FORM 20-F
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20540
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission file number
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GOLDEN RULE RESOURCES LTD.
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(Exact name of Registrant as specified in its charter)
GOLDEN RULE RESOURCES LTD.
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(Translation of Registrant's name into English)
ALBERTA, CANADA
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(Jurisdiction of incorporation or organization)
#1450 - 125 - 9th AVENUE, S.E., CALGARY, ALBERTA, T2G 0P6
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common shares without nominal or par value
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by this
registration statement.
24,300,581 common shares as at September 30, 1996.
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2
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes XX No
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Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 XX Item 18
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<PAGE>
3
PART 1
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Item 1: DESCRIPTION OF BUSINESS
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(a) General Development of Business
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The Registrant
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Golden Rule Resources Ltd. (the "Registrant") was incorporated under the laws of
the Province of Alberta, on October 12, 1979. At September 30, 1996, the
Registrant had the following subsidiary companies:
<TABLE>
<CAPTION>
Percentage Potential
Subsidiaries Ownership Product Location
- - ------------ --------- ------- --------
<S> <C> <C> <C>
Golden Rule Resources Inc. 100% Gold Colorado
GR Capital Corporation 100% Investments Alberta
Manson Creek Resources Ltd. 35% Gold British Columbia and Venezuela
Northern Abitibi Mining Corp. 39% Gold Quebec
Hixon Gold Resources Inc. 46% Gold/Diamonds British Columbia and Alberta
Waddy Lake Resources Inc. 100% Gold Saskatchewan
Stade Exploration Inc. 29% Oil and Gas British Columbia and Alberta
Tyler Resources Inc. 8% Diamonds/Gold Northwest Territories/Saskatchewan
</TABLE>
The Registrant, directly and through its subsidiaries, is engaged in the
exploration and development of precious metal properties, primarily in Canada
with some properties in the United States, Venezuela and Ghana, West Africa. The
Registrant has significant land holdings in the Byers Mineral Belt of northern
Saskatchewan, the Toodoggone gold camp, Quesnellia Terraine and Taseko Lake area
of British Columbia, the Val d'Or and Abitibi Greenstone Belts of Quebec, and
the Voisey Bay Area of Labrador. The Registrant operates exploration programs on
its own account and on behalf of its joint venture partners, its subsidiaries,
affiliates and other clients on a contractual and consulting basis.
In addition, the Registrant is engaged in oil and gas activities in Alberta and
British Columbia, (Stade Exploration) and exploration for diamonds in Northwest
Territories (Tyler Resources). These activities are not considered material to
the Registrant.
The Registrant's exploration activities have been primarily on undeveloped
precious metal properties in the areas outlined above. These exploration
activities have identified gold bearing deposits in each of the areas. None of
the properties have been brought into production as of September 30, 1996 except
for the Komis prospect where the Registrant on August 30, 1996 commenced the
processing of ore from the Komis prospect through the Jolu Mill. Operating costs
for the period August 30, 1996 to September 30, 1996 for the Komis project have
been capitalized in producing property costs as commericial production had not
been achieved at September 30, 1996.
<PAGE>
4
The Registrant's Subsidiaries
Wholly owned Subsidiaries
- - -----------------------------
Waddy Lake Resources Inc. ("Waddy") was incorporated under the laws of the
Province of Ontario on October 5, 1960. On March 14, 1979, Waddy was continued
under the provisions of the Canada Business Corporations Act.
On September 26, 1995, the shareholders of Waddy (with 15,509,072 common shares
issued and outstanding of which 8,410,946 (54%) were held by the Registrant) and
the shareholders of the Registrant approved a Plan of Arrangement subject to
final regulatory approval which was received October 12, 1995. Under the Plan of
Arrangement, the Registrant acquired the 7,098,126 common shares of Waddy (46%)
held by the minority interests through a share for share exchange. Waddy
shareholders received .53 common shares of the Registrant for each Waddy share.
As a result the Registrant issued 3,762,007 common shares at a deemed price of
$5,860,631. Accordingly, as at September 30, 1995, Waddy was reflected as a
wholly-owned subsidiary with 8,410,946 shares held by G.R. Capital Corporation a
wholly-owned subsidiary of the Corporation and 7,098,126 held directly by the
Registrant pursuant to the Plan of Arrangement.
The Registrant acquired the 8,410,946 shares held prior to the Plan of
Arrangement for cash from 1987 to 1994 and also disposed of some shares during
the period. The common shares of Waddy were listed on the Toronto Stock Exchange
until completion of the acquisition of the minority interest by the Registrant
at which time they were delisted.
During the year ended September 30, 1994, the Registrant and Waddy agreed to
enter into two private placements. The first private placement consisted of
550,000 common shares at $0.80 per share for total consideration of $440,000.
The second private placement consisted of an 8% convertible debenture in the
amount of $4,000,000, due February 24, 1996 with interest payable semi-annually
on June 30 and December 31, secured by a floating charge over all assets. The
$4,000,000 debenture was convertible into 3,200,000 common shares of Waddy at a
price of $1.25 per share until February 24, 1996. Both private placements were
approved by the TSE and the proceeds of each were used to fund the underground
exploration program on the Komis project of Waddy and the milling of the bulk
sampling from the underground program.
Golden Rule Resources Inc. ("GR Inc.") was incorporated under the laws of the
State of Colorado on March 26, 1980. All activities of the Registrant in the
United States have been conducted through GR Inc. Neither GR Inc. nor the
Registrant currently own any material property interests or conduct any
significant activities within the United States.
GR Capital Corporation ("GR Capital") was incorporated under the laws of the
Province of Alberta on October 10, 1986. During the year ended September 30,
1987, the Registrant transferred to GR Capital its interest in various portfolio
investments and its holdings, as at the date of the transfer, in Manson Creek
Resources Ltd. ("Manson") and Northern Abitibi Mining Corp. ("NAMC"). GR Capital
has made subsequent purchases in the market of Manson, NAMC and Hixon Gold
Resources Inc. ("Hixon"). The Registrant's original 55% interest in Waddy Lake
Resources Inc. ("Waddy") was also held by GR Capital.
<PAGE>
5
Publicly Held Subsidiaries
- - --------------------------
Manson Creek Resources Ltd. ("Manson") was incorporated under the laws of the
Province of British Columbia on March 4, 1983 as a wholly owned subsidiary of
the Registrant and became publicly-held in 1983. At September 30, 1996 Manson
has 14,620,402 common shares issued and outstanding, of which 5,099,048 are held
by the Registrant. The common shares of Manson are listed for trading on the
Toronto Stock Exchange (TSE).
During the two years ended September 30, 1995, the Registrant agreed to enter
into a private placement with Manson which would be funded from the proceeds
from the sale of a block of Manson shares held by the Registrant through the
facilities of the TSE. In December 1993, the Registrant sold 1,250,000 shares of
Manson at an average price of $0.63 per share for total net consideration of
$767,000 through the facilities of the TSE. On January 5, 1994, Manson and the
Registrant agreed to a private placement of 1,250,000 units at $0.60 per unit
with each unit to consist of one common share and a share purchase warrant to
purchase an additional common share for $0.60 per share for five years from the
date of issue. The private placement was approved by the TSE and the
shareholders of Manson. (See "Financing of Publicly held subsidiaries").
During the year ended September 30, 1996, the Registrant agreed to enter into a
private placement with Manson which would be funded from proceeds from the sale
through the facilities of the TSE of a block of Manson shares held by the
Registrant. In November 1995, the Registrant sold 2,000,000 shares of Manson at
an average price of $0.59 per share for total net consideration of $1,140,842
through the facilities of the TSE. On November 3, 1995 Manson and the Registrant
agreed to a private placement of 2,000,000 units at $0.52 per unit at a total
cost of $1,040,000 with each unit to consist of one common share and a share
purchase warrant to purchase an additional common share at $0.60 per share for
five years from the date of issued. The proceeds from the private placement will
be used by Manson to further Manson's exploration projects. The TSE accepted
notice of the private placement subject to shareholder approval. At the Annual
and Special Meeting of the shareholders of Manson held on February 29, 1996, the
shareholders of Manson voted to amend the private placement from the original
terms as outlined above to a private placement of 2,000,000 units at $0.52 per
unit, with each unit to consist of one common share and one common share
purchase warrant to purchase an additional common share at $1.50 per share for a
period of five years from the date of closing. The private placement closed on
March 6, 1996.
Northern Abitibi Mining Corp. ("NAMC") was incorporated under the laws of the
Province of Quebec on March 15, 1971. On September 22, 1981, the name was
changed to include the French version, Corporation Miniere Nord Abitibi. As at
September 30, 1996 NAMC has 18,509,405 common shares issued and outstanding. The
Registrant holds 7,197,425 shares of NAMC which it has acquired through
purchases in the market and by way of private placement over the period from
1985 to 1995. The private placements have been for cash, settlement of debt for
costs paid by the Registrant on behalf of NAMC and for property interest
acquired by NAMC from the Registrant. Where the private placement was to acquire
a property interest, the final acquisition price negotiated between NAMC and the
Registrant and presented to their respective Board of Directors for
consideration and approval was based on property information package which
included property valuations prepared by third parties. The private placements
whether for cash or in settlement of debts or acquisition of property interests
have been approved by the Alberta Stock Exchange (ASE) on which the shares of
NAMC are listed and the price per share based on market prices at the time of
the submission of the proposed private placement to the ASE. On consolidation of
NAMC into the accounts of the Registrant, the property interests transferred, as
noted above, are recorded at the Registrant's original cost and any gain or loss
on the transfer is eliminated. The common shares of NAMC are listed for trading
on the ASE.
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6
During the year ended September 30, 1994, the Registrant and NAMC agreed to
enter into a private placement effective August 26, 1994 whereby NAMC issued
484,321 common shares at $0.40 per share. The purpose of the private placement
was to settle debts of $193,728 owed by NAMC to the Registrant comprised of a
debenture in the amount of $150,000, accrued interest thereon in the amount of
$32,305 and other amounts totalling $11,423. The private placement was approved
by the ASE.
During the year ended September 30, 1995, the Registrant agreed to enter into a
private placement with NAMC which would be funded from the proceeds from the
sale of a block of NAMC shares held by the Registrant through the facilities of
the ASE. In February 1995, the Registrant sold 5,000,000 shares of NAMC at an
average price of $0.22 per share for total net consideration of $999,968 through
the facilities of the ASE. On February 3, 1995, NAMC, the Registrant and Kinross
Gold Corporation ("Kinross"), an unrelated company, agreed to a private
placement of 8,750,000 units at $0.20 per unit with each unit to consist of one
common share and one-half of a share purchase warrant. One full warrant will
entitle the holder to purchase an additional common share for $0.50 for two
years. The Registrant had agreed to subscribe for 5,000,000 units at a total
cost of $1,000,000 and Kinross had agreed to subscribe for 3,750,000 units at a
total cost of $750,000. NAMC had intended to use the proceeds from the private
placement to fund, pursuant to an agreement in principle, the acquisition of the
Quebec mining property portfolio under option from Falconbridge Limited by
Kinross. As the parties elected not to proceed with the acquisition of the
Quebec mining property portfolio, Kinross did not participate in the private
placement. The Registrant elected to proceed with its subscription for 5,000,000
units at $0.20 per unit. The private placement approved by the ASE. closed on
May 4, 1995. The proceeds from the private placement have been used for the
acquisition of and exploration on the Voisey's Bay properties in Labrador
acquired subsequent to the private placement.
Hixon Gold Resources Inc. ("Hixon") was incorporated under the laws of the
Province of Alberta on October 10, 1986 as a wholly-owned subsidiary of the
Registrant. Pursuant to a Prospectus dated November 18, 1988, Hixon distributed
to the public in British Columbia 600,000 units with each unit consisting of one
common share and two Series "A" Warrant which have subsequently expired. A
portion of the units (400,000) were issued on a "flow through basis" whereby for
Canadian Income Tax purposes Hixon expended the proceeds on exploration
expenditures and the investor received a deduction for Canadian Income Tax
purposes equal to the amount of his investment.
As at September 30, 1996, Hixon has 10,485,057 common shares issued and
outstanding. The Registrant holds 5,016,868 shares of Hixon which it has
acquired on incorporation, through purchases in the market and through private
placements over the period from 1988 to 1996. The private placements have been
for cash, settlement of debt for costs paid by the Registrant on behalf of Hixon
and for property interest acquired by Hixon from the Registrant. Where the
private placement was to acquire a property interest, the final acquisition
price negotiated between Hixon and the Registrant and presented to their
respective Board of Directors for consideration and approval was based on a
property information package which included property valuations prepared by
third parties. The private placement whether for cash or in settlement of debts
or acquisition of property interests have been approved by the Vancouver Stock
Exchange ("VSE") on which the shares of Hixon are listed and the price per share
based on market prices at the time of the submission of the proposed private
placement to the VSE. On consolidation of Hixon into the accounts of the
Registrant, the property interests transferred, as noted above, are recorded at
the Registrant's original cost and any gain or loss on the transfer is
eliminated.
During the year ended September 30, 1995, the Registrant gave notice to the VSE
to sell through the facilities of the VSE a block of upto 2,000,000 Hixon
shares. To September 30, 1995, the Registrant sold a total of 143,500 Hixon
shares through the facilities of the VSE at an average price of $0.25 per share
for total net proceeds of $35,670. Subsequent to September 30, 1995, the
Registrant has sold an additional 1,856,500 Hixon shares through the facilities
of the VSE at an average price of $0.37 per share for total net proceeds of
$691,589. Under the notice to sell up to 2,000,000 Hixon shares, the Registrant
sold a total of 2,000,000 Hixon shares at an average price of $0.36 per share
for total net proceeds of $727,259.
<PAGE>
7
On September 19, 1996, the Registrant gave notice to the VSE to sell through the
facilities of the VSE, a block of 200,000 Hixon shares which was completed on
September 26, 1996 at an average price of $0.59 per share for total net proceeds
of $117,210. From the sale of the total of 2,200,000 Hixon shares, the
Registrant realized total net proceeds of $844,469 which the Registrant utilized
as follows:
1) On December 20, 1995, Hixon and the Registrant agreed to a private
placement of 1,000,000 units at $0.21 per unit at a total cost of
$210,000 with each unit consisting of one common share and a share
purchase warrant to purchase an additional common share at $0.21 per
share during the first year from the date of issue and at $0.24 per
share during the second year from the date of issue. The private
placement was approved by the VSE on December 27, 1995 and closed on
February 12, 1996. On April 3, 1996, the Registrant exercised the
share purchase warrants for 1,000,000 shares at a total cost of
$210,000. The total proceeds from the 1,000,000 units and the
1,000,000 warrants of $420,000 have been used for working capital and
the acquisition and exploration of two properties in Ghana, West
Africa.
2) On April 9, 1996, Hixon announced a private placement of up to
1,000,000 units at $0.50 per unit, with each unit consisting of one
common share and a share purchase warrant to purchase an additional
common share at $0.50 per share during the first year from the date of
issue and at $0.58 per share during the second year from the date of
issue. From the private placement of 1,000,000 units, the Registrant
purchased 100,000 units at $0.50 per unit at a total cost of $50,000
and the remaining 900,000 units were purchased by officers, directors
of Hixon and other unrelated parties. The private placement was
approved by the VSE on April 16, 1996 and closed on May 31, 1996. On
December 20, 1996, the Registrant exercised the warrant for 100,000
shares at $0.50 per share for a total cost of $50,000. The total
proceeds of $100,000 will be used for working capital and exploration
on the properties in Ghana, West Africa.
3) On September 13, 1996, Hixon announced a private placement of up to
1,000,000 units which was amended on September 24, 1996 to raise the
number of units to 1,250,000 units at $0.50 per unit with each unit
consisting of one common share and a share purchase warrant to
purchase an additional common share at $0.50 per share during the
first year from the date of issue and at $0.58 per share during the
second year from the date of issue. From the private placement of
1,250,000 units, the Registrant purchased 247,000 units at $0.50 per
unit for a total cost of $123,500 and the remaining 1,003,000 units
were purchased by officers, directors of Hixon and other unrelated
parties.The private placement was approved by the VSE on October 4,
1996 and closed on November 25, 1996. The proceeds have been used for
working capital and exploration on the properties on Ghana, West
Africa.
4) On October 2, 1996, Hixon and the Registrant agreed to a private
placement of 235,000 units at $0.65 per unit at a total cost of
$152,750 with each unit consisting of one common share and a share
purchase warrant to purchase an additional common share at $0.65 per
share during the first year from the date of issue and at $0.75 per
share during the second year from the date of issue. The private
placement was approved by the VSE on October 4, 1996 and closed on
November 19, 1996. On December 20, 1996, the Registrant exercised the
share purchase warrant for 235,000 shares at $0.65 per share for a
total cost of $152.750. The total proceeds of $305,500 will be used to
provide working capital and to allow the acquisition and exploration
of mineral properties.
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8
On December 20, 1996, the Registrant gave notice to the VSE to sell through the
facilities of the VSE, a block of 500,000 Hixon shares which was completed on
January 7, 1997 at an average price of $5.51 per share for total net proceeds of
$2,755,572.
On January 2, 1997, Hixon and the Registrant agreed to a proposed private
placement of 500,000 units at $5.50 per unit for total proceeds of $2,755,000
with each unit consisting of one common share and a share purchase warrant to
purchase an additional common share at $5.50 per share during the first year
from the date of issue and at $6.35 per share during the second year from the
date from the date of issue. The private placement was approved by the VSE on
January 28, 1997 and is subject to shareholder approval which will be sought at
the Annual and Special Meeting of the Shareholders to be held on March 27, 1997.
The proceeds will be used for exploration of Hixon's property portfolio in
Ghana. The Registrant will fund the cost of the private placement from the sale
through the facilities of the VSE of the block of 500,000 Hixon shares completed
on January 7, 1997 at an average price of $5.51 per share for total net proceeds
of $2,755,572.
In this Registration Statement, unless the context indicates otherwise, the
"Registrant" refers to Golden Rule Resources Ltd. and all direct and indirect
subsidiaries. The consolidated financial statements and financial information
stated herein include the accounts of the Registrant and all direct and indirect
subsidiaries.
