UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[x] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number 0-21799
DIADEM RESOURCES LTD.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's Name into English)
CANADA
(Jurisdiction of incorporation or organization)
110 Meadowvale Road
Toronto, Ontario M1C 1S1
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
(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.
25,887,586 Common Shares
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 13(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such reporting
requirements for the past 90 days.
Yes [_] No [X]
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [X] Item 18 [_]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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 [_]
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GLOSSARY OF TERMS
ABITIBI BELT OF A vast area of ancient volcanic rocks extending from Kenora
to Sudbury, Ontario to
QUEBEC-ONTARIO: Chibougamau, Quebec.
ADITS: An opening driven horizontally into the side of a mountain
or hill for providing access to a mineral deposit.
AGGLOMERATES: A volcanic breccia formed by disruption of a solidified
crust or hardened plug of lava; blocks may fit together or
be completely disordered.
ALKALINE: Having the qualities of a base.
ALLUVIAL: Relatively recent deposits of sedimentary material laid down
in river beds, flood plains, lakes or at the base of
mountain slopes.
AIRBORNE MAGNETIC/ A survey made from the air for the purpose of recording the
AEROMAGNETIC magnetic characteristics of rocks on and below the surface
SURVEY: of the earth.
AMPHIBOLES: Metamorphic rock of primarily mafic minerals, chiefly
hornblende.
ANDESITE: A dark-coloured, fine-grained extrusive rock.
ARCHEAN AGE: The oldest rocks of the Precambrian Era, formed prior to 2.5
billion years ago.
ASHUANIPI A unit of ancient sedimentary rocks in New Quebec and
FORMATION: Labrador, with an age of two billion years.
BASAL: Situated at base of a rock unit or structure.
BRECCIA: The texture displayed by a rock which has been fragmented
and dislocated since initial lithification.
CARAT (CT): A unit of weight for diamonds, equivalent to 0.2 of a gram.
CASSITERITE: A brown or black tetragonal mineral, it is the principle ore
of tin.
CHALCOPYRITE: A sulphide mineral of copper and iron; the most important
ore mineral of copper.
CHROMIUM-DIOPSIDE: A bright-green variety of pyroxene which can occur in
kimberlite.
CHROMITE: An iron-chromium oxide often found as small grains in
ultrabasic igneous rocks and kimberlitic rocks.
COBBING: The separation, generally with a hand-held hammer, of
worthless minerals from desired minerals in a mining
operation.
COLLUVIUM: A general term applied to loose and incoherent deposits,
usually at the foot of a slope or cliff and brought there
chiefly by gravity.
CUT-OFF GRADE: The lowest grade of mineralized material that qualifies as
ore in a given deposit.
DIAMOND: A cubic variety of crystalline carbon which may be of gem
quality.
DIAMOND DRILL Rotary drilling using diamond impregnated bits to produce a
HOLES: solid continuous core sample of the rock.
DIAMONDIFEROUS: Containing diamond. A volcanic vent piercing country rock,
DIATREME: usually the result of an explosive eruption.
DIOPSIDE: A white to green mineral of the clinopyroxene group.
DIORITE: An intrusive igneous rock composed chiefly of sodic
plagioclase, hornblende, biotite or pyroxene.
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DISSEMINATED: Fine particles of mineral dispensed through the enclosing
rock.
ECLOGITE: An ultrabasic rock consisting mainly of garnet and
clinopyroxene.
ELECTROMAGNETIC A geophysical method employing the generation of
(PROSPECTING): electromagnetic waves at the earth's surface when the waves
impinge on a conducting formation or ore body at depth they
induce currents that are the source of new waves radiated
from the conductors and detected by instruments at the
surface.
EPITHERMAL: A term applied to low temperature (100-200C) hydrothermal
processes.
FEASIBILITY: Program to establish whether a mineral deposit can be
successfully mined considering technical and economic
parameters.
GABBRO: A dark, course-grained igneous rock.
GEM QUALITY A diamond free of flaws, as far as can be determined by a
DIAMOND: trained observer with the aid of a 10-power magnifying
glass, and having a colour and other characteristics that do
not deleteriously affect its value for use as a faceted
ornamental (gem) diamond.
GEOCHEMISTRY: Study of variation of chemical elements in rocks or soils.
GEOPHYSICS: Study of the earth by quantitative physical methods.
GNEISS: A layered or banded crystalline metamorphic rock the grains
of which are aligned or elongated into a roughly parallel
arrangement.
GOSSAN: A surface capping of oxides of iron from the weathering of
metallic sulphide.
GRADE: (To contain a particular) quantity of ore or mineral
relative to other constituents, in a specified quantity of
rock.
GRANODIORITES: The intrusive rock with intermediate composition.
GREENOCKITE: A yellow or orange mineral containing cadmium and sulfur.
HYDRAULIC MINING: The extraction of desired earth material by means of strong
jets of water, such as washing gold-bearing gravel into
sluices.
HYDROTHERMAL Pertaining to hot water, especially with respect to its
action in dissolving, redepositing, and otherwise producing
mineral changes within the crust of the globe.
INDICATOR MINERALS: In connection with kimberlite exploration, indicator
minerals include: pyrope garnet; picroilmenite (also called
magnesianilmenite); chrome-diopside; chromite; and diamond.
INTRUSION/ A volume of igneous rock that was injected, while still
INTRUSIVE: molten, into the earth's crust or other rocks.
KIMBERLITE/OLIVINE: Uneven-grained, ultramafic rock in which the visible
minerals may include olivine, phlogopite, pyrope
LAMPROITE: Garnet, picroilmenite and chrome/diopside, which are
cemented by a groundmass that may include serpentine,
calcite, and chromite. Kimberlite and olivine lamproite are
the only known types of intrusive rock (primary source
rocks) that may carry diamonds from the depths of the earth
to the surface and may form primary diamond deposits. The
principal distinction between kimberlite and olivine
lamproite is based on geochemical grounds.
LABRADOR TROUGH: A major geological structure extending for 900 kilometres in
Quebec and Labrador.
LAHAR: A landslide or mudflow of pyroclastic material on the flank
of a volcano; also, the deposit produced.
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LENS OR LENSES: Generally used to describe a body of mineralization that is
thick in the middle and tapers towards the ends.
LODE: A tubular or vein like deposit of valuable mineral between
well defined walls of rock.
MAGNETIC SURVEY: A geophysical survey that measures the intensity of the
Earth's magnetic field.
MAFIC: Igneous rocks composed mostly of dark, iron and
magnesium-rich minerals.
MAGNETOMETER: An instrument used to measure the magnetic attraction of
underlying rocks.
MAGNETITE: Black, magnetic iron ore, an iron oxide.
MASSIVE SULPHIDE: Mineralized rock rich in sulphide minerals (>50%).
MEHRTENS A widespread local unit of volcanic flows and mudslides in
(VOLCANICS): eastern California approximately 12 million years old.
MICRODIAMOND: Natural diamonds, generally of a size less than 0.4
millimetres. Although these diamonds do not have monetary
value, they are significant in that their presence indicates
the possible occurrence of larger diamonds.
MINERALIZATION: The concentration of metals and their chemical compounds
within a body of rock.
NET SMELTER RETURN: A share of the net revenues generated from the sale of metal
produced by a mine.
NIOBIUM: An exotic alloy metal, sometimes called columbium.
OLIVINE: A rock-forming silicate mineral series ranging from
iron-rich to magnesium-rich. Important in mafic and
ultramafic rocks.
OPEN CUT, OPEN PIT: A mine worked at the surface.
ORE: A natural aggregate of one or more minerals which, at a
specific time and place, may be mined and sold at profit, or
from which some part may be profitably separated.
ORTHOMAGMATIC: The main stage of crystallization of silicates from a
typical magma, during which as much as 90% of the magma may
crystallize.
OVERBURDEN: Loose or consolidated rock that overlies a mineral deposit
and must be removed prior to mining.
OXIDIZED: Decomposed by exposure to the atmosphere and ground water.
PAYSTREAK: That portion of a vein which carries the profitable ore.
PENTLANDITE: Nickel iron sulphide, the most common nickel ore. An
PERIDOTITE: intrusive igneous rock consisting mainly of olivine.
PIPE: A common term for a vertical cylindrical or column-like mass
of rock that cooled and solidified in the neck of a volcano.
PLACER: A deposit of sand and gravel containing valuable metals such
as gold, tin or diamonds, normally resulting from erosion.
PLATFORM COVER: Generally used to describe areas formed by relatively
undeformed sediments lying on basement rocks.
PLIOCENE: An epoch of the Tertiary period, after the Miocene and
before the Pleistocene; it is considered to be a period when
the Tertiary is designated as an era.
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PLUG: A common name for a small offshoot from a large body of
molten rock.
PORPHYRY: Any igneous rock in which relatively large conspicuous
crystals are set in a finer-grained groundmass.
PRECAMBRIAN: All geologic time, and its corresponding rocks, before the
beginning of the Paleozoic; it is equivalent to about 90% of
all geologic time.
PROPYLITIC: A term that may be applied to any kind of a vein, meaning
that the ore solution which has furnished the vein filling
has also effected a decomposition or alteration of the wall
rock as well, so that the walls of the vein consist of clay,
talc, etc.
PROSPECT: Mineral occurrence with potential for an economic deposit.
PYROCLASTIC: Pertaining to clastic rock material formed by volcanic
explosion or aerial expulsion from a volcanic vent.
PYROPE GARNET: A variety of garnet (cubic iron-, magnesium-, calcium-, or
manganese-aluminosilicates) which contains mainly magnesium
and a little iron; many pyrope garnets also contain
chromium.
RADIOLARIAN CHERT: A well-bedded microcrystalline rock with fossil shells and
silica.
RECONNAISSANCE: First-pass exploration of a large area.
SCHIST: A foliated metamorphic rock the grains of which have a
roughly parallel arrangement, generally developed by
shearing.
SERICITE: A white, fine-grained potassium mica occurring in small
scales and flakes as an alteration product of various
aluminosilicate minerals, having a silky lustre, and found
in various metamorphic rocks, especially schists and
phyllites or in the wall rocks, fault gouge and vein
fillings of ore deposits.
SERPENTINE: A family of minerals which are the alteration products of
olivine and pyroxenes.
SILL: An intrusive sheet of igneous rock of roughly uniform
thickness that has been forced between the bedding planes of
existing rock.
STOCKWORK: An interlacing system of small veins or lodes.
STRANGE LAKE: A lake near the Quebec/Labrador boundary.
SULPHIDE: A metallic mineral containing unoxidized sulphur.
TAILINGS: Reject products from a mineral treatment plant.
TUFF: A rock formed from compacted volcanic origin containing
clastic fragments.
ULTRABASIC: An igneous rock having a silica content lower than that of a
basic rock, or less than about 45%.
ULTRAMAFIC: An igneous rock composed chiefly of mafic minerals, such as
monomineralic rocks composed of hypersthene, augite or
olivine.
VEIN: Sheet-like body of minerals formed by fracture-filling or
replacement of the host rock.
XENOCRYST: A mineral found in an igneous rock but which did not
crystallize in the same place at the same time as the
containing rock.
XENOLITH: An inclusion of a pre-existing rock in an igneous rock.
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The rate of exchange, as reported by the Federal Reserve Bank of New York for
the conversion of United States dollars into Canadian dollars was, as at
December 4, 1998, $0.6515 (U.S.$1.00 = CDN$1.5350).
All currency amounts are expressed in Canadian dollars unless otherwise
stated.
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Item 1 DESCRIPTION OF BUSINESS
GENERAL
The Company was formed in Ontario under the Business Corporations Act on June 1,
1989 by the amalgamation of Howe Exploration & Development Co. Limited and
Merigomish Investments Limited. On April 20, 1993, the Company filed Articles of
Amendment changing its name from Howe Exploration & Development Co. Limited to
Howex Enterprises Ltd. The Articles of Amendment also served to remove the
private company restrictions from its Articles. On September 23, 1994, the
Company filed Articles of Amendment changing its name to Diadem Resources Ltd.
and consolidating its issued common shares on the basis of one
post-consolidation common share for each two and one-half pre-consolidation
common shares. The registered head office of the Company is located at 350 Bay
Street, 7th Floor, Toronto, Ontario, M5H 2S6, while its principal office is
located at 110 Meadowvale Road, Toronto, Ontario, M1C 1S1.
THE BUSINESS OF THE COMPANY
The Company and its predecessor company prior to amalgamation, Howe Exploration
& Development Co. Limited, have been in the mineral exploration business in
Canada and elsewhere since May, 1965. The Company was a contractor for mine
development in the years 1965-1975 and has been an investor in properties and
shares of mining companies and a consultant to mining companies since then. The
Company currently has interests in mining properties situated in El Dorado
County, California; Northern Quebec, Canada; the La India District, Nicaragua
and on Belitung Island in Indonesia. The Company also owns an interest in Waseco
Resources Inc. ("Waseco") which is engaged in the exploration and development of
an alluvial gold prospect on the Island of Kalimantan, Indonesia and two hard
rock gold prospects on the Island of Java, Indonesia. Diadem is a development
stage company, and while it has not yet determined that its properties contain
economically recoverable reserves. Diadem anticipates completing a favourable
feasibility study in respect of its Nicaragua gold property within the next 24
month period and Waseco has completed a favourable feasibility study in respect
of its alluvial gold prospect in Kalimantan, Indonesia.
RISK FACTORS
Mining Exploration and Development
The Company currently has no properties in production and its success will
depend upon its ability to generate revenues from its properties.
All of the mineral properties in which the Company holds interests are without a
known body of commercial ore and each of the proposed programs on these
properties is an exploratory search for ore. Development of these mineral
properties will only follow upon obtaining satisfactory exploration results.
Mineral exploration and development involves a high degree of risk, which even a
combination of experience, knowledge and careful evaluation may not be able to
avoid. There is no assurance that commercial quantities of ore will be
discovered. There is no assurance that even if commercial quantities of ore are
discovered that a mineral property will be brought into production. The
commercial viability of a mineral deposit once discovered is dependent upon a
number of other factors, some of which are the particular attributes of the
deposit, such as size, grade and proximity to infrastructure as well as metal
prices. Most of the above factors are beyond the control of the Company.
Furthermore, several years may pass between the discovery of a deposit and its
exploitation.
Mining operations generally involve a high degree of risk which even a
combination of experience, knowledge and careful evaluation may not be able to
overcome. The business of mining is subject to a variety of risks such as ground
fall, explosions and other accidents, flooding, environmental hazards, the
discharge of toxic chemicals and other hazards. Such occurrences, against
destruction of mines and other production facilities, damage to life and
property, environmental damage, delayed production, increased production costs
and possible legal liability for any and all damages. Such liabilities may have
a material adverse effect on the Company's financial position.
Foreign Governments and Governmental Regulations
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The Company hold interests in mineral resource properties in Canada, the United
States, Nicaragua and Indonesia. Because the Company holds interest in mineral
resource properties in foreign countries, the Company's mineral exploration,
development and mining activities may be affected in varying degrees by
political stability, government regulations relating to the mining industry and
foreign investment therein. Currently there are no restrictions on currency
movement within or from such countries. However, there is no assurance that
future political and economic conditions in these countries will not result in
their governments adopting different policies respecting foreign development and
ownership of mineral resources. Any such changes in regulations or shifts in
political conditions are beyond the control of the Company and may adversely
affect its business. Operations may be affected in varying degrees by government
regulations, including those with respect to restrictions on production, price
controls, export controls, income taxes, expropriation of property, employment,
land use, water use, environmental legislation and mine safety. Operations may
also be affected in varying degrees by political and economic instability,
economic or other sanctions imposed by other nations, terrorism, military
repression, crime and high inflation. It may be more difficult for the Company
to obtain any required project financing in these countries from senior lending
institutions because such lending institutions may not be willing to finance
projects in developing countries due to the possible investment risk.
Government approvals and permits are currently, and may in the future be,
required in connection with the Company's operations. To the extent such
approvals are required and not obtained, the Company may be curtailed or
prohibited from proceeding with planned exploration or development of mineral
properties.
The Company believes it is currently in compliance with all applicable
government regulations. Failure to comply with applicable laws, regulations and
permitting requirements may result in enforcement actions thereunder, including
orders issued by regulatory or judicial authorities causing operations to cease
or be curtailed and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Parties
engaged in mining operations may be required to compensate those suffering loss
or damage by reason of the mining activities and may have civil or criminal
fines or penalties imposed for violations of applicable laws or regulations.
Amendments to current laws, regulations and permits governing operations and
activities of mining companies, or more stringent implementation thereof, could
have a material adverse impact on the Company and cause increases in capital
expenditures or require abandonment or delays in development of new mining
properties.
Title Matters
The Company has investigated its rights to explore and exploit its various
properties and, to the best of its knowledge, those rights are in good standing
and none of the Company's current mining and exploration rights are in doubt.
However no assurance can be given that applicable governments will not revoke,
or significantly alter the conditions of, the applicable exploration and mining
authorizations and that such exploration and mining authorizations will not be
challenged or impugned by third parties.
Market Conditions
The mining industry is competitive and there is no assurance that, even if
commercial quantities of mineral resources are discovered, a profitable market
will exist for the sale of same. There can be no assurance that mineral prices
will be such that the Company's properties can be mined at a profit. Factors
beyond the control of the Company may affect the marketability of any minerals
discovered. The prices of gold and other precious metals and base metals have
historically experienced volatile and significant price movements over short
periods of time, and are affected by numerous factors beyond the control of the
Company, including international economic and political trends, expectations of
inflation, currency exchange fluctuations, interest rates and global or regional
consumption patterns, speculative activities and increased production due to
improved mining and production methods. The aggregate effect of all these
factors is impossible to predict
Currency and Foreign Exchange
The Company's operations in Indonesia and Nicaragua will make it subject to
fluctuations in currency exchange rates that may significantly impact the
Company's financial position and results. Precious metals are generally sold at
prices stated in U.S. dollars while costs incurred are paid in the currency of
the country in which the activities are undertaken.
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Any change in the ratio of Indonesian or Nicaraguan currency to the U.S. dollar
could affect profitability. The Company does not intend to engage in currency
hedging to offset any risk of currency fluctuations.
Financial Resources of the Company
The Company currently does not have any revenues and has not paid any dividends
since its incorporation. The financial resources of the Company may not be
sufficient to bring into production any economic deposit which it might
discover. Given that the Company does not have a property that has yet been the
subject of a mine feasibility study and given the above risk factors, it is
unlikely that the Company will make a profit in the near future. The work
programs may be interrupted at any time in the event that the Company does not
have the necessary funding to carry out future work required. The further
development and exploration of the various mineral properties in which the
Company holds interests depends upon the Company's ability to obtain additional
financing through any or all of the joint venturing and syndication of projects,
debt financing, equity financing or other means. Such funding may dilute the
interests of existing shareholders. There is no assurance that the Company will
be successful in obtaining such additional financing. Furthermore, even if such
financing is successfully completed, there can be no assurance that it will be
obtained on terms favourable to the Company or providing the Company with
sufficient funds to meet its objectives, which may adversely affect the
Company's business and financial condition.
Uninsured Risks
The Company may become subject to liability for cave-ins, pollution or other
hazards against which it cannot insure or against which it may elect not to
insure because of high premium costs or other reasons. The payment of such
liabilities would reduce the funds available for exploration and mining
activities and would adversely affect the Company's financial position.
Conflict of Interest
Certain of the directors and officers of the Company also serve as directors and
officers of other companies involved in natural resource exploration,
development or production and, consequently there exists a possibility for any
such officer or director to be in a position of conflict. Any decision made by
such a director or officer involving the Company will be made in accordance with
his or her fiduciary duties and obligations to deal fairly and in good faith
with the Company and such other companies. In addition, all officers and
directors will declare, and refrain from voting on, any matter in which they may
have a conflict of interest.
Dependence on Key Personnel
The development of the Company's business is and will continue to be dependent
on its ability to attract and retain highly qualified management and mining
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract and retain such personnel.
