SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 20-F/R-A
(Amendment No. 1 Filed on October 18, 2000)
|X| Registration Statement Pursuant to Section 12(b) or (g) of the Securities
Exchange Act of 1934
|_| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-22617
MINCO MINING & METALS CORPORATION
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(Exact name of registrant as specified in its charter)
Province of British Columbia (Canada)
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(Jurisdiction of incorporation or organization)
543 Granville Street, Suite 1200
Vancouver, British Columbia, Canada V6C 1X8
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
N/A N/A
-------------------- ---------------------
Title of each class Name of each exchange
on which registered
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares without par value
-------------------------------
(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 XX No
Indicate by check mark which financial statement item the registrant has elected
to follow: Item 17 XX 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
<PAGE>2
TABLE OF CONTENTS
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<S> <C>
Page
----
Item 1 Identify of Directors, Senior Management and Advisors................................3
Item 2 Offer Statistics and Expected Timetable..............................................4
Item 3 Key Information......................................................................4
Item 4 Information on the Company..........................................................10
Item 5 Operating and Financial Review and Prospects........................................24
Item 6 Directors, Senior Management and Employees..........................................28
Item 7 Major Shareholders and Related Party Transactions...................................33
Item 8 Financial Statements................................................................35
Item 9 The Offering and Listing............................................................36
Item 10 Additional Information..............................................................37
Item 11 Quantitative and Qualitative Disclosures About Market Risk..........................44
Item 12 Description of Securities Other than Equity Shares..................................44
Item 13 Defaults, Dividend Arrearages and Delinquencies.....................................44
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds........44
Item 15 Reserved............................................................................44
Item 16 Reserved............................................................................44
Item 17 Financial Statements................................................................44
Item 18 Financial Statements................................................................44
Item 19 Exhibits............................................................................44
</TABLE>
<PAGE>3
INTRODUCTION AND USE OF CERTAIN TERMS
Minco Mining & Metals Corporation is a corporation incorporated under
the laws of the province of British Columbia, Canada. As used herein, except as
the context otherwise requires, the term "Minco" or the "Company" refers to
Minco Mining & Metals Corporation and its consolidated subsidiaries. The
Company's consolidated financial statements are prepared in accordance with
Canadian generally accepted auditing standards and are presented in Canadian
dollars. Unless otherwise indicated, reference to dollar amounts in this
Registration Statement shall refer to Canadian dollars.
Minco Mining & Metals Corporation files reports and other information
with the Securities and Exchange Commission located at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of Minco's
filings with the SEC by accessing their website located at www.sec.gov. Further,
Minco also files reports on Sedar. You may access Minco's reports filed on Sedar
by accessing their website at www.sedar.com.
The principal executive office of the Company is located at Suite 1200 -
543 Granville Street, Vancouver, British Columbia, Canada V6C 1X8, and its
telephone number is 604-688-8002.
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements regarding
events and financial trends which may affect the Company's future operating
results and financial position. Such statements are subject to risks and
uncertainties that could cause the Company's actual results and financial
position to differ materially from those anticipated in forward looking
statements. These factors include, but are not limited to, the fact that the
Company is in the exploration stage, will need additional financing to develop
its properties and will be subject to certain risks since its prospects are
located in China, all of which factors are set forth in more detail in the
section entitled "Risk Factors" in Item 3 and "Operating and Financial Review
and Prospects" at Item 9.
Part I
Item 1. Identity of Directors, Senior Management and Advisors
The following table sets forth the names, business addresses and
functions of Minco's directors and senior management.
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Name Business Address Position
--------------------- ------------------------------------ ----------------------------
Ken Cai Suite 1200 - 543 Granville Street, President, Chief Executive
Vancouver, British Columbia, Canada Officer and Director
V6C 1X8
William Meyer Suite 1200 - 543 Granville Street, Chairman and Director
Vancouver, British Columbia, Canada
V6C 1X8
Robert M. Callander 43 Delhi Avenue Director
North York, Ontario, Canada
M5M 3B8
<PAGE>4
Name Business Address Position
--------------------- ------------------------------------ ----------------------------
Hans Wick Rebhaldenstrasse 7 Director
Zurich, Switzerland CH002
Theodore H. Konyi 917 Pacific Drive Director
(Mr. Konyi resigned on Delta, British Columbia, Columbia
July 4, 2000) M5M 2B8
</TABLE>
Minco's auditors are Ellis Foster, Chartered Accountants. Their address
is 1650 West 1st Avenue, Vancouver, British Columbia Canada V6J 1G1. Ellis
Foster have been Minco's auditors for at least the past three years.
Item 2. Offer Statistics and Expected Timetable.
Not Applicable
Item 3. Key Information
A. Selected Financial Data
The following selected financial information for the six months ended
June 30, 2000 and 1999, and fiscal years ended December 31, 1999, 1998, 1997,
1996 and 1995 are derived from the financial statements of Minco which is
reported in Canadian dollars and should be read in conjunction with the
financial statements and the notes thereto attached to this Registration
Statement. Minco's financial statements are prepared in accordance with Canadian
Generally Accepted Accounting Principles ("GAAP"). There are significant
differences between Canadian and U.S. GAAP including the recording of
exploration costs, recognition of compensation expense upon release of the
escrow shares and issuance of stock options and the recording of marketable
securities. For a discussion between Canadian and United States GAAP, see note
14 to the Company's financial statements.
<PAGE>5
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Canadian GAAP At December 31 At June 30
(Unaudited)
---------------------------------------------------------------------- ----------------------------
1995 1996 1997 1998 1999 1999 2000
---------- ------------- ------------- ------------- ------------ ------------ -------------
Operations
Interest and Sundry Income -- $ 119,190 $ 265,388 $ 197,068 $ 144,042 $ 51,726 $ 39,072
Mineral Interests Write-Off -- -- 191,170 1,065,408 579,088 4,590 0
Operating Loss (11,736) (1,117,105) (1,476,887) (1,996,584) (1,389,759) (506,627) (440,703)
Loss for Period (11,736) (1,117,105) (1,476,342) (1,996,584) (1,506,108) (459,491) (401,631)
Income (loss) from Continuing
Operations per Common Share -- (0.11) (0.10) (0.13) (0.09) (0.03) (0.02)
Common Shares use in
calculations 2,785,873 9,828,126 15,331,855 15,549,918 16,154,986 16,043,466 16,290,590
Consolidated Balance Sheet
Data
Total Assets 39,072 8,326,356 6,465,465 5,180,841 4,382,428 5,216,242 4,091,488
Mineral Interests -- 786,476 1,812,908 1,654,593 1,835,376 2,193,325 2,153,641
Total Liabilities 49,458 763,008 167,959 139,554 284,749 267,945 284,340
Share Capital $ 810 $ 8,662,468 $ 4,097,679 $ 5,041,287 $ 6,297,506 $ 4,944,297 $ 3,807,148
Canadian GAAP At December 31 At June 30
(Unaudited)
---------------------------------------------------------------------- ----------------------------
1995 1996 1997 1998 1999 1999 2000
---------- ------------- ------------- ------------- ------------ ------------ -------------
Operations
Interest and Sundry Income -- $ 119,190 $ 265,388 $ 197,068 $ 144,042 $ 51,726 $ 39,072
Mineral Interests Write-Off -- (784,476) (1,026,432) 158,315 (180,783) (538,732) (318,265)
Loss for Year -- -- (3,742,015) (3,315,242) (2,544,584) (998,223) (719,896)
Income (loss) from Continuing
Operations per Common Share -- -- (0.38) (0.31) (0.21) (0.08) (0.06)
Common shares used in
calculations 2,386,900 5,582,498 9,869,355 10,749,411 12,189,894 11,831,777 12,728,262
Consolidated Balance Sheet
Data
Total Assets $ 39,072 $ 7,539,880 $ 4,652,597 $ 3,534,948 $ 2,547,092 $ 3,018,917 $ 1,937,847
Mineral Interests -- -- -- -- -- -- --
Total Liabilities 49,458 763,008 167,959 139,554 284,749 267,945 284,340
Share Capital $ 810 $ 8,680,268 $ 10,545,934 $ 12,763,272 $ 14,299,814 13,125,772 14,410,914
</TABLE>
Exchange Rates
The following table sets forth information as to the period end,
average, the high and the low exchange rate for Canadian Dollars and U.S.
Dollars for the periods indicated based on the noon buying rate in New York City
for cable transfers in Canadian Dollars as certified for customs purposes by the
Federal Reserve Bank of New York (Canadian dollar =U.S. $1).
Year Ended:
December 31 Average Period End High Low
----------- ------- ----------- ------- ------
1995 1.3460 1.3655 1.2789 1.4132
1996 1.3636 1.3696 1.3865 1.3287
1997 1.3844 1.4305 1.4399 1.3345
1998 1.4831 1.5305 1.5765 1.4096
1999 1.4346 1.4440 1.5268 1.4512
<PAGE>6
The following table sets forth the high and low exchange rate for the
past six months. As of September 6, 2000, the exchange rate was 1.4843.
Month High Low
------------ -------- ------
March 2000 1.4727 1.4505
April 2000 1.4818 1.4531
May 2000 1.5085 1.4783
June 2000 1.4977 1.4639
July 2000 1,4880 1.4639
August 2000 1.4892 1.4720
B. Capitalization and indebtedness.
The Company's capitalization as of December 31, 1999 and June 30, 2000
are as follows:
Consolidated Balance Sheet Data December 31, 1999 June 30, 2000
----------------- --------------
Long-Term Debt $ 0 $ 0
Shareholder's Equity $ 4,097,679 $ 4,091,488
---------------- --------------
Total Capitalization $ 4,097,679 $ 4,091,488
================ ==============
C. Reasons for the offer and use of proceeds.
Note Applicable.
D. Risk Factors
In addition to the other information presented in this Registration
Statement, the following should be considered carefully in evaluating the
Company and its business. This Registration Statement contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed below and elsewhere in this Registration Statement.
1. The Mining Industry Is Highly Speculative. The Company is engaged in the
exploration for minerals which involves a high degree of geological, technical
and economic uncertainty, because of the inability to predict future mineral
prices, as well as the difficulty of determining the extent of a mineral deposit
and the feasibility of extracting it without the expenditure of considerable
money. Due to the aforementioned, there is a high level of risk involved.
2. The Company Is In Exploration Stage And Has No Proven Reserves. The
Company is in the exploration stage. None of the properties in which it has
<PAGE>7
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 development of a prospect, it is necessary to expend
significant time and money, and many such prospects will turn out not to be
worth further development. The Company 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. The Company Must Obtain Additional Financing to Develop Its Properties.
Although the Company 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. The Company's Interest In Projects May Be Diluted Pursuant to the
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 Company as well as rights of first refusal to acquire
interests in other future projects for a period of three years after exercise of
their earn-in rights. See "The Teck-Cominco Agreements" above. The exercise of
those earn-in-rights by either Teck or Cominco will dilute the Company's
interest in those projects.
5. Mineral Prices are Subject to Fluctuations which Will Affect Future
Revenues. The prices which the Company 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 Company. Specific factors relating to the
Company's business, the quality of any minerals produced and factors peculiar to
doing business in China may reduce the prices obtainable below those prevailing
on the world market.
6. Competition By Other Companies May Adversely Affect Our Ability to
Acquire Future Projects. The Company competes and will compete with other
companies for the acquisition of mineral concessions and other interests. Many
such companies are large, established companies with greater financial,
technical and management resources than the Company.
7. Environmental Hazards May Create Additional Liabilities. Existing and
possible future legislation could create significant additional uninsured or
uninsurable liabilities, and/or cause additional expense and delay in the
Company's mining activities.
8. It May Be Difficult to Enforce Civil Liabilities Against the Company. As
substantially all of the assets of the Company and its subsidiary, as well as
the Company'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 Company and its subsidiaries or the directors and officers of
the Company who reside outside the United States.
9. Penny Stock Rules May Make It More Difficult to Trade the Company's
Common Shares. The Securities and Exchange Commission has adopted regulations
which generally define a "penny stock" to be any equity security that has a
market price, as defined, less than U.S.$5.00 per share or an exercise price of
less than U.S.$5.00 per share, subject to certain exceptions. Our securities may
be covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and accredited investors such as, institutions with assets in excess
of U.S.$5,000,000 or an individual with net worth in excess of U.S.$1,000,000 or
<PAGE>8
annual income exceeding U.S.$200,000 or U.S.$300,000 jointly with his or her
spouse. For transactions covered by this rule, the broker-dealers must make a
special suitability determination for the purchase and receive the purchaser's
written agreement of the transaction prior to the sale. Consequently, the rule
may affect the ability of broker-dealers to sell our securities and also affect
the ability of our investors to sell their shares in the secondary market.
10. Risks Related to Doing Business in China. Various matters which are
specific to doing business in China may create additional risks or increase the
degree of such risks associated with the Registrant's activities. These risks
are discussed below.
a. The Company Must Seek Governmental Approval to Develop Projects. The
establishment, operation and terms of the joint ventures through which any
particular mineral property is to be explored or operated are all subject to
obtaining Chinese governmental approvals at various levels and for particular
matters, including mining rights, importation of equipment, hiring of labor, and
environmental regulations. 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 may vary.
b. Gold Prices Must Be Sold to the People's Bank of China and May Be
Subject to Discount. In addition to fluctuations in the world price and demand
for gold, any gold produced in China must be sold to the People's Bank of China.
Discounts to the world price of gold have been applied to these sales to the
People's Bank of China. Up to the end of 1993, domestic producers were paid 40%
of the world market price for gold. From 1994 to the 1997, domestic producers
were being paid 90% of the world market price for gold. Since the passage of the
new Mining acts in 1997, producers have received 100% of world price for gold.
However although it expected that no discounts will be required for gold sold to
the People's Bank of China, there is no guarantee that policy will continue.
c. Currency Prices and Convertibility May Adversely Affect the Company.
China'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 but not 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 currency and the right to repatriate
funds may adversely affect the performance of the Company when measured in terms
of U.S. dollars. All established joint venture companies operating in China
register as members of a "currency swap center." Through the operation of the
swap centers, foreign investors are given priority in converting amounts
invested, plus profit thereon, into their home currency for repatriation, with
no limits on the amounts. In the case of a base metal mining operation, the
Company would also have the option of simply exporting concentrates to the
smelter of its choice, and being paid in whatever currency is most convenient.
There are certain tax incentives, however, to reinvesting profits in China.
d. Environmental Regulations May Adversely Affect the Company's Projects.
The Company's operations are subject to environmental regulations promulgated by
various Chinese government agencies from time to time. Although Chinese
environmental regulations are currently apparently less stringent than those in
the United States, these regulations may change. Violation of existing or future
Chinese environmental rules may result in various fines and penalties. China,
like most developing countries, has generally put the goal of economic growth
and wealth expansion above environmental matters and, as such, has had a
consistently poor record of environmental protection. As China's economy
modernizes and expands, it is expected that regulations covering environmental
<PAGE>10
protection and the reclamation and remediation of industrial sites would be
strengthened which could increase the operation costs in China.