Financing of Publicly held Subsidiaries and Affiliates
To assist its publicly held subsidiaries and affiliates finance their
exploration activities the Registrant has utilized the large portion of shares
that are freely tradeable under Canadian securities legislation which it holds
in each of these subsidiaries and affiliates. Under Canadian securities
legislation, the Registrant may sell, upon proper notice to the various
regulatory authorities, a portion of these freely tradeable shares through the
facilities of the stock exchange on which the subsidiary or affiliate is listed.
The Registrant subsequently re-invests the proceeds from the sale of the freely
tradeable shares or a portion thereof in the subsidiary or affiliate by means of
a private placement under the applicable regulations. While it is not always
required, the Regulators, in several instances, have required approval of the
private placement by the shareholders of the subsidiary or affiliate. The
private placement usually consists of units comprised of a share and a share
purchase warrant with the total number of units usually equal to the number of
shares sold. Both the shares and any shares received on exercise of the warrant
are subject to a one year hold period from the date of the private placement.
The major advantage both to the Registrant and the subsidiary or affiliate of
the above described process is the ability to react quickly to capital markets.
In those instances where a subsidiary or affiliate needs additional equity
financing and the market value of the subsidiary's stock is appreciating, the
Registrant with its block of freely tradeable shares is able to react quickly to
the capital market. With the sale of a block of freely tradeable shares at
current market prices, the Registrant is able to provide additional equity
capital to the subsidiary or affiliate without the necessity of using any of its
own resources. After completion of the private placement, the Registrant holds
the same or approximately the same number of shares as it held before the sale
of the block of freely tradeable shares. The percentage ownership in the issued
and outstanding shares of the subsidiary or affiliate remains the same as it
would have been if the subsidiary had issued the shares under the private
placement to outside parties. In addition, upon exercise of the warrant, which
provides additional equity financing to the subsidiary, the Registrant is able
to increase its percentage ownership in the subsidiary back to the level before
the sale of the freely tradeable block. The only material cost to the Registrant
is the commission incurred on the sale of the block of shares.
While the subsidiary or affiliate could have sold into the open market the
shares issued to the Registrant under the private placement, it would have been
much more difficult for the subsidiary or affiliate to react as quickly to the
<PAGE>
9
capital market. For freely tradeable shares to be in the hands of the outside
investors the subsidiaries would have had to file a prospectus, rights offering
or a statement of material facts. Such documents would have required a much
longer time period and incurred significant legal and offering costs. The
Registrant, because its intent is to hold the shares of the subsidiary or
affiliate for investment purposes, is prepared to accept the one year hold
period imposed by the regulatory authorities under the private placement
regulations. To find outside investors prepared to accept similar restrictions
would be more difficult and time consuming and ultimately, the subsidiary may
not be able to react in as timely a manner to the capital market.
The net result of the method utilized by the Registrant has the same effect on
the capital structure of the subsidiary or affiliate and the percentage
ownership by the Registrant as a sale by the subsidiary or affiliate in the open
market. The subsidiary or affiliate, however, has acquired the additional equity
financing in a shorter time period and at a much reduced cost.
During the fiscal periods included in this Registration Statement and up to the
date of this Registration Statement, the Registrant has utilized this method to
provide financing to Manson, Northern Abitibi, Tyler and Stade. The details of
such financing are as follows:
i) Manson
------
The Registrant sold in December 1993, 1,250,000 shares of Manson at an
average price of $0.63 per share for total net consideration of
$767,000 through the facilities of the Toronto Stock Exchange (TSE).
On January 5, 1994, Manson and the Registrant agreed to a private
placement of 1,250,000 units at $0.60 per unit for total proceeds of
$750,000 with each unit to consist of one common share and a share
purchase warrant to purchase an additional common share for $0.60 per
share for five years from the date of issue. The private placement was
approved by the TSE subject to approval by the shareholders of Manson
which was granted on March 31, 1994 at the Annual General Meeting of
the Shareholders. The private placement closed in May, 1994.
The Registrant recorded in the fiscal year ending September 30, 1994 a
gain on consolidation of $145,124 as a result of the disposition of
the 1,250,000 shares of Manson.
On November 3, 1995, Manson and the Registrant agreed to a private
placement of 2,000,000 units at $0.52 per unit for total proceeds of
$1,040,000 with each unit to consist of one common share and one share
purchase warrant to purchase an additional common share for $0.60 per
share for five years from the date of issue. The TSE accepted notice
of the private placement subject to shareholder approval. At the
Annual and Special Meeting of the shareholders of Manson held on
February 29, 1996, the shareholders of Manson voted to amend the
private placement from the original terms as outlined above to a
private placement of 2,000,000 units at $0.52 per unit, with each unit
to consist of one common share and one common share purchase warrant
to purchase an additional common share at $1.50 per share for a period
of five years from the date of closing. The private placement closed
on March 6, 1996.
In order to subscribe for the 2,000,000 units, the Registrant on
November 13, 1995 sold through the facilities of the TSE 2,000,000
freely-tradeable shares of Manson, at an average price of $0.59 per
share for total net consideration of $1,140,842. The Registrant
recorded in the fiscal year ending September 30, 1996 a total gain on
consolidation of $226,002 as a result of the disposition of the
2,000,000 shares of Manson with $125,160 reflected as gain on
reduction of the Registrant's interest in Manson and $100,842
reflected as gain on disposition of the shares.
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10
ii) Northern Abitibi (NAMC)
-----------------------
On February 3, 1995, NAMC, the Registrant and Kinross Gold Corporation
(Kinross) agreed to a private placement of 8,750,000 units at $0.20
per unit for total proceeds of $1,750,000 with each unit to consist of
one common share and one-half of a share purchase warrant. One full
warrant entitles the holder to purchase an additional common share for
$0.50 per share for two years from the date of issue. The Registrant
agreed to subscribe for 5,000,000 units and Kinross for 3,750,000
units at a cost of $1,000,000 and$750,000 respectively. The private
placement had been approved by the ASE. Subsequent to February 3,
1995, Kinross elected not to proceed with its subscription of
3,750,000 units. Accordingly, on closing of the private placement on
May 4, 1995, only 5,000,000 units at $0.20 per unit were issued to the
Registrant for total proceeds of $1,000,000.
In order to subscribe for its 5,000,000 units, the Registrant on
February 15, 1995 sold through the facilities of the Alberta Stock
Exchange (ASE) 5,000,000 fully-tradeable shares of NAMC, at an average
price of $0.22 per share for total net consideration of $999,968. The
Registrant has recorded in the fiscal year ending September 30, 1995 a
loss on consolidation of $53,045 as a result of the disposition of the
5,000,000 shares of NAMC.
iii) Hixon
-----
During the year ended September 30, 1995, the Registrant gave notice
to the Vancouver Stock Exchange to sell through the facilities of the
VSE, a block of up to 2,000,000 Hixon shares. The Registrant sold
through the facilities of the Vancouver Stock Exchange a total of
143,5000 shares prior to September 30, 1995 and the balance of
1,856,000 shares between October 1, 1995 and September 30, 1996. In
addition, on September 19, 1996, the Registrant gave notice to the VSE
to sell, through the facilities of the VSE, a block of 200,000 Hixon
shares which was completed on September 26, 1997. Accordingly, during
the year ended September 30, 1996, the Registrant sold a total of
2,056,000 Hixon shares through the facilities of the VSE.
During the year ended September 30, 1995, the Registrant sold, through
the facilities of the VSE, the 143,500 shares of Hixon at an average
price of $0.25 per share for total net consideration of $35,670 and
recorded a gain or consolidation of $31,603.
During the year ended September 30, 1996, the Registrant sold through
the facilities of the VSE, 1,856,500 Hixon shares at an average price
of $0.37 per share for total net proceeds of $691,589 and 200,000
Hixon shares at an average price of $0.59 per share for total net
proceeds of $117,210 for a total disposition of 2,056,500 shares for
total net proceeds of $808,799. The Registrant, in the fiscal year
ended September 30, 1996, has recorded a total gain on consolidation
of $462,953 as a result of the disposition of the 2,056,500 shares of
Hixon with $239,600 reflected as a gain on reduction of the
Registrant's interest in Hixon and $223,293 reflected as a gain on
disposition of the shares.
The Registrant has utilized the proceeds of $844,469 from the sale of
2,200,000 Hixon shares (143,120 in 1995 and 2,086,500 in 1996) as
follows:
<PAGE>
11
1) On December 20, 1995, Hixon and the Registrant agreed to a private
placement of 1,000,000 units at $0.21 per unit at a total cost of
$210,000 with each unit consisting of one common share and a share
purchase warrant to purchase an additional common share at $0.21 per
share during the first year from the date of issue and at $0.24 per
share during the second year from the date of issue. The private
placement was approved by the VSE on December 27, 1995 and closed on
February 12, 1996. On April 3, 1996, the Registrant exercised the
share purchase warrants for 1,000,000 shares at a total cost of
$210,000.
2) On April 9, 1996, Hixon announced a private placement of up to
1,000,000 units at $0.50 per unit with each unit consisting of one
common share and a share purchase warrant to purchase an additional
common share at $0.50 per share during the first year from the date of
issue and at $0.58 per share during the second year from the date of
issue. From the private placement of 1,000,000 units, the Registrant
purchased 100,000 units at $0.50 per unit at a total cost of $50,000
and the remaining 900,000 units were purchased by officers, directors
of Hixon and other unrelated parties. The private placement was
approved by the VSE on April 16, 1996 and closed on May 31, 1996. On
December 20, 1996, the cost of $50,000.
3) On September 13, 1996, Hixon announced a private placement of up to
1,000,000 units which was amended on September 24, 1996 to raise the
number of units to 1,250,000 units at $0.40 per unit with each unit
consisting of one common share and a share purchase warrant to
purchase an additional common share at $0.50 per share during the
first year from the date of issue and at $0.58 per share during the
second year from the date of issue. From the private placement of
1,250,000 units, the Registrant purchased 247,000 units at $0.50 per
unit for a total cost of $123,500 and the remaining 1,003,000 units
were purchased by officers, directors of Hixon and other unrelated
parties. The private placement was approved by the VSE on October 4,
1996 and closed on November 25, 1996.
4) On October 2, 1996, Hixon and the Registrant agreed to a private
placement of 235,000 units at $0.65 per unit at a total cost of
$152,750 with each unit consisting of one common share and a share
purchase warrant to purchase an additional common share at $0.65 per
share during the first year from the date of issue and at $0.75 per
share during the second year from the date of issue. The private
placement was approved by the VSE on October 4, 1996 and closed on
November 19, 1996. On December 20, 1996, the Registrant exercised the
share purchase warrant for 235,000 shares at $0.65 per share for a
total cost of $152.750.
On December 20, 1996, the Registrant gave notice to the VSE to sell through the
facilities of the VSE, a block of 500,000 Hixon shares which was completed on
January 7, 1997 at an average price of $5.51 per share for total net proceeds of
$2,755,572. The Registrant will record in the fiscal year ending September 30,
1997, a total gain on consolidation of $1,041,493 as a result of the disposition
of the 500,000 shares of Hixon with $1,040,921 reflected as a gain on reduction
of the Registrant's interest in Hixon and $572 reflected as gain on disposition
of the shares.
On January 2, 1997, Hixon and the Registrant agreed to a proposed private
placement of 500,000 units at $5.50 per unit for total proceeds of $2,755,000
with each unit consisting of one common share and a share purchase warrant to
purchase an additional common share at $5.50 per share during the first year
<PAGE>
12
from the date of issue and at $6.35 per share during the second year from the
date from the date of issue. The private placement was approved by the VSE on
January 28, 1997 and is subject to shareholder approval which will be sought at
the Annual and Special Meeting of the Shareholders to be held on March 27, 1997.
The proceeds will be used for exploration of Hixon's property portfolio in
Ghana. The Registrant will fund the cost of the private placement from the sale
through the facilities of the VSE of the block of 500,000 Hixon shares completed
on January 7, 1997 at an average price of $5.51 per share for total net proceeds
of $2,755,572.
Significant Transactions During Last Five Years
- - -----------------------------------------------
During the last five years, the Registrant has engaged in the following
significant transactions:
In the year ended September 30, 1995, pursuant to a Plan of Arrangement approved
by the shareholders of both the Registrants and Waddy, subject to final
regulatory approval which was received on October 12, 1995, the Registrant
acquired the 7,098,126 common shares of Waddy (46%) held by the minority
interest through a share for share exchange. Waddy shareholders received .53
common shares of the Registrant for each Waddy share. As a result the Registrant
issued 3,762,007 common shares at a deemed price of $1.51 per share for total
consideration of $5,680,631. Accordingly, as at September 30, 1995, Waddy is
recorded as a wholly-owned subsidiary. The effect of this transaction has been
to increase share capital by $5,586,292 (after deducting issue expenses of
$94,339), decrease minority interest by $2,210,343 and to increase production
property by $3,600,294.
The Registrant's interests in its various mineral properties are held either by
the Registrant (directly or indirectly through its subsidiaries) or through
joint ventures with various joint venture partners. In either case, the
Registrant or its joint venture partners have staked the claims or acquired an
interest in claims staked by others. The various provincial regulations or
acquisition agreements require that varying amounts of exploration activities be
carried out on the properties to keep the claims in good standing. In the event
that the Registrant fails to conduct sufficient exploration activities to keep
the claims in good standing, the Registrant loses title to the property and its
interest and the related costs are charged to the statement of operations as
abandoned properties. Each year the Registrant evaluates its property holdings
to determine what exploration work is required to maintain the claims in good
standing and to determine which claims should be allowed to lapse with the
resulting charge to operations. To date the Registrant has not had any material
property interest that it has failed to keep in good standing.
During the five years ended September 30, 1996, neither the Registrant nor any
subsidiary of the Registrant has been involved in any bankruptcy, receivership
or similar proceedings. Except as described above, neither the Registrant nor
any subsidiary has completed any material reclassification, merger, or
consolidation, or acquired or disposed of any material amount of their assets
(except in the ordinary course of business), or have made any material changes
in their mode of conducting business.
Exchange Rates
- - --------------
In this Registration Statement, unless otherwise specified, all dollar amounts
are expressed in Canadian dollars. The high and low spot rates, the average
rates (average of the exchange rates on the last day of each month during the
period), and the end of period rates for Canadian dollars expressed in U.S.
dollars from January 1, 1991 to Sept 30, 1996 as reported by the Bank of Canada,
were as follows:
<PAGE>
<TABLE>
<CAPTION>
13
1996 Year Ended December 31
(through --------------------------------------------------------------------------
Sept 30 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
High $.7358 $.7446 $.7591 $.8021 $.8512 $.8866
Low .7180 .7078 .7129 .7481 .7777 .8645
Average .7310 .7286 .7322 .7751 .8244 .8725
End of
Period .7341 .7325 .7129 .7553 .7867 .8654
</TABLE>
Employees
- - ---------
The Registrant currently employs six persons on a full-time basis and Waddy Lake
Resources Ltd. currently has 53 persons on a full-time basis which number will
decrease as operations are wound down on the Komis Mine. The number of employees
fluctuates according to adjustments in the work force at various properties.
None of the Registrant's employees are represented by a labour union.
Corporations in which certain of the Registrant's officers or directors are
shareholders have provided geological and exploration services and direct
administrative services at usual professional rates.
Item 2: DESCRIPTION OF PROPERTY
-----------------------
The Registrant, directly and through its subsidiaries, has interests or rights
to obtain interests in mineral properties in the Provinces of British Columbia,
Alberta, Saskatchewan, Ontario and Quebec, Labrador and the North West
Territories. Interests are also held in State of Colorado, Venezuela, Mexico,
Ghana and Cote D'Ivoire. See "Description of Property". The Registrant also owns
an 8% interest in Tyler Resources Inc, a company that has interests in mineral
properties in the Province of Saskatchewan and in the diamond properties in the
North West Territories, and a 29% interest in Stade Exploration Inc, a company
with Oil and Gas property interests in Alberta and British Columbia, which
interest was sold subsequent to September 30, 1996.
The Registrant conducts an ongoing acquisition/exploration program for precious
metals properties, which to date have been primarily in western Canada. The main
thrust of the Registrant's acquisition/exploration activities has been to
conduct grassroots exploration. The results of these activities has been the
identification of a number of properties with indications of significant
mineralization.
West African Properties
- - -----------------------
The Registrant and its subsidiary, Hixon Gold, have entered into a joint venture
agreement with respect to the acquisition, exploration and development of
mineral properties in Ghana, West Africa. The joint venture has acquired a 100%
interest in three properties in Ghana. The joint venture agreement provides that
Hixon will fund 100% of exploration costs to feasibility and that the Registrant
has the right to reimburse Hixon for 200% exploration costs and to arrange
production financing in exchange for a 50% interest in each property. Hixon has
also entered into an option agreement with Trillion Resources Ltd., an
unaffiliated company, to earn a 40% interest in the Alepe property, Cote
D'Ivoire.