Competition
Significant competition exists for available mineral acquisition properties. As
a result of this competition, some of which is large established mining
companies with substantial capabilities and greater financial and technical
resources than the Company, the Company may be unable to acquire rights to
explore additional attractive mining properties on terms it considers
acceptable. Accordingly, there can be no assurance that the Company will acquire
any interest in additional operations that would yield reserves or result in
commercial mining operations.
Environmental Compliance
The Company's operations are subject to environmental regulation in the various
jurisdictions in which it operates. Environmental legislation is evolving in a
manner which will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. Although the Company believes that its
exploration operations are currently carried out in accordance with all
applicable rules and regulations, there is no assurance that future changes in
environmental regulation, if any, will not be applied in a manner which could
limit or
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curtail production or development. Environmental hazards may exist on the
properties in which the Company holds interests which are presently unknown to
the Company and which have been caused by previous or existing owners or
operators of the properties. An overview of the environmental legislation
applicable to the Company's operations follows.
Canada
The mining industry in Canada is subject to legislation at both the federal and
provincial levels relative to the protection of the environment. In particular,
such legislation imposes rigorous standards on the mining industry to reduce or
eliminate the effects of wastes generated by extraction and processing
operations and subsequently deposited on the ground or emitted into the air or
water. Accordingly, the design of mines and mills and the conduct of overall
extraction and processing operations are subject to the restrictions contained
in such legislation. In addition, the construction, development and operation of
a mine, mill and refinery typically entail compliance with applicable
environmental legislation and/or review processes and the obtaining of land use
and other permits, water licenses and similar authorizations from various
governmental agencies. In particular, legislation is in place for lands under
federal jurisdiction or located in certain provinces which provides for the
preparation of costly environmental impact assessment reports prior to the
commencement of any mining operations. These reports entail a detailed technical
and scientific assessment as well as a prediction of the impact on the
environment and proposed development.
Failure to comply with the legislation can have serious consequences. Orders may
be issued requiring operations to cease or be curtailed or requiring
installation of additional facilities or equipment. Violators may be required to
compensate those suffering loss or damage by reason of its mining activities and
may be fined if convicted of an offense under such legislation.
Provincial mining legislation establishes requirements for the decommissioning,
reclamation and rehabilitation of mining properties in a state of temporary or
permanent closure. Such closure requirements relate to the protection and
restoration of the environment and the protection of public safety. Some former
mining properties must be managed for long periods of time following closure in
order to fulfill closure requirements. The cost of closure of mining properties,
and, in particular, the cost of long term management of mining properties can be
substantial. The Company intends to progressively rehabilitate its mining
properties during their period of operation, should any properties become
operational, so as to reduce the cost of fulfilling closure requirements after
the termination or suspension of production.
United States
Legislation and implementing regulations adopted or proposed by the United
States Environmental Protection Agency ("EPA"), in Bureau of Land Management
("BLM") and by comparable agencies in various states directly and indirectly
affect the mining industry in the United States. These laws and regulations
address the environmental impact of mining and mineral processing, including
potential contamination of soil and water from tailings discharges and other
wastes generated by mining companies. In particular, legislation such as the
Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and Liability Act and the
National Environmental Policy Act and comparable state statutes require analyses
and/or impose effluent standards, new source performance standards, air quality
and emission standards, remediation requirements and other design or operational
requirements for various contaminants of mining and mineral processing,
including precious ore mining and processing. Such statutes impose liability on
owners and operators for the remediation of waste.
Further, mine operators must comply with the Federal Mine Safety and Health Act
of 1977, as amended, which is enforced by the Mining Safety and Health
Administration ("MSHA"), an agency within the Department of Labour and by
comparable agencies in various states. All mines, both underground and surface,
are subject to inspections by MSHA. The Occupational Safety and Health
Administration also has jurisdiction over safety and health standards not
covered by the Federal Mine Safety and Health Act of 1977.
Nicaragua
Under Nicaraguan law, the Ministry of the Environment and Natural Resources
("MARENA") is the government entity responsible for the preservation of the
environment. The Company intends to follow required procedures with respect to
the environment, including monitoring of the effluent from mining operations.
MARENA has approved the initial
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environmental impact study. Further environmental permitting will be required
from time to time to maintain compliance with MARENA requirements as they
evolve.
Indonesia
The mining industry in Indonesia is subject to legislation regarding
environmental protection and preservation. The applicable legislation is set out
in each Mining Authorization ("Kuasa Pertambagan" or "KP") or Contract of Work
("COW") document, and all contracting parties are required to comply with these
requirements. To assist in the determination of the impact a proposed mining
operation may have on the natural resources, biological resources and human
settlements in a particular area, the contracting party is required to include
an Environmental Impact Study with the feasibility study submitted for each
property. This was completed and approved by the government for the alluvial
gold project on the Island of Kalimantan.
DESCRIPTION OF MINERAL EXPLORATION AND DEVELOPMENT PROPERTIES
UNITED STATES
(i) LEEK SPRINGS, ELDORADO COUNTY, CALIFORNIA
Location And Access
The property is located in the El Dorado National Forest, in El Dorado County,
California, in Sierra Nevada, California. The property is made up of four claim
blocks, separated by a narrow strip of private land. The nearest habitation is a
ski resort located three miles east of the property. Placerville is the nearest
large town and the administrative centre of the county, located 28 miles
west-northwest of the property, while Lake Tahoe is located 22 miles to the
northeast.
Access to the property is from Highway 88, one of the main paved access roads
through the Sierra Nevada mountains from the Great Valley of California. Highway
88 connects Stockton in the Great Valley with Carson City, Nevada. The property
is well served by paved roads and gravel tracks. The area was recently logged,
so logging tracks and dirt roads provide additional access on the property.
The climate is Alpine. The area experiences warm, dry, short summers and long,
cold winters with snow accumulations in excess of 10 feet. The property is at
7,000 feet elevation, experiences considerable snowfall in the winter months and
is generally snow-covered from November to May.
The main Leek Springs Valley is a typical "Alpine Meadow" of grasses and
flowers, with continuous flowing small streams fed by numerous year-round
springs. The springs originate at the geological contact of the Mehrten
Formation andesite and the granite. The Valley sides on the north are gently
sloping while the southern sides are steep. The sides are covered by mature
conifers, thinly spread, due to active logging operations over the past fifty
years. The valley slopes at higher elevation have a more sparse conifer
population, due to outcropping Mehrten Formation andesites and poor soil
formation.
Regulations in El Dorado County require a special use permit be issued for
open-pit mining or strip mining, for purposes of exploration or extraction
resulting in the removal of more than 1,000 cubic yards of overburden. Prior to
the issuance of the special use permit, the approving authority (the local Board
of Commissioners or Planning Authority) shall make a finding that all boundaries
of the proposed project shall be greater than a linear distance of 10,000 feet
from any existing residential use, hospital use, church use or school use, as
designated in the El Dorado County General Plan, or any community or specific
plan, or as permitted by the zoning code of El Dorado County.
Mining Rights and Titles
By Agreement dated November 6, 1995 between the Company and Silverstone, the
Company obtained a 10% interest in 215 recorded claims described below,
technical data and any other claims or mining rights acquired by Silverstone
within a specified area of interest (herein, the "Area of Interest") . The
property originally consisted of 215 unpatented mining claims which covered
approximately 4,300 acres. In August 1998, the Company reduced the claim number
to 125 covering 2,500 acres. These comprise the following: Adrienne (10 claims),
Judy (43), Susan (19), and Michelle
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(53). The total area claimed encompasses the known outline of the Adrienne
lamproitic breccia (Adrienne pipe). The Company currently a 40% interest in
these claims as described below.
Mr. Derek Bartlett, a non-executive Director of the Company, was appointed by
the Company to negotiate on its behalf, the transaction with Silverstone, the
latter being represented by Mr. George Silverman. To acquire an initial 10%
interest in these claims, the Company was required, on or before December 6,
1995, to (i) pay Silverstone the sum of $50,000 U.S. and (ii) deliver to
Silverstone a total of 150,000 common shares of the Company. Compliance with the
December 6, 1995 deadline for payment was waived by Silverstone, and the Company
paid the $50,000 U.S. on January 16, 1996 and issued the common shares on
January 18, 1996. Exercise of this option secured an option for the Company to
acquire an additional 15% interest in the claims.
To acquire a further 15% interest, increasing the Company's interest in the
claims to 25%, the Company has (i) paid Silverstone an additional fee of
$100,000 U.S., (ii) delivered to Silverstone an additional 200,000 common shares
of the Company, and (iii) provided technical data and financial statements
establishing cumulative expenditures of not less than $500,000 U.S. on the
properties. Exercise of this option also provided the Company with an option to
increase its interest in the claims by a further 15%.
To increase its interest by an additional 15%, bringing its aggregate position
in the claims to 40%, the Company was required, on or before March 20, 1997, to
(i) pay Silverstone an additional $100,000 U.S., (ii) deliver an additional
200,000 common shares of the Company, and (iii) provide technical data and
financial statements establishing expenditures of a further $500,000 U.S. This
was completed and exercise of this option secured an option for the Company to
acquire an additional 15% interest in the claims.
To acquire an additional 15% interest, bringing its aggregate position to 55%,
the Company would be required, on or before August 2, 1999, to (i) pay
Silverstone an additional sum of $100,000 U.S., (ii) deliver an additional
200,000 common shares of the Company in October 1998, (iii) provide technical
data and financial statements establishing cumulative expenditures of $4,000,000
U.S. by August 2, 1999, and (iv) complete cumulative expenditures of $5,000,000
U.S. by August 2, 2000. The Company has completed cumulative expenditures of CDN
$3,362,000 (U.S. $2,175,000) as at May 31, 1998 and delivered 200,000 shares in
October 1998.
Regional History
Since 1848, approximately 810 alluvial diamonds have been found in California.
No accurate records were kept. The majority of diamonds were found by chance in
the sluices used in gold mines. The only attempt at diamond exploration occurred
at the Cherokee Diggings in Butte County, where between 400 and 500 small
diamonds were recovered from gold-bearing gravels. A small eclogite, a potential
diamond source rock, was located nearby, but proved to be barren.
Based on the geographical distribution of the alluvial diamonds and their
secondary source environments, Ryder divided diamond occurrences in California
into two distinct zones, the Sierra Nevada Diamond Province and the Klamath
Mountain Diamond Belt. The majority of the California alluvial diamond finds are
located in the Sierra Nevada Diamond Province. Within this Province, greater
than 90% of the recorded diamonds are recovered from three locations or mining
districts: Cherokee Diggings (300-600 diamonds); Placerville Mining District (90
diamonds); and Volcano - Rancheria District (100 diamonds). The latter location
is where the Company's Rancheria placer gold and diamond prospect is located.
The majority of recorded diamonds in the above districts were recovered from
Tertiary gravels left by ancient rivers draining and eroding the emerging Sierra
Nevada Mountains. Plotting the locations of the alluvial diamonds by Silverstone
demonstrated that one ancient river - the Tertiary Mokelumne River - has
consistently yielded numerous large and small, gem quality diamonds from it's
gravels.
The Leek Springs property is located at the headwaters of the present-day north
fork of the Cosummes River and coincidentally at the ancestral headwaters of the
Tertiary Mokelumne River, twelve miles east-northeast of the Volcano-Rancheria
district. The Tertiary Mokelumne River contained widespread gold-bearing and
diamond-bearing gravels. The richest diamond-bearing gravels were in the Volcano
- - Rancheria mining district. Alluvial diamonds were also found throughout the
channel gravels as well as the tributaries flowing into the main channel.
Recorded recoveries of diamonds decreased during the later part of the
nineteenth century due to the introduction of stamp mills that crushed the
gravels and diamonds. Interpretation of the available historical records on
diamonds in California by Silverstone indicates that the majority of the stones
recovered were of gem quality. This interpretation is consistent with worldwide
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experience with alluvial diamonds; flawed diamonds will not survive in a river
environment. Diamonds recovered and authenticated range in size from microscopic
particles up to 6 carats with an average size estimated at 0.8 carats.
No modern exploration or mining of alluvial diamonds has been previously
undertaken in California. This may be due, in part, to: (i) ignorance of the
early miners - gold was the desired object of the gold rush era miners. The
South African diamond fields had not yet been discovered, and diamonds were
regarded as a "curiosity"; (ii) enthusiasm for diamonds from the "experts" of
the time was not forthcoming. Experts from South Africa as well as the
California Geological Institute did not believe California to be a promising
area for diamond mining; (iii) mining methods used, such as hydraulics, were
disliked by mine managers as well as state mineralogists; (iv) the nature of
alluvial diamonds - most of the stones (diamonds) pick up a coating of salts
during their course down the river and they could not be collected using the
gold recovery techniques used; and (v) the nature of the gravels - diamonds
found during mining were invariably found in cemented or compact gravels. The
gravels were crushed in stamp mills to recover the gold, which also resulted in
the destruction of the diamonds.
Serious consideration has only been given to the concept that economic deposits
of diamonds in host rocks could be found in North America since the 1970's.
Exploration during the 1970's resulted in the discovery of diamondiferous
kimberlites in Colorado and in the early 1990's in the Northwest Territories of
Canada. In California, no diamondiferous source rocks for the alluvial diamonds
were found until April 1996 when the Company announced that diamond fragments
were recovered from drill cuttings at Leek Springs.
Regional Geology and Mineralization
The greater part of the claims are underlain by volcanics with granite adjacent
to the claim area. The granite rocks are unconformably overlain by Pliocene
Mehrten Formation Andesitic volcanics. In one area, geophysical data partially
supported by geological mapping indicates a fault contact between the granite
and Mehrten volcanics. The lowest Mehrten Formation Volcanics, where
outcropping, are andesitic mud slides and flow breccias composed of angular to
sub-rounded, cobble sized blocks of andesitic rocks in a hard, fine-grained, mud
matrix. At higher elevations, in the northern and north eastern part of the
claims, no outcrops are exposed. Abundant boulders and cobbles, sub-rounded to
sub-angular, of a light coloured massive, medium grained andesitic rock with
scattered, occasional, large amphiboles predominate. The distribution of the
"boulder fields" of this andesitic rock type coincides with elevated magnetic
intensity, and are clearly visible on the contoured magnetic map. The area
between the massive andesites and outcropping granites is covered by buff to
light brown soils which contain small fragments of different andesite rocks.
No surface evidence of the diamondiferous diatreme breccia was found during the
geological mapping. The surface of the diatreme is covered by either a 20 foot
thick blanket of grey, brown soil or Mehrten Formation Andesite.
Exploration Results
Based on the results of a literature study completed by Silverstone and field
visits to alluvial diamond localities by Silverstone, a three thousand square
mile area was targeted for reconnaissance and heavy mineral stream sediment
sampling. A lack of detailed magnetic or other data precluded target selection
by available geophysics. Testing of tertiary gravels allowed Silverstone to
select optimum sampling conditions. Sample and mineral size helped in the
determination of alluvial diamond indicator mineral association. Orientation
sampling of present day rivers and creeks helped refine the sampling and
processing methods.
The main creeks and river draining the target areas were sampled along their
courses at approximately five mile intervals back to their present day
headwaters. At each sample site between 30 and 50 litres of stream sediment was
collected. At each location optimum heavy mineral sediment traps were selected.
The samples were screened on site at the minus 1/4 inch fraction retained for
processing. An initial heavy mineral concentrate was prepared from the sample
and was further processed again by screening, magnetic separation and the use of
density liquids (lithium metatungstate). The final heavy mineral concentrate was
microscopically examined, minerals identified and counted. Selected mineral
grains were picked, and identification of the grains was undertaken. A total of
250 stream sediment samples were taken, processed and the heavy mineral content
for each sample plotted.
Silverstone used conventional and non-conventional indicator minerals to target
a number of drainages for follow-up exploration and prospecting. After follow-up
sampling, the north fork of the Consumes River, with Leek Springs
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Meadow at its headwaters, proved to be Silverstone's number one target in the
area, based on: (i) red garnet content found; (ii) the unusual abundance of
green-diopside minerals; (iii) the meadow, the topographic low, at the
headwaters of the river; (iv) the presence of chrome spinels; and (v) the
paleoheadwaters of the ancestral, diamondiferous Mokelumne River.
Microprobe analyses on the green diopside minerals showed that many
(approximately 15%) had a chrome and calcium ratio within the stability field of
diamond occurrences world-wide. The downstream samples also showed appreciable
olivines that continued to the head of the valley. Although olivine is not an
"indicator mineral", it is present in significant amounts in both kimberlites
and lamproite volcanics.
Based on the heavy mineral data, Silverstone staked a number of unpatented
mining claims, the "Adrienne Claims", in 1994. Detailed sediment sampling of
creeks and dry gulches draining the Adrienne Claims was undertaken in the summer
of 1995 by Silverstone. Heavy mineral concentrates (total 18) contained the
following suite of minerals: clinopyroxenes, diopside, olivine, amphiboles,
chrome spinels, ilmenite, orthopyroxenes, aluminum spinels, and an assorted
variety of garnets, zircons and other minerals. These minerals included
conventional indicator minerals, chrome spinels and chromium diopside, as well
as many other minerals. Plotting of the heavy mineral results, in conjunction
with the geophysical data, helped select drill sites for the fall drilling of
1995.
In conjunction with the heavy mineral sediment sampling, Silverstone conducted a
detailed ground magnetic survey over the northern Adrienne Claims. A north south
trending magnetic anomalous zone, approximately 600 feet wide, was identified.
Five separate magnetic anomaly zones of interest were outlined. The correlation
of the magnetic data with the heavy mineral survey, field mapping, prospecting
and drilling in this anomalous zone determined the source of the indicator
minerals.
Upon the execution of the Diadem-Silverstone agreement on November 6, 1995, a
budget and program of work was agreed upon for the Adrienne Claims. The time of
the year restricted field activities to: (i) core drilling the initial
geophysical targets, coincident with heavy mineral targets; (ii) commencing
infill heavy mineral stream sediment sampling within the Area of Interest in the
vicinity of the Adrienne Claims; and (iii) prospecting/geological mapping of the
Area of Interest.
A total of 50 sites were sampled prior to the arrival of the first snows. The
samples were processed in the same way as described above. It became apparent
during the sampling and the preliminary screening of the samples that indicator
minerals used to locate the Adrienne Claims were present in the majority of the
gulches/creeks to the north of the Adrienne Claims. The sediment sampling
program continued until mid-December 1995. The last samples were processed by
mid-February. Plotting of the indicator minerals resulted in the identification
of other targets.
Core drilling commenced in early November, 1995. By mid-December 1995 three
drill holes (drill holes #1, 2 & 3) had commenced, but only the third had been
completed. A total of 504.5 feet of core drilling was completed prior to the
onset of winter. A small processing plant to treat the drill cuttings, cores and
the heavy mineral sediment samples was erected close to Leek Springs. It was the
intention of the Company to process the drill material to determine indicator
mineral content and to check for microdiamonds, by preparing heavy mineral
concentrations to reduce the volume of material for shipment to Canada for
analysis. All drill cores and cuttings were crushed, screened, milled and
concentrates collected. Small samples (2 to 3 ounces) of concentrates were taken
for heavy mineral identification.
The 1995 drilling program confirmed the presence of diamondiferous breccias on
the property at Leek Springs. This is the first known/confirmed diamond host
rock in the history of California. A total of 234 diamond fragments were
identified in the final caustic leach residues of samples from drill hole #1.
Only one diamond fragment was recorded from drill hole #3. The diamonds are
clear, white, angular fragments of different sizes, ranging from 0.06 mm to 0.68
mm and weighing from 3,616 to 216,972 octacarats. One octacarat equals one
hundred-millionth of a carat.
In July 1996, the Company resumed drilling. A total of 42 rotary holes (8" in
diameter) and 10 diamond drill holes (HQ size) were completed during the year.