It is industry practice for North American mining companies like Teck and
Cominco to apply the more stringent standards of their home countries to foreign
operations regardless of local practices. Should Teck or Cominco choose to
initiate production of a property in joint venture with the Company, it would be
done using North American environmental standards. It is common practice for the
estimates costs of reclamation and remediation of mine sites to be included in
the capital cost of a project. A project would have to be able to provide an
adequate return on all capital, including estimated reclamation costs, to be
considered viable. The Company's current projects all surround active mining
operations, which add additional considerations that would be dealt with on a
case-by-case basis. See the "Environmental Considerations" section under the
individual property description in Item 2 for more details.
e. Politics of China May Adversely Affect the Company's Investments. The
Company's investments may be adversely affected by political, economic and
social uncertainties in China. Although the Chinese 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 Chinese regime.
f. Lack Of A Legal System May Produce Inconsistent Results. 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 Chinese judiciary to review or
control administrative agencies or their actions is uncertain. While there is
absolutely no indication at the present time of the Company becoming involved
with its joint venture partner or any related Chinese parties, should such event
occur there is no guarantee that the Company's position will prevail. The
Company has included in all joint venture contracts signed to date a provision
that allows it to elect to have disputes reviewed by the Center for Dispute
Resolution in Singapore.
g. China Must Maintain A Stable Economy to Maintain the Company's
Operations. The economy of China is a planned economy subject to five-year
plans, with national economic goals adopted by the central government. At
present, China's 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 China 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.
Insofar as the Company's activities are restricted to China, the Company is, to
a certain extent, dependent on the central government's ability to maintain a
stable economic environment in order for the Company to maintain operations.
h. Ownership of Properties Through the Chinese Government. The Company's
interests in all its prospects are subject to the Mineral Resources Law of China
enacted on March 19, 1986, and amended effective January 1, 1997, which provides
<PAGE>10
that "Mineral resources shall be owned by the State" and "The State's ownership
of mineral resources shall be exercised by the State Council." Under existing
laws and regulations, mineral title is protected, however, although the Company
is not aware of any specific title defects, title to properties may be affected
by undetected defects such as unregistered agreements or transfers. Ownership of
Mineral Resources by the State is, in fact, the norm in most "mining-friendly"
regimes such as Canada, Australia and Peru. In all these countries, title to
minerals on a given property does not vest to the private owner until a mining
permit is issued. In the case of both White Silver Mountain and Gobi Gold, title
to the properties has been transferred in their entirety to Sine-foreign joint
venture companies, in which the Company has an interest. They are "clear titles"
and there are no third party interests or potential conflicts known to the
Company.
i. Property Information May Be Uncertain. Much of the information on which
the Company and its consultants have based their decisions regarding the
Company's mineral prospects is based on information provided by Chinese
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 uncertain since it has not been independently verified by
the Company.
Item 4. Information on the Company
Introduction
Minco Mining & Metals Corporation is a British Columbia corporation
which trades on the Toronto Stock Exchange ("TSE") under the trading symbol MMM.
The principal executive office of the Company is located at Suite 1200 - 543
Granville Street, Vancouver, British Columbia, Canada V6C 1X8, and its telephone
number is 604-688-8002. Through joint ventures with Chinese governmental
entities, and others, the Company is engaged in the acquisition and exploration
of base and precious metal mineral projects in the People's Republic of China.
Minco has no affiliation with 3M corporation. Minco'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 China.
At present, Minco is an exploration-stage company. None of the
properties in which Minco has rights have a known body of commercial ore, nor
are any such properties at the commercial development or production stage. No
assurance can be given that commercially-viable mineral deposits exist on any of
Minco's properties. Minco's properties are in the exploration stage, and further
exploration will be required before a final evaluation as to the economic and
legal feasibility can be determined. Minco has not generated cash flows from
operations. These facts increase the uncertainty and risks faced by investors in
Minco. See Item 3 for Risk Factors.
Several major mining companies have had a presence in China, some for
the past ten years, including Australian companies BHP Limited and CRA Limited,
Canadian companies Barrick Gold Corp. and Power Corporation, and U.S. company
Newmont Mining Corp. It is believed that all of these companies have looked, or
are looking at gold and/or base metal projects and have conducted some
exploration work in joint venture with Chinese partners. However, to Minco's
knowledge, none of these companies have yet established producing operations in
China.
Background
Minco was incorporated under the laws of the Province of British
Columbia on November 5, 1982, under the name "Caprock Energy Ltd." On February
19, 1996, current management acquired its interests in Minco pursuant to the
<PAGE>11
following agreements: the "PCR Agreement," and the "Teck-Cominco Agreements,"
described below (See Item 4 - "The PCR Agreement" and "The Teck-Cominco
Agreements."). The purpose of the PCR Agreement was to transfer PCR's assets to
the Company which allowed the Company to explore and evaluate for potential
acquisition and development mineral properties in China.
Business
Since the signing of its first co-operation agreement on the Chapuzi
project in China in 1995, Minco has been very active for mineral exploration,
property evaluation and acquisition in China. Minco has focused on building a
portfolio of base metals and precious metals properties in China. As discussed
below, a strategic alliance was formed with Teck Corporation and Cominco Ltd.
for mineral exploration and development in China. Minco has conducted
exploration works on properties located in Sichuan, Xinjiang, Hebei, Inner
Mongolia, and Gansu provinces of China and investigated or evaluated about 300
Chinese mineral properties. As describe in the organizational chart listed
below, Minco has an interest in three Sino-Foreign co-operative joint ventures
established with Chinese mining organizations to hold mineral rights of in
China.
At present Minco has no income from its operations. Minco's ability to
finance the exploration and development, if warranted, 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 Minco's ability
to secure financing. The equity markets for junior mineral exploration companies
are unpredictable. Alternatively, Minco may enter into cost sharing arrangements
through joint venture agreements, but while management believes that the quality
of the concessions now held by Minco 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 Minco believes that it has sufficient working capital to fund the
exploration work commitments on the currently held property for the remaining
part of fiscal year ended 2000 and for fiscal year ended 2001, it cannot be
determined what the funding requirements will be beyond that time and whether
Minco will require additional financing to meet such requirements.
As discussed below, Teck is funding expenditures at White Silver
Mountain at its sole discretion and may discontinue its joint venture at any
time. However, the Company believes that results so far have been favorable and
it is expected that exploration will continue until such time as Teck will make
a decision concerning production. Given that milling and smelting operations are
already in place, Teck could base its decision on a relatively small resource.
The Gobi Gold project is being funded by Minco at this time. Major increases in
the exploration efforts outlined discussed below would require additional
capital.
The PCR Agreement
On February 19, 1996, Minco 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 Minco upon completion of the
transaction. Prior to that time, PCR, Ken Cai and Donald Hicks were not
affiliated with Minco. Mr. Hicks is no longer a director of the Company.
Pursuant to the PCR Agreement, Minco acquired rights to PCR's entire 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 a joint venture, of which Minco held
a sixty percent equity interest and China Clipper Gold Mines, Ltd. ("China
Clipper"), a publicly traded Ontario corporation, held the remaining forty
<PAGE>12
percent equity interest. On February 27, 1997, Minco purchased China Clipper's
forty percent equity interest in Temco for $175,000, which was believed to be
the fair market value at the time. PCR is currently largest and the controlling
shareholder of Minco, and has no other operations other than its ownership in
Minco.
The Teck-Cominco Agreements
Simultaneously, and in connection with the PCR agreement, Minco 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 public
Canadian mining companies traded on the Toronto Stock Exchange. Pursuant to
these agreements, Teck and Cominco each invested $500,000 in Minco, and received
625,000 units, each unit consisting of one common share of Minco and one half of
a non-transferable 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, 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.
Teck exercised its warrants to purchase 125,000 common shares at $1.20 per share
prior to February 20, 1997. The warrants issued to Cominco expired under their
terms.
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 Minco in China after the date of the
Teck-Cominco Agreements until March 1, 2004. The Non-Chinese Interest with
respect to a property represents the direct or indirect interest in a property
that is available for a non- Chinese entity or a foreigner to acquire under
Chinese Law.
The earn-in rights provide that upon Minco procuring a base or precious
metal project, and after preliminary work by Minco, 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, Teck and Cominco shall hold
Earn-In Rights in respect to such project. If Teck and Cominco determine that
the project is not to be governed by the Teck-Cominco Agreements, Minco 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," 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. Minco must contribute 30% of the costs required after the completion of
the feasibility study.
If a project is determined to be an exploration property, Teck and
Cominco shall have the right, upon completion of a preliminary feasibility study
by Minco, 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
<PAGE>13
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 Minco's interest 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 collective
share holdings in Minco 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 Minco. As of June 30, 2000, Teck holds 1,125,000 common
shares (7.15% of the outstanding shares) and Cominco owns 625,000 common shares
(3.97% of the total outstanding shares). Teck and Cominco have a right of first
refusal to purchase common shares of Minco in any future offerings, so as to
maintain their percentage ownership in Minco.
After Teck and Cominco have exercised their earn-in rights in an
aggregate of two projects procured by Minco, Teck and Cominco shall have further
preferential rights of first refusal in respect to further properties identified
by Minco 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
Minco, if Minco 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. Minco is required
to notify Teck and Cominco of its intent to sell an interest in such a project
to a third party, and provide Teck and Cominco all information which Minco
possesses with respect to the project as well as the terms of the proposed sale,
and Teck and Cominco may, within thirty days, purchase such interest on the
terms which Minco had proposed to accept from a third party.
The rights of Teck and Cominco under the Teck-Cominco Agreements shall
only apply to projects secured by Minco on or before March 1, 2004.
The White Silver Mountain Teck Agreement
On June 15, 1998, Teck exercised its option with respect to the White
Silver Mountain Project (see Item 4 - Description of Property) under which it
can acquire 70% of the Company's interest in the White Silver Mountain Project
by purchasing 375,000 common shares of the Company at a price of $2.00 per
share, which occurred on July 10, 1998, and by exercising warrants to purchase
125,000 common shares of the Company at a price of $3.00 per share, within one
year, and funding all of the Company's obligations on the property up to the
point of production. These warrants were not exercised. As a part of the
transaction, warrants were issued to Teck allowing it to buy an additional
125,000 shares at a price of $2.00 per share, for one year, and warrants to buy
a further 125,000 shares at a price of $3.45 per share for two years. Cominco
has "back-in rights" with respect to this project to earn up to a 20% working
interest in the Non-Chinese Interest in the property up to the pre-feasibility
stage by repaying Teck and the Company one and one-half times the total project
expenditures up to the date of exercise of its rights and thereafter funding its
pro-rata share of feasibility and development costs. If Cominco exercises these
back in rights, the Company would be reduced to a 19% carried interest.
<PAGE>14
The White Silver Mountain agreements with Teck and Cominco are separate
from the Earn-In Rights that are detailed in the section above. The White Silver
Mountain Agreement does not constitute an exercise of either Teck's or Cominco's
first right of refusal, which remain intact.
People's Republic of China - Background Information
The following is a general description of China's foreign investment in
China and the history of gold mining therein.
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 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"), co-operative 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, 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.$30 to U.S.$100 million or more. The State
Development Planning Commission and the Ministry of Foreign Trade and Economic
Go-operation are authorized by the State Council to approve foreign investment
projects of between U.S.$30 million and U.S.$100 million. Provincial authorities
are authorized to approve projects less than U.S.$30 million.
<PAGE>15
Gold Mining in China
Gold has been produced in China for over 4,000 years. In 1994, China was
the world's sixth 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 production. Gold
mining is currently active in all of China's provinces, with over 460 official
operations.
The Chinese mining industry has traditionally been closed to foreign
participation. However, a change in the Mineral Resources Law has been
implemented by China's Central Government which permits foreign participation.
The regulation of mining, including gold mining, in China 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.
The Ministry of Geology and Mineral Resources ("MGMR"), which formerly
administered geological exploration and also carried out exploration through its
own personnel, has been replaced by the new Ministry of Lands and Mineral
Resources.
Chinese-Foreign Co-Operative Joint Ventures
The following is a general description of the legal framework for
Sine-foreign co-operation joint ventures pursuant to which the Company's
business is carried on in China or will be regulated.
Legal Framework. Each of the various joint venture entities through
which the Company 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 Go-operation ("MOFTEC") and
the State Planning Commission ("SPC") in Beijing or their provincial bureaus.
The establishment and activities of each of the Company's joint venture
entities are governed by the Law of the People's Republic of China on
Chinese-foreign Go-operative Joint Ventures and the regulations promulgated
thereunder (the "China Joint Venture Law"). As with all Chinese-foreign
co-operative joint venture enterprises, the Company's joint venture enterprises
will be subject to an extensive and reasonably well-developed body of statutory
law relating to matters such as 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, new regulations were made effective on February 12, 1998. These new
regulations have effectively removed the limitations formerly imposed on foreign
investment in gold mining.
Restructuring within central government bureaucracies dealing with
resources has resulted in the formation of one new ministry, the Ministry of
Land and Resources, which replaces the old Ministry of Geology and Mineral
Resources, State Bureau of Land Administration, State Bureau of Oceanic
Administration and the State Bureau of Survey. This new ministry administers a
new computerized central mineral title registry established in Beijing. This
change has streamlined the application for exploration and mining permits so
that a maximum 40-day response time is now guaranteed.
<PAGE>16
Under existing laws, in order to form a mining joint venture, foreign
companies might complete three levels of agreements. 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 6clhich will ultimately 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
Development Planning Commission (the "SDPC") or its provincial bureau.
Therefore, upon completing a Cooperation Agreement, the parties prepare a
feasibility study of the proposed joint venture and submit this feasibility
study along with the Cooperation Agreement to the SDPC 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
SDPC consults with the Ministry of Land and Resources (the "MLR").
Upon receiving this approval in principle, the parties then negotiate
and prepare a Joint Venture Contract and submit it to the Ministry of Foreign
Trade and Economic Cooperation ("MOFTEC"), or its provincial bureaus, 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 "SAEC"). 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 the MLR to approve
and grant to the joint venture its exploration permits and/or mining licenses.
As part of this approval process, the MLR 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
cooperative joint venture enterprise are governed by the Chinese 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 Cooperative 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 traveling 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
<PAGE>17
after-tax profits allocated to the special funds is determined at the discretion
of the board of directors on an annual basis.
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 Chinese
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 Chinese 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 Company 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 ("FETAL") for the
Promotion of International Trade for Arbitration. Awards of FETAL 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. All of the Company's joint venture agreements
stipulate that disagreements between the parties will be arbitrated by an
arbitration institution in Singapore.
Expropriation. 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.
Division of Revenues. Revenues derived from operating joint ventures,
once all necessary agreements, permits and licenses are obtained, will be
divided between the Company and the Chinese governmental entity or entities
which are parties to the joint venture according to the terms of each individual
joint venture, which terms will vary from project to project. The Company will
be subject to various taxes on its revenues. See Item 8 "Taxation - People's
Republic of China."
C. Organizational Structure
Minco has one wholly-owned subsidiary, 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.
<PAGE>18
The following chart sets forth Minco's corporate structure, including
its subsidiary, their jurisdiction of incorporation, and the various mineral
properties held by each of them:
[GRAPHIC OMITTED]
D. Property, Plants and Equipment.
For the year 2000, two projects in which Minco has an interest are
undergoing active exploration, namely the White Silver Mountain and Gobi Gold
projects.
At White Silver Mountain, a 250-meter exploration drift (horizontal
tunnel) is currently nearing completion under the direction of the Company and
Teck Corporation personnel. The purpose of the drift is to allow a drill to be
put in the optimal position for testing for the down dip and down plunge
extensions of the Xiaotieshan deposit. Upon completion of the drift, Teck will
drill approximately 2,000 meters in several holes to test the zone. If the
results of this drill program are favorable, a follow-up program will be planned
and executed.
Concurrent with the on-going underground program, Teck will undertake a
program of surface work on broader areas of the property away from the known
deposits. These areas have seen little previous exploration. The initial mapping
program completed by Minco in 1999 discovered several areas of favorable geology
that require follow-up. The 2000 surface program will include a broader and more
comprehensive mapping project, 200 line kilometers of geophysical surveys and,
where applicable, soil and rock sampling. The results of the surface program
will be evaluated and if results warrant, will be followed up with more
intensive mapping and trenching program and/or drilling. The cost of the 2000
program is estimated at $450,000 which will be financed by Teck.
