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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file Number 000-22731
MINERA ANDES INC.
(Exact name of small business issuer as specified in its charter)
ALBERTA, CANADA
(State or other jurisdiction of incorporation or organization)
NONE
(I.R.S. Employer Identification No.)
3303 N. SULLIVAN ROAD, SPOKANE, WA 99216
(Address of principal executive offices)
(509) 921-7322
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
Shares outstanding as of October 31, 1999: 20,390,030 shares of common stock,
with no par value
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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<PAGE>
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements......................... 3
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 9
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K........................... 12
SIGNATURES................................................................... 13
2
<PAGE>
<TABLE>
<CAPTION>
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED BALANCE SHEETS
(U.S. Dollars-Unaudited)
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 230,034 $ 1,869,765
Receivables and prepaid expenses 63,949 123,706
------------ ------------
Total current assets 293,983 1,993,471
Mineral properties and deferred exploration costs 4,316,750 3,305,711
Capital assets, net 97,374 153,240
------------ ------------
Total assets $ 4,708,107 $ 5,452,422
============ ============
LIABILITIES
Current:
Accounts payable and accruals $ 26,128 $ 62,883
Due to related parties 48,799 36,278
------------ ------------
Total current liabilities 74,927 99,161
SHAREHOLDERS' EQUITY
Share capital 16,414,666 16,414,666
Accumulated deficit (11,781,486) (11,061,405)
------------ ------------
Total shareholders' equity 4,633,180 5,353,261
------------ ------------
Total liabilities and shareholders' equity $ 4,708,107 $ 5,452,422
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(U.S. Dollars-Unaudited)
Period from
Three Months Ended Nine Months Ended July 1, 1994
------------------------------- ------------------------------- (commencement)
September 30, September 30, September 30, September 30, through
1999 1998 1999 1998 Sept. 30, 1999
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Administration fees $ 6,580 $ 7,886 $ 21,959 $ 24,492 $ 174,521
Audit and accounting 8,265 13,086 51,035 58,430 217,527
Consulting fees 42,422 44,604 124,407 133,879 747,329
Depreciation 1,359 1,699 4,077 4,482 13,566
Equipment rental 1,517 1,517 4,552 4,552 17,494
Foreign exchange (gain) loss 3,291 106,870 (27,051) 216,225 395,561
Insurance 16,143 17,937 48,431 53,812 136,963
Legal 27,024 24,730 104,155 83,956 455,990
Maintenance 26 47 77 101 343
Materials and supplies 0 0 0 1,570 45,512
Office overhead 26,991 49,192 138,796 223,636 1,184,363
Telephone 7,532 13,898 37,795 53,518 294,708
Transfer agent 5,539 3,036 7,943 11,457 70,341
Travel 10,109 8,710 36,803 24,083 273,464
Wages and benefits 50,061 53,458 152,035 164,178 866,737
Write-off of deferred expenditures 0 0 40,750 756,557 6,730,803
------------- ------------- ------------- ------------- --------------
Total expenses 206,859 346,670 745,764 1,814,928 11,625,222
Interest income (2,430) (35,906) (26,959) (112,961) (429,742)
------------- ------------- ------------- ------------- --------------
Net loss for the period 204,429 310,764 718,805 1,701,967 11,195,480
Accumulated deficit, beginning of the period 11,577,057 9,063,181 11,061,405 7,665,814 0
Share issue costs 0 219 1,276 6,383 568,791
Deficiency on acquisition of subsidiary 0 0 0 0 17,215
------------- ------------- ------------- ------------- --------------
Accumulated deficit, end of period $ 11,781,486 $ 9,374,164 $ 11,781,486 $ 9,374,164 $ 11,781,486
============= ============= ============= ============= ==============
Net loss per common share $ 0.01 $ 0.01 $ 0.03 $ 0.08
============= ============= ============= =============
Weighted average shares outstanding 20,390,030 20,390,030 20,390,030 19,944,697
============= ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED STATEMENTS OF MINERAL PROPERTIES
AND DEFERRED EXPLORATION COSTS
(U.S. Dollars-Unaudited)
Period from