Cuttings from the rotary holes were screened to two (2) sizes and the undersized
fraction was concentrated on a shaking table at Jackson, California.
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Both sizes were sent to a processing plant in Colorado owned by BHP/DiaMet
Minerals. This plant produced a concentrate and eliminated the -0.5 mm material.
This process eliminated most of the micro diamonds assumed to be present, since
they were considered economically unimportant. It also reduced the size of the
bulk sample and resulted in reduced costs for the next stage, caustic
dissolution of each metre sampled. The caustic dissolution was carried out by
the Saskatchewan Research Council laboratories between January and June of 1997.
The end result was that nine (9) holes of the 1996 drilling program contained
diamonds. This is in addition to the two holes in 1995's program, making a total
of 11 holes containing diamonds.
The drill program also outlined a huge 800-acre crater filled with volcanic
breccia. During the drilling program, the results of a previous ground
magnetometer survey were interpreted by Geophysicist, Dr. George Wahl who
plotted three (3) large circular anomalies plus several smaller ones within the
crater. It is significant that each of the 11 holes containing diamonds is
located on or near the circular features, thus indicating the circular features
to be the probable volcanic vents or pipes through which the explosions occurred
and delivered the diamonds.
Work to-date does not allow the Company to calculate a resource potential or
carat-weight-per-ton. However, it has established that the lamproite deposit
covers a large area containing gem-quality diamonds. It remains to be determined
where the concentration of diamonds in economic quantity exists on the property.
To date, a total of 247 diamonds have been recovered ranging in size from 0.06mm
to 0.68mm.
Current work is designed to discover additional vents or pipes on the 75% of the
property still unexplored. A due diligence report by Dr. Mousseau Tremblay
indicates that the volcanic breccia is an olivine lamproite. This is significant
since the largest diamond mine in the world, the Argyle Mine in Australia, is
from a lamproite deposit. On the basis that the diamond bearing pipes usually
occur in clusters. Dr. Tremblay recommended further exploration to discover
additional pipes on the property. Following his recommendations, the Company
carried out geological mapping and an airborne magnetometer survey to follow-up.
Dr. George Wahl interpreted the results of the airborne magnetometer survey. He
identified three probable diatremes believed to be the major volcanic vents
through which ash-flow breccia was erupted. One diatreme lies in close proximity
to the diamond drill holes which returned diamonds on caustic dissolution of the
core. It is circular, with a diameter of 1500 feet and an area of about forty
acres. It is situated in the valley of the middle fork of the Camp River.
Another diatreme with a positive magnetic core and a negative rim is situated
immediately south of Podesta Camp. The core is about 1000 feet in diameter and
the rim has a width of about 1000 feet. This anomaly covers almost 160 acres.
The magnetic pattern is similar that mapped over the Mwadui Pipe in Tanzania
with the volcanic neck (positive) and its flanks of volcanic ejecta (negative).
The third inferred diatreme is similar to the one described above in that it has
a positive core and a negative rim. The diameter of its positive core is about
1200 feet with a 400 foot negative rim. This anomaly covers almost 46 acres. It
lies near Singleton Springs at the headwaters of Cosummes River.
The next plan of work calls for the investigation of these diatremes by a ground
magnetic survey, and sampling of outcrops, followed by drilling. This work has
been delayed pending financing.
LA INDIA, NICARAGUA
Location
Nicaragua is situated in the heart of Central America, and is its largest
republic. The temperature in Nicaragua is relatively stable at approximately 25
degrees Celsius, with very little fluctuation. The average annual rainfall is
approximately 170 centimetres, with a dry season between December and April. The
La India gold deposits are located approximately 80 kilometres north of the
capital city of Managua in the Santa Rosa municipality.
Nicaragua has excellent infrastructure, with easy access to major world markets
via the international airport in Managua, numerous ports located along both
coasts and an efficient road system that includes the Pan American Highway. As
well, the telecommunications system has recently been extensively modernized
throughout the country, with several international telecommunication companies
now providing services in Nicaragua.
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Mining Rights and Titles
The La Mestiza property is held under an Exploitation Permit by Empresa Minera
La Mestiza S.A. ("EMLM").The Company entered into an option agreement with
Archon Prospecting Syndicate ("Archon") on December 10, 1996, to acquire up to a
68.25% interest in the 200 hectare gold property known as the Espinito-Mendoza
concessions (hereinafter referred to as the "La Mestiza" property). Archon had
acquired an interest in the La Mestiza property when it entered into an option
agreement on November 28, 1996 with EMLM. The terms of the Company's agreement,
as subsequently amended by amending letter agreement dated November 21, 1997 may
be summarized as set out below. The Company was required to pay to Archon, by
January 10, 1997, U.S.$50,000, in partial repayment of the approximately
$300,000 Archon had spent on exploration activities and deliver to Archon
100,000 shares of the capital of Diadem and within 175 days of December 11, 1996
pay 100,000 shares. Diadem also assumed the responsibilities of Archon in its
option agreement with EMLM, including a payment of U.S.$110,000 to EMLM in
partial repayment of prior expenditures by EMLM on the concessions. Within 350
days from December 11, 1996, Diadem was required to pay Archon an additional
U.S.$75,000 and deliver 200,000 common shares of Diadem. The Company has
delivered the shares and has paid U.S.$5,000; the balance of U.S.$70,000 is to
be paid on or before June 25, 1999. The Company was scheduled to pay U.S.
$100,000 and issue 200,000 shares by April 19, 1998. An extension has been
granted to pay the funds and the shares were issued on May 12, 1998. By
September 6, 1999, Diadem will be expected to pay Archon an additional
U.S.$125,000 and deliver, subject to regulatory approval, an additional 200,000
common shares of Diadem. Further, Diadem will be required to fund all
exploration and development expenditures through to the commencement of
production of La Mestiza. This program is to be completed in five phases, with
Diadem earning a 13.5% interest upon the completion of each of the phases, such
that upon payment of the foregoing fees and shares and completion of the phases,
Diadem shall have earned a 67% interest. Diadem shall have the option of
increasing its interest to 68.25% by paying EMLM the sum of $200,000 within two
(2) years after the date of commencement of commercial production. Archon would
hold a 1.75% interest and the remaining 30% held by Nicaraguan Joint Venturer.
Regional History
Nicaragua was a major gold producer in the 1800's and 1900's, beginning with the
discovery of gold at La Libertad in central Nicaragua and Bonanza in the
northeast in 1880. Gold mining reached its peak in the 1940's and 1950's, during
which period Nicaragua ranked as the 14th largest gold producer in the world,
with an average annual output of over 300,000 oz. Despite this history of
production, it is believed that many of Nicaragua's known gold deposits remain
relatively unexploited.
The La India District was first mined by Noranda Mines Inc. during the period of
1936-56, extracting approximately 800,000 metric tons of ore with an average
yield of 9.5 grams of gold per metric ton of ore and 10 grams of silver per
metric ton or ore.
In 1983, INMINE, the Nicaraguan Mining Institute, proposed an evaluation and
exploration program of the La India district, that was conducted by Russian
geologists from the Zarubezhgeologia organization. Their final report was
presented in 1991 and their calculations revealed a proven, probable and
possible reserve of 2.5 million tons with a probable average of 9.0 grams per
ton from four veins: Espinito, Tatiana, Buenos Aires and Jicaro.
Exploration Results
There is no record of past production on the La Mestiza concession; however, a
program by Russian scientists working with the Nicaraguan government agency,
INMINE, describes underground workings including exploration drifts and shallow
shafts. These may have been excavated by Noranda in the 1940's in conjunction
with their production facility six (6) kilometres to the south of La Mestiza.
The INMINE group sampled these underground workings, drilled 31 diamond drill
holes and dug surface trenches to explore five (5) of the veins on the property.
Based on the results of the INMINE work, the Company's consultant has estimated
proven reserves of 455,000 tonnes grading 9.23 gm/tonne, probable reserves of
1,449,000 tonnes of 8.21 gm/tonne and possible reserves of 2,600,500 tonnes of
10.90gm/tonne. This makes a total of 4,962,098 short tons averaging 0.29 ounces
per ton containing 1,440,000 ounces of gold. Since the Company commenced
exploration on the property, an additional seven veins have been identified with
sample results varying from 5 gm/tonne to 19.50 gm/tonne.
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The Company's consultant has assumed a mill throughput of a minimum of 500
tonnes per day and has estimated the mining and milling costs to be in the range
of US$170.00 to US$200.00 per ounce. The consultant's report states that the
Tatiana and Buenos Aires veins appear to be expanding in grade and thickness
with depth and if the expansion holds true for other veins, a larger mill
capacity will be warranted. The Company is driving a new adit to explore the
Buenos Aires Nos. 1 and 2 veins and the Jicaro vein. In addition, the Espinito
vein explored underground by the INMINE group, which established proven reserves
of 175,500 tonnes of 7.48 gm/tonne for a length of 800 metres on three levels,
is being opened up via an adit on one level. The Company intends to establish a
pilot plant to treat bulk samples from the veins and to establish the
metallurgical characteristics of the ore prior to installing a production plant.
Micon International Limited was retained by the Company to carry out a due
diligence examination of the property. Micon concluded that La Mestiza has
excellent potential for becoming a low cost (500-800 tpd) mine. Furthermore, the
report concluded that there was potential for the outlining of further gold
resources and discovery of new gold mineralization.
The Company has received a proposal from the Sheridan Platinum Group Ltd. to
establish a 50 ton/day mill on the La Mestiza gold property. Assuming the
economics of the project appear feasible for further expansion, Sheridan will
expand the facilities in stages to 500 tons/day.
CANADA
PEKAN RIVER AND SARAH LAKE, QUEBEC
Location and Access
The Pekan River Prospect covering 1800 hectares is located in Courchesne
Township, 50 kilometres south of the nearest town, Fermont, Quebec. The Sarah
Lake Project, 1600 hectares, is located in Desportes Township, 90 kilometres
southeast of Fermont. Both properties are accessible by float-equipped or
ski-equipped aircraft from Wabush, Labrador. There is limited road access along
the lines supplying hydroelectric power to the areas. Fermont has rail access to
the port of Port Cartier.
The Pekan River property was selected as one of the many untested gossans or
showings of copper-nickel-copper mineralization in the area to the east or the
south of the Labrador Trough. There are some similarities to the geology of the
recent copper-nickel discovery at Voisey's Bay, Labrador. Both occurrences are
in gneissic rocks of Archean age. Both occurrences have copper-nickel and cobalt
mineralization, with negligible platinum and gold. Pekan River and Voisey's Bay
sulfides both occur at the base of ultramafic rock, which are overlain by
lighter coloured rocks. The two deposits differ in the Pekan River deposit is
conformable with the overlying rock, while at Voisey's Bay, the nickel-bearing
rocks cut across both the underlying and overlying rock units.
Mining Rights and Titles
The Company currently holds an 80% interest in the subject claims.
By agreement dated July 21, 1995 as amended by letter agreements dated June 4,
1996, and July 31, 1996 between the Company and Beaver Syndicate ("Beaver"),
Suite 360, 4100 Yonge Street, Toronto, Ontario, M2P 2B5, the Company agreed to
purchase a majority interest in two Mineral Exploration Permits (the "Permits").
The first Permit, #1017, located in Courchesne Township, Quebec was designated
the Pekan River Prospect. By letter agreement dated June 4, 1996, Beaver
confirmed that they have staked another property, Permit #1106 located in
Desportes Township, Quebec and known as the Sarah Lake Project (formerly
referred to as Lac Edgar Project), and other than a fee of $5,000, no additional
consideration was paid by the Company to include the additional permit in the
July 21, 1995 agreement.
Pursuant to the July 21, 1995 agreement, as amended, the Company optioned a 51%
interest in the Permits. To acquire the 51% interest, the Company was required,
on or before May 30, 1996, to (i) pay to Beaver the sum of $9,200.00,
representing Beaver's out-of-pocket expenses in prospecting and rental fee
payments on the Permits (ii) deliver to
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Beaver $40,000.00 worth of the Company's common shares, and (iii) commit to
complete one year's assessment work on the Permits. These conditions were
fulfilled by the Company delivering 80,000 shares, and by doing so, the Company
secured an option to acquire a further 19% interest in the Permits. The Company
has been advised by Beaver that the #1017 exploration permit is valid until May
23, 2000 and is in good standing until May, 1998 at which time renewal fees must
be paid and suitable assessment work filed. Exploration permit 1106 is valid
until October 25, 2000, provided the Company pays annual renewal fees and files
assessment work within the time required. Renewal fees and assessment work were
delivered.
The option to acquire a further 19% interest, increasing the Company's interest
in the Permits to an aggregate of 70%, had to be exercised by the earlier of (i)
October 31, 1996, and (ii) 30 days from receipt of Montreal Exchange approval to
the issue and listing of the $60,000 worth of common shares in the capital of
the Company. To exercise the option, the Company was required to (i) deliver to
Beaver $60,000 worth of common shares in the capital of the Company; (ii)
complete the first year's annual rental payments; and (iii) commit to complete a
second year of assessment work on the properties. The shares were issued within
the time required. Exercise of this option provided an option for the Company to
acquire an additional 10% interest in the Permits.
To increase its interest by an additional 10%, bringing its aggregate position
in the Permits to 80%, the Company was required, on or before May 30, 1997, to
deliver to Beaver an additional $60,000 worth of common shares in the capital of
the Company. The shares were issued within the time required. Exercise of this
option provided an option for the Company to acquire an additional 10% interest
in the Permits.
To increase its aggregate position in the Permits to 90%, the Company would be
required, on or before May 30, 1998 to deliver to Beaver $60,000 worth of common
shares in the capital of the Company. This was not delivered and the Company
retains an 80% interest in both properties. Beaver retains a one and one-half
percent net smelter return on the property.
Regional History
Copper and nickel were discovered on the Pekan River Property in 1952, as part
of the exploration activity seeking the extension of the Wabush iron range. The
claims were acquired by a junior exploration company, whose geologists carried
out a detailed program of surface prospecting and trenching, a reconnaissance
magnetometer survey, and surface mapping.
This program indicated sulfide mineralization in a hill of ultramafic rock near
Pegma Lake overlain by unmineralized gabbro and gneiss, and traceable for 600
feet along strike. The lower contact of the ultramafic unit was not exposed. A
series of 27 packsack drill holes was completed in an attempt to sample the base
of the sill, considered to be favourable from the information from surface
prospecting. Because of the attitude of the sill, dipping fairly steeply into
the hill, only two of the 27 packsack holes succeeded in reaching their targets
since target depth exceeded the 25 metre capacity of the drill.
In 1988, another junior mining company acquired rights over the property and
carried out a reconnaissance sampling program over various sulfide occurrences
in the district. Only the Pegma Lake copper-nickel occurrences and a nearby zinc
occurrence showed any significant base metal values.
Regional Geology and Mineralization
The properties are included in the Grenville geological province of late
Precambrian (Hadrynian) age. The most recent metamorphic event occurred around
900 million years ago. The Grenville Geological Province is a major sequence of
highly metamorphosed rocks to the south and east of the Archean Keewatin Rocks,
predominantly the Abitibi Belt of Quebec and Ontario. The contact, which is
occasionally a fault between the Archean (2-3 to 3-5 million years) and the
Grenville rocks is called the Grenville Front.
In the Fermont-Wabush region the Grenville Front is a metamorphic boundary,
where the Early Proterozoic (1.5 million years) sediments are metamorphosed to
schists, gneisses, and recrystallized iron formation (taconite). In the
Grenville rocks of Quebec, ten nickel deposits have been identified, of which
two have been in production. All ten are located in sills, with sulfide
mineralization controlled by the mafic or ultramafic intrusives.
18
<PAGE>
Bedrock in the immediate vicinity of the Pegma Lake Deposit is the highly
metamorphosed equivalent of the sediments of the Ashuanipi formation consisting
of high grade schists and gneisses, crystalline dolomite and minor
recrystallized iron formation. These units are derived from the sandstones,
shales, carbonates and iron formations which are the source of production at
Schefferville, Labrador City, Wabush and Fermont.
The ultramafic sill at Pegma Lake is intruded along the contact at a
garnet-quartz biotite gneiss below and a more aluminous graphite-bearing biotite
gneiss above. Ultramafic rocks and the intruded gneisses dip moderately to the
east. To the east, in the Sarah Lake area, the pervasive rock types are gneissic
granite representing a higher degree of metamorphism and depth of burial.
In addition to the Pegma Lake and Sarah Lake ultramafic sills, Quebec M.E.R.
Report No. ET9101 describes the location of ten other ultramafic bodies
extending south from Pegma Lake. Sulfide mineralization including pyrrhotite,
pyrite, chalcopyrite and pentlandite attains proportions of up to 10% at the
Sarah Lake, Pegma Lake and Guillimin occurrences. The ultramafic massif at Sarah
Lake is impoverished in sulfides in its southern (upper) part. At Pegma Lake the
sulfides are richest in the lower portion. The lower contact at Sarah Lake is
not exposed. All of these deposits are classified as "orthomagmatic". The term
implies that the sulfides were precipitated at the same time as the
crystallization of the rock-forming minerals. Such deposits are marked by
disseminated "net-textured" sulfides in the upper part of the intrusive and
frequently contain more massive sulfides at the base.
Exploration Results
Pegma Lake Sulfide Deposit
At Pegma Lake, the ultramafic portion of the sill is up to 70 meters in true
thickness, with the western and northwestern sectors removed by erosion. The
geophysical survey over this area showed a strong magnetometer response from the
ultramafic sill, extending for 4,100 feet from a line 1,500 feet north to 2,600
feet south. The Company carried out a surface sampling program together with a
review of available geological data. This sampling confirmed widespread
mineralization at the base of an ultramafic sill. Based on this information,
Diadem carried out magnetometer and electromagnetic surveys of part of the Pekan
River property. In February, 1996 Diadem carried out a 3,000 metre diamond
drilling program. This program consisted of 24 drill holes, including eight
drill tests down dip from the original find. The other 16 holes tested various
electromagnetic conductors in other parts of the survey area. In July, 1996, the
Company announced that mobilization was underway to resume drilling of the
copper-nickel deposit at Pekan River. After drilling resumed in July, 1996, 47
additional holes were drilled, resulting in a total of 71 holes drilled to date.
The assays returned from the drill holes can be separated into two zones,
aggregating from 2.5 to 64 metres in thickness. The content of both copper and
nickel increase as the lower content of the sill is approached. From the
information generated, there appears to be an improvement in base metal grades
and thickness of mineralization to the south and east. The holes, together with
a coinciding magnetic anomaly, have confirmed a north-south strike length of at
least 860 metres of an ultramafic sill. The sill outcrops on the property and
continues with a flat dip for approximately 1.5 kilometres to the east. The
intercepts of the mineralization in the drill holes indicates that the deposit
increases in thickness to the south and the east, with a higher nickel content.
The deposit is open for extension in both directions. Overall, approximately 2
million tons of copper-nickel-cobalt mineralization were indicated by drilling
in 1996, which were calculated to contain 0.62% copper, 0.35% nickel and 0.03%
cobalt.
Geophysical surveys have indicated additional targets on the property. Further
drilling is required to bring this property to feasibility study stage. The
Company intends to joint venture the property to finance the next stage of
exploration and development.
The later drilling also outlined a zinc prospect, situated at three kilometres
north of the copper-nickel deposit. Mineralization was encountered in each of 13
drill holes put down to-date in the area roughly 250 metres by 100 metres in
size with values of 3% to 4% zinc over 2 to 10 metres in nine holes, and up to
9.4% zinc over 1 metre.
The zinc mineralization occurs within a series of marble units. The
mineralization has been traced on surface for 800 metres by drilling to a depth
of 250 metres. However a recent geochemical survey by Diadem indicated
mineralization may continue for 6 km north of the drilled area. A joint venture
partner is being sought to further develop this deposit.
