SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-FR/A
(Amendment No. 1 Filed February 22, 2000)
|X| Registration Statement Pursuant to Section 12(b) or (g) of the Securities
Exchange Act of 1934
|_| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-28319
APAC MINERALS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Province of British Columbia (Canada)
------------------------------------------------
(Jurisdiction of incorporation or organization)
808 Nelson Street - Suite 1208
Vancouver, British Columbia V6Z 2H2, Canada
-------------------------------------------
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares Without Par Value
--------------------------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Number of capital shares outstanding as of January 20, 2000 was 9,895,833 common
shares.
Number of authorized share capital: 25,000,000 common shares without par value.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18
<PAGE>2
APAC MINERALS INC.
The following discussion contains forward-looking statements regarding
events and financial trends which may affect the Company's future operating
results and financial position. Such statements are subject to risks and
uncertainties that could cause the Company's actual results and financial
position to differ materially from those anticipated in forward looking
statements. These risks and uncertainties include, but are not limited to the
following:
(i) Lack of Profitability: Since the Company is in the mineral exploration
stage of development, the Company has experienced increasing net losses since
its incorporation (net losses: 1997 $23,387, 1998 $39,563, 1999 $371,812 in
Canadian dollars);
(ii) Possible Title Deficiencies: Ownership in mineral interests involves
certain inherent risks due to the difficulties of determining the validity of
certain claims as well as the potential for problems arising from the frequently
ambiguous conveyancing history characteristic of many mineral properties;
(iii) Governmental Regulations: The Company's principal assets and exploration
activities are located in Portugal and Argentina, and therefore the Company or
its operations could be materially affected by any adverse change in the
political or economic stability of those countries, or changes in laws governing
foreign investment or currency exchange controls in those countries;
(iv) Low Probability of Production: The Company is only in the exploration stage
and has not commenced developing any of its properties. The exploration for
minerals involves a high degree of risk. Furthermore, even if actual development
is begun, there is no assurance that a producing mine will be achieved. In
actuality, few properties that are explored are ultimately developed into
producing mines;
(v) Need for Additional Capital: The Company does not presently have sufficient
funding for further exploration and development of its properties or to fulfil
its obligations under applicable property agreements which will require
additional capital to carry out its exploration and development programs;
(vi) No Arranged Financing: No assurance can be given that the Company will be
able to raise the necessary capital to complete its proposed exploration
projects, and in the event that the Company is unable to complete the proposed
exploration work, this will have an adverse effect on the Company's business
objectives;
(vii) Foreign Exchange Fluctuations: Fluctuations in foreign exchange rates
compared to the U.S. or Canadian dollar may adversely affect the Company's
operations; to date, all of the Company's activities have been conducted in U.S.
dollars and fluctuations in foreign exchange rates have not had a material
effect on the Company's operations or financial condition; further, during the
period of the Company's exploration activities in Portugal and Argentina, those
currencies have not been as volatile as in the period from 1980 to 1995; the
Company does not propose to engage in hedging transactions to offset losses
caused by foreign currency fluctuations while the Company is in the exploration
stage of its development;
(viii) Environmental Regulations: The Company's operations are subject to
environmental regulations which include fines and penalties for non-compliance.
The Company has complied with all environmental regulations in Argentina and
Portugal. The Company's present exploration activities have very little
<PAGE>3
impact on the environment. In Portugal, the Company's surface activities are
normally regulated by the local land owners. Environmental regulations in
Portugal do not play an important role in the Company's activities until the
Company reaches the stage in its development when mining activities are
proposed. In Portugal, all serious surface disturbances at drill sites have to
be returned to their original state, the worst cases require seeding of
indigenous grasses. In Argentina any significant mining activities or mine
development require specific environmental impact studies. Environmental impact
statements were completed by the Company for the Cuya, Caltrauna and El Puesto
prospects. The environmental authority in Argentina, CODEMA, has agreed to the
Company's drilling programs at all of these prospects, during 1999 and 2000. In
the event of noncompliance, the potential fines or penalties which may be levied
against the Company would depend on the environmental damage caused, and can not
be quantified at this time;
(ix) Competition: The mining industry is intensely competitive in all its phases
and the Company competes with many companies possessing greater financial
resources and technical facilities;
(x) Need to Retain Key Employees: The Company depends to a large extent on key
management personnel, the loss of which could severely impair the Company's
business prospects; the Company does not carry key man insurance;
(xi) Fluctuating World Markets: The market prices of precious metals have
historically fluctuated widely and are affected by numerous global factors
beyond the control of the Company;
(xii) U.S. Securities Regulations: The Company's securities are subject to the
"penny stock" rules as defined in Rule 3a51-1 of the 1934 Exchange Act.
Accordingly, the "penny stock" disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for the Company's
common shares, because the rules require broker-dealers, in accepting any
instructions from clients to acquire their first "penny stock", to obtain
documents of their client's financial situation, investment objectives, and
investment experience. Further, in accepting the account, the broker-dealer must
state why speculative securities are suitable for the client and must obtain the
client's signature before an account is actually opened; the broker-dealer must
also obtain the client's written approval for the first three transactions, and
provide monthly account statements;
(xiii) Future Dilution: In the event the Company is required to issue,
additional common shares or determines to enter into joint ventures with other
parties in order to raise financing through the sale of equity securities,
investors interests in the Company will be diluted and investors may suffer
dilution in their net book value per share depending on the price at which such
securities are sold;
(xiv) Deferred Revenues: The Company does not expect to generate any revenue
from operations until the Company is able to place into production and operate a
mining property or the Company is able to sell all or a portion of any of its
mineral properties to a major mining company, and there can be no assurance this
will be accomplished; and
(xv) Lack of Insurance: The Company does not have any insurance coverage for its
exploration and mining activities. However, the Company presently carries out
its exploration activities through independent contractors, who carry insurance
adequate for their exploration and drilling operations. Further, the Company
does not have "political risk" insurance for protection against losses caused by
foreign political acts, such as expropriation, since the costs of obtaining this
type of insurance for the Company would be prohibitive. None of the countries in
which the Company operates, namely Argentina and Portugal, have a history of
<PAGE>4
expropriation. Argentina has a free market economy with no threat of
expropriation from any political party. Portugal is part of the European Union
(EU) and is governed by EU's laws and regulations for the protection of private
property rights.
Introduction
APAC MINERALS INC. (the "Company") was incorporated pursuant to the laws of the
Province of British Columbia on September 9, 1996. The Company is a junior
natural resource company engaged in the acquisition, exploration and if
warranted, the development of mineralized properties. All of the Company's
principal resource properties are primarily in the exploration stage. The
Company owns or has interests in the mineral properties described below, and
intends to explore and develop these properties on its own or through joint
ventures and to acquire additional properties worthy of exploration and
development. The Company has not generated any revenues from mining operations,
as the Company is in the exploration stage of development.
The Company's business consists of exploring mineral properties, using modern
prospecting methods which include mapping, sampling, geochemical and geophysical
surveying, trenching, drilling, and assaying. The results of any exploration
program are compiled in technical reports. Based on the results from its
exploration work, the management of the Company will determine whether
additional exploration work is warranted, and, if so, will design further
exploration programs for that particular mineral property. In the event that
further exploration work is not warranted based on the results obtained, that
mineral property, or a portion thereof, may be abandoned by the Company, or held
and maintained for future transfer or sale by the Company.
Once sufficient exploration work has been conducted on any particular mineral
property, a feasibility study written by an independent mining engineer or
geologist is prepared based on the results of the exploration work, to determine
whether the mineral property can be economically placed into commercial
production. Provided that the feasibility study is positive, the Company must
then arrange adequate financing for the construction of mining facilities for
the processing of mineral products. When adequate financing has been arranged
and the mine construction has been completed, the mineral property can be
operated as a mine. Mineral products or concentrates are then generally sold to
a refiner or smelter for further processing. Base metals such as copper, zinc
and lead are generally marketed and sold to specific industrial consumers of
such base metals under concentrate supply contracts. Gold and silver are
generally sold directly to the refinery or smelter, as there is a ready market
for the resale of gold and silver to financial institutions and other industrial
users.
At any point in the course of the Company's activities, the Company may sell or
joint venture interests in a mineral property with other mining companies for
the purposes of the further development of the mineral property.
The Company currently employs one fulltime employee, one fulltime independent
contractor, and one part time independent contractor. None of the Company's
employees or independent contractors belong to labour unions. The Company's
exploration and drilling activities in Portugal and Argentina have to date been
carried out through independent contractors hired for cash on a project basis in
those countries.
The Company owns 100% of the issued equity shares of Prospectus -
Empreendimentos Mineiros, Ltda., a company incorporated under the laws of
Portugal ("PEML"). PEML holds an exploration concession as escrow agent for the
<PAGE>5
Company covering lands located in the Alentejo region, southeast Portugal (the
"Portel-Moura-Ficalho Concession"), which comprises an area of approximately 520
km2. The Portel- Moura-Ficalho Concession was granted in 1998 and has a term of
two (2) years, with the right to renew for a further three (3) years thereafter.
The Company also owns a forty percent (40%) interest in Arminex S.A., a company
incorporated under the laws of Argentina ("Arminex"), which it recently acquired
in January, 2000, pursuant to the exercise of a previously granted option to
purchase. The Company also holds a second option to purchase a further eleven
percent (11%) equity interest in Arminex, and a third option to purchase the
remaining forty-nine percent (49%) equity interest in Arminex. Arminex has
applied for six exploration concessions totaling 24,000 Ha. in the Catamarca
province; has three exploration concessions totaling 9,000 Ha. granted and seven
exploration concessions totaling 21,000 Ha. applied for in San Juan province;
has 25 exploration concessions totaling 93,000 Ha. granted and six exploration
concessions totaling 18,000 Ha. applied for in Mendoza province; has 13
exploration concessions totaling 36,000 Ha. granted in La Pampa province; and
has 21 exploration concessions totaling 67,994 Ha. granted and 13 exploration
concessions, totaling 57,250 Ha. applied for in the Rio Negro province.
In December, 1999, the Company entered into an agreement with Rio Tinto Mining
and Exploration Ltd. ("Rio Tinto") for the further development of the Company's
Los Menucos Property, Rio Negro Province, Argentina (see "Description of
Business - Rio Tinto Agreement" below for further particulars).
The Company's corporate structure can be represented as follows:
APAC Minerals Inc.
--------------------------------------------------------------------------
100% 40%
---------------------------------------- ----------------------------
Prospectus - Empreendimentos Arminex S.A.
Mineiros, Ltda.
Since the Company's incorporation on September 9, 1996, the Company acquired an
option to purchase eight units of mineral claims located in the Kamloops Mining
Division, British Columbia, Canada, known as the "Millenium Property". The
Company issued 50,000 common shares and paid $15,000 for the option, and
expended $275,257 in Canadian funds for exploration work on the property. The
Millenium Property was abandoned during the 1999 fiscal year due to unfavourable
exploration results. In 1998, the Company acquired a one hundred percent (100%)
undivided interest in an exploration concession located in Alentejo, Portugal,
known as the Portel-Moura-Ficalho Concession (more particularly described under
the heading "Description of Business - Portel-Moura-Ficalho Concession,
Portugal" below). As at November 30, 1999, the Company has spent a total of
$268,873 in Canadian funds for exploration work on the Concession. Further, in
1998, the Company also acquired the option to purchase Arminex S.A. described
above and more particularly described under the heading "Description of Business
- - Acquisition of Equity Interest in Arminex S.A. and Argentina Concessions"
below. As at November 30, 1999, the Company has spent $1,407,449 in Canadian
funds for exploration work on the Argentina Concessions.
The Company's property acquisitions in Portugal and Argentina, and the
exploration and development work carried out on those properties by the Company,
are more particularly described below under the heading, "Description of
Business".
<PAGE>6
For fiscal years ended February 28, 1999, 1998 and 1997, the Company expended
$357,712, $161,516, and $102,987, respectively, in aggregate exploration costs,
and as of the quarter ended November 30, 1999 the Company had $2,186,322 in
accumulated deferred development and acquisition costs, in accordance with
Canadian generally accepted accounting principles.
In this Registration Statement, all dollar amounts are expressed in Canadian
dollars unless otherwise expressly stated.
Glossary of Terms
Ag: the elemental symbol for silver.
alteration: usually referring to chemical reactions in a rock mass resulting
from the passage of hydrothermal fluids.
andesite: volcanic rock, low in quartz content, generally fine grained and
moderately dark coloured.
anomalous: a value, or values, in which the amplitude is statistically between
that of a low contrast anomaly and a high contrast anomaly in a given data set.
anomaly: any concentration of metal noticeably above or below the average
background concentration.
anticline: an arch of stratified rock in which the layers bend downward in
opposite directions from the crest.
assay: an analysis to determine the presence, absence or quantity of one or more
components.
Au: the elemental symbol for gold.
background: traces of elements found in sediments, soils, and plant material
that are unrelated to any mineralization and which come from the weathering of
the natural constituents of the rocks.
breccia: rocks which are broken by geological forces.
chalcedony: very fine crystalline quartz which may be massive or banded (agate).
chalcopyrite: copper sulfide mineral.
Cretaceous: the geologic period extending from 135 million to 63 million years
ago.
Cu: the elemental symbol for copper.
diatreme: volcanic pipe or vent formed by the explosive energy of gas charged
magma.
drift: an underground passage, approximately horizontal, often along a
mineralized zone.
dyke: a tabular body of igneous rock that has been injected while molten into a
fissure.
<PAGE>7
epidote: calcium, aluminum, iron silicate mineral commonly occurring in
hydrothermally altered carbonate-bearing rocks.
fault: a fracture in a rock where there has been displacement of the two sides.
fracture: breaks in a rock, usually due to intensive folding or faulting.
g/t or gpt: abbreviations for grams per tonne.
geochemical: relating to or measured from a method of science that deals with
the chemical composition of and chemical changes in rocks.
geophysical: relating to or measured from a method of science that deals with
the physics of the earth including magnetism, induced polarization, and
conductivity of rocks.
gossanous: relating to or identified as decomposed rock or vein material of
reddish or rusty color resulting from oxidized pyrites.
grab sample: a sample of selected rock chips collected at random from within a
restricted area of interest.
grade: the concentration of each ore metal in a rock sample, usually given as
weight percent.
hectare or ha: an area totalling 10,000 square metres.
highly anomalous: an anomaly which is 50 to 100 times average background, i.e.
it is statistically much greater in amplitude.
hydrothermal: hot fluids, usually mainly water, in the earth's crust which may
carry metals and other compounds in solution to the site of ore deposition or
wall rock alteration.
intrusive: a rock mass formed below earth's surface from magma which has
intruded into a pre-existing rock mass.
karst: chemical erosion in limestone and dolomite, causing cavities which are
sometimes filled with oxidized material.
kilometre or km: metric measurement of distance equivalent to 1,000 metres (or
0.6214 miles).
lenticular: having the shape of a double convex lens.
m: abbreviation for metre.
mineral resource: the estimated quantity and grade of mineralization that is of
potential economic merit. A resource estimate does not require specific mining,
metallurgical, environmental, price and cost data, but the nature and continuity
or mineralization must be understood.
mineralization: usually implies minerals of value occurring in rocks.
<PAGE>8
ore: a natural aggregated of one or more minerals which may be mined and sold at
a profit, or from which some part may be profitably separated.
outcrop: means an exposure of rock at the earth's surface.
overburden: a general term for any material covering or obscuring rocks from
view.
Pb: the elemental symbol for lead.
porphyry: rock type with mixed crystal sizes, i.e. containing larger crystals of
one or more minerals.
possible or inferred ore: term used to described ore where the mineralization is
believed to exist on the basis of some geological information, but the size,
shape, grade, and tonnage are a matter of speculation.
ppm: abbreviation for parts per million, and is also equivalent to 1 gram/tonne.
probable or indicated ore: the estimated quantity and grade of all or part of
mineralized body for which sufficient information on continuity, extent, grade
distribution (mining method, dilution, metallurgical process, mineral recovery,
infrastructure, environmental considerations, operating costs and capital costs)
is available to form the basis of a study indicating an economically viable
operation at long-term forecast average metal prices, but which has not been
measured in sufficient detail to allow it to be classified as proven.
propylitic: a rock alteration assemblage comprising calcite, epidote, chlorite,
pyrite and other minerals, found typically in the periphery of a hydrothermal
system.
proven or measured ore: means the material for which tonnage is computed from
dimensions revealed in outcrops or trenches or underground workings or drill
holes and for which the grade is computed from the results of adequate sampling,
and for which the sites for inspection, sampling and measurement are so spaced
and the geological character so well defined that the size, shape, and mineral
content are well established.
pyrite: iron sulfide mineral.
quartz: silica or SiO2, a common constituent of veins, especially those
containing gold and silver mineralization.
silicification: replacement of the constituent of a rock by quartz.
ton: imperial measurement of weight equivalent to 2,000 pounds (as called a
"short ton").
tonne: metric measurement of weight equivalent to 1,000 kilograms (or 2,204.6
pounds).
tuff: a rock comprised of fine fragments and ash particles ejected from a
volcanic vent.
veins: the mineral deposits that are found filling openings in rocks created by
faults or replacing rocks on either side of faults.
<PAGE>9
vuggy: the characteristic of rocks having small unfilled cavities.
Zn: the elemental symbol for Zinc.
PART I
Item 1. Description of Business
Portel-Moura-Ficalho Concession, Portugal
Acquisition
By a binding Letter of Intent dated April 15, 1998, between the Company and
EXMINCO Exploration and Mining Investment Company Establishment ("EXMINCO"), the
Company acquired from EXMINCO an 100% interest in an exploration concession
covering lands located in the Alentejo region, southeast Portugal, known as the
"Portel-Moura-Ficalho Concession," which comprises an area of approximately 520
km2 in three separate parcels. The Portel-Moura-Ficalho Concession was granted
in 1998 and has a term of two (2) years, with the right to renew for a further
three (3) years thereafter. The Portel-Moura-Ficalho Concession will expire on
April 17, 2000, and the Company has applied for renewal.