In addition to the White Silver Mountain program, Minco will be carrying
out work on its own account on the Gobi Gold project. The initial exploration
phase will consist of geological mapping, soil and rock geochemical sampling and
surface magnetometer surveys designed to aid in mapping the major structures on
the project and assist in locating buried intrusive bodies. This program will
also include follow-up prospecting of the anomalies generated by earlier work by
the Chinese joint venture partner. The Gobi Gold project surrounds a small
<PAGE>19
mining permit retained by the vendor. The Phase I program is on schedule and
will be completed at an estimated cost of $400,000 and will be funded from
Minco's existing working capital. Further exploration work, if warranted, will
be contingent on an evaluation and interpretation of the geological and
geophysical data resulting form the Phase I program.
The program and budget for 2001 will be, in part, contingent on the
results of the underground drill program to be completed in the current year
2000 program, and a technical evaluation and summary of the extensive
geophysical survey to be completed in 2000.
At this time, Minco plans no further work programs on any of it other
properties including the Changba-Lijiagou project. Minco may entertain offers
from third parties that wish to option or joint venture the property by
furthering its development. At the present time, Minco is not negotiating any
agreement on the property and there is no assurance that an offer will be
obtained that will enhance shareholder value.
White Silver Mountain
Minco acquired its rights to the White Silver Mountain project located
in Gansu Province, China, pursuant to the "Co-operation Agreement for Mineral
Exploration and Development" between the Company and Baiyin Non-Ferrous Metals
Corporation ("BNMC") signed on November 17, 1997. A fully licensed Sino-Foreign
joint venture company, Gansu Keyin Mining Co. Ltd. ("Keyin") has been formed to
hold the mineral interests. In order to earn a 80% interest, the Company has to
expend approximately US$4.8 million (40 million RMB) on the White Silver
Mountain properties over a six year period. BNMC contributed the exploration
permit held by it and the geological data and research results, including drill
core samples and maps, for its 20% interest in Keyin. Following the completion
of the above expenditures, each party shall make contributions to Keyin in
proportion to their respective beneficial interests. Pursuant to an option
agreement dated December 22, 1999, with effective date of June 10, 1998, Minco
granted Teck an option to earn a 56% interest in Keyin by assuming all of
Minco's funding requirements until commercial production has been attained.
In addition, as a result of Teck assuming operatorship of the White
Silver Mountain project in July 1999, Minco's financial obligation with respect
to exploration of the White Silver Mountain project on the licensed territory is
being fully funded by Teck Corporation through production.
Location and Description
The 111 square kilometer White Silver Mountain project includes
exploration ground in or around a number of past and presently producing
properties in the Baiyin Ore Field located close to the city of Baiyin, Gansu
Province, China. Baiyin is located 1,000 kilometers west of Beijing. The area is
fully serviced by road and rail and has the entire required infrastructure to
support an active mining operation, of which there are several in and around the
project area. The White Silver Mountain project is located near the Xiaotieshan
deposit which is operated by BNMC. Keyin, the joint venture in which Minco has
an interest, has concluded an agreement that gives it an 80% interest in the
down dip and strike extensions of the mineralized zones being mined at
Xiaotieshan as well as any new discoveries in the region. Drilling and
underground development undertaken by Keyin has focused on the area immediately
below the Xiaotieshan underground mine testing the down dip extensions of the
ore lenses being mined by BNMC. The agreement includes the areas immediately
surrounding past and present mine workings but excludes the workings themselves
and the BNMC milling and/or smelting operations. Recent surface exploration and
<PAGE>20
geological mapping has uncovered other prospective areas outside of the project
boundary. In response to these finds, Minco has applied for an additional 70
square kilometers of mineral rights. BNMC is assisting with this application
which is expected to be granted in mid-2000.
History, Deposit Type and Exploration Potential
The White Silver Mountain deposits are of the Volcanogenic Massive
Sulphide (VMS) type. VMS deposits are formed in undersea settings by the
precipitation of metal rich fluids expelled by volcanic vents. VMS deposits
display a characteristic "zoning" with more copper-rich deposits found near the
location of the original volcanic vents and more zinc-rich deposits found at a
distance to them, though the pattern is often obscured by later faulting and
folding of the rocks that contain them. VMS deposits are "syngenetic," meaning
they form at the same time as the rocks that enclose them and they usually occur
in clusters over a 20 to 40 km radius. Deposits are found where the volcanic
rock has changed to a distinctive silica (quartz) rich rock unit known as
"exhalative." Exhalative horizons are indicators of VMS deposit forming
activity; exploration for new deposits in known VMS camps therefore often
focuses on finding the exhalative horizons then exploring within them for
economic concentrations of metals. Geological mapping undertaken as part of the
1999 exploration program has located five separate exhalative horizons,
including the one that hosts the mined deposits. To the best of Minco's
knowledge, there had been virtually no past exploration of the property away
from the mines.
Environmental Considerations
Minco's joint venture agreement specifically excludes any areas of past
or present mining activity. Minco foresees no direct or indirect liabilities
arising from the activities of BNMC on its own mine sites. In the White Silver
Mountain underground exploration area, Teck has hired BNMC as a contractor to
undertake all underground development. BNMC is responsible for the disposal of
all mining waste (mainly barren rock) in an environmentally sound manner.
Similarly, it is expected that BNMC would be retained as the mining contractor
if the joint venture makes a positive production decision. BNMC would have
operational management of the project and would be responsible for adherence to
sound environmental practice. If smelting is done by BNMC, it would be governed
by standard commercial contract under which the handling and safe disposal of
any attendant waste products would be BNMC's sole responsibility.
1999 Exploration Program and Planned Activities for 2000 and 2001
The Keyin present program for 2000 will consist of 250 meters of
underground development to establish drill stations, approximately 2,000 meters
of underground drilling and a surface program which will include geological
mapping and approximately 200 line kilometers of electromagnetic surveying. The
mapping and electromagnetic surveys should generate new targets for a surface
drilling campaign to be undertaken after the Keyin has received and interpreted
the results of the surface work and the current underground drill program. The
cost of this program is estimated at $450,000 and is being completely funded by
Teck. Similarly, the underground program is expected to continue as long as
favorable results are being received and the potential size of the mineralized
zone is being increased.
The Company's estimated cost related to the White Silver Mountain is
approximately $70,000 for the December 31, 2000, year end and will be $50,000
for the year ended December 31, 2001. These amounts are in addition to the
amounts being expended by Teck.
<PAGE>21
Gobi Gold Project
A regional exploration and property evaluation was carried out on the
Inner Mongolia (Gobi Gold project) during 1998 culminating in the joint venture
agreement in 1999 between Minco and the Exploration Institute of Land and
Resources of Inner Mongolia ("EILR"). In 1999, Minco and EILR created Damo
Mining Co. Ltd., a fully-licensed Sino-Foreign joint venture company, to explore
for metallic mineral deposits within the Inner Mongolia Autonomous Region.
Initially, Damo Mining will focus on exploring its existing license holding that
covers 550 km2. The Damo Mining joint venture agreement allows Minco to earn a
75% interest by spending US$2.5 million on exploration on the Gobi Gold project
over four years.
Location, History, Geology and Exploration Potential
The Gobi Gold project is the culmination of a series of regional
exploration programs undertaken by EILR. EILR carried out a broad program of
stream and drainage sampling. This program highlighted several areas with gold
concentrations some of which were followed up by mapping, prospecting and more
closely spaced geochemical sampling. This work led to the discovery of the
Zhulazhaga zone, which EILR put into production on a small scale basis. One of
the license blocks encompasses this small open-pit operation; the areas of the
open pit itself (approximately 0.2 km.2 in area) is excluded from the joint
venture. Zhulazhaga was discovered by direct follow-up of a regional geochemical
anomaly and was developed into a heap leach operation exploiting surficial oxide
zones. Wide zones of primary, low-grade gold mineralization have been
intersected by drill holes completed by the Chinese operator beneath surface
oxide ore. Disseminated gold-pyrrohotite-chalcopyrite mineralization occurs
where faults intersect favorable sedimentary units. Geophysical surveys suggest
an intrusive center is buried beneath shallow desert sand about 500 m south and
along strike of known mineralization. Intrusive bodies of rock are the
mineralizing agent in a skarn system, and the main target of skarn exploration
is the margins of these intrusive bodies. The Company believes that the
potential for discovering more extensive, near surface skarn mineralization is
good, given the limited exploration that has taken place beyond the surficial
oxide zones. An initial program of detailed ground magnetic surveys combined
with geological mapping is planned to give better resolution of features
controlling mineralization.
Other prospects identified in the license blocks from regional
geochemical surveys have had limited to no follow-up work. Known mineralization
is developed in calcareous sedimentary units and proximal to small felsic
intrusions. Field examination of two prospects visited in 1999 showed features
indicative of skarn style mineralization. The exploration program for 2000 will
involve ground magnetic surveys and geological mapping over the two identified
skarn prospects to establish drill targets. Field-checking remaining geochemical
anomalies is also planned.
Upon the compilation of results from this program, the next phase of
work, if warranted, will be planned and executed. It will likely involve more
detailed work on the most favorable targets, culminating in drilling. Estimated
cost expenditures for the year ended December 31, 2000, will be approximately
$400,000 consisting of approximately $270,000 in advances to the joint venture,
$10,000 for acquisition costs, $15,000 in administration fees, $71,000 in
consulting fees and $34,000 in travel, transportation and lodging. For the year
ended December 31, 2001, expenditures will be approximately $250,000 consisting
of $125,000 in advances to the joint venture, $37,500 for administrative fees,
$50,000 in consulting fees and $37,500 in travel, transportation and lodging.
<PAGE>22
Environmental Considerations
The Gobi Gold project has been subject to little if any surface
disturbance other that the area of the Zhulazhaga mining operation, which is
excluded from the joint venture area. The exploration activities proposed for
the Gobi gold project, including potential drill testing of new anomalies, will
result in little surface disturbance, and standard reclamation procedures will
be used for areas such as trenches or drill pads. Minco does not believe that
there will be any potential environmental liability arising from these
activities.
Changba-Lijiagou Property
The Company acquired its rights to the Changba-Lijiagou Lead Zinc
project located in Ganzu Province, China, through the "Cooperation Agreement
Regarding the Development of the Changba Lijiagou Lead Zinc Deposit" between the
Company and BNMC signed on November 17, 1997. Under this agreement, the Company
had the right to earn a 75% interest in the deposits of Deep Changba, Lijiagou
and the joint area between them by taking the project through development, to
production at a rate of 3,500 tonnes of ore per day. BNMC operated the
Changba-Lijiagou project as a 3,500 tonne per day open pit mine until the
collapse of underground workings forced the downsizing of the operation to 750
tonnes per day. Minco's option is for areas away from the current workings, and
immediately below them, beneath an elevation of 1,205 meters above mean sea
level. Minco's option includes the 3,500 tonnes per day milling complex on site.
History, Geologic Model and Exploration Potential
The Changba-Lijiagou Deposits project is located in Ganzu province in
northwestern China. The project took its name from the town of Changba, a small
regional agricultural/government center before the arrival of the miners.
Changba is 350 kilometers east of the provincial capitol of Ganzu and 400
kilometers by road and rail to Baiyin, the headquarters town of BNMC and
location of the smelting complex.
BNMC originally moved into the Changba area in the 1940's after the
discovery of copper in the region. BNMC started up operations at two copper
mines soon afterwards, which are now virtually depleted. The search for new
copper reserves in the area lead to the discovery of the Changba, then Lijiagou
zinc/lead mineralization. In 1988, BNMC began mining the Changba deposit as an
open-pit operation at a rate of 1,000 tonnes per day. A capital expansion was
completed in 1997 to increase the capacity of the mill to 3,500 tonnes per day,
but productivity and equipment problems in the pit have kept BNMC from
increasing the mining rate, which remains at 1,000 tonnes per day.
Changba and Lijiagou are Sedimentary Exhalative (or SedEx) type
deposits. SedEx deposits have been the basis for the world's larger mining
systems. The Sullivan deposit system in British Columbia, Canada and the Broken
Hill deposits in Australia are better-known examples of this deposit type.
SedEx deposits are characteristically zoned in a pattern with zinc rich
material in the center. The Changba-Lijiagou deposits are zinc rich. They are
open and substantially untested to depth, as well as laterally along trend.
Though exploratory drilling is needed to confirm this, the zinc rich nature of
the ore and the long trend length indicate potential for further discoveries in
the area. BNMC has completed close to 250 surface drill holes to test Changba to
depth and to outline the Lijiagou mineralization and to test the intervening
area at depth.
<PAGE>23
Since acquiring the option, Minco has concentrated its efforts on the
Lijiagou mineralization. The work undertaken to date is of a preliminary nature
only. Further third party work and a complete feasibility study would be
required prior to any production decision. No exploration activities are planned
for the Changba-Lijiagou project the remaining of this year 2000. Because of its
focus on the White Silver Mountain and Gobi gold projects, Minco may entertain
offers from third parties who wish to earn a portion of Minco's interest in the
project by further developing it.
Environmental Considerations
All areas of past and present mining activities are specifically
excluded from the joint venture. Should Minco and/or its partners decide to put
all or part of the project into production, there would be an operating
agreement negotiated with BNMC. Part of this agreement would absolve the
partners from any environmental hazards arising from BNMC's mining activities
prior to the date of the joint venture contract to be negotiated and finalized.
This type of clause is now standard in North American option and joint venture
agreements and is usually a condition precedent to signing an agreement with a
major company. The structure of the agreement with BNMC allows Minco to earn a
direct interest in the mill site and other infrastructure. Should Minco make a
positive production decision, it would need to negotiate an agreement that
defines its responsibilities concerning the ultimate rehabilitation of the mill
site and include those costs in its decision making.
Other Mineral Interests
(a) The Company has entered into a cooperative joint venture agreement
with the Sichuan Bureau of the Ministry of Geology and Mineral Resources on the
Chapuzi property which is located in Sichuan Province, China.
Pursuant to the 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. A total of $153,416 has been spent on exploration and
metallurgical testing as of December 31, 1996. The Company may earn a 75%
interest by placing the Chapuzi gold deposit project into production. The
Company discontinued further exploration work on the property in 1999.
(b) 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. At this time, Minco has no plans to
invest in any of the properties.
(c) The Savoyardinskii gold/antimony property is located in the
Savoyardinskii area in Karakuldzinskii Region, Osh Oblast, Kyrgyz Republic. The
Company abandoned the project in 1998.
(d) Pursuant to a joint venture agreement, the Company can earn a 55%
interest in the Emperor's Delight and Lengkou properties, which are located in
Hebei Province, China, by spending US$4.4 million over a five-year period
beginning in 1996. The Company discontinued further exploration work on the
Emperor's Delight property in 1999 and on the Lengkou property in 1998.
(e) The Crystal Valley and Stone Lake properties are located in Hebei
Province, China. These projects are subject to the approval of the appropriate
Chinese government authorities.
All Minco's properties are located in China and fall into two general
groups: the Chapuzi, West Tian Shan, Xinjiang, White Silver Mountain and Gobi
Gold properties were acquired by direct negotiations and agreements between
<PAGE>24
Minco and the Chinese authorities and the Changba-Lijiagou, Emperor's Delight,
Lengkou, Crystal Valley and Stone Lake properties were acquired in connection
with the PCR Agreement.