19
<PAGE>
The Sarah Lake Peridotite
The Sarah Lake Permit, 1,600 hectares, is situated 7 km south-east of the Pekan
River permit, and was staked by the Beaver Syndicate on behalf of Diadem because
of an ultramafic sill similar to the one at Pekan River. Surface samples
analysed up to 2.15% copper, 0.3% nickel, 0.61 gm/tonne gold, 0.64 gm/tonne
platinum and 0.60gm/tonne palladium. Twelve short holes confirm an average metal
content of 0.35% copper, 0.03% nickel and 0.30gm/tonne of gold, equivalent over
an area of 1,000 metres by 400 metres. The most encouraging hole was No. 8,
which intersected 10.2 metres averaging 0.75% copper, 0.12% nickel and 0.35
gm/tonne of gold, platinum and palladium. The sill has not been explored at
depth and future work has been recommended to test the base of the sill where
the metal values are normally the highest in ultramafic sills. A joint venture
partner is being sought to further develop this deposit.
OTHER INTERESTS
During the fiscal year-end May 31, 1998 the Company abandoned its interests in
the Mercury permit, Quebec property and the Lac de Gras area property in the
Northwest Territories. The claims were allowed to lapse and the properties were
written off the balance sheet.
MINERAL RESOURCE EXPLORATION AND DEVELOPMENT IN INDONESIA
Geography
Indonesia is the world's largest archipelago, with over 13,000 islands covering
an area of over 5,000 kilometres, located along the equator. The land area of
Indonesia is approximately 1.2 million square kilometres. The five largest
islands are Sumatra, Java, Kalimantan (formerly Borneo), Sulawesi and Irian
Jaya. Kalimantan is in the central part of Indonesia, and is the third largest
island in the world. With over 4,400 volcanoes, including active, dormant and
extinct, Indonesia is the most volcanic country in the world. The population of
Indonesia is estimated at approximately 180 million people, making it the fourth
most populous country in the world.
Mining History in Indonesia
Indonesia was a Dutch colony from the turn of the 16th century until Japanese
occupation in World War II. The present-day mining industry started with Dutch
exploration and development in the mid-19th century. Following World War II,
when Indonesia declared itself independent, all mining activities were carried
out by government-owned companies. Foreign companies were not allowed in until
1967, when revisions to the mining laws were enacted.
Under the Indonesian Constitution of 1945, the Government of Indonesia has
sovereignty over all natural resources. The Mining Law and Foreign Investment
Law of 1967 allowed foreign companies into Indonesia to commence mining
activities in two ways, through a Contract of Work ("COW") or through a Kuasa
Pertambangan mining authorization ("KP").
KPs and COWs
KPs
A KP is the principal mining right that is available to Indonesian miners. In
fact, KPs can only be held by Indonesian citizens or Indonesian owned companies
or partnerships, the only way a foreign company can participate in a KP is
through a contract with the Indonesian owner. There are various levels of KPs,
and the appropriate KP depends on the stage of development of the area covered.
As work in an area progresses, a KP holder must apply for the next level of KP.
The first level KP is the "General Survey", which is valid for a period of one
year, with a one year extension available; The "Exploration" KP has a period of
three years, with a one year extension; The "Exploitation" and "Processing and
Refining" KPs are each valid for 30 years, with consecutive 10 year extension
available; "Transportation" and "Sales" are both for 10 year periods with five
year extensions available. As the level of KP progresses, the maximum area per
KP and per KP holder decreases. The Director General of General Mining (the
20
<PAGE>
"Director General") has the discretion to grant General Survey and exploration
KPs covering an area greater than the respective areas stated above, in
consideration of technical and economic factors.
The formal procedure is for the KP holder to obtain approval from the Minister
of Mines and Energy, through the Director General regarding co-operative
arrangements with a foreign investor, although practically, this requirement is
applied only where there is a proposed direct investment by the formation of a
PMA company (see below) for the purpose of entering into a Contract of Work
relating to the KP area. It should be noted that a KP holder has rights to carry
out activities specified by the KP, but does not have title to the land, which
remains with the State, or private owner, as the case may be.
An applicant for the General Survey KP or an Exploration KP must pay a
seriousness bond of US$5 per hectare. If the area of the KP exceeds the maximum
area allowed, the cost of the bond increases to US$10 per hectare.
COWs
The COW facility has been in use since 1967, when Freeport McMoran Copper & Gold
Inc. began development of the Grasberg/Erstberg copper-gold deposit in Irian
Jaya. This was a "first generation" COW, and the system has been progressively
refined, with each set of amendments being incorporated into successive
"generations" of COWs to reflect such things as changes in taxation, security
deposits, minimum expenditure requirements, changes in socio-economic benefits,
environmental concerns. The current COW applications (those submitted after
January, 1996) are for seventh generation agreements.
Foreign mining tenure in Indonesia can only be held through a COW. COWs are
agreements with the Indonesian government, pertaining to a particular project or
area of land, covering all aspects of a project, from exploration through
development and production. The maximum area for a COW is 250,000 hectares, but
there is discretion to grant a COW that covers a larger area. A COW is formally
granted by the President of Indonesia, after negotiation with the appropriate
government agency, depending on the type of minerals being sought. A COW will
only be granted over areas with pre-existing KPs if the owner of the KP consents
to its incorporation in the COW. This usually involves the KP owner becoming a
minority shareholder in the PMA company (see below) established to enter into
the COW.
A COW is held by an Indonesian domiciled company, known as a Penanaman Model
Asing company ("PMA"), which is a foreign investment company established to
enter into a COW and to undertake the exploration and mining activities on
behalf of participating interests. The COW applicants must form a PMA company to
enter into a COW, which is executed by the PMA and not the applicant, who is not
a party to the COW. The PMA is classified as a "Perseroan Terbates" ("PT"),
which is largely equivalent to a Canadian limited liability company. Most PMAs
involve direct equity investment by the foreign party in joint venture with a
minority Indonesian partner. Under first to fifth generation COWs, the maximum
foreign shareholding in a PMA was limited to 90% of the paid-up capital and the
foreign partner was obliged to provide the Indonesian partner with the
opportunity to increase its shareholding to more than 50% between the years 5 to
15 of the contract. Sixth and seventh generation COWs permit 100% foreign
ownership with no obligation to provide an Indonesian partner with increasing
partnership.
A PMA can only enter into one COW and, as a contractor to the Indonesian
government, is responsible in the contract area for exploration, mine
construction, mine production and marketing and sales of product. The PMA is
responsible for the management of the operation, is entitled to all profits
derived from the operation and also bears the risk associated with such
operation.
COWs are divided into five separate stages, which are listed below. Each stage
has a specific initial period, and each initial is usually eligible for
extension upon application by the PMA. The PMA must commence the general survey
period within six months of the execution of the COW. Further, the PMA is
obligated to relinquish a certain portion of the original area covered by the
COW at the conclusion of each stage.
21
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STAGE INITIAL PERIOD (+ EXTENSIONS YEARS) CUMULATIVE PERCENTAGE OF ORIGINAL
AREA TO BE RELINQUISHED %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Survey 1 (+1)(1) 25
- ------------------------------------------------------------------------------------------------------------------------------------
Exploration 2 (+1+1) 50, by the end of yr. 2
- ------------------------------------------------------------------------------------------------------------------------------------
Feasibility Study 2 (+1+1) 75, with remaining area not more
than 62,5000 hectares
- ------------------------------------------------------------------------------------------------------------------------------------
Construction Schedule to be approved by the Mining Area identified in
Ministry of Mines and Energy feasibility report to be approved
by the Minister.
- ------------------------------------------------------------------------------------------------------------------------------------
Operating 30 (2) ----
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Generally, any unexpired period relating to a SIPP may be added to the
general survey period
(2) Seventh generation draft COWs require the operating period to begin within
seven years of the beginning of the general survey period.
At the end of the contract, the PMA has the right to apply for an extension,
which may be on different terms. The government guarantees sole rights to access
to minerals in the COW area and is responsible for assisting with the
acquisition of land required for development, and will resettle affected
residents if required, with compensation paid by the PMA. The PMA is subject to
minimum expenditure requirements during the general survey and exploration
periods, and must complete approved budgets and pay rental fees on the area
under the COW throughout the term of the agreement. When a COW reaches the
production stage, a monthly royalty is payable to the Indonesian Government.
Obtaining a COW is a several step process. The first step is to file an
application with the Director General. A "seriousness" bond, which is refundable
within six months after receipt of the application, of US$5 per hectare of area
applied for must be deposited at the time of application. If the COW applied for
exceeds the maximum area prescribed above, the cost of the bond increases to
US$10 per hectare for the area in excess. If the ground is available and the
Director General has no objection, he will issue a document approving the COW
"in principle", which represents a preliminary title to the COW.
After an approval "in principal" has been granted by the Director General, the
applicant may apply for a SIPP, to begin preliminary survey activities pending
the processing of the application (see below). Also after the Director General
has given his approval "in principle", the Mines Department will give the
applicant a draft COW, and the parties negotiate the terms of it. When both
parties are satisfied, representatives from the applicant and the Mines
Department initial the draft COW.
The final step is the approval of the COW by the Indonesian Government,
particularly the Parliament, the Foreign Investment Coordinating Board and the
President. The Minister of Mines and Energy is then authorized by the President
to sign the COW on behalf of the Government of Indonesia.
There is currently a six to twelve month wait to have COW applications
processed. Companies are able to commence exploration activities during this
application period only by applying for a Preliminary Survey Permit ("SIPP") and
posting the seriousness bond required at the time the application for the COW is
lodged, which replaces the former performance bond of U.S. $100,000 per COW
application and U.S. $0.25 per hectare. No mining is permitted under a SIPP, but
the applicant may conduct geological, geochemical and geophysical investigations
in the area reserved for the COW.
The grant of a SIPP is not a guarantee that COW will be granted, but the Mines
Department will not issue other mining rights relating to areas covered by the
SIPP. A SIPP is valid for one year, but may be extended on application to the
Director General. The period of extension is included as part of the general
survey period under a subsequently granted COW. The SIPP holder must submit a
complete report of its activities under the SIPP following expiry of the SIPP.
Any expenditure incurred by the SIPP holder can be amortized and taken into
account when determining compliance with the minimum expenditure requirements of
any subsequently granted COW.
BELITUNG ISLAND, INDONESIA
22
<PAGE>
Location and Access
Belitung Island is located between Sumatra and Kalimantan, 400 kilometers north
of Jakarta. It is the most southerly of the 1,000 kilometer string of "Tin
Islands". The Kelapa Kampit Mining camp is located via paved road 60 kilometers
northeast of the capital city of Tannung Panda, and the airport there offers
daily air service to Jakarta. The Kelapa Kampit townsite is owned by PT Gunung
Ki-Kara Mining ("GKM") and includes 50 houses and offices, change houses,
laboratory. and guest house. The property is located 32 kilometers northwest of
the Port of Manggar, which is capable of handling 1,250 tonne cargos. There is a
reasonable road network and a reservoir that supplies process water and water
for domestic use. The climate is moderate and tropical, with an annual
precipitation of 250 cm.
Mining Rights and Titles
By agreement dated September 30, 1995 between the Company and GKM, the Company
and GKM agreed to form a joint venture to develop base metal deposits and tin
deposits on Belitung Island. The property which is the subject of the agreement
contains one of the most important known primary tin deposits in the southeast
Asian tin belt. Pursuant to this agreement, the Company acquired the rights to
earn a 90% interest in the property for an expenditure of $1,000,000 U.S. over
two years and payment of 100,000 common shares in the capital of the Company. By
agreement made with Bresea Resources Ltd. ("Bresea") on February 6, 1996, the
Company agreed to include Bresea in the joint venture and transfer to Bresea a
right to acquire a 60% working interest in the property, with the Company
retaining a right to acquire a 30% working interest in the property. Bresea was
required to pay the first $100,000 U.S. of exploration expenditures on the
property.
From the work conducted to-date, the joint venture has earned a 90% interest in
this zinc-lead-silver and tin property. The property was mined as a tin deposit
by Billiton Mining from 1905 until the war interrupted production in 1941. After
the COW system of permits was instituted by the government, BHP Minerals ("BHP")
acquired a second generation COW to mine tin in 1972. Its work led to the
identification of a zinc-lead-silver zone in three sedimentary beds parallel to
the tin bed. Although not explored for base metals, these beds were intersected
by drill holes and adits from surface. As a result of this exploration and a
subsequent geochemical survey, these beds were traced for a strike length of 7.5
kilometres. Tin mining ceased when the price of tin collapsed in the mid-1980's
and the C.O.W. reverted to the Indonesian partner, P.T. Gunung Ki-Kara Mining
("GKM").
Over US$2 million has been spent since mid 1996 by the joint venture partners. A
due diligence report by the Company's consultant summarized the results as
13,000,000 tonnes of indicated and inferred resources within a 1.5 kilometre
section of 7.5 kilometre indicated strike length averaging 8.5% zinc, 4.25% lead
and 2.00 ozs. silver per tonne.
Bresea was notified by the Indonesian government in May, 1997 that all mineral
exploration activities of Bre-X Minerals Ltd. and its affiliated companies had
been suspended. Bresea is an affiliated company of Bre-X, owning more than 20%
of its issued common shares. As a consequence, Bresea has advised the Company of
its intention to divest itself of its interests in the joint venture. The
Company is currently looking for a joint venture partner and the Company does
not intend to allocate any exploration funding for this project until a new
joint venture relationship is formed. The Company has reached an agreement with
the receiver for Bresea, Pricewaterhousecoopers to purchase Bresea's interest
for 600,000 common shares of Diadem, subject to Montreal Exchange approval. As
part of the agreement Bresea will provide U.S. $21,000 to carry part of the
maintenance costs of the property.
The Company also formed joint ventures with Bresea to obtain 7th Generation COWS
on two other properties on Belitung Island. Tikus is a tin plus lead-zinc and
copper prospect, while Lilangan is a gold prospect. The applications for the
COWs have not yet been approved by the Indonesian government. Bresea has agreed
to withdraw from these applications. The Company is currently looking for a
joint venture partner(s) on these projects as well and the Company does not
intend to allocate any exploration funding for these projects until new joint
venture relationships are formed for each.
INTERESTS IN WASECO RESOURCES INC.
23
<PAGE>
In September 1995, Diadem acquired an option to acquire up to 60% of the shares
of P.T. Ashton Mercu Buana Mining ("AMBM"), an Indonesian company with a 4th
generation COW covering the Tewah alluvial deposit in Kalimantan.
This deposit was drilled in the late 1980's by a joint venture between Ashton
Mining and AMBM. A resource of 450 million cu. metres of river and terrace
gravels containing 2.8 million ounces of gold was established. Ashton
subsequently withdrew.
The agreement between the Company and AMBM provided that the Company could earn
its 60% interest in the shares of AMBM by completing a bankable feasibility
study. An option of this interest was transferred to Waseco in exchange for up
to 7,000,000 common shares of Waseco, and completion of the feasibility study or
a minimum expenditure of U. S. $1,500,000 by Waseco.
Waseco began its work by completing due diligence drilling of the Kahayan River
with lines of holes drilled between the lines of the previous joint venture. The
feasibility study, conducted by alluvial consultants Alcon Ltd., Thailand, was
completed in October 1997 and approximately U.S.$1,500,000 was spent by Waseco.
The study has confirmed proven, probable and possible reserves of 150,893,000
cu. metres of gravel in the river and associated meanders averaging 0.154 gm/cu.
metre containing over 700,000 ounces of gold mineable by a dredge at an average
cost of U.S.$136 per ounce. With the recovery of zircon as a by-product this
cost is reduced to U.S. $93 per ounce.
It is recommended that initially a dredge capable of treating 3.6 million cu.
metres per year be installed to commence production immediately at a capital
cost of U.S.$8 million. Subsequently, in year two, a second dredge capable of 5
million cu. metres should be installed, thus producing 50,000 ounces of gold per
year from the two dredges. During year two a feasibility study is expected to be
completed on the terrace gravel deposit.
The initial agreement with Waseco also provided that the Company would assist
Waseco in acquiring mineral resource properties of merit in Indonesia on a right
of first refusal basis, with the exception of the Company's Belitung Island
interests. Two projects were subsequently acquired by Waseco in this fashion.
Both are hard rock gold prospects located on the Island of Java.
The Company has received 7,000,000 shares of Waseco. The Company has disposed of
1,000,000 of its Waseco shares in private and open market transactions with
third parties. The proceeds of sale were loaned to Waseco to finance payables
relating to the completion of the feasibility study and for working capital
urposes. Diadem paid a finders fee of 250,000 common shares to parties that
introduced Diadem to Waseco. Diadem currently holds 5,750,000 common shares,
representing approximately 38% of the issued shares of Waseco on a non-diluted
basis.
Under the initial agreement with Waseco, the Company was entitled to nominate
two individuals for membership on the Waseco Board. Mr. A.C.A. Howe became the
President and a director of Waseco on May 8, 1996 and on the same date, Mr.
Derek Bartlett, a director of the Company and Mr. Michael Bird became directors
of Waseco. Mr. Bird also became an officer of the Company on May 17, 1996. The
Waseco board of directors currently has five members, two of whom are directors
of the Company.
Item 3. Legal Proceedings.
The Company is not involved in nor is aware of any litigation or impending
litigation.
Item 4. Control of Registrant.
(a) Not applicable.
(b) The following table lists, as at December 10, 1998, the beneficial
share holdings in the Company of all persons or companies who are
known to the Company that beneficially own, directly or indirectly,
ten percent or more of the issued and outstanding common shares, and
the directors and officers of the Company as a group:
(2)
(1) Identity of Person (3) (4)
Title of Class or Group Amount owned Percent of class
- -------------- ------------------ ------------ ----------------
Common Shares Directors and Senior 1,539,641(1) 5.50%
Officers as a group
(eight persons)
24
<PAGE>
(1) Total does not include common shares issuable upon exercise of incentive
stock options granted by the Company.
(c) None.
Item 5. Nature of Trading Market.
The Company was listed on the Montreal Exchange on March 24, 1995. The closing
price range and trading volume of the Company's common shares on the Montreal
Exchange during the periods indicated are as follows:
<TABLE>
<CAPTION>
Closing Price
-------------
Period (Calendar Year) High Low Volume
- ---------------------- ----- ---- ----------
<S> <C> <C> <C>
March 24-31, 1995 $0.60 $0.40 347,800
2nd Quarter, 1995 0.71 0.47 2,020,074
3rd Quarter, 1995 1.81 0.42 6,076,227
4th Quarter, 1995 3.25 0.75 12,478,847
1st Quarter, 1996 2.90 1.15 11,614,502
2nd Quarter, 1996 8.25 2.75 17,634,839
3rd Quarter, 1996 8.60 5.15 9,562,263
4th Quarter, 1996 8.30 4.70 6,071,083
1st Quarter, 1997 5.85 2.85 8,299,445
2nd Quarter, 1997 3.15 1.00 8,590,404
3rd Quarter, 1997 1.45 0.90 2,879,179
4th Quarter, 1997 1.18 0.33 3,960,546
1st Quarter, 1998 0.90 0.38 2,122,746
2nd Quarter, 1998 0.70 0.32 1,552,353
3rd Quarter, 1998 0.70 0.12 2,896,485
October, 1998 0.35 0.20 743,091
November, 1998 0.50 0.20 1,659,007
December 1 - 10, 1998 0.35 0.21 576,477
</TABLE>
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the import/export of capital affecting the remittance of
interest, dividends or other payments to non-residential holders of the
Company's shares. Any such remittances to United States residents, however, are
subject to a 15% withholding tax pursuant to Article X of the reciprocal tax
treaty between Canada and the United States. See Item 7, "Taxation".
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations under the laws of Canada, the Province of Ontario or in the charter
or any other constituent documents of the Company on the right of foreigners to
hold and/or vote the shares of the Company.
The Act requires a non-Canadian making an investment to acquire control of a
Canadian business, the gross assets of which exceed certain defined threshold
Flevels, to file an application for review with Investment Canada, the federal
agency created by the Act.
