PAGE> 1
EXHIBIT 10.21
ADDRESS: Erkindik Prospect 2, Bishkek 720739, telegraph: Bishkek - Utyas
teletype: 245156 - Utyos, telephone: 26-46-26, 22-38-17 fax: 26-86-90
LICENSE
FOR MINERAL WEALTH USAGE RIGHTS
(GEOLOGICAL STUDY)
SERIES A(N) #29-97
Issued to: MAGKO, an international joint-stock geological company
Address: Ulitsa Miklukho-Maklaya 23, Moscow
Telephone:
Bank Information:
This certifies the rights to use mineral wealth with the goal of: conducting
geological exploration work in the Savovardinskii high gold-potential area.
1. Name of Site: The Savovardinskii high gold-potential area.
2. Location of the site:
2.1 Administrative location: Karakuldzinskii Region, Osh Oblast
2.2 Geographic location: northern slopes of the Aleiskii range.
The site does not include the area of Savovardy deposit which has the
following coordinates for the corners of the area, 1. x-47480,
y-45250; 2. x-45880, y-47280; 3. x-44525, x-46575; 4. x-46000,
y-45150; 5. x-47130, y-45050
2.3 Coordinates of the corners of the area
X1 40 degrees 30' Y1 74 degrees 00' Z1
X2 40 degrees 30' Y2 74 degrees 30' Z2
X3 40 degrees 13' Y3 74 degrees 30' Z3
X4 border with China Y4 Z4
X5 40 degrees 03' Y5 74 degrees 00' Z5
X6 Y6 Z6
X7 Y7 Z7
X8 Y8 Z8
3. Degree to which the site has been explored: Survey work on a scale of
1:50,000 (Zaid, 1971), geological survey on a scale of 1:50,000 (Soloshenko,
1980), detailed survey work on a scale of 1:2,000 to 1:5,000 (Karavev, 1980)
<PAGE> 2
4. Basis for issuing the license: General Agreement entitled "Project to
conduct geological exploration work in the Savovardinskii high gold-potential
area in 1997-1999."
5. User of mineral wealth rights: International stock company MAGKO
financed by the Canadian company MINCO with technology and personnel provided
in accordance with the agreement of the South Kyrgyz Geological Expedition.
6. Governmental registration number for the work: KIT [symbol]-97-9/1
7. Initial parameters:
7.1 Phase of geological survey work or the type of test and
scientific research activity:
1. Survey and assessment work with detailed surveying of known shows.
General survey of the remaining area.
7.2 Experimental extraction, simultaneous extraction: no
7.3 The outcome of the work: A report of the results of the survey
work.
8. Geological reports: An annual geological report with a final report in
the 4th quarter of 1999.
9. Payments:
9.1 For obtaining the license: Seven hundred fifty soms
9.2 For using the mineral wealth:
9.3 For developing and restoring the Mineral Resource Base:
9.4 For geological information:
10. Impact of the technology on the natural environment: insignificant
11. Environmental protection measures and measure to protect the minerals:
included in the project
12. Agreed upon start time of the work: May 1997
13. License valid until December 31, 1999 (with the right of extension)
14. Condition for using the minerals:
14.1 The plans for conducting geological exploration and mining in
the upcoming year will be presented to the Agency for Geology and Mineral
Resources of the Government of the Kyrgyz Republic for coordination at the end
of the current year.
Translated by:
Russian Language Services, Inc.
7042 Cleopatra Place NW
Seattle, WA 98117
Signature of translator
------------------------------------
Jan Pendrich (President)
<PAGE> 3
14.2 The user of the mineral wealth is obligated to comply with the Law on
Minerals, the Land Use Code of the Kyrgyz Republic technical projects,
government standards (GOSTs) and the standards and regulations for mineral use.
14.3 Other conditions: The amounts of the minimum investments in the
various activities will be in accordance with Government Regulation #258 dated
6/7/96.
15. The license will be annulled if the user of the mineral rights has not
begun work within one year of the agreed upon start date or if the conditions
of the license or the Law on Minerals are not complied with.
The license has been drafted with 2 copies and has been entered in the register
as Series Au #29-97 dated April 11, 1997
Director of the Agency for Geology and
Mineral Resources of the Government of
April 11, 1997 the Kyrgyz Republic
[signed] B. T. Tursungaziev
Translated by:
Russian Language Services, Inc.