In setting up a joint venture to operate a mining venture in China, the
general procedure involves three levels of agreements. 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 will ultimately 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.
To date, Minco has not entered into a final agreement on a producing
property. Consequently, Minco has not generated a cash flow from operations. In
management's opinion, given that the nature of Minco's business consists of
mineral exploration, development and the evaluation of resource properties,
meaningful financial information consists primarily of Minco'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.
Expenditures on Properties of Minco for 1999, 1998 and 1997
The following table sets forth Minco's expenditures on it properties for
the years ended December 31, 1997, 1998 and 1999, and the six months ended June
30, 2000.
<TABLE>
<S> <C> <C> <C> <C>
December 31, June 30,
------------------------------------------------------
1997 1998 1999 2000
----------- ---------- ------------ ------------
Changba Lijiagou Lead-Zinc Deposit $ 54,631 $ 52,107 $ $
Chapuzi 175,346 1,456
Emperor's Delight 3,669 25,051
Heavenly Mountains 468,064 33,412
Inner Mongolia (Gobi) 40,456 49,922 281,430
Lengkou 364,811 44,561
Savoyardinskii 274,816 82,216
West Kunlun 191,170
White-Silver Mountain 3,700 619,381 684,898 36,835
Xifanping Gold Deposits 47,240 33,504
----------- ---------- ------------ ------------
Total $1,583,447 $ 907,093 $ 759,871 $ 318,265
=========== ========== ============ ============
</TABLE>
Item 5. Operating and Financial Review and Prospects
This discussion and analysis of the operating results and the financial
position of Minco for the six months ended June 30, 2000 and 1999, and the three
years ended December 31, 1999, 1998 and 1997, and should be read in conjunction
with the Consolidated Financial Statements and the related Notes thereto.
<PAGE>25
A. Operating results.
General
Since the signing of its first co-operation agreement on the Chapuzi
project in China in 1995, Minco has been very active for mineral exploration,
property evaluation and acquisition in China. The Company has focused on
building a portfolio of base metals and precious metals properties in China. A
strategic alliance was formed with Teck Corporation and Cominco Ltd. for mineral
exploration and development in China. The Company has conducted exploration work
on properties located in Sichuan, Xinjiang, Hebei, Inner Mongolia, and Gansu
provinces of China, and investigated or evaluated about 300 Chinese mineral
properties. Three Sino-Foreign co-operative joint ventures have been established
with Chinese mining organizations to hold mineral rights of Minco's properties.
Results of Operations
Six months ended June 30, 2000, compared to the six months end June 30, 1999
The Company had no revenues during the six months ended June 30, 2000
and 1999.
Administrative expenses were $440,703 for the six months ended June 30,
2000 compared to $506,627 for the same period during the prior year. In general,
expenses decreased in all categories in light of the Company concentrating its
efforts on the White-Silver Mountain and Gobi Gold project. In this regard,
during the six months ended June 30, 2000, the Company had no property
investigation expenses.
Net loss from operations was $401,631 ($0.02 per share) versus $459,491
($0.02 per share) for the six months ended June 30, 2000 and 1999, respectively.
Year ended December 31, 1999, compared to year ended December 31, 1998
The Company is in the development stage and had no revenues during 1999
and 1998. Mineral interests written of $579,088 during 1999 consisted of the
Emperor's Delight, Changba Lijiagou Lead-Zinc Deposit and Chapuzi interests.
This is a reduction of mineral interests written off during 1998 consisting of
the Lengkou, Heavenly Mountains and Savoyardinskii properties. The property
write-offs relate to Minco's decision to discontinue exploration at Emperor's
Delight and Chapuzi properties, and to write the Changba- Lijiagou property down
to a nominal carrying value. Mineral property expenditures for 1999 amounted to
$760,000, within which $700,000, went to White Silver Mountain project, $50,000
spent on Gobi project in Inner Mongolia.
Total administrative expenses were $954,713 for 1999 compared to
$1,128,244 for 1998. On- going cost reductions were mainly in overhead items
such as rent, telephone and travel costs as well as a reduction in listing fees
due to the need to only maintain the Toronto Stock Exchange listing. Minco's
efforts on cost control in the past three years have lead to a decrease of
approximately $400,000 in administrative and overhead costs. The Company
continued its cost control and rationalization effort in the face of a difficult
resource financing market.
Net loss from operations was $1,506,108 or $0.09 per share versus $1.99
million or $0.13 per share in 1998.
<PAGE>26
During 1999, mineral property expenditures were $759,871, primarily
spent on the White-Silver Mountain project. Mineral property expenditures for
1998 were $910,000 with the bulk of such mineral property expenditures of
$620,000 was spent on White Silver Mountain project, and the remainder spread
across several other properties.
US GAAP Reconciliation
For the year ended December 31, 1999, the Company had a loss of
$2,544,584 or $0.21per share calculated under US GAAP. The difference in
calculation of loss is primarily attributed to the release of escrow shares of
$974,042 which is recorded as compensation expense under US GAAP.
Year Ended December 31, 1998 compared to year ended December 31, 1997
The Company is in the development stage and had no revenues during 1998
and 1997. During 1998, Minco discontinued exploration on the Lengkou, Xifanping,
Heavenly Mountains and Savoyardinskii properties and wrote off $1,065,408 in
expenses associated with these projects to deficit.
Total administrative expenses were $1,128,244 for 1998 compared to
$1,551,105 for 1997. Minco continued its cost control and rationalization
efforts in the face of a difficult resource financing market. Cost decreases
were chiefly in the area of promotion, investor relations, travel and staffing
expenses. The decrease in administrative expenses reflect a reduction in general
and administrative expenses, even in the presence of increased filing costs
associated with the listing on the Toronto Stock Exchange and registration with
the Securities and Exchange Commission. The Toronto Stock Exchange listing was
granted in December 1997.
The net loss from operations for 1998 was $1.99 million ($0.13/share)
compared to $1.48 million ($0.10/share) in 1997.
Mineral property expenditures for 1998 were $910,000 with the bulk of
such mineral property expenditures of $620,000 was spent on White Silver
Mountain project, and the remainder spread across several other properties.
During 1997, mineral property expenditures were $1,583,447, primarily spent on
the Lengkou, Heavenly Mountains, Savoyardinskii and West Kunlun properties.
US GAAP Reconciliation
For the year ended December 31, 1998, the Company had a loss of
$3,315,242 or $0.31per share calculated under US GAAP. The difference in the
calculation of loss is primarily related to the release of escrow shares of
$1,476,973 which was recorded as compensation expense under US GAAP.
Exchange Rates
Minco maintains its accounting records in functional currency: Canadian
dollar. Minco translates foreign currency transactions into functional currency
in the following manner: At the transaction date, each asset, liability, revenue
and expense is translated into Canadian dollars at the exchange rate in effect
on that date. At each period end, all monetary assets and liabilities are
translated into the functional currency by using the exchange rate in effect at
that date. The resulting foreign exchange gains and losses are included in the
consolidated Statement of Operation.
Minco does not believe that impact of foreign currency fluctuations has
a material impact on its financial conditions. The Company does not engage in
foreign currency hedging transaction.
<PAGE>27
Inflation
Minco does not believe that inflation will have a material adverse
effect on its financial condition. Traditionally, China and Canada have not been
countries that experienced a substantial increase in inflation.
B. Liquidity and Capital Resources
Currently, none of the Company's projects are producing revenues and no
revenues are anticipated to be generated in the near future. To provide working
capital for its operations and project development, Minco needs to raise new
funds within twelve to eighteen months. Traditionally, the Company has raised
capital through the issuance of common shares. It is contemplated that it will
continue to raise capital primarily private through investors consisting of
resource investment groups, senior mining companies, and public financing
through the facilities of the Toronto Stock Exchange. No assurance, however, can
be given that Minco's future capital requirements can be obtained. Minco's
access to capital is always dependent upon future financial market conditions,
especially those pertaining to venture capital situations such as mining
exploration companies. There can be no guarantee that Minco will be successful
in obtaining future financing, when necessary, on economically acceptable terms.
For the year ended December 31, 2000, the Company believes that it will
need approximately $1.2 million of which approximately $700,000 is for
administration costs and $470,000 is for ongoing field programs consisting of
$400,000 and $70,000 related to the Gobi Gold and White Silver Mountain
projects, respectively. For the year ended December 31, 2001, the Company
believes that it will need approximately $900,000, of which $600,000 is
administrative costs and $300,000 is for ongoing programs consisting of $250,000
and $50,000 related to the Gobi Gold and White Silver Mountain projects,
respectively. No assurance can be given that the Company will make the
anticipated exploration expenditures on the Gobi Gold and White Silver Mountain
projects which will depend, in part, on actual results of exploration.
The Company anticipates that it will pay for its administrative and
exploration costs for the remainder of 2000 and for 2001 from its current
working capital. Based upon the completion of its most recent private placement,
the Company believes that it has sufficient working capital to complete its
anticipated expenditures during the remaining portion of 2000 and for 2001.
At June 30, 2000, and December 31, 1999, Minco had working capital of
$1,489,131 and $2,072,466 respectively. During the period of 1997 to 1999,
capital additions totaled $1,513,365, including major financing of $1,090,365
from Teck Corporation by warrant exercises; $212,500 from Arbora Portfolio; and
$150,000 from Butraco Limited through a private placement of common shares.
The particulars of all capital raising transactions since 1996 are
detailed as follows:
In June of 1996, Minco 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-transferable 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 4:30P.M. on June 30, 2000, and the exercise price of
the warrants was reduced to $2.00. These warrants expired under their terms.
<PAGE>28
Common shares issued for cash in 1997 totaled $158,000. $150,000 from
the exercise of share purchase warrants and $8,000 from the exercise of employee
options. 133,000 shares were issued in regards to these transactions.
On July 10, 1998, Minco completed a private placement of 375,000 common
shares to Teck Corporation at a price of $2.00 per share. Proceeds of this
placement were expended entirely on the White Silver Mountain Project. The
placement also included warrants to purchase 125,000 common shares at a price of
$2.00 per share for one year and a further 125,000 common shares at a price of
$3.45 per share for two years.
Financing in 1999 included the exercise by Teck of 125,000 warrants to
purchase shares at $1.60 as part of its exercise of its option to become a joint
venture partner and operator of the White Silver Mountain project. Teck had the
right but not the obligation to acquire an additional 125,000 shares at $3.45
until July 9, 2000 and did not acquire the additional common shares.
Additionally, the Company undertook private placements of 250,000 common shares
at $0.85 per share and 150,000 common shares at $1.00 per share.
During the six months ended June 30, 2000, Arbora Portfolio Management
exercised warrants to acquire 110,000 common shares at $1.01 per share.
Proceeds of the financing listed above are being used for exploration
and for development expenditures (only when and if warranted) in connection with
Minco's mineral projects located in China, for working capital and for
acquisition of additional projects. The one exception to this was the 1997
placement of 375,000 shares at $2.00 to Teck Corp. The proceeds of this
placement were entirely expended on the White Silver Mountain project.
Year 2000
Minco has only a minimal amount of computer equipment, all of it
purchased within the last 36 months, and the software being used is of similarly
recent make. After testing, Minco found its computers to be Year 2000 compliant.
Minco experienced no difficulties during the year 2000 changeover, and nor does
it expect any.
Item 6. Directors, Senior Management and Employees.
A. Directors and senior management.
The following table sets forth all current directors and executive
officers of Minco as of December 31, 1999, with each position and office held by
them in Minco, their terms of office and the period of service as such. Each
director's term of office expires at the next annual general meeting of
shareholders.
<PAGE>29
<TABLE>
<S> <C> <C> <C>
Number of Shares
Beneficially Owned, Principal Occupation
Directly or Indirectly, and if Not at Present
or Over Which an Elected Director,
Name and Present Control Or Direction Occupation During
Office Held Director Since is Exercised the Past Five (5) Years
---------------------- ---------------- ------------------------ -------------------------
Ken Cai February 1996 371,000(1) Geologist
President, Chief
Executive Officer and
Director
William Meyer July 13, 1999 250,000(2) Professional Engineer
Chairman and Director
Robert M. Callander August 1996 197,550(3) Vice President,
Director Caldwell Securities
Ltd.
Hans Wick March 1997 262,300(3) Financial Advisor
Director
Theodore H. Konyi (4) February 1999 Nil President, Maxwell
Director Mercantile Inc.
</TABLE>
(1) Includes common shares held by Pacific Canada Resources, a private company,
of which Dr. Ken Cai has more than a 10% interest. Also includes 371,000
common shares subject to options.
(2) Represent includes 250,000 common shares subject to options.
(3) Includes 97,300 common shares subject to options.
(4) Mr. Konyi resigned as a director on July 4, 2000.
Positions held by Minco's directors and officers other than with Minco:
Name Positions Held
-------------------- ---------------------------------------------------
Ken Cai Director, Chineseworldnet.com
Director & CFO, Dragon Pharmaceuticals Inc.
Director, Aquasol Environtech Ltd.
President & Director, Kaisun Investment &
Development
President & Director, Pacific Canada Resources Inc.
William Meyer Director, Silver Standard Resources Inc.
Director, Gerle Gold Ltd.
Director, Lysander Minerals Corporation
Director, Cantech Ventures Inc.
Director, Standard Mining Inc.
Director, Trans American Industries Inc.
<PAGE>30
Name Positions Held
-------------------- ---------------------------------------------------
Robert Callander Director, Urbana Corporation
Director, Pacific Canada Resources Inc.
Director, Environwaste Technologies Inc.
Director, Member Savings Credit Union
Director. Intraconnect Inc.
The business background and principal occupations of Minco's officers
and directors for the preceding five years are as follows:
Ken Z. Cai. Dr. Cai has served as president, chief executive officer
and a director of Minco since February 29, 1996. Dr. Cai holds a Ph.D. in
mineral economics from Queens University in Kingston, Ontario, Canada. Dr. Cai,
a Chinese national now living in Canada, has 15 years of experience in mineral
exploration, project evaluation, corporate financing and company management. Dr.
Cai has been responsible for negotiating the property agreements in China
through his contacts in the Chinese mining communities. This has allowed Minco
to access data on a large number of projects throughout China. Dr. Cai has
served as a director of several publicly-traded and private Canadian and Chinese
companies. In addition, Dr. Cai is a director of Dragon Pharmaceutical, Inc., a
company whose shares of common stock are registered under the Securities
Exchange Act of 1934.
William Meyer. Mr. Meyer has served as Chairman and director since
1999. He was formerly Vice-President, Exploration for Teck Corporation and
President of Teck Exploration Ltd. He graduated from the University of British
Columbia with a B.Sc. in geology in 1962. After graduation, he was employed as
an exploration geologist with Phelps Dodge Corporation of Canada and later as
senior geologist with Gibraltar Mines Ltd. In 1967 he joined the consulting firm
of Western Geological Services as a partner, and in 1975 formed his own
consulting firm, W. Meyer and Associates. Mr. Meyer joined Teck Exploration Ltd.
in 1979 as Exploration Manager for Western Canada and the United States. In
1991, he was appointed Vice-President, Exploration, for Teck Corporation
responsible for the direction of exploration activities for Teck and its
associated companies worldwide. He is a director and officer of a number of
public and privately owned Canadian companies.
Robert Callander. Mr. Callander has been a director since August 1996.
He 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 has been a director since March 1997. He is a
resident of Zurich, Switzerland. For the past five years, Mr. Wick has been an
independent portfolio manager.
Theodore H. Konyi. Mr. Konyi has been a director since February 1999.
Mr. Konyi has 15 years experience in the field of finance and investment, and
for the past five years has served as President of Maxwell Mercantile Inc., a
full-service merchant banking company specializing in corporate finance,
investor relations and corporate structuring. Mr. Konyi resigned as a director
in July 2000.