As a result of the Canada-U.S. Free Trade Agreement, the Act was amended in
January 1989 to provide distinct threshold levels for Americans who acquire
control of a Canadian business.
25
<PAGE>
A Canadian business is defined in the Act as a business carried on in Canada
that has a place of business in Canada, an individual or individuals in Canada
who are employed or self-employed in connection with the business, and assets in
Canada used in carrying on the business.
An American, as defined in the Act, includes: an individual who is an American
national or a lawful permanent resident of the United States; a government or
government agency of the United States; an American-controlled entity,
corporation or limited partnership or trust which is not controlled in fact
through ownership of its voting interests of which two-thirds of its board of
directors, general partners or trustees, as the case may be, are any combination
of Canadians or Americans.
The following investments by a non-Canadian are subject to review by Investment
Canada:
(a) all direct acquisitions of control of Canadian businesses with
assets of $5 million or more;
(b) all indirect acquisitions of control of Canadian businesses with
assets of $50 million or more if such assets represent less than 50%
of the value of the assets of the entities, the control of which is
being acquired; and
(c) all indirect acquisitions of control of Canadian businesses with
assets of $5 million or more if such assets represent more than 50% of
the value of the assets of the entities, the control of which is being
acquired.
Review by Investment Canada is required when investments by Americans exceed
$150 million for direct acquisitions of control. For the purposes of the Act,
direct acquisition of control means:
a purchase of the voting interest on a corporation, partnership, joint
venture or trust carrying on a Canadian business, or any purchase of
all or substantially all of the assets used in carrying on a Canadian
business; and
indirect acquisition of control means:
a purchase of the voting interest of a corporation, partnership, joint
venture or trust, whether a Canadian or foreign entity, which controls
a corporation, partnership, joint venture or trust carrying on a
Canadian business in Canada.
The acquisition of certain Canadian businesses is excluded from the higher
thresholds set out for Americans. These excluded businesses include oil, gas,
uranium, financial services (except insurance); transportation services and
cultural services (i.e. the publication, distribution or sale of books,
magazines, periodicals (other than printing or typesetting businesses), music in
print or machine readable form, radio, television, cable and satellite services;
the publication, distribution, sale or exhibitions of film or video recordings
or audio or video music recordings).
Direct or indirect acquisitions of control of these excluded businesses are
reviewable at the $5 and $50 million thresholds.
A non-Canadian shall not implement an investment reviewable under the Act unless
the investment has been reviewed and the Minister responsible for Investment
Canada is satisfied or is deemed to be satisfied that the investment is likely
to be of net benefit to Canada. If the Minister is not satisfied that the
investment is likely to be a net benefit to Canada, the non-Canadian shall not
implement the investment or, if the investment has been implemented, shall
divest himself of control of the business that is the subject of the investment.
A non-Canadian or American making the following investments:
(i) an investment to establish a new Canadian business; and
(ii) an investment to acquire control of a Canadian business which
investment is not subject to review under the Act
26
<PAGE>
must notify Investment Canada, within prescribed time limits, of such
investments.
Item 7. Taxation.
Management of the Company considers that the following discussion respecting
taxation fairly describes the principal and material Canadian federal income tax
consequences applicable to shareholders of the Company who are residents of the
United States and are not residents of Canada and do not hold, and are deemed
not to hold, shares of the Company in connection with carrying on a business in
Canada (a "non-resident").
Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, Article X of the reciprocal tax treaty between Canada and the United
States reduced to 15% the withholdings tax on the gross amount of dividends paid
to residents of the United States. A further 9 % reduction in 1996, and a 10%
reduction in 1997 and thereafter in the withholding tax rates on the gross
amount of dividends is applicable when a U.S. corporation owns at least 10% of
the voting stock of the Canadian corporation paying the dividends.
A non-resident who holds shares of the Company as capital property will not
subject to tax on capital gains realized on the disposition of such shares
unless such shares are "taxable Canadian property" within the meaning of the
Income Tax Act (Canada), and no relief is afforded under any applicable tax
treaty. The shares of the Company would be taxable Canadian property of a
non-resident if, at any time during the five year period immediately preceding a
disposition by the non-resident of such shares (a) not less than 25% of the
issued shares of any class of the Company belonged to the non-resident, (b) the
person with whom the non-resident deal did not deal at arm's length, or (c) the
non-resident and any person with whom the non-resident did not deal at arm's
length.
Certain United States Federal Income Tax Consequences
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulation, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
This discussion does not consider the potential effects, both adverse and
beneficial, of any recently proposed legislation that, if enacted, could be
applied, possibly on a retroactive basis, at any time. The following discussion
is for general information only and it is not intended to be, nor should it be
construed to be, legal or tax advice to any holder or prospective holder of
shares of the Company and no opinion or representation with respect to the
United States Federal income tax consequences to any such holder or prospective
holder is made. Accordingly, holders and prospective holders of shares of the
Company should consult their own tax advisors about the Federal, state, local
and foreign tax consequences of purchasing, owning and disposing of shares of
the Company.
U.S. Holders
As used herein, a "U.S. Holder" includes a holder of shares of the Company 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, any entity that is taxable as a corporation for U.S. tax
purposes and any other person or entity whose ownership of shares of the Company
is effectively connected with the conduct of a trade or business in the United
States. A U.S. Holder does not include persons subject to special provisions of
Federal income tax law; such as tax exempt organizations, qualified retirement
plans, financial institutions, insurance companies, real estate investment
trusts, regulated investment companies, broker-dealers, nonresident alien
individuals or foreign corporations whose ownership of shares of the Company is
not effectively connected with conduct of trade or business in the United
States, shareholders who acquired their stock through the exercise of employee
stock options or otherwise as compensation and shareholders who holds their
stock as ordinary assets and not as capital assets.
Distributions on Shares of the Company
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to shares of the Company are required to include in gross income
for United States Federal income tax purposes the gross amount of such
distributions to the extent that he Company has current or accumulated earnings
and profits as defined under U.S.
27
<PAGE>
Federal tax law, 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 Sates Federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital upon to the U.S. Holder's
adjusted basis in the shares and thereafter as gain from the sale or exchange of
the shares. Preferential tax rates for net capital gains are applicable to a
U.S. Holder that is an individual, estate or trust. There are currently no
preferential tax rates for long term capital gains for a U.S. Holder that is a
corporation.
Dividends paid on the shares of the Company will not generally be eligible for
the dividends received deduction provided to corporations receiving dividends
from certain United States corporations. A U.S. Holder that is a corporation
may, under certain circumstances, be entitled to a 70% deduction of the United
States source portion of dividends received from the Company (unless the Company
qualifies as a "foreign personal holding company" or a "passive foreign
investment company", as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Company. The
availability of this deduction is subject to several complex limitations that
are beyond the scope of this discussion.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of shares of the Company may be entitled, at the
option of the U.S. Holder, to ether a deduction or a tax credit for such foreign
tax paid or withheld. Generally, it will be more advantageous to claim a credit
because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year. There
are significant and complex limitations that 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 Federal 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 the foreign tax
credit and the application of the limitations on the credit are fact specific
and holders and prospective holders of shares of the Company should consult
their own tax advisors regarding their individual circumstances.
Disposition of Shares of the Company
A U.S. Holder will recognize a gain or loss upon the sale of shares of the
Company equal to the difference, if any, between (I) the amount of cash plus the
fair market value of any property received, and (ii) the shareholder's tax basis
in the shares of the Company. This gain or loss will be a 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 upon the holding period
of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders which are individuals, any unused portion of such
net capital loss may be carried over to be used in later tax years until such
net capital loss is thereby exhausted. For U.S. Holders which are corporations
(other than corporations subject to Subchapter S of the Code), an unused net
capital loss may be carried back three years from the loss year and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted.
Item 8. Selected Financial Data.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical information concerning
the Company presented in accordance with CDN GAAP and is qualified by reference
to the consolidated financial statements and notes thereto. See "Financial
Statements."
28
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
As at May 31, As at May 31, As at May 31, As at May 31, As at May 31,
1998 or the Year 1997 or the Year 1996 or the Year 1995 or the Year 1994 or the Year
then Ended then Ended then Ended then Ended then Ended
- ------------------------------------------------------------------------------------------------------------------------------------
[Canadian Dollars and Share Numbers in Thousands except per share amounts]
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working Capital $ (886) $ 1,706 $ 2,616 $ 1,249 $ 60
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Term Deposits 86 1,647 2,863 1,264 34
- ------------------------------------------------------------------------------------------------------------------------------------
Mineral Properties 13,877 12,053 3,172 507 82
- ------------------------------------------------------------------------------------------------------------------------------------
Share Capital 17,992 17,142 8,001 3,563 1,227
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit (5,086) (3,257) (1,810) (1,755) (1,193)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loss for the Year (1,828) (800) (42) (160) (114)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income 117 188 55 16 --
- ------------------------------------------------------------------------------------------------------------------------------------
Administrative Expenses 1,175 785 270 122 101
- ------------------------------------------------------------------------------------------------------------------------------------
Property Write Downs 879 238 35 58 23
- ------------------------------------------------------------------------------------------------------------------------------------
Gain on Marketable Securities
and Investments 113 8 208 4 9
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loss per Share $ (0.07) $ (0.03) $ (0.01) $ (0.03) $ (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding 25,888 23,844 21,916 12,400 4,654
- ------------------------------------------------------------------------------------------------------------------------------------
Fully Diluted Shares Outstanding 31,367 26,389 23,391 21,022 4,894
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 15,466 14,702 6,423 1,927 194
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth selected historical information concerning
the Company presented in accordance with U.S. GAAP and is qualified by reference
to the consolidated financial statements and notes thereto. See "Financial
Statements".
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
As at May 31, As at May 31, As at May 31, As at May 31, As at May 31,
1998 or the Year 1997 or the Year 1996 or the Year 1995 or the Year 1994 or the Year
then Ended then Ended then Ended then Ended then Ended
- ------------------------------------------------------------------------------------------------------------------------------------
[Canadian Dollars and Share Numbers in Thousands except per share amounts]
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working Capital $ (870) $ 1,103 $ 8,075 $ 1,249 $ (60)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Term Deposits 86 1,647 8.11 1,264 34
- ------------------------------------------------------------------------------------------------------------------------------------
Mineral Properties 13,877 12,053 3,172 507 82
- ------------------------------------------------------------------------------------------------------------------------------------
Share Capital 16,859 16,010 12,654 3,090 1,157
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit (2,984) (1,156) (356) (314) (154)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loss for the Year 1,828 (800) (42) (160) (114)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income 373 188 54 13 --
- ------------------------------------------------------------------------------------------------------------------------------------
Administrative Expenses 1,175 785 270 122 101
- ------------------------------------------------------------------------------------------------------------------------------------
Property Write Downs 879 238 35 58 23
- ------------------------------------------------------------------------------------------------------------------------------------
Gain on Marketable Securities
and Investments 113 8 208 4 9
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loss per Share $ (0.07) $ (0.03) $ (0.01) $ (0.02) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding 25,888 23,844 22,916 12,400 4,654
- ------------------------------------------------------------------------------------------------------------------------------------
Fully Diluted Shares Outstanding 31,267 26,389 24,941 21,022 4,894
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 15,494 14,745 11,876 1,942 199
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Exchange Rates
The following table sets out the exchange rates, based on the noon buying
rates in New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York, for the conversion
of Canadian dollars into United States dollars in effect at the end of the
following periods, and the average exchange rates (based on the average of the
exchange rates on the last day of each month in such periods) and the range of
high and low exchange rates for such periods.
Year Ended May 31
- --------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
End of Period .6868 .7247 .7297 .7300 .7223
- --------------------------------------------------------------------------------
Average for Period .7066 .7326 .7345 .7255 .7482
- --------------------------------------------------------------------------------
High for Period .7305 .7513 .7527 .7457 .7865
- --------------------------------------------------------------------------------
Low for Period .6832 .7151 .7224 .7023 .7166
- --------------------------------------------------------------------------------
On May 29, 1998, the noon rate of exchange, as reported by the Federal Reserve
Bank of New York for the conversion of United States dollars into Canadian
dollars was $0.6863 (US$1.00 = CDN$1.4571). As of December 4, 1998 the noon rate
of exchange, as reported by the Federal Reserve Bank of New York for the
conversion of United States dollars into Canadian dollars was $0.6515 (US$1.00 =
CDN$1.5350)
Item 9. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
MANAGEMENT DISCUSSION OF RESULTS
This discussion and analysis of the operating results and the financial position
of the Company should be read in conjunction with the financial statements and
the notes thereto forming a part of this Annual Report.
OPERATING RESULTS
The Company has incurred operating losses during the four-year period ending May
31, 1998 as there have been no sources of operating revenue during this period.
Income during the current year has been derived from interest on bank deposits
and notes receivable, and on the sale of marketable securities that totalled
$116,713 and $112,673 respectively.
Operating expenses during the current year were approximately $2,054,000.
Included in operating expenses are costs associated with four properties that
are written off with the termination of mining interests. These included the
Mercury Permit and the Crystal Valley Region in Quebec, the Lac de Gras property
in the Northwest Territories and some of the properties in Indonesia, which
totalled a write-off of $879,296.
The net loss for the current year was approximately $1,828,000 or $0.07 per
share.
LIQUIDITY AND CAPITAL RESOURCES
During the year the Company completed the sale of three separate debentures by
way of private placement offerings.
The first sale consisted of a two-year $1.0 million unsecured debenture and
750,000 warrants. The debenture is convertible into common shares of the Company
at any time in whole or in part at a conversion price of $1.33 per share.
Interest on the debenture at an annual rate of 9.75% is payable quarterly in
cash, or at the Company's option in common shares. The warrants will entitle the
holder to purchase an aggregate of 750,000 common shares of the Company at a
price of $1.33 per share until July 17, 1999. The purchase price for the
debenture was satisfied by the payment of $700,000 in cash and a promissory note
for $300,000 due January 17, 1999. The broker is entitled to receive a
30
<PAGE>
commission of $100,000 and a broker's warrant entitling the broker to purchase
25,000 common shares of the Company at an exercise price of $1.33 per share
until July 17, 1999. The interest payments to May 31, 1998, were satisfied by
the issuance of 81,890 common shares.
The second sale consisted of a three-year $500,000 unsecured debenture, and a
right to acquire common share purchase warrants upon conversion. The debenture
is convertible at the option of the holder into common shares of the Company at
any time on or after November 26, 1997, in whole or in part at a conversion
price equal to the ten-day average trading price of the common shares traded on
The Montreal Exchange at the time the conversion rights are exercised. Interest
on the debenture at an annual rate of 8% is payable semi-annually in cash, or at
the Company's option, in common shares. The warrants will entitle the holder to
purchase common shares of the Company at a price of $1.07 per share, in a
quantity to be determined in conjunction with the determination of the
conversion price, as described above, until August 29, 1999. The broker received
a commission of $50,000 and a broker's warrant entitling the broker to purchase
12,500 common shares of the Company at an exercise price of $1.07 per share
until August 29, 1999.
The third sale on March 24, 1998 for $500,000 was a two-year debenture with
semi-annual interest at 9.75%. Convertible at $0.5252 for 952,018 shares plus
952,018 warrants exercisable at $0.5252 to March 24, 2000.
Prior to year-end $600,000 of the debentures were retracted and exchanged for a
total of 1,520,467 shares. Subsequent to year-end a further $350,000 were
retracted for 1,190,031 shares.
In addition, the Company issued $190,000 of shares for the acquisition of mining
properties.
At the end of the fiscal year the Company had cash of approximately $86,000.
Subsequent to year-end the Company received on September 25, 1998, $150,000 for
a promissory note due from one debenture holder.
The Company has incurred expenses exceeding the cash reserves. The total of
current liabilities as at May 31, 1998, is approximately $1,159,000. Of this
amount, approximately $32,000 is owed to directors (past and present) or
associated companies, and $200,000 has been designated to be paid by proceeds of
a private placement of 434,783 shares. Silverstone Prospecting Syndicate is owed
$61,000. The legal and audit expenses amount to approximately $70,000.
The Company accrued liabilities of $350,000 in anticipation of a settlement of
the claim of the former operator at Belitung, Indonesia. A settlement has been
reached whereby the Company will pay 1,050,000 common shares in settlement of
the liability with an additional 600,000 common shares to be issued to purchase
Bresea's interests in the properties.
A private placement is presently being negotiated to provide additional working
capital.
The Company has reserved the $150,000 received September 24, 1998, to cover the
costs of the annual meeting including mailing costs, legal and audit costs,
transfer agent charges, etc. totalling an estimated $75,000 and to ensure
sufficient funds are available for six months of normal operating expenses
excluding salaries. The past and present directors and officers have not
received fees and expenses since year-end May 31, 1998. In order to compensate
the present directors and officers for their continuing efforts on behalf of the
Company 400,000 options have been allocated exercisable at $0.25.
As at May 31, 1998, the Company had approximately $15,466,000 in assets of which
the majority, approximately $13,877,000 relates to mining properties. The
Company has marketable securities in the amount of $125,544 which had a market
value of $153,103 as at the year-end. The Company's total investment in mining
properties as at May 31, 1998 consists of approximately $4,998,000 in
acquisition costs and approximately $8,879,000 in deferred exploration costs.
The Company holds an investment of $80,000 in mining syndicates that are
pursuing the exploration of properties in Quebec, California and Nicaragua.
During the current year the Company received income of approximately $29,000
from these investments.
The Company also holds 5,750,000 common shares of Waseco Resources Inc.
("Waseco"). This represents approximately 38% of the outstanding shares of the
publicly traded Waseco. Waseco has earned a 60% interest in the
31
<PAGE>
Tewah alluvial gold property in Indonesia by completing a positive final
feasibility study. It also owns an interest in other gold properties in
Indonesia. The Company received a total of 7,000,000 shares of Waseco, paid
250,000 as commission and sold 1,000,000 shares through the open market.
Diadem is considering the sale of its remaining Waseco shares as an additional
means of providing capital to address the Company's working capital deficiency.
The Company has total shareholders' equity of approximately $12,907,000. It will
continue to fund its exploration activities with cash raised subsequent to
year-end. In addition, joint venture partners are being sought for the
properties to continue exploration and development at the partner's cost and by
reducing the Company's interest. A joint venture proposal has been received to
develop the Nicaragua gold project with the installation of a gold mill.
EXPLORATION
During the fiscal year ended May 31, 1998, a total of approximately $2,352,000
was spent on exploration costs as compared with $5,376,000 in the previous year.
Of this total approximately $1,258,000 was spent in Nicaragua, and approximately
$780,000 in California. The balance was spent in maintaining but not exploring
the other properties.
Item 10. Directors and Officers of Registrant.
Directors and Executive Officers
<TABLE>
<CAPTION>
Principal
Name Title Occupation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wilson Barbour* Director Financial Consultant; President of Beta Fund
Limited; Director of Lyndex Explorations Ltd.
Derek Bartlett* Director Independent Geologist and President, Blue Emerald
Resources Inc. and Braddick Resources Ltd.
Michael Bird Vice President, Asian Independent Geologist, Vice President of Waseco
Development Resources Inc., Vice President of the Company
Paul Heney Assistant Secretary Lawyer, Heney & Associates
Henry ("Harry") Hodge Director Geologist, Professional Engineer; President and
Director of Moss Resources Inc. and Greenshield
Resources Inc.; Director of Xernac Resources Inc.,
Storimin Resources Limited
A.C.A. Howe Chairman, President and Mining Engineer and Consultant, President of the
Director Company, President of Ateba Mines Inc. and
President of Waseco Resources Inc.
Lina Noble Secretary/Treasurer Administrative Manager of the Company and
General Manager of Ateba Mines Inc.
George Silverman* Director Prospector and Mining Executive; Consultant to La
Fosse Platinum Inc. and Hollinger North Shore
Mining Co., General Manager, Silverstone
Prospecting Syndicate and Archon Prospecting
Syndicate.