In consideration of the acquisition, the Company has paid to EXMINCO a $10,000
non-refundable deposit, and has issued to EXMINCO 2,000,000 common shares in the
capital stock of the Company, upon transfer of the Portel-Moura-Ficalho
Concession to a wholly-owned subsidiary of the Company incorporated in Portugal
under the name Prospectus - Empreendimentos Mineiros, Ltda. ("PEML"). The
Company is the operator of the Portel-Moura-Ficalho Concession. In addition, in
order to maintain the concession in good standing, the Company is required by
the mining laws of Portugal to perform minimum exploration work on the
Portel-Moura-Ficalho Concession of approximately US$550,000 by April 17, 2000,
and pay a surface tax of US$14,500 per year. The Portuguese government retains a
net smelter royalty of no more than 3% on any production from the
Portel-Moura-Ficalho Concession. As at August 31, 1999, the Company has expended
$243,873 in Canadian money for exploration work on the Portel-Moura-Ficalho
Concession, and therefore the Company has not yet met the minimum exploration
work requirements of the Portuguese Government. The Company does not intend to
spend further funds on this Concession, unless the Company's application to
renew the Concession is approved by the Portuguese Government. There are no
minimum work requirements under the Portuguese mining law, however, minimum
exploration work is specified in each case between the concessionaire and the
Portuguese Government by contract, and can normally be renegotiated provided
that the concessionaire is actively exploring the property. The Company is
currently in discussion with the Portuguese authorities for the purpose of
renewing the Portel-Moura-Ficalho Concession. Furthermore, if the exploration
concession is extended and if the Company should determine to proceed with a
mining development, the Company would need to file an acceptable Environmental
Imput Study and obtain a mining development permit from the from the Portuguese
authorities.
Location and Geology
The Portel-Moura-Ficalho Concession is located approximately 160 km
east-southeast of Lisbon and is accessible via road and all terrain vehicle
(see: Figure 1 hereto for the locations of the properties within the
Portel-Moura-Ficalho Concession). The area is characterized by gently rolling
hills with more rugged relief towards the southwest where the anticlinal
structures form hills up to 300 metres. Inside the Concession there is a wide
variety of lithologic and stratigraphic units. These units includes sedimentary,
metamorphic and igneous rocks from Recent to Precambrian in age. Structurally,
three (3) main anticlines run from north-west to south-east from Moura to
<PAGE>10
Ficalho, with a vergency to the southwest, the result of a second folding phase
during the Hercynian. The Concession comprises a northwest-southeast striking
Cambrian-Ordovician belt of syngenetic carbonate hosted Zn-Pb mineralization
which can be followed for more than 60 km.
Previous History and Results of Work
The State Geological Service in Portugal, now known as the Geological e Mineiro
("IGM") conducted drilling during the 1980's and 1990's in the northern part of
the Concession (in the Portel District), and outlined a large zinc and lead
mineralized area. The lenticular mineralization occurs at shallow depths
(100-200 metres). The Company has analyzed in detail all available drilling
data. No significant drill intersections were discovered. Therefore, for the
time being, the Portel area will be given lower priority for exploration work.
In the central part of the Concession (in the Moura district), geochemical and
geophysical surveys carried out by IGM have revealed several anomalies. Some of
these have been tested by widely spaced (200 metres) drill holes resulting in
the discovery of the Enfermerias zone at a depth of 300-400 metres.
In the central part of the Concession (in the Moura district), geochemical and
geophysical surveys carried out by IGM have revealed several anomalies. Some of
these have been tested by widely spaced (200 metres) drill holes resulting in
the discovery of the Enfermerias zone at a depth of 300-400 metres.
In the southern part of the Concession (in the Ficalho district) mineralization
occurs in two (2) dolomite anticlines. The Serra-Preguica anticline can be
followed for 6 km. A limited drilling program conducted by IGM in the north
intersected the Carrasca mineralization. Only one limb of the anticline has been
tested by drilling, while geochemical and geophysical anomalies conducted by IGM
show that both limbs are mineralized.
The parallel anticlines on Ficalho-Andicia can be followed for more than 10 km
and contained the most extensive and strongest geochemical anomalies within the
Concession. No drilling or trenching program has been carried out on this
portion of the property.
In 1998, the Company trenched one of the main geochemical Pb-Zn anomalies near
the road in the Palhais area. The trenches totaled 1,326 metres in length,
divided into 6 trenches perpendicular to the anomaly. The trenches revealed
outcropping gossanous rocks which can be followed for at least 500 metres with
maximum width of 75 metres.
The two main intersections gave the following results by sampling: 2.77% Pb,
2.75% Zn over 40 metres including 4.9% Pb, 5.4% Zn over 4 metres and 3.72% Pb,
14.72% Zn over 2 metres, in trench A; and 0.59% Pb, 7.48% Zn over 4 metres, as
well as 0.11% Pb, 4.08% Zn over 2 metres in trench B.
A limited drill program of 250 metres tested the depth extension of the
mineralization in the trenches. Below 50 metres no further mineralization was
encountered. The conclusion is that the mineralization is a karst filling in
dolomite. Therefore, no further work is planned in this area.
<PAGE>11
Proposed Work
A program is now in progress to evaluate all results from the Portuguese
government's previous work on the concession. The Company intends to test at
least one target with a limited drill program, provided that the Company is
successful in obtaining a renewal from the Portuguese government for the
Concession as discussed above. The proposed drill program has the following
estimated costs:
Drilling $60,000
General exploration
costs and reports $20,000
-------
$80,000
=======
Acquisition of Equity Interest in Arminex S.A. and Argentina Concessions
Acquisition
By an Option to Purchase and Shareholders' Agreement dated October 24, 1998, as
amended November 27, 1998, February 6, 1999, March 25, 1999, and June 4, 1999
(the "Option Agreement"), between the Company and Arminex S.A., an Argentinean
company ("Arminex"), and Lafayette Limited of Kingstown, St. Vincent and Ilmars
Gemuts of Mahopak, New York (collectively the "Optionors"), the Company was
granted the option to purchase up to an aggregate fifty one percent (51%) equity
interest in Arminex, in consideration of the payment of $50,000. In order to
earn the first 40% interest in Arminex, the Company was required to expend
$650,000 on Arminex's concessions on or before December 14, 1999 (which has been
spent), and issue 800,000 shares to the Optionors after filing a technical
report acceptable to the Canadian Venture Exchange. The Company has incurred the
required exploration expenditures and has issued the 800,000 shares to the
Optionors, having filed and received acceptance from the Canadian Venture
Exchange for the technical report.
The Company has earned 40% equity interest in Arminex, and now the Company may
acquire an additional 11% interest in Arminex by expending a further $1,500,000
on Arminex's concessions in Argentina within the next two year period. In
addition, if at any time before December 14, 2003, exploration work on any of
the concessions in which Arminex has an interest results in proven and probable
reserves equal to or greater than 1,000,000 ounces of gold or gold equivalents,
the Optionors shall be entitled to receive a performance bonus calculated at
US$5.00 per ounce, which will be paid to the Optionors pro rata based on their
then current equity interest (if any) in Arminex. The Company will have the
option to pay the performance bonus in US dollars or in free trading common
shares of the Company valued at the 30 day weighted average closing price of the
Company's shares prior to the date of the public disclosure of the proven and
probable reserves.
Under the terms of the latest amendment to the Option Agreement, the Optionors
and Arminex have irrevocably granted to the Company the exclusive option to
purchase the remaining 49% interest in Arminex, provided of course that the
Company has first exercised its options to acquire the first 51% equity interest
in Arminex. The Company may exercise the option within 6 months of earning its
51% interest in Arminex by paying to the Optionors the additional sum of
$500,000 and issuing to the Optionors a further 5,000,000 common shares of the
Company, provided that:
<PAGE>12
(i) the average closing price of the common shares of the Company on
any public stock exchange which trades the highest volume of such
shares for twenty (20) trading days preceding the date of
exercise is at least $1.00 per share; and
(ii) the Company has filed a current Annual Information Form with the
British Columbia Securities Commission (which has been filed, but
must be updated annually).
The Company's issue of the 5,000,000 common shares is first subject to the prior
acceptance for filing by the Canadian Venture Exchange of an independent
technical report which establishes a minimum value of not less than $5,500,000
for the remaining 49% equity interest in Arminex. In the event that the Company
acquires a 100% interest in Arminex, then any further obligation of the Company
to pay the US$5.00/oz performance bonus described above will of course be
eliminated.
Arminex has applied for six exploration concessions totaling 24,000 Ha. in the
Catamarca province; has three concessions totaling 9,000 Ha. granted and seven
concessions totaling 21,000 Ha. applied for in San Juan province; has 25
concessions totaling 93,000 Ha. granted and six concessions totaling 18,000 Ha.
applied for in Mendoza province; has 13 concessions totaling 36,000 Ha. granted
in La Pampa province; and has 21 concessions totaling 67,994 Ha. granted and 13
concessions, totaling 57,250 Ha. applied for in the Rio Negro province. Each of
these areas are discussed in more detail below (see: Figure 2 hereto for the
locations of these concessions).
Location and Geology
Catamarca Concessions
The Catamarca concessions contain Pb-Zn-Ag mineralization, which is believed to
be the outer limb of a porphyry system.
These concessions are speculative exploration properties, as to date there has
been very little exploration work conducted on these concessions.
San Juan Concessions
The El Leoncito prospect is the principal exploration target within the San Juan
concessions. This prospect was first tested in 1969 by the United Nations. It is
located 35 km to the southwest of Barreal, in San Juan Province. Access to the
prospect is from Barreal along the Pachon Road. The prospect area consists of
Permo-Triassic rhyolitic and granitic Choiyoy Formation, intruded by andesitic
hornblende porphyry which has been propylitically and physically altered over a
1 km2 surface area. The porphyry is limited by an oval breccia ring dyke 1 km
across in the long axis.
The system is cut by NNE fractures superimposed on a northwest set. There is
relict disseminated chalcopyrite, pyrite and molybdenite mineralization within
altered zones. The alteration consists of sericite, kaolin and silica, and it is
irregularly distributed at the surface. The most altered areas contain
malachite, turquoise and black limonite with jarosite at the surface. Induced
Polarization (I.P.) surveys of the area indicated that there are sulfides at
depth (at about 200 metres). Three diamond drill holes were drilled by the
United Nations. These did not intersect any mineralization of any significance.
Each hole was +/-100 metres deep. One hole (No. 3) contained 40 - 1600 ppm Cu
and 6 to 112 grams/tonne Mo. In the Company's view, the location of these
<PAGE>13
holes was not wisely chosen because there was no road network in the area, and
each hole was placed where there was easier access.
Argentina Minerals Development S.A., a subsidiary of an Australian resource
company, drilled a hole to the east of the prospect, to check out a magnetic
anomaly. This drill hole intersected anomalous molybdenum values (up to 0.3% Mo)
and bornite.
Mendoza and La Pampa Concessions
The Mendoza and La Pampa concessions cover mainly outcropping rocks from the
Permo-Triassic Choiyoy Group, which are believed to contain both porphyry and
epithermal mineralizations related to young Tertiary intrusives into the Choiyoy
group of rocks.
The concessions were claimed based on the above geological relations combined
with major alterations. Within the Mendoza and La Pampa Concessions, quartz
veins are present on the Chadi Levu prospect, but insufficient sampling has been
done to determine their significance.
These concessions are also speculative exploration properties.
Rio Negro Concessions
The Rio Negro concessions comprise Arminex's most interesting properties, and
are where Arminex has concentrated most of its previous exploration efforts. The
Company also intends to conduct the main part of it's the exploration work for
the next six to twelve months on these concessions.
The most promising properties are in the Los Menucos district, which is situated
in the centre of Rio Negro Province within the physiographic division of the
Somuncura Massif. This plateau consists of a Proterozoic metamorphic basement
with younger igneous rocks and complexes above it. The most favourable rocks for
mineralization are the Permo-Triassic Choiyoy Formation (and equivalents i.e.
Garanilla, Los Menucos and Sierra Colorada Formations). In Rio Negro, the
Permo-Triassic Choiyoy and older rocks are intruded by many plutons.
The Los Menucos district has the largest significant concentration of advance
argillic altered Choiyoy-age ignimbrites and rhyolites in Argentina. The
Company's interpretation of the geology is that much of the alteration is
related to the intrusion of rhyolite dome fields below the multitudinous felsic
volcanic rocks. Large bodies of phreatic breccias and also hematite-rich
hypogene altered zones are associated with this alteration. Characteristic of
this alteration regime are vuggy silica, quartz-stockwork, kaolin and
pyrophyllite concentrations. The Los Menucos district has potential for acid
sulfate (high sulfidation) type gold mineralization. The first significant
discovery of this type is Arminex's El Puesto prospect.
The central part of the Los Menucos district is underlain by a thick sequence of
Permo-Triassic, Choiyoy age, rhyolite, ignimbrite, dacite and rhyo-dacitic tuff
sequences. The area is cut by literally hundreds of east-west trending faults
which in many parts control base and precious metal mineralization. The Permo-
Triassic Choiyoy rocks are intruded by granitic and monzonitic plutons. This
igneous platform is overlain by Cretaceous and Tertiary (Miocene) basalts. Along
the edges of the main basalt flows there are latite- cinder cone fields
controlled by north-south trending faults. Potential gold and base metal
exploration prospects are located at the intersections of east-west, north-south
and north-westerly trending fault trends.
<PAGE>14
There are many old workings (fluorite and base metals) next to or within the
well developed east-west trending fault systems, which appear to be
post-Miocene. The faults cut the younger granitoids, but are covered by younger
Tertiary basalt. All mineralization in the Los Menucos district appears to be
pre- basaltic in age.
A Landsat image of the Los Menucos district was used to discover new
mineralization. All white, whitish blue and cyan anomalies were checked on the
ground. One hundred and six anomalies were checked. Of these, six were
anomalous, containing alteration and gold mineralization and trace elements.
Further fieldwork disclosed a zone 50km long and 10km wide, containing numerous
showings of high-sulfidation disseminated gold mineralization. This zone trends
from southeast to northwest. The main prospects within this zone are El Puesto
(4 sq. km.), Caltrauna, where silification and strong alteration can be seen
over an area of 20 sq. km, and Cuya/Aguadita, where new exploration discoveries
of mineralization have expanded the potential area to nearly 30 sq. km.
El Puesto Prospect
El Puesto Prospect outcrops over an area comprising 1.5 x 1.5 kms. To the north,
the mineralization disappears under a large clay pan (or lake?). Ground magnetic
surveys indicate that the bedrock below the "lake" consists of rocks which may
be similar to that in the main prospect area. If this is the case, the
dimensions of prospect would be increased to 2.1 x 1.5 kilometers. In the
south-east sector of the prospect, the mineralization is unconformably overlain
by post-mineral ignimbrite and quartz-eye crystal tuff.
The best potential gold mineralization is within the north-central part of the
prospect area. It consists of light to dark grey vuggy silica with rare, thin
quartz vein networks, interbedded with or ramified with
sericite-pyrophyllite-dickite rocks. In some areas the vuggy silica appears to
be "dyke-like" and in other areas it forms beds, as if SiO2 rich solutions had
replaced a particular lithic or crystal tuff unit. It appears that the original
rock type in the prospect area was a rhyolitic or dacitic tuff with quartz-eye
crystals. All the rocks have been altered, from advanced argillic in the centre
through phyllic to propylitic on the outer margins.
There is much hematite and limonite veining throughout the property; some of
which may indicate hypogene oxidation. In the areas where there is much
sericite, jarosite coats joint and fracture surfaces. Locally there are
limonite/hematite beds and gossans. There is minor alunite in the southern part
of the prospect.
The potential gold mineralization is assumed to be very fine-grained, because it
is impossible to pan gold in the streams. There is visible gold on the surface,
in particular within limonitic vuggy SiO2 units. This gold is extremely fine and
occurs as paint on joint surfaces. It may be of supergene origin. The highest
gold assays come from hematitic/limonitic gossans in the eastern part of the
area. These appear to be within vuggy SiO2 and sericite beds which originally
may have been very sulfide-rich. The Ag/Au ratio is 8:1.
The eastern sector is cut by thin rhyolite-dyke swarms. All dykes have wide
phyllic alteration halos which contain up to 0.5 gpt Au. It is possible that
some of the mineralization is related to these dykes which may originate from
rhyolitic domes at depth (below 200 metres).
All of the Company's field data indicate that the best gold values are within
the vuggy SiO2 units. Also the SiO2 forms beds, dykes and replacements in
quartz-eye crystal tuffs. The Company's interpretation indicates that there may
<PAGE>15
be a folded "favorable bed" target at this prospect. Only further drilling can
determine if this is the case.
479 samples were collected for assay. Each sample is a chip composite of
individual outcrops, which range in area from four to fifty square metres. Of
these samples, 144 assayed greater than 0.5 gpt Au. The average gold content of
these is 3.51 gpt and 91 samples contained more than 1 gpt Au. The average of
all these samples is 5.11 gpt Au. Practically all of the samples contain
anomalous gold values. No more than thirty samples contain gold below limits of
detection. The areas that do not have outcrop were soil sampled.
The Company completed geophysical surveys at the El Puesto and Caltrauna
Prospects in May 1999. A preliminary assessment of the results of the
geophysical surveys at El Puesto Prospect indicates that the following general
conclusions can be made:
1. There is a marked magnetic low over the altered parts of the
prospect area. This indicates possible hypogene oxidation and
destruction of magnetite. This low covers about one square
kilometer. Other, smaller magnetic lows have been outlined to the
east of the prospect area.