Ghana
- - -----
Stenpad Prospect
- - ----------------
The large 6,983 hectare (17,144 acre) Stenpad property is located near the
village of Ajakamanso in Western Ghana and is road accessible. Numerous Galamsey
workings are evident, including the mining of alluvial deposits along streams,
and pits and trenching on gold bearing quartz veins and saprolite areas. The
Stenpad Prospecting Licence was purchased from Stenpad Mining and Processing
Company Ltd.,
<PAGE>
14
an unaffiliated company in May of 1996. Exploration , which included the
following, began during the summer of 1996:
o 530 soil, stream sediment and rock samples were collected and
analyzed;
o Stream sediment and sampling confirmed that several drainages are
anomalous in gold;
o Pits and soil sampling confirmed the gold anomalies;
o Seven areas of outcrop were gridded and soil sampled;
o Gold-in-soil anomalies were identified and several samples of quartz
vein material and pyrite bearing country rock had significant gold
values;
o Hand trenching exposed quartz veins and argillite/phyllite wall rock
carrying economic gold values in several areas of the property.
o A property evaluation report on the Stenpad property was prepared
which concluded that an integrated geological, geochemical and
geophysical exploration program was required to evaluate both
auriferous quartz vein systems and disseminated sulphide types of gold
mineralization. Results to date suggested that bulk-mineable widths
and gold grades are present, with indications that gold mineralization
has continuity over several hundreds of metres of strike length and
widths of up to 100 metres;
Subsequent to September 30, 1996, additional exploration work was conducted
which included:
o Initial gold assays were received from trenches in the Seidu and
Agykra areas of the property which indicate high grade gold zones;
o Check assaying confirmed the high grade assays;
o Initial results suggested a shear zone controlled gold deposit
extending for at least 1,950 metres in strike length;
o High grade gold assays were not restricted to the quartz, but continue
into the wall rock; o Line cutting and a gold-in-soil geochemical
survey conducted on a nominal 800 m x 50 m sampling interval;
o The decision was made to expand the scope of the exploration program;
o Agykra #1 trench was extended to 100 metres in length, and assayed 8.8
g/T gold;
o Seidu #3, a new trench, was dug between Seidu #1 and Seidu #2
trenches, and assayed 16.0 g/T over 96.3 metres.
Results received from extended Agykra #1 and first 96.3 metres of Seidu #3
trenches:
TRENCH LENGTH ASSAY g/T (OPT)
------ ------ ---------------
Agykra #1 100 m (328) 8.8 (0.257)
(extended)
Seidu #3 96.3 m (307) 16.0 (0.468)
(partial)
o Trenching program expanded to 16 crews;
o Agykra #1 and Seidu #3 trenches expanded to 200 metres in length;
o Fourteen additional trenches started;
o Preliminary results from the gold-in-soil geochemical survey suggests
a large, highly anomalous area.
The extension of the gold-in-soil geochemical survey to the north and west
quadrants of the grid is in progress. A very preliminary interpretation of the
geochemical results received and plotted to date indicates a very strong gold
anomaly in the area of the Agykra and Seidu discoveries. An irregular area of
roughly 3,500 x 4,000 metres exhibits gold-in-soil values in excess of 10 g/T.
The expanded trenching progaram is designed to test the gold mineralization in
bedrock in this area.
Upon completion of the trenching program, an initial diamond drill campaign will
be designed to test the depth and extent of the gold mineralization. The drill
program will not start until April 1997, at the earliest.
<PAGE>
15
Fredag Prospect
- - ---------------
The Registrant negotiated the purchase of the 8340 hectare (20,608 acre) Fredag
property located in the Asankrangwa belt of Western Ghana, about 6 km north of
the Stenpad property. A $200,000 reconnaissance exploration program will
initially focus on conducting a property wide stream sediment sampling program,
the identification and locating of old native workings and current Galamsey
activity, soil geochemical sampling and geological mapping. The stream sediment,
sampling and soil sampling will aid in locating the trend of the gold
mineralization. The initial exploration program on the Fredag concession is
currently in progress.
Tinso Prospect
- - --------------
The 470 hectare (1162 acre) Tinso property is located in the Tarkwa area between
the Prestea mine operated by JCI Ltd. and the Bogusa mine operated by Billiton.
Several concrete lined shafts and adits are evidence of past gold production on
the property. Apparently high grade gold in quartz veins was mined in the past,
and this ore was transported by aerial tramway to the Brumasi Mines plant about
2.5 km to the west of the property.
The initial geological evaluation indicates that the Tinso property hosts gold
mineralization primarily in structurally controlled, Birimian quartz vein
systems. The production that occurred on the property is pre World War One and
must have been of very high grade to justify the expenditures and scale of the
mining operation indicated by the old workings and relics of machinery found on
the property.
A systematic, first phase soil sampling, geological mapping and sampling program
is underway and gold- in-soil analytical results are expected in the near
future. It will be necessary to rehabilitate the old shafts in order to gain
access to the underground workings in order to establish the type and extent of
the gold mineralization that was mined in the past.
Alepe, Cote D'Ivoire
- - --------------------
Hixon has entered into an option agreement to earn a forty percent interest in
the Alepe property. Under the terms and conditions of the acquisition agreement,
Hixon has paid $15,000, has issued 100,000 common shares and has undertaken to
finance the initial $500,000 in exploration expenditures by December 31, 1998 to
be fully vested in its forty percent (40%) interest. At which time the prospect
will be held 40% by Hixon, 40% by Trillion Resources Ltd., 10% by SODEMI
(Government) and 10% by a private Ivorian company.
The Alepe property is a large 80,000 hectare (197,600 acre) exploration permit
covering a highly prospective geology in the south-western part of Cote
D'Ivoire. Several precious metal, base metal and diamond showings have been
located by past prospecting. The geological data base is reasonable in that past
airborne geophysical surveys and mapping have established the regional geology
and metallogeny.
The integration of new remote sensing data as well as geological and field
information from the previous programs has allowed for the delineation of three
target areas within the permit. Two of the areas are to be evaluated for their
gold potential by following up previously reported gold and base metal anomalies
in structurally complex areas. The third target is of a large circular feature
revealed by satellite remote sensing which is spatially related to and could be
the source of documented nearby placer diamond finds. Mapping and sampling of
these target zones commenced in February 1997 in order to provide the basic
information needed for systematic follow-up during the year.
Keroane, Guinea
- - ---------------
Subsequent to September 30, 1996, Northern Abitibi Mining Corp. has entered into
a Letter of Intent to provide $1,650,000 U.S. in property payments and
exploration funding by July 1998 in order to earn a 50% interest in
International Mining Company's 105,000 acre Keroane property in Guinea, West
Africa. The property is prospective for alluvial diamonds, diamond bearing
kimberlite pipes and gold. The existing alluvial diamond operation is being
expanded.
<PAGE>
16
The joint venture has purchased a commercial scale diamond processing plant that
is located in Sierra Leone and the plant has been disassembled and trucked to
Conakry, Guinea for rehabilitation. The plant will be used to bulk sample and
test mine areas of the Keroane property that have been prioritized by the
exploration conducted by the Russians in the past.
An initial geological evaluation by Northern Abitibi's geological staff has
identified several areas of interest on the property and an exploration program
is being designed to evaluate the property for both alluvial and kimberlite
hosted diamonds and for gold in bedrock.
Mexican Prospects
- - -----------------
The Registrant and Tyler Resources Inc. each hold a 50% interest in an
exploration joint venture created to acquire and evaluate copper and gold
properties in Mexico. Activity to date has been concentrated in the
north-western Mexican States of Sonora, Sinaloa and Chihuahua. Prospects target
copper and gold that would be amenable to low cost heap leaching mining methods.
The joint venture has acquired three oxide copper properties by option and
staking. About $895,000 has been spent on this joint venture to date. In 1997, a
major acceleration in the exploration activities is anticipated as the projects
reach the diamond drill stage.
Bahuerachi Copper Oxide Project, Chihuahua, Mexico
- - --------------------------------------------------
Bahuerachi prospect is a 3285 hectare claim located on the Reforma mineralized
trend in southwestern Chihuahua, near the Sinaloa border and is held 50% by the
Registrant and 50% by Tyler Resources Inc. It is about 40 km
north-north-easterly from Choix, Sinaloa. A diamond drill contract has been
signed, and a fifteen hole, 100 metre/hole drill campaign is scheduled to begin
on February 3, 1997. The exploration program will test the large copper oxide
zone outlined by trenching and road cut sampling.
The area is well mineralized and the property shows evidence of copper mining
and smelting by the Spaniards some 200 years ago. The Guggenheim Company worked
underground on the Main Zone skarn in the early 1900's. They reported surface
oxide grades of 3% copper with sulphides at some depths grading 2% copper, 142
grams/ton silver and 3 grams/ton gold. Asarco drilled the property on a wide
pattern in 1970, with a best intersection in DDH-7 returning 39 metres grading
1.2% copper in skarn. Their core recovery was very poor and the reported grades
may be lower than true grade. Surface sampling of the Main Zone skarn by a major
Canadian mining company in the 1980's reported 32 samples averaging 2.2% copper
as oxide.
The joint venture has channel sampled all the drill access roads on the Main
Zone for a total of 221 samples representing 803 lineal metres. In this
sampling, 134 samples from the Main Zone skarn, representing 486 lineal metres,
averaged 1.33% copper. In addition to the Main Zone, there are three other known
copper oxide showings on the property. Of these, only the Mina Mexicana, located
about 600 metres southeast of the Main Zone has been sampled. At Mina Mexicana,
ten continuous chip samples totalling 27.1 linear metres averaged 2.18% copper.
The objective of the next phase of the work is to develop a resource of at least
15 million tons grading about 1.3% copper, which can be mined using low cost
open-pit methods, followed by heap leaching and SX-EW processing to produce
cathode copper. The diamond drill program is designed to evaluate the copper
oxide resource and to provide the data necessary to complete an ore reserve
calculation. Core samples will be used in column leach tests which will more
firmly establish the leachibility charateristics of the oxide copper ore for
feasibility study purposes.
The further exploration potential of the property is considered good as in
addition to the copper oxide mineralization that outcrops, there are
lead-zinc-silver skarn mineralizations at surface and some evidence of copper
sulphide mineralization at depth that carries interesting gold and silver
values.
Exotica Copper Oxide Project, Sonora, Mexico
- - --------------------------------------------
The Exotica claim is located near the Yaqui River about 6 km northwest of the
hamlet of El Realito and about 160 km southeast of Hermosillo, and is held 50%
by the Registrant and 50% by Tyler Resources Inc. The property is a true
"exotic", or transported deposit, consisting of copper oxide-cemented gravels
and rock debris in a modern arroyo. Sixteen samples taken over a wide area of
the deposit by a major Canadian mining company averaged 1.25% copper, and
inspection of the surface indicates there may be several million tons of this
material. The cemented gravels are only barely lithified, they lie on surface,
and would be very easy to mine and leach.
<PAGE>
17
The deposit presumably has its source in the Cuatro Hermanos porphyry copper
deposit, which lies immediately to the north of Exotica. In the last few weeks,
Magma Copper Company has been conducting a drill program on the Cuatro Hermanos
property, which they have under option from Morgain Minerals Inc. Recent rumours
and stock market activity suggets that the drill program is a success and that
economic grades of both copper and molybdenum have been encountered in this
drilling campaign. Management is monitoring this drill program closely in order
to ascertain if this discovery impacts the potential of the Exotica property.
La Cardelena
- - ------------
The La Cardelena copper oxide property was acquired by staking and is held 50%
by the Registrant and 50% by Tyler Resources Inc. The 150 hectare claim is
located in south-central Sonora. An east-west zone of strong oxide copper
mineralization of 50 by 200 metres is exposed in a shallow old pit. Grab samples
of the oxide mineralization ranged up to 1.9% copper. Further exploration to
evaluate the property, including diamond drillig, awaits completion of
negotiations to acquire a ten hectare claim within this claim.
Venezuelan Prospects
- - --------------------
Exploration in Venezuela has been concentrated in Manson Creek which currently
holds an interest in three exploration projects in Venezuela.
Perruco Joint Venture
- - ---------------------
Manson Creek has earned a forty percent interest in the Perruco Joint Venture by
funding the next $330,000 of exploration under the joint venture agreement.
Manson Creek's two joint venture partners, Athlone Resources Ltd. (40%) and
Ballatar Exploration Ltd. (20%) have completed the acquisition of a Venezuelan
company that has two exploration contracts with the Venezuelan Corporation of
Guayana (CVG). The joint venture has thus acquired the right to explore two
large prospects:
i) Perruco II - a 4,106 hectare CVG contract triangular in shape located
in the Chicanan area.
ii) Perruco V - a 4,000 hectare CVG contract located to the south of the
El Foco claims owned by Homestake and about 19 km west of Placer
Dome's Las Cristinas deposit.
During the year ended September 30, 1996, Ballatar Exploration Ltd. quit claimed
its interest in the Perruco properties pro-rata to Manson Creek Resources Ltd.
and Athlone Resources Ltd. thereby increasing their interest to 50% each.
Black 3 Prospect
- - ----------------
Manson Creek Resources Ltd. owns 100% of the shares of Bolivariana De Mineria
C.A. ("Bolivariana"), which in turn owns 75% of the shares of Desarrollo Guaitoc
C.A. ("Guaitoc"). Guaitoc is the holder of the Black 3 contract with the
Corporation Venezolana de Guayana ("CVG"). An agreement is in place wherein
Bolivariana can purchase the additional interest in the property. Bolivariana
would then own 100% of the shares of Desarrollo Guaitoc.
The Black 3 CVG contract covers 1,000 hectares on the site of the old Guaitoc
gold mine, in the El Dorado area of Bolivar State, Venezuela, about 17 km NNW of
the town of El Dorado.
Manson Creek carried out an exploration program including airborne geophysics,
grid soil sampling and geological mapping between April and October, 1994. This
work located two clusters of gold-in-soil anomalies occurring over areas 1.5 km
by 0.8 km in the northwestern part of the property and 1.0 km by 0.6 km in the
east-central part of the property.
<PAGE>
18
Approximately $817,000 has been spent on property acquisition and exploration to
date, including the issuance of 250,000 shares as part of the property
acquisition.
Oroturba Prospect
- - -----------------
Manson Creek has entered into an agreement to purchase a one hundred percent
interest in the 500 hectare Oroturba concession located in the El Dorado gold
camp. About 75 Indians (illegal miners) have recently moved on to the projects
and have blocked access to the property. Manson Creek has suspended contract
obligations until the Indian problem is resolved.
CANADA
- - ------
Saskatchewan Properties
- - -----------------------
The Registrant has been active in the La Ronge Greenstone Belt of Saskatchewan
since the 1980's. As at September 30, 1996, the Registrant's major interests
that it owns both directly and through its subsidiaries are the eight prospects
where gold resources have been identified located in the Byers Mineral Belt,
approximately sixty miles northeast of La Ronge, Saskatchewan. The Byers Mineral
Belt represents the major area where significant gold resources have been
identified in the La Ronge Belt. In this area gold mineralization primarily
occurs as disseminated free gold occurrences within highly fractured, steeply
plunging shoots or lenses, hosted by intermediate volcanics and intrusive rocks.
The Registrant's interests within the Byers Mineral Belt are as follows:
Held directly by the Registrant:
Registrants
Prospect and Gold Occurrence Ownership
---------------------------- ---------
Tower Lake - Tower East 100.00%
Weedy Lake - Golden Heart 41.80%
- B-Zone 41.80%
Kaslo - Niko 100.00%
Oven Lake - Corner Lake 45.00%
Wedge Lake - Twin 31.00%
Held directly by Waddy Lake Resources Inc.:
Waddy Lake
Prospect and Gold Occurrence Ownership
---------------------------- ---------
Waddy Lake - Komis 100.00%
- E-P 100.00%
In the discussion which follows, information is provided on the those
significant prospects in the Byers Mineral Belt noted above. All of the
prospects are in the exploration stage except the Komis prospect on which mining
operations have commenced. During the last two years little activity has
occurred on these prospects except for the Komis prospect.
Title to Saskatchewan Prospects
- - -------------------------------
The Registrant either directly or through its subsidiary Waddy is the registered
title holder of the Komis, Tower, Weedy, Kaslo and Wedge prospects. Cameco, the
operator for the joint venture for the Oven prospect, is the registered title
owner and holds the Registrant's interest in trust for the Registrant. The
interest in the prospects may consist of mineral leases referred to as "ML",
claim blocks referred to as "CSB" and mineral dispositions/claims referred to as
"S-". The prospects in all cases were originally staked by unaffiliated parties
from which the Registrant purchased its interest.
At the date of acquisition by the Registrant, title to the mineral dispositions
was transferred to the Registrant and registered with Saskatchewan Energy and
Mines (SEM), a department of the Province of
<PAGE>
19
Saskatchewan. Where these prospects include a mineral lease (ML), a lease
agreement is entered into between the Registrant as lessee and SEM as lessor.
The term of the lease is for ten years, renewable for an additional ten year
term on the expiration of each ten year term. No annual lease payments are
required.
SEM does require, however, the title holder of the mineral disposition, whether
it be a mineral lease, claim block or mineral disposition, to incur exploration
expenditures thereon. The holder must file evidence of these expenditures with
SEM which determines how much of the actual expenditures may be applied to the
assessment work required on the mineral dispositions. The assessment work from
each year of exploration activity is accumulated in an assessment credit account
with SEM. Each year a certain amount of assessment work is required on each
prospect which is calculated at a rate ranging from $12.50 per hectare to $50.00
per hectare. If the holder has a build up of assessment credits in its
assessment credit account with SEM, SEM reduces the credit by the amount of the
annual assessment required, sends a notice to the holder indicating the date to
which the mineral disposition is held in good standing with SEM and the amount
of excess assessment credit in the account which may be applied to future years'
assessment requirements.
The ability to accumulate assessment credits in excess of annual requirements
allows the holder in years of a major exploration program to accumulate credits
which will permit the mineral disposition to be kept in good standing with SEM
for a number of years without the necessity of incurring exploration
expenditures on an annual basis.
The Registrant on a regular basis reviews the status of the Saskatchewan
prospects as well as prospects located in other geographical areas to determine
what work is required (if any) to keep the prospects in good standing and which
prospects will be allowed to lapse. When the decision is made to allow a
prospect to lapse, the Registrant loses title to the prospect and all costs
related thereto are charged to the statement of operations as abandoned
properties.
Crown Royalty
- - -------------
The Registrant will pay royalties to the Province of Saskatchewan on the sale of
gold and the minerals extracted from ore bodies within the Province of
Saskatchewan under the terms of Part II of The Crown Royalty Schedule, 1986 (the
"Schedule"), as amended by The Mineral Dispositions Amendment Regulations, 1990.
The Schedule provides for a royalty equal to 12.5% of the "net profits derived
from mining and processing operations", as defined in the Schedule. To date the
Registrant has not paid any royalties pursuant to the Schedule.