Three Months Ended Nine Months Ended July 1, 1994
------------------------------- ------------------------------- (commencement)
September 30, September 30, September 30, September 30, through
1999 1998 1999 1998 Sept. 30, 1999
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Administration fees $ 3,836 $ 5,209 $ 15,801 $ 16,585 $ 320,264
Assays and analytical 5,234 6,472 107,162 153,491 874,163
Construction and trenching 0 0 2,484 23,576 507,957
Consulting fees 13,143 24,696 57,137 105,418 820,905
Depreciation 958 18,285 24,763 54,857 157,313
Drilling 0 120 83,661 177,723 730,385
Equipment rental 0 763 4,141 18,232 241,048
Geology 45,321 84,501 262,965 332,579 2,735,443
Geophysics 0 29,087 61,314 51,577 309,902
Insurance 9,705 12,533 29,274 37,416 197,154
Legal 17,245 32,028 74,259 80,666 567,142
Maintenance 2,172 5,022 20,609 21,804 147,314
Materials and supplies 1,723 6,760 40,224 29,813 404,329
Project overhead 11,090 9,014 30,086 24,093 269,579
Property and mineral rights 2,188 45,012 8,221 200,831 1,254,899
Telephone 1,426 2,189 9,032 9,645 57,521
Travel 12,453 30,465 113,926 177,069 890,108
Wages and benefits 25,576 34,649 106,730 110,238 685,988
------------- ------------- ------------- ------------- --------------
Costs incurred during the period 152,070 346,805 1,051,789 1,625,613 11,171,414
Deferred costs, beginning of period 4,164,680 3,749,107 3,305,711 3,226,856 0
Deferred costs acquired 0 0 0 0 576,139
Deferred costs written off 0 0 (40,750) (756,557) (6,730,803)
Mineral property option proceeds 0 0 0 0 (700,000)
------------- ------------- ------------- ------------- --------------
Deferred costs, end of the period $ 4,316,750 $ 4,095,912 $ 4,316,750 $ 4,095,912 $ 4,316,750
============= ============= ============= ============= ==============
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars-Unaudited)
Period from
Three Months Ended Nine Months Ended July 1, 1994
------------------------------- ------------------------------- (commencement)
September 30, September 30, September 30, September 30, through
1999 1998 1999 1998 Sept. 30, 1999
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Activities
Net loss for the period $ (204,429) $ (310,764) $ (718,805) $ (1,701,967) $ (11,195,480)
Adjustments to reconcile net loss to
net cash used in operating activities:
Write-off of incorporation costs 0 0 0 0 665
Write-off of deferred expenditures 0 0 40,750 756,557 6,730,803
Depreciation 1,359 1,699 4,077 4,482 13,566
Change in:
Receivables and prepaid expense 13,762 49,627 59,757 123,549 (63,949)
Accounts payable and accruals (29,775) (20,621) (36,755) (22,254) 26,128
Due to related parties 17,031 (97,283) 12,521 (84,243) 48,799
------------- ------------- ------------- ------------- --------------
Cash used in operating activities (202,052) (377,342) (638,455) (923,876) (4,439,468)
------------- ------------- ------------- ------------- --------------
Investing Activities
Incorporation costs 0 0 0 0 (665)
Sale (purchases) of capital assets 27,026 (1,590) 27,026 (9,205) (268,253)
Mineral properties and deferred
exploration (151,112) (328,520) (1,027,026) (1,570,756) (11,014,101)
Acquisition of subsidiaries 0 0 0 0 (17,817)
Mineral property option proceeds 0 0 0 0 700,000
------------- ------------- ------------- ------------- --------------
Cash used in investing activities (124,086) (330,110) (1,000,000) (1,579,961) (10,600,836)
------------- ------------- ------------- ------------- --------------
Financing Activities
Shares issued for cash, less
issue costs 0 (219) (1,276) 1,276,021 15,270,338
------------- ------------- ------------- ------------- --------------
Cash (used in) provided by
financing activities 0 (219) (1,276) 1,276,021 15,270,338
------------- ------------- ------------- ------------- --------------
Increase (decrease) in cash and
cash equivalents (326,138) (707,671) (1,639,731) (1,227,816) 230,034
Cash and cash equivalents,
beginning of period 556,172 3,483,374 1,869,765 4,003,519 0
------------- ------------- ------------- ------------- --------------
Cash and cash equivalents, end of period $ 230,034 $ 2,775,703 $ 230,034 $ 2,775,703 $ 230,034
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
7
<PAGE>
MINERA ANDES INC.