7042 Cleopatra Place NW
Seattle, WA 98117
Signature of translator
------------------------------------
Jan Pendrich (President)
<PAGE> 1
EXHIBIT 10.22
THIS AGREEMENT is made as of the 17th day of April, 1997
BETWEEN:
TRIPLE EIGHT MINERAL CORPORATION, c/o East Asia Corporation Services
(BVI) Limited, Columbus Centre Building, Wickhams Cay, Road Town,
Tortola, British Virgin Islands
(herein called "Temco")
OF THE FIRST PART
AND:
GEOEXPLORATION CORPORATION OF THE FIRST GEOEXPLORATION BUREAU OF THE
PEOPLE'S REPUBLIC OF CHINA, Sanhe City, Hebei Province, China
(herein called "GEC-FGEB")
OF THE SECOND PART
(collectively, referred to herein as the "parties")
W H E R E A S:
A. The parties entered into a joint venture contract dated December 25,
1995 (the "Joint Venture Agreement") in respect of the exploration and
development of a Chinese resource property known as the Emperor's
Delight Property (the "Joint Venture");
B. Pursuant to the Joint Venture Agreement, the parties have established
Chende Huajia Mineral Industry Co., Ltd. ("Huajia") as the company
through which the business of the Joint Venture is to be conducted.
C. The GEC-FGEB wishes to transfer exploration permits pertaining to
additional Chinese mineral resource properties (the "Additional
Permits") for future exploration and development by the Joint Venture.
D. Temco has agreed to transfer the Additional Permits to Huajia with a
view to funding exploration and development work on such new
properties.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the payment of
the sum of One (US$1.00) Dollar by Temco to GEC-FGEB and for other good and
valuable consideration, the parties hereto agree as follows:
1. GEC-FGEB hereby agrees to transfer to Huajia all its right, title and
interest in and to the Additional Permits more particularly described
in Schedule "A" attached hereto.
<PAGE> 2
2. The parties agree that the exploration and development of the mineral
properties underlying the Additional Permits will be conducted in
accordance with the terms and conditions of the Joint Venture Agreement as
if the Additional Permits had been contributed by GEC-FGEB to the Joint
Venture at the time of the execution of the Joint Venture Agreement.
3. The parties agree to use their best efforts to ensure that Huajia makes
all payments and performs all activities necessary to ensure that the
Additional Permits are maintained in good standing.
4. The parties agree that in all other respects, the Joint Venture Agreement
shall remain in full force and effect.
Dated as of the date and year first above written.
Per:
[SIG]
- --------------------------
Authorized Signatory
GEOEXPLORATION CORPORATION OF THE FIRST GEOEXPLORATION BUREAU OF THE PEOPLE'S
REPUBLIC OF CHINA.
Per:
[SIG]
- --------------------------
Authorized Signatory
<PAGE> 3
SCHEDULE A
This schedule is attached to and forms part of the agreement between
GEOEXPLORATION CORPORATION OF THE FIRST GEOEXPLORATION BUREAU OF THE PEOPLE'S
REPUBLIC OF CHINA and MINCO MINING & METALS CORPORATION enter into on
April 17, 1997.
The properties covered by the Additional Permit are as follows:
(1) Dadonggou property in Kuancheng County, Hebei province.
(Size: 13.7 sq. km, Exploration Permit No: )
118 degrees 31' 45" - 118 degrees 34' 15";
40 degrees 17' 00" - 40 degrees 20' 30"
(2) Hongyukou property in Qian County, Hebei province.
(Size: 9.0 sq. km; Exploration Permit No. 03003)
A. 118 degrees 37' 00" 40 degrees 15' 00"
B. 118 degrees 37' 00" 40 degrees 13' 30"
C. 118 degrees 39' 30" 40 degrees 14' 45"
D. 118 degrees 39' 30" 40 degrees 13' 30"
E. 118 degrees 37' 00" 40 degrees 13' 30"
(3) Longwangmiao -- jiaochangkou property in Qian County, Hebei
(Size: 28.47 sq. km; Exploration Permit No. 03004)
A. 118 degrees 46' 45" 40 degrees 12' 15"
B. 118 degrees 47' 30" 40 degrees 12' 15"
C. 118 degrees 47' 30" 40 degrees 12' 00"
D. 118 degrees 48' 30" 40 degrees 12' 00"
E. 118 degrees 48' 30" 40 degrees 11' 45"
F. 118 degrees 49' 15" 40 degrees 11' 45"
G. 118 degrees 49' 15" 40 degrees 11' 15"
H. 118 degrees 47' 15" 40 degrees 11' 15"
I. 118 degrees 47' 15" 40 degrees 11' 45"
J. 118 degrees 46' 45" 40 degrees 12' 18"
K. 118 degrees 42' 06" 40 degrees 12' 30"