<PAGE>31
B. Compensation
The aggregate direct or indirect remuneration paid to the directors and
officers of Minco, as a group during the fiscal year ended December 31, 1999,
for service to Minco in all capacities, was $231,810. Certain information about
payments to particular officers and directors is set out in the following table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
---------------------------------------------- --------------
All Other
Name and Principal Shares Under Compensation
Position Year Salary Bonus Other Options ($)
-------------------------- ----- ---------- ------ ------------ ------------- --------------
Ken Cai 1999 Nil Nil $111,500(1) 371,000 Nil
President, Chief Executive 1998 Nil Nil $121,276(1) 371,000 Nil
Officer and Director 1997 Nil Nil $113,981(1) 371,000 Nil
Peter P. Tsaparas 1999 $12,000 Nil Nil 300,600 Nil
Chairman, Chief Financial 1998 $24,000 Nil Nil 300,600 Nil
Officer and Director 1997 $24,048 Nil Nil 300,600 Nil
Colin McAleenan 1999 Nil Nil Nil Nil Nil
Former Vice-President- 1998 Nil Nil $86,533(1) 185,000 Nil
Exploration and Director 1997 Nil Nil $101,384(1) 185,000 Nil
Donald Hicks 1999 Nil Nil Nil Nil Nil
Former Vice-President- 1998 Nil Nil Nil Nil Nil
Corporate Development 1997 Nil Nil Nil Nil Nil
and Director
</TABLE>
(1) Consulting fees paid and amounts paid as a travel allowance.
C. Board practices
The current directors of the board were elected to their position at the
annual meeting of shareholders held on June 29, 2000. The director will continue
to serve as such until the next meeting of the shareholders to be held in 2001.
The officers of the Company are elected by the board and serve at the board's
pleasure. Directors are appointed annually at the Annual General Meeting of
shareholders. Whereas officers' appointments are approved by the Board of
Directors and terminate upon resignation or termination by the Board.
The Company has no contract with any of its officers or directors that
provide for payments upon termination.
The Company has an Audit committee consisting of Messrs. Meyer and
Callander. The roles and responsibilities of the Audit committee have been
specifically defined and include responsibility for overseeing management
reporting on internal control. The Audit committee has direct communication
channels with the external auditors.
<PAGE>32
D. Employees
The Company has 10 full-time employees and 1 part- time employees. Most
of the Company's employees are located in Vancouver, British Columbia with 3
employees located in China.
E. Share ownership
OPTION GRANTS DURING THE MOST
RECENTLY COMPLETED FISCAL YEAR
The following options were granted to an Executive Officer during the
year ended December 31, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C>
% of Total Market Value
Options of Securities
Granted to Underlying
Securities Officers and Exercise or Options on the
Under Options Consultants in Base Price Date of Grant
Name Granted (#) Financial Year ($/Security) ($/Security) Expiration Date
--------------- ------------- --------------- ------------- -------------- -------------------
William Meyer 150,000 $1.65 July 16, 2006
William Meyer 100,000 $1.12 December 2, 2006
</TABLE>
Options were also granted to Richard Nemeth in the amount of 100,000 at
an exercise price of $1.20 and 100,000 at an exercise price of $2.00. Both sets
of options expire on December 1, 2006.
During the fiscal year of Minco ended December 31, 1999, no amounts were
set aside or accrued by Minco or its subsidiaries during such year to provide
pension, retirement or similar benefits for directors and officers of Minco,
pursuant to any existing plan provided or contributed to by Minco or its
subsidiaries.
The following table sets forth, as of September 30, 2000, all
outstanding options and warrants to purchase common shares of Minco; there are
no options to purchase shares of any other class of security:
<TABLE>
<S> <C> <C> <C> <C>
From To
----------------- ----------------
Ken Cai 321,500 $1.41 March 5, 1996 March 5, 2006
49,500 $1.41 June 20, 1997 June 20, 2007
Peter Tsaparas 181,600 $1.41 March 5, 1996 March 5, 2006
119,000 $1.41 June 20, 1997 June 30, 2007
Wayne Spilsbury 185,000 $1.41 March 5, 1996 March 5, 2006
Robert Callander 97,300 $1.41 October 8, 1996 October 8, 2006
Hans Wick 97,300 $1.41 March 6, 1997 March 6, 2007
Kelvin Szeto 100,000 $1.41 January 12, 1999 January 12, 2001
Christine Reynolds 70,000 $1.41 January 12, 1999 January 12, 2001
<PAGE>33
From To
----------------- ----------------
William Meyer 150,000 $1.65 July 16, 1999 July 16, 2006
100,000 $1.12 December 2, 1999 December 1, 2006
Richard Nemeth 100,000 $1.20 December 20, 1999 December 1, 2006
100,000 $2.00 December 20, 1999 December 1, 2006
Allan Thompson 75,000 $1.20 February 4, 1999 February 4, 2001
75,000 $1.20 February 4, 1999 February 4, 2001
Total 1,906,200
</TABLE>
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
As of September 30, 2000, Minco believes that approximately 581,320 of
the issued and outstanding common shares were held by 16 shareholders with
addresses in the United States.
As far as known to Minco, and except as disclosed herein, Minco 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 Minco, as at August
31, 2000, owned approximately 36% of the issued and outstanding shares of
Minco's common stock.
The following table sets forth, as of September 30, 2000, information
with respect to (i) any person who is known to Minco to be the owner of more
than 10% of any class of Minco's outstanding voting securities and (ii) the
total amount of any class of Minco's voting securities owned by the officers and
directors as a group.
Title of Class Identity of Holder Amount Owned Percent of Class
-------------- ---------------------- ------------- ----------------
Common Shares Teck Corporation(1) 1,125,000 7.15%
Common Shares Pacific Canada 5,917,500 36.0%
Resources Inc.(2)
Common Shares All officers and 6,182,750 39%
directors as a group
(five persons)(3)
(1) Teck Corporation has a right of first refusal to purchase common shares of
Minco in any future offerings so as to maintain its ownership.
(2) Dr. Ken Cai a director and officer of Minco, and Donald Hicks, a former
director and officer of Minco, collectively are the beneficial owners of
56% of Pacific Canada Resources Inc., a private company.
(3) Includes Dr. Ken Cai's beneficial interest in shares owned by Pacific
Canada Resources, Inc.
<PAGE>34
Performance Shares or Escrow Securities
As at September 30, 2000, there were a total of 3,421,703 common shares
of Minco 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 Agreement").
As of September 30, 2000, the escrow shares represent approximately 22.0% of the
total issued and outstanding shares of Minco.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Table Of Escrow Shares
Pacific Canada Peter P. Hans Fotios Petros S.E. Colin
Resources Inc. Tsaparas Wick Kandianis Tsaparas McAleenan Total
-------------- ---------- ------- ---------- ----------- ---------- ----------
Balance December 31, 1996 4,880,000 262,500 90,000 60,000 60,000 90,000 5,442,500
Released at $1.20 per share, June 1998 949,561 131,250 45,000 30,000 30,000 45,000 1,230,811
Released at $1.50 per share, August 1999 508,736 65,625 22,500 15,000 15,000 22,500 649,361
Balance August 31, 2000 3,421,703 65,625 22,500 15,000 15,000 22,500 3,562,328
</TABLE>
The escrow shares may be released upon the following conditions.
1. One escrow share for each $0.97 in the value of the interests in the
mineral properties acquired by the Company from PCR pursuant to the PCR
Agreement (the "PCR Properties"), based on a valuation report to be
prepared by a qualified independent consultant, less any expenditures
required to be made by the Company, 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 Company 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 Company 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 note 1
above.
3. One escrow share for every $1.81 expended by the Company, 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 from the
operations of the Company on the PCR Properties and any New Projects and
as determined in accordance with generally accepted accounting
principles, 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.
Generally, requests for escrow release are made as a matter of course
once per year accompanied by the audited financial statements for the previous
year showing verifiable expenditures on mineral properties or cash flow from
<PAGE>35
those properties. Upon review and approval of the statements, the Regulatory
Authorities approve the release of the escrow shares in a quantity that matches
the actual spending or cash flow divided by the "exploration spending per share"
or "cash flow per share." If all the escrow shares are not released to PCR
within ten years of issuance, all unreleased escrow shares shall be forfeited by
PCR and canceled. The foregoing escrow shares are held subject to the direction
and determination of the Regulatory Authorities.
B. Related party transaction
As a result of the PCR acquisition, Minco entered into a consulting
agreement dated June 25, 1996, with a Kaisun Investment, a private company
controlled by Ken Cai, Minco'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. In addition, Kaisun Investment
receives expenses of $100 a day while Mr. Cai is in China. The consulting
agreement has a three-year term and was renewed for an additional three years
effective June 25, 1999.
During the years ended December 31,1999, 1998 and 1997, the Company paid
Kaisun Investment, a total of $117,831, $117,715 and $113,981, respectively, for
management services, property investigation, geological consulting and rent in
China. Kaisun Investment is a company controlled by Dr. Ken Cai, president and
director of the Company. The amounts paid to Kaisun Investment include a
management fee of $8,333 per month discussed in the preceding paragraph.
None of the directors or senior officers of the Company and no
associates or affiliates of any of them, is or has been indebted to the Company
or its subsidiaries at any time during the year ended December 31, 1999.
However, the Company has entered into a Loan Agreement with its president, Mr.
Ken Cai, dated as of October 8, 1997 (the "Loan Agreement"). Pursuant to the
Loan Agreement, the Company has agreed to advance to Mr. Cai up to $225,000 as a
loan in order to assist Mr. Cai in moving from Toronto to Vancouver and
purchasing a residence in either Vancouver or Beijing. The loan will be fully
secured and repaid by Mr. Cai upon the occurrence of certain stated events as
described in the Loan Agreement. The Loan Agreement remains in full force and
effect; however, Mr. Cai has not yet exercised his right under the terms of the
Loan Agreement.
Item 8. Financial Statements.
A. Consolidated Statements and Other financial Information
The following financial statements of Minco are attached to this
Registration Statement:
Consolidated Balance Sheet at June 30, 2000 and 1999 (unaudited).
Consolidated Statement of Operations and Deficit for the six months
ended June 30, 2000 and 1999 (unaudited).
Consolidated Statement of Cash Flows for the six months ended June 30,
2000 and 1999 (unaudited).
Auditors' Report.
Consolidated Balance Sheet at December 31, 1999 and 1998.
<PAGE>36
Consolidated Statement of Operations and Deficit for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statement of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements
Dividend policy.
The Company has never paid any dividends and does not intend to pay any
dividends in the near future.
Item 9. The Offering and Listing
Since February 24, 1998, Minco's common shares have been listed on the
Toronto Stock Exchange. Previously, Minco's common shares were dual listed on
the CDNX (formerly the Vancouver Stock Exchange) and Toronto Stock Exchange. On
January 29, 1999, voluntary delisted its common shares from the CDNX. The Board
of Directors of Minco deemed a continued listing on a Canadian junior exchange,
such as the CDNX to be an unnecessary requirement both from a financial and
management perspective.
Minco's common 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 shares of Minco in the United States. Minco
intends to have its common shares quoted on the OTC Bulletin Board. However, no
assurance can be given that Minco's common shares will qualify to be quoted on
the OTC Bulletin Board, nor that a market will develop if Minco's common shares
are quoted on the OTC Bulletin Board.
The following tables set forth the reported high and low prices for (a)
the five most recent fiscal years; (b) each quarterly period for the past two
fiscal years and for the first two quarters of 2000; and (c) each month for the
past six months. Beginning in December 1998, Minco's common stock began trading
on the Toronto Stock Exchange. Prior to that time, Minco's common shares were
trading on the CDNX.
High and low price for the five most recent fiscal years.
Years Ended High Low
----------------- ------ ------
December 31, 1995 $1.50 $0.55
December 31, 1996 4.20 0.95
December 31, 1997 3.15 1.00
December 31, 1998 2.00 2.40
December 31, 1999 $2.50 $0.95
High and low prices for each quarterly period for the past two fiscal
years and for the first two quarters of 2000.
Year and Quarter High Low
-------------------- ------- ------
March 31, 1998 $2.00 $1.20
June 30, 1998 1.75 1.10
<PAGE>37
September 30, 1998 1.29 0.50
December 31, 1998 1.09 0.40
March 31, 1999 2.25 0.95
June 30, 1999 2.50 1.50
September 30, 1999 1.80 1.40
December 31, 1999 1.50 1.10
March 31, 2000 1.88 1.35
June 30, 2000 $1.35 $0.70
High and low prices for each month for the past six months.
Month Ended High Low
---------------------- ------- ------
April 30, 2000 $1.49 $0.80
May 31, 2000 1.15 0.80
June 30, 2000 1.00 0.70
July 31, 2000 0.85 0.56
August 31, 2000 0.55 0.42
September 30, 2000 0.80 0.51
Item 10. Additional Information
A. Share capital
Minco has 100,000,000 common shares authorized, of which 16,380,123
shares were issued and outstanding as of September 30, 2000.
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
non-assessable.
Of Minco's common shares outstanding, 3,421,703 are held in escrow,
subject to release or cancellation upon certain conditions. See Item 7
"Performance Shares or Escrow Securities."
The transfer agent and registrar for the common shares is Montreal Trust
Company of Canada, 510 Burrard Street, Vancouver, British Columbia, Canada V6B
5A1.
<PAGE>38
The following table sets forth a history of the share capital for the
Company for the last three years.
<TABLE>
<S> <C> <C>
Issuance Common Share
-------------------------------------------- ---------------
Balance, December 31, 1996 15,202,123
Exercise of warrant by Teck Corporation 125,000
Exercise of a stock option by an employee 8,000
Issuance of common shares for consulting 35,000
services
Balance, December 31, 1997 15,370,123
Private placement of common shares to Teck 375,000
Corporation
Balance, December 31, 1998 15,745,123
Private placement of common shares 250,000
Private placement of common shares 150,000
Exercise of warrants 125,000
Balance, December 31, 1999 16,270,123
Exercise of warrants 110,000
Balance, June 30, 2000 16,380,123
</TABLE>
B. Memorandum and articles of association.
On July 8, 1996, Minco adopted a revised Articles of Minco Mining &
Metals Corporation under the Province of British Columbia Company Act.
Common Shares
All issued and outstanding common shares are fully paid and
non-assessable. Each holder of record of common shares is entitled to one vote
for each common share so held on all matters requiring a vote of shareholders,
including the election of directors. The holders of common shares will be
entitled to dividends on a pro-rata basis, if and when as declared by the board
of directors. There are no preferences, conversion rights, preemptive rights,
subscription rights, or restrictions or transfers attached to the common shares.
In the event of liquidation, dissolution, or winding up of the Company, the
holders of common shares are entitled to participate in the assets of the
Company available for distribution after satisfaction of the claims of
creditors.
Powers and Duties of Directors.
The directors shall manage or supervise the management of the affairs
and business of Minco and shall have authority to exercise all such powers of
Minco as are not, by the Company Act or by the Memorandum or these Article,
required to be exercised by Minco in a general meeting.
Directors will serve as such until the next annual meeting. In general,
a director who is, in any way, directly or indirectly interested in an existing
or proposed contract or transaction with the Company whereby a duty or interest
might be created to conflict with his duty or interest director, shall declare
the nature and extent of his interest in such contract or transaction or the
conflict or potential conflict with his duty and interest as a director. Such
director shall not vote in respect of any such contract or transaction with the
Company in which he is interested and if he shall do so, his vote shall note be
<PAGE>39
counted, but he shall be counted in the quorum present at the meeting at which
such vote is taken. However, notwithstanding the foregoing, directors shall have
the right to vote on determining the remuneration of the directors.