"An Exploration Stage Corporation"
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars-Unaudited)
1. Accounting Policies
The accompanying consolidated financial statements of Minera Andes Inc. (the
"Corporation") for the three month and nine month periods ended September 30,
1999 and 1998 and for the period from commencement (July 1, 1994) through
September 30, 1999 have been prepared in accordance with accounting principles
generally accepted in Canada which differ in certain respects from principles
and practices generally accepted in the United States, as described in Note 2.
Also, they are unaudited but, in the opinion of management, include all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation. Interim results are not necessarily indicative of results which
may be achieved in the future. The December 31, 1998 financial information has
been derived from the Corporation's audited consolidated financial statements.
These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 1998. The accounting policies set forth in the audited annual
consolidated financial statements are the same as the accounting policies
utilized in the preparation of these consolidated financial statements, except
as modified for appropriate interim presentation.
2. Liquidity and Going Concern
On September 29, 1999, the Corporation filed a preliminary prospectus with the
Alberta Securities Commission, British Columbia Securities Commission and
Ontario Securities Commission to permit the Corporation to sell shares of its
common stock and common stock purchase warrants. The proposed offering is for a
minimum of Cdn$500,000 to a maximum of Cdn$2,000,000. There can be no assurance
that the Corporation will be successful in its efforts to raise funds through
the sale of its securities.
The Corporation's ability to continue in operation is dependent on its ability
to secure additional financing, and while it has been successful in doing so in
the past, there can be no assurance it will be able to do so in the future.
Management is actively pursing such additional sources of financing; however, in
the event this does not occur, there is doubt about the ability of the
Corporation to continue as a going concern.
The financial statements do not include the adjustments that would be necessary
should the Corporation be unable to continue as a going concern.
3. Differences Between Canadian and United States Generally Accepted
Accounting Principles
Differences between Canadian and U.S. generally accepted accounting principles
("GAAP") as they pertain to the Corporation relate to accounting for share issue
costs, loss per share, non-cash issuance of common shares, the acquisition of
Scotia Prime Minerals, Incorporated, compensation expense associated with the
release of shares from escrow, mineral properties and deferred exploration costs
and stock-based compensation and are described in Note 13 to the Corporation's
consolidated financial statements for the year ended December 31, 1998.
The impact of the above on the interim consolidated financial statements is as
follows:
8
<PAGE>
MINERA ANDES INC.
"An Exploration Stage Corporation"
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(U.S. Dollars-Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Accumulated deficit, end of period, per Canadian GAAP $ 11,781,486 $ 11,061,405
Adjustment for acquisition of Scotia 248,590 248,590
Adjustment for compensation expense 6,324,914 6,324,914
Adjustment for share issue costs (568,791) (567,515)
Adjustment for deferred exploration costs 4,178,291 3,175,473
------------ ------------
Accumulated deficit, end of period, per U.S. GAAP $ 21,964,490 $ 20,242,867
============ ============
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Share capital, per Canadian GAAP $ 16,414,666 $ 16,414,666
Adjustment for acquisition of Scotia 248,590 248,590
Adjustment for compensation expense 6,324,914 6,324,914
Adjustment for share issue costs (568,791) (567,515)
------------ ------------
Share capital, per U.S. GAAP $ 22,419,379 $ 22,420,655
============ ============
</TABLE>
<TABLE>
<CAPTION>
Period from
Three Months Ended Nine Months Ended July 1, 1994
-------------------------- -------------------------- (commencement)
Sept. 30, Sept. 30, Sept. 30, Sept. 30, through
1999 1998 1999 1998 Sept. 30, 1999
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Net loss for the period, per Canadian GAAP $ 204,429 $ 310,764 $ 718,805 $1,701,967 $ 11,195,480
Adjustment for acquisition of Scotia 0 0 0 0 248,590
Adjustment for compensation expense 0 0 0 0 6,324,914
Adjustment for deferred exploration costs 149,882 301,793 1,002,818 668,225 4,178,291
---------- ---------- ---------- ---------- --------------
Loss for period, per U.S. GAAP $ 354,311 $ 612,557 $1,721,623 $2,370,192 $ 21,947,275
========== ========== ========== ========== ==============
Loss per common share, per U.S. GAAP $ 0.02 $ 0.03 $ 0.08 $ 0.12
========== ========== ========== ==========
</TABLE>
9
<PAGE>
MINERA ANDES INC.