2. One dipole-dipole line (10 600E) indicates that down to at least
100 metres there is a resistive zone of 250-300 ohm metres. Four
strong, SiO2 altered zones can be seen on the pseudo section.
They extend down to 100 metres; all these zones correspond to
gold mineralization on the surface.
3. The gradient array survey (data received from about 200 metres
below surface) indicates that the prospect area is underlain by a
low-resistivity and low-chargeability domain which may be related
to a rhyolitic dome at depth.
4. There is a near surface, strong chargeability and low resistivity
anomaly on line 10,400 N. this may represent a thirty metre wide
massive sulfide. It is located below the lake. The source of this
anomaly can only be determined by drilling.
5. The strong correlation of magnetic low and resistivity high and
chargeability low down to 100 metres indicates that the El Puesto
prospect is very anomalous geophysically.
A total of 1,772m of reverse circulation drilling was carried out on El Puesto
in August 1999 (see: Figure 3 hereto for the drill hole locations).
The drilling results are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
From To Length Au Value Length of
Drillhole
--------- ------------ ------ --------- ------------ ------------
EP 1 0 34 34m 0.96g/t 102m
Includes 12m 1.76g/t
<PAGE>16
From To Length Au Value Length of
Drillhole
--------- ------------ ------ --------- ------------ ------------
EP 2 2 38 36m 1.30g/t 90m
Includes 24m 1.76g/t
--------- ------------ ------ --------- ------------ ------------
62 68 6m 0.91g/t
Includes 2m 1.60g/t
--------- ------------ ------ --------- ------------ ------------
EP 4 14 56 42m 0.23g/t 78m
--------- ------------ ------ --------- ------------ ------------
EP 5 6 16 10m 0.93g/t 78m
Includes 6m 1.20g/t
--------- ------------ ------ --------- ------------ ------------
EP 6 8 24 16m 0.88g/t 60m
Includes 8m 1.20g/t
--------- ------------ ------ --------- ------------ ------------
42 48 6m 1.20g/t
Includes 2m 2.70g/t
--------- ------------ ------ --------- ------------ ------------
EP 7-10 had no significant intersections. Those holes were outside the main zone
of alteration and were sited to test an area were surface samples gave values up
to 58g/t. These holes hit less altered rocks with low gold values. The lengths
of these holes were from 40 to 108m.
EP 11 tested a geophysical target more than 1 km outside the main alteration
zone. No significant intersection of mineralization was encountered. The length
of the drill hole was 40m.
From To Length Au Value Length of
Drillhole
--------- ------------ ------ --------- ------------ ------------
EP 12 20 30 10m 0.86g/t 100m
Includes 4m 1.40g/t
--------- ------------ ------ --------- ------------ ------------
EP 13 2 18 16m 1.00g/t 100m
--------- ------------ ------ --------- ------------ ------------
EP 14 No significant intersections 78m
--------- ------------ ------ --------- ------------ ------------
EP 15 0 22 22m 0.56g/t 100m
Includes 4m 1.40g/t
--------- ------------ ------ --------- ------------ ------------
EP 16 No significant intersections 100m
--------- ------------ ------ --------- ------------ ------------
EP 17 6 12 6m 1.60g/t 84m
</TABLE>
EP 18 was drilled to test a small vuggy quartz outcrop in the far south of the
prospect area, but did not hit any vuggy quartz. No significant intersection of
mineralization was encountered. The length of the drill hole was 66m.
<PAGE>17
EP 19 and EP 20 were located to test soil-covered geochemical (M.M.I.) anomaly,
at the north end of the prospect and did not have any significant
mineralization. These holes were 102m and 108m long respectively.
<TABLE>
<S> <C> <C> <C> <C> <C>
From To Length Au Value Length of
Drillhole
--------- ------------ ------ --------- ------------ ------------
EP 4 80 76m 0.50g/t 126
Includes 8m 2.30g/t
Includes 2m 4.50g/t
--------- ------------ ------ --------- ------------ ------------
</TABLE>
All holes except EP 21 inclined at -50(degree), EP 21 inclined at -70(degree).
The higher gold values stated above are from vuggy silica intercalated with
hematite/goethite. Within the main alteration zone the remaining parts of the
holes consist of sericite-illite rock with clay minerals. This rock is always
anomalous in gold, but contains lower values.
Caltrauna Prospect
The Caltrauna Prospect was discovered in March 1999. The Caltrauna Prospect
consists of an elliptical, basin shaped, vuggy silica structure 5 km long by 4
km across. The central part of this structure is overlain by ignimbrites and
quartz-eye crystal tuff. Preliminary chip sampling (200 samples) from the
southern end indicates anomalous gold (average 0.80 g/t Au) with barite (average
1000 grams/tonne barium) and copper (average 300 ppm). Mineralized, altered
breccias were discovered along the western edge of the Caltrauna Prospect.
Detailed gridding, chip sampling and geological mapping in southern Caltrauna
was completed by the end of May 1999. Caltrauna has a weak Landsat anomaly. This
is related to the vuggy silica outcrops.
Caltrauna is located 5 kilometres north-west of Puesto Prospect. It is within a
circular structure shaped in the form of a Q; its dimensions are 4x5 kms. During
May 1999, the southern half of the area (2x2 kms) was gridded and mapped.
Along the western margin of the gridded area there is a concentration of vuggy
silica with "cores" of diapiric breccias. These intrusives and the concentration
of gold mineralization within the vuggy silica are controlled by two
north-westerly trending faults.
The diapiric breccias consist of matrix supported clasts of rhyolitic porphyry,
welded tuff and vuggy silica. The breccias are cut by a stockwork of limonitic
and silica-rich-veins. The breccias intrude lithic, crystal, airfall tuffs, with
quartz and K-spar phenocrysts. The matrix of the breccias and the wall rocks are
altered to quartz-sericite, quartz-sericite - pyrophyllite, or quartz-dickite
bearing assemblages.
The breccia diatremes intrude up to various stratigraphic levels of the
rhyodacitic, quartz crystal, lithic tuffs. Acid solutions emanating from the
magmatic fluids related to the breccias have altered certain units within the
quartz lithic tuff units. The most common alteration is silicification, and
locally argillitisation.
<PAGE>18
The distribution of SiO2 - rich rocks and geophysical data indicates that there
will be SiO2 rich rocks (sometimes with related rhyolite domes) below the
extensive crystal-lithic tuff unit.
All samples with anomalous gold contents are related to vuggy silica outcrops.
Values come from baryte- bearing, limonitic silica zones.
The Company has completed preliminary reconnaissance magnetic and I.P surveys
over southern area of the Caltrauna Prospect. Strong vuggy silica development is
related to areas where there is complete destruction of magnetite and where
there are strong magnetic lows. Two of these altered areas are:
o North-East Caltrauna Grid; and
o A 500 metre wide 2 km long trending belt north-northwesterly from
10,600 E.
Also, a dipole-dipole survey along 10,000 N indicates that the vuggy
SiO2/breccia units have very high resistivity and higher than normal I.P.
effect.
The August 1999 drill program on the Caltrauna Prospect (see: Figure 4 for drill
locations) had the following results:
<TABLE>
<S> <C> <C> <C> <C> <C>
From To Length Au Value Length of
drillhole
- -------- ------------ ------ --------- ------------ ------------
CT 1 0 10 10m 0.72g/t 100m
Includes 6m 1.10g/t
- -------- ------------ ------ --------- ------------ ------------
CT 5 12 32 20m 0.53g/t 78m
Includes 4m 1.34g/t
- -------- ------------ ------ --------- ------------ ------------
CT 7 104 114 10m 0.60g/t 120m
Includes 2m 1.20g/t
- -------- ------------ ------ --------- ------------ ------------
CT 8 2 30 28m 0.70g/t 96m
Includes 6 1.20g/t
- -------- ------------ ------ --------- ------------ ------------
CT 9 4 54 50m 1.40g/t 78m
Includes 12m 2.44g/t
</TABLE>
Five holes (CT 2,3,4,6 and 10) had anomalous gold (~0.2g/t), but no significant
intersection. The lengths of these holes vary from 72 to 100m.
CT11 was drilled into a silica fragment-rich breccia and contained 22m of 0.2g/t
Au.
CT12 through CT17 tested vuggy silica outcrops in a higher "stratigraphic" level
than previous drilling and did not encounter significant mineralization.
CT13 and CT18 were drilled to test geophysical resistivity anomalies, but there
were no positive results.
<PAGE>19
The lengths of the holes were from 54m to 96m and inclined at -50(degree). A
total of 1,532m of reverse circulation drilling has been carried out on
Caltrauna.
As the drilling results from El Puesto Prospect, the higher gold values are from
vuggy silica intercalated with hematite/goethite. The silica without vuggy
characteristics and the sericite-illite alteration only report lower gold
values, but still highly anomalous.
Detail mapping and sampling at Caltrauna has only covered an area of 1.5 sq. km,
of which only a small portion has been tested by these drillholes. The Caltrauna
prospect covers about 5 sq. km (as defined by abundant silica outcrops). The
wider zone with strong alteration and discontinuous silica outcrops covers
almost 20 sq. km., which has yet to be mapped and sampled in detail.
Cuya/Aguadita
The Cuya/Aguadita Prospects consist of an original discovery of an approximately
1 sq.km. large silica sinter, anomalous in gold with an underlying breccia
stockwork zone.
Recent work has shown widespread alteration and vuggy quartz, similar to El
Puesto and Caltrauna over a much larger area (30 sq.km.)
The August 1999 drill program on the Cuya Prospect (see: Figure 5 for drill
locations), had the following results:
Six holes were drilled in the southern margin of the prospect on the side of a
hill. The hill itself contains the main part of the prospect consisting of a
silicified and mineralized breccia (1 1/2 x 1 1/2 km). The results are as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
(m) (Au) (m)
--------- ----------- -------------
Hole No. From To Length Assay Length of
Drillhole
- ------------- ----------- ------- --------- ----------- -------------
CY 1 2 98 96 0.21g/t 132
Includes 2 0.60g/t
- ------------- ----------- ------- --------- ----------- -------------
CY 2 0 82 82 0.23g/t 108
Includes 4 0.67g/t
- ------------- ----------- ------- --------- ----------- -------------
CY 3 8 62 56 0.22g/t 144
98 116 18 0.25g/t
Includes 2 0.9g/t
- ------------- ----------- ------- --------- ----------- -------------
CY 4 4 78 74 0.23g/t 130
Includes 4 0.50g/t
84 104 20 0.16g/t
- ------------- ----------- ------- --------- ----------- -------------
CY 5 4 102 98 0.23g/t 102
Includes 4 0.50g/t
- ------------- ----------- ------- --------- ----------- -------------
CY 6 42 66 24 0.15g/t 78
</TABLE>
<PAGE>20
The Company considers these results to be very encouraging, considering that
most drill holes had low grade intersections of mineralization, and were located
outside the main part of the prospect. The major and central part of the
prospect will be covered by future drill programs.
CY to CY5 were on a line covering about 400m distance, while CY6 was located
200m south and further away from the hill.
The holes were all inclined at -50(degree).
A total of 694m reverse circulation drilling has been carried out on Cuya.
Rio Tinto Agreement
By a Share Subscription Agreement dated December 2, 1999, between the Company
and Rio Tinto Mining and Exploration Limited ("Rio Tinto"), the Company has
issued to Rio Tinto 583,333 common shares at a price of US$1.20 per share to
raise US$700,000. The net proceeds from the private placement will be used to
fund additional exploration work on the Company's Los Menucos Property, Rio
Negro Province, Argentina, which will include diamond drilling of exploration
targets on the property during the next eight months. The Company has granted
Rio Tinto the right to conclude an option agreement (the "Option Agreement"), to
earn up to a 75% undivided interest in one or more of the exploration targets
until August 20, 2000.
In order to earn an interest in any target area, Rio Tinto would be required to
complete the following exploration expenditures within six years of the
anniversary of any Option Agreement which may be executed:
(a) Rio Tinto will earn a 55% undivided interest in each target area by
incurring exploration expenditures of US$2,000,000 on the target area;
(b) Rio Tinto can earn an additional 15% undivided interest in each target area
by incurring an additional US$8,000,000 in exploration expenditures or by making
a decision to develop a mine prior to completion of the US$8,000,000
expenditure;
(c) Rio Tinto can earn an additional 5% undivided interest in each target area
by incurring an additional US$10,000,000 in exploration expenditures or by
making a decision to develop a mine prior to completion of the US$10,000,000
expenditure.
The field work is expected to commence early in the year 2000, and will include
diamond drilling to at least 200 metre depths on a number of the exploration
targets.
<PAGE>21
Proposed Work
On the Menucos project the work up to now has concentrated on the two target
areas, El Puesto/Caltrauna in the southeast of the project area and Cuya in the
northwest.
During February/March 2000, the Company intends to map and prospect the large
area between the above two prospect areas. A program of reverse circulation
percussion drilling will start on April 1, 2000 on the two previously identified
targets and any new targets discovered by the new mapping and sampling program.
This drill program of at least 4000 metres should be completed by June 30, 2000.
At least 2000 metres are planned, consisting of diamond drilling in order to
identify and clarify mineralized lithologies and structures.
In conjunction with the drilling, further checking of Landstat anomalies within
Rio Negro and adjacent provinces will continue. Some reconnaissance work will
start on other concessions within Arminex property portfolio. The estimated
costs of the proposed drilling and reconnaissance work are as follows:
Estimated Costs
Cost of completing proposed drill program (included assaying) $ 715,000
Follow up field program with sampling and mapping $ 200,000
Property concession holding costs $ 60,000
Office and contingencies (in Argentina) $ 40,000
----------
TOTAL: $1,015,000
==========
Plan of Operations
For the remainder of the fiscal year 2000 and for the first six months of the
Company's fiscal year 2001, the management of the Company intends to concentrate
their efforts on the further exploration of the prospects within the Los Menucos
District, Rio Negro Province, Argentina, in accordance with its agreement with
Rio Tinto. The balance of the Company's exploration efforts will be devoted to
the Company's other concessions in Argentina. The Company intends to pursue
anomalies within geological favourable areas which have already been identified
by the Company. These exploration targets will be explored by sampling and
mapping, and geophysical surveys. Subject to adequate funding, the Company plans
to also have several drilling targets ready by early 2001. Subject to adequate
funding, the first six months of 2001 fiscal year will be spent on extensive
exploration and drilling of these targets, possibly involving other mining
companies through joint venture agreements. In the event that the Company's
Portuguese Concession is renewed, the Company intends to spend an estimated
$80,000 on further exploration work in Portugal.
The management of the Company believes that there will not be adequate funds to
cover the proposed exploration and development work on the Argentine concessions
and on the Portel-Moura-Ficalho Concession in Portugal, as more particularly
discussed above, for the remainder of the fiscal year and for the first six
months of the next fiscal year. The Company proposes to raise additional
financing through the sale of equity securities during this period, although
there can be no assurance that such funding will be available. In the event that
future equity financing cannot be raised or the negotiations for joint venture
funding are not successful, the Company's operations will be curtailed and this
may adversely affect the Company's ability to carry out the required level of
expenditures to continue to earn a larger equity interest in Arminex or
<PAGE>22
ultimately to maintain its concessions in good standing under the laws of
Argentina or Portugal or both.
Item 2. Description of Property
For a description of the Company's properties, see Item 1, "Description of
Business."
Item 3. Legal Proceedings
The Company is not involved in any legal proceedings.
Item 4. Control of The Company
(a) As far as is known to the Company, it is not directly or
indirectly owned or controlled by any other corporation or by the
Canadian Government, or any other foreign government.
(b) The following table sets forth information as at January 20,
2000, the total amount of the Company's Common Shares owned by
the Company's officers and directors as a group. The Company
knows of no person who owned more than 10 percent of Common
Shares.
Number of Shares of Percent
Name Common Shares Owned of Class
- ------------------------------------- ------------------- --------
All Officers and directors as a Group
(5 persons) 1,045,000 (1) 10.56%
(1) Of these shares, originally 750,000 shares were deposited in escrow in
1997, and on November 8, 1999, 375,000 shares were released from escrow,
leaving a balance of 375,000 shares in escrow. While held in escrow, the
escrowed shares may not be sold, pledged, hypothecated or otherwise
disposed of until they are released from escrow restrictions. The release
of the escrowed shares is subject to the discretion of the regulatory
authorities having jurisdiction. Generally, however, 15% of the original
number of escrowed shares is released for every $100,000 in exploration
expenditures incurred by the Company, not previously applied towards a
release.
Item 5. Nature of Trading Market
The common shares of the Company are listed on the Canadian Venture Exchange,
which is the principal trading market ("CDNX"), under the symbol APC. The
Company intends to make application to quote the common shares of the Company on
the over-the-counter bulletin board market administered by the National
Association of Securities Dealers Inc. (NASD). No assurance, however, can be
given that such application for a quotation on the OTC-BB market will be
successful. The Company's common shares have not previously traded in the United
States on any recognized stock exchange or market.
As of January 20, 2000, there was one shareholder of record resident in the
United States, representing approximately 1.17% of the total issued shares. The
Company's common shares are issued in registered form and the percentage of
shares reported to be held by record holders in the United States is taken from
the records of Pacific Corporate Trust Company in the City of Vancouver, British
Columbia, the Registrar and Transfer Agent for the common shares.