Komis Prospect
- - --------------
The Komis prospect is owned 100% by Waddy and is located approximately 160 km
northeast of La Ronge, Saskatchewan. The Komis prospect comprises two mineral
leases (ML 5080 and ML 5364) and one claim block (CSB 6548) covering an area of
approximately 1630 hectares (4028 acres). Waddy has a ten year lease with SEM
for both ML 5080 and ML 5364 which may be renewed on their anniversary dates of
February 7, 2000 and June 5, 2003 respectively for a further ten year term.
Although the mineral leases have no annual lease payments, they do require
combined annual assessment of $39,300. The mineral leases are in good standing
with SEM to February 7, 1998 and June 5, 1997 respectively with excess
assessment expenditure credits of $1,324,941 which may be applied to the annual
assessment requirements for future years to approximately the year 2030. The
claim block CSB 6548 is held by Waddy and requires annual assessment work of
$12,950. The claim block is in good standing with SEM to January 22, 1998 and
has excess assessment expenditure credits of $27,885 which may be applied to the
annual assessment requirements for future years to approximately the year 1999.
Waddy acquired its interest in this prospect from an unaffiliated party in 1960
pursuant to the exercise of an option to earn an interest in the prospect. The
Registrant has had an interest in Waddy since 1987, increased its interest to a
controlling interest in 1992 and to 100% effective September 30, 1995 pursuant
to the Plan of Arrangement (see Waddy page 4)
Access to the property is by Highway 102, 175 km from La Ronge, Saskatchewan to
the settlement of Brabant hence northwest by an all season bush road for 17 km.
The property is also readily accessible by ski or float equipped charter air
craft from La Ronge. Operations can be carried out all year round at the
prospect.
<PAGE>
20
The mineral leases and the claim block making up the Komis prospect were
originally staked in 1958. Exploration activity on the Komis discovery has taken
place intermittently since 1958 through several periods of activity conducted
both by Waddy and by several different entities who carried out exploration
programs with the intent of earning an interest in the Komis prospect. With the
expiration of the options the prospect was returned to Waddy who has carried out
the most recent exploration programs. Exploration programs have included
geological mapping, soil geochemistry, trenching and diamond drilling at a total
cost to Waddy and other participants of approximately $8,600,000 through
September 30, 1995. The mineralization of the Komis property consists of coarse
"free" gold in quartz-veins and fine gold associated with elevated levels of
pyritization and silicification in the enclosing andesite wall rock. The
quartz-veins are typically a few centimetres wide, while the mineralization
exhibits true widths that range from 1.5 m (5') to 23 m (75'). The broadest
zones of mineralization occur where there is a greater concentration of
quartz-veins or quartz stock work, pyritization and visible gold.
The activity during the period 1990 to 1995 included the following:
1990 o Reinterpretation of all pre-1990 drilling data followed by a
4,105.80 metre (13,471 foot) diamond drill program.
1991-1992 o Preparation of a feasibility study and preliminary mine plan
which recommended a pre-production underground program
designed to extract and process a 10,000 tonne bulk ore sample.
1993-1994 o Pre-production underground program carried out between
November 1993 and April 1994.
o Test milling of the bulk sample at the Jolu Mill During
May 1994.
o Calculation of a new ore reserve.
1994-1995 o 7,000 metre (23,000 foot) surface diamond drill program
designed to increase the ore reserves of the deposit by
extending ore zones to the west and down plunge.
o Preparation of a Komis feasibility study and further revised
ore reserves.
1995-1996 o Proposition and submission of an environmental impact study to
Saskatchewan Environment and Resources Management which was
approved in January 1995 with subsequent granting of mine and
mill construction and operating permits.
Preliminary construction activities, prior to full permitting, commenced at the
Komis mine site and Jolu mill in October, 1995 and included:
o Rehabilitation of the Jolu workcamp.
o Reopening of the Jolu mine portal as part of the tailings management
facility.
o Construction of Komis mine water clarification ponds.
o Transport of the Komis workcamp to the minesite.
o Detailed engineering and survey work for the 16 km upgraded road link
from the mine to Highway 102.
Mine Operation
- - --------------
In February 1996, Golden Rule commenced construction of the Komis gold mine with
an estimated capital budget of $11.2 million. This was funded by a loan facility
from Rothchilds Australia Limited for up to $5.0 million US and an equity issue
of about $9.6 million, completed in April. Pursuant to an independent,
pre-production feasibility study, mineable reserves were determined to be
280,000 tonnes, grading 0.30 OPT (84,280 ounces gold). These mineable reserves
became part of the initial mining plan with the proven and probable reserves
extending the mine life to over five years.
<PAGE>
21
Pre-production work focused on developing a sufficient number of stopes for
building the necessary ore inventory, consisting of broken ore underground and
surface stockpiles, to sustain an initial production rate of 440 TPD. A 60 man
residential camp and related support facilities were also constructed. The
primary crushing and grinding circuits, gravity circuit, cyanide leach circuit
and the mine tailing disposal site were rehabilitated. The gravity circuit was
changed to process a greater amount of "free" gold common to the Komis ore. The
old Jolu underground mine was de-watered and prepared for receiving mill
tailings. The access road from the Komis mine site to Highway 102, approximately
seventeen kilometres, was upgraded so it would be capable of handling ore truck
hauling. Komis ore is trucked from the Komis site to the Jolu mill, a distance
of approximately seventy-five kilometres.
A late Spring break-up and unseasonably bad weather delayed the scheduled mill
start-up operations for almost 60 days. Ore haulage from the Komis mine site,
for stockpiling at the Jolu mill, commenced in July 1996. The Jolu mill began
processing Komis ore on September 1, 1996. Production through December 31, 1996
was approximately 500 TPD with an average grade of 0.22 OPT compared to
feasibility estimates of 440 TPD grading 0.30 OPT. This short fall in the gold
grade was primarily due to excess internal ore dilution, as the zone boundaries
were less predictable and more structurally complex than originally interpreted.
The technical staff made the decision to change the mining plan from an equal
mix of low cost blasthole and shrinkage mining methods to exclusively shrinkage
stoping. This had a significant negative effect on actual development costs
versus the feasibility estimates. The technical staff is analyzing the mining
results to date, gold grades, and operating and development costs.
The precipitous fall in gold prices, from the $US 416 in February 1996 to $US
345 in January 1997, had a negative economic impact on future mine operations.
Although Golden Rule has hedged 68,000 ounces of gold (approximately sixty
percent of feasibility production estimates), the hedging support level and
lower spot gold prices available for unhedged production have significantly
altered the economics of the mining operations and reserve development.
In February, the Registrant curtailed development work on the Komis mine pending
an analysis of 1996 operation. A revised ore reserve evaluation and an
assessment of the cost of developing these reserves in view of the fall in the
gold price significantly altered the economics of mining operation and reserve
development. As a result, the Registrant will apply for a temporary closure
permit for the Komis Mine.
The Registrant anticipates that underground operation will continue until
approximately the end of March with milling operation continuing until June. The
Registrant has received expression of interest from potential purchasers and
will endeavour to find a purchaser for the mine as an operating concern.
Jolu Mine and Mill
- - ------------------
In August 1992, Golden Rule Resources Ltd. acquired an 100% interest in the Jolu
mine and mill assets from an unaffiliated party for $845,948. The assets consist
of the buildings, machinery and equipment related to the Jolu Mill and eight
depleted mining leases Q-4438 to Q-4445 inclusive. These mining leases require
total annual assessment work of $13,800 and are in good standing with SEM to
August 15, 1997. An excess expenditure of $441,448 remains to the credit of
these leases and may be used towards future work requirements to the year 2029.
The Jolu mine and mill are located 60 km to the south of the Komis property.
Access to the Jolu mill is by all-weather, paved road, and the mill is
accessible by vehicle all year.
The Jolu Gold Joint Venture operated the 500 ton per day plant located 140 km
north of La Ronge from October 1988 to August 1991. During this period
approximately 500,000 tons of ore were treated. The mill had operating times in
excess of 97% throughout its operating life. The mill achieved throughput as
high as 725 tons per day, and operated regularly at 625 to 650 tons per day. The
mill ceased its operations in 1991 when the ore from the Jolu mine was depleted.
The mill was built and commenced operations in 1988, and consists of a crushing
plant followed by grinding, leaching and carbon-in pulp circuit for gold
recovery. The mill equipment is virtually intact. All equipment had been
mothballed to withstand winter conditions without sustaining any damage and the
grinding mill had been emptied and raised off the trunnion bearings.
<PAGE>
22
During the year ended September 30, 1994, the Registrant in order to process the
bulk sample through the Jolu mill rehabilitated the mill at a cost of
approximately $395,000. To place the Jolu mill into full production, the
Registrant incurred additional costs of $1,682,000 for mill engineering,
procurement and construction.
Weedy Lake Prospect
- - -------------------
The Weedy Lake prospect consists of mineral lease ML 5332 which covers 469
hectares (1,160 acres) and is located approximately 156 km northeast of La
Ronge, Saskatchewan. The mineral lease with SEM was renewed on June 7, 1991 for
a ten year term and may be renewed on its anniversary date of June 7, 2001 for a
further ten year term. Although ML 5332 has no annual lease payments, it does
require annual assessment of $23,450. SEM has indicated that ML 5332 is in good
standing with SEM to June 7, 1997 and that an excess expenditure of $1,721,558
remains to the credit of this lease which may be used towards future work
requirements to the year 2072. The Registrant acquired its interest in this
prospect from an unaffiliated party in 1979. The Weedy Lake prospect is held
37.6% directly by the Registrant. Tyler Resources, Inc., the operator of the
prospect, has earned from the Registrant, pursuant to an option agreement dated
October 1, 1986, a 50.1% interest in the prospect. The Registrant, as at
September 30, 1996, holds 2,380,592 common shares or 8.42% of the common shares
of Tyler issued and outstanding as at that date. There are no other affiliations
between the Registrant and either Tyler or Cameco. A portion (20.5%) of the
Registrant's 37.6% interest in the Weedy Lake prospect is encumbered by a net
profit interest of $350,000 payable at the rate of $10 per ounce of gold
produced and payable to Cameco.
A gravel road serving the Weedy Lake prospect terminates approximately 20 km
west of the property on the west side of Waddy Lake. Access to the property
during the winter months is by winter road and during summer by float plane to
Weedy Lake. Operations can be maintained year round on the Weedy prospect.
Although the Registrant has identified gold mineralization on this prospect, no
reserves have been identified. The Registrant has participated in exploration
activities on the Weedy Lake property since 1980. No exploration programs have
been carried out during the period 1990 to September 30, 1995. Prior to 1990,
the Registrant and its joint venturers drilled a total of 88 holes (for a total
of 15,532 metres (50,959 feet)).
Tyler, as noted above, operates the Weedy Lake prospect pursuant to the option
agreement dated October 1, 1986. Subsequent to September 30, 1995, Tyler
proposed a two phase diamond drill program to complete the exploration of the
identified gold mineralization and to generate the information necessary to
determine whether economic mineralization reserves necessary to consider an
underground program are present. The first phase of the drill program proposed
by Tyler totalled approximately $655,000. Prior to commencement of this program
the interest were held 25% by Tyler, 55% by the Registrant and 20% by Cameco
Corporation. In accordance with the earn-in committment of Tyler to earn the
additional 25.1%, and thereby increase its interest to 50.1%, Tyler, as at
September 30, 1995 had to expend an additional $400,000 in exploration
expenditures. Until Tyler completed the $400,000 earn-in committment,
exploration costs were shared 80% by Tyler and 20% by Cameco. As Cameco elected
not to participate in the first phase of the diamond drill program, Cameco's
share of costs were funded by Tyler and the Registrant with a corresponding
dilution of Cameco's interest. The first phase of the drill program was
completed in February 1996. On completion of this first phase Tyler has
completed its earn in committment and accordingly the interests were held as
follows: Tyler 50%, the Registrant 34% and Cameco 16%. Based on results of the
first phase of the drill program, Tyler has proposed a second phase estimated to
cost $605,000 which was undertaken during March and April 1996. As Cameco
elected not to participate in the second phase of the diamond drill program,
Cameco's share of costs were funded by Tyler and the Registrant with a
corresponding diluton of Cameco's interest. The Registrant's share of costs from
both phases was $504,000. At September 30, 1996, the Weedy Lake Prospect was
held 50.1% by Tyler Resources Inc., 37.6% by the Registrant and 12.3% by Cameco.
Other Saskatchewan Prospects
- - ----------------------------
During the years prior to September 30, 1994, the Registrant and its joint
venture partners incurred exploration expenditures on the Tower Lake prospect,
the Komis prospect, the Oven Lake prospect and the Wedge Lake prospect such that
<PAGE>
23
annual exploration expenditure has not been required by the Registrant for the
three years ended September 30, 1996 nor are any required or planned for the
year ended September 30, 1997. Set out below is information related to these
four properties:
<TABLE>
<CAPTION>
Tower Lake Kaslo Oven Lake Wedge Lake
Prospect Prospect Prospect Prospect
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Held 100% 100% 45% 31.4%
Total Area 486 hectares 534 hectares 4,063 hectares 407 hectares
(1,200 acres) (1,380 acres) (10,043 acres) (1,006 acres)
Annual Assessment
Requirements $12,125 $12,250 $101,573 $5,058
Excess
Expenditures $4,127,597 $1,311,024 $1,067,553 NIL*
In Good Standing To June 15, 1997 to January 27, 1998 June 7, 1997 March 3, 1998
February 6, 1998
</TABLE>
* The Registrant has paid a cash deficiency deposit in lieu of exploration
expenditure.
British Columbia Prospects
- - --------------------------
The Registrant has been active in British Columbia since 1980. As at September
30, 1993, the Registrant's major prospect is the Mets claims, a 1,000 hectare
prospect in the Toodoggone copper-gold area.
Mets Prospect
- - -------------
The Mets prospect consists of three claim blocks Mets 1, Mets 4, and Mets 5 and
one mineral lease Mets 3 covering 1000 hectares (2,471 acres) located
approximately 170 km north of Smithers, British Columbia. The mineral lease,
Mets 3, requires annual payments of $2,000 to the Energy, Minerals and Petroleum
Resources Branch of the Province of British Columbia. The claims Mets 1, 4 and 5
are in good standing with the Province of British Columbia to April 3, 1996,
August 4, 1998 and August 3, 1996 respectively. No additional expenditures are
required on these claims to keep them in good standing prior to the dates noted
above. The Registrant and its 55%-owned subsidiary, Manson, each owns a 50%
interest in the Mets prospect. The Registrant acquired its interest in this
prospect from an unaffiliated party in 1980 and is not subject to any
encumbrances. Access is by road accessible only during the summer and by
helicopter and operations can be carried out year round.
Exploration work on the Mets prospect has taken place since 1980 by the
Registrant and Manson (the Operator). Manson, in 1985, optioned the prospect
from the Registrant and initiated an integrated backhoe trenching and diamond
drilling program on previously known gold showings which resulted in the
discovery of gold mineralization. No significant exploration has been undertaken
by the Registrant since 1989. Although the Registrant has identified gold
mineralization on this prospect, no reserves have been identified. As the
various claims of the Mets prospect are in good standing to 1996 to 1998 no
exploration is planned for 1997.
Quebec and Ontario Prospects
- - ----------------------------
Exploration in Quebec and Ontario has been concentrated primarily in Northern
Abitibi which currently holds an interest in fifteen exploration projects in
Quebec and one in Ontario. These interests vary from 50% to 100%, and consist of
mining claims registered in the name of the Registrant or its subsidiary
Northern Abitibi. The mining claims require the payment to the Province of
Quebec every two years of an renewal fee of $20 to $60 per claim depending on
the size of the claim in addition to the filing of assessment work. Sufficient
assessment work has been filed with the Province of Quebec to keep the
properties in good standing to 1996/1997. The last major exploration activity by
the Registrant (through Northern Abitibi) was in 1990. Approximately $5,478,000
has been expended on these properties over the years with the Registrant's share
approximately $3,688,000.
<PAGE>
24
Labrador Prospects
- - ------------------
Exploration in Labrador has been concentrated primarily in Northern Abitibi and
Manson. During 1995, Manson through a joint venture required an initial 50%
interest in four properties in Labrador for total consideration $160,000 and
incurred exploration costs of $12,000. Northern Abitibi subsequently entered
into an option agreement to acquire from Manson and its joint venture partner a
50% interest in the four Labrador properties and acquired a 100% interest in
four additional properties in Labrador for total consideration of $626,200 and
incurred total exploration expenditures of $447,500 prior to September 30, 1995
and an additional $138,000 during fiscal 1996. These interests consist of mining
claims registered in the name of Northern Abitibi or Manson. The claims require
the filing of assessment work with the Province of Newfoundland. Sufficient
assessment work has been incurred and will be filed with the Province of
Newfoundland prior to the anniversary dates of May 1996 to August 1996 to keep
the claims in good standing to May 1997 to August 1997.
Northwest Territories
- - ---------------------
Exploration in the Northwest Territories has been concentrated primarily in
Manson which currently holds an interest in two exploration projects. The major
prospect is Manson interest in the Parker Lake Joint Venture which is held 25%
by Manson, 50% by Cumberland Resources Ltd. (operator) and 25% by Comaplex
Minerals Corp. The Parker Lake Joint Venture owns almost 1,000,000 acres of
mineral dispositions in the eastern Arctic area of the Northwest Territories.
Exploration to date has resulted in several key discoveries:
A) SULUK Nickel-Copper-Cobalt Zone
B) SANDHILL Copper-Zinc Zone
C) THIRSTY LAKE Diamond Zone
D) UKOA Diamond Zone
The mineral dispositions held by the joint venture cover the Parker Lake
greenstone belt, a relatively under- explored volcanosedimentary sequence of
rocks of Archean age. The property is located 110 kilometres southeast of the
hamlet of Baker Lake and 150 kilometres northwest of Rankin Inlet, in the
Keewatin district of the Northwest Territories. Both of these communities are
serviced year round by scheduled air service from Yellowknife, NWT and
Churchill, Manitoba. The property is accessed by float and/or ski equipped
aircraft and helicopter from Rankin Inlet or Baker Lake.