</TABLE>
* Member - Audit Committee
32
<PAGE>
Item 11. Compensation of Directors and Officers.
(a) For the fiscal year ended May 31, 1998, the aggregate amount of
compensation paid by the Company and its subsidiaries to all officers and
directors as a group was CDN.$154,075.00. This figure excludes
CDN$226,234.78 paid to a law firm of which the assistant secretary is a
member for legal services rendered during the period.
(b) None.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries.
Diadem has a stock option plan (the "Plan") which was approved by shareholders
of the Company on April 9, 1992, and subsequently amended by the board of
directors with the consent of the share holders under which options to purchase
common shares in the capital of the Company may be granted by the board of
directors to directors, officers and employees of the Company. The purpose of
the Plan is to advance the interests of the Company by affording such persons
the opportunity of acquiring equity interests in the Company. Options granted
under the Plan will have an exercise price of not less than the market price of
the common shares of the Company at the time of the grant or such other price
determined in accordance with applicable regulation and will be exercisable over
a number of years specified at the time of the grant, which term will not exceed
five years from the date of grant. The aggregate number of common shares in the
capital of the Company available for issuance under the Plan has been fixed at
5,500,000 and while this number may be increased with the approval of the
shareholders, the aggregate number of common shares of the Company that may be
reserved for issuance under the Plan shall not in the aggregate exceed ten
percent of the number of common shares of the Company that are issued and
outstanding from time to time on a non-diluted basis. In addition, the number of
common shares of the Company reserved for issuance to any one person pursuant to
options must not exceed five percent of the issued common shares of the Company,
on a fully diluted basis and no one person shall hold options entitling such
person on the exercise of such options to more than 50% of the maximum number of
common shares of the Company that may be reserved under the Plan for issuance
from time to time. Option agreements entered into in conjunction with options
granted under the Plan terminate 30 days following the termination of the
optionee's employment or six months following the death of the optionee but in
no event will exceed five years from the date of grant. Options granted under
the Plan are not transferable.
Options Granted in Last Fiscal Year
The following table sets forth information concerning grants of stock options
pursuant to the rules and policies of the Montreal Exchange during the financial
year ended May 31, 1998 to the Named Executive Officers of the Company:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Market Value of
Securities
% of Total Underlying
Securities Under Options/SARS Options/SARS
Name and Principal Options/SARS Granted to Employees Exercise or Base on the Date of
Position Granted (#) in Fiscal Year Price ($/Security) Grant Expiration Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A.C.A. Howe (1) 50,000/NIL(2) 1.68%/NIL 50,000 @$1.40 $1.40/NIL July 16, 2002
President, 100,000/NIL(2) 3.36%/NIL 100,000 @$0.50 $0.50/NIL November 26, 2003
Chairman
and Chief
Executive
Officer
Daniel T. Farrell 300,000/Nil(2) 10.08%/Nil 300,000 @$0.40 $0.40/Nil December 17, 2002(3)
(1)
Former President
and CEO
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Howe served as President, Chairman and CEO from June 1, 1989 to
December 31, 1997 and from September 15, 1998 to the present time. Mr.
Farrell served as President and CEO from January 1 to September 15, 1998
(2) These options were granted pursuant to the company's share option plan.
(3) These options were canceled subsequent to year-end.
Aggregated Option Exercises
The following table sets forth details of all exercises of stock options during
the financial year ended May 31, 1998 by the Named Executive Officers, and the
fiscal year end values of unexercised options on an aggregated basis:
33
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================================
Unexercised Value of Unexercised in the
Options Money Options at May 31,
Aggregate At May 31,1998 1998
Name and Principal Securities Acquired Value (Exercisable/ (Excercisable/
Position on Exercise Realized Unexercisable) Unexercisable)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A.C.A. Howe NIL NIL 265,000/NIL NIL/NIL(1)
President and Chief Executive
Officer
NIL NIL 300,000/NIL NIL/NIL
Daniel T. Farrell, President and
Chief Executive Officer
============================================================================================================================
</TABLE>
(1) Value of unexercised in the money options calculated using the closing price
of common shares of the Company ($0.35) on the Montreal Exchange on May 29,
1998, less the exercise price of the in the money stock options (NIL). Total
Amount of Options Outstanding
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Number of Options Outstanding
(Held by Directors and Exercise Price
Date of Grant Expiry Date Officers)(1) (CDN$/Security)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 5, 1995 June 5, 2000 440,000 $0.62
(440,000)
- ---------------------------------------------------------------------------------------------------------
November 28, 1995 November 28, 2000 25,000 $1.27
(Nil)
- ---------------------------------------------------------------------------------------------------------
January 26, 1996 January 26, 2001 200,000 $1.86
(Nil)
- ---------------------------------------------------------------------------------------------------------
June 7, 1996 June 7, 2001 65,000 $5.50
(50,000)
- ---------------------------------------------------------------------------------------------------------
July 16, 1997 July 16, 2002 300,000 $1.40
(300,000)
- ---------------------------------------------------------------------------------------------------------
September 25, 1997 September 25, 2002 100,000 $1.00
(Nil)
- ---------------------------------------------------------------------------------------------------------
November 26, 1997 November 26, 1997 500,000 $0.50
(400,000)
- ---------------------------------------------------------------------------------------------------------
June 26, 1998 June 25, 2003 75,000 $0.38
(75,000)
- ---------------------------------------------------------------------------------------------------------
September 29, 1998 September 28, 2003 400,000 $0.25
(400,000)
- ---------------------------------------------------------------------------------------------------------
October 14, 1998 October 13, 2003 200,000 $0.24
(200,000)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes options held by A.C.A. Howe indicated in table above.
Item 13. Interest of Management in Certain Transactions.
From time to time, the Company may engage either A.C.A. Howe International Ltd.,
a U.K.-based geological consulting company, or A.C.A. Howe International
Limited, a Canadian-based geological consulting company, to provide professional
services on a contract basis and the Company will pay only reasonable,
arms-length commercial rates for such services. Mr. Howe serves as a director
and President of A. C. A. Howe International Ltd. and as Chairman of A. C. A.
Howe International Limited, but he is not actively involved in their business
operations. He owns a 15% voting interest in A.C.A. Howe International Ltd. and
a 49% voting interest in A.C.A. Howe International Limited. During the year
ended May 31, 1998, A.C.A. Howe International Limited invoiced $1,256 in
aggregate fees for geological consulting services rendered during the period. No
payments were made to A.C.A. Howe International Ltd. Mr. Howe also earned
compensation indirectly in the form of professional consulting fees relating to
exploration and investor relations activities during the year ended May 31,
1998, totaling $43,950. Some of these expenditures were allocated to the mineral
resource properties for which the services were rendered. Mr. Howe may receive
similar consulting fees in the future at reasonable commercial rates.
During the year ended May 31, 1998, Mr. Silverman earned compensation directly
in the form of professional consulting fees totaling $27,000.
Messrs. Howe and Bartlett each received options to purchase 100,000 common
shares of Waseco in May, 1996, and will, in appropriate circumstances, declare
and refrain from voting on, any matter in which they may have a conflict of
34
<PAGE>
interest. Any decisions made by Messrs. Howe and Bartlett involving the Company
will be made in accordance with their fiduciary duties and obligations to deal
fairly and in good faith with the Company and Waseco.
Subsequent to year end, the Corporation issued 200,000 common shares to
Silverstone Prospecting Syndicate ("Silverstone") as part of the conditions to
increase its interest in the Leek Springs Project from 40% to 55%. The
Corporation owns a total of four of a total of 50 units of Silverstone. Mr.
George Silverman, a Director of the Corporation, owns four units of Silverstone,
representing eight percent of the total number of issued units. Mr. Silverman
also serves as the Manager of Silverstone. Ateba Mines Inc. ("Ateba") owns four
units or eight percent of Silverstone. Messrs. Howe and Silverman serve as
directors of Ateba. Mr. Howe also serves as President of Ateba, while Mrs. Noble
serves as Ateba's general manager. The Silverstone syndicate agreement provides
that no mining properties may be acquired or disposed of by Silverstone without
the prior consent of the holders of two-thirds of Silverstone units. Ateba, the
Corporation and Mr. George Silverman, each of which owns an eight percent
interest in Silverstone, abstain from voting as Silverstone unitholders in
matters relating to transactions with the Corporation, and Mr. Silverman
abstains from voting as a Director of the Corporation on matters affecting
Silverstone.
During the year, the Corporation issued 400,000 common shares to Archon
Prospecting Syndicate ("Archon") with respect to the Nicaragua gold property.
The Corporation owns four of a total of 50 units of Archon. Mr. George
Silverman, a Director of the Corporation, owns four units of Archon,
representing eight percent of the total number of issued units. Mr. Silverman
also serves as the Manager of Archon. Ateba Mines In. ("Ateba") owns two units
or four percent of Archon. Messrs. Howe and Silverman serve as directors of
Ateba. Mr. Howe also serves as President of Ateba, while Mrs. Noble serves as
Ateba's general manager. The Archon Syndicate agreement provides that no mining
properties may be acquired or disposed of by Archon without the prior consent of
the holders of two-thirds of Archon units. Ateba, the Corporation and Mr. George
Silverman, abstain from voting as Archon unitholders in matters relating to
transactions with the Corporation, and Mr. Silverman abstains from voting as a
Director of the Corporation on matters affecting Archon.
PART II
Item 14. Description of Securities to be Registered.
Capital Stock To Be Registered
The Company wishes to register common shares in the capital of the Company. The
shares carry a voting right on the basis of one vote per common share. The
common shares carry no dividend rights, liquidation rights or conversion rights,
there are no sinking fund provisions. The shares are not liable to further calls
or to assessment by the Company.
On September 20, 1996, the board of directors of the Company authorized and
approved the adoption of a Shareholder Rights Plan, which was confirmed by the
shareholders of the Company, on October 30, 1996. The Rights Plan entitles each
holder of common shares to one right for each voting share held at the close of
business on September 20, 1996. The rights become exercisable only when a person
or persons announce their intention to acquire 20% or more of the Company
without complying with the "Permitted Bid" provisions of the Plan or without the
approval of the board of directors of the Company. Upon exercise, the rights
entitle the holder to purchase additional common shares of the Company at a
price which is equal to one-half of the prevailing market value of the common
shares.
PART III
Item 15. Defaults Upon Senior Securities.
Not Applicable.
Item 16. Changes in Securities and Changes in Security for Registered
Securities.
Not Applicable.
35
<PAGE>
PART IV
Item 17. Financial Statements.
See Item 19 below for Financial Statements filed as part of this
Application.
Item 18. Financial Statements.
Not Applicable.
Item 19. Financial Statements and Exhibits.
(a) The following documents are filed as Attachment A hereto and are
included as part of this Application on Form 20-F.
DIADEM RESOURCES LTD. CONSOLIDATED FINANCIAL STATEMENTS
Description of Document Page
Consent of Independent Auditors
Auditors Report
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Changes in Financial Position
Notes to Consolidated Financial Statements
(b) The following exhibits are filed as Attachment B hereto
and are included as part of this Application on Form 20-F.
Exhibit
Number Description of Document Page
3.1 By-Law No. 1, dated June 1, 1989 (1)
3.2 Articles of Amalgamation, dated June 1, 1989 (1)
3.3 Articles of Amendment dated April 20, 1993 (1)
3.4 Articles of Amendment dated September 23, 1994 (1)
4.1 Shareholder Rights Plan, adopted by the Board of
Directors on September 20, 1996 and ratified by the
shareholders on October 30, 1996 (1)
4.2 Warrant Indenture between Montreal Trust Company of Canada
and the Company, dated September 10, 1996. (1)
4.3 Stock Option Plan, as amended, dated October 30, 1996 (1)
Notes:
(1) Previously filed with Form 20-F filed March 31, 1997
36
<PAGE>
DIADEM RESOURCES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
<PAGE>
DIADEM RESOURCES LTD.
MAY 31, 1998
CONTENTS
Auditors' report 1
Consolidated balance sheet 2
Consolidated statement of income and deficit 3
Consolidated statement of changes in financial position 4
Consolidated statement of accumulated losses as
development stage company 5
Consolidated statement of accumulated cash flow as
development stage company 6
Notes to consolidated financial statements 7 to 29
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Diadem Resources Ltd.:
We have audited the consolidated balance sheets of Diadem Resources Ltd. as at
May 31, 1997 and May 31, 1998 and the consolidated statements of income and
deficit and changes in financial position for each of the years in the three
year period ended May 31, 1998. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at May 31, 1997 and
May 31, 1998 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended May 31, 1998 in
accordance with generally accepted accounting principles in Canada.
Toronto, Canada Green Chencinski Starkman Eles
October 15, 1998 Chartered Accountants
Comments by Auditor on Canada-United States Reporting Difference
United States reporting standards for auditors require the addition of an
explanatory paragraph when the financial statements are affected by conditions
and events that cast substantial doubt on the company's ability to continue as a
going concern, such as those described in note 1 to the financial statements.
Although we conducted our audit in accordance with both Canadian generally
accepted auditing standards and United States Standards on Auditing, our report
to the shareholders dated October 15, 1998 is expressed in accordance with
Canadian reporting standards which do not permit a reference to such conditions
and events in the auditor's report when these are adequately disclosed in the
financial statements.
Toronto, Canada Green Chencinski Starkman Eles
(November 25, 1998 as to note 15) Chartered Accountants
1
<PAGE>
<TABLE>
<CAPTION>
DIADEM RESOURCES LTD.
CONSOLIDATED BALANCE SHEET
AS AT MAY 31, (IN CANADIAN DOLLARS) 1998 1997
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and term deposits 85,652 1,647,468
Marketable securities (note 3) 125,544 135,601
Prepaid expenses and sundry receivables 61,783 109,413
---------- ----------
272,979 1,892,482
INTEREST IN MINING PROPERTIES (note 4) 13,876,739 12,053,053
INVESTMENT IN MINING SYNDICATES AND MINING COMPANIES (note 5) 80,000 217,978
LOANS RECEIVABLE (note 6) 400,680 165,396
NOTES RECEIVABLE (note 7) 450,000 --
FIXED ASSETS (note 8) 385,689 372,975
15,466,087 14,701,884
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued charges (notes 13 and 14) 1,159,423 816,776
CONVERTIBLE DEBENTURES PAYABLE (note 9) 1,400,000 --
2,559,423 816,776
COMMITMENTS AND CONTINGENCIES (note 13)
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 11) 17,992,310 17,142,589
DEFICIT (5,085,646) (3,257,481)
12,906,664 13,885,108
15,466,087 14,701,884
On behalf of the Board:
A.C.A. Howe, Director
G.C. Silverman, Director
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DIADEM RESOURCES LTD.
CONSOLIDATED STATEMENT OF INCOME AND DEFICIT
YEAR ENDED MAY 31, (IN CANADIAN DOLLARS) 1998 1997 1996
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXPENSES
Amortization 5,789 7,317 2,669
Business development 44,830 42,966 28,110
Capital taxes 55,097 49,928 --
Costs associated with issuing convertible debentures (note 11) 236,160 -- --
Expiration of mining interests (note 4a) 879,296 237,652 35,382
Forfeiture of deposit on mill 70,953 -- --
General 32,448 21,269 10,405
Insurance 50,477 18,726 6,215
Interest on convertible debentures 111,518 -- --
Legal, audit and accounting fees 196,466 218,014 57,482
Office expenses 47,509 54,245 30,346
Salaries, management and benefits 175,226 80,467 57,880
Search for new properties -- -- 1,479
Shareholder relations 119,069 274,904 62,496
Travel 29,086 16,975 12,451
---------- ---------- ----------
2,053,924 1,022,463 304,915
---------- ---------- ----------
INCOME
Interest 116,713 188,126 54,626
Gain on marketable securities and investments 112,673 7,762 208,107
Foreign exchange gain (loss) (3,627) 27,015 --
225,759 222,903 262,733
NET LOSS (1,828,165) (799,560) (42,182)
DEFICIT, BEGINNING OF YEAR (3,257,481) (1,810,011) (1,755,169)
---------- ---------- ----------
(5,085,646) (2,609,571) (1,797,351)
Costs associated with issuance of shares (note 11) -- (647,910) (12,660)
DEFICIT, END OF YEAR (5,085,646) (3,257,481) (1,810,011)
NET LOSS PER COMMON SHARE (.07) (.03) (.01)
========== ========== ==========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIADEM RESOURCES LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED MAY 31, (IN CANADIAN DOLLARS) 1998 1997 1996
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net loss (1,828,165) (799,560) (42,182)
Items not affecting cash
Amortization 5,789 7,317 2,669
Expiration of mining interests 879,296 237,652 35,382
Gain on marketable securities and investments (112,673) (7,762) (208,107)
(1,055,753) (562,353) (212,238)
Net change in non-cash working capital balances
related to operations 390,277 604,270 19,606
(665,476) 41,917 (192,632)
FINANCING ACTIVITIES
Costs associated with issuance of shares (note 11) -- (645,410) (12,660)
Issuance of common shares (note 11) 849,721 9,141,200 4,438,590
Issuance of convertible debentures (note 9) 1,400,000 -- --
Notes receivable (450,000) -- --
1,799,721 8,495,790 4,425,930
INVESTING ACTIVITIES
Acquisition of interest in mining properties (2,608,150) (9,097,960) (2,700,521)
Acquisition of fixed assets (113,335) (377,715) (16,812)
Acquisition of marketable securities (9,923) (86,709) --
Investment in mining syndicates and mining companies -- (40,000) (137,978)
Loans receivable (235,284) (165,396) --
Proceeds from marketable securities and investments 270,631 14,360 220,751
(2,696,061) (9,753,420) (2,634,560)
Change in cash and term deposits (1,561,816) (1,215,713) 1,598,738
CASH AND TERM DEPOSITS, BEGINNING OF YEAR 1,647,468 2,863,181 1,264,443
---------- ---------- ----------
CASH AND TERM DEPOSITS, END OF YEAR 85,652 1,647,468 2,863,181
========== ========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DIADEM RESOURCES LTD.
CONSOLIDATED STATEMENT OF ACCUMULATED LOSSES AS DEVELOPMENT STAGE COMPANY
PREPARED UNDER UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (see Note 15)
FOR THE PERIOD FROM JUNE 1, 1992 TO MAY 31, 1998
(IN CANADIAN DOLLARS)
$
- ------------------------------------------------------------------------------------
<S> <C>
EXPENSES
Advertising and promotion 1,349
Amortization 25,240
Business development 123,130
Capital taxes 105,025
Costs associated with issuing convertible debentures 236,160
Expiration of mining interests 1,232,150
Forfeiture of mill deposit 70,953
General 72,379
Insurance 93,545
Interest on convertible debentures 111,518
Legal, audit and accounting fees 508,705
Office expense 164,065
Salaries and benefits 399,706
Search for new properties 9,088
Shareholder relations 492,858
Travel 78,325
3,724,196
INCOME
Consulting and other income 29,588
Interest 373,460
Gain on securities and investments 337,093
---------
740,141
---------
ACCUMULATED LOSSES DURING DEVELOPMENT STAGE 2,984,055
=========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
DIADEM RESOURCES LTD.