L. 118 degrees 43' 00" 40 degrees 12' 30"
M. 118 degrees 42' 00" 40 degrees 11' 15"
N. 118 degrees 43' 00" 40 degrees 11' 15"
O. 118 degrees 49' 15" 40 degrees 11' 15"
P. 118 degrees 49' 15" 40 degrees 10' 00"
Q. 118 degrees 43' 00" 40 degrees 10' 00"
(4) Dongbaozi Property in Qian County, Hebei province
(Size: 7.0 sq. km; Exploration Permit No. 03002)
A. 118 degrees 52' 30" 40 degrees 09' 00"
B. 118 degrees 52' 30" 40 degrees 10' 00"
C. 118 degrees 54' 00" 40 degrees 10' 00"
D. 118 degrees 54' 00" 40 degrees 09' 00"
E. 118 degrees 54' 30" 40 degrees 09' 00"
F. 118 degrees 54' 30" 40 degrees 08' 30"
G. 118 degrees 53' 30" 40 degrees 08' 30"
H. 118 degrees 53' 30" 40 degrees 09' 00"
<PAGE> 4
[JAPANESE]
[JAPANESE]
1. [JAPANESE] (13.7 sq. km, [JAPANESE])
[JAPANESE]: 118 degrees 31' 45" - 118 degrees 34' 15" [SEAL]
[JAPANESE]: 40 degrees 17' 00" - 40 degrees 20' 30"
2. [JAPANESE]: (9.0 sq. km - [JAPANESE])
A. 118 degrees 37' 00" 40 degrees 15' 00"
B. 118 degrees 37' 00" 40 degrees 13' 30"
C. 118 degrees 39' 30" 40 degrees 14' 45"
D. 118 degrees 39' 30" 40 degrees 13' 30"
E. 118 degrees 37' 00" 40 degrees 13' 30" [SEAL]
3. [JAPANESE]: (28.47 sq. km - [JAPANESE])
A. 118 degrees 46' 45" 40 degrees 12' 15"
B. 118 degrees 47' 30" 40 degrees 12' 15"
C. 118 degrees 47' 30" 40 degrees 12' 00"
D. 118 degrees 48' 30" 40 degrees 12' 00"
E. 118 degrees 48' 30" 40 degrees 11' 45"
F. 118 degrees 49' 15" 40 degrees 11' 45"
G. 118 degrees 49' 15" 40 degrees 11' 15"
H. 118 degrees 47' 15" 40 degrees 11' 15"
I. 118 degrees 47' 15" 40 degrees 11' 15"
J. 118 degrees 46' 45" 40 degrees 12' 18"
K. 118 degrees 42' 06" 40 degrees 12' 30"
L. 118 degrees 43' 00" 40 degrees 12' 30"
M. 118 degrees 42' 00" 40 degrees 11' 15"
N. 118 degrees 43' 00" 40 degrees 11' 15"
O. 118 degrees 49' 15" 40 degrees 11' 15"
P. 118 degrees 49' 15" 40 degrees 10' 00"
Q. 118 degrees 43' 00" 40 degrees 10' 00"
4. [JAPANESE]: (7.0 sq. km - [JAPANESE]) [SEAL]
A. 118 degrees 52' 30" 40 degrees 09' 00"
B. 118 degrees 52' 30" 40 degrees 10' 00"
C. 118 degrees 54' 00" 40 degrees 10' 00"
D. 118 degrees 54' 00" 40 degrees 09' 00"
E. 118 degrees 54' 30" 40 degrees 09' 00"
F. 118 degrees 54' 30" 40 degrees 08' 30"
G. 118 degrees 53' 30" 40 degrees 08' 30"
H. 118 degrees 53' 30" 40 degrees 09' 00"
[SEAL]
<PAGE> 1
EXHIBIT 10.23
AGREEMENT
I hereby certify that this
instrument is a true copy
of the original instrument.
/s/ VICTOR P. HARWARDT
-----------------------------
Victor P. Harwardt, Solicitor
This Agreement made as of the 16th day of July, 1997.
BETWEEN:
MINCO MINING & METALS CORPORATION, a company incorporated under the
laws of British Columbia having a business office at 1200 - 543
Granville Street, Vancouver, British Columbia, V6C IX8;
(the "Company
AND:
CAMDEN FINANCIAL, having an office at 3033 Fernwood Avenue, Los
Angeles, California, 90039-3506
("Camden")
WHEREAS:
A. The Company is a reporting issuer in British Columbia, the securities of
which are listed for trading on the Vancouver Stock Exchange;
B. The Company wishes to retain Camden to assist with its investor relations
activities in the United States of America (the "USA") and Camden has agreed to
assist with the investor relations activities of the Company in accordance with
the terms of this agreement (the "Agreement");
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. ENGAGEMENT.
The Company has agreed to engage Camden as an independent contractor and
consultant to provide investor relations services to the Company, and Camden has
agreed to provide these services to the Company, subject to the terms and
conditions described in this Agreement. Camden is not an investment adviser nor
a broker-dealer as defined under the laws of the USA and will not provide any
services requiring registration as such. Camden will provide services only in
the USA and such other jurisdictions as Camden can validly do so.
2. TERM.
The term of this Agreement is two years subject to early termination as provided
in section 10.
<PAGE> 2
3. SERVICES.
The services (the "Services") to be provided by Camden shall consist of a
Standard Program and a Supplemental Program, which shall include, but not
necessarily be limited to, the activities described below.