Preliminary exploration has been underway from 1986 to the present.
Comprehensive reconnaissance prospecting, sampling, mapping and MAG/VLF-EM
geophysical programs aimed at investigating the regional potential for hosting
gold and base metals deposits were completed. As a result of these exploration
programs, the SANDHILL base metal massive sulphide discovery was made in 1988.
This discovery is located about five kilometres northeast of the SULUK
discovery. At SANDHILL, stratiform mineralization and alteration occurs over a
70 m wide zone which can be traced along strike for about twelve kilometres in
felsic volcanics. In 1992 a Dighem airborne geophysical survey was completed in
order to identify conductive zones that may be representative of base metal
bearing sulphide horizons. Trenching, sampling and geophysical programs have
investigated the zinc-copper zones over a strike length of 400 metres and a
width of 20 metres. The economic potential is high, as this is a typical
volcanogenic sulphide environment, with all of the classical alteration zones
and mineralization.
Following the discovery of spectacular microdiamond counts in the THIRSTY LAKE
area in 1994, the joint venture staked additional claims and prospecting permits
totalling 391,498 hectares (967,392 acres). The microdiamonds found are mostly
industrial grade with occasional translucent, slightly coloured stones. The high
grade SULUK base metal occurrence was discovered in the summer of 1995. In 1996,
the UKOA gold gold occurence was discovered near the end of the field season.
Two arsenophyrite-pyrite bearing samples were collected from the site, located
thirteen kilometres southwest of the SULUK prospect.
While there is no infrastructure in the immediate area, possible deep water
shipping access is located at Cross Bay about 40 km from the discoveries.
Initial transportation studies indicate that base metal concentrates could be
profitably shipped via this route. Exploration will be conducted from Rankin
Inlet in the initial stages.
<PAGE>
25
During April to September 1996, Cumberland Resources Ltd., as operator,
subjected the Parker Lake property to a comprehensive exploration program
consisting of airborne and ground geophysics, prospecting, detailed geological
mapping and diamond drilling. In addition to the above programs, diamond
exploration consisting of mapping, prospecting and till sampling, was carried
out over a 700 sq. km area. These programs were so designed as to evaluate the
massive sulphide and gold potential of a significant portion of the
Gibson-MacQuoid Lake greenstone belt and in particular the SULUK Ni-Cu-Co and
the SANDHILL Zn-Cu-Ag prospects. The second part of the program was designed to
follow-up and explore previously discovered diamondiferous dykes and highly
anomalous diamond minerals in tills. The SULUK discovery has been traced by
geological mapping, sampling and a ground geophsyical survey over a strike
length of 800 metres. The deposit appears to dip to the north and appears to be
1-10 metres wide. A possible subparallel zone has been indicated by geophysical
surveys about 200 metres (600 feet) to the north.
The 1996 exploration program cost about $1,911,000 and to date Manson Creek has
funded $915,000 in land acquisition costs and exploration on the Parker Lake
project.
A phase one, $350,000 exploration program for 1997 has been recommended by the
Operator;
1) Continued PEM and/or gravity survey over the western portion of the SULUK
gabbro.
2) Detailed geological and structural mapping of the area of UKOA gold
occurence.
3) Magentometre and Horizontal Loop Electromagnetic Surveys in the immediate
area of the UKOA gold occurence.
4) Prospecting of all known potentially gold hosting iron formation trends in
the area of the Parker Lake property.
Pending results of an ongoing gravity modeling exercise, additional diamond
drilling should be reviewed that would test the gravity anomaly and the SULUK
gabbro at depths greater than 500 metres. Positive results from recommended work
in the area of the UKOA gold occurences and other known iron formation trends
could also warrant additional drilling. A program of continued diamond
exploration is contingent on positive results of ongoing till sample analysis,
which has yet to be completed.
United States
- - -------------
The Registrant does not have any prospects in the United States.
Item 3: LEGAL PROCEEDINGS
-----------------
As at September 30, 1996 there were no material pending legal proceedings in
which the Registrant or its subsidiaries were involved.
Item 4 CONTROL OF THE REGISTRANT
-------------------------
(a) Direct or Indirect Control by Another
- - -----------------------------------------
To the best of the Registrant's knowledge, the Registrant is not directly or
indirectly owned or controlled by a single person, a group of persons or by
another corporation or by any foreign government. It is the view of the
Registrant that the day to day business operations and affairs of the Registrant
are controlled by the Board of Directors of the Registrant.
<PAGE>
26
(b) Ownership of Voting Securities
- - ----------------------------------
As at February 10, 1997, 26,398,081 common shares (September 30, 1996,
24,300,581 common shares) of the Registrant were issued and outstanding. At such
date, the persons or groups known to the Registrant to own more than 10% of the
Registrant's issued and outstanding shares and the number of common shares owned
by officers and directors of the Registrant as a group are as follows:
Identity of Amount Owned Percentage
Title of Class Person or Group of Record of Class
- - -------------- --------------- --------- --------
Common Shares Officers and 3,733,531 (1) 13.36% (2)
Directors as a
group
(1) Shares owned by officers and directors include currently exercisable
options held by directors and officers of the Registrant to acquire an
aggregate of 1,543,600 common shares, with 390,000 common shares at $2.05
per share, 63,600 at $1.96, 30,000 at $3.33 per share, 260,000 at $3.01 per
share and 800,000 at $11.17 per share.
(2) The percentage of class is calculated based on the total of 27,941,681
shares which include the 26,398,081 common shares issued and outstanding as
at February 10, 1997 and the 1,543,600 currently exercisable options held
by the directors and officers of the Registrant.
(c) Change of Control Arrangements
- - --- ------------------------------
There are no arrangements known to the Registrant, the operations of which may,
at a date subsequent to the date of this Registration Statement, result in a
change of control of the Registrant.
Item 5 NATURE OF TRADING MARKET
-----------------------
(a) Market Information
- - --- ------------------
The Registrant's common shares are traded on The Toronto Stock Exchange in
Canada. The Registrant has no other class of securities which are publicly
traded. To the knowledge of the Registrant, there is no significant trading
market for the Registrant's common shares in the United States.
<PAGE>
27
(b) Trading Information
- - --- -------------------
The high and low sale prices for the common shares of the Registrant, Waddy and
Manson on the Toronto Stock Exchange, for Northern Abitibi on the Alberta Stock
Exchange and for Hixon on the VSE for each quarterly period in the fiscal years
ending September 30, 1995 and September 30, 1996, are as follows.
These prices do not reflect any discounts or commissions.
<TABLE>
<CAPTION>
Sales Price(1)
------------------------------------------------------------------------------------
Golden Northern
Rule Waddy Manson Abitibi Hixon
------------- -------------- -------------- ------------- --------------
Quarter Ended Low High Low High Low High Low High Low High
- - ------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Fiscal 1995
- - -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994 $1.50 $2.55 $0.75 $1.28 $0.35 $0.72 $0.13 $0.31 $0.22 $0.30
March 31, 1995 $1.60 $2.20 $0.76 $1.19 $0.35 $0.79 $0.14 $0.35 $0.18 $0.27
June 30, 1995 $1.51 $2.10 $0.80 $1.15 $0.30 $0.61 $0.15 $0.42 $0.16 $0.30
September 30, 1995 $1.48 $2.08 $0.80 $1.00 $0.30 $0.82 $0.15 $0.35 $0.20 $0.31
Fiscal 1996
- - -----------
December 31, 1995 $1.05 $1.70 -- -- $0.40 $1.30 $0.10 $0.23 $0.23 $0.35
March 31, 1996 $1.53 $3.00 -- -- $1.10 $2.15 $0.15 $0.26 $0.26 $0.90
June 30, 1996 $2.11 $3.35 -- -- $0.57 $4.20 $0.20 $0.43 $0.39 $0.84
September 30, 1996 $1.96 $2.70 -- -- $0.50 $0.99 $0.18 $0.27 $0.31 $0.80
</TABLE>
(1) Canadian dollars. For a history of exchange rates see Item 1: Description
of Business
(c) Information Regarding Holders
- - ----------------------------------
As of September 30, 1996, according to records of the Registrant's transfer
agent, the Registrant had 703 registered holders of its common shares, 148 of
whom were residents of the United States. The total shareholdings of such United
States resident shareholders as at September 30, 1996 were 1,744,360 common
shares, representing 7.18% of the total issued and outstanding capital of the
Registrant. These do not include an indeterminable number of persons who hold
their shares in 'street name' through broker-dealers or others beneficial
holders.
Item 6 EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
------------------------------------------------------------------
(a) Governmental Laws or Decrees
- - ---------------------------------
There is no law or governmental decree or regulation in Canada that restricts
the export or import of capital, or affects the remittance of dividends,
interest or other payments to a non-resident holder of common shares of the
Registrant, other than withholding tax requirements (see Item 7, Taxation,
below).
(b) Limitation on Voting Rights
- - --------------------------------
There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Registrant on the right of a non-resident to hold
or vote common shares of the Registrant, other than as provided in the
Investment Canada Act (Canada) (the "Investment Act"). The following discussion
summarizes the principal features of the Investment Act for a non-resident who
proposes to acquire common shares of the Registrant. It is general only, it is
not a substitute for independent advice from an investor's own advisor, and it
does not anticipate statutory or regulatory amendments. No amendments are
pending or contemplated at this time.
<PAGE>
28
The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture that is not a "Canadian" as defined in the Investment Act (a
"non-Canadian"), unless after review the minister responsible for the Investment
Act (the "Minister") is satisfied that the investment is likely to be of net
benefit to Canada.
An investment in common shares of the Registrant by a non-Canadian other than an
"American" (as that term is defined in the Investment Act and used in this
discussion) when the Registrant was not controlled by an American, would be
reviewable under the Investment Act if it was an investment to acquire control
of the Registrant and the value of the assets of the Registrant was $5,000,000
or more, or if an order for review was made by the federal cabinet on the
grounds that the investment related to Canada's cultural heritage or national
identity.
An investment in common shares of the Registrant by an American, or by a
non-Canadian when the Registrant was controlled by an American, would be
reviewable under the Investment Act if it was an investment to acquire control
of the Registrant and the value of the assets of the Registrant was not less
than a specified amount which for 1994 is $150,000,000, and for subsequent years
is $153,000,000 in terms of "constant 1992 dollars". A non-Canadian would
acquire control of the Registrant for the purposes of the Investment Act if he
acquired a majority of the common shares of the Registrant. The acquisition of
less than a majority but one third or more of the common shares of the
Registrant would be presumed to be an acquisition of control of the Registrant
unless it could be established that, on the acquisition, the Registrant was not
controlled in fact by the acquire through the ownership of common shares.
Certain transactions relating to common share of the Registrant would be exempt
from the Investment Act, including:
(a) acquisition of common shares of the Registrant by a person in the ordinary
course of that person's business as a trader or dealer in securities,
(b) acquisition of control of the Registrant in connection with the realization
of security granted for a loan or other financial assistance and not for a
purpose related to the provisions of the Investment Act, and
(c) acquisition of control of the Registrant by reason of an amalgamation,
merger, consolidation or corporate reorganization following the ultimate
direct or indirect control in fact of the Registrant, through the ownership
of common shares, remained unchanged.
Item 7 TAXATION
--------
The discussion under this heading summarizes the principal Canadian federal
income tax consequences of acquiring, holding and disposing of common shares of
the Registrant for a shareholder of the Registrant who is not resident in Canada
and who is resident in the United States. It is based on the current provisions
of the Income Tax Act (Canada) (the "Tax Act") and the regulations thereunder
and on the Registrant's understanding of the current administrative practices of
Revenue Canada, and takes into account all specific proposals to amend the Tax
Act or regulations made by the Minister of Finance of Canada before the date
hereof. It has been assumed that there is no other relevant amendment of any
governing law although no assurance can be given in this respect. This
discussion is general only and is not a substitute for independent advice from a
shareholder's own tax advisor.
The provisions of the Tax Act are subject to income tax treaties to which Canada
is a party, including the Canada-United States Income Tax Convention (1980) (the
"Convention").
<PAGE>
29
Dividends on Common Shares
- - --------------------------
Under the Tax Act, a non-resident of Canada is generally subject to Canadian
withholding tax at the rate of 25% on dividends paid or deemed to have been paid
to him by a corporation resident in Canada. The Convention limits the rate to
15% if the shareholder is resident in the United States and the dividends are
beneficially owned by and paid to him, and to 10% if the shareholder is also a
corporation that beneficially owns at least 10% of the voting stock of the payer
corporation.
However, if the shareholder carries on business in Canada through a "permanent
establishment" situated in Canada or performs independent personal services in
Canada from a "fixed base" in Canada, and the shareholding in respect of which
the dividends are paid is effectively connected with that permanent
establishment or fixed base, those limitations do not apply.
The Convention generally exempts from Canadian income tax dividends paid to a
religious, scientific, literary, educational or charitable organization or to an
organization exclusively administering a pension, retirement or employee benefit
fund or plan, if the organization is resident in the United States and is exempt
from income tax under the laws of the United States.
Dispositions of Common Shares
- - -----------------------------
The following comments apply only to a shareholder whose common shares of the
Registrant constitute capital property to him for the purposes of the Tax Act.
Shares will generally constitute capital property unless the holder is a trader
or dealer in securities or is engaged in an adventure in the nature of trade in
respect of the shares.
A taxpayer's capital gain or capital loss from a disposition of a common share
of the Registrant is the amount, if any, by which his proceeds of disposition
exceed (or are exceeded by, respectively) the aggregate of his adjusted cost
base of the share and reasonable expenses of disposition. Three-quarters of such
capital gain (taxable capital gain) is included in income and taxed at normal
rates. Three-quarters of such a capital loss in a year (allowable capital loss)
is deductible from taxable capital gains realized in the same year. An allowable
capital loss that is not deductible in the year incurred may, except on change
of control of a corporate shareholder, be carried back three years or carried
forward to later years for deduction from net taxable capital gains of any of
those years.
If a common share of the Registrant is disposed of to the Registrant other than
in the open market in the manner in which shares would normally be purchased by
the public, the proceeds of disposition will be considered as limited to the
paid-up capital of the share and the balance of the price paid will be deemed to
be a dividend and taxed in accordance with the rules governing the taxation of
dividends set out above.
Under the Tax Act, a non-resident of Canada is subject to Canadian tax on
taxable capital gains, and may deduct allowable capital losses realized on a
disposition of "taxable Canadian property." Common shares of the Registrant will
constitute taxable Canadian property of a shareholder at a particular time if he
used the shares in carrying on business in Canada, or if at any time in the five
years preceding the disposition 25% of the issued shares of any class or series
in the capital stock of the Registrant belonged to one or more persons in a
group comprising the shareholder and persons with whom the shareholder did not
deal at arm's length, and in certain other circumstances.
The Convention relieves United States residents from liability for Canadian tax
on capital gains derived on a disposition of shares unless
(a) their value is derived principally from real property in Canada
<PAGE>
30
(b) the holder was resident in Canada for 120 months during any period of 20
consecutive years preceding, the disposition and the shares were owned by
him when he ceased to be resident in Canada, or
(c) they formed part of the business property of a "permanent establishment"
that the holder has or had in Canada within the 12 months preceding the
disposition.
Item 8 SELECTED FINANCIAL DATA
-----------------------
The selected financial data set forth in the following table is expressed in
Canadian dollars. For a history of the exchange rates for Canadian dollars in
terms of U.S. Dollars see Item 1, "Description of Business", above. The
financial information set forth in the following table includes the accounts of
the Registrant and subsidiaries on a consolidated basis. This financial
information was prepared in accordance with accounting principles generally
accepted in Canada, the application of which conforms in all material respects
for the periods presented with accounting principles generally accepted in the
United States, except to the extent noted in Note 16 to the Consolidated
Financial Statements appearing elsewhere in this Registration Statement, The
selected financial data should be read in conjunction with and is qualified by
such Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
Year ended September 30
---------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Summary ($000's)
Revenue
Interest and other $ 377 $ 340 $ 389 $ 437 526
Net income (loss)
Canadian method (62) (575) 16 (754) (17)
United States method (2,043) (1,020) (957) (265) (262)
Financial Status ($000's)
Total assets 51,439 32,298 27,815 21,227 21,446
Working capital 2,322 2,085 4,025 2,260 2,964
Long term liabilities 265 - - - -
Minority interests 6,806 4,694 5,309 4,663 4,187
Shareholders' equity ($000's)
Canadian method 36,248 25,647 20,635 14,466 15,124
United States method 25,400 15,401 10,504 5,102 5,271
Net earnings (loss) per common share:
Canadian method
Basic (0)(cent) (4)(cent) (0)(cent) (7)(cent) -
Fully diluted (0)(cent) (4)(cent) (0)(cent) (7)(cent) -
United States method
Basic (10)(cent) (7)(cent) (5)(cent) (2)(cent) (2)(cent)
Fully diluted (10)(cent) (7)(cent) (5)(cent) (2)(cent) (2)(cent)
</TABLE>
Item 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
General
- - -------
The Registrant and its consolidated subsidiaries are in the exploration stage;
none has generated any material revenue from mining operations. On a recurring
basis, revenues are derived from interest income, which is dependent on cash
available and prevailing interest rates, and exploration overhead fees and
recoveries, which are dependent on the level of exploration expenditures managed
by the Registrant. On a recurring basis, corporate expenses relate to
administration and related overhead costs.
<PAGE>
31
Other items, which tend to have a more significant effect on reported earnings,
relate to the Registrant's activities in selling mineral prospects and
investments, when market conditions warrant, write-downs of mineral prospects
and investments based on geological and economic conditions, and gains or losses
arising on the reduction of the Registrant's interest in subsidiaries and
affiliates due to the issue of shares by the subsidiaries and affiliates to
interest outside the Registrant.