<PAGE>23
The high and low prices expressed in Canadian dollars on the CDNX for the
Company's common shares for each quarter for the last two fiscal years, and the
first three quarters ended November 30, 1999, are as follows:
<TABLE>
<S> <C> <C>
Canadian Venture
Exchange
(Canadian Dollars)
1999 High Low
- --------------------------------------- ------ ------
First Quarter ended May 31, 1999 $1.50 $0.70
Second Quarter ended August 31, 1999 $1.40 $0.90
Third Quarter ended November 30, 1999 $0.64 $0.62
1999-1998 High Low
- --------------------------------------- ------ ------
First Quarter ended May 31, 1998 $0.75 $0.50
Second Quarter ended August 31, 1998 $0.85 $0.50
Third Quarter ended November 30, 1998 $0.65 $0.50
Fourth Quarter ended February 28, 1999 $0.75 $0.48
1998-1997 High Low
- --------------------------------------- ------ ------
First Quarter ended May 31, 1997* Nil Nil
Second Quarter ended August 31, 1997* Nil Nil
Third Quarter ended November 30, 1997 $0.70 $0.48
Fourth Quarter ended February 28, 1998 $0.65 $0.48
</TABLE>
* Unable to obtain information during this period.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.
Foreign Investment and Currency Regulations in Canada
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends or other payments to non-resident holders of the Company's
common shares. Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (5% if the shareholder is a
corporation owning at least 10% of the outstanding common shares of the Company)
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, there are no limitations under
the laws of Canada, the Province of British Columbia or in the Memorandum or
Articles of the Company on the right of foreigners to hold or vote the common
shares of the Company.
The Investment Canada Act requires a non-Canadian making an investment to
acquire control, directly or indirectly, of a Canadian business, the gross
assets of which exceed certain defined threshold levels, to file
<PAGE>24
an application for review with Investment Canada, the federal agency created by
the Act. Provisions of the Investment Canada Act are complex and any
non-Canadian contemplating an investment to acquire control of the Company
should consult professional advisors as to whether and how the Investment Canada
Act might apply.
For the purposes of the Investment Canada Act, direct acquisition of control
means a purchase of the voting interests of 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. An
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
company carrying on a Canadian business in Canada.
Foreign Investment and Currency Regulations in Portugal
Portugal is a member of the European Union, and Portugal does not impose
restrictions on foreign investment in mining. There are no restrictions on
foreign currency exchange, but all foreign exchange must be registered or at
least submitted to an "after the fact" control by the Bank of Portugal.
The taxation of companies is fixed at a 36.5% rate, with an additional surplus
for local authorities of 10% over the 36.5% rate. Dividends paid to
non-residents are taxed at a rate of 25% which, in most cases, is withheld at
the source. Interest income is taxed at a 20% rate, and royalties and fees at
15%. The current Value Added Tax (VAT) is generally 17%, with some provinces
being lower. There is no limitation on the deductibility of foreign expenses,
and there are no restrictions on intercompany transactions.
Foreign Investment and Currency Regulations in Argentina
Argentina is part of MERCOSUR, a free trade bloc also including Brazil, Chile,
Paraguay and Uruguay. Although there is an officially fixed US dollar-peso
exchange rate, there are presently no other restrictions on the exchange of
currency or repatriation of profits or capital in Argentina. Foreign investment
in mining is encouraged under the Investment Promotion Program, and legislation
enacted in 1993 and 1994 providing for special tax incentives. Mining related
laws to encourage investment in mining include equal tax treatment for foreign
and domestic investors; allowing accelerated depreciation allowances; and the
recent implementation of a mining law which guarantees fiscal stability for 30
years after the presentation of a final feasibility study.
Foreign and domestic companies face the same tax liabilities, and Argentine tax
law caps the income tax rate at thirty percent (30%). There are no duties on
imported equipment, and there is no tax on dividends. Production royalties to
the provinces are capped at three percent (3%), with some provinces waiving the
royalty entirely.
Item 7. Taxation
Material Canadian Federal Income Tax Consequences
The following is a summary that describes the material Canadian federal income
tax consequences applicable to a holder of common shares of the Company who is a
resident of the United States and who is not a resident of Canada and who
<PAGE>25
does not use or hold, and is not deemed to use or hold, his common shares of the
Company in connection with carrying on a business in Canada (a "non-resident
shareholder").
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administrative and assessing policies of Revenue Canada,
Taxation, and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This description is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action, nor does it take into account provincial or foreign tax
considerations which may differ significantly from those discussed herein.
Dividends
Dividends paid on the common shares of the Company to a non-resident holder will
be subject to withholding tax. The Canada-U.S. Income Tax Convention (1980) (the
"Treaty") provides that the normal 25% withholding tax rate is reduced to 15% on
dividends paid on shares of a corporation resident in Canada (such as the
Company) to residents of the United States, and also provides for a further
reduction of this rate to 5% where the beneficial owner of the dividends is a
corporation which is a resident of the United States which owns at least 10% of
the voting shares of the corporation paying the dividend.
Capital Gains
A non-resident of Canada is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a share of a Canadian resident
corporation that is listed on a prescribed stock exchange, unless the share
represents "taxable Canadian property" to the holder thereof. The Company is a
Canadian resident corporation and the Canadian Venture Exchange is a prescribed
stock exchange for purposes of the ITA. A common share of the Company will be
taxable Canadian property to a non-resident holder if, at any time during the
period of five years immediately preceding the disposition, the non-resident
holder, persons with whom the non-resident holder did not deal at arm's length,
or the non-resident holder and persons with whom he did not deal at arm's length
owned not less than 25% of the issued shares of any class or series of the
Company. In the case of a non-resident holder to whom shares of the Company
represent taxable Canadian property and who is resident in the United States, no
Canadian taxes will be payable on a capital gain realized on such shares by
reason of the Canada-U.S. Income Tax convention (1980) (the "Treaty") unless the
value of such shares is derived principally from real property situated in
Canada. However, in such a case, certain transitional relief under the Treaty
may be available.
Material United States Federal Income Tax Consequences
The following is a summary of United States federal income tax considerations
material to a holder of Common Shares and who is a United States citizen or
resident or a United States domestic corporation who owns the Common Shares as a
capital asset ("United States Investor"). This description is not exhaustive of
all possible income tax consequences applicable to United States Investors and
does not address the tax consequences of United States Investors subject to
special provisions of federal income tax law such as tax exempt organizations,
trusts and significant shareholders. Prospective investors are advised to
consult their own tax advisors with respect to their particular circumstances
and with respect to the effects of state, local or foreign tax laws to which
they may be subject.
<PAGE>26
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, court decisions and current administrative
rulings and pronouncements of the United States Internal Revenue Service ("IRS")
that are currently applicable, all of which are subject to change, possibly with
retroactive effect. There can be no assurance that future changes in applicable
law or administrative and judicial interpretations thereof will not adversely
affect the tax consequences discussed herein. Investors are advised to consult
their own tax advisors regarding the tax consequences of acquiring, holding or
disposing of the Common Share in light of their particular circumstances.
Basis. A United States Investor will have a basis in the Common Share equal to
his or her purchase price for United States federal tax purposes.
Dividends. Cash dividends paid out of the Company's current and accumulated
earnings and profits to a holder of Common Share who is a United States Investor
will be taxed as ordinary income for United States federal income tax purposes.
Cash distributions in excess of the current and accumulated earnings and profits
of the Company will first be treated, for United States federal income tax
purposes, as a nontaxable return on capital to the extent of the United States
Investor's basis in the Common Share and then as gain from the sale or exchange
of a capital asset.
As discussed above in "Material Canadian Federal Income Tax Considerations,"
such dividends generally will also be subject to a Canadian withholding tax. The
deduction for dividends received which is usually available to corporate
shareholders is generally not available for dividends paid from a foreign
corporation such as the Company. Pursuant to Sections 164 and 901 of the Code, a
United States Investor may generally elect, for U.S. federal income tax
purposes, to claim either a deduction from gross income for such Canadian
withholding taxes or a credit against its United States federal income taxes
with respect to such Canadian taxes. The choice of taking a deduction or
claiming a credit is up to the taxpayer.
In general, a United States Investor, other than a shareholder owning 10% or
more of the voting power of the Company, will be entitled to claim a foreign tax
credit only for taxes, if any, imposed on dividends paid to such United States
Investor (such as withholding taxes) and not for taxes, if any, imposed on the
Company or on any entity in which the Company has made an investment. The amount
of the foreign tax credit that may be claimed is limited to that proportion of
the tax against which the credit is taken that the holder's taxable income from
non-United States sources bears to the holder's entire taxable income for that
taxable year. The foreign tax credit limitation is applied separately to
different categories of income. Generally, for purposes of applying such foreign
tax credit limitations, dividends are included in the passive income category.
Dispositions of Common Shares. Subject to the discussion below of the
consequences of the Company being treated as a Passive Foreign Investment
Company or a Foreign Investment Company, gain or loss realized by a United
States Investor (other than a 10-percent shareholder of the Company) on the sale
or other disposition of Common Share will be subject to United States federal
income tax as capital gain or loss in an amount equal to the difference between
such United States Investor's basis in the Common Share and the amount realized
on the disposition. In general, such capital gain or loss will be long-term
capital gain or loss if the United States Investor has held the Common Shares
for more than one (1) year at the time of the sale or exchange. In general, gain
from a sale, exchange or other disposition of the Common Share by a United
States Investor will be treated as U.S. source income.
<PAGE>27
Special United States Federal Income Tax Considerations
Passive Foreign Investment Company. The Company believes that it is a passive
foreign investment company ("PFIC") for United States federal income tax
purposes with respect to a United States Investor. The Company will be a PFIC
with respect to a United States Investor if, for any taxable year in which such
United States Investor held the Company's shares, either (i) at least 75% of the
gross income of the Company for the taxable year is passive income, or (ii) at
least 50% of the Company's assets are attributable to assets that produce or are
held for the production of passive income. In each case, the Company must take
into account a pro rata share of the income and the assets of any company in
which the Company owns, directly or indirectly, 25% on more of the stock by
value (the "look-through" rules). Passive income generally includes dividends,
interest, royalties, rents (other than rents and royalties derived from the
active conduct of a trade or business and not derived from a related person),
annuities, and gains from assets that produce passive income. As a non-publicly
held (for United States Federal income tax purposes), non-CFC, the Company would
apply the 50% asset test based on the value of the Company's assets.
Because the Company is a PFIC, unless a United States Investor who owns shares
in the Company elects (a section 1295 election) to have the Company treated as a
"qualified electing fund" (a "QEF") as described below, the following rules will
apply:
1. Distributions made by the Company during a taxable year to a United
States Investor who owns shares in the Company that are an "excess distribution"
(defined generally as the excess of the amount received with respect to the
shares in any taxable year over 125% of the average received in the shorter of
either the three previous years or such United States Investor's holding period
before the taxable year) must be allocated ratably to each day of such
shareholder's holding period. The amount allocated to the current taxable year
and to years when the corporation was not a PFIC must be included as ordinary
income in the shareholder's gross income for the year of distribution. The
remainder is not included in gross income but the shareholder must pay a
deferred tax on that portion. The deferred tax amount, in general, is the amount
of tax that would have been owed if the allocated amount had been included in
income in the earlier year, plus interest. The interest charge is at the rate
applicable to deficiencies in income taxes.
2. The entire amount of any gain realized upon the sale or other
disposition of the share will be treated as an excess distribution made in the
year of sale or other disposition and as a consequence will be treated as
ordinary income and, to the extent allocated to years prior to the year of sale
or disposition, will be subject to the interest charge described above.
A shareholder that makes a section 1295 election will be currently taxable on
his or her pro rata share of the Company's ordinary earnings and net capital
gain (at ordinary income and capital gains rates, respectively) for each taxable
year of the Company, regardless of whether or not distributions were received.
The shareholder's basis in his or her shares will be increased to reflect taxed
but undistributed income. Distributions of income that had previously been taxed
will result in a corresponding reduction of basis in the shares and will not be
taxed against as a distribution to the shareholder.
A shareholder may make a section 1295 election with respect to a PFIC for any
taxable year of the shareholder (shareholder's election year). A section 1295
election is effective for the shareholder's election year and all subsequent
taxable years of the shareholder. (In temporary regulations, Treasury provides
procedures for both retroactive and protective elections). Once a section 1295
election is made it remains in effect, although not applicable, during those
years that the Company is not a PFIC. Therefore, if the Company requalifies as
<PAGE>28
a PFIC, the section 1295 election previously made is still valid and the
shareholder is required to satisfy the requirements of that election. Once a
shareholder makes a section 1295 election, the shareholder may revoke the
election only with the consent of the Commissioner.
If the shareholder makes the section 1295 election for the first tax year of the
Company as a PFIC that is included in the shareholder's holding period, the PFIC
qualifies as a pedigreed QEF with respect to the shareholder. If a QEF is an
unpedigreed QEF with respect to the shareholder, the shareholder is subject to
both the non-QEF and QEF regimes. Certain elections are available which enable
shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding
such dual application.
A shareholder making the section 1295 election must make the election on or
before the due date, as extended, for filing the shareholder's income tax return
for the first taxable year to which the election will apply. A shareholder must
make a section 1295 election by completing Form 8621; attaching said Form to its
federal income tax return; receiving in the Form the information provided in the
PFIC Annual Information Statement or if the shareholder calculated the financial
information, a statement to that effect; and filing a copy of the Form with the
Philadelphia Service Center. As provided in IRS Notice 88-125, the PFIC Annual
Information Statement must include the shareholder's pro rata shares of the
ordinary earnings and net capital gain of the PFIC for the PFIC's taxable year
or information that will enable the shareholder to calculate its pro rata
shares. In addition, the PFIC Annual Information Statement must contain
information about distributions to shareholders and a statement that the PFIC
will permit the shareholder to inspect and copy its permanent books of account,
records, and other documents of the PFIC necessary to determine that the
ordinary earnings and net capital gain of the PFIC have been calculated
according to federal income tax accounting principles. Temporary regulations
have recently clarified that a shareholder may obtain the books, records and
other documents of the foreign corporation necessary for the shareholder to
determine the correct earnings and profits and net capital gain of the PFIC
according to federal income tax principles and calculate the shareholder's pro
rata shares of the PFIC's ordinary earnings and net capital gain. In that case,
the PFIC must include a statement in its PFIC Annual Information Statement that
it has permitted the shareholder to examine the PFIC's books of account,
records, and other documents necessary for the shareholder to calculate the
amounts of ordinary earnings and net capital gain.
Special rules apply with respect to the calculation of the amount of the foreign
tax credit with respect to excess distributions by a PFIC or inclusions under a
QEF.
Controlled Foreign Corporations. Sections 951 through 964 and Section 1248 of
the Code relate to controlled foreign corporations ("CFCs"). A foreign
corporation that qualifies as a CFC will not be treated as a PFIC with respect
to a shareholder during the portion of the shareholder's holding period after
December 31, 1997, during which the shareholder is a 10% United States
shareholder and the corporation is a CFC. (The PFIC provisions continue to apply
in the case of PFIC that is also a CFC with respect to shareholders that are
less than 10% United States shareholders).
The 10% United States shareholders of a CFC are subject to current U.S. tax on
their pro rata shares of certain income of the CFC and their pro rata shares of
the CFC's earnings invested in certain U.S. property. The effect is that the CFC
provisions may impute some portion of such a corporation's undistributed income
to certain shareholders on a current basis and convert into dividend income some
portion of gains on dispositions of stock which would otherwise qualify for
capital gains treatment.
<PAGE>29
The Company does not believe that it will be a CFC. Even if the Company were
classified as a CFC in a future year, however, the CFC rules referred to above
would apply only with respect to 10% shareholders.
Personal Holding Company/Foreign Personal Holding Company/Foreign Investment
Company. A corporation will be classified as a personal holding company (a
"PHC") if at any time during the last half of a tax year (i) five or fewer
individuals (without regard to their citizenship or residence) directly or
indirectly or by attribution own more than 50% in value of the corporation's
stock and (ii) at least 60% of its ordinary gross income, as specially adjusted,
consists of personal holding company income (defined generally to include
dividends, interest, royalties, rents and certain other types of passive
income). A PHC is subject to a United States federal income tax of 39.6% on its
undistributed personal holding company income (generally limited, in the case of
a foreign corporation, to United States source income).
A corporation will be classified as a foreign personal holding company (an
"FPHC") and not a PHC if at any time during a tax year (i) five or fewer
individual United States citizens or residents directly or indirectly or by
attribution own more than 50% of the total combined voting power or value of the
corporation's stock and (ii) at least 60% of its gross income consists of
foreign personal holding company income (defined generally to include dividends,
interest, royalties, rents and certain other types of passive income). Each
United States shareholder in a FPHC is required to include in gross income, as a
dividend, an allocable share of the FPHC's undistributed foreign personal
holding company income (generally the taxable income of the FPHC, as specially
adjusted).
A corporation will be classified as a foreign investment company (an "FIC") if
for any taxable year it (i) is registered under the Investment Company Act of
1940, as amended, as a management company or share investment trust or is
engaged primarily in the business of investing or trading in securities or
commodities (or any interest therein) and (ii) 50% or more of the value or the
total combined voting power of all the corporation's stock is owned directly or
indirectly (including stock owned through the application of attribution rules)
by United States persons. In general, unless an FIC elects to distribute 90% or
more of its taxable income (determined under United States tax principles as
specially adjusted) to its shareholders, gain on the sale or exchange of FIC
stock is treated as ordinary income (rather than capital gain) to the extent of
such shareholder's ratable share of the corporation's earnings and profits for
the period during which such stock was held.
The Company believes that it is not and will not be a PHC, FPHC or FIC. However,
no assurance can be given as to the Company's future status.
U.S. Information Reporting and Backup Withholding. Dividends are generally
subject to the information reporting requirements of the Code. Dividends may be
subject to backup withholding at the rate of 31% unless the holder provides a
taxpayer identification number on a properly completed Form W-9 or otherwise
establishes an exemption.
The amount of any backup withholding will not constitute additional tax and will
be allowed as a credit against the United States Investor's federal income tax
liability.