A. THE STANDARD PROGRAM
The activities to be undertaken and the Services to be provided by Camden
as part of the Standard Program shall include:
(a) interviewing the Company's management and personnel and reviewing
corporate information and other material regarding the Company's
activities;
(b) formulating and writing literature regarding the Company, for
approval by the Company, for distribution to a select group of
professional investors, investment managers, hedge fund managers,
public and private fund managers, mutual fund manager, stockbrokers
and industry research analysts ("Camden's Contacts");
(c) producing and distributing to the Camden's Contacts a quarterly
newsletter featuring news relating to the Company;
(d) producing and distributing to newsletter editors updates and
research reports concerning the Company;
(e) making introductions to select members of Camden's Contacts;
(f) arranging for the production of a research report for distribution
by Camden and the Company; and
(g) including up to 10MB of information and materials related to the
Company, such as annual reports, press releases and an executive
summary which can be updated periodically by Camden and the Company,
on a World Wide Web (the "Web") site operated by Camden ("Camden's
Website"). Camden's Website will, at all times, be accessible
through commonly used Web search engines and the address for the
Camden's Website will be included in all promotional and marketing
material produced by Camden.
B. THE SUPPLEMENTAL PROGRAM
Upon request by the Company, and at additional expense to the Company as
described below, Camden will undertake the following activities and
provide the following services:
-2-
<PAGE> 3
(a) arrange for a large-scale, direct mail campaign of materials
prepared by Camden and directed to a list of investment
professionals, money managers, fund managers, broker/dealers and
regional brokerage firms provided by Camden;
(b) provide for access, through Camden's Website, to an extended and
larger website in addition to the 10MB of information provided for
in the Standard Program, or if deemed appropriate, provide
assistance in the creation of a Web site dedicated solely to the
Company; and
(c) assist with the planning and arrangements for promotional tours,
special luncheons and/or group meetings.
In addition to the foregoing services, Camden agrees to make available the
services of Douglas Walker ("Walker"), who will be an employee of the Company
and will provide services as an investor relations officer in the United States
during the term of this Agreement. Neither Camden nor Walker shall be obligated
to provide any of the services until such time as an Employee's Option Agreement
between Walker and the Company has been filed with, and accepted by, the
Vancouver Stock Exchange (the "VSE").
4. COSTS.
Camden will bear its expenses in respect of the services provided as part of the
Standard Program. The Company will be responsible for all documented printing
and distribution and/or advertising costs, all documented roadshow costs, and
all other documented out of pocket costs in respect of the Supplemental Program.
5. COMPENSATION FOR SERVICES.
As compensation for the Services rendered by Camden pursuant to this Agreement,
the Company agrees to pay to Camden an initial fee (the "Initial Fee") of
U.S.$20,000 and an additional monthly fee (the "Monthly Fee") of U.S. $5,000 per
month payable for each calendar month, in advance, on the first business day of
that month. The Initial Fee and the pro rata portion of the first Monthly Fee
shall be paid immediately upon execution of this Agreement by the Company.
6. ADDITIONAL OBLIGATIONS OF CAMDEN.
Camden agrees that, in connection with its investor relations services to the
Company, Camden will not make any payment in cash or in kind to any third party
as an inducement to such party to engage in activities which could be deemed to
constitute market manipulation or other improper practice, such as recommending
the stock without disclosure of Camden's engagement as a consultant for the
Company or Camden's financial interest in the Company. Camden will indemnify the
Company from all claims, liability, costs or other expenses (including
reasonable attorneys' fees) incurred by the Company as a result of any
inaccurate information concerning the Company released by Camden, unless such
information was provided to Camden by the Company.
-3-
<PAGE> 4
7. ADDITIONAL OBLIGATIONS OF THE COMPANY
(a) The Company agrees that, in connection with this Agreement, it will
indemnify Camden from all claims, liability, costs or other expenses
incurred (including reasonable attorneys' fees) by Camden as a
result of any inaccurate or misleading information concerning the
Company provided by the Company or any of its officers or directors
to Camden, or as a result of any breach by the Company of any of the
terms and conditions of this agreement or commission of acts illegal
under USA or Canadian securities laws by the Company or its officers
or directors. The Company will not give Camden material non-public
or other confidential information which Camden should not be
disseminating;
(b) The Company agrees that it will, immediately upon execution of this
Agreement, take such steps as are reasonably necessary to register
its securities with the United States Securities and Exchange
Commission, to seek a listing of its securities on a recognized
stock exchange in the USA and to qualify the Company's securities
for secondary trading in various jurisdictions in the USA, insofar
as possible.
8. INDEPENDENT CAMDEN.
Camden is an independent contractor responsible for compensation of its agents,
employees and representatives, as well as all applicable withholding and taxes
(including unemployment compensation) and all worker's compensation insurance.
9. ASSIGNMENT.
The rights and obligations of each party to this agreement may not be assigned
without the prior written consent of the other party.
10. TERMINATION
Either party may terminate this Agreement at any time upon thirty days' written
notice. The Agreement may be terminated by the Company immediately upon notice
in the case of the commission of an actual fraud by Camden in the course of its
activities hereunder or the declaration of bankruptcy by Camden ("Termination
For Cause"). The Agreement may be terminated by Camden immediately upon notice
in the case of the commission of an act of actual fraud by the Company,
delisting of the Company by an exchange or the declaration of bankruptcy by the
Company.