The Registrant is subject to a number of factors which separately and together
affect the Registrant's operations and liquidity. Obviously the discovery of
reserves would significantly affect operations and liquidity. However, the
ability to discover reserves, to develop them and to achieve production from
such reserves is influenced by the price of gold. During periods of low gold
prices, the Registrant's ability to raise Capital is hampered as a low gold
price translates into low market prices for the Registrant's capital stock and
reduced interest by investors to finance the development of projects. Without
the necessary capital existing projects with mineralization cannot be fully
explored with the objective of delineating the mineralization to determine if an
economic reserve body exists, nor are the funds available to conduct new
exploration. As the price of gold rises, there tends to be a corresponding rise
in the market price of the Registrant's capital stock and increased interest by
investors to favour the development of projects which translates into improved
opportunities for the Registrant to raise the necessary capital.
The economics of whether or not an existing project with mineralization or a
newly discovered one is developed and brought into production is influenced by
the price of gold. The Registrant has identified a number of projects with
mineralization, with sufficient exploration work and assessment work filed to
keep the projects in good standing for to the year 2000 and beyond. The price of
gold in previous years since their identification has not justified the costs to
develop these projects with mineralization. As the price of gold rises, the
Registrant reviews the projects to determine which, if any, have the potential
to be developed and placed into production which in turn would enhance the
Registrant's operations and liquidity.
<PAGE>
32
Results of Operations
The following is a summary of operating results, outlining the individual
corporate components of consolidated net income:
<TABLE>
<CAPTION>
($000)
-----------------------------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES
Golden Rule 277,323 269,018 342,501
Manson Creek 80,624 50,347 45,892
Northern Abitibi 10,690 19,419 621
Hixon Gold 8,611 845 207
----------- ----------- -----------
377,248 339,629 389,221
=========== =========== ===========
CORPORATE EXPENSES
Golden Rule 879,508 585,371 485,805
Manson Creek 65,923 57,329 41,620
Northern Abitibi 33,381 29,979 24,472
Hixon Gold 33,710 24,999 25,196
----------- ----------- -----------
1,012,522 697,678 577,093
=========== =========== ===========
LOSS FROM OPERATIONS (635,274) (358,049) (187,872)
----------- ----------- -----------
OTHER
Gain (Loss) on disposal of mineral
properties and other assets
- Golden Rule 683,519 (1,940) 170,581
- Manson Creek 67,010 83,019 287,516
----------- ----------- -----------
750,529 84,959 458,097
=========== =========== ===========
ABANDONMENTS AND WRITE-DOWN OF MINERAL
PROPERTIES
- Golden Rule -- (300,000) (447,295)
- Manson Creek (71,971) (457,637) (332,987)
- Northern Abitibi (1,273,924) -- (244,266)
- Hixon Gold -- -- (108,870)
----------- ----------- -----------
(1,345,895) (757,637) (1,133,418)
=========== =========== ===========
LOSS BEFORE INCOME TAXES (1,230,640) (1,030,727) (863,193)
INCOME TAXES (RECOVERY)
- Golden Rule 478,000 (257,536) (122,200)
----------- ----------- -----------
LOSS BEFORE THE UNDERNOTED (1,708,640) (773,191) (740,993)
----------- ----------- -----------
GAIN (LOSS) ON REDUCTION OF INTEREST IN
AFFILIATES AND SUBSIDIARIES
(GOLDEN RULE) 807,386 101,515 39,220
----------- ----------- -----------
EQUITY IN INCOME (LOSS) OF
AFFILIATED COMPANIES
Stade Exploration Inc. 36,769 (149,064) 34,434
Eastfield Resources Inc. -- 24,729 18,615
----------- ----------- -----------
36,769 (124,335) 53,049
=========== =========== ===========
MINORITY INTEREST IN LOSS
OF SUBSIDIARIES 802,946 221,491 664,708
----------- ----------- -----------
NET INCOME (LOSS) $ (61,539) $ (574,520) $ 15,984
=========== =========== ===========
</TABLE>
The variation in the equity in income (loss) of affiliated companies is due to
the write-down of a mineral property in Stade in 1995.
<PAGE>
33
Fiscal year ended September 30, 1996 Compared to 1995
- - -----------------------------------------------------
The small increase in consolidated revenues in 1996 reflects a modest increase
in exploration overhead fees from increased activity, and higher interest income
from larger available cash balances.
On a consolidated basis, 1996 corporate expense increased by 46% to $983,228,
largely attributable to Komis mine construction and financing costs. As a result
of the above noted factors, the Registrant incurred a loss from operations of
$635,274 as compared to a loss of $358,049 in the preceding year.
Consolidated net loss of $61,539 reflects a decrease of $512,981 over the 1995
year. Abandonment and write-downs increased by 588,258 over 1995 and deferred
income tax increased by $735,536 from a recovery of 257,536 in 1995 to an
expense of $478,000 in 1996. These increases were offset by an increase of
$66,570 from gains on disposal of investments, an increase of $705,871 on book
gain recorded on the issue of shares by subsidiaries an increase of $581,455 in
the minority interest in subsidiary company losses and an increase of $161,104
in equity in increase of income of investors from a loss of $124,335 to income
of $36,769.
Fiscal year ended September 30, 1995 Compared to 1994
- - -----------------------------------------------------
The decline in 1995 consolidated revenues reflects a minor reduction in
exploration overhead fees and a decrease in interest income due to lower
available cash balances and lower interest rates.
On a consolidated basis, 1995 corporate expenses increased by 21% to $697,698,
largely attributable to increased shareholder communication, public relations
activities and regulatory costs. As a result of the above noted factors, the
Registrant incurred a loss from operations of $358,040 as compared to a loss of
$187,872 in the preceding year.
Consolidated net loss of $574,520 reflects an increase of $590,504 over the 1994
year. Although abandonments and write-downs were approximately $376,000 less
than in 1994, and book gains recorded on the issued of shares by subsidiaries
increased by approximately $62,000 these were offset by lower gains on disposal
of investments of approximately $373,000 and a $443,000 reduction in the
minority interest in subsidiary company losses and a $177,000 reduction in
equity in income of affiliated companies.
Liquidity and Capital Resources
- - -------------------------------
a) Operating Cash Flow
-------------------
Cash provided from operating activities has not been a significant source
of or requirement of liquidity. With the start-up of the Komis mine after
the 1996 year end, mining operations are anticipated to have a significant
influence on operating cash flow.
b) Liquidity Provided from Financing Activities
--------------------------------------------
During 1996, the Registrant negotiated a loan facility of $US 4 million, or
the gold equivalent to be used to partially fund pre-production costs of
the Komis mine, of which $CDN 2,995,802 had been drawn on September 30,
1996 and the remainder in October 1996. The Registrant received net
proceeds of $10,662,718 in 1996 from the issuance of common shares
including $9,563,741 through a public offering and $1,098,977 on the
exercise of stock options and the issue of shares to acquire mineral
properties. The issue of shares by subsidiary companies to minority
shareholders provided $2,094,632 compared to $882,750 in 1995.
<PAGE>
34
During 1995, $882,750 was provided through the issue of shares by
subsidiary companies, compared to $224,587 in the prior year. Although the
Company issued 3,762,007 shares to increase its ownership in Waddy Lake to
100%, this was not a direct source of liquidity.
c) Liquidity Provided from Investing Activities
--------------------------------------------
In 1996, the Registrant received proceeds of $844,822 from the sale of
portfolio investments compared to $505,468 in 1995. In addition, $1,961,857
was received on the sale of the Registrant's shares of subsidiaries to
facilitate their financing, compared to $1,035,638 received in 1995 from
this source. Please refer to Part I, Publicly held Subsidiaries and
Financing of Publicly held Subsidiaries for a detailed discussion on
proceeds from sale of Registrant's shares of Subsidiaries.
In 1995, $1,035,638 was provided from the sale of shares of subsidiaries,
to facilitate financings and $505,468 from the sale of portfolio
investments. In addition, in 1995 Stade Exploration Inc. repaid advances of
$688,197.
In 1994, $791,542 was provided from the sale of shares of subsidiaries, to
facilitate financings, and $509,539 from the sale of portfolio investments
primarily held by Manson Creek.
d) Liquidity Used in Investing Activities
--------------------------------------
Construction, pre-production and other costs for the Komis Mine totalled
$10,739,388, compared to $1,417,923 in 1995. Construction of the mine was
substantially completed by September 30, 1996.
Expenditures on exploration properties increased from $2,165,128 in 1995 to
$3,339,366 in 1996. The significant areas of expenditure in 1996 were
$910,000 for Ghana, property acquisitions and exploration, the acquisition
of exploration properties for $430,000 and $653,000 of exploration
expenditures in Saskatchewan, and $520,000 for exploration in the Voisey's
Bay area.
In 1995, expenditures on the Komis deposit for the underground exploration,
development and test mining program, additional surface drilling and
capital improvements to the Jolu Mill were $1,417,823 compared to
$4,426,144 in 1994 and $395,095 in 1993. Exploration property additions in
1995 totalled $2,165,128, primarily incurred by Manson Creek and Northern
Abitibi with respect to their Labrador properties. In 1994, exploration
property additions were $1,349,346, primarily incurred by Manson Creek with
respect to its Venezuel properties.
In 1995, the Company, acquired the minority interest in Waddy Lake for
total consideration of $5,810,637 by the issue of 3,762,007 common shares
at a deemed price of $1.51 per share for a total of $5,680,631 and incurred
cash expenses related to the acquisition of $130,006.
The Company, in 1995, made additional investments in affiliated companies
totalling $889,483 with the major investment related to the exercise of
Stade Exploration Inc, warrants for 2,523,190 additional shares at a cost
of $706,493.
e) Working Capital
---------------
Working capital was $2,322,062 at September 30, 1996 as compared to
$2,084,658 and $4,024,935 at September 30, 1995 and 1994 respectively. The
small increase in working capital in the 1996 fiscal year reflects the
<PAGE>
35
increase in cash from equity financing and inventories offset by increased
accounts payable and current portion of long term debt. The decrease in
working capital in the 1995 fiscal year is largely attributable to the
increased exploration expenditures in 1995 over 1994.
Between the wholly owned subsidiaries and the Registrant, funds are
transferred as required without restriction. In the case of the publicly
held subsidiaries, however, any transfer of funds would have to comply with
corporate law and the applicable securities regulation. The policy of the
Registrant is that the subsidiaries operate on their own and funds are not
transferred between the Registrant and subsidiaries. The Registrant does
provide administration services to the subsidiaries and acts as contractor
on the subsidiaries exploration projects. The related costs are charged to
the subsidiaries and paid by them. Any advances of funds whether by the
subsidiaries to the Registrant or by the Registrant to the subsidiaries are
formally documented with interest charged at the prime rate plus 1% or by
way of a private placement of a convertible debenture.
Except for Northern Abitibi Mining Corp.'s commitment to provide $US
1,650,000 financing to earn a 50% interest in the Keroane property, the
Registrant has no material capital expenditure commitments.
The Registrant, depending upon the timing of the exploration requirements
and opportunities, may need to raise additional capital. Management's
preference is to realize liquidity through the sale of non-core assets
rather than the issuance of additional equity.
Item 10 DIRECTORS AND OFFICERS OF THE REGISTRANT
----------------------------------------
The executive officers and directors of the Registrant are as follows:
Period as a
Director or Officer
Name Position of the Registrant
- - ---- -------- -----------------
Glen H. Harper President October 19, 1979
and Director
Robert G. Ingram Director September 24, 1981
G. A. James Devonshire Director March 30, 1990
Peter (C. W.) Cole Director March 31, 1995
Robert J. Lemmon Treasurer March 23, 1990
Barbara M. O'Neill Secretary June 28, 1993(1)
(1) Ms. O'Neill was appointed Assistant Secretary/Treasurer on March 23, 1990
and held that position until June 28, 1993 when she was appointed Secretary
of the Registrant.
All directors hold office until the next annual meeting of the shareholders of
the Registrant and until their successors have been elected and qualified.
Officers of the Registrant serve at the discretion of the Board of Directors.
<PAGE>
36
There are no arrangements or understandings between any of the directors or
officers of the Registrant and any other person pursuant to which they were
selected as a director or officer of the Registrant. There are no family
arrangements between any director or officer of the Registrant and any other
director or officer of the Registrant.
Item 11 COMPENSATION OF DIRECTORS AND OFFICERS
--------------------------------------
The Registrant has three Executive Officers and four directors (one of whom is
an Executive Officer) whose aggregate cash compensation in those capacities
during the year ended September 30, 1996, was $55,400.
Corporations in which the Registrant's President, former Vice-President and
Treasurer are shareholders have provided, at usual professional rates,
geological and exploration services of $161,000 and direct administrative
services of $95,000.
A Corporation in which one the Registrant's director is a shareholder provided
at usual professional rates consulting services of $35,000.
In addition, these Executive Officers and directors exercised incentive stock
options during the year ended September 30, 1996 resulting in an aggregate net
value to the Executive Officers and Directors of $1,487,999. (Subsequent to
September 30, 1996, these Executive Officers and directors exercised incentive
stock options resulting in an aggregate net value to the Executive Officers and
directors of $5,262,042. (Also see heading "Option to Purchase Securities from
Registrant or Subsidiaries"). During fiscal 1996, the three directors who are
not Executive Officers were paid a total of $19,400 in their capacity as a
director.
As at September 30, 1996, the Registrant does not have any plans which require
the Registrant to contribute to or to provide pension, retirement or similar
benefits to directors and officers.
Item 12 OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
--------------------------------------------------------------
1996 Share Option Plan
- - ----------------------
At the Annual & Special Meeting of the common shareholders of the Registrant
(the Shareholders) held on March 29, 1996, the Shareholders approved an
amendement to the 1995 Share Option Plan approved by the Shareholders at the
Annual and Special Meeting held on March 31, 1995 (the "1995 Plan") to increase
the number of shares reserved for issuance thereunder from 1,555,545 to
1,935,626. The result of this ammendment was effectively to create a new plan
known as the 1996 Share Option Plan (the "1996 Plan"). The 1996 plan is the same
as the 1995 Plan except for the number of shares reserved for issuance and
replaces the 1995 Plan. The 1995 Plan superceded and replaced the share
incentive plan of the Registrant which was in place prior to the establishment
of the 1995 Plan (the "Old Plan"). At the time of approval of the 1996 plan, the
Registrant had options outstanding to purchase 1,045,667 common shares granted
under the Old Plan of the Corporation, 470,000 common shares granted under the
1995 Plan of the Corporation, 257,050 common shares on conversion of the 485,000
common shares granted under the Old Plan of Waddy Lake Resources Inc. ("Waddy")
prior to the acquisition of the minority interest in Waddy and 464,700 common
shares on conversion of the 876,792 common shares granted under the 1995 Plan of
Waddy prior to the acquisition of the minority interest of Waddy, all of which
were not subject to further shareholder ratification. No further stock otions
will be issued under the Old Plan or the 1995 Plan of the Corporation or will be
issued under the Old Plan or 1995 Plan of Waddy, however, those options will
remain in effect until exercised, cancelled or otherwise terminated in
accordance with the respective terms of those plans. A total of 1,935,626 common
<PAGE>
37
shares of the Corporation were conditionally reserved for issuance pursuant to
options to be granted under the 1996 plan.
At the date of approval of the 1996 Plan, the number of common shares reserved
for issuance under outstanding options was 3,322,962 including the 721,750
reserved for outstanding options under the Old Plan and the 1995 Plan of Waddy
and, accordingly, the maximum number of common shares reserved for issuancewas
5,258,588 representing 27.2% percent of the issued and outstanding common shares
of the Registrant then outstanding.
The 1996 Plan provides that the Board of Directors may, from time to time, grant
options to acquire all or part of the shares subject to the 1996 Plan to any
person who is an employee or director of the Registrant or any of its
subsidiaries or any other person or Registrant engaged to provide ongoing
management or consulting services for the Registrant or any of its subsidiaries.
The 1996 Plan prohibits the Registrant from providing financial assistance to
any optionee in connection with the exercise of options. the term of any option
granted under the 1996 Plan will be five years except under special
circumstances when the Board may establish a shorter or longer term. In no event
will the term of any option exceed ten years. The 1996 Plan also provides for
early termination of outstanding options in the event of death of the optionee
or if the optionee ceases to be a director or employee, the subscription price
for shares acquired pursuant to options granted under the 1996 Plan will be the
wieghted average of the trading price per share for the common shares traded on
the Toronto Stock Exchange on the last five days before the date of grant of the
option.
A majority of the common shares that may be allocated for issued under the 1996
Plan may be issuable to insiders of the Corporation.
In addition, the 1996 Plan provides that:
a) the number of common shares reserved for issuance pursuant to all
share compensation arrangements (including stock options) granted to
insiders will not exceed 10% of the outstanding issue,
b) the number of common shares that may be issued to insiders pursuant to
all share compensation arrangements (including stock options) within a
one year period will not exceed 10% of the outstanding issue, and
c) the number of common shares that may be reserved for issuance to any
one insider and such insider's associates pursuant to all share
compensation arrangements (including stock options) will not exceed 5%
of the outstanding issue,
and in no event may the number of common shares reserved for issuance to any one
person pursuant to a stock option exceed 5% of the outstanding issue.
1995 Share Option Plan
- - ----------------------
At the Annual and Special Meeting of the common shareholders of the Registrant
(the Shareholders) held on March 31, 1995, the Shareholders approved the
establishment of a 1995 Share Option Plan (the "1995 Plan") which superseded and
replaced the existing share incentive plan of the Registrant (the "Old Plan").
The Registrant at March 31, 1995 had outstanding options to purchase 1,063,667
common shares granted under the Old Plan which were not subject to further
shareholder ratification. The options under the Old Plan were granted to
directors, officers, employees and a fiscal agent. No further stock options will
be issued under the Old Plan, however those options will remain in effect until
exercised, cancelled or otherwise terminated in accordance with the Old Plan. A
total of 1,555,545 common shares of the Registrant were conditionally reserved
<PAGE>
38
for issue pursuant to options to be granted under the 1995 Plan. The number of
common shares reserved for issuance under outstanding options under the Old Plan
was 1,063,667 and the maximum number of common shares reserved for issuance
under the 1995 Plan was 1,555,545 resulting in an aggregate of 2,619,212 and
representing 16.8% of the issued and outstanding common shares of the
Registrant.