The directors may from time to time on behalf of Minco; (a) borrow money
in such manner and amount from such sources and upon such terms and conditions
as they think fit; (b) issue bonds, debentures and other debt obligations; or
(c) mortgage, charge or give other security on the whole or any part of the
property and assets of Minco.
The majority of the directors of Minco must be persons ordinarily
resident in Canada and one director of Minco must be ordinarily resident in
British Columbia. There is no age limitation, or minimum share ownership, for
Minco's directors.
Shareholders.
An annual general meeting shall be held once in every calendar year at
such time and place as may be determined by the directors. A quorum at an annual
general meeting and special meeting shall be two shareholders or one or more
proxy holder representing two shareholders, or one shareholder and a proxy
holder representing another shareholder. There is no limitation imposed by the
laws of Canada or by the charter or other constituent documents of Minco 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") discussed below
under "Item 10. Additional Information, D. Exchange Controls".
In accordance with British Columbia law, directors shall be elected by
an "ordinary resolution" which means (a) a resolution passed by the shareholders
of Minco in general meeting by a simple majority of the votes cast in person or
by proxy, or (b) a resolution that has been submitted to the shareholders of
Minco who would have been entitled to vote on it in person or by proxy at a
general meeting of Minco and that has been consented to in writing by such
shareholders of Minco holding shares carrying not less than 3/4 of the votes
entitled to be cast on it.
Under British Columbia law certain items such as an amendment to Minco's
articles or entering into a merger, requires approval by a special resolution
which shall mean (a) a resolution passed by a majority of not less than 3/4 of
the votes cast by the shareholders of Minco who, being entitled to do so, vote
in person or by proxy at a general meeting of the company (b) a resolution
consented to in writing by every shareholder of Minco who would have been
entitled to vote in person or by proxy at a general meeting of Minco, and a
resolution so consented to is deemed to be a special resolution passed at a
general meeting of Minco.
C. Material Contracts
Please see Item 4 and exhibits to this registration statement.
D. Exchange Controls
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."
<PAGE>40
There is no limitation imposed by the laws of Canada or by the charter
or other constituent documents of Minco on the right of a non-resident to hold
or vote the common shares, other than as provided in 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.
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
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 Minco was not controlled by a WTO Investor, would
be reviewable under the Investment Act if it was an investment to acquire
control of Minco and the value of the assets of Minco, 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 Minco. An investment
in the common shares by a WTO Investor, or by a non-Canadian when Minco was
controlled by a WTO Investor, would be reviewable under the Investment Act if it
was an investment to acquire control of Minco and the value of the assets of
Minco, 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 $168 million. A non-Canadian would acquire control of Minco
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 Minco unless it could be established that, on the acquisition, Minco 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 Minco 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 Minco by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the ultimate direct or
indirect control in fact of Minco, through the ownership of the common shares,
remained unchanged.
Chinese Currency
The Chinese currency is the Renminbi yuan ("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 Bureau 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
<PAGE>41
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. 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.
Approximately forty percent of Minco's operations are in RMB
E. Taxation
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax
consequences applicable to the holding and disposition of common shares in the
capital of Minco by a United States resident, 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.
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 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 Minco 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. Minco 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 Minco at any time in the five years immediately preceding the
disposition.
<PAGE>42
United States Tax Consequences
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 ss.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. Holder should consult a tax advisor with respect to how the PFIC rules
may affect such shareholder's tax situation. In particular, a U.S. Holder should
determine whether such shareholder should elect to have Minco be treated as a
Qualified Electing Fund if Minco is a PFIC. This might avoid adverse U.S.
federal income tax consequences that may otherwise result from Minco should it
be treated as a PFIC.
Other Consequences
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 Minco'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,
non-resident 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
U.S. Holders receiving dividend distributions (including constructive
dividends) with respect to Minco'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 Minco 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 Minco, 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
<PAGE>43
currently no preferential tax rates for long-term capital gains for a U.S.
Holder which is a corporation.
Dividends paid on Minco'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 Minco if such U.S.
Holder owns shares representing at least 10% of the voting power and value of
Minco.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distribution) Canadian
income tax with respect to the ownership of Minco'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," "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. A holder or prospective holder of Minco's
<PAGE>44
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 Minco.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
The Company has no long-term debt, therefore, the Company does not
believe that the interest rate market risk to be material.
The Company has not entered into any material foreign exchange contracts
to minimize or mitigate the effects of foreign exchange fluctuations on the
Company's operations. Ninety-five percent of the Company's assets are located in
Vancouver, British Columbia, with the remaining five percent located in China
and ninety percent of the Company's liabilities are located Vancouver, British
Columbia, with the remaining balance in China.
Item 12. Description of Securities Other than Equity Securities.
Not Applicable
Item 13. Defaults, Dividend Arrearages and Delinquencies.
Not Applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds.
Not Applicable
Item 15. [Reserved]
Item 16 [Reserved]
Item 17. Financial Statements
Attached hereto.
Item 18. Financial Statements
Item 19. Exhibits
Index
3.(i) Memorandum and all amendments
3.(ii) Articles
10.1 Investment and Participation Agreement dated February 20, 1996,
Among the Registrant, Teck Corporation and Cominco Ltd.
10.2 Consulting Agreement dated June 25, 1996, between Registrant and
Kaisun Group Canada, Inc.
<PAGE>45
10.3 Stock Escrow Agreement dated December 24, 1992, between Montreal
Trust Company of Canada, Consolidated Caprock Resources, Ltd. and
certain shareholders of Consolidated Caprock Resources, Ltd.
10.4 Performance Shares Escrow Agreement dated August 17, 1995,between
Registrant, Montreal Trust Company of Canada and certain
shareholders of Registrant
SIGNATURES
The registrant hereby certifies that it meets all of the requirements
for filing this Amendment No. 1 to Form 20-F and that it has duly caused the
undersigned to sign this registration statement on its behalf.
Minco Mining & Metals Corporation
Dated: October 17, 2000 /s/ DR. KEN Z. CAI
------------------
Dr. Ken Z. Cai
<PAGE>F-1
MINCO MINING AND METALS CORPORATION
Consolidated Balance Sheet
June 30, 2000
(Unaudited - See Notice to Reader)
2000 1999
-------------- -------------
ASSETS
Current
Cash and cash equivalents $ 165,360 $ 564,295
Marketable securities 1,482,690 2,010,506
Funds restricted for mineral exploration -- 9,039
Accounts receivable 81,058 34,655
Prepaid expenses and deposits 44,363 81,667
-------------- -------------
1,773,471 2,700,162
Mineral interests (Note 1) 2,153,641 2,193,325
Capital assets 164,376 318,755
-------------- -------------
$ 4,091,488 $ 5,212,242
============== =============
LIABILITIES
Current
Accounts payable and accrued liabilities $ 284,340 $ 267,945
-------------- -------------
SHAREHOLDERS' EQUITY
Share capital (Note 2) 10,286,933 9,975,833
Deficit (6,479,785) (5,031,536)
-------------- -------------
3,807,148 4,944,297
-------------- -------------
$ 4,091,488 $ 5,212,242
============== =============
<PAGE>F-2
MINCO MINING AND METALS CORPORATION
Consolidated Statement of Operations and Deficit
Six Months Ended June 30, 2000
(Unaudited - See Notice to Reader)
2000 1999
-------------- --------------
Interest and sundry income $ 39,072 $ 51,726
Mineral interest written off -- (4,590)
-------------- --------------
39,072 47,136
-------------- --------------
Administrative expenses
Accounting 47,001 41,265
Advertising 14,703 30,875
Amortization 26,421 45,650
Capital tax -- 10,706
Conference 2,377 8,608
Entertainment 16,252 --
Investor and government relations 74,357 65,675
Investor relations - consulting 99,278 82,698
Legal 2,075 13,653
Listing, filing and transfer agents 13,489 15,027
Management fees 22,406 16,273
Office and miscellaneous 35,774 35,569
Property investigation -- 20,148
Rent 36,754 51,971
Salaries and benefits 19,339 38,551
Telephone 9,142 13,879
Travel and transportation 13,765 12,433
Foreign exchange loss 7,570 3,646
-------------- --------------
440,703 506,627
-------------- --------------
Net loss for the period (401,631) (459,491)
Deficit, beginning of period (6,078,154) (4,572,045)
-------------- --------------
Deficit, end of period $ (6,479,785) $ (5,031,536)
============== ==============
Loss per share $ (0.02) $ (0.03)
============== =============
Weighted average number of
common shares outstanding 16,290,590 16,043,466
============== =============
<PAGE>F-3
MINCO MINING AND METALS CORPORATION
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2000
(Unaudited - See Notice to Reader)
2000 1999
----------- -----------
Cash flows from (used in) operating activities
Net loss for the period $(401,631) $(459,491)
Adjustment for items not involving cash:
- amortization 26,421 45,650
- mineral interest written off -- 4,590
----------- -----------
(375,210) (409,251)
Deferred exploration costs (318,265) (543,322)
Change in non-cash working capital items:
- funds restricted for mineral exploration -- 204,559
- accounts receivable 11,825 (17,025)
- prepaid expenses and deposits 20,112 (17,650)
- marketable securities 448,943 569,324
- accounts payable and accrued liabilities (409) 128,391
----------- -----------
(213,004) (84,974)
----------- -----------
Cash flows from financing activities
Shares issued for cash 111,100 362,500
----------- -----------
Cash flows used in investing activities
Acquisition of capital assets (960) (100,359)
----------- -----------
Increase (decrease) in cash and
cash equivalents (102,864) 177,167
Cash and cash equivalents, beginning of period 268,224 387,128
----------- -----------
Cash and cash equivalents, end of period $ 165,360 $ 564,295
=========== ===========
<PAGE>F-4
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2000
-------------------------------------------------------------------------------
(Unaudited - See Notice to Reader)
1. Mineral Interests
<TABLE>
<S> <C> <C> <C> <C>
Jan. 1, 2000
Deferred to June 30 Deferred Deferred
Costs 2000 Costs Costs
Dec. 31 Exploration June 30 June 30
1999 Costs 2000 1999
------------- --------------- ------------ -----------
Emperor's Delight $ 100 $ -- $ 100 $ 104,264
Crystal Valley 100 -- 100 100
Stone Lake 100 -- 100 100
Changba Lijiagou
Lead-Zinc Deposit 100 -- 100 134,803
White-Silver Mountain 1,307,979 36,835 1,344,814 1,143,061
Chapuzi 100 -- 100 330,218
Heavenly Mountains 436,519 -- 436,519 436,519
Inner Mongolia 90,378 281,430 371,808 44,260
------------- --------------- ------------ -----------
$1,835,376 $ 318,265 $2,153,641 $2,193,325
============= =============== ============ ===========
</TABLE>
2. Share Capital
(a) Authorized: 100,000,000 common shares without par value
(b) Issued:
<TABLE>
<S> <C> <C>
Shares Amount
------------- ------------
Balance, December 31, 1998 15,745,123 $ 9,613,333
Private placement at $0.85 per share 250,000 212,500
Private placement at $1.00 per share 150,000 150,000
------------- ------------
Balance, June 30, 1999 16,145,123 9,975,833
Share purchase warrants exercised at $1.60 per share 125,000 200,000
------------- ------------
Balance, December 31, 1999 16,270,123 10,175,833
Share purchase warrants exercised at $1.01 per share 110,000 111,100
------------- ------------
Balance, June 30, 2000 16,380,123 $10,286,933
============= ============
</TABLE>
(c) As at June 30, 2000, 3,562,328 (1999 - 4,211,689) of the shares issued
are held in escrow, the release of which is subject to the direction
of the regulatory authorities.
<PAGE>F-5
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2000
-------------------------------------------------------------------------------
(Unaudited - See Notice to Reader)
2. Share Capital (continued)
(d) Stock options outstanding at June 30, 2000:
Number of Options Exercise Price Expiry Date
----------------- -------------- -----------------
826,100 $1.41 March 5, 2006
215,500 $1.41 June 20, 2007
97,300 $1.41 October 8, 2006
97,300 $1.41 March 6, 2007
75,000 $1.20 February 4, 2001
75,000 $1.41 February 4, 2001
150,000 $1.65 July 16, 2006
100,000 $1.20 December 1, 2006
100,000 $2.00 December, 2006
---------
36,200
3. Related Party Transactions
(a) The Company incurred the following expenses to its directors or
corporations controlled by its directors:
2000 1999
-------- -------
Management fees and salaries $42,843 $53,893
Deferred exploration costs 24,728 29,840
-------- -------
$67,571 $83,733
======== =======
(b) Account payable of $51,632 (1999 - $51,914) is due to a
director or a corporation controlled by a director of the Company.
4. Comparative Figures
Certain 1999 comparative figures have been reclassified to conform with
the financial statement presentation adopted for 2000.
<PAGE>F-6
ELLIS FOSTER
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 734-1112 Facsimile: (604) 714-5916
E-Mail: [email protected]
-------------------------------------------------------------------------------
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, 1999, 1998 and 1997 and the consolidated
statements of operations and deficit and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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, 1998
and 1997 and the results of its operations and cash flows for the years then
ended in accordance with accounting principles generally accepted in Canada. As
required by the Company Act of British Columbia, we report that, in our opinion,
these principles have been applied on a basis consistent with that of preceding
year.
Vancouver, Canada /s/ "ELLIS FOSTER"
February 22, 2000 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 respects. The additional disclosures and
reconciliation of financial statement items to conform with U.S. GAAP are
summarized in Note 14 of the consolidated financial statements.