"An Exploration Stage Corporation"
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(U.S. Dollars-Unaudited)
4. Summary of Significant Accounting Policies
In January 1999, the Corporation adopted the requirements of Canadian Institute
of Chartered Accountants (CICA) 1540, "Cash Flow Statements", in preparing the
statement of cash flows. The comparative information for the three month and
nine month periods ended September 30, 1998 has been restated to reflect the
presentation in the current period.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Note Regarding Forward-Looking Statements
- -----------------------------------------
The information in this report includes "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 ("1934 Act"), and is subject to the safe harbor
created by those sections. Factors that could cause results to differ materially
from those projected include, but are not limited to, results of current
exploration activities, the market price of precious and base metals, the
availability of joint venture partners or sources of financing, and other risk
factors detailed in the Corporation's Securities and Exchange Commission
filings.
Overview
- --------
The principal business of the Corporation is the exploration and development of
mineral properties, located primarily in the Republic of Argentina, consisting
of mineral rights and applications for mineral rights, covering approximately
162,518 hectares in six provinces in Argentina. The Corporation also holds a
license and an application-in-process for an exploration license in Colombia
totaling approximately 9,539 hectares and exploration licenses in Romania
totaling approximately 23,000 hectares. The lands comprise option-to-purchase
contracts, exploration and mining agreements and direct interests through the
Corporation's filings for exploration concessions. The Corporation carries out
its business by acquiring, exploring and evaluating mineral properties through
its ongoing exploration program. Following exploration, the Corporation either
seeks to enter joint ventures to further develop these properties or disposes of
them if the properties do not meet the Corporation's requirements. The
Corporation's properties are all early stage exploration properties and no
proven or probable reserves have been identified.
Plan of Operations
- ------------------
The Corporation has working capital of $219,000, only sufficient to cover its
budgeted expenditures for mineral property and exploration activities on its
properties in Argentina, Colombia and Romania through the end of 1999. During
the last nine months, the Corporation has been actively pursuing financing
opportunities to raise funds for exploration and operations into the year 2000.
In September 1999, the Corporation engaged a Canadian investment dealer to raise
between Cdn$500,000 and Cdn$2,000,000 in a unit offering by way of a fully
marketed prospectus, on a best efforts basis. To date, this offering has not
closed and there are no alternative financing opportunities being pursued. In
addition, if the Corporation were to develop a property or group of properties
beyond the stage of exploration, substantial additional financing would be
necessary. Such financing would likely be in the form of equity, debt or a
combination of equity and debt. There is no assurance that such financing will
be available to the Corporation on favorable terms.
10
<PAGE>
The Corporation's ability to continue in operation is dependent on its ability
to secure additional financing, and while it has been successful in doing so in
the past, there can be no assurance it will be able to do so in the future.
Management is actively pursing such additional sources of financing; however, in
the event this does not occur, there is doubt about the ability of the
Corporation to continue as a going concern. The financial statements do not
include the adjustments that would be necessary should the Corporation be unable
to continue as a going concern.
Results of Operations
- ---------------------
Third quarter 1999 compared with third quarter 1998
- ---------------------------------------------------
The Corporation had a net loss of $204,000 ($0.01 per share) for the third
quarter of 1999, compared with a net loss of $311,000 ($0.01 per share) for the
third quarter of 1998. During the 1999 quarter, the Corporation continued its
cost cutting in all areas, compared with the 1998 quarter (which also included a
foreign exchange loss of $107,000). Legal expenses and travel increased slightly
in the 1999 quarter over the corresponding quarter in 1998, mainly as a result
of costs related to the anticipated financing. Total mineral property and
deferred exploration costs were $152,000 during the third quarter of 1999,
compared with $347,000 in the third quarter last year. The reduction in costs
was mainly due to economies as the Corporation reduced its staff in Argentina to
minimum levels, while still completing geological consulting contracts on its
major property.