The 1995 Plan provided that the Board of Directors may from time to time grant
options to acquire all or part of the shares subject to the 1995 Plan to any
person who is an employee or director of the Registrant or any of its
subsidiaries or any other person or corporation engaged to provide ongoing
management or consulting services for the Registration or any of its
subsidiaries. The 1995 Plan prohibited the Registrant from providing financial
assistance to any optionee in connection with the exercise of options. The term
of any option granted under the 1995 Plan was five years except under special
circumstance when the Board may establish a shorter or longer term. In no event
could the term of any option exceed 10 years. The 1995 Plan also provided for
early termination of outstanding options in the event of death of the optionee
or if the optionee ceases to be a director or employee. The subscription price
for shares acquired pursuant to options granted under the 1995 Plan had to be
the weighted average of the trading price per share for the common shares traded
on The Toronto Stock Exchange on the last five days before the date of grant of
the option.
A majority of the common shares that could be allocated for issue under the 1995
Plan could be issuable to insiders of the Registrant.
In addition, the 1995 Plan provided that
(a) the number of common shares reserved for issuance pursuant to all
share compensation arrangements (including stock options) granted to
insiders could not exceed 10% of the outstanding issue,
(b) the number of common shares that could be issued to insiders pursuant
to all share compensation arrangements (including stock options)
within a one year period could not exceed 10% of the outstanding
issue, and
(c) the number of common shares that could be reserved for issuance to any
one insider and such insider's associates pursuant to all share
compensation arrangements (including stock options) could not exceed
5% of the outstanding issue,
and in no event could the number of common shares reserved for issuance to any
one person pursuant to a stock option exceed 5% of the outstanding issue.
Old Plan
- - --------
The incentive stock option plan of the Registrant in existence prior to the 1995
Plan (the "Old Plan") was designed to provide incentives to the Registrant's
personnel including directors, officers, employees and persons who have provided
ongoing services of value to the Registrant. The Plan was administered by the
Board of Directors of the Registrant, who made allocations to eligible persons
after considering their present and potential contributions and other relevant
factors. The directors also granted options to acquire stock to other Board
members. The options granted pursuant to the Plan did not exceed a term of five
years and were granted at an option price and on other terms which the directors
determined was necessary to achieve the goal of the Plan and in accordance with
regulatory policy. The option price could be at a discount to market price,
which discount would, in any event, exceed the following:
<PAGE>
39
Market Price at Time Maximum Discount
of Grant (1) Therefrom
-------------------- ----------------
$1.00 or less 20%
$1.01 to $5.00 15%
$5.01 or more 10%
(1) As determined by the Toronto Stock Exchange.
The number of shares allocated to the Plan was determined by the Board of
Directors from time to time. The aggregate number of shares reserved for
issuance under the Plan, (other employee stock option plans, options for
services and employee stock purchase plans) could not exceed 10% of the
Registrant's issued and outstanding shares. In addition, the aggregate number of
shares so reserved for issuance to any one person could not exceed 5% of the
issued and outstanding shares.
The common shares, when fully paid for by a participant, were not included in
the calculation of common shares allocated to or within the Plan. Should a
participant cease to be eligible due to the loss of corporate office (being that
of an officer or director) or employment, the option ceased for varying periods
not exceeding three months. Loss of eligibility for consultants was regulated by
specific rules imposed by the directors when the option was granted to the
appropriate consultant.
The Plan also provided that estates of deceased participants could exercise
their options for a period not exceeding six months following death. The Board
of Directors could from time to time make rules, regulations and amendments to
the Plan. Should any rule, regulation or amendment materially differ from the
provisions set forth in the Information Circular provided to the Shareholders
with the Proxy Solicitation it should obtain regulatory or shareholder (as the
case may be) approval.
Waddy Lake Plans
- - ----------------
At the Annual and Special Meeting of the Waddy Lake common shareholders held on
March 31, 1995, the Waddy Lake shareholders approved the establishment of a 1995
Share Option Plan (the "1995 Plan of Waddy") which superseded and replaced the
existing share incentive plan of Waddy Lake (the "Old Plan of Waddy"). The
terms, conditions and provisions of the 1995 Plan of Waddy and the Old Plan of
Waddy were similar to the 1995 Plan and the Old Plan of the Registrant described
above. On acquisition of the minority interest of Waddy Lake by the Registrant,
any incentive stock options issued and outstanding under the 1995 Plan of Waddy
and the Old Plan of Waddy were converted into incentive stock options of the
Registrant on the basis of the share exchange ratio used to acquire the minority
interest of Waddy Lake (ie. .53 share of the Registrant for each share of Waddy
Lake). At the date of the acquisition of the minority interest of Waddy Lake by
the Registrant there were incentive stock options for 890,000 shares of Waddy
Lake issued and outstanding under the 1995 Plan of Waddy which were converted
into incentive stock options for 471,700 shares of the Registrant and incentive
stock options for 545,000 shares of Waddy Lake issued and outstanding under the
Old Plan of Waddy which were converted into incentive stock options for 288,850
shares of the Registrant. Subsequent to September 30, 1995, incentive stock
options have been exercised for 228,681 shares of the 471,700 shares under the
1995 Plan of Waddy to leave 243,019 currently issued and outstanding and
incentive stock options exercised for 288,850 shares of the 288,850 shares under
the Old Plan of Waddy to leave none currently issued and outstanding.
<PAGE>
40
As at September 30, 1996, incentive stock options for 2,489,100 shares, issued
pursuant to the terms of the incentive stock option plans noted above, were as
follows:
Exercise
Type Number Price
of Option of Shares ($Cdn.) Expiry Date
- - --------- --------- ------- -----------
A) Golden Rule
i) Old Plan
a) Options
Directors 544,000 $2.05 January 27, 1997
Employees 108,000 $2.05 January 27, 1997
Employers 35,000 $2.20 January 18, 1997
--------
687,000
=======
ii) 1995 Plan
Directors 470,000 $2.05 August 3, 2000
--------
iii) 1996 Plan
Directors 260,000 $3.01 April 22, 1999
Directors 260,000 $3.01 April 22, 2001
Employers 258,000 $2.15 August 26, 2001
--------
778,000
=======
Total Golden Rule 1,935,000
=========
B) Waddy Lake
i) Old Plan of Waddy
Directors 53,000 $1.70 December 30, 1997
Employees 39,750 $2.21 January 20, 1997
Employees 13,250 $1.70 December 30, 1997
--------
106,000
=======
ii) 1995 Plan of Waddy
Directors 190,800 $1.96 April 3, 2000
Former Directors 216,600 $1.96 April 3, 2000
Employees 40,700 $1.96 April 3, 2000
--------
448,100
========
Total Waddy Lake 554,100
========
GRAND TOTAL 2,489,100
=========
<PAGE>
41
1997 Share Option Plan
- - ----------------------
At the Annual and Special Meeting of the common shareholders of the Registrant
(the Shareholders) to be held on March 27, 1997, the Shareholders will be asked
to approve an amendment to the 1996 Share Option Plan approved by the
Shareholders at the Annual and Special Meeting held on March 29, 1996 (the "1996
Plan") by increasing the number of shares reserved for issuance thereunder from
1,935,626 to 2,639,800. The result of this amendment will be effectively to
create a new plan to be known as the 1997 Share Option Plan (the "1997 Plan").
The 1997 plan will be same as the 1996 Plan except for the number of shares
reserved for issuance and will, upon receipt of all regulatory and shareholder
approvals, including the approval of the Toronto Stock Exchange, replace the
1996 Plan. Shareholders will also be asked to authorize the directors to make
any amendments to the 1997 Plan that may be required for the purpose of
obtaining the approval of the Toronto Stock Exchange thereto. The 1996 Plan
superseded and replaced the share incentive plan of the Registrant which was in
place prior to the establishment of the 1996 Plan. The Registrant currently has
options outstanding to purchase 1,437,000 common shares granted under the 1996
Plan of the Registrant, 390,000 common shares granted under the 1995 Plan,
243,019 common shares granted under the 1995 Plan of Waddy prior to the
acquisition of the minority interest of Waddy, all of which are not subject to
further shareholder ratification. Subject to the approval of the shareholders of
the 1997 Plan, no further stock options will be issued under the 1996 Plan or
the 1995 Plan of the Registrant or be issued under the 1995 Plan of Waddy, but
those options will remain in effect until exercised, cancelled or otherwise
terminated in accordance with the respective terms of those plans. A total of
4,575,426 common shares of the Registrant will be conditionally reserved for
issuance pursuant to options to be granted under the 1997 Plan.
The number of common shares reserved for issuance under outstanding options is
1,955,800 including the 128,800 reserved for the 1995 Plan of Waddy and,
accordingly, the maximum number of common shares reserved for issuance will be
4,575,426 representing 17.33% percent of the issued and outstanding common
shares of the Registrant as at the date of this filing.
The 1997 Plan will provide that the Board of Directors may from time to time
grant options to acquire all or part of the shares subject to the 1997 Plan to
any person who is an employee or director of the Registrant or any of its
subsidiaries or any other person or corporation engaged to provide ongoing
management or consulting services for the Registrant or any of its subsidiaries.
The 1997 Plan prohibits the Registrant from providing financial assistance to
any optionee in connection with the exercise of options. The term of any option
granted under the 1997 Plan will be five years except under special
circumstances when the Board may establish a shorter or longer term. In no event
will the term of any option exceed 10 years. The 1997 Plan also provides for
early termination of outstanding options in the event of death of the optionee
or if the optionee ceases to be a director or employee, the subscription price
for shares acquired pursuant to options granted under the 1997 Plan will be the
weighted average of the trading price per share for the common shares traded on
the Toronto Stock Exchange on the last five days before the date of grant of the
option.
A majority of the common shares that may be allocated for issued under the 1997
Plan may be issuable to insiders of the Registrant.
If approved, the 1997 Plan will provide that:
a) the number of common shares reserved for issuance pursuant to all
share compensation arrangements (including stock options) granted to
insiders will not exceed 10% of the outstanding issue,
b) the number of common shares that may be issued to insiders pursuant to
all share compensation arrangements (including stock options) within a
one year period will not exceed 10% of the outstanding issue, and
<PAGE>
42
c) the number of common shares that may be reserved for issuance to any
one insider and such insider's associates pursuant to all share
compensation arrangements (including stock options) will not exceed 5%
of the outstanding issue and in no event may the number of common
shares reserved for issuance to any one person pursuant to a stock
option exceed 5% of the outstanding issue.
Item 13 INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
----------------------------------------------
Except as described elsewhere herein, there have been no material transactions
during the last three fiscal years nor are there any proposed material
transactions in which a director or officer of the Registrant or any associate
of such persons had, or will have, a direct or indirect material interest.
PART II
- - -------
Item 14 DESCRIPTION OF SECURITIES TO BE REGISTERED
------------------------------------------
(a) Capital Stock to be Registered
- - ----------------------------------
The authorized share capital of the Registrant consists of an unlimited number
of common shares without nominal or par value, the holder of which is entitled
to one vote in respect of each share held at all meetings of the shareholders of
the Registrant.
Each holder of the common shares is entitled to share proportionately in
dividends that may be paid and upon liquidation of the Registrant. Holders of
the common shares are not entitled to preemptive rights on the issuance of
additional common shares, and there are no conversion rights, redemption rights,
or sinking fund established. All shares issued are fully paid and
non-assessable, and no shareholder is liable for further calls or assessment.
The Registrant does not have any preferred shares or other preference security
which is authorized or which may be issued.
(b) Debt Securities to be Registered
- - ------------------------------------
Not applicable, inasmuch as there are no debt securities of the Registrant to be
registered.
(c) American Depository Receipts to be Registered
- - -------------------------------------------------
Not applicable, inasmuch as there are no American Depository Receipts of the
Registrant to be registered.
(d) Other Securities to be Registered
- - -------------------------------------
Not applicable, inasmuch as there are no other securities of the Registrant to
be registered.
PART III
- - --------
Item 15 DEFAULTS UPON SENIOR SECURITIES
--------------------------------
None
Item 16 CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
-----------------------------------------------------------------------
<PAGE>
43
There have been no modifications to the constituent instruments defining the
rights of the holders of the Common shares. The rights evidenced by the Common
Shares have not been materially limited or qualified by the issuance or
modification of any other class of securities or debt.
PART IV
- - -------
Item 17 FINANCIAL STATEMENTS
--------------------
See the Consolidated Financial Statements listed in Item 19 hereof and filed as
part of this Registration Statement.
These financial statements were prepared in accordance with generally accepted
accounting principles in Canada and are expressed in Canadian dollars. Such
financial statements contain a discussion of the material variations in the
accounting principles, practices and methods used in preparing the financial
statements from the principles, practices and methods generally accepted in the
United States. For a history of exchange rates in effect for Canadian dollars as
against U.S. dollars, see Item 1 - "Description of Business", above.
Item 18 FINANCIAL STATEMENTS
--------------------
(Inapplicable - see Item 17 "Financial Statements" above)
Item 19 FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
- - ------------------------
Consolidated balance sheets of the Registrant for the years ended September 30,
1996 and 1995, and Consolidated Statement of Operations, Shareholders' Equity
and Changes in Financial Position for each of the years in the three year period
ended September 30, 1996.
(b) Exhibits
- - ------------
1.1 Consolidated Financial Statements for the year ended September 30, 1996
<PAGE>
44
SIGNATURES
- - ----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATED at Calgary, Alberta, this 26 day of March, 1997.
GOLDEN RULE RESOURCES LTD.
By: /s/ ROBERT J. LEMMON
--------------------------------
Robert J. Lemmon, Treasurer
<PAGE>
Doane Raymond [GRAPHIC OMITTED]
Chartered Accountants
Canadian Member Firm of
Grant Thornton International
Golden Rule Resources Ltd.
Consolidated Financial
Statements
September 30, 1996
<PAGE>
Contents
Page
----
Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Changes in Financial Position 5
Notes to the Consolidated Financial Statements 6-24
Doane Raymond [GRAPHIC OMITTED]
<PAGE>
Doane Raymond [GRAPHIC OMITTED]
Chartered Accountants
Canadian Member Firm of
Grant Thornton International
Auditors' Report
To the Shareholders of
Golden Rule Resources Ltd.
We have audited the consolidated balance sheets of Golden Rule Resources Ltd. as
at September 30, 1996 and 1995 and the consolidated statements of operations,
shareholders' equity and changes in financial position for each of the years in
the three year period ended September 30, 1996. 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 September 30,
1996 and 1995 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended September 30, 1996
in accordance with generally accepted accounting principles.
Calgary, Alberta /S/ Doane Raymond
December 3, 1996 -----------------------------
Chartered Accountants
Suite 1900, 500 - 4 Avenue S.W.
Calgary, Alberta
T2P 2V6
Tel: (403) 260-2500
Fax: (403) 260-2571 1
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Consolidated Balance Sheets
September 30 1996 1995
- - -----------------------------------------------------------------------------------------
ASSETS
CURRENT
<S> <C> <C>
Cash $ 5,446,930 $ 2,299,936
Accounts receivable Note 12 381,320 339,006
Inventory Note 4 3,266,056 -
--------------- --------------
9,094,306 2,638,942
INVESTMENTS Note 5 1,922,049 2,136,133
PRODUCTION PROPERTY AND EQUIPMENT Note 6 24,612,815 13,873,427
EXPLORATION PROPERTIES Note 7 15,375,270 13,445,799
OTHER ASSETS Note 8 434,381 204,017
-------------- --------------
$ 51,438,821 $ 32,298,318
============== ==============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 4,041,289 $ 554,284
Current portion of long-term debt Note 9 2,730,955 -
-------------- --------------
6,772,244 554,284
LONG-TERM DEBT Note 9 264,847 -
DEFERRED INCOME TAXES 1,347,400 1,403,400
MINORITY INTEREST 6,806,248 4,693,731
-------------- --------------
15,190,739 6,651,415
-------------- --------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK Note 11 42,097,891 31,435,173
CONTRIBUTED SURPLUS 172,594 172,594
DEFICIT (6,022,403) (5,960,864)
-------------- --------------
36,248,082 25,646,903
-------------- --------------
$ 51,438,821 $ 32,298,318
=============== ===============
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
Approved on behalf of the Board
Director Director
- - ----------------------------- --------------------------
See accompanying notes to the financial statements.
- - ------------------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Consolidated Statements of Operations
Years Ended September 30 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------
REVENUE
<S> <C> <C> <C>
Interest $ 260,968 $ 234,433 $ 282,006
Recovery of indirect costs and other 116,280 105,196 107,215
------------ ------------ ------------
377,248 339,629 389,221
------------ ------------ ------------
EXPENSES
General and administrative 983,228 671,978 539,193
Amortization and depreciation 29,294 25,700 37,900
------------ ------------ ------------
1,012,522 697,678 577,093
------------ ------------ ------------
LOSS FROM OPERATIONS (635,274) (358,049) (187,872)
------------ ------------ ------------
OTHER
Gain on disposal of investments 750,529 84,959 458,097
Abandonments and write-down of
exploration properties (1,345,895) (757,637) (1,133,418)
------------ ------------ ------------
(595,366) (672,678) (675,321)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,230,640) (1,030,727) (863,193)
INCOME TAXES Note 13 (478,000) 257,536 122,200
------------ ------------ ------------
LOSS BEFORE THE UNDERNOTED (1,708,640) (773,191) (740,993)
Gain on reduction of interest in
affiliates and subsidiaries 807,386 101,515 39,220
Equity in income (loss) of investees 36,769 (124,335) 53,049
Minority interests 802,946 221,491 664,708
------------ ------------ ------------
NET (LOSS) EARNINGS $ (61,539) $ (574,520) $ 15,984
============ ============ ============
(LOSS) EARNINGS PER SHARE $ (0.003) $ (0.04) $ 0.00
============ ============ ============
Weighted average number of shares outstanding 20,503,474 15,555,457 14,061,486
============ ============ ============
See accompanying notes to the financial statements.