11. CALIFORNIA LAW.
This agreement shall be governed by and construed in accordance with California
law.
12. ARBITRATION AND WAIVER OF JURY TRIAL.
Any dispute, controversy or claim arising out of or relating to this agreement
or the breach thereof shall be finally settled by arbitration to be held in Los
Angeles pursuant to the
-4-
<PAGE> 5
Commercial Arbitration Rules of the American Arbitration Association and
judgment on the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof
13. ATTORNEY'S FEES.
The prevailing party in any arbitration or litigation arising out of or relating
to this agreement shall be entitled to recover all attorneys' fees and all costs
(whether or not such costs are recoverable pursuant to the California Code of
Civil Procedure) as may be incurred in connection with either obtaining or
collecting any judgment and/or arbitration award, in addition to any other
relief to which that party may be entitled.
14. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which when so executed
shall be deemed to be original and all of which taken together shall constitute
one and the same Agreement.
15. DUE AUTHORITY.
By signing below, the signatories warrant that they have the authority to
execute this Agreement on behalf of the party indicated and all actions
necessary to authorize the execution of this Agreement have been taken.
16. NOT EXCLUSIVE.
This Agreement is not exclusive. Camden may engage in activities of the type
contemplated hereunder with other firms and the Company may engage in activities
of the type contemplated hereunder with other investor relations firms.
17. SEVERABILITY
Each provision of this Agreement is intended to be severable. If any term or
provision hereof shall be determined by a court or competent jurisdiction to be
illegal or invalid for any reason whatsoever, that provision shall be severed
from this Agreement and shall not affect the validity of the remainder of this
Agreement.
18. ENTIRE AGREEMENT AND MODIFICATIONS
This Agreement together with the Option Agreement, constitutes the entire
agreement between the parties and supersedes all prior agreements and
undertakings, whether oral or written, relative to the subject matter hereof. To
be effective any modification of this Agreement must be in writing and signed by
the parties.
19. NOTICES
All notices, requests and communications required or permitted hereunder shall
be in writing and shall be sufficiently given and deemed to have been received
upon personal delivery or, if mailed, upon the first to occur of actual receipt
or 48 hours after being placed in the mail,
-5-
<PAGE> 6
postage prepaid, registered or certified mail, return receipt requested,
respectively addressed to the Company or Camden as follows:
To the Company:
Minco Mining & Metals Corporation
1200 - 543 Granville Street
Vancouver, British Columbia
V6C IX8
To Camden:
Camden Financial
3033 Fernwood Avenue
Los Angeles, California
90039-3506
or such other address as may be specified in writing to the other party, but
notice of a change of address shall be effective only upon the actual receipt.
20. NO AGENCY.
Nothing herein shall cause Camden or the Company to be an agent, partner, joint
Ventura or affiliate of the other.
21. BENEFICIARIES.
Except as expressly provided for herein, no parties or persons except the
signatories and their affiliates, successors or assigns, are beneficiaries of
this Agreement.
22. TIME OF THE ESSENCE
Time is of the essence.
23. DUE AUTHORITY
By signing below, the signatories warrant that they have the authority to
execute this Agreement on behalf of the party indicated and all actions
necessary to authorize the execution of this Agreement have been taken.
24. FURTHER ASSURANCES
From time to time after the execution of this Agreement, the parties will make,
do, execute or cause or permit to be made, done or executed all additional
lawful acts, deeds, things, devices and assurances in law whatsoever as may be
required to carry out the true intention and to give full force and effect to
this Agreement.
-6-
<PAGE> 7
25. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which will be
deemed to be an original and all of which will together constitute one
instrument.
26. REGULATORY APPROVAL
This Agreement is subject to the Company obtaining all necessary approvals of
the British Columbia Securities Commission, the VSE and such other regulatory
authorities as have jurisdiction and is further subject to the Employee's Option
Agreement made between the Company and Walker being filed with, and approved by,
the VSE. If any of the required approvals are not obtained within 120 days after
the date this Agreement is filed with the relevant regulatory authority, the
parties shall forthwith confer and determine whether to alter the terms of this
Agreement in order to obtain approval, or to terminate this Agreement. Failure
to agree on the appropriate course of action shall result in this Agreement
being terminated at the end of this 120 day period.
IN WITNESS WHEREOF this Agreement has been duly executed by the parties hereto
effective as of the day and year first above written.