Nine months ended September 30, 1999 compared with the nine months ended
September 30, 1998
- ------------------------------------------------------------------------
The Corporation had a net loss of $719,000 for the nine months ended September
30, 1999, compared with a net loss of $1,702,000 for the comparable period in
1998. The results in the 1998 period included the write-off of the Santa Clara
property, in the amount of $757,000, whereas write-offs in the 1999 period were
only $41,000. The Corporation cut most of its operating costs during the 1999
period, with significant savings in office overhead and telephone expenses. Both
legal expenses and travel were higher in the 1999 period compared to the 1998
period, mainly as a result of costs related to the anticipated financing
announced in September 1999 and to the financing announced in February 1999,
which was not pursued. Total mineral property and deferred exploration costs for
the nine months were $1,052,000 in 1999 and $1,626,000 in the comparable period
last year. Expenditures in both years were focused on the El Pluma/Cerro
Saavedra property with less drilling but more geophysical consulting during the
1999 period. Deferred expenditures related to mineral properties and exploration
increased to $4,317,000 at September 30, 1999, compared with $4,096,000 a year
earlier.
Liquidity and Capital Resources
- -------------------------------
Due to the nature of the mining industry, the acquisition, exploration and
development of mineral properties requires significant expenditures prior to the
commencement of production. To date, the Corporation has financed its activities
through the sale of equity securities and joint venture arrangements. The
Corporation expects to use similar financing techniques in the future. However,
there can be no assurance that the Corporation will be successful with such
financings. See "Plan of Operations".
At September 30, 1999, the Corporation had cash and cash equivalents of
$230,000, down from $2,776,000 at September 30, 1998. Working capital at
September 30, 1999 was $219,000, only sufficient to cover its budgeted
expenditures for mineral property and exploration activities on its properties
in Argentina, Colombia and Romania through 1999. The Corporation's operating
activities showed some savings and used $638,000 for the first nine months of
1999, compared with $924,000 in the 1998 period. Investing activities were
$1,000,000 in the 1999 period compared with $1,580,000 a year earlier, although
the focus in both periods was on the El Pluma/Cerro Saavedra property. Financing
activities in the first nine months of 1999 are ongoing, compared with the
11
<PAGE>
$1,276,000 the Corporation received in the same period last year from the
exercise of warrants and options. Cash and cash equivalents decreased in the
first nine months by $1,639,000 in 1999 and $1,228,000 in 1998.
Year 2000 Issue
- ---------------
As the year 2000 approaches, there are uncertainties concerning whether computer
systems will properly recognize date-sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or fail.
The Corporation's computer systems and software are already configured to
accommodate dates beyond the year 2000. The Corporation believes that the year
2000 will not pose significant operational problems for the Corporation's
computer systems; however, the Corporation has limited knowledge concerning
the computer systems of suppliers and other third parties with whom it deals.
While it is not possible at this time to assess the effect of a third party's
inability to adequately address year 2000 issues, the Corporation does not
believe the potential problems associated with year 2000 will have a material
effect on its operations or financial results.
New Accounting Pronouncement
- ----------------------------
In January 1999, the Corporation adopted the requirements of Canadian Institute
of Chartered Accountants (CICA) 1540, "Cash Flow Statements", in preparing the
statement of cash flows. The comparative information for the three month and
nine month periods ended September 30, 1998 has been restated to reflect the
presentation in the current year.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit Number Description
-------------- -----------
10.1 Proposed Issuance Agreement
27 Financial Data Schedule
b. Reports on Form 8-K: None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MINERA ANDES INC.