Filing of Information Returns. Under a number of circumstances, a United States
Investor acquiring shares of the Company may be required to file an information
return at the Internal Revenue Center where they are required to file their tax
returns with a copy to the Internal Revenue Service Center, Philadelphia, PA
19255. In particular, any United States Investor who becomes the owner, directly
or indirectly, of 10% or more of the shares of the Company will be required
<PAGE>30
to file such a return. Other filing requirements may apply, and United States
Investors should consult their own tax advisors concerning these requirements.
Item 8. Selected Financial Data
The selected consolidated unaudited financial data has been derived from the
financial statements of the Company and has been prepared in accordance with
Canadian generally accepted accounting principles. This data should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto presented elsewhere in this Registration Statement and with
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations." Differences in generally accepted accounting principles in Canada
and those in the U.S. for the Company are disclosed in Note 9 to the
consolidated financial statements.
Specifically, U.S. generally accepted accounting principles require that
exploration costs of mineral interests be expensed during the period incurred,
and cannot be deferred and capitalized until there is evidence of economically
recoverable resources, as permitted under Canadian generally accepted accounting
principles. Accordingly, the Company's exploration costs incurred for mineral
interests will not be capitalized for U.S. GAAP as the Company is at present
exploring its properties for economically recoverable ore reserves. The effect
of the write-off of these exploration costs is presented in Notes 9(a) and 9(b)
of the consolidated financial statements. U.S. GAAP would classify deferred
exploration costs as operating activities, as opposed to investment activities
under Canadian GAAP.
In addition, U.S. GAAP require that the fair value of any escrowed shares at the
time they are released from escrow should be recognized as a charge to income as
a compensation expense. There were no escrowed shares released from escrow
during the periods as presented in the consolidated financial statements of the
Company to November 30, 1999. Subsequent to November 30, 1999, and on December
8, 1999, 375,000 escrowed shares were released from escrow, and therefore their
fair value of Cdn.$165,000 would be charged to income as a compensation expense
for the next fiscal year ended February 29, 2000. As any escrowed shares which
have not been released from escrow on or before October 3, 2007 will be
cancelled, they are excluded from the calculation of the weighted average number
of shares for purposes of loss per share under U.S. GAAP. The effect of the
exclusion of the escrowed shares on the Company's financial statements is
presented in Note 9(b) of the consolidated financial statements.
Under Accounting Principles Board No. 25 "Accounting for Stock Issued to
Employees" and related interpretations, when the exercise price of the Company's
stock options equals the market price of the underlying stock on the date of the
grant, no compensation expense is recognized. Note 9(e) to the consolidated
financial statements sets out the reconciliation for the calculation of net loss
and loss per share as if compensation costs for the stock options had been
determined based on the fair value at the date of grant.
<PAGE>31
APAC Minerals Inc.
(in Canadian dollars)
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal Period Ended
-------------------------------------------------------------------------------
Nine Nine
Months Months September
Ended Ended Year Ended Year Ended 9, 1996 to
November November February 28, February 28, February 28,
30, 1999 30, 1998 1999 1998 1997
--------------- ------------ --------------- ------------- --------------
Summary of Operations:
Revenue
Share of income (loss) of
affiliated company net of
withholding taxes Nil Nil Nil Nil Nil
Interest and miscellaneous
income $ 18,704 $ 6,856 $ 7,474 $ 4,207 Nil
------------- ------------ ------------- ----------- -------------
$ 18,704 $ 6,856 $ 7,474 $ 4,207 Nil
Expenses
General and administrative $ 316,477 $ 47,887 $ 76,529 $ 43,770 $ 23,387
------------- ------------ ------------- ----------- -------------
Operating Income (loss) $ (297,773) $ (41,031) $ (69,055) $ (39,563) $ (23,387)
Write off of mineral interests - $ (302,757) $ (302,757) $ - $ -
Net Income (loss) for year $ (297,773) $ (343,788) $ (371,812) $ (39,563) $ (23,387)
------------- ------------- ------------- ----------- -------------
Income (loss) per share $ (0.04) $ (0.09) $ (0.09) $ (0.02) $ (0.01)
============= ============= ============= =========== =============
Balance Sheet Data:
Total assets $ 2,427,710 $ 812,162 $ 942,013 $ 719,668 $ 301,387
Cash and term deposits $ 213,177 $ 87,388 $ 61,244 $ 399,159 $ 162,758
Note payable - - $ 150,000 - -
Shareholders' equity $ 2,417,018 $ 812,162 $ 784,138 $ 655,950 $ 284,113
</TABLE>
Exchange Rate Information
The following table sets forth information as to the period end, average, high
and low exchange rates for Canadian Dollars and U.S. dollars for the periods
indicated, based on the noon buying rate in New York
<PAGE>32
City for cable transfers in Canadian Dollars as certified for customs purposes
by the Federal Reserve Bank of New York (Canadian $ = U.S. $1).
<TABLE>
<S> <C> <C> <C> <C>
Year Ended: Period
February 28 End Average High Low
- ----------- ------- ------- ------ ------
1997 1.3670 1.3617 1.3310 1.3775
1998 1.4236 1.4032 1.3649 1.4637
1999 1.5090 1.5010 1.4075 1.5770
Period Ended: Period
August 31 End Average High Low
- ------------- ------ ------- ------ -------
1998 1.5745 1.4490 1.3713 1.5770
1999 1.4965 1.5055 1.4512 1.5570
Period Ended: Period
January 14 End Average High Low
- -------------- ------- -------- ------ -----
2000 1.4497 1.4559 1.4495 1.4952
</TABLE>
Although the Company carries out exploration activities in Portugal and
Argentina, all of its option payments or other material commitments are payable
in either Canadian or U.S. dollars. The Company currently has no operating
income from sources in either Portugal or Argentina.
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discusses the Company's financial condition and results of
operations based upon the Company's consolidated financial statements which have
been prepared in accordance with Canadian generally accepted accounting
principles. Reference is made to Item 8 above and Note 9 to the Company's
consolidated financial statements which discuss differences between Canadian and
U.S. generally accepted accounting principles.
Results of Operations
Nine Month Period Ended November 30, 1999, Compared to the Nine Month Period
Ended November 30, 1998
Revenues. Interest income was $18,704 for the period ended November 30, 1999,
compared to $6,856 in interest income for the period ended November 30, 1998.
Expenses. General and administrative expenses for the period ended November 30,
1999, were $316,477, compared to $47,887 for the same period ended November 30,
1998. The increase in expenses during this period is primarily due to the
<PAGE>33
increased exploration activities of the Company in Argentina, the largest
increase being legal fees and expenses which increased from $15,246 to $107,278,
followed by administration costs which increased from $12,196 to $61,245, office
expenses which increased from $4,061 to $40,117, and regulatory filing and due
diligence fees which increased from $3,950 to $23,889, during the period. Travel
expenses increased from $8,626 to $35,812 during the period.
Net Loss. The Company incurred a net operating loss of $297,773 during the
period ended November 30, 1999, compared to a net operating loss of $41,031 for
the period ended November 30, 1998. The increase in general and administrative
expenses is primarily due to the increase in exploration activities of the
Company during the last 12 months. General and administrative expenses will tend
to increase or decrease according to the level of exploration activity of the
Company during the period. The net loss in 1998 was increased to $343,788, due
to the write-off of the $302,757 in exploration and acquisition costs for the
Millenium Property, British Columbia, which was abandoned by the Company.
Year Ended February 28, 1999, Compared to the Year Ended February 28, 1998
Revenues. Interest income was $4,207 in fiscal 1998, and increased to $7,474 in
fiscal 1999.
Expenses. General and administrative expenses for the fiscal year ended February
28, 1999, increased by $32,759 from $43,770 in fiscal 1998 to $76,529 in fiscal
1999. The increase in expenses is primarily due to the increased property
acquisition and exploration activities of the Company in Portugal, the largest
increase being administration costs which increased from $3,000 to $12,000,
followed by regulatory filing and due diligence fees which increased from $9,933
to $13,952, and legal fees and expenses which increased from $17,877 to $19,381,
during the last fiscal year. Travel expenses increased from $4,546 to $10,516
during the last fiscal year.
Net Loss. The Company incurred a loss of $371,812 for the year ended February
28, 1999, compared to a net loss of $39,563 for the year ended February 28,
1998. The increase in net loss was primarily due to the write-off of $302,757 in
acquisition and exploration expenses, incurred by the Company on the Company's
Millennium Property which was located in British Columbia, Canada. The
Millennium Property was written-off due to poor exploration results.
Year Ended February 28, 1998 Compared to the Year Ended February 28, 1997
Revenues. Interest income was $4,207 in fiscal 1998, and Nil in fiscal 1997.
Expenses. General and administrative expenses for the fiscal year ended February
28, 1998, increased by $20,383 from $23,387 in fiscal 1997 to $43,770 in fiscal
1998. This increase was due primarily to the increased exploration activity of
the Company during fiscal 1998.
Net Loss. The Company incurred a loss of $39,563 in fiscal 1998, compared to a
net loss of $23,387 in fiscal 1997 (September 9, 1996 to February 28, 1997). The
increase in net loss is primarily due to the fact that the expenses for the
fiscal year ended February 28, 1997 do not reflect a full year of operating
activity, being less than a six month period.
<PAGE>34
Liquidity and Capital Resources
The Company owns exploration concessions in Portugal and an option to acquire an
equity position in a company which owns exploration concessions in Argentina
(see: "Description of Business" herein). At this time, the Company has no
substantial revenues, and does not anticipate any substantial revenues until the
Company is able to place into production and operate a mineral property as a
mine, or the Company is able to sell all or a portion of its mineral properties
to a major mining company. The Company will need additional funds to develop any
potential mine. Historically, the Company has raised funds through equity
financings consisting of the exercise of outstanding options and the issuance of
common shares and warrants to fund its operations and provide working capital
for its subsidiaries. It is anticipated that the Company will finance its
operations and those operations of its subsidiaries through future equity
financings or through funding from joint venture participants.
During fiscal year 2000, the Company believes that it will need approximately
$1,500,000 for its operations and exploration activities. The Company intends to
meet this requirement through its existing working capital, equity financing and
funding from joint venture participants. The exploration and development work
will primarily be on the Company's Argentine properties. No assurance can be
given that the Company will be able to raise the necessary capital to complete
its proposed exploration projects. In the event that the Company is unable to
complete the proposed exploration work, this will have an adverse effect on the
Company's business objectives. In the event the Company decides to mine its
properties after establishing economic ore, if any, it may be necessary to raise
additional funds beyond those previously indicated. The Company's planned
exploration and development work is estimated as follows:
Los Menucos Project with Rio Tinto, including diamond drilling $1,015,000
Exploration work on Portel-Moura-Ficalho Concession,
Portugal including drilling $ 80,000
Reserve for general working capital $ 405,000
----------
$1,500,000
==========
No assurance can be given that the Company will be able to raise the necessary
capital to complete its proposed exploration projects. However, the exploration
work on the Los Menucos Project has been funded by the private placement with
Rio Tinto. In the event that the Company is unable to complete the proposed
exploration work, this will have an adverse effect on the Company's business
objectives. In the event the Company decides to conduct additional exploration
work, or to mine its properties after establishing economic mineralization, if
any, it will be necessary to raise additional funds beyond those previously
indicated.
The Company expects it will reach the required exploration expenditures to earn
its 51% interest in Arminex, upon completion of the exploration and drilling
program on the Los Menucos Project on or before August, 2000. Based on the
results of the exploration work, the Company will need to make a decision
regarding the exercise of the third option to purchase the remaining 49%
interest in Arminex by the issuance of 5,000,000 common shares (see "Description
of Business - Acquisition of Equity Interest in Arminex S.A. and Argentina
Concessions").
<PAGE>35
In regards to the Company's Portuguese Concession, the management of the Company
is currently in discussions with Portuguese officials for a renewal of the
Concession, and accordingly, any further exploration work on the Portuguese
Concession is subject to the renewal application being successful. In the event
that the terms of the Concession are extended, the Company's long term
commitment to the Concession will depend upon the results of the exploration
work (see: "Description of Business - Portel- Moura-Ficalho Concession,
Portugal").
As of February 28, 1999 and February 28, 1998, the Company's working capital
(deficit) was ($73,655) and $362,903, respectively. The decrease in working
capital during fiscal 1999 being related to the exploration work which was
carried out by the Company during the last fiscal year. As at November 30, 1999
and November 30, 1998, the Company's working capital was $221,137 and $107,323
respectively. The increase in working capital during this interim period, being
related to the equity financing activities of the Company.
Cash used for operating activities of the Company totaled $120,202 during the
year ended February 28, 1999, as compared to cash used for operating activities
of $12,255 during the year ended February 28, 1998. Cash provided by financing
activities for the year ended February 28, 1998, was $411,400. During the fiscal
year ended February 28, 1999, the Company received a loan of $150,000, bearing
interest at 12% per annum. Cash used in investing activities for the year ended
February 28, 1999, amounted to $367,712 primarily related to mineral property
acquisitions in Portugal and the exploration of the Company's mineral property
interests, and for the year ended February 28, 1998, cash used in investing
activities amounted to $162,744 primarily related to the exploration of the
Company's mineral property interests.
Cash used for operating activities of the Company totaled $289,475 for the nine
months ended November 30, 1999, as compared to $96,144 for the same period in
1998. During the nine months ended November 30, 1999, the Company raised
$1,930,653, net of share issuance costs. Part of the proceeds was used to repay
the $150,000 loan received during the year ended February 28, 1999. The Company
raised $500,000 from financing activities for the nine months ended November 30,
1998.
During the nine months ended November 30, 1999, the Company expended $1,329,364
in exploration expenditures ($71,000 on the property in Portugal and $1,258,364
on the properties in Argentina), as compared to $205,627 expended during the
same period in 1998 for exploration work. During the nine months ended November
30, 1999, the Company expended no funds on property acquisitions compared to
$510,000 in deemed expenditures for acquisitions in the same period ended
November 30, 1998 (this figure includes 2,000,000 shares issued at a deemed
price of $0.25 per share for the acquisition of the Portuguese Concession). As
at November 30, 1999, the Company had a working capital balance of $221,137.
The Company does not believe that inflation will affect the Company's operations
at this stage of its development.
Subsequent to November 30, 1999, the Company raised approximately $1,015,000
pursuant to a private placement of common shares with Rio Tinto (see
"Description of Business - Rio Tinto Agreement"). The proceeds from the private
placement with Rio Tinto is reserved for further exploration and drilling work
on the Los Menucos Project in Argentina. Since the Company is still in the
exploration/development stage, it has to rely mainly on equity financing to fund
its future operating and exploration activities or third party financing through
joint ventures with other companies.
<PAGE>36
Impact of Recently Issued Accounting Standards
Note 9 to the consolidated financial statements sets out differences between
Canadian generally accepted accounting principles and U.S. generally accepted
accounting principles. Note 9 the consolidated financial statements also takes
into account the accounting standards issued by the Financial Accounting
Standards Board in the United States known as FAS 128 "Earnings Per Share" and
FAS 129 "Disclosure of Information About Capital Structure".
Item 10. Directors and Officers of The Company
<TABLE>
<S> <C> <C> <C>
Name and Position
with Company Principal Occupation Term of Office Office Held Since
- ------------------------- --------------------------- ----------------- ------------------
Tore Birkeland Director of Naneco Minerals Annual 1997
Ltd.; Director of Poplar Shareholders
President and Director Resources Ltd.; Previously, Meeting in 2000
President and a Director of
Zappa Resources Ltd.;
Managing Director of
Prominex S.A., a mineral
exploration company;
Previously a self-employed
Consulting Geologist
Don H.C. Ho(1) President and Chief Annual 1996
Executive Officer of CPAC Shareholders
Director (Care) Holdings Ltd.; Meeting in 2000
President of Trans City
Properties Ltd.; Previously
an Associate of Vancity
Estates Ltd., both real estate
related companies.
Previously President and
Director of Transtech
Industries Inc. and Director
of Native Strategic
Investments Ltd.
<PAGE>37
Name and Position
with Company Principal Occupation Term of Office Office Held Since
- ------------------------- --------------------------- ----------------- ------------------
Joanne Yan(1) Vice-President and Director Annual 1996
of CPAC (Care) Holdings Shareholders
Director, Vice-President and Ltd., a developer and Meeting in 2000
Secretary operator of senior housing;
President and Director of
Joyco Consulting Services
Inc., a corporate finance and
investment consulting firm;
Previously a Director of
Transtech Industries Inc.,
Pacific Star Resources Inc.
and Desert Holdings Inc.
Stephen D. Alfers Attorney-at-Law, Partner Annual 1999
Alfers & Carver, LLC. Shareholders
Director Meeting in 2000
Sven-Erik Setterberg Mining financier; Director of Annual 1999
EuroZinc Mining Corp. from Shareholders
Director 1996 to April, 1999, Meeting in 2000
President, Arminex S.A.
from 1996 to present
</TABLE>
(1) Member of the Audit Committee.
The last annual meeting of shareholders was held on June 16, 1999, at which time
all directors were re-elected and officers were re-appointed.
In regards to the executive officers of the Company, Tore Birkeland, President,
serves the Company is this capacity on a part time basis, and devotes
approximately three quarters of his time to the affairs of the Company. The
Secretary, Joanne Yan, serves the Company in this capacity on a full time basis.