CONSOLIDATED STATEMENT OF ACCUMULATED CASH FLOW AS DEVELOPMENT STAGE COMPANY
PREPARED UNDER UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (see Note 15)
FOR THE PERIOD FROM JUNE 1, 1992 TO MAY 31, 1998
(IN CANADIAN DOLLARS)
$
- ---------------------------------------------------------------------------------------
<S> <C>
CASH PROVIDED BY (USED FOR):
Net accumulated losses (2,984,055)
Items not affecting cash
Amortization 25,240
Expiration of mining interests 1,232,150
Gain on marketable securities and investments (337,093)
(2,063,758)
Decrease in accounts receivable 1,761
Increase in prepaid expenses and sundry receivables (56,843)
Increase in accounts payable and accrued charges 1,142,275
-----------
(976,565)
-----------
FINANCING ACTIVITIES
Costs associated with issuance of shares (1,133,064)
Decrease in advances from shareholder (1,435)
Issuance of common shares 12,364,650
Issuance of convertible debentures 1,400,000
Notes receivable (450,000)
12,180,151
INVESTING ACTIVITIES
Acquisition of interest in mining properties (10,367,111)
Acquisition of fixed assets (512,433)
Acquisition of marketable securities (210,724)
Investment in mining syndicates and mining companies (217,978)
Loan receivable advance (400,680)
Proceeds on gain on marketable securities and investments 584,199
(11,124,727)
Change in cash and term deposits 78,859
CASH AND TERM DEPOSITS, BEGINNING OF PERIOD 6,793
-----------
CASH AND TERM DEPOSITS, END OF PERIOD 85,652
===========
</TABLE>
6
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
1. BASIS OF PRESENTATION
The company has a significant working capital deficiency and is required to
continue to fund expenditures on its various properties in order to
maintain its interest in these properties. These financial statements have
been prepared on a going concern basis which assumes continuity of
operations and realization and settlement of liabilities in the normal
course of business. Different bases of measurement may be appropriate if
the going concern assumption does not prevail.
Furthermore, the company, directly and through joint ventures, is in the
process of exploring its mineral properties and has not yet determined
whether these properties contain ore reserves that are economically
recoverable. The recoverability of amounts shown for mineral properties and
related deferred costs is dependent upon the discovery of economically
recoverable reserves, confirmation of the company's interest in the
underlying mineral claims, the ability of the company to obtain necessary
financing to complete the development, and future profitable production or
proceeds from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the
corporation and its subsidiaries and a proportionate share of the
accounts of joint ventures in which Diadem Resources Ltd. and its
subsidiaries have an interest.
Fixed assets and amortization
Fixed assets are recorded at cost and are amortized over their
estimated useful lives using the declining balance method at the
following annual rates:
Furniture and fixtures 20%
Computer and office equipment 30%
Exploration and mining equipment 20%
Vehicles 30%
Foreign currency translation
Monetary and non-monetary items carried at market are translated at
the rate of exchange in effect at the balance sheet date. All other
non-monetary items are translated at historical rates. Revenue and
expense items are translated at the average rate of exchange for the
year.
Marketable securities
Marketable securities are carried at the lower of cost and quoted
market value.
Investment in mining syndicates and mining companies
Investment in mining syndicates and a private mining company are
carried at cost.
Investment in Waseco Resources Inc. is accounted for on the equity
basis of accounting.
7
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest in mining properties
The company's interest in mining properties is carried at cost on a
property by property basis. Costs include capitalized expenditures for
acquisition, geological surveys, exploration and development. When
shares of the company are issued from treasury as consideration for
the acquisition of mining properties, the market value of the shares
is considered a cost of acquisition. Costs for each property are
written off to the statement of income if future recovery is
determined to be unlikely.
Property costs are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of these assets may
not be recoverable. This review includes, but is not limited to, the
following:
a) determining that the value of the recoverable, marketable
resources does not justify continuance;
b) determining if there is a significant adverse change in
legal factors or in the business climate that could affect
the property's value, or an adverse action or assessment by
a government unit or regulation; and
c) evaluating prospects for success. Inasmuch as the
advancements of mining efforts, based on a predetermined
timetable, are a clearer prediction than anticipated cash
flows, progress towards that success is the basis for
determining impairment. The use of cash flows would be
utilized to determine impairment at a much later stage in
the established mining property's life cycle.
All capitalized costs for each property will be amortized as depletion
to the statement of income when commercial production commences. The
units-of-depletion method will be applied based upon proven and
probable reserves. Possible reserves will be excluded.
3. MARKETABLE SECURITIES
1998 1997
$ $
Marketable securities 125,544 135,601
The estimated market value of the marketable securities is $153,103
(May 31, 1997 - $178,601).
Included in marketable securities are 100,000 shares of Noront
Resources Limited which are carried at $14,000. The current market
value as at May 31, 1998 is $25,000. These shares were received from
Noront Resources Limited pursuant to an agreement whereby the company
optioned a portion of its interest in certain mining claims. Since
these mining claims have been terminated, the company may have to
return the shares to Noront Resources Limited. Included in accounts
payable is $14,000 which is equivalent to the carrying value of the
shares.
8
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
4. INTEREST IN MINING PROPERTIES
Interest in mining properties is comprised of the following:
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Acquisition costs
Fletcher Lake, Northwest Territories (note 4a) -- 10,355
Rancheria, California (note 4b) 652,733 652,733
Leek Springs, California (note 4c) 2,788,711 2,788,711
Crystal Valley Region, Quebec (note 4a) -- 72,500
Pekan River and Sarah Lake, Quebec (note 4d) 179,400 179,400
Mercury Permit, Quebec (note 4a) -- 216,300
Nicaragua (note 4e) 1,124,238 773,238
Belitung Island and Kalimantan Island, Indonesia (notes 4a and 4f) 253,000 253,000
4,998,082 4,946,237
Deferred exploration costs
Fletcher Lake, Northwest Territories -- 84,627
Rancheria, California 690,308 690,308
Leek Springs, California 3,261,754 2,481,928
Crystal Valley Region, Quebec -- 168,616
Pekan River and Sarah Lake, Quebec 1,786,798 1,742,761
Mercury Permit, Quebec -- 46,943
Nicaragua 1,968,099 710,288
Belitung Island and Kalimantan Island, Indonesia 1,171,698 1,137,888
Tewah, Indonesia (note 4g) -- 43,457
---------- ----------
8,878,657 7,106,816
---------- ----------
13,876,739 12,053,053
========== ==========
</TABLE>
(a) Expiration of mining interests
During the year ended May 31, 1996, the mining rights to the property in
The Republic of Namibia were not renewed. Accordingly, the total
accumulated deferred exploration in the amount of $35,382 was written off.
During the year ended May 31, 1997, the company relinquished its interest
in the Dihourse property with accumulated acquisition costs and deferred
exploration and development costs totalling $119,285, written off to the
income statement. An additional $118,367 in accumulated acquisition costs
and deferred exploration and development costs related to the Kalimantan
Island properties in Indonesia were written off during the year.
During the current year, the company relinquished its interests in the
Fletcher Lake, Crystal Valley and Mercury Permit properties in Canada and
the Kalimantan properties in Indonesia. Accordingly, accumulated
acquisition costs of $299,155 and deferred exploration and development
costs totalling $580,141 associated with these properties were written off
to the income statement.
9
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
4. INTEREST IN MINING PROPERTIES (Continued)
(b) Rancheria, California
The company has obtained an option to acquire up to a 60% interest in
mining claims in the Rancheria area of Amador County in California. This
option was granted by Silverstone Prospecting Syndicate which will continue
to hold the remaining unearned interest in the property. Silverstone
Prospecting Syndicate has registered 13 claims.
During the year ended May 31, 1995, the company acquired a 15% interest in
these claims by paying the sum of U.S. $50,000 to Silverstone Prospecting
Syndicate and issuing to Silverstone Prospecting Syndicate 150,000 common
shares of the company, valued at $0.30 per share.
During the year ended May 31, 1996, the company increased its interest in
the property to 30% by paying the sum of U.S. $50,000 to Silverstone
Prospecting Syndicate, issuing to Silverstone Prospecting Syndicate 150,000
common shares valued at $0.60 per share and spending a cumulative amount of
approximately $690,000 on the property.
The company also issued to Silverstone Prospecting Syndicate an additional
150,000 common shares valued at $2.48 per share during the prior year as a
step to increasing its interest to 45%. In order to complete the
acquisition of 45% in the property, the company must complete the following
by February 28, 1999:
1) pay an additional U.S. $100,000 to Silverstone Prospecting Syndicate,
and
2) completed U.S. $1,000,000 in cumulative expenditures on the property.
In order to increase its interest to 60%, the company will be required to
complete U.S. $2,000,000 in cumulative expenditures on the property by
February 28, 1999.
The agreement also provides that if Silverstone Prospecting Syndicate is
successful in acquiring additional claims in the subject area, these claims
will also be included in the agreement. The company will be entitled to
earn a 60% interest in each additional claim without payment of additional
consideration except for the reimbursement of the actual costs of acquiring
these additional claims.
(c) Leek Springs, California
The company has obtained an option to acquire up to a 55% interest in 125
unpatented mining claims covering approximately 2,500 acres in the Leek
Springs area of Eldorado County in California. This option was also granted
by Silverstone Prospecting Syndicate which will continue to hold the
remaining unearned interest in the property.
During the year ended May 31, 1996, the company earned a 10% interest in
the property by paying the sum of U.S. $50,000 to Silverstone Prospecting
Syndicate and issuing to Silverstone Prospecting Syndicate 150,000 common
shares valued at $1.24 per share.
10
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
4. INTEREST IN MINING PROPERTIES (Continued)
During the prior year, the company earned an additional 30% interest,
thereby increasing its interest to 40% by paying the sum of U.S. $200,000,
issuing 200,000 common shares valued at $6.45 per share, issuing 200,000
additional common shares valued at $4.85 per share, and by completing U.S.
$500,000 of cumulative exploration expenditures.
As at May 31, 1998, the company had completed approximately $3,262,000 in
cumulative exploration expenditures.
To earn the final 15% interest in the property, thereby increasing its
interest to 55%, the company must complete the following:
1) pay an additional U.S. $100,000 to Silverstone Prospecting Syndicate
by August 2, 1999;
2) issue 200,000 additional common shares to Silverstone Prospecting
Syndicate during the month of October 1998;
3) complete U.S. $4,000,000 of cumulative exploration expenditures by
August 2, 1999;
4) complete U.S. $5,000,000 of cumulative exploration expenditures by
August 2, 2000.
(d) Pekan River and Sarah Lake, Quebec
The company entered into an option agreement which enables it to purchase a
90% mining interest in 1,600 hectares of property in Quebec known as the
Pekan River Prospect. This option was granted by Beaver Syndicate which
will continue to hold the remaining unearned interest in the property. A
further agreement was reached with Beaver Syndicate to also acquire an
interest in an additional property in Quebec known as the Sarah Lake
Project. This second property is included in the earlier agreement for no
additional consideration other than a fee of $5,200. The original Pekan
River permit holder will retain a 1.5% net smelter return on production.
During the year ended May 31, 1996, the company earned a 51% interest in
the properties by paying the sum of $9,200 to Beaver Syndicate and issuing
to Beaver Syndicate 80,000 common shares valued at $0.50 per share.
During the prior year, the company earned an additional 29% interest,
thereby increasing its interest to 80%, by issuing a total of 55,587 common
shares valued at a total of $120,000, by completing the year's assessment
work and by paying the annual renewal fees.
The company relinquished its right to earn the final 10% interest during
the current year; therefore, its interest in the property is now fixed at
80%.
11
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
4. INTEREST IN MINING PROPERTIES (Continued)
The company has been advised that the Pekan River permit is valid until May
23, 2000 and is in good standing until May 23, 1999, at which time renewal
fees must be paid and suitable assessment work filed. The Sarah Lake permit
is valid until October 25, 2000 and remains in good standing until October
25, 1998, at which time renewal fees are payable and assessment work is
due.
(e) Nicaragua
The company has entered into an option agreement which enables it to
acquire a 68.25% mining interest in a 200 hectare property in Nicaragua,
known as "La Mestiza". This option was granted by Archon Prospecting
Syndicate which would hold a 1.75% interest if the company earns a 68.25%
interest in the property. The remaining 30% will be held by a Nicaraguan
joint venturer. The agreement requires the following cash payments and
common shares to be issued from treasury to Archon Prospecting Syndicate by
the noted dates:
Payment Shares
Cash to be
Date US $ Issued
January 9, 1997 50,000 100,000
June 3, 1997 -- 100,000
November 25, 1997 -- 200,000
April 24, 1998 -- 200,000
June 25, 1999 175,000 --
September 6, 1999 125,000 200,000
350,000 800,000
The company will earn a 13.16% mining interest in the property as it
completes each of five distinct exploration phases. At the completion of
the fifth phase, the company will have earned a 65.8% mining interest in
the property. The company made a payment during the prior year of U.S.
$110,000 to reimburse the co-venturer for prior expenditures. A further
payment of U.S. $110,000 was required prior to December 20, 1997. This
requirement was met during the current year by offsetting U.S. $110,000
against the loan receivable due from the co-venturer (see note 6). In
addition, the company is required to fund all exploration and development
expenditures leading to the commencement of commercial production.
12
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
4. INTEREST IN MINING PROPERTIES (Continued)
The company can increase its interest from 65.8% to 68.25% by paying the
sum of U.S. $200,000 within two years after the date of commencement of
commercial production.
During the prior year, the company made the initial payment of U.S.
$50,000, issued 100,000 common shares at a market value of $4.20 per share
and issued 100,000 common shares at a market value of $1.34 per share.
During the current year, the company issued 200,000 common shares at a
market value of $0.49 per share and 200,000 common shares at a market value
of $0.46 per share. In addition, the company made a U.S. $5,000 payment
against the amount due in June 1999.
(f) Belitung Island
The company has entered into an agreement to acquire a mining interest in
this property in Indonesia on Belitung Island. The company has a 30%
interest in this property. Effective May 8, 1997, the company assumed the
responsibility as the operator for exploration activities on the property.
(g) Tewah, Indonesia
The company entered into an agreement to participate with an Indonesian
mining company for the exploration and development of gold property in the
Kahayan River Valley in Indonesia. The agreement allows the company to
acquire a 60% interest for an expenditure of the greater of U.S. $1,500,000
or the cost of completing a full feasibility study on the property.
The company then entered into an agreement with Waseco Resources Inc.
whereby Waseco Resources Inc. could earn the company's interest in the
property by spending the U.S. $1,500,000 on the property and issuing
treasury shares to the company. The acquisition was accomplished by Waseco
Resources Inc. issuing to the company a cumulative 7,000,000 common shares
from treasury of which 5,750,000 are held by the company as at May 31,
1998. As at May 31, 1998, Waseco Resources Inc. had spent in excess of U.S.
$1,500,000 of expenditures on the property and had earned a 60% interest in
the property.
The balance as at May 31, 1997 relates to expenditures on the property
which to date had not been reimbursed by Waseco Resources Inc.
13
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
5. INVESTMENT IN MINING SYNDICATES AND MINING COMPANIES
1998 1997
$ $
Investment in mining syndicates 80,000 80,000
Investment in private mining company -- 137,978
80,000 217,978
Investment in mining syndicates consists of 4.0 units (1997 - 4.0 units) in
Silverstone Prospecting Syndicate with a cost of $20,000 (1997 - $20,000);
2.0 units (1997 - 2.0) in Beaver Syndicate with a cost of $20,000 (1997 -
$20,000); 2.0 units (1997 - 2.0) in Crystal Valley Prospecting Syndicate
with a cost of $20,000; and 4.0 units (1997 - 4.0) in Archon Prospecting
Syndicate with a cost of $20,000. Silverstone Prospecting Syndicate is
currently exploring properties in the United States, Beaver Syndicate and
Crystal Valley Prospecting Syndicate are exploring properties in Northern
Labrador and Quebec while Archon Prospecting Syndicate is exploring
properties in Central America. As at May 31, 1998, the company holds 8% of
the outstanding units in each of these syndicates. The company has acquired
mining rights from certain of these mining syndicates as outlined in note
4.
The shares in the private mining company were sold during the current year
for cash proceeds of $224,548 resulting in a gain on disposal of $86,570.
In addition, the company holds 5,750,000 common shares of Waseco Resources
Inc. This represents approximately 37% of the outstanding shares. These
shares were acquired pursuant to the transfer of the mining option rights
in the Tewah, Walang, Tikukur, and Seruyan properties in Indonesia to
Waseco Resources Inc. (see note 4(g)). No value has been attached to these
shares for accounting purposes as the company had not incurred any costs in
obtaining these option rights which were transferred in exchange for the
shares.
6. LOANS RECEIVABLE 1998 1997
$ $
La Mestiza loan (a) 186,030 165,396
Belitung Island loan (b) 214,650 --
Waseco loan (c) -- --
400,680 165,396
(a) La Mestiza loan
The loan receivable bears interest at 2.5% per month, is unsecured and is
due from the Nicaraguan co-venturer in the La Mestiza project (see note
4(e)). The total amounts advanced are U.S. $240,000 including U.S. $120,000
advanced during the current year. During the current year, a payment of
U.S. $110,000 was required to be made by the company to reimburse the
co-venturer for prior expenditures on the property. (see note 4(e)). The
company has taken the position that this payment can be offset against the
loan receivable reducing the net receivable to U.S. $130,000.
14
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
(b) Belitung Island loan
The loan receivable is non-interest bearing and due on August 8, 1999
from the Indonesian co-venturer in the Belitung Island project. The loan
is secured by the hypothecation of 75,000 common shares of Diadem
Resources Ltd. which are owned by the debtor.
(c) Waseco loan
During the current year, the company advanced Waseco Resources Inc.
("Waseco") approximately $220,000 in funds which were the net proceeds from
the sale by the company of common shares of Waseco. The loan receivable is
evidenced by a note receivable which bears interest at prime plus 4% and is
secured by one-third of the interest that Waseco holds in the Tewah
property in Indonesia (see note 4(g)). The funds were used by Waseco to
complete the feasibility study on the Tewah property.
The current collectibility of the loan receivable is in question based on
the working capital deficiency of Waseco. Accordingly, the loan receivable
of approximately $220,000 has been written off for accounting purposes with
the loss offsetting the gain realized on the sale of the shares which were
carried on the books of the company for a nominal value. No interest has
been accrued on the loan for accounting purposes.
7. NOTES RECEIVABLE
The company has two notes receivable totalling $450,000, bearing 9.75%
interest per annum associated with the issuance of convertible debentures
described in note 9. The first note in the amount of $300,000 is due on
January 17, 1999 while the second note in the amount of $150,000 was
retired by the receipt of cash subsequent to the year end.
8. FIXED ASSETS
<TABLE>
<CAPTION>
Accumulated 1998 1997
Cost Amortization Net Net
$ $ $ $
<S> <C> <C> <C> <C>
Furniture and fixtures 31,199 27,240 3,959 4,949
Computer and office equipment 44,520 16,901 27,619 19,166
Exploration and mining equipment 324,499 55,808 268,691 226,832
Vehicles 143,562 58,142 85,420 122,028
543,780 158,091 385,689 372,975
</TABLE>
15
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
9. CONVERTIBLE DEBENTURES PAYABLE
1998 1997
$ $
9.75% unsecured convertible debenture,
interest payable quarterly (a) 900,000 --
9.75% unsecured convertible debenture,
interest payable semi-annually (b) 500,000 --
--------- ------
1,400,000 --
========= ======
(a) 9.75% unsecured convertible debenture, interest payable quarterly
During the current year, the company completed the sale of a two year $1.0
million unsecured debenture which was satisfied by the payment of $700,000
in cash and a promissory note for $300,000 which bears interest at 9.75%
and is due on July 17, 1999. The debenture is convertible into common
shares at the option of the holder of $1.33 per share or retractable at the
option of the holder at a price based upon 95% of the market price over the
previous twenty day trading period. Interest on the debenture at an annual
rate of 9.75%, is payable quarterly in cash or at the company's option, in
common shares. The debenture holder was also issued warrants to purchase an
aggregate of 750,000 common shares of the company at an exercise price of
$1.33 per share until July 17, 1999. The broker earned a commission of
$100,000 and a broker's warrant entitling the broker to purchase 25,000
common shares of the company at an exercise price of $1.33 per share until
July 17, 1999.
During the current year, a total of $100,000 in debentures was converted
into 197,955 common shares. Subsequent to the year end, a further $350,000
in debentures were converted into 1,190,031 common shares.