THE CORPORATE SEAL of MINCO )
MINING & METALS CORPORATION was )
hereunto affixed in the presence of: )
)
[SIG] )
- --------------------------------------- )
)
[SIG] )
- --------------------------------------- )
SIGNED, SEALED & DELIVERED by an ) CAMDEN FINANCIAL
authorized signatory of CAMDEN ) per:
FINANCIAL in the presence of: )
)
/s/ JILLA MASSEHIAN ) [SIG]
- --------------------------------------- ) -----------------------------------
Signature of Witness )
)
Name: JILLA MASSEHIAN )
--------------------------------- )
Address: 400 N. BRAND BLVD. )
------------------------------- )
GLENDALE, CA 91203 )
- --------------------------------------- )
)
Occupation: NOTARY PUBLIC )
--------------------------- )
--------------------------------------
[NOTARY SEAL] Jilla Massenhian
Comm. #1015644
NOTARY PUBLIC CALIFORNIA
LOS ANGELES COUNTY
Comm. Exp. Jan 30, 1998
--------------------------------------
-7-
<PAGE> 1
EXHIBIT 10.24
COOPERATION AGREEMENT
FOR
MINERAL EXPLORATION AND DEVELOPMENT
BETWEEN
MINCO MINING & METALS CORPORATION
AND
BAIYIN NON-FERROUS METALS COMPANY
<PAGE> 2
COOPERATION AGREEMENT
FOR MINERAL EXPLORATION AND DEVELOPMENT
THIS AGREEMENT is executed on the 17th day of November 1997, in Baiyin City, on
Gansu Province, China.
BETWEEN:
BAIYIN NON-FERROUS METALS COMPANY
a corporation incorporated under the laws of the People's Republic of
China (Referred to herein as "BAIYIN")
REGISTERED ADDRESS: Baiyin City, Gansu Province, China
AUTHORIZED REPRESENTATIVE: Mr. Shichang Ren
The Deputy General Manager of BAIYIN
PHONE: (0943) 8812-171 FAX: (0943) 8223-449
AND:
MINCO MINING & METALS CORPORATION
a public corporation incorporated
under the laws of British Columbia
(Referred to herein as "MINCO")
REGISTERED ADDRESS: 1200, 543 Granville St.
Vancouver, BC Canada V6C 1X8
AUTHORIZED REPRESENTATIVE: Mr. Ken Z. Cai
The President of MINCO
PHONE: (604) 688-8002 FAX: (604) 688-8030
(Collectively, the "PARTIES", or individually a "PARTY")
WHEREAS BAIYIN and MINCO have had friendly discussions and negotiations
concerning a joint venture for mineral exploration and exploitation of the
Baiyin region, Gansu Province, China.
NOW THEREFORE, in consideration of the premises set out above, and the mutual
promises set out below, the Parties have agreed and do hereby agree as follows:
1.0- ESTABLISHMENT OF THE JOINT VENTURE
1. The Parties agree to form a co-operative joint venture (the "JOINT VENTURE")
constituted as a separate legal person. The objectives of the Joint Venture
are to jointly explore, develop and
2
<PAGE> 3
exploit mineral resources (excluding those mineral commodities on which the
foreign participation is prohibited by the Chinese laws) in the Baiyin
region of Gansu Province, China using an integrated mining company model
which combines exploration, development, and production.
2. The business scope of the Joint Venture includes mineral exploration,
development, exploitation, processing and marketing of mineral products.
3. Both Parties agree that the term of the Joint Venture is thirty (30) years
such period to be extendible upon mutual agreement between the Parties if
the circumstances so warrant.
2.0- AREA FOR THE JOINT VENTURE
The Parties agree that the property (the "PROPERTY") for the Joint Venture is
the area defined in Schedule A.
3.0- CONTRIBUTION TO THE JOINT VENTURE
3.1 BAIYIN
In consideration for its equity participation, BAIYIN shall contribute to the
Joint Venture the following assets. (1) the Property; (2) mineral rights on the
Property (including the discovery right, exploration permits, and privilege
mining rights); (3) the data and results which has been collected or created to
date on the Property (collectively referred to herein as the "BAIYIN'S
CONTRIBUTIONS").
3.2 MINCO
In consideration for its equity participation, MINCO shall contribute to the
Joint Venture the following assets: (1) certain advanced equipment; and (2)
capital.
4.0- EQUITY INTERESTS
4.1 The Parties agree that after the Joint Venture has been established,
BAIYIN shall transfer the following assets to the Joint Venture: (1) the
Property; (2) mineral rights on the Property (including the discovery
right, exploration permits, and privilege mining rights); (3) the data
and results which has been collected or created to date on the Property
as its contribution to the Joint Venture. BAYIN shall have twenty (20)
percent equity interests after the Baiyin's Contribution has been made
to the Joint Venture.
4.2 After the execution of this Cooperation Agreement, MINCO has right to
contribute exploration expenditures (the "MINCO'S CONTRIBUTION")
phase-by-phase and stage-by-stage to explore ONE mineral deposit (the
"DEPOSIT DISCOVERED AND EXPLORED") on the Property. The geological data
from the Deposit Discovered and Explored shall be sufficient for the
requirements of a feasibility study. MINCO shall have eighty (80)
percent of the equity interest in the Joint Venture after the Minco's
Contribution has been made to the Joint Venture.