Some of the directors and officers of the Company are also directors or officers
of other exploration companies as disclosed in the table above. Accordingly, it
is possible that certain opportunities may be offered to both the Company and to
such other companies, and further that those other companies may participate in
the same opportunities in which the Company has an interest. In exercising their
powers and performing their functions, the directors and officers of the Company
are required by law to act honestly and in good faith and in the best interests
of the Company, and to exercise the care, diligence and skill of a reasonably
prudent person. Every director who is, in any way, directly or indirectly,
interested in a proposed contract or transaction with the Company, must disclose
the nature and extent of his interest at a meeting of the directors. Every such
director must account to the Company for any profit made as a consequence of the
Company entering into or performing the proposed contract or transaction, unless
he discloses his interest and, after his disclosure, the proposed contract
<PAGE>38
or transaction is approved by the directors and he abstains from voting on the
approval of the proposed contract or transaction.
Item 11. Compensation of Directors and Officers
The following table sets forth particulars concerning the compensation of the
executive officers as defined in Form 41 prescribed by the "Regulations" under
the Securities Act of the Province of British Columbia for the Company's
financial year ended February 28, 1999, and for the interim period ended January
31, 2000.
The Company has one executive officer, Tore Birkeland, President of the Company.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
- -----------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation Awards
- --------------------------------------------------------------------------- ----------------------------------------------
Securities
Under Restricted
Bonus for Other Annual Options/SARs Shares/Units All Other
Name/Principal Salary the Year Compensation Granted (#)(1) Awarded Compensation
Position Period $ $ $ $ $ $
- --------------- ------------- ----------- ------------ --------------- --------------- ------------- --------------
Tore Birkeland, January 31,
President 2000 $27,000(2) - - 120,000 - -
February 28,
1999 Nil - - 80,000 - -
February 28,
1998 Nil - - 80,000 - -
February 28,
1997 Nil _ - 80,000 - -
</TABLE>
(1) Represents total common shares under stock options as of the end of the
fiscal period.
(2) See "Service Contracts".
Long Term Incentive Plan Awards to Named Executive Officers
The Company has made no long term incentive plan awards during the fiscal year
ended February 28, 1999 or for the interim period ended January 31, 2000, to any
executive officer of the Company, and none are proposed. The Company has no
pension plan, and accordingly no amount has been set aside or accrued for
pension, retirement or similar benefits.
Options and SAR's granted to Named Executive Officers
Grant of options to purchase or acquire securities of the Company and, its
subsidiaries, if any, and stock appreciation rights ("SARs") as defined in Form
41 prescribed in the "Regulations" under the Securities Act of the Province of
British Columbia were made to the named executive officers during the financial
year ended February 28, 1999 and the interim period ended January 31, 2000, as
follows:
<PAGE>39
Summary Options & SAR Table
<TABLE>
<S> <C> <C> <C> <C> <C>
% of Total Market Value
Options of Securities
Granted to Underlying
Name of Securities Employees in Exercise or Options on
Executive Under Ooptions Financial Year Base Price Date of Grant
Officer Granted (#) or Period ($/Security) ($/Security) Expiration Date
- --------------- --------------- ---------------- ------------- ---------------- -----------------
Tore Birkeland 40,000 20% $0.75 $0.75 March 15, 2001
</TABLE>
Options and SAR's Exercised by Named Executive Officers
The following table sets forth particulars concerning each exercise of options
and SARs by each of the Named Executive Officer during the financial year ended
February 28, 1999, and the interim period ended January 31, 2000, including the
end value of unexercised options and SARs:
Aggregated Option/SAR Exercised During Most Recent Completed Financial
Year End and Period End Option/SAR Values
<TABLE>
<S> <C> <C> <C> <C>
Value of
Unexercised In-
Securities Aggregate Value Unexercised The-Money
Acquired on Realized Options/SARs at Options/SARs at
Exercise Period End Period End ($)
Name # $ Exercisable Exercisable
- ---------------- ------------ --------------- ----------------- ------------------
Tore Birkeland Nil Nil 120,000 $51,600
</TABLE>
Service Contracts
The Company has entered into the following employment or consulting services
agreements:
1. Employment Agreement between the Company and Tore Birkland dated effective
as of May 1, 1999 for services to be provided within Canada as President
and a director of the Company, at a salary of $1,000 per month for a one
year period, renewable annually;
2. Employment Agreement between the Company and Tore Birkland dated effective
as of May 1, 1999 for services to be provided outside Canada in respect of
prospecting, exploration, mine development, and mining operations, at a
salary of $2,000 per month for a one year period, renewable annually;
3. Consulting Agreement between the Company and Joyco Consulting Services Ltd.
("Joyco"), a company controlled by Joanne Yan, dated effective May 1, 1999
for services to be provided as Vice-President of the Company,
<PAGE>40
at a renumeration of $2,000 per month for a two (2) year period, renewable
on an annual basis thereafter.
The above employment or consulting services agreements between the Company and
the above affiliated persons, are on terms at least as favorable as those that
could have been obtained from unaffiliated parties on an arm's length basis.
Compensation of Directors
The Company has no standard arrangement pursuant to which Directors are
compensated by the Company for their services in their capacity as Directors,
other than the unissued Treasury Shares reserved for the grant of Directors'
Stock Options. Stock Options have been, and it is anticipated that they will
continue to be, issued from time to time by the Board of Directors to the
Directors as compensation. In general, the exercise price of the stock options
to be granted shall be equal to the minimum discounted market price preceding
the date of grant permitted under the policies of the Canadian Venture Exchange.
There has been no other arrangement pursuant to which Directors were compensated
by the Company in their capacity as Directors.
Stock Options
Options are granted in order to attract, retain and motivate directors, officers
and employees of the Company and other persons who provide services or who are
of special value to the Company and to closely align the personal interest of
such individuals to that of the Company.
During the financial year ended February 28, 1999 and the interim period ended
January 31, 2000, no common shares were issued pursuant to the exercise of stock
options.
Item 12. Options To Purchase Securities from The Company or Subsidiaries
Outstanding stock options are held by directors and officers and employees of
the Company, as separate groups:
Number of Exercise Price
Common Shares per Common
Group under Option Share Expiry Date
- --------------- ----------------- --------------- ------------------
Directors and 220,000 $0.48 October 3, 2002
Officers
------------------------------------------------------------
80,000 $0.75 March 15, 2004
- --------------- ----------------- --------------- ------------------
Employees 120,000 $0.75 March 15, 2001
<PAGE>41
The Company has also issued non-transferable share purchase warrants to purchase
up to 3,146,000 common shares pursuant to private placements, exercisable at the
following exercise prices within the following dates:
Warrants Exercise Price Expiry Date
- ------------------- -------------- ---------------
1,210,000 shares $0.55/sh March 29, 2000
$0.75/sh March 29, 2001
- ------------------- -------------- ---------------
1,340,000 shares $0.55/sh April 12, 2000
$0.75/sh April 12, 2001
- ------------------- -------------- ---------------
510,000 shares $1.00/sh Sept. 7, 2000
$1.15/sh Sept. 7, 2001
- ------------------- -------------- ---------------
86,000 shares $1.00/sh Sept. 10, 2000
$1.15/sh Sept. 10, 2001
<PAGE>42
Item 13. Interest of Management in Certain Transactions
Pursuant to an Option to Purchase and Shareholders' Agreement dated October 24,
1998, as amended November 27, 1998, February 6, 1999, March 25, 1999, and June
4, 1999 between the Company and Arminex, S.A., Lafayette Limited and Ilmars
Gemuts, more particularly described under the heading "Acquisition of Equity
Interest in Arminex, S.A.", the Company obtained the exclusive options to
purchase up to a 100% equity interest Arminex. Mr. Sven-Erik Setterberg, a
recently appointed director of the Company, is also President of Arminex, S.A.
The Company believes the terms of this Acquisition Agreement are at least as
favorable as those that could have been obtained from unaffiliated parties.
By a Sub-Lease Agreement dated December 18, 1997, the Company agreed to pay to
CPAC (Care) Holdings Ltd. ("CPAC") $350 per month plus taxes, for rent,
maintenance fees, property taxes, and hydro expenses. CPAC has two directors in
common with the Company, Mr. Don H.C. Ho and Ms. Joanne Yan. Effective March 31,
1999, the sub-lease was terminated by mutual agreement, as the Company
re-located to new office premises.
PART II
Item 14. Description of Securities To Be Registered
General Attributes
The Company proposes to register its common shares without par value. Holders of
common shares of the Company are entitled to one vote per share at meetings of
shareholders, to receive such dividends as are declared by the Company, and to
receive the remaining assets of the Company upon its liquidation, dissolution of
winding-up. The common shares rank equally as to dividends, voting rights, and
participation in assets. The common shares are not subject to call or
assessment, nor pre-emptive or conversion rights. There are no provisions
attached to such shares for redemption, purchase for cancellation, surrender or
sinking or purchase funds.
Voting
For the purposes of conducting business at any annual general meeting of
shareholders, a quorum of members entitled to attend and vote must be present at
the commencement of the meeting. A quorum shall be at least two members or one
or more proxy holders representing two members, or one member and a proxy holder
representing another member. If within half an hour from the time appointed for
a general meeting, a quorum is not present, the meeting will stand adjourned to
the same day in the next week, at the same time and place. If at the adjourned
meeting a quorum is not present within half an hour from the time appointed for
the meeting, the member or members present or being represented by proxy shall
be a quorum. At any general meeting, a resolution put to the vote of the meeting
shall be decided by a show of hands, unless before or on the declaration of the
result of the show of hands, a poll vote is directed by the chairman or demanded
by at least one member entitled to vote who is present in person or by proxy.
Upon a poll, every member or proxy holder will have one vote for every share
held, however, a person entitled to cast more than one vote need not, if he
votes, use all his votes or cast all of the votes he uses in the same way.
<PAGE>43
PART III
Item 15. Defaults upon Senior Securities
Not applicable.
Item 16. Changes in Securities and Changes in Security of Registered Securities
Not applicable.
PART IV
<TABLE>
<S> <C>
Item 17. Financial Statements
Auditor's Report...........................................................................F-1
Consolidated Balance Sheets as of November 30, 1999 (unaudited) and
February 28, 1999, 1998 and 1997 (audited).................................................F-2
Consolidated Statements of Operations and Deficit
For the Period Ended November 30, 1999 (unaudited) and the Years Ended
February 28, 1999, 1998 and 1997 (audited).................................................F-3
Consolidated Statements of Cash Flows
For the Period Ended November 30, 1999 (unaudited) and the Years Ended
February 28, 1999, 1998 and 1997 (audited).................................................F-4
Notes to Consolidated Financial Statements.................................................F-5
</TABLE>
Item 18. Financial Statements
Not applicable.
Item 19. Financial Statements and Exhibits
(a) Financial Statements: See Item 17
(b) Exhibits:
Figure 1 - Portel-Moura-Ficalho Concession Location Map
[GRAPHICS OMITTED]
Figure 2 - Argentina Concessions Location Map
[GRAPHICS OMITTED]
Figure 3 - El Puesto Drill Locations
[GRAPHICS OMITTED]
Figure 4 - Caltrauna Drill Locations
[GRAPHICS OMITTED]
Figure 5 - Cuya/Aguadita Drill Locations
[GRAPHICS OMITTED]
2.1* Memorandum of the Company
2.2* Articles of the Company
<PAGE>43
10.1* Letter of Intent dated April 15, 1998 between the Company and
EXMINCO Exploration and Mining Investment Company Establishment
("EXMINCO")
10.2* Option to Purchase and Shareholders' Agreement dated October 24,
1998, as amended November 27, 1998, February 6, 1999, March 25,
1999, and June 4, 1999, between the Company and Arminex S.A.,
Lafayette Limited and Ilmars Gemuts
10.3 Share Purchase Agreement and Letter of Intent with Rio Tinto
Mining and Exploration Ltd.
* Denotes exhibits previously filed with Form 20-F filed on December 1, 1999.
<PAGE>44
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Company certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: February 22, 1999 APAC MINERALS INC.
By: /s/ TORE BIRKELAND
------------------------
Tore Birkeland,
Chief Executive Officer
<PAGE>i
APAC MINERALS INC.
Consolidated Financial Statements
(in Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998
Index
- --------------------------------------------------
Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Operations and Deficit
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>F-1
ELLIS FOSTER
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 734-1112 Facsimile: (604) 714-5916
E-Mail: [email protected]
- -------------------------------------------------------------------------------
AUDITORS' REPORT
To the Shareholders of
APAC MINERALS INC.
We have audited the consolidated balance sheets of APAC Minerals Inc. as at
February 28, 1999, 1998 and 1997 and the consolidated statements of operations
and deficit and cash flows for the years then ended. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at February 28,
1999, 1998 and 1997 and the results of its operations and cash flows for the
years then ended in accordance with generally accepted accounting principles. As
required by the Company Act of British Columbia, we report that, in our opinion,
these principles have been applied on a basis consistent with that of the
preceding year.
Vancouver, Canada "ELLIS FOSTER"
March 18, 1999, except as to Chartered Accountants
Note 8 which is as of April 14, 1999
COMMENTS BY AUDITS FOR U.S. READERS ON CANADA-U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada, which conforms with
the GAAP in United States in most respects. The additional disclosures and
reconciliation of consolidated financial statement items to conform with U.S.
GAAP are summarized in Note 10 of the consolidated financial statements.
Vancouver, Canada "ELLIS FOSTER"
March 18, 1999 Chartered Accountants
- --------------------------------------------------------------------------------
EF A partnership of incorporated professionals An independently owned and
operated member of Moore Stephens North America Inc., a member of Moore Stephens
International Limited - members in principal cities throughout the world
<PAGE>F-2
APAC MINERALS INC.
Consolidated Balance Sheet
(In Canadian Dollars)
<TABLE>
<S> <C> <C> <C> <C> <C>
November 30 November 30 February 28 February 28 February 28
1999 1998 1999 1998 1997
--------------- ---------------- ------------ -------------- -------------
(unaudited - (unaudited -
prepared by prepared by
management) management)
ASSETS
Current
Cash and cash equivalents $ 213,177 $ 87,388 $ 61,244 $ 399,159 $ 162,758
Accounts receivable 16,924 16,699 17,976 23,558 8,142
Prepaid expenses 1,728 3,236 5,000 3,904 -
--------------- ---------------- ------------ -------------- -------------
231,829 107,323 84,220 426,621 170,900
Capital assets 9,559 966 835 1,044 -
Mineral interests (Note 3) 2,186,322 703,873 856,958 292,003 130,487
--------------- ---------------- ------------ -------------- -------------
$ 2,427,710 $ 812,162 $ 942,013 $ 719,668 $ 301,387
=============== ================ ============= =============== ============
LIABILITIES
Current
Accounts payable and
accrued liabilities $ 10,692 $ - $ 7,875 $ 63,718 $ 17,274
Notes payable, due March 31, 1999,
interest at 12% per annum - - 150,000 - -
--------------- ---------------- ------------ -------------- -------------
10,692 - 157,875 63,718 17,274
--------------- ---------------- ------------ -------------- -------------
SHAREHOLDERS' EQUITY
Share capital (Note 4) 3,149,553 1,218,900 1,218,900 718,900 307,500
Deficit (732,535) (406,738) (434,762) (62,950) (23,387)
--------------- ---------------- ------------ -------------- -------------
2,417,018 812,162 784,138 655,950 284,113
--------------- ---------------- ------------ -------------- -------------
$ 2,427,710 $ 812,162 $ 942,013 $ 719,668 301,387
=============== ================ ============ ============== =============
</TABLE>
<PAGE>F-3
APAC MINERALS INC.
Consolidated Statement of Operations and Deficit
(In Canadian Dollars)
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine Months Nine Months Year Year September 9
Ended Ended Ended Ended 1996 to
November 30 November 30 February 28 February 28 February 28
1999 1998 1999 1998 1997
--------------- ---------------- ------------ ------------- -------------
(Unaudited - (Unaudited -
prepared by prepared by
management) management)
Revenue
Interest and sundry income $ 18,704 $ 6,856 $ 7,474 $ 4,207 $ -
--------------- ---------------- ------------- -------------- --------------
Expenses
Accounting and audit 16,873 580 6,900 5,390 1,500
Administration 61,245 12,196 12,000 3,000 -
Amortization 1,157 78 209 184 -
Consulting fees - - - - 4,673
Filing and due diligence 23,889 3,950 13,952 9,933 7,102
Legal 107,278 15,246 19,381 17,877 9,576
Office and miscellaneous 40,117 4,061 9,371 2,140 536
Rent 13,056 3,150 4,200 700 -
Salaries and benefits 17,050 - - - -
Travel and entertainment 35,812 8,626 10,516 4,546 -
--------------- ---------------- ------------- -------------- --------------
316,477 47,887 76,529 43,770 23,387
--------------- ---------------- ------------- -------------- --------------
Operating loss (297,773) (41,031) (69,055) (39,563) (23,387)
Write off of mineral
interests (Note 3a) - (302,757) (302,757) - -
--------------- ---------------- ------------- -------------- --------------
Loss for the period (297,773) (343,788) (371,812) (39,563) (23,387)
Deficit, beginning of period (434,762) (62,950) (62,950) (23,387) -
--------------- ---------------- -------------- -------------- --------------
Deficit, end of period $ (732,535) $ (406,738) $ (434,762) $ (62,950) $ (23,387)
=============== ================ ============== ============= ===============
Loss per share $ (0.04) $ (0.09) $ (0.09) $ (0.02) $ (0.01)
=============== ================ ============== ============= ===============
Weighted average number
of common shares
outstanding 7,406,845 4,026,364 4,254,110 2,204,795 1,900,307
=============== ================ ============== ============= ===============
<PAGE>F-4
APAC MINERALS INC.