Date: November 12, 1999 By: /s/ ALLEN V. AMBROSE
---------------------------- -------------------------------------
Allen V. Ambrose
President
Date: November 12, 1999 By: /s/ ALLAN J. MARTER
---------------------------- -------------------------------------
Allan J. Marter
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 Proposed Issuance Agreement
27 Financial Data Schedule
September 17, 1999
Minera Andes, Inc.
3303 North Sullivan Road
Spokane, Washington
USA 99216
Attention: Mr. Allen Ambrose, President
Dear Sir:
Re: Proposed Issuance of Units
Canaccord Capital Corporation ('Canaccord") understands that Minera Andes
Inc. (the "Corporation"), proposes to offer for sale, units (the "Units") of the
Corporation the proceeds of which shall be used for further exploration and
drilling on the Corporation's properties in Romania, the Santa Cruz Province of
Argentina and general corporate purposes. The purpose of this letter is to set
forth our mutual understanding of the proposed terms of our engagement by the
Corporation to act as exclusive dealer of the Corporation in respect of the
proposed offering (the "Offering") of the Units.
1. Canaccord shall be retained as exclusive dealer of the Corporation in
respect of the Offering until February 29, 2000, provided that Canaccord, if it
so desires, may invite other investment bankers to form a syndicate or offering
group relating to the Offering (collectively, including Canaccord, the "Agents")
and to participate in soliciting offers to purchasers of the Units.
2. The Offering shall be effected pursuant to a (final) prospectus (the
"Prospectus") to be filed in the provinces of Alberta, British Columbia and
Ontario and such other provinces of Canada as may be designated by the Agents
(the "Jurisdictions") and available registration exemptions under the securities
laws of the United States and elsewhere where the Units may be lawfully offered
for sale without the requirement to file a prospectus or other similar
disclosure document or imposing upon the Corporation ongoing reporting
obligations.
3. The Corporation agrees to use its best efforts to file and obtain receipts
for a preliminary prospectus (the "Preliminary Prospectus") relating to the
Offering, in a form satisfactory to the Agents, in the Jurisdictions as soon as
possible but not later than September 28, 1999. The Corporation further agrees
to satisfy all comments of securities regulators in the Jurisdictions as soon as
possible and thereafter, but no later than November 15, 1999, file and obtain
receipts for the Prospectus, in a form satisfactory to the Agents, in the
Jurisdictions (the "Prospectus Qualification").
4. Subject to the foregoing, and to the Corporation and the Agents entering
into a mutually acceptable agency agreement (the "Agency Agreement") relating to
the Offering, the
<PAGE>
Offering shall be completed (the "Closing") as soon as possible after the
Prospectus Qualification (the "Closing Date"). It is expected that the Closing
Date will occur on or around December 10, 1999. The Closing of the Offering will
occur in one or more stages at the offices of the Corporation's counsel.
5. The Offering will be a maximum of $2,000,000 and a minimum of $500,000. The
issue price of the Units (the "Issue Price") will be priced in the context of
the market at the time of the filing of the Prospectus. Each Unit will be
comprised of one common share (individually, a "Common Share" and collectively,
the "Common Shares") and one common share purchase warrant (individually, a
"Warrant", and collectively, the "Warrants"). Each Warrant will entitle the
holder to purchase one Common Share for a period of 12 months from the Closing
Date and will be priced in the context of the market at the time of the filing
of the Prospectus.
6. The Corporation will grant to the Agents an over-allotment option to
purchase, at the Issue Price, for a period of 30 days from the Closing, up to
15% of that number of Units offered pursuant to the Prospectus.
7. The cash fee payable by the Corporation to the Agents for their services
rendered in connection with the Offering shall be 7.5% of the gross proceeds,
payable at the Closing. As additional consideration, the Corporation also agrees
to issue to the Agents on the Closing Date an option (the "Broker Option")
entitling the Agents to acquire that number of Common Shares (the "Dealer
Shares") equal to 10% of the number of Units sold pursuant to the Offering at
the Issue Price (or such other amount as required by the securities regulatory
authorities in the Jurisdictions). The Broker Option shall be qualified by the
Prospectus to the extent permitted by securities regulatory authorities in the
Jurisdictions.
8. It shall be a further condition of the Closing that the Common Shares and
the Dealer Shares have been approved for listing on the Alberta Stock Exchange,
subject only to the usual conditions.