During the current year, the company issued 81,890 common shares in
satisfaction of the net interest expense on these notes after netting the
interest earned on the notes receivable referred to in note 7. Through
October 15, 1998, a further 79,296 common shares were issued in
satisfaction of net interest totalling $22,999.
(b) 9.75% unsecured convertible debentures, interest payable semi-annually
During the current year, the company completed the sale of a two year
$500,000 unsecured debenture which was satisfied by the payment of $350,000
in cash and a promissory note for $150,000 which bears interest at 9.75%
per annum and is due on March 24, 2000. The debenture is convertible into
common shares at the option of the holder at a price of $0.5252 per share
or retractable at the option of the holder at a price equal to the market
price over the previous ten day trading period payable in cash or shares at
the option of the company. Interest on the debentures at an annual rate of
9.75% is payable semi-annually in cash or at the company's option, in
common shares. The debenture holder was also issued warrants to purchase an
aggregate of 952,018 common shares of the company at an exercise price of
$0.5252 per share until March 24, 2000. The broker earned a commission of
$50,000 and a broker's warrant entitling the broker to purchase 12,500
common shares of the company at an exercise price of $0.60 per share until
March 24, 2000. Subsequent to the year end, 25,053 common shares were
issued in satisfaction of net interest totalling $9,256.
16
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
10. RELATED PARTY INFORMATION
During the current year, the company incurred fees totalling $1,256 (1997 -
$7,893, 1996 - $73,141), related to exploration work charged by a company
in which a director holds a 49% interest. A balance of $4,119 (1997 -
$1,730) related to these fees is included in accounts payable. The company
leases registered head office space from the same company at a cost of $400
per month. In addition, a company which is wholly owned by a director,
charged $43,950 (1997 - $48,150, 1996 - $56,640) in consulting fees related
to exploration and investor relations activities. The company paid $27,000
(1997 - $24,000, 1996 - $17,000) in fees to a director for exploration
activities.
These transactions are in the normal course of operations and are measured
at the exchange amount which is the amount of consideration established and
agreed to by the related parties.
11. CAPITAL STOCK
(a) Authorized capital
Authorized capital stock of the company consists of an unlimited
number of special shares, redeemable and retractable at paid-up value
and an unlimited number of common shares.
(b) Issued and outstanding shares
Details of issued and outstanding common shares are as follows:
<TABLE>
<CAPTION>
1998 1997
Shares $ Shares $
<S> <C> <C> <C> <C>
Balance, beginning of year 23,843,551 17,142,589 21,916,256 8,001,389
Issued pursuant to:
Public offering -- -- 1,000,000 5,750,000
Shares issued upon retraction of
convertible debentures 1,520,467 600,000 -- --
Shares issued related to the
purchase of mining properties 400,000 190,000 742,295 3,244,000
Exercise of share options -- -- 185,000 147,200
Shares issued as payment of interest
on convertible debentures 123,568 59,721 -- --
---------- ---------- ---------- ----------
25,887,586 17,992,310 23,843,551 17,142,589
========== ========== ========== ==========
</TABLE>
The weighted average number of shares during the current year was
approximately 24,573,000 (1997 - 22,934,000, 1996 - 15,083,000).
17
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
11. CAPITAL STOCK (Continued)
(c) Public Offering
During the prior year, the company completed a public offering for the
issuance of 1,000,000 Special Warrants at a price of $5.75 per Special
Warrant. Each Special Warrant entitled the holder to be issued one
common share and one-half of a common share warrant at a price of
$6.75 per share. These warrants have expired without any being
exercised.
The total gross proceeds of $5,750,000 are included in share capital.
The total costs of $647,910 associated with the offering have been
charged to retained earnings. The broker handling the sale of the
offering was issued a Brokers Warrant which entitled it to purchase
50,000 common shares at an exercise price of $6.75 per share. These
warrants have expired without being exercised.
(d) Convertible Debentures
During the current year, the company completed the sale of three
convertible debentures of which two are outstanding as at the year end
date and are described in note 9. The third debenture in the amount of
$500,000 was converted during the current year into 1,322,512 common
shares under the terms and conditions of the agreement. In addition,
the debenture holder was granted warrants to purchase an additional
1,322,512 common shares at an exercise price of $1.07 per share
expiring August 29, 1999. The broker received a commission of $50,000
and a broker's warrant entitling the broker to purchase 12,500 common
shares of the company at an exercise price of $1.07 per share until
August 29, 1999. The debenture holder was issued 41,678 common shares
in settlement of interest earned in the amount of $15,485.
The costs associated with the issuance of the convertible debentures
were written off to the statement of income.
The following is a summary of the outstanding warrants granted under
the terms of these debentures:
Expiry Date Exercise Price Number of Shares
July 17, 1999 1.33 775,000
August 29, 1999 1.07 1,335,012
March 24, 2000 0.5252 952,018
March 24, 2000 0.60 12,500
3,074,530
(e) Share Option Plan
The company has a share option plan under which options to purchase
common shares may be granted by the board of directors to directors,
officers, employees and eligible service providers of the corporation
for terms up to five years at a price equal to the market price
prevailing on the date of the grant. The maximum number of options
available for grant under the plan is 5,500,000.
18
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
11. CAPITAL STOCK (Continued)
The following is a summary of the outstanding options which have been
granted by the board of directors:
Expiry Date Option Price Number of Shares
$
June 5, 2000 0.62 440,000
November 28, 2000 1.27 25,000
January 26, 2001 1.86 200,000
June 7, 2001 5.50 65,000
July 16, 2002 1.40 300,000
September 29, 2002 1.00 100,000
November 26, 2002 0.50 500,000
June 25, 2003 0.38 75,000
September 28, 2003 0.25 400,000
October 14, 2003 0.24 200,000
---------
2,305,000
=========
12. INCOME TAXES
As at May 31, 1998, the company had accumulated income tax losses of
$3,004,000 which may be applied against future taxable income. These losses
expire as follows:
Fiscal Year Ending In: $
1999 339,000
2000 30,000
2001 84,000
2002 220,000
2003 176,000
2004 735,000
2005 993,000
2,577,000
The company has accumulated Canadian and foreign deferred exploration and
development expenses in the amount of approximately $14,200,000 which can
be utilized to offset future taxable mining projects.
19
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
13. COMMITMENTS AND CONTINGENCIES
During the prior year, the company funded all requests made by the former
operator of the Belitung Island and Kalimantan Island properties in
Indonesia for cash advances to fund its proportion of the exploration
expenditures. During the current year, the company received a cash call
from its co-venturer on the five Indonesian properties for approximately
U.S. $900,000 representing it's alleged unfunded share of the costs to May
31, 1997. The company believes that the exploration activities carried on
by the former operator did not follow industry practices which resulted in
excessive costs and less verifiable geological information than would be
expected if standard industry practices had been followed. Accordingly, the
company has refused to make payment on the cash call and while discussions
have been held with the co-venturer, a formal agreement has not been
reached. The company has accrued $350,000 in the accounts. The company has
received an offer to settle the outstanding amounts by the issuance of
common shares. Such settlement for shares would be subject to regulatory
approval.
The co-venturer of the Nicaraguan property has made certain allegations
regarding the company's progress towards completing the five distinct
exploration phases which will allow the company to earn its interest in the
property as outlined in note 4(e). The parties have initiated an
arbitration procedure in an attempt to settle their differences. The
outcome of this procedure is not determinable at this time.
14. SUBSEQUENT EVENTS
Subsequent to the year end, the company issued 370,370 common shares in
satisfaction of a due diligence fee payable to a potential investor that
was investigating the possibility of completing a private placement with
the company.
The company has reached an agreement with a supplier of geological services
to settle $200,000 in liabilities with the issuance of 434,783 common
shares. The transaction is subject to regulatory approval, which the
company has requested.
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada, which differ
in certain material respects from GAAP in the United States. Had the
company followed GAAP in the United States, the consolidated balance sheet
would have been reported as follows:
20
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
CURRENT ASSETS
Cash and term deposits 85,652 1,647,468
Marketable securities (note 15c) 153,103 178,601
Prepaid expenses and sundry receivables 61,783 109,413
----------- -----------
300,538 1,935,482
INTEREST IN MINING PROPERTIES 13,876,739 12,053,053
INVESTMENT IN MINING SYNDICATES AND MINING
COMPANIES 80,000 217,978
LOANS RECEIVABLE 400,680 165,396
NOTES RECEIVABLE 450,000 --
FIXED ASSETS 385,689 372,975
----------- -----------
15,493,646 14,744,884
=========== ===========
CURRENT LIABILITIES
Accounts payable and accrued liabilities 1,170,423 832,776
Convertible debentures payable 1,400,000 --
SHAREHOLDERS' EQUITY
Capital stock (note 15b) 16,859,246 16,009,525
Deficit incurred prior to development stage activities (note 15e) (968,527) (968,527)
Deficit accumulated during the development stage (note 15e) (2,984,055) (1,155,890)
Difference between cost and market value of
marketable securities (note 15c) 16,559 27,000
15,493,646 14,744,884
</TABLE>
Consolidated statement of changes in financial position
During the year, the company issued 400,000 common shares (1997 - 742,295,
1996 - 740,075) of its share capital as consideration for the acquisition
of mining properties in the amount of $190,000 (1997 - $3,244,000, 1996 -
$871,000). These amounts have been included in the consolidated statement
of changes in financial position as financing and investing activities.
Under GAAP in the United States, these non-cash transactions would not have
been shown in the consolidated statement of changes in financial position.
21
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
Accordingly, the U.S. GAAP subtotals are reconciled as follows:
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
<S> <C> <C> <C>
CASH USED IN OPERATIONS PER CANADIAN GAAP (665,476) 41,917 (192,632)
Increase in net change in non-cash working capital
capital balances related to operations (note 15a) -- (159,595) 159,595
---------- ---------- ----------
CASH USED IN OPERATIONS PER U.S. GAAP (665,476) (117,678) (33,037)
CASH USED FOR
INVESTING ACTIVITIES PER CANADIAN GAAP (2,696,061) (9,753,420) (2,634,560)
Issuance of shares for the acquisition of
mining properties included above 190,000 3,244,000 740,075
CASH USED FOR
INVESTING ACTIVITIES PER U.S. GAAP (2,506,061) (6,509,420) (1,894,485)
CASH PROVIDED BY FINANCING ACTIVITIES
PER CANADIAN GAAP 1,799,721 8,495,790 4,425,930
Issuance of capital stock (note 15a) -- (5,137,905) 5,137,905
Issuance of shares for the acquisition of
mining properties included above (190,000) (3,244,000) (740,075)
---------- ---------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES
PER U.S. GAAP 1,609,721 113,885 8,823,760
CHANGE IN CASH AND CASH EQUIVALENTS
UNDER U.S. GAAP (1,561,816) (6,513,213) 6,896,238
Cash held in escrow (note 15a) -- 5,297,500 (5,297,500)
CHANGE IN CASH AND CASH EQUIVALENTS
UNDER CANADIAN GAAP (1,561,816) (1,215,713) 1,598,738
========== ========== ==========
</TABLE>
22
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
The net change in non-cash working capital balances related to operations
under Canadian and U.S. GAAP is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
<S> <C> <C> <C>
Prepaid expenses and sundry receivables 47,630 (16,738) (57,268)
Accounts payable and accrued charges 342,647 461,413 236,469
390,277 444,675 179,201
</TABLE>
(a) Cash held in escrow
Under U.S. GAAP, the cash held in escrow as at May 31, 1996 in the amount
of $5,297,500 related to the public offering which closed subsequent to the
fiscal 1996 year end would be included on the balance sheet. The
adjustments related to these funds would include the following, as at May
31, 1996:
- An increase in capital in the amount of $5,137,905 (gross proceeds
less costs of issuance of $612,095)
- A decrease in prepaids of $35,494
- An increase in accounts payable related to outstanding expenses
related to the offering in the amount of $124,101
(b) Share issue expenses
Share issue expenses are shown as an increase of deficit as provided under
GAAP in Canada. Under GAAP in the United States, these expenses are shown
as a reduction of share capital.
(c) Investments in shares of public companies
Under GAAP in the United States, the company's investments in shares of
public companies would be classified as available for sale and would be
carried at fair market value. Changes in the market value of investments
are included as a component of shareholders' equity.
23
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
(d) Income taxes
Deferred tax assets under U.S. GAAP which are offset by a valuation
allowance are comprised of the following at May 31:
1998 1997
$ $
Net loss carryforwards 1,200,000 800,000
Exploration and development expenditures 2,100,000 1,600,000
Costs of raising capital 305,000 310,000
---------- ----------
3,605,000 2,710,000
Less: Valuation allowance (3,605,000) (3,910,000)
NIL NIL
(e) Development Stage Company Disclosure
Under U.S. GAAP the company would be considered a development stage company
commencing in the year ended May 31, 1993 when it ceased its investment and
consulting operations and became a mining development company. As a
development stage company, the company is required to provide an income
statement and statement of cash flow on a cumulative basis from the date it
became a development stage company which are included separately in these
financial statements.
In addition the cumulative loss as a development stage company would be
included as a separate portion of the balance sheet as "deficit accumulated
during the development stage." The accumulated deficit of the company at
the commencement of its operations as a development stage company was
$968,527.
The capital stock issued during the period that the company has been a
development stage company is as follows:
24
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
<TABLE>
<CAPTION>
Date Shares Issued Description $
<S> <C> <C> <C>
Year ended May 31, 1993
Opening balance 9,900,000 990,101
January 31, 1993 1,500,000 Private placement for $150,000 cash 150,000
April 26, 1993 32,105 Issued in exchange for publicly traded shares of 13,484
Frankfield Consolidated Corporation based on the
estimated market value of the shares received
Cumulative 11,432,105 1,153,585
Year ended May 31, 1994
June 17, 1993 100,000 Issued in exchange for consulting assistance 10,000
related to Frankfield take-over bid based on
agreed upon fee of $10,000
December 23, 1993 100,000 Issued pursuant to option to acquire a 60% 62,500
interest in Fletcher Lake property based upon
agreed upon price of $62,500
During the fiscal year 1,829 Exercise of warrants issued pursuant to 914
Frankfield take-over bid at $0.50 per share
----------------- -----------------
Cumulative 11,633,934 1,226,999
Year ended May 31, 1995
September 23, 1994 (6,980,353) Consolidation of shares on a one post-consolidation --
share for each two and one-half pre-consolidation
shares pursuant to Articles of Amendment
February 28, 1995 through
May 5, 1995 7,236,000 Initial public offering at $0.30 per share 2,170,800
----------------- -----------------
Balance forward 11,889,581 3,397,799
</TABLE>
25
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
<TABLE>
<CAPTION>
Date Shares Issued Description $
<S> <C> <C> <C>
Subtotal from prior
page 11,889,581 3,397,799
March 3, 1995 100,000 Private placement at $30,000 cash 30,000
March 6, 1995 150,000 Shares issued pursuant to acquisition of interest 45,000
in Rancheria property in California based on
price of shares issued to public
March 14, 1995 200,000 Shares issued pursuant to acquisition of interest 60,000
in Crystal Valley property in Quebec based on
price of shares issued to public
April 18, 1995 60,000 Shares issued pursuant to acquisition of interest 30,000
in Fletcher Lake property based on the market
value of shares on date of agreement
----------------- -----------------
12,399,581 3,562,799
Year ended May 31, 1996
September 19, 1995 150,000 Shares issued pursuant to acquisition of interest in 90,000
Rancheria property in California based on the market
value of shares on date of exercising of option
January 18, 1996 150,000 Shares issued pursuant to acquisition of interest in 186,000
Leek Springs property in California based on the market
value of shares on date of exercising of option
January 19, 1996 160,000 Shares issued pursuant to acquisition of interest 80,000
in Pekan River and Mercury Permit, Quebec properties
based on the market value of shares on date of
agreement
January 29, 1996 30,075 Shares issued pursuant to acquisition of interest 40,000
in Dihourse, Quebec property based on the market
value of shares on date of agreement
----------------- -----------------
Balance forward 12,889,656 3,958,799
</TABLE>
26
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
<TABLE>
<CAPTION>
Date Shares Issued Description $
<S> <C> <C> <C>
Subtotal from prior
page 12,889,656 3,958,799
February 27, 1996 150,000 Shares issued pursuant to acquisition of interest 372,000
in Rancheria property in California based on the
market value of shares on date of exercising of
option
February 29, 1996 100,000 Shares issued pursuant to acquisition of interest 103,000
in Belitung Island, Indonesia property based on
the market value of shares on date of agreement
April 15, 1996 350,000 Exercising of promoter's options at $0.40 per share 140,000
During the fiscal year 585,000 Exercising of share options pursuant to share 290,950
option plan at pricing ranging from $0.40 to $1.27
per share
During the fiscal year 7,841,600 Exercising of warrants issued pursuant to initial 3,136,640
public offering at $0.40 per share
----------------- -----------------
21,916,256 8,001,389
Year ended May 31, 1997
September 19, 1996 1,000,000 Shares issued pursuant to public offering 5,750,000
October 22, 1996 200,000 Shares issued pursuant to acquisition of interest in 1,290,000
Leek Springs property in California based on market
value of shares on date of exercising of option
October 27, 1996 23,809 Shares issued as finders fee related to acquisition of 150,000
Indonesian properties based on market value of shares
November 26, 1996 25,225 Shares issued pursuant to acquisition of interest in 140,000
Pekan River and Mercury Permit, Quebec properties
based on the market value of shares on date of
exercising of option
January 30, 1997 100,000 Shares issued pursuant to acquisition of interest in 420,000
Nicaraguan property based on the market value of
shares of date of agreement
------------------- ------------------
Balance forward 23,265,290 15,751,389
------------------- ------------------
</TABLE>
27
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
<TABLE>
<CAPTION>
Date Shares Issued Description $
<S> <C> <C> <C>
Subtotal from prior
page 23,265,290 15,751,389
March 18, 1997 200,000 Shares issued pursuant to acquisition of 970,000
interest in Leek Springs, California property
based on the market value of shares on date of
exercising of option
May 15, 1997 48,485 Shares issued pursuant to acquisition of interest 80,000
in Mercury Permit, Quebec property based on the
market value of shares on the date of
exercising of option
May 26, 1997 144,776 Shares issued pursuant to acquisition of interest 194,000
in Pekan River, Quebec property and
Nicaraguan property based on the market value
of shares on the date of exercising of options
During the fiscal year 185,000 Exercising of shares options pursuant to 147,200
share option plan at price ranging from
$0.62 to $1.27 per share
------------------- ------------------
23,843,551 17,142,589
Year ended May 31, 1998
September 23, 1997 54,104 Retraction of convertible debentures including 50,814
accrued interest based on market value of
shares
September 30, 1997 13,022 Payment of quarterly interest on convertible 13,023
debentures based on market value of shares
November 25, 1997 200,000 Shares issued pursuant to acquisition of interest 98,000
in Nicaraguan property based on market value of
shares
December 31, 1997 79,192 Payment of quarterly and semi-annual interest on 29,563
convertible debentures based on market value of
shares
January 16, 1998 312,674 Retraction and conversion of convertible debentures 100,854
including accrued interest based on market value of
shares
------------------- ------------------
Balance forward 24,502,543 17,434,843
------------------- ------------------
</TABLE>
28
<PAGE>
DIADEM RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 (IN CANADIAN DOLLARS)
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(Continued)
<TABLE>
<CAPTION>
Date Shares Issued Description $
<S> <C> <C> <C>
Subtotal from prior
page 24,502,543 17,434,843
January 21, 1998 1,159,393 Conversion of convertible debentures including 451,041
accrued interest based on market value of
shares
March 31, 1998 25,650 Payment of quarterly interest based on market 14,426
value of shares
May 12, 1998 200,000 Shares issued pursuant to acquisition of interest 92,000
in Nicaragua property based on market value of
shares
------------------- ------------------
25,887,586 17,992,310
=================== ==================
</TABLE>
29