Vancouver, Canada /s/ "ELLIS FOSTER"
February 22, 2000 Chartered Accountants
--------------------------------------------------------------------------------
EF A partnership of incorporated professionals
An independently owned and operated member of Moore Stephens North America
Inc., a member of Moore Stephens International Limited
- members in principal cities throughout the world
<PAGE>F-7
MINCO MINING & METALS CORPORATION
Consolidated Balance Sheet
December 31, 1999, 1998 and 1997
(In Canadian Dollars)
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
-------------- ------------- --------------
ASSETS
Current
Cash and cash equivalents $ 268,224 $ 387,128 $ 192,662
Marketable securities (Note 2e) 1,931,633 2,579,830 4,094,209
Funds restricted for mineral
exploration (Note 4a) -- 213,598 65,329
Accounts receivable 92,883 17,630 50,765
Prepaid expenses and deposits 64,475 64,017 38,263
-------------- ------------- --------------
2,357,215 3,262,203 4,441,228
Mineral interests (Note 4) 1,835,376 1,654,593 1,812,908
Capital assets (Note 5) 189,837 264,045 211,329
-------------- ------------- --------------
$ 4,382,428 $ 5,180,841 6,465,465
============== ============= ==============
LIABILITIES
Current
Accounts payable and
accrued liabilities $ 284,749 $ 139,554 167,959
-------------- ------------- --------------
SHAREHOLDERS' EQUITY
Share capital (Note 6) 10,175,833 9,613,333 8,872,968
Deficit (6,078,154) (4,572,046) (2,575,462)
-------------- ------------- --------------
4,097,679 5,041,287 6,297,506
-------------- ------------- --------------
Commitments (Note 10) $ 4,382,428 $ 5,180,841 6,465,465
============== ============= ==============
</TABLE>
<PAGE>F-8
MINCO MINING & METALS CORPORATION
Consolidated Statement of Operations and Deficit
Years Ended December 31, 1999, 1998 and 1997
(In Canadian Dollars)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
------------- ------------- -------------
Interest and sundry income $ 144,042 $ 197,068 $ 265,388
------------- ------------- -------------
Mineral interests written off (Note 4) 579,088 1,065,408 191,170
------------- ------------- -------------
Administrative expenses
Accounting and audit 75,231 82,540 64,675
Advertising 36,222 20,826 37,814
Amortization of capital assets 51,788 60,132 34,104
Capital taxes 11,581 15,015 20,612
Conference 16,364 5,409 42,270
Consulting fees 157,635 90,097 147,729
Donation -- 3,800 --
Legal 25,250 40,820 53,839
Listing, filing and transfer agents 32,094 51,841 71,722
Management fees 40,758 97,559 95,657
Office and miscellaneous 51,683 50,295 96,779
Printing 43,435 28,915 74,372
Promotion and government relations 127,998 109,072 181,179
Property investigation 52,229 129,812 139,390
Rent 103,225 138,486 162,143
Salaries and benefits 67,832 97,217 170,731
Telephone 20,868 55,851 71,926
Travel and transportation 35,492 52,811 103,061
Foreign exchange loss (gain) 5,028 (2,254) (16,898)
------------- ------------- -------------
954,713 1,128,244 1,551,105
------------- ------------- -------------
Operating loss (1,389,759) (1,996,584) (1,476,887)
Write down of marketable securities (116,349) -- --
------------- ------------- -------------
Loss before non-controlling inteest (1,506,108) (1,996,584) (1,476,887)
Non-controlling interest -- -- 545
------------- ------------- -------------
Loss for the year (1,506,108) (1,996,584) (1,476,342)
Deficit, beginning of year (4,572,046) (2,575,462) (1,099,120)
------------- ------------- -------------
Deficit, end of year $ (6,078,154) $ (4,572,046) $ (2,575,462)
============= ============= =============
Loss per share $ (0.09) $ (0.13) $ (0.10)
============= ============= =============
Weighted average number of
common shares outstanding 16,154,986 15,549,918 15,331,855
============= ============= =============
</TABLE>
<PAGE>F-9
MINCO MINING & METALS CORPORATION
Consolidated Statement of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(In Canadian Dollars)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
------------- ------------ -------------
Cash flows from (used in)
operating activities
Loss for the year $(1,506,108) $(1,996,584) $(1,476,342)
Adjustment for items not involving cash:
- amortization 51,788 60,132 34,104
- non-controlling interest's shares of loss -- -- (545)
- writeoff of mineral interests 579,088 1,065,408 191,170
- write down of marketable securities 116,349 -- --
------------- ------------ -------------
(758,883) (871,044) (1,251,613)
Deferred exploration costs (729,148) (889,141) (1,520,283)
Change in working capital:
- funds restricted for mineral explorations 213,598 (148,269) 472,171
- accounts receivable (75,253) 33,135 (29,311)
- prepaid expenses and deposits (458) (25,754) 30,545
- accounts payable and accrued liabilities 145,195 (28,405) (53,660)
------------- ------------ -------------
(1,204,949) (1,929,478) (2,352,151)
------------- ------------ -------------
Cash flows from financing activities
Shares issued for cash, net of
issuance costs 562,500 740,365 158,000
------------- ------------ -------------
Cash flows from (used in)
investing activities
Acquisition of capital assets (8,303) (130,800) (176,779)
Acquisition of non-controlling
shareholder's interest -- -- (175,000)
Proceeds from sales of
marketable securities 531,848 1,514,379 --
Purchase of marketable securities -- -- (2,380,274)
------------- ------------ -------------
523,545 1,383,579 (2,732,053)
------------- ------------ -------------
Increase (Decrease) in cash and
cash equivalents (118,904) 194,466 (4,926,204)
Cash and cash equivalents,
beginning of year 387,128 192,662 5,118,866
------------- ------------ -------------
Cash and cash equivalents,
end of year $ 268,224 $ 387,128 $ 192,662
============= ============ =============
</TABLE>
<PAGE>F-10
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
1. Nature of Operations
The Company was incorporated under the laws of British Columbia, Canada and
is in the business of mining exploration.
These consolidated financial statements have been prepared on a
going-concern basis which assumes that the Company will be able to realize
assets and discharge liabilities in the normal course of business for the
foreseeable future. The continued operations of the Company and the
recoverability of amounts shown for mineral interests are dependent upon
the discovery of economically recoverable reserves, the ability of the
Company to obtain financing to complete the development of the projects,
and on future profitable production or proceeds from the disposition
thereof.
2. Significant Accounting Policies
(a) Consolidation
These consolidated financial statements include the accounts of the
Company and its wholly-owned British Virgin Island subsidiary, Triple
Eight Mineral Corporation ("Temco"). All material inter-company
balances have been eliminated.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the period. Actual results may differ from those
estimates.
(c) Capital Assets
Amortization is provided as follows:
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 improvements Term of the lease (5 years), straight-line
basis
Amortization is provided at half the annual rate in the year of
acquisition except for leasehold improvements.
<PAGE>F-11
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
2. Significant Accounting Policies (continued)
(d) Cash Equivalents
Cash equivalents usually consist of highly liquid investments which
are readily convertible into cash with maturities of three months or
less when purchased. As at December 31, 1999, cash equivalents consist
of bank redeemable term investment certificate.
(e) Marketable Securities
Marketable securities are stated at the lower of cost and market
value. As at December 31, 1999, marketable securities consist of bonds
issued by the provincial government of Canada. The market value is
$1,931,633 (1998 - $2,588,130; 1997 - $4,094,209).
(f) Earnings (Loss) Per Share
Earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Fully-diluted
earnings (loss) per share has not been disclosed as the effect of
common shares issuable upon the exercise of warrants and options would
be anti-dilutive.
(g) Foreign Currency Transactions
The Company and Temco maintain their accounting records in their
functional currencies (i.e., Canadian dollars). They translate foreign
currency transactions into their functional currency in the following
manner.
At the transaction date, each asset, liability, revenue and expense is
translated into the functional currency by the use of the exchange
rate in effect at that date. At the period end, monetary assets and
liabilities are translated into the functional currency by using the
exchange rate in effect at that date. The resulting foreign exchange
gains and losses are included in operations.
(h) Mineral Interests
The Company follows the method of accounting for its mineral interests
whereby all costs related to acquisition, exploration and development
(including amortization of mining equipment) production or written off
if the interest is abandoned or sold. The amount shown for mineral
interests represent costs incurred to date, less recoveries, and do
not necessarily reflect present or future values.
<PAGE>F-12
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
2. Significant Accounting Policies (continued)
(h) Mineral Interests (continued)
The Company classified the cash flows used in exploration as operating
activities.
The carrying values of mineral interests, on a property-by-property
basis, are reviewed by management at least annually to determine if
they have become impaired. If impairment is deemed to exist, the
mineral property will be written down to its net recoverable 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.
(i) Income Taxes
Income taxes are accounted for using the asset and liability method
pursuant to Section 3465, Income Taxes, of The Handbook of the
Canadian Institute of Chartered Accountants. Future taxes are
recognized for the tax consequences of "temporary differences" by
applying enacted or substantively enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and tax basis of existing assets and
liabilities. The effect on deferred taxes for a change in tax rates is
recognized in income in the period that includes the date of enactment
or substantive enactment. In addition, Section 3465 requires the
recognition of future tax benefits to the extent that realization of
such benefits is more likely than not.
In 1999, the Company changed its policy for accounting for income
taxes by adopting the provision of CICA Handbook Section 3465, Income
Taxes. Under this standard, current income taxes are recognized for
the estimated income taxes payable for the current period. Future
income tax assets and liabilities are recognized for temporary
differences between the tax and accounting basis of assets and
liabilities as well as for the benefit of losses available to be
carried forward to future years for tax purposes that are likely to be
realized.
The adoption of Section 3465 did not impact amounts reported in the
prior period.
<PAGE>F-13
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
3. Acquisition of Triple Eight Mineral Corporation ("Temco")
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
rights in respect of the Emperor's Delight, Lengkou, Crystal Valley and
Stone Lake Mineral properties in China.
Purchase method of accounting has been applied to record the acquisition.
The fair value of net assets acquired are summarized as follows:
Funds restricted for mineral exploration $ 146,809
Mineral interests (book value $416,128) 50,283
Accounts payable and accrued liabilities (22,092)
-----------
$ 175,000
===========
The deferred exploration costs of the mineral property Emperor's Delight
is therefore written down by $365,845 to its fair value of $50,283 after
the acquisition.
Mineral Interests
<TABLE>
<S> <C> <C> <C> <C>
Deferred Deferred
Costs 1999 Costs
Dec. 31 Exploration Amount Dec. 31
1998 Costs Written Off 1999
------------ ------------ ------------- -------------
Emperor's Delight $ 89,316 $ 25,051 $ (114,267) $ 100
Crystal Valley 100 -- -- 100
Stone Lake 100 -- -- 100
Changba Lijiagou
Lead-Zinc Deposit 134,803 -- (134,703) 100
White-Silver Mountain 623,081 684,898 -- 1,307,979
Chapuzi 330,218 -- (330,118) 100
Heavenly Mountains 436,519 -- -- 436,519
Inner Mongolia 40,456 49,922 -- 90,378
------------ ------------ ------------- -------------
$ 1,654,593 $ 759,871 $ (579,088) $ 1,835,376
============ ============ ============= =============
</TABLE>
<PAGE>F-14
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
4. Mineral Interests (continued)
<TABLE>
<S> <C> <C> <C> <C>
Deferred Deferred
Costs 1998 Costs
Dec. 31 Exploration Amount Dec. 31
1997 Costs Written Off 1998
------------ ------------- ------------- --------------
Emperor's Delight $ 89,316 $ -- $ -- $ 89,316
Lengkou 364,811 44,561 (409,372) --
Crystal Valley 100 -- -- 100
Stone Lake 100 -- -- 100
Changba Lijiagou
Lead-Zinc Deposit 82,696 52,107 -- 134,803
White-Silver Mountain 3,700 619,381 -- 623,081
Chapuzi 328,762 1,456 -- 330,218
Heavenly Mountains 621,367 33,412 (218,260) 436,519
Inner Mongolia -- 40,456 -- 40,456
Savoyardinskii 274,816 82,216 (357,032) --
Xifanping Gold Deposits 47,240 33,504 (80,744) --
------------ ------------- ------------- --------------
$ 1,812,908 $ 907,093 $(1,065,408) $ 1,654,593
============ ============= ============= ==============
Deferred Deferred
Costs 1997 Costs
Dec. 31 Exploration Amount Dec. 31
1996 Costs Written Off 1997
------------ ------------- ------------- --------------
Emperor's Delight $ 451,492 $ 3,669 $ (365,845) $ 89,316
Lengkou -- 364,811 -- 364,811
Crystal Valley 100 -- -- 100
Stone Lake 100 -- -- 100
Changba Lijiagou
Lead-Zinc Deposit 28,065 54,631 -- 82,696
White-Silver Mountain -- 3,700 -- 3,700
Chapuzi 153,416 175,346 -- 328,762
Heavenly Mountains 153,303 468,064 -- 621,367
Savoyardinskii -- 274,816 -- 274,816
Xifanping Gold Deposits -- 47,240 -- 47,240
West Kunlun -- 191,170 (191,170) --
------------ ------------- ------------- --------------
$ 786,476 $ 1,583,447 $ (557,015) $ 1,812,908
============ ============= ============= ==============
</TABLE>
<PAGE>F-15
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
4. Mineral Interests (continued)
(a) The Emperor's Delight and Lengkou properties are located in Hebei
Province, China. Pursuant to the Joint Venture Agreement, the Company
can earn a 55% interest in the properties by spending US$4.4 million
over a five-year period from 1996 onwards.
The funds restricted for mineral explorations, as shown in the
consolidated balance sheet, are funds restricted for this joint
venture.
The Company discontinued further exploration work on the Emperor's
Delight property in 1999 and on the Lengkou property in 1998.
(b) The Crystal Valley and Stone Lake properties are located in Hebei
Province, China. These projects are subject to the approval of the
appropriate Chinese government authorities.
(c) The Company acquired its rights to the Changba-Lijiagou Lead Zinc
Project located in Ganzu Province, China through the "Cooperation
Agreement Regarding the Development of the Changba Lijiagou Lead Zinc
Deposit" between the Company and Baiyin Non-Ferrous Metals Corporation
("Baiyin") signed on November 17, 1997. The Company discontinued
further work on this project in 1999.
(d) The Company acquired its rights to the White Silver Mountain project
located in Gansu Province, China pursuant to the "Cooporation
Agreement for Mineral Exploration and Development" between the Company
and Baiyin Non-Ferrous Metals Corporation ("Baiyin") signed on
November 17, 1997. The project includes exploration ground in or
around a number of past and presently producing properties in the
Baiyin Ore Field located close to the city of Baiyin, Gansu Province,
China. The Company will earn an 80% interest in the entire property by
paying for exploration work up to the pre-feasibility stage.
A joint venture company called Gansu Keyin Mining Co. Ltd. ("Keyin")
has been formed to hold the above mineral interests. In order to earn
the 80% interest, the Company has to expend approximately US$4.8
million (40 million RMB) on the properties. Baiyin will contribute the
exploration permit held by it and the geological data and research
results, including drillcore samples and maps, for its 20% interest in
Keyin. Following the completion of the above expenditures, each party
shall contribute to Keyin in proportion to their respective beneficial
interests.
Pursuant to an option agreement dated December 22, 1999, with effect
from June 10, 1998, the Company granted Teck Corporation of Vancouver,
B.C., Canada, an option to earn 56% interest in Keyin by assuming all
of the Company's funding requirements until commercial production has
been attained.
<PAGE>F-16
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
4. Mineral Interests (continued)
(e) The Chapuzi property is located in Sichuan Province, China. The
Company has entered into a cooperative joint venture agreement with
the Sichuan Bureau of the Ministry of Geology and Mineral Resources on
this property.
Pursuant to the 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.
The Company discontinued further exploration work on the property in
1999.
(f) The Heavenly Mountains properties are located in Xinjiang Province,
China. 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.
(g) The Inner Mongolia property is located in Inner Mongolia Autonomous
Region, China. Pursuant to the Cooperative Joint Venture Agreement,
the Company can earn a 75% interest in the property by spending around
US$2.5 million over a four-year period.
The agreement is subject to the approval of the Chinese government.
(h) The Savoyardinskii gold/antimony property is located in the
Savoyardinskii area in Karakuldzinskii Region, Osh Oblast, Kyrgyz
Republic.
The Company abandoned the project in 1998.
(i) The Xifanping property is located in Sichuan Province, China. Initial
due diligence studies on the Xifanping project were being performed.
The Company had an exclusive right to negotiate and entered into a
joint venture contract on the Xifanping property, subject to the
approval of the appropriate Chinese government authorities. The
Company discontinued further exploration work on this property in
1998.
(j) The Company 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 in certain mineral properties
located in West Kunlun and West Tian Shan regions of Xinjiang
Province, China. The Company abandoned the project after the early
stage exploration program in 1997.