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4.3 Thereafter, the capital requirements of the Joint Venture, including the
feasibility study and development capital expenditures for the Deposit
Discovered and Explored, and other expenditures, shall be contributed
eighty (80) percent by MINCO and twenty (20) percent by BAIYIN. If one
Party can not or is not willing to make the capital contribution, its
equity interests in the Joint Venture shall be diluted in accordance
with a standard internationally used dilution formula.
5.0- OPERATION AND MANAGEMENT OF THE JOINT VENTURE
5.1 The Joint Venture shall be managed and operated in accordance with the
Law of the PRC on Sino-Foreign Co-operative Joint Venture Enterprises,
the Company Law of the People's Republic of China, and other relevant
Chinese laws and regulations as well as sound internationally accepted
policies, standards and practices.
5.2 The Joint Venture will be managed by the board of directors, which will
possess the highest authority over the operation, and management of the
Joint Venture. The board of directors of the Joint Venture shall be
comprised of seven (7) directors, three (3) of which shall be appointed
by BAIYIN and four (4) of which shall be appointed by MINCO.
6.0- NET PROFIT DISTRIBUTION
After each of the Parties recovers its respective investment to the Joint
Venture, the net profit of the Joint Venture shall be distributed to the Parties
in proportion to their respective relative beneficial interests in the Joint
Venture.
7.0- TECHNICAL OPERATION AND MANAGEMENT OF THE PROJECT
7.1. The board of the directors of the Joint Venture shall undertake mineral
exploration, development, exploitation, and processing on the Property
in accordance with Chinese laws and regulations as well as sound
internationally accepted standards and practices. The Project will be
carried out phase-by-phase and stage-by-stage in comply with the program
and budget approved by the board of directors from time to time.
7.2 The Joint Venture shall have right to develop any commercial deposit
discovered on the Property through the exploration carried out by the
Joint Venture.
7.3 The Joint Venture shall give BAIYIN privilege priority to contract the
exploration works on the Property provided that BAIYIN can guarantee the
time and quality of the work and a reasonable and fair market rate of
the work.
8.0- COOPERATION PROCEDURE
In order to conduct the Project as soon as possible, the Parties agree to
undertake the activities as set out below:
1. After executing this Agreement, BAIYIN shall provide MINCO with brief
geological data for its Board of Directors to further assess the exploration
potential of the Property, including regional
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geological maps, property geological maps, geochemical and geophysical
anomaly maps, representative cross-sections, reserve calculation maps, and
brief geological report of the Property.
2. After executing this Agreement, BAYIN shall obtain approval from the
appropriate Chinese government authorities to allow the Parties to enter the
Joint Venture Contract and to form the Joint Venture (the "GOVERNMENT
APPROVAL"). BAIYIN shall exercise its best efforts to seek the Government
Approval as soon as possible. MINCO shall provide to BAIYIN reasonable
assistance.
3. After executing this Agreement, the Parties shall negotiate a full and final
joint venture contract (the "JOINT VENTURE CONTRACT") in good faith to set
up all the details for the Joint Venture.
4. In order to speed up the project, the Parties agree to conduct some
preliminary field works on the Property stage-by-stage and phase-by-phase.
Both Parties shall study and analyze the existing geological data on the
Property in a timely fashion to establish a mineralization model and design
an overall exploration program. BAIYIN shall provide MINCO's staffs
reasonable logistic support.
5. Upon establishment of the Joint Venture, the Parties shall conduct the
Project pursuant to the term of the Joint Venture Contract.
9.0- CONFIDENTIALITY OBLIGATIONS
1. This Agreement and all the documents signed by the Parties in the future are
the assets of the Parties and shall not be disclosed to any third party
except the government and regulatory authorities.
2. MINCO agrees to preserve the confidentiality of all information provided by
BAIYIN. MINCO can disclose such information to regulatory authorities
including, without limitation, Canadian government bodies, securities
commissions and stock exchanges, to meet the disclosure requirement of such
regulatory authorities. However, such disclosure shall not hurt the
interests of BAIYIN.
3. MINCO agrees to return to BAIYIN all the information supplied by BAIYIN if
the project is not carried out for whatever reasons.
10.0- GENERAL
1. After executing this Agreement, both Parties shall report this joint venture
project to its respective authorities in a timely fashion to obtain the
confirmation of the project from those authorities.
2. This Agreement is written in duplicate in both Chinese and English, with
both texts having equal authority.
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3. This Agreement, and any notices or other documents permitted or required by
it, may be executed in counterparts, including copies which have been
executed and then delivered by facsimile transmission. A copy which has been
executed in counterparts and transmitted by facsimile transmission shall
have equal authority as an originally executed copy.
4. If one of the Parties wishes to terminate this Agreement, it must inform the
other Party in writing. This Cooperation Agreement can only be terminated
upon mutual agreement.
5. There are four copies of this Agreement. Each Party has two copies.
IN WITNESS WHEREOF the Parties have duly executed this Agreement as evidenced by
each signature below.