9. The Agents shall have the right to conduct such due diligence with respect
to the Corporation as they may consider necessary or desirable, including,
without limitation meeting with senior management of the Corporation and the
auditors of the Corporation, prior to the Closing of the Offering. In addition
to any due diligence meetings, the Corporation agrees to make its senior
management personnel available to meet with institutional investors if requested
by the Agents or any member of the offering group.
10. The Corporation and the Agents, with the assistance their respective
counsel, will prepare the Preliminary Prospectus and the Prospectus as
contemplated herein.
2
<PAGE>
11. Whether or not the Offering is completed, all expenses of or incidental
thereto and the preparation and filing of the Preliminary Prospectus and the
Prospectus, including, without limitation, listing fees, filing fees, printing
expenses, costs relating to the preparation of video productions, the cost of
any road shows and the Agents' reasonable out-of-pocket expenses, (including the
reasonable fees and disbursements of the Agents' counsel), shall be borne by the
Corporation; provided, however, that the maximum amount payable by the
Corporation in respect of the fees of the Agents' counsel, Messrs. Cassels Brock
& Blackwell, shall be $35,000, (exclusive of disbursements and GST) of which the
amount of $20,000 shall be advanced to Canaccord concurrently with the execution
hereof.
12. The Corporation agrees, that provided that the aggregate proceeds of the
offering are not less than $1,500,000, it will not issue or agree to issue any
Common Shares of the Corporation or securities convertible into or exercisable
for Common Shares (other than issuances under employee stock option or purchase
plans as a result of the exercise of the share purchase warrants or options or
issuances pursuant to obligations existing as at the date hereof) during the
period beginning the date hereof and ending 120 days from the date of the
Closing without first obtaining written approval of Canaccord, such approval not
to be unreasonably withheld.
13. The Agents may at any time withdraw from this engagement, and Canaccord
may at any time terminate this letter agreement, by providing notice in writing
to the Corporation at any time if: (i) Canaccord and/or the Agents are not
satisfied in their sole discretion with the results of any portion of their due
diligence review and investigations of the Corporation; (ii) there is, in the
sole opinion of Canaccord and/or the Agents, a material change or a change in a
material fact or a new material fact shall arise which would be expected to have
an adverse effect on the business, affairs or profitability of the Corporation
or on the market price or value of the Units; (iii) the state of the financial
markets is such that in the sole opinion of the Canaccord and/or the Agents, it
would be unprofitable to offer or continue to offer the Units for sale; (iv)
there should develop, occur or come into effect any event of any nature,
including without limitation, accident, governmental law or regulation, which in
the sole opinion of Canaccord and/or the Agents adversely affects or may
adversely affect the financial markets or the business, affairs or profitability
of the Corporation; (v) there is an inquiry or investigation (whether formal or
informal) in relation to the Corporation or any one of the Corporation's
directors, officers or principal shareholders or the Corporation; (vi) any order
to cease trade in the securities of the Corporation is made by a competent
securities regulatory authority; or (vii) or the Corporation is in breach of a
term, condition or covenant of this letter agreement or the Agency Agreement or
any representation or warranty given by the Corporation is or becomes false.
14. The Agency Agreement shall be negotiated in good faith and shall also
contain those representations, warranties, conditions and covenants as are usual
in agreements of this type.
3
<PAGE>
15. The parties acknowledge that the Offering contemplated herein shall be
subject to all necessary regulatory approvals including, without limitation, the
approval of the Alberta Stock Exchange.