Consolidated Statement of Cash Flows
(In Canadian Dollars)
Nine Months Nine Months Year Year September 9
Ended Ended Ended Ended 1996 to
November 30 November 30 February 28 February 28 February 28
1999 1998 1999 1998 1997
--------------- --------------- -------------- ------------- ---------------
(Unaudited - (Unaudited -
prepared by prepared by
management) management)
Cash flows from (used in)
operating activities
Net loss for the year $ (297,773) $ (343,788) $ (371,812) $ (39,563) $ (23,387)
Adjustments for items not
involving cash:
- amortization 1,157 78 209 184 -
- write-off of mineral interest - 303,757 302,757 - -
--------------- --------------- -------------- ------------- ---------------
(296,616) (39,953) (68,846) (39,379) (23,387)
Change in non-cash working capital:
- accounts receivable 1,052 6,859 5,582 (15,416) (8,142)
- prepaid expenses 3,272 668 (1,095) (3,904) -
- accounts payable and
accrued liabilities 2,817 (63,718) (55,843) 46,444 17,274
--------------- --------------- -------------- ------------- ---------------
(289,475) (96,144) (120,202) (12,255) (14,255)
--------------- --------------- -------------- ------------- ---------------
Cash flows from (used in)
financing activities
Loan proceeds (repayment) (150,000) - 150,000 - -
Shares issued for cash, net of
share issuance costs 1,930,653 500,000 - 411,400 295,000
--------------- --------------- -------------- ------------- ---------------
1,780,653 500,000 150,000 411,400 295,000
--------------- --------------- -------------- ------------- ---------------
Cash used for investing activities
Acquisition of mineral interests - (510,000) (10,000) - (15,000)
Deferred exploration costs (1,329,364) (205,627) (357,712) (161,516) (102,987)
Purchase of capital assets (9,881) - - (1,228) -
--------------- --------------- -------------- ------------- ---------------
(1,339,245) (715,627) (367,712) (162,744) (117,987)
--------------- --------------- -------------- ------------- ---------------
Increase (decrease) in cash
and cash equivalents 151,933 (311,771) (337,914) 236,401 162,758
Cash and cash equivalents,
beginning of period 61,244 399,159 399,158 162,758 -
--------------- --------------- -------------- ------------- ---------------
Cash and cash equivalents,
end of period $ 213,177 $ 87,388 $ 61,244 $ 399,159 $ 162,758
=============== =============== =============== ============= ===============
</TABLE>
<PAGE>F-5
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- -------------------------------------------------------------------------------
1. Nature of Operations
The Company was incorporated under the laws of British Columbia, Canada
on September 9, 1996. The Company is in the business of mining
exploration.
These consolidated financial statements have been prepared on a
going-concern basis which assumes that the Company will be able to
realize assets and discharge liabilities in the normal course of business
for the foreseeable future. The continued operations of the Company and
the recoverability of amounts shown for mineral interests 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 financing to complete development of the projects,
and on future profitable production or proceeds from the disposition
thereof.
2. Significant Accounting Policies
(a) Consolidation
These consolidated financial statements include the accounts of
the Company and its 100% owned subsidiary
Prospectus-Empreendimentos Mineiros, Ltda., a company incorporated
under the laws of Portugal ("PEML")
(b) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the period. Actual
results may differ from those estimates.
(c) Mineral Interests
The Company follows the method of accounting for its mineral
interests whereby all costs related to acquisition, exploration
and development are capitalized by project. These costs will be
amortized against revenue from future production or written off if
the interest is abandoned or sold.
On the commencement of commercial production, net costs will be
charged to operations on the unit-of-production method by project
based upon estimated recoverable reserves.
The amounts shown for mineral interests represent costs incurred
to date, less recoveries, and do not necessarily reflect present
or future values.
<PAGE>F-6
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- -------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
(c) Mineral Interests (continued)
Ownership in mineral interests involves certain inherent risks due
to the difficulties of determining the validity of certain claims
as well as the potential for problems arising from the frequently
ambiguous conveyancing history characteristic of many mineral
interests. The Company has investigated ownership of its mineral
interests and, to the best of its knowledge, ownership of its
interests are in good standing.
The Company does not accrue the estimated costs of maintaining its
mineral interests in good standing.
(d) Property Option Agreements
From time to time, the Company may acquire or dispose of
properties pursuant to the terms of option agreements. Due to the
fact that options are exercisable entirely at the discretion of
the optionee, the amounts payable or receivable are not recorded.
Option payments are recorded as resource property costs or
recoveries when the payments are made or received.
(e) Cash Equivalents
Cash equivalents usually consists of highly liquid investments
which are readily convertible into cash with maturities of three
months or less when purchased. The Company has no cash equivalents
as at November 30, 1999.
(f) Earnings (loss) per Share
Earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the period.
Fully-diluted earnings (loss) per share has not been disclosed as
the effect of common shares issuable upon the exercise of warrants
and options would be anti-dilutive.
(g) Foreign Currency Transactions
The Company and PEML maintain their accounting records in their
functional currencies (i.e., Canadian dollars). They translate
foreign currency transactions into their functional currency in
the following manner.
At the transaction date, each asset, liability, revenue and
expense is translated into the functional currency by the use of
the exchange rate in effect at that date. At the period end,
monetary assets and liabilities are translated into the functional
currency by using the exchange rate in effect at that date. The
resulting foreign exchange gains and losses are included in
operations.
<PAGE>F-7
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- -------------------------------------------------------------------------------
3. Mineral Interests
<TABLE>
<S> <C> <C> <C> <C>
Canada Portugal Argentina Total
---------------- --------------- ---------------- -------------
Acquisition costs $ 27,500 $ - $ - $ 27,500
Exploration costs 102,987 - - 102,987
---------------- --------------- ---------------- -------------
Balance, February 28, 1997 130,487 - - 130,487
Exploration costs 161,516 - - 161,516
---------------- --------------- ---------------- -------------
Balance, February 28, 1998 292,003 - - 292,003
Acquisition costs - 510,000 - 510,000
Exploration costs 10,754 143,873 50,000 204,627
Amounts written-off (302,757) - - (302,757)
---------------- --------------- ---------------- -------------
Balance, November 30, 1998 - 653,873 50,000 703,873
Exploration costs - 54,000 99,085 153,085
---------------- --------------- ---------------- -------------
Balance February 28, 1999 - 707,873 149,085 856,958
Exploration costs - 71,000 1,258,364 1,329,364
---------------- --------------- ---------------- -------------
Balance, November 30, 1999 $ - $ 778,873 $ 1,407,449 $ 2,186,322
================= =============== ================= =============
</TABLE>
(a) Mineral Interests in Canada
Pursuant to an agreement dated October 7, 1996, the Company was
granted an option to acquire a 100% interest in eight (8) units of
mineral claims located in the Kamloops Mining Division, British
Columbia, Canada.
In consideration, the Company must issue 200,000 shares of which
50,000 shares have been issued and the balance in three equal
yearly instalments, pay $115,000 of which $15,000 have been paid
with an additional of $100,000 to be paid on or before October 7,
2000 to the optionor and spend an aggregate of $2,000,000 on
exploration and development on the property over three years.
On commencement of commercial production, the property will be
subject to a 1.75% net smelter returns royalty payable to the
optionor.
These mineral interests were abandoned during the 1999 fiscal year
due to unfavourable exploration results. Any future option
payments are not required to be paid.
(b) Mineral Interests in Portugal
Pursuant to a letter agreement dated April 15, 1998, the Company
agreed to acquire a 100% undivided interest in an exploration
concession ("the concession") located in Alentejo, Portugal.
<PAGE>F-8
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- -------------------------------------------------------------------------------
3. Mineral Interests (continued)
In consideration, the Company agreed to pay to the Vendor, and to
issue and deliver to the Vendor, the following:
(i) the sum of $10,000 in Canadian dollars as a non-refundable
deposit upon the completion of a due diligence review of the
concession (paid);
(ii) a total of 2,000,000 common shares of the Company (issued and
delivered); and
(iii) the assumption of responsibility for the payment of all required
annual exploration work under the terms and conditions of the
exploration concession, which for greater certainty are estimated
to be US$550,000 over the next two years in order to maintain the
concession.
(c) Mineral Interests in Argentina
Pursuant to an agreement dated October 24, 1998, as amended on
November 27, 1998, February 6, 1999, March 25, 1999 and June 4,
1999, the Company agreed to acquire an aggregated of 100% interest
in a portfolio of more than twenty (20) exploration concessions
("the concessions") in the provinces of Caramarca, La Pampa,
Mendoza, Rio Negro, and San Juan, Argentina.
To earn an initial 40% interest in the concessions, the Company
has to expend $700,000 on exploration work of the concessions
within one year and the issuance of 800,000 shares of the Company
after a report detailing the exploration work is accepted by the
Vancouver Stock Exchange. To earn an additional 11%, for a total
of 51%, interest in the concessions, the Company has to fund
further exploration expenditures of $750,000 in each of the second
and third years of the agreement. A performance bonus of US$5.00
per ounce of gold or gold equivalent is payable on the pro-rata
basis based on the then optionor's interest in the concessions, in
either cash or shares of the Company, if a proven and probable
reserve of 1,000,000 or more ounces of gold is determined within
five (5) years of the date of acceptance of the agreement by the
Vancouver Stock Exchange. To earn the remaining 49% for a total of
100% interest in the concessions, the Company has to pay $500,000
and the issuance of 5,000,000 shares of the Company to the
optionors within six (6) months after the Company earned the 51%
interest in the concessions and provided that the average closing
price of the Company's share is at least $1.00 for twenty (20)
trading days preceding the date of exercise and the Company has
filed a current Annual Information Form with the British Columbia
Securities Commission,
These mineral concessions are held in an Argentine company. The
Company's exploration expenditures are funded through that
company.
<PAGE>F-9
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- -------------------------------------------------------------------------------
4. Share Capital
(a) Authorized: 25,000,000 common shares without par value.
<TABLE>
<S> <C> <C>
(b) Issued:
Shares Amount
------------ ----------
For cash at $0.01 per share 750,000 $ 7,500
For cash at $0.25 per share 1,150,000 287,500
For mineral interest at $0.25 per share 50,000 12,500
------------ ----------
Balance, February 28, 1997 1,950,000 307,500
For cash at $0.48 per share, net of share issuance
cost of $68,600 1,000,000 411,400
------------ ----------
Balance, February 28, 1998 2,950,000 718,900
For mineral interests in Portugal at $0.25 per share 2,000,000 500,000
------------ ----------
Balance November 30, 1998 and February 28, 1999 4,950,000 1,218,900
For cash at $0.48 per share, plus 40,000 shares for
corporate finance fee, less $56,956 share issuance costs 2,440,000 1,095,044
For cash at $0.85 per share plus 25,000 shares for corporate finance
fee, less $68,016 share issuance costs 1,025,000 781,984
For exercise of warrants at $0.55 per share 97,500 53,625
------------ ----------
Balance, November 30, 1999 8,512,500 $3,149,553
============ ==========
</TABLE>
(c) As at November 30, 1999, 375,000 shares issued are held in
escrow, the release of which is subject to the direction of the
regulatory authorities having jurisdiction.
(d) Stock options outstanding as at November 30, 1999:
Number of Shares Exercise Price Expiry Date
---------------- -------------- ----------------
220,000 $0.48 October 3, 2002
200,000 $0.75 March 15, 2001
260,000 $0.55 October 15, 2001
120,000 $0.55 October 15, 2000
<PAGE>F-10
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- -------------------------------------------------------------------------------
4. Share Capital (continued)
(e) Share purchase warrants as at November 30, 1999:
Number of Shares Exercise Price Expiry Date
----------------- ---------------- -----------------
2,462,500 $0.55 (1st year) April 12, 2000
$0.75 (2nd year) April 12, 2001
510,000 $1.00 (1st year) September 7, 2000
$1.15 (2nd year) September 7, 2001
86,000 $1.00 (1st year) September 10, 2000
$1.15 (2nd year) September 10, 2001
5. Non-Cash Financing and Investing Activities
(a) In 1997 fiscal period, the Company issued 50,000 shares to
acquire a 100% interest in eight (8) units of mineral claims in
Canada.
(b) In 1999 fiscal year, the Company issued 2,000,000 shares to
acquire a 100% undivided interest in an exploration concession
located in Alantejo, Portugal.
(c) During the nine months ended November 30, 1999, the Company
issued 40,000 shares as corporate financing fees pursuant to the
terms of a private placement.
6. Related Party Transactions
The Company paid the following administration fee and rent to a company
with common directors:
<TABLE>
<S> <C> <C> <C> <C>
Nine Months Nine Months Year Ended
Ended Ended February 28 Year Ended September 9 1996 to
November 30 1999 November 30 1998 1999 February 28, 1998 February 28 1997
------------------- ------------------ -------------- ------------------ -------------------
$ 35,000 $ 15,346 $ 16,200 $ 3,700 $ -
=================== =================== ============== ================== ===================
</TABLE>
<PAGE>F-11
7. Financial Instruments
The financial instruments of the Company consist of cash, accounts
receivable, accounts payable and accrued liabilities and notes payable.
The fair value of these financial instruments approximate their carrying
value due to their short-term nature. The Company operates in Portugal
and Argentina. All of its option payments or other material commitments
are payable in either Canadian or U.S. dollars. The Company is therefore
subject to currency exchange risk arising from the degree of volatility
of changes in exchange rates between Canadian and U.S. dollars. The
Company is not exposed to significant interest rate and credit risks.
8. Comparative Figures
Certain comparative figures for prior periods have been reclassified to
conform with the financial statement presentation adopted for 1999.
9. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles
These financial statements are prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") which conforms with the
GAAP in United States in most aspects. The following present additional
disclosures and reconciliation of financial statement items to conform
with U.S. GAAP:
(a) Reconciliation of Consolidated Balance Sheet Items:
<TABLE>
<S> <C> <C> <C> <C> <C>
November 30 November 30 February 28 February 28 February 28
1999 1998 1999 1998 1997
------------- ------------- ------------ ------------- -------------
Mineral interests
(Canadian GAAP) $ 2,186,322 $ 703,873 $ 856,958 $ 292,003 $ 130,487
Mineral interests
written-off (1,676,322) (193,873) (346,958) (264,503) (102,987)
------------- ------------- ------------ ------------- -------------
Mineral interests
(US GAAP) 510,000 510,000 510,000 27,500 27,500
------------- ------------- ------------ ------------- -------------
</TABLE>
<PAGE>F-13
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- -------------------------------------------------------------------------------
9. Reconciliation of Canadian and United States Generally Accepted
Accounting Principles (continued)
(b) Reconciliation of Consolidated Statement of Operations Items:
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine Months Nine Months September 9
Ended Ended Year Ended Year Ended 1996 to
November 30 November 30 February 28 February 28 February 28
1999 1998 1999 1998 1997
------------- ------------- ------------ ------------ ------------
Loss for the period
(Canadian GAAP) $(297,773) $(343,788) $(371,812) $(39,563) $(23,387)
Mineral interests
written-off
(recovery) (1,329,364) 70,630 (82,455) (161,516) (102,987)
------------- ------------- ------------ ------------ ------------
Loss for the period
(US GAAP) (1,627,137) (273,158) (454,267) (201,079) (126,374)
------------- ------------- ------------ ------------ ------------
Deficit, beginning
of period
(Canadian GAAP) (434,762) (62,950) (62,950) (23,387) -
Mineral interest
written off (346,958) (264,503) (264,503) (102,987) -
------------- ------------- ------------ ------------ ------------
Deficit, beginning
of period
(US GAAP) (781,720) (327,453) (327,453) (126,374) -
------------- ------------- ------------ ------------ ------------
Deficit, end of period
(US GAAP) (2,408,857) (600,611) (781,720) (327,453) (126,374)
------------- ------------- ------------ ------------ ------------
Loss per share
(US GAAP) (0.24) (0.08) (0.13) (0.14) (0.11)
------------- ------------- ------------ ------------ ------------
Weighted average
number of common
shares outstanding-
basic and diluted
(US GAAP) 6,688,209 3,276,364 3,504,110 1,454,795 1,150,307
------------- ------------- ------------ ------------ ------------
</TABLE>
(c) Mineral Interests
U.S. GAAP requires that exploration cost of mineral interests not
be deferred and capitalized until there is evidence of
economically recoverable resources. Accordingly, the Company's
exploration costs incurred for mineral interests will not be
capitalized for U.S. GAAP purposes as the Company is at present
exploring its properties for economically recoverable ore
reserves. The effect of the write-off is presented in Notes 9(a)
and 9(b).
<PAGE>F-14
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- ------------------------------------------------------------------------------
9. Reconciliation of Canadian and United States Generally Accepted
Accounting Principles (continued)
(d) Escrow Shares
Escrow shares (see Note 4(c)) may be released, upon application,
on the basis of 15% of the original number of escrow shares for
every $100,000 expended on exploration and development of a
resource property provided that no more than 50% of the original
number of escrow shares may be released in any twelve-month
period. In addition, where administrative expenses exceed 33% of
total expenditures during the period of application, then the
release factor of 15% will be reduced to 7.5% and the percentage
of the original number of escrow shares available for release in
any twelve-month period will be reduced to 25%.
U.S. GAAP requires that the fair value of the shares at the time
they are released from escrow should be recognized as a charge to
income as a compensation expense. There were no shares released
from escrow during the periods as presented.
As escrow shares are contingently cancellable, they are excluded
from the calculation of weighted average number of shares for
purposes of loss per share under U.S. GAAP. Its effect on the
Company's financial statements is presented in Note 9(b).
(e) Stock Options Compensation
The Company adopted a Stock Option Plan ("the Plan") for the grant
of options to directors, officers and employees from 1997 onwards.
Options granted under the Plan will be exercised from the date of
grant for a period from one year to five years. All options
granted vest immediately at the date of grant.