BAIYIN NON-FERROUS METALS COMPANY
LEGAL REPRESENTATIVE:
- -----------------------------------------------
Jiangshen Wu, General Manager
AUTHORIZED REPRESENTATIVE:
- -----------------------------------------------
Shichang Ren, Deputy General Manager
MINCO MINING AND METALS CORPORATION
LEGAL REPRESENTATIVE:
/s/ PETER TSAPARAS
- -----------------------------------------------
Peter Tsaparas, Chairman of the Board
AUTHORIZED REPRESENTATIVE:
/s/ KEN Z. CAI
- -----------------------------------------------
Ken Z. Cai, President and CEO
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SCHEDULE A
This schedule is attached to and forms part of the Cooperation Agreement for
Mineral Exploration and Development between BAIYIN NON-FERROUS COMPANY and MINCO
MINING & METALS CORPORATION executed on November 17, 1997.
The Property is the Baiyin region of Gansu Province, China, including the dip
and west-strike extension of the Xiaotieshan mine, but excluding the areas which
already have geological exploration reports and which have been previously
explored by BAIYIN during production.
The coordinates of the Property are presented in the map attached.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to use in the Registration Statement on Form 20F, being filed
by MINCO MINING & METALS CORPORATION, of our report dated January 27, 1997,
relating to the consolidated balance sheets of MINCO MINING & METALS CORPORATION
as at December 31, 1996 and 1995 and the consolidated statements of operations
and deficit and changes in financial position for the periods then ended.
Vancouver, Canada "ELLIS FOSTER"
January 20, 1998 Chartered Accountant
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to use in the Registration Statement on Form 20F, being filed
by MINCO MINING & METALS CORPORATION, of our report dated February 12, 1996,
relating to the balance sheets of MINCO MINING & METALS CORPORATION as at
December 31, 1995 and 1994 and the statements of operations and deficit and
changes in financial position for the periods then ended.
Vancouver, Canada "ELLIS FOSTER"
January 20, 1998 Chartered Accountant
<PAGE> 1
Exhibit 23.3
A.C.A. HOWE INTERNATIONAL LIMITED
Mining and Geological Consultants
350 Bay Street, 7th Floor, Toronto, Ontario, M5H 2S6
Telephone: (416) 368-7041 Facsimile: (416) 368-2579
November 14, 1997
Consent of Independent Geological Consultants
We hereby consent to the references to our firm in the Form 20F Registration
being filed by Minco Mining & Metals Corporation as well as references to and
extracts from the following reports prepared by our firm:
1. Evaluation Report on the Crystal Valley, Stone Lake and Emperor's Delight
Gold Projects, Hebei Province, the People's Republic of China, dated March
13, 1995; and
2. Valuation Report of the Emperor's Delight Joint Venture Property, Hebei
Province, The People's Republic of China, dated November 13, 1995;
3. Update of Work Performed on the Emperor's Delight, Crystal Valley and
Stone Lake Properties dated December 9, 1996.
A.C.A. HOWE INTERNATIONAL LIMITED
/s/ W.E. Ewert
---------------------------------
Per: W.E. Ewert, P. Geo.
<PAGE> 1
Exhibit 23.4
H. A. SIMONS, LTD.
10333 SOUTHPORT ROAD S.W. SUITE 350
CALGARY, ALBERTA CANADA T2W 3X6
403-258-4200
FAX 403-258-4218
November 14, 1997 0310/L882-2
VIA FACSIMILE
(604) 688-8030
CONSENT OF INDEPENDENT GEOLOGICAL CONSULTANTS
We hereby consent to the references to our firm in the Form 20F Registration
being filed by Minco Mining & Metals Corporation as well as references to and
extracts from the following reports prepared by our firm:
1. Chapuzi Gold Occurrence Report for Minco Mining and Metals Corporation
dated December, 1996;
2. Technical Site Visit to Smelters and Mine Facilities of Baiyin Non-Ferrous
Metals Corporation, Ganzu Province, People's Republic of China, dated
December, 1995;
3. Proposed Development Strategy for the Changba Lijiagou Underground Mine
dated December 9, 1996.
H. A. Simons, Ltd.
/s/ Tom Healy
- --------------------------
T.H.A. (Tom) Healy, P.Eng.
Principal Engineer, Mining
THAH:pmi
<PAGE> 1
Exhibit 23.5
XRAL LABORATORIES - A DIVISION OF SGS Canada Inc.
1885 Leslie Street
Toronto, Ontario
Canada M3B 3J4
telephone: (416) 445-5735
facsimile: (416) 445-4152
Consent of Independent Laboratories
We hereby consent to the references to our firm in the Form 20F Registration
being filed by Minco Mining & Metals Corporation as well as to references to and
extracts from assay and metallurgical test work and reports prepared by our
firm.
XRAL Laboratories
/s/ Hugh de Souza
Dr. Hugh de Souza
General Manager