16. In the event that the Offering results in gross proceeds to the Corporation
of (i) $500,000 to $1,000,000, then for a period of 9 months; (ii) $1,000,001 to
$2,000,000, then for a period of 12 months; or (iii) in excess of $2,000,001,
then for a period of 18 months, respectively, following the closing of the
Offering (individually, each as applicable a "Rights Period"), subject to the
Closing occurring, Canaccord shall have a right of first refusal and right of
participation in respect of any and all brokered financings proposed by the
Corporation. The Corporation shall give Canaccord written notice of any
financing it proposes to undertake setting forth the terms thereof, and where a
financing is proposed by an investment advisor or other market intermediary the
definitive term sheet proposed by the investment advisor or other market
intermediary shall be attached to the notice. Canaccord shall have a period of 2
business days within which to give written notice (the "ROFR Notice") to the
Corporation that it exercises the right of first refusal and accepts the terms
of the proposed financing or that it shall participate in the financing (as more
particularly set forth in paragraph 17 hereof) (the "Participation Notice"). If
Canaccord does not give the ROFR Notice exercising the right of first refusal,
the Corporation shall be entitled to pursue the financing on the terms set forth
in the written notice to Canaccord and term sheet as applicable (subject to the
right of participation contemplated in paragraph 17 hereof), provided that if
such financing is not completed within a 120 day period following the date on
which the written notice prescribed herein is given to Canaccord by the
Corporation, the right of first refusal shall apply again in respect of such
proposed financing.
17. If the right of first refusal is not exercised and the Participation Notice
is provided as contemplated in paragraph 16 hereof, Canaccord shall have the
right to participate in any financing in the amount of not less than 40% of the
amount raised or to be raised pursuant to each of such financing. The
Corporation and Canaccord shall have a period of 2 business days following
receipt of the Participation Notice within which they shall negotiate in good
faith the extent of Canaccord's participation, provided that if no agreement is
reached in respect of Canaccord's participation, Canaccord shall be entitled to
participate to the extent of 40% of the financing.
18. The Corporation agrees to indemnify Canaccord and the Agents in accordance
with Schedule "A" to this letter which Schedule is incorporated by reference and
forms part of this Agreement and the consideration of which is the entering into
of this Agreement. Such indemnity (the "Indemnity") shall be in addition to, and
not in substitution for, any liability which the Corporation or any other person
may have to Canaccord or other persons indemnified pursuant to the Indemnity
apart from the Indemnity.
4
<PAGE>
19. References to "business day" herein shall mean a day on which banks are
open for business in Toronto, Ontario and Calgary, Alberta.
20. This agreement is governed by the laws of the Province of Alberta and the
federal laws of Canada applicable therein and may be executed in counterparts.
Facsimile signatures will be acceptable with original signed copies of the
agreement to follow to all parties. Time shall be of the essence.
21. If one or more provisions contained herein shall, for any reason, be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
letter agreement, but this letter agreement shall be construed as if such
invalid, illegal or unenforceable provision or provisions had never been
contained therein.
22. The Agency Agreement will be finalized as soon as possible and in any event
on or before the Closing Date, failing which, the terms of this letter agreement
shall be null and void and without obligation or liability of either the
Corporation or Canaccord save for paragraphs 11, 18, and this section 22 and
Schedule "A", all of which shall remain in full force and effect. Prior to the
Closing Date, the Corporation covenants and agrees not to enter into discussions
with any other investment dealers concerning a financing involving the
Corporation.
If you are in agreement with the foregoing, please so indicate by signing
and returning to us the enclosed copy of this letter by not later than 6:00 p.m.
(Toronto time) on September 17, 1999.
Yours truly,
CANACCORD CAPITAL CORPORATION
Per: /s/ MATTHEW GAASENBEEK
------------------------------------
Matthew Gaasenbeek
Senior Vice President & Director
Agreed and accepted this 17th day of September, 1999.
MINERA ANDES, INC.
Per: /s/ ALLEN V. AMBROSE
------------------------------------
Allen V. Ambrose
President, Director
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited interim consolidated financial statements of Minera Andes Inc. for the
three-month period ended September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 230,034
<SECURITIES> 0
<RECEIVABLES> 25,472
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 293,983
<PP&E> 4,585,003
<DEPRECIATION> 170,879
<TOTAL-ASSETS> 4,708,107
<CURRENT-LIABILITIES> 74,927
<BONDS> 0
0
0
<COMMON> 16,414,666
<OTHER-SE> (11,781,486)
<TOTAL-LIABILITY-AND-EQUITY> 4,708,107
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 204,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (204,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (204,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,429)
<EPS-BASIC> (0.01)
<EPS-DILUTED> 0
</TABLE>