A summary of the activity in the option plan is as follows:
<TABLE>
<S> <C> <C>
Number of Weight Average
Shares Exercise Price
----------- ----------------
Granted 220,000 $ 0.48
----------- ----------------
Balance outstanding and exercisable,
February 28, 1997, 1998 and 1999 220,000 0.48
Granted 200,000 0.75
Granted 380,000 0.55
----------- ----------------
Balance outstanding and exercisable,
November 30, 1999 800,000 $ 0.58
=========== ================
</TABLE>
<PAGE>F-15
APAC MINERALS INC.
Notes to Consolidated Financial Statements
(In Canadian Dollars)
February 28, 1999, 1998 and 1997
November 30, 1999 and 1998 (unaudited - prepared by management)
- ------------------------------------------------------------------------------
9. Reconciliation of Canadian and United States Generally Accepted
Accounting Principles (continued)
(e) Stock Options Compensation (continued)
The Company applies Accounting Principles Board ("APB") No. 25
"Accounting for Stock Issued to Employees" and related
interpretations in accounting for stock options. Under APB25, when
the exercise price of the Company's stock options equals the
market price of the underlying stock on the date of grant, no
compensation expense is recognized. There were no compensation
costs charged to income for the periods as presented.
Pro-forma information regarding Net Loss and Loss per Share is
required under SFAS 123, and has been determined if the Company
has accounted for its stock options under the fair value method of
SFAS 123. If compensation cost for the stock option plan had been
determined based on the fair value at the grant dates for awards
under the plan, consistent with the alternative method set forth
under SFAS 123, the Company's net loss, basic and diluted loss per
share would have been increased on a pro-forma basis as indicated
below:
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine Months Nine Months September 9
Ended Ended Year Ended Year Ended 1996 to
November 30 November 30 February 28 February 28 February 28
1999 1998 1999 1998 1997
------------- ------------- ------------- ------------- ------------
Net loss
-as reported $(1,627,137) $ (273,158) $ (454,267) $ (201,079) $ (126,374)
------------- ------------- ------------- ------------- ------------
- pro-forma $(2,003,737) $ (273,158) (454,267) (348,479) (126,374)
------------- ------------- ------------- ------------- ------------
Basic and diluted loss
per share
- as reported (0.24) (0.08) (0.13) (0.14) (0.11)
------------- ------------- ------------- ------------- ------------
- pro-forma (0.30) (0.08) (0.13) (0.24) (0.11)
------------- ------------- ------------- ------------- ------------
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for the grants
rewarded in 1997 and 1999, respectively:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of Risk Free Expected
Year Options Dividend Expected Interest Lives in Fair Value of
Granted Granted Yields Volatility Rate Years Options
- ----------- ----------- ---------- ------------ ---------- ---------- --------------
1997 220,000 0% 15% 5.75% 5 $ 0.67
1999 80,000 0% 51% 5% 2 $ 0.80
1999 120,000 0% 51% 5% 5 $ 0.80
1999 120,000 0% 79% 5% 1 $ 0.57
1999 260,000 0% 70% 5% 2 $ 0.57
</TABLE>
<PAGE>F-16
9. Reconciliation of Canadian and United States Generally Accepted
Accounting Principles (continued)
(f) Consolidated Statement of Cash Flows:
Deferred exploration costs would be classified as operating
activities under US GAAP as opposed to investment activities under
Canadian GAAP.
RIO
TINTO
Mr. Tore Birkeland
APAC Minerals Inc.
Suite 1208 808 Nelson Street
Vancouver, Canada
1 December, 1999
Ref:A99180.KHH
Dear Mr Birkeland
Letter Agreement
APAC Minerals Inc. and ARMINEX S.A. (collectively 'APAC") hereby grant to Rio
Tinto Mining and Exploration Limited ("Rio Tinto") an exclusive right to enter
into option arrangements to acquire an interest in one or more target areas
within the prospect that Arminex S.A. holds in Rio Negro Province, Argentina
known Los Menucos. The Los Menucos prospect area the ("Property") comprises the
mineral rights listed in Schedule A,, their location is approximately shown on
the map in Schedule B.
APAC Minerals Inc. and ARMINEX S.A. hereby undertake that the obligations and
undertakings hereunder shall be fulfilled, as appropriate, either by APAC
Minerals Inc. or by Arminex S.A.
Stage 1
Subject to completion of a separate share subscription agreement, to which a
copy of this Letter Agreement shall be attached, an affiliate of Rio Tinto shall
take a US$700,000 private placement of stock in APAC Minerals Inc. APAC will use
the full US$700,000 proceeds of the private placement to fund exploration
expenditures in the Initial Programme, as defined below, on the Property and
shall use best efforts, with time of the essence, to complete the Initial
Programme within an 8 month period commencing on the Closing Date (as defined in
the share subscription agreement referred to above), this period shall be known
as "Stage 1". As part of its US$700,000 exploration expenditures APAC shall
include a management charge equal to 10% of direct exploration expenditures, in
lieu of off-site overhead, administration and office expenses.
During Stage 1, APAC shall conduct and complete an exploration programme (the
"Initial Programme") designed jointly by Rio Tinto and APAC but subject to final
determination by Rio Tinto taking into reasonable consideration the views of
APAC. The objective of the Initial Programme will be to test two known target
areas, Puesto-Caltruna and Cuya-Aguadita, and possibly to identify others and to
geographically define all target areas of interest to Rio Tinto within the
Property.
<PAGE>
During Stage 1 APAC will be manager and operator and Rio Tinto shall have the
right to second a geologist to the programme, the salary cost of the seconded
geologist shall be to Rio Tinto's account.
Performance of Operations. During Stage 1 APAC shall:
o Comply with all applicable laws, rules and regulations and shall carry out
operations in a good, workmanlike and efficient manner in accordance with
generally accepted international mining practice.
o No later than 5 days after the end of every second calendar month, provide
Rio Tinto with reports showing in reasonable detail the work performed, the
expenditures incurred and the results obtained in the preceding two months;
expenditure reports shall be in such form and of such detail as is
reasonably requested by Rio Tinto.
o Maintain accounts of expenditures in accordance with generally accepted
accounting standards, any legislative and regulatory requirements.
o Immediately inform Rio Tinto of any occurrence or non occurrence that may
affect the validity or good standing of the mineral rights comprising the
Property.
o Immediately inform Rio Tinto of any adverse environmental, health, safety
or community relations event or issue. If any such communication is verbal
it shall as soon as possible thereafter, with time of the essence, be
followed by a detailed written report of a standard acceptable to Rio
Tinto.
No later than 45 days after the end of Stage 1, Rio Tinto shall have the
exclusive right to elect to enter separate exclusive option agreements in
respect of one or more target areas. Rio Tinto may exercise this right by giving
written notice to APAC. In its notice Rio Tinto shall defined the geographic
boundaries of the target area; if APAC disputes these boundaries the parties
shall discuss in good faith to mutually agree the boundaries taking into
consideration Rio Tinto's probable ability to operate a unitary mining and
processing operation within the target area defined. The option arrangements
shall be according to the terms set out below under the heading "Option Terms".
Option Terms
The terms set out below shall apply to any target area that Rio Tinto elects to
option.
1. Rio Tinto shall have an exclusive option to acquire an initial 55% interest
in the target area, exercisable at the sole election of Rio Tinto, by Rio
Tinto making work expenditures of no less than US$2 million by the second
anniversary of the option. The effective date of the option shall be the
date of the notice given by Rio Tinto that it wishes to option a particular
target area.
2. Upon Rio Tinto exercising its option and earning a 55% interest, APAC shall
have the right to elect either: (a) that joint contributory joint venture
arrangements are entered into between the parties in which Rio Tinto will
have an initial 55% interest and APAC and initial 450m interest - the terms
of the joint venture shall include the terms set out in
<PAGE>
Clause 8 below - or (b) to request that Rio Tinto continues sole funding
future exploration costs through to no later than the sixth anniversary of
the option in order to earn an additional 15% interest in the target area
(to vest at a 70% interest in the target area) by spending an additional
US$8 million or making a decision to develop a mine before completing
expenditure of an additional US$8 million.
If Rio Tinto completes spending an additional US$8 million before the sixth
anniversary, but has not made a decision to develop a mine it shall have
earned a vested interest of 70% and at that time APAC shall have the right
to elect either: (a) that joint contributory joint venture arrangements are
entered into between the parties in which Rio Tinto will have an initial
70% interest and APAC and initial 30% interest - the terms of the joint
venture shall include the terms set out in Clause 8 below - or (b) to
request that Rio Tinto continues sole funding future exploration costs
through to no later than the sixth anniversary of the option in order to
earn an additional 5% interest (to vest at a 75% interest in the target
area) by spending an additional US10 million or making a decision to mine
before completing expenditure of an additional US$10 million .
3. Upon Rio Tinto earning a 70% or 75% interest, as the case may be, under the
terms of Clause 2 above, APAC shall have the right to elect either: (a)
that joint contributory joint venture arrangements are entered into between
the parties in which Rio Tinto will have an initial 70% or 75% interest, as
the case may be, and APAC and initial 30% or 25% interest, as the case may
be, the terms of the joint venture to include the terms set out in Clause 8
below, or (b) to request that Rio Tinto provide financing of APAC's
interest through to commencement of production. If APAC elects (b) Rio
Tinto's interest in the target area shall increase to 80%. Rio Tinto shall
provide such financing at an interest rate of LIBOR + 3% which shall be
repaid out of 90% of APAC's share of net revenues from the target area.
4. During the option, the making of any work expenditures shall be in the sole
discretion of Rio Tinto. In order to maintain its option to earn its next
relevant interest level Rio Tinto shall make work expenditures of
US$500,000 between any two anniversaries of the option failing which it may
pay the shortfall to APAC within 30 days of the end of such period.
5. After Rio Tinto has vested at a 55% interest, but before it has
completed a cumulative US$4 million of work expenditures under the option,
if Rio Tinto fails to spend US$500,000 between any two anniversaries of the
option or to pay the shortfall to APAC as provided for in Clause 4, APAC
shall have the option to give notice that it is undertaking a sole risk
programme in the target area. Under this sole risk programme, APAC shall
keep Rio Tinto reasonably informed and provide calendar quarterly reports
to Rio Tinto and if APAC completes expenditure of US$2 million within two
years of its notice it shall provide a full report of its exploration
results to Rio Tinto and Rio Tinto shall have 45 days from receipt of such
report to elect either: (a) to take control of the target area and work
programmes thereon and to become manager and operator and to provide all
funds necessary to complete a bankable feasibility study on the target area
in order to have a 55% interest, or (b) to transfer its entire interest to
APAC in consideration for a 5% Net Profit interest from future production.
For avoidance of doubt, the possibility of APAC undertaking a sole risk
programme does not prohibit Rio Tinto from selling or making other
arrangements for the transfer of its interest to a third party. If APAC
<PAGE>
does not complete sole risk expenditures of US$2 million within two years,
the parties interest in the target area shall be as they were before
commencement of the sole risk programme.
6. During the time when Rio Tinto is making work expenditures, APAC grants Rio
Tinto the sole and exclusive right to undertake all exploration, and to
make all decisions regarding exploration, on the target area. Rio Tinto
shall carry out all activities under this Letter Agreement in a good,
workmanlike and efficient manner, in accordance with generally accepted
mining practice and all applicable laws. APAC shall have the right during
the option period to second a geologist to the exploration programme.
Subject to clause 11 below, Rio Tinto accepts APAC's requirement to inform
the public of significant exploration results through news releases; Rio
Tinto will keep APAC reasonably informed of exploration data and will
provide it with calendar quarter exploration reports.
7. Upon 30 days prior written notice to APAC, Rio Tinto may withdraw from and
terminate its option at any time. Such termination shall not relieve Rio
Tinto of its share of any liabilities, whether known or unknown, to third
parties or governmental authorities which arise from activities undertaken
by Rio Tinto under this Letter Agreement prior to its withdrawal.
8. The documentation for the joint venture arrangements (the "JVA") shall be
as agreed between the parties as provided in clause 10 of this Letter
Agreement. The JVA shall include the following terms:
o Parties contribute to joint venture costs and expenses pro rata in
proportion to their respective participation interests;
o Dilution, pro rata according to deemed contributions and actual
contributions, should either party elect not to contribute its
proportionate share of the costs and expenses of the joint venture, and
accelerated dilution at 125% should a party agree to make its pro rata
contributions and fail to do so:
o Forfeiture of a party's entire participating interest and receipt of a 5%
Net Profit Interest from future production from the target area should a
party dilute to less than a 10% participating interest;
o Pre-emption rights allowing a party to match any terms the other party may
agree for transfer, direct or indirect, of all or part of its interest,
including any royalty interest, in the JVA or the target area, other than
in the case of transfer to an affiliate company;
o Management of the joint venture by a management committee, which shall make
decisions by majority vote, with each party having a vote equal to its
participating interest;
o Appointment of Rio Tinto - or APAC should Rio Tinto be diluted below 50% -
as the manager, with responsibility to conduct all operations in a good,
workmanlike and efficient manner in accordance with sound mining practice,
<PAGE>
industry standards and applicable laws:
o Management fees to the manager of 10% during exploration, 3% during
development and 2% during exploitation, all percentages being a percentage
of costs, and
o Other terms normally in mineral industry joint venture agreements.
Other Terms of this Letter Agreement
9. APAC hereby represents and warrants that:
o ARMINEX S.A. is registered holder of the mineral rights that comprise the
Property and that those mineral rights are held free and clear of all
liens, encumbrances, royalties, options, leases or any other contractual
commitments;
o that it has and shall retain and exercise the control of all actions of
ARMINEX S.A. to the extent necessary to fulfil the obligations herein of
APAC and ARMINEX S.A. to Rio Tinto;
o the Property is in good standing and all assessment work or governmental
fees to maintain the Property are current, correct and paid in full:
o it has delivered or made available to Rio Tinto all material information
concerning the Property in its possession or control; and
o it has not received any claim or notice of violation in relation to the
Property.
These representations and warranties shall continue throughout the term of
this Letter Agreement.
10. Rio Tinto and APAC agree that though this Letter Agreement, which is
subject to the laws of British Columbia, is a binding document, it only
sets out the basic terms of the option and joint venture. The parties shall
in good faith negotiate detailed option and joint venture agreements during
Stage 1, such agreements being suitable for registration in Argentina. If
Rio Tinto elects to enter into option agreement(s) at the end of Stage 1,
such agreements shall be entered into between a Rio Tinto entity registered
in Argentina and ARMINEX. Upon entering such agreement, this Letter
Agreement shall automatically terminate. All parties agree to file all such
documents in Argentina as are necessary to protect the parties.
11. Any information or data obtained in connection with the performance of this
Letter Agreement is confidential and neither APAC nor Rio Tinto shall make
public statement concerning this Letter Agreement or the activities
contemplated herein without the prior consent of the other except as
provided for herein. Such consent shall not be unreasonably withheld.
<PAGE>
As early as practicable and not less than two business days before either
party to this Letter Agreement makes any public statement concerning this
Letter Agreement or activities contemplated herein it shall first give
the other party notice of the intended announcement, including a copy of
such announcement. The other party making the public announcement shall
in good faith accommodate the other party's reasonable requests
concerning the contents thereof. The non-disclosing party shall provide
such requests promptly upon receipt of the copy of the proposed
announcement and shall be deemed to have no such requests if the
non-disclosing party fails to present such request within two business
days of delivery of such proposed notice. Notwithstanding the review of
proposed announcements by the non-disclosing party, the disclosing party
accepts full responsibility and liability for the content of any public
statement it may make.
We are sending this Letter Agreement to you by fax. Please signify the agreement
of APAC Minerals Inc. and ARMINEX S.A. to it by countersigning the faxed version
below and initialling each page and faring the signed version to me in Santiago.
The parties hereto agree that the terms of this Letter Agreement shall be
binding upon receipt of faxed signatures, but for your files and ours I shall,
after receiving APAC's faxed signatures, send you two duplicate originals of
this Letter Agreement. Please execute them and return one copy to me.
Yours sincerely,
RIO TINTO MINING AND EXPLORATION LIMITED
By :/s/ KEN HADDOW
------------
Ken Haddow
Name : K.H. HADDOW Title: General Manager Commercial
APAC MINERALS INC.
By : /s/ TORE BIRKELAND
---------------
Tore Birkeland
Name : Tore Birkeland Title: President
ARMINEX S.A.
By : /s/ SVEN-ERIK SETTERBERG
----------------------
Sven-Erik Setterberg
Name : SVEN-ERIK SETTERBERG Title: President
<PAGE>
SCHEDULE A
List of the Mineral Rights Comprising the "Property"
NAME FILE
Cuya....................................... 23054-9
Cuya Sur.................................. 23105-98
Cuya Oeste.................................23110-98
Lagunita ..................................23058-98
Laguna.....................................23055-98
Cuya Norte. ...............................23106-98
Cuya Este .................................24050-99
Adriana ...................................24046-99
Trayen ....................................24047-99
Abanico....................................24051-99
Niyeu .....................................24049-99
Porvenir ..................................24045-99
Coyuelo....................................24044-99
Catruna ...................................24012-99
Mariposa ..................................24013-99
Crespo ....................................24028-99
Amapola....................................24025-99
Petunia....................................24021-99
Jalil......................................23056-98
Puesto.....................................23053-98
Panepi.....................................23057-98
Puesto Norte. .............................23109-98
Agostura ..................................24023-99
Puesto Sur.................................23108-98
Ceibo .....................................24022-99
AydeC......................................24026-99
Rocio......................................24030-99
Guadalupe .................................24020-99
Aleli .....................................24024-99
Tamarindo........... ......................24031-99
Coiron ....................................24027-99
<PAGE>
Schedule B
Map of the Los Menucos Prospect and its Location
See next two pages
Initials : "Ken Haddow"
"Tore Birkeland"
"Sven-Erik Setterberg"
<PAGE>
[GRAPHICS OMITTED]
<PAGE>
[GRAPHICS OMITTED]