<PAGE>F-17
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
5. Capital Assets
1999
----------------------------------------
Accumulated Net book
Cost Amortization value
------------ --------------- ----------
Computer equipment $ 59,801 $ 40,388 $ 19,413
Office equipment and furniture 82,858 43,119 39,739
Leasehold improvements 25,648 20,518 5,130
Motor vehicles 59,309 34,607 24,702
Mining equipment 191,292 90,439 100,853
------------ --------------- ----------
$ 418,908 $ 229,071 $189,837
============ =============== ==========
1998
----------------------------------------
Accumulated Net book
Cost Amortization value
------------ --------------- -----------
Computer equipment $ 59,449 $ 32,144 $ 27,305
Office equipment and furniture 76,272 27,499 48,773
Leasehold improvements 25,648 15,389 10,259
Motor vehicles 59,309 24,020 35,289
Mining equipment 189,927 47,508 142,419
------------ --------------- -----------
$ 410,605 $ 146,560 $ 264,045
============ =============== ===========
1997
----------------------------------------
Accumulated Net book
Cost Amortization value
------------ --------------- -----------
Computer equipment $ 54,371 $ 21,530 $ 32,841
Office equipment and furniture 65,893 16,603 49,290
Leasehold improvements 25,648 10,259 15,389
Motor vehicles 59,309 8,896 50,413
Mining equipment 74,584 11,188 63,396
------------ --------------- -----------
$ 279,805 $ 68,476 $ 211,329
============ =============== ===========
<PAGE>F-18
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
<TABLE>
<S> <C> <C>
6. Share Capital
(a) Authorized: 100,000,000 common shares without par value
(b) Issued: Shares Amount
------------ ------------
Balance, December 31, 1996 15,202,123 $ 8,662,468
Share purchase warrants exercised at $1.20 per share 125,000 150,000
Stock options exercised at $1.00 per share 8,000 8,000
Mineral interest finder's fee at $1.50 per share 35,000 52,500
------------ ------------
Balance, December 31, 1997
Private placement at $2.00 per share, less share
issuance cost of $9,635 375,000 740,365
------------ ------------
Balance, December 31, 1998 15,745,123 9,613,333
Private placement at $0.85 per share 250,000 212,500
Private placement at $1.00 per share 150,000 150,000
Share purchase warrants exercised at $1.60 per share 125,000 200,000
------------ ------------
Balance, December 31, 1999 16,270,123 $10,175,833
============ ============
</TABLE>
(c) As at December 31, 1999, 3,562,328 (1998 - 4,211,689; 1997 -
5,442,500) of the shares issued are held in escrow, the release of
which is subject to the direction of the regulatory authorities.
(d) Stock options outstanding at December 31, 1999:
Number of Shares Exercise Price Expiry Date
------------------- --------------- ------------------------
826,100 $1.41 March 5, 2006
215,500 $1.41 June 20, 2007
97,300 $1.41 October 8, 2006
97,300 $1.41 March 6, 2007
85,000 $1.01 January 12, 2000
(subsequently expired)
85,000 $1.41 January 12, 2000
(subsequently expired)
75,000 $1.20 February 4, 2001
75,000 $1.41 February 4, 2001
150,000 $1.65 July 16, 2006
100,000 $1.20 December 1, 2006
100,000 $2.00 December 1, 2006
---------------
1,906,200
===============
<PAGE>F-19
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
6. Share Capital (continued)
(e) Warrants outstanding at December 31, 1999:
Number of Shares Exercise Price Expiry Date
---------------- --------------- ----------------------
1,600,000 $2.00 June 30, 2000
125,000 $0.85 January 15, 2000
(subsequently expired)
150,000 $1.20 February 4, 2000
(subsequently expired)
--------------
1,875,000
==============
7. Non-cash Investing and Financing Activities
In 1997, 35,000 shares were issued as finder's fee in connection with the
acquisition of the Savoyardinskii gold/antimony property.
8. Income Taxes
The components of the future income tax assets are as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
------------- ------------- -------------
Future income tax assets:
Non-capital loss carryforwards $ 5,501,892 $ 4,579,915 $ 3,466,820
Unused foreign exploration and
development expenses 2,299,934 1,795,611 1,043,235
Unused cumulative Canadian exploration
expenses 2,591 2,591 2,591
Unused cumulative Canadian development
expenses 148,461 148,461 148,461
Undepreciated capital cost of capital
assets over their net book value 227,922 145,411 67,327
------------- ------------- -------------
8,180,800 6,671,989 4,728,434
Less: Valuation allowance (8,180,800) (6,671,989) (4,728,434)
------------- ------------- -------------
Net future income tax assets $ -- $ -- $ --
============= ============= =============
</TABLE>
<PAGE>F-20
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
8. Income Taxes (continued)
The valuation allowance reflects the Company's estimate that the tax
assets, more likely than not, will not be realized.
The non-capital losses are carried forward for tax purposes and are
available to reduce taxable income of future years. These losses expire
commencing in 2000 through 2006. The exploration and development expenses
can be carried forward indefinitely.
9. Related Party Transactions
(a) The Company incurred the following expenses to its directors or
corporations controlled by its directors:
1999 1998 1997
--------- --------- ----------
Management fees and salaries $ 89,392 $150,011 $110,782
Property investigation - 13,825 20,536
Rent - 12,667 -
Deferred exploration costs 77,073 83,383 108,097
--------- --------- -----------
$166,465 $259,886 $239,415
========= ========= ===========
(b) Account payable of $62,689 (1998 - $56,000; 1997 - $51,632) is due to
a director or a corporation controlled by a director of the Company.
10. Commitments
(a) The Company has commitments in respect of office leases requiring
minimum payments of $251,793 within the next two years, as follows:
2000 $ 141,512
2001 101,798
2002 8,483
----------
$ 251,793
==========
(b) The Company has commitment in respect of financial and marketing
consulting arrangements, requiring a payment of US$67,000 and the
granting of stock options of 100,000 shares of the Company at an
exercise price of $1.50 per share in the next year.
<PAGE>F-21
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
11. Comparative Figures
Certain 1997 and 1998 comparative figures have been reclassified to conform
with the financial statement presentation adopted for 1999.
12. Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities approximate their fair value due
to their short-term maturity nature. The fair value of marketable
securities is equivalent to the market value. The Company operates in China
and some of its material exploration expenditures are payable in either
U.S. dollars and the Chinese currency RMB and is, therefore, subject to
foreign currency risk arising from changes in exchange rates among Canadian
dollars, U.S. dollars and RMB. The Company is not exposed to significant
interest risk. The Company places its marketable securities with government
debt securities and is subject to minimal credit risk. The Company also
considers itself not subject to high concentration of credit risk to its
debtors and does not require collateral to support these financial
instruments.
13. The Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
<PAGE>F-22
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
14. 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. The following presents additional
disclosures and reconciliation of financial statement items to conform with
U.S. GAAP:
(a) Reconciliation of Consolidated Balance Sheet Items:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
-------------- -------------- --------------
Mineral interests (Canadian GAAP) $ 1,835,376 $ 1,654,593 $ 1,812,908
Mineral interests written-off (1,835,376) (1,654,593) (1,812,908)
-------------- -------------- --------------
Mineral interests (US GAAP) -- -- --
-------------- -------------- --------------
Securities available for sale (Canadian GAAP) 1,931,633 2,579,830 4,094,209
Unrealized gain -- 8,300 --
-------------- -------------- --------------
Securities available for resale (US GAAP) 1,931,633 4,094,209
-------------- -------------- --------------
Share capital (Canadian GAAP) 10,175,833 9,613,333 8,872,968
Release of escrow shares as compensation 2,451,015 1,476,973 --
Stock option compensation 1,672,966 1,672,966 1,672,966
-------------- -------------- --------------
Share capital (US GAAP) 14,299,814 12,763,272 10,545,934
-------------- -------------- --------------
Accumulated other comprehensive income
(Canadian GAAP) -- -- --
Unrealized gain (loss) from securities
available for sale (116,349) 8,300 --
-------------- -------------- --------------
Accumulated other comprehensive income
(US GAAP) (116,349) 8,300 --
-------------- -------------- --------------
</TABLE>
<PAGE>F-23
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
14. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles (continued)
(b) Reconciliation of Consolidated Statement of Operations Items:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------------- --------------- --------------
Loss for the year (Canadian GAAP) $ (1,506,108) $ (1,996,584) $ (1,476,342)
Mineral interests written-off (180,783) 158,315 (1,026,432)
Write down of marketable securities 116,349 --
Stock option compensation expenses -- -- (1,239,241)
Release of escrow shares as compensation (974,042) (1,476,973)
--------------- --------------- --------------
Loss for the year (US GAAP) (2,544,584) (3,315,242) (3,742,015)
--------------- --------------- --------------
Deficit, beginning of year (Canadian GAAP) (4,572,046) (2,575,462) (1,099,120)
Mineral interest written off (1,654,593) (1,812,908) (786,476)
Stock option compensation expenses (1,672,966) (1,672,966) (433,725)
Release of escrow shares as compensation (1,476,973) -- --
--------------- --------------- --------------
Deficit, beginning of year (US GAAP) (9,376,578) (6,061,336) (2,319,321)
--------------- --------------- --------------
Deficit, end of year (US GAAP) (11,921,162) (9,376,578) (6,061,336)
--------------- --------------- --------------
Loss per share (US GAAP) (0.21) (0.31) (0.38)
--------------- --------------- --------------
Weighted average number of common shares
outstanding - basic and diluted (US GAAP) 12,189,874 10,749,411 9,869,355
--------------- --------------- --------------
Other comprehensive income - unrealized gain
(loss) on securities available for sale (US GAAP) (124,649) 8,300 --
--------------- --------------- --------------
</TABLE>
14. Marketable Securities
All of the Company's marketable securities are classified as
available-for-sale securities under US GAAP. Available-for-sale securities
are recorded at market value. Unrealized holding gains and losses on
available-for-sale securities are excluded from income and charged to
accumulated other comprehensive income as a separate component of
stockholders' equity until realized. A summary of available-for-sale
securities by major security type are as follows:
<PAGE>F-24
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
14. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles (continued)
(c) Marketable Securities (continued)
<TABLE>
<S> <C> <C> <C>
Gross
unrealized
holding Market
Cost gains (losses) value
----------- --------------- ----------
1999:
Bonds issued by provincial
government in Canada $2,047,982 $ (116,349) $1,931,633
=========== =============== ==========
1998:
Bonds issued by provincial
government in Canada $2,579,830 $ 8,300 $2,588,130
=========== =============== ==========
1997:
Bonds issued by crown corporation
in Canada $1,903,610 $ -- $1,903,610
----------- --------------- ----------
Bonds issued by provincial
government in Canada 2,190,599 -- 2,190,599
=========== =============== ==========
$4,094,209 $ -- $4,094,209
</TABLE>
(d) Mineral Interests
U.S. GAAP requires that exploration cost of mineral interests not be
deferred and capitalized until there is evidence of economically
recoverable resources. In addition, the acquisition costs as stated in
Note 3 for the Canadian and Portuguese mineral properties can only be
classified as exploration costs for US GAAP purposes. Accordingly, the
Company only incurred exploration costs for mineral interests. These
costs will not be capitalized for U.S. GAAP purposes as the Company is
at present exploring its properties for economically recoverable ore
reserves. The effect of the write-off is presented in Notes 14(a) and
14(b).
<PAGE>F-25
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
14. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles (continued)
(e) Escrow Shares
562,500 escrow shares 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%. 281,250 shares and 140,625 shares were released in 1998 and 1999,
respectively. As at December 31, 1999, there were 140,625 such escrow
shares outstanding.
Pursuant to another escrow share agreement, 4,880,000 escrow shares
may be released, upon application, on the basis of one escrow share
for every $1.81 expended on exploration and development of a resource
property, including expenditures on mining equipment, but excluding
expenditures on Chapuzi and Savoyardinskii properties. 949,561 shares
and 508,736 shares were released in 1998 and 1999, respectively. As at
December 31, 1999, there were 3,421,703 such escrow shares
outstanding.
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. A summary of the escrow shares released is
presented as follows:
<TABLE>
<S> <C> <C>
Compensation
Shares expense
------------- -------------
Balance, December 31, 1996 and 1997 5,442,500
------------- -------------
Released from escrow at $1.20 per share (1,230,811) $1,476,973
Balance, December 31, 1998
Released from escrow at $1.50 per share (649,361) 974,042
------------- -------------
Balance, December 31, 1999 3,562,328 $2,451,015
============= =============
</TABLE>
As escrow shares are contingently cancellable, they are excluded from
the calculation of weighted average number of shares for purposes of
loss per share under U.S. GAAP. The effect of accounting treatment on
escrow shares on the Company's consolidated financial statements under
US GAAP are presented in Notes 14(a) and 14(b).
<PAGE>F-26
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
14. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles (continued)
(f) Stock Options Compensation
The Company adopted a Stock Option Plan ("the Plan") for the grant of
options to directors, officers and employees from 1995 onwards.
Options granted under the Plan were vested immediately and will be
exercised from the date of grant for a period from one year to ten
years.
In 1999, the Company adopted another Stock Option Plan ("the 1999
Plan") for the grant of options to certain employees. Options granted
under the 1999 Plan will be exercisable from the date of grant for a
period from one year to seven years and would vest upon when the
Company's share price reached certain level. The compensation expenses
of these 520,000 shares would be recognized based upon the excess of
the fair market value of the stock on the vesting date over the
exercise price of these shares. The Company may incur significant
compensation expense in the future.
A summary of the options granted is as follows:
<TABLE>
<S> <C> <C>
Weighted
average
Number exercise
of shares price
--------------- ------------
Outstanding and exercisable at December 31, 1996 1,158,000 $1.93
Granted 1,537,000 1.42
Exercised (8,000) 1.00
Cancelled (1,150,000) 1.94
---------------
Outstanding and exercisable at December 31, 1997 1,537,000 1.42
Granted 75,000 1.50
Cancelled (300,800) 1.48
---------------
Outstanding and exercisable at December 31, 1998 1,311,200 1.41
Granted 670,000 1.45
Cancelled (75,000) 1.50
---------------
Outstanding at December 31, 1999 1,906,200 1.42
---------------
Exercisable at December 31, 1999 1,386,200 1.41
---------------
</TABLE>
The weighted average remaining contractual life of the options
outstanding at December 31, 1999 was 7.0 years.
<PAGE>F-27
MINCO MINING & METALS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------
(In Canadian Dollars)
14. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles (continued)
(f) Stock Options Compensation (continued)
The Company applies Accounting Principles Board ("APB") No. 25 "Accounting
for Stock Issued to Employees" and related interpretations in accounting
for stock options. Under APB25, when the exercise price of the Company's
stock options is below the market price of the underlying stock on the date
of grant, compensation expense is recognized and charged to income. Its
effects on the Company's consolidated financial statements are presented in
Notes 14(a) and 14(b).
Pro-forma information regarding Loss for the period and Loss per Share is
required under SFAS 123, and has been determined if the Company has
accounted for its stock options under the fair value method of SFAS 123. If
compensation cost for the stock option plan had been determined based on
the fair value at the grant dates for awards under the plan, consistent
with the alternative method set forth under SFAS 123, the Company's loss
for the year, basic and diluted loss per share would have been increased on
a pro-forma basis as indicated below:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
------------ -------------- --------------
Loss for the year:
-as reported $(2,544,584) $(3,315,242) $(3,742,015)
------------ -------------- --------------
- pro-forma (3,388,184) (3,455,492) (6,115,810)
------------ -------------- --------------
Basic and diluted loss per share:
- as reported (0.21) (0.31) (0.38)
------------ -------------- --------------
- pro-forma (0.28) (0.32) (0.62)
------------ -------------- --------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants rewarded in 1997 to 1999, respectively:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Weighted
Number of Risk-free Expected average
Year options Dividend Expected interest lives in fair value
granted granted yields volatility rate years of options
------- ---------- -------- ---------- --------- -------- ------------
1997 1,537,000 0% 63% 6.75% 8.4 $2.35
1998 75,000 0% 57% 6.50% 5.0 $1.87
1999 670,000 0% 76% 5.00% 4.4 $1.26
</TABLE>