- - -------------------------------------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Consolidated Statements of Shareholders' Equity
Years Ended September 30
- - -----------------------------------------------------------------------------------------------------------------------
Retained
Common Shares Contributed Earnings
Number Amount Surplus (Deficit)
------ ------ ------- ---------
(Note 10)
<S> <C> <C> <C> <C>
Balance, September 30, 1993 11,543,477 $19,696,154 $ 172,594 $(5,402,328)
Shares issued for cash:
Exercise of stock options
net of issue expenses of
$2,080 1,028,647 659,178 -- --
Private placements net of
issue expenses of $458,596 2,800,000 5,270,904 -- --
Exercise of warrants net of
issue expenses of $12,178 183,333 222,645 -- --
Net earnings -- -- -- 15,984
----------- ----------- ----------- -----------
Balance, September 30, 1994 15,555,457 25,848,881 172,594 (5,386,344)
Shares issued for shares of
Waddy Lake Resources Inc.
net of issue expenses of
$94,339 (Note 3) 3,762,007 5,586,292 -- --
Net loss -- -- -- (574,520)
----------- ----------- ----------- -----------
Balance, September 30, 1995 19,317,464 31,435,173 172,594 (5,960,864)
Shares issued for cash
Pursuant to a public offering
(net of expenses of issue
of $559,459) 4,218,000 9,563,741 -- --
Exercise of stock options
and warrants 565,117 668,977 -- --
Shares issued for properties 200,000 430,000 -- --
Net loss -- -- -- (61,539)
----------- ----------- ----------- -----------
Balance, September 30, 1996 24,300,581 $42,097,891 $ 172,594 $(6,022,403)
=========== =========== =========== ===========
See accompanying notes to the financial statements.
- - ----------------------------------------------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Consolidated Statements of Changes in Financial Position
Years Ended September 30 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------
FINANCIAL RESOURCES WERE PROVIDED BY:
OPERATING ACTIVITIES
<S> <C> <C> <C>
Cash from operations
Net (loss) earnings $ (61,539) $ (574,520) $ 15,984
Items not involving cash Note 15 (544,441) 205,907 (165,956)
------------ ------------ ------------
(605,980) (368,613) (149,972)
Net change in non-cash operating
working capital Note 16 (3,862,654) 702,782 (577,948)
------------ ------------ ------------
(4,468,634) 334,169 (727,920)
------------ ------------ ------------
FINANCING ACTIVITIES
Issue of shares for cash 9,794,718 -- 6,152,727
Issue of shares by subsidiaries to
minority shareholders 2,094,632 882,750 224,587
Issue of shares to acquire minority
interest in Waddy Lake -- 5,586,292 --
Issue of shares for properties 430,000 -- --
Long-term debt 2,995,802 -- --
Non-operating accounts payable 4,041,289 -- --
------------ ------------ ------------
19,356,441 6,469,042 6,377,314
------------ ------------ ------------
INVESTING ACTIVITIES
Option payments and other recoveries 64,000 15,000 24,000
Proceeds on disposal of investments 2,806,709 1,541,106 1,301,081
Repayment of advances -- 688,197 --
------------ ------------ ------------
2,870,709 2,244,303 1,325,081
------------ ------------ ------------
FINANCIAL RESOURCES GENERATED FROM
OPERATING, FINANCING AND INVESTING
ACTIVITIES 17,758,516 9,047,514 6,974,475
------------ ------------ ------------
FINANCIAL RESOURCES WERE USED IN:
INVESTING ACTIVITIES
Acquisition of minority interest in
Waddy Lake Note 3 -- 5,810,637 --
Exploration property additions 3,339,366 2,165,128 1,349,346
Production property and equipment additions 10,235,388 1,417,823 4,426,144
Reclamation deposit 504,000 -- --
Investments and advances 177,110 889,483 11,614
Other asset additions 355,658 1,838 --
------------ ------------ ------------
14,611,522 10,284,909 5,787,104
------------ ------------ ------------
INCREASE (DECREASE) IN CASH 3,146,994 (1,237,395) 1,187,371
CASH, beginning of year 2,299,936 3,537,331 2,349,960
------------ ------------ ------------
CASH, end of year $ 5,446,930 $ 2,299,936 $ 3,537,331
============ ============ ============
See accompanying notes to the financial statements
- - ---------------------------------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 5
</TABLE>
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Golden Rule Resources Ltd. is engaged in the business of mineral
exploration and development. Since inception, the efforts of the Company
have been devoted to the acquisition, exploration and development of
mineral properties. To date the Company has not received significant
revenue from mining operations and is considered to be in the development
stage.
Mineral properties, including exploration and production properties, are
recognized in these financial statements in accordance with the accounting
policies outlined in Note 2. Accordingly, their carrying values represent
costs incurred to date, net of recoveries, abandonments and write-downs,
and do not necessarily reflect present or future values. The recoverability
of these amounts is dependent upon the existence of economically
recoverable mineral reserves, the ability of the Company to obtain
necessary financing to complete their development and upon future
profitable operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) in Canada, and comply
in all material respects with GAAP in the United States, except as
disclosed in Note 17.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
and the following subsidiary companies:
1996 1995
---- ----
Golden Rule Resources Inc. 100% 100%
GR Capital Corporation 100% 100%
Manson Creek Resources Ltd. 35% 46%
Northern Abitibi Mining Corp. 39% 42%
Hixon Gold Resources Inc. 46% 63%
Waddy Lake Resources Inc. 100% 100%
The accounts of subsidiary corporations in which the Company holds less
than a controlling interest but has the ability to exercise options and
warrants to achieve control or which are effectively controlled through
common officers and directors are included in these consolidated financial
statements.
Acquisition of interests in subsidiary corporations are accounted for by
the purchase method. The excess or deficiency of consideration paid for
shares of the subsidiary corporations over the book value of their assets,
at the dates of acquisition, is allocated to mineral properties and is
subject to the accounting policy stated in Note 2.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 6
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Production inventories, comprised of ore and gold in process, and mine
operating supplies are valued at the lower of average cost and net
realizable value.
Mineral Properties and Equipment
Costs capitalized
All costs relating to the exploration and development of mineral properties
are capitalized on an area of interest basis. Where the Company's
exploration commitments for an area of interest are performed under option
agreements with a third party, the proceeds from any option payments under
such agreements are applied to the area of interest to the extent of costs
incurred. The excess, if any, is credited to operations. When an area of
interest is abandoned, the related accumulated costs are charged to
operations.
When an area of interest is determined to be economically viable and
pre-production activities have commenced, costs associated with that area
of interest are transferred to production properties and all development
costs, related financing costs, and initial start-up operations are
capitalized until a commercial production level is deemed to have been
reached.
Annually, a review is undertaken to evaluate the carrying value of the
production properties. If it is determined that the net recoverable amount,
on an undiscounted basis, is significantly less than carrying value, a
write-down to the net recoverable amount is made with a charge to earnings.
The amounts shown for exploration properties represent costs, net of
recoveries, abandonments and write-downs, to date and do not reflect
present or future values.
Depletion and depreciation
Depletion of production property costs and depreciation of production plant
and equipment costs, net of salvage value, are provided for on the
unit-of-production basis once commercial production is achieved.
Equipment
Equipment is recorded at cost. Depreciation is provided on a declining
balance basis at annual rates of 20% - 30%.
Flow-Through Common Shares
The Company credits the full amount of the proceeds of flow-through shares,
(which transfer the deductibility of exploration expenses to the investor),
including the premium paid for such tax deductions, to capital stock.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 7
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Joint Interests
Certain of the Company's exploration and development activities are
conducted jointly with others. These financial statements reflect only the
Company's proportionate interest in such activities.
Investments
Investments in corporations in which the Company is able to exercise
significant influence are accounted for by the equity method. Portfolio
investments are carried at cost, less provision for declines in value that
are considered to be other than temporary.
Translation of Foreign Currencies
Monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at the year-end rates of exchange.
Revenues and expenses are translated at exchange rates prevailing on the
dates on which such items are recognized in earnings. Gains and losses
arising from the restatement of foreign currency monetary assets and
liabilities at each period end are included in earnings, except for those
gains and losses relating to long-term debt. Gains and losses relating to
long-term debt are deferred and amortized on a straight-line basis over the
remaining term of the debt.
Hedging Transactions
To manage its exposure to fluctuations in the market price of gold and to
establish minimum prices for its future production, the Company enters into
gold hedging contracts. Gains and losses on these contracts will not be
recognized in income until reflected in sales revenue when the related
production is delivered.
Cash
Cash is defined as cash and cash equivalents (including term deposits,
government securities and commercial and financial paper) having an
original maturity of three months or less.
3. BUSINESS COMBINATION
On September 26, 1995, the shareholders of the Company and the shareholders
of Waddy Lake Resources Inc. (Waddy Lake), (a 54% held subsidiary of the
Company), approved a Plan of Arrangement subject to final regulatory
approval which was received October 12, 1995. Under the Plan of Arrangement
the Company acquired the minority interest in Waddy Lake through a share
for share exchange. Waddy Lake shareholders received 0.53 common shares of
the Company for each Waddy Lake share resulting in the Company issuing
3,762,007 common shares at a deemed price of $1.51 per share for total
consideration of $5,680,631. The purchase of the remaining interest in
Waddy Lake was accounted for using the purchase method of accounting. Net
assets acquired were as follows:
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 8
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
3. BUSINESS COMBINATION (Continued)
Production property $ 4,086,892
Increase to fair market value 3,600,294
-------------
7,687,186
Mineral properties 66,289
Working capital deficiency (113,638)
Long-term debt (1,829,200)
-------------
$ 5,810,637
=============
Consideration
Issue of common shares $ 5,680,631
Cash - expenses related to acquisition 130,006
-------------
$ 5,810,637
=============
The effect on the consolidated financial statements with respect to the
acquisition of the 45.73% minority interest in Waddy Lake was to increase
share capital by $5,586,292 (after deducting issue expenses of $94,339),
decrease minority interest by $2,210,343 and to increase production
property by $3,600,294.
Had the acquisition occurred at the beginning of the 1995 fiscal year, net
loss for the year would have been $572,151 and loss per share $0.04.
4. INVENTORY 1996 1995
------------- -----------
Production inventories $ 3,029,360 $ -
Materials and supplies 236,696 -
------------- -----------
$ 3,266,056 $ -
============= ===========
- - --------------------------------------------------------------------------------
[GRAPHIC OMITTED] 9
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5. INVESTMENTS 1996 1995
---------------- ---------------
Carrying Carrying
Value Value
---------------- ---------------
<S> <C> <C>
Portfolio investments (market value $1,127,616;
1995 - $1,322,709) $ 622,893 $ 873,746
Equity investments:
Stade Exploration Inc. (28.58%; 1995 - 28.58%)
(market value $1,035,276; 1995 - $1,552,914) 1,299,156 1,262,387
---------------- ----------------
$ 1,922,049 $ 2,136,133
================ ================
6. PRODUCTION PROPERTY AND
EQUIPMENT 1996 1995 1994
---------------- ---------------- ----------------
Production property
Balance, beginning of year $ 12,199,594 $ 7,364,726 $ 3,450,352
Costs incurred 6,592,101 1,234,574 3,914,374
Preproduction operating costs 1,961,791 - -
Acquisition of minority interest
in Waddy Lake Resources Inc.
- fair market value increment - 3,600,294 -
---------------- ---------------- ---------------
Balance, end of year 20,753,486 12,199,594 7,364,726
---------------- ---------------- ---------------
Production equipment
Balance, beginning of year 1,673,833 1,490,585 978,815
Costs incurred 1,681,496 183,248 511,770
---------------- ---------------- ----------------
Balance, end of year 3,355,329 1,673,833 1,490,585
---------------- ---------------- ----------------
Reclamation deposit 504,000 - -
---------------- ---------------- ----------------
$ 24,612,815 $ 13,873,427 $ 8,855,311
================ ================ ================
</TABLE>
No provision for depletion and depreciation of production property and
equipment has been recorded as the property has not attained commercial
production.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 10
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
6. PRODUCTION PROPERTY AND EQUIPMENT (Continued)
Future reclamation costs are estimated, based upon current costs,
regulations and industry practices, to be approximately $504,000. In
accordance with provincial regulations, the Company has established an
irrevocable letter of credit, in favor of the Province of Saskatchewan for
this amount. The letter of credit is secured by a term deposit which is
included in production property costs.
Expected recoveries on reclamation are estimated to exceed all such future
estimated costs.
<TABLE>
<CAPTION>
7. EXPLORATION PROPERTIES 1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Mineral Claims
Balance, beginning of year $ 2,761,938 $ 1,941,910 $ 1,486,515
Costs incurred 784,423 1,003,012 870,183
Abandonments and write-downs (652,611) (182,984) (414,788)
-------------- -------------- --------------
Balance, end of year 2,893,750 2,761,938 1,941,910
-------------- -------------- --------------
Exploration and Development Expenditures
Balance, beginning of year 10,683,861 10,141,731 9,972,160
Costs incurred 2,554,943 1,131,783 912,201
Abandonments and write-downs (693,284) (574,653) (718,630)
Options and other recoveries (64,000) (15,000) (24,000)
-------------- -------------- ---------------
Balance end of year 12,481,520 10,683,861 10,141,731
-------------- -------------- --------------
$ 15,375,270 $ 13,445,799 $ 12,083,641
============== ============== ==============
</TABLE>
Included in mineral properties are Venezuelan properties, with a carrying
value of $1,295,000, held by the Company's subsidiary, Manson Creek
Resources Ltd., (Manson Creek). As a result of political and economic
instability in Venezuela and the uncertainty surrounding the future of
mineral concessions held by Manson Creek, the value of Venezuelan mineral
properties may differ significantly from their carrying value. Management
believes that the ultimate value could fall anywhere in the range of $1 to
the current carrying value of $1,295,000 depending upon the outcome of
events in Venezuela. The effect on earnings of the maximum write-down to
mineral properties, assuming that the Company's interest in Manson Creek
remains at 35%, would be a reduction of earnings before income taxes of
$453,250.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 11
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
8. OTHER ASSETS 1996 1995
--------- ----------
Equipment $ 405,951 $ 395,414
Accumulated depreciation (324,371) (295,077)
--------- ---------
81,580 100,337
Long-term debt issue costs 122,873 --
Other 229,928 103,680
--------- ---------
$ 434,381 $ 204,017
========= =========
Costs associated with establishing the credit facility (see Note 9) are
deferred, net of the deferred tax benefit, and are amortized over the term
of the credit facility.
9. LONG-TERM DEBT 1996 1995
---------- -----------
$US Loan, repayable in 21 consecutive monthly
payments commencing October, 1996, due
December 31, 1998 $2,995,802 $ --
Less current portion 2,730,955 --
--------- -----------
$ 264,847 $ --
========== ===========
Pursuant to a Credit Facility Agreement dated April 21, 1996, the Company
was granted a loan facility in the amount of US $5 million, or gold
equivalent, comprised of US $4 million to be utilized to partially fund the
pre-production capital requirements of the Komis property, and US $1
million to be utilized to fund cost overruns, followed by general operating
requirements. The Facility is secured by a first charge on the Komis
property and substantially all Canadian assets of the Company as well as an
assignment of all hedging contracts. Security for the loan reverts to the
Komis mine assets when mine operating performance demonstrates that it has
achieved the operating and cost standards outlined in the mine development
plan. Further, the Company will be required to deposit US $1 million, or
gold equivalent, in an account effective the date of completion of the
Komis project, and retain this account balance for the duration of the
loan.
On loans denominated in US dollars, the facility bears interest at the
LIBOR rate plus 3.5% per annum to the completion date of the Komis mine
development, and LIBOR rate plus 2.75% per annum thereafter. The effective
interest rate at September 30, 1996 was 8.9375%.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 12
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
9. LONG-TERM DEBT (Continued)
In the event that, at the Company's option, the loan is converted to a gold
loan, the Facility will bear interest at the LIBOR rate, less the gold base
rate at the commencement of the interest period, plus 3.5% per annum to the
completion date of the Komis mine development; and LIBOR rate, less the
gold base rate at the commencement of the interest period, plus 2.75% per
annum thereafter.
A commitment fee of 1% per annum calculated on the undrawn portion of the
Facility is payable by the Company. In addition the Company has committed
to reimburse the lender for all withholding taxes paid on the lender's
behalf which are equal to 15% of the interest payments.
10. HEDGING
The following represents the Company's hedging programs as at September 30,
1996:
1997 1998 1999
---- ---- ----
Sale/Purchase of Options
Call options sold (ounces) 23,700 36,300 8,400
Canadian dollar price $586 $586 $586
Put options purchased (ounces) 23,700 36,300 8,400
Canadian dollar price $525 $525 $525
In addition to the above, the Company has entered into Canadian dollar
forward sale contracts to sell 9,600 ounces of gold, for delivery on
various dates to January, 1997, at an average price of $542 per ounce.
The credit facility described in note 9 requires the Company to maintain
sufficient gold hedges to cover the Komis Mine's operating costs for an
ongoing period of approximately three years.
11. CAPITAL STOCK
a) Authorized
Unlimited number of common shares without nominal or par value
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 13
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
11. CAPITAL STOCK (Continued)
b) Outstanding Options and Warrants
i) Stock Options
Under stock option plans, 10% of the outstanding common shares of
the Company are, from time to time, reserved for issuance to
eligible participants. At September 30, 1996, options for
2,489,100 shares (1995 - 1,959,550 shares) were outstanding with
exercise prices ranging from $1.70 per share to $3.01 per share
(weighted average price being $2.24 per share) and expiration
dates at various times to August 26, 2001. The exercise price of
options granted under the plans is equal to the fair value of the
shares at the date of issuance.
ii) Warrants
At September 30, 1996, 550,000 share purchase warrants were
outstanding of which 350,000, issued in conjunction with the
credit facility (Note 9) are exercisable at a price of $2.85 per
share, expiring December 31, 1998 and; 200,000 relating to a
property acquisition are exercisable at a price of $2.20 per
share expiring September 20, 2001.
During the year, 316,667 warrants outstanding at September 30,
1995, relating to a fiscal agency agreement, were exercised at a
price of $1.28 per share.
12. RELATED PARTY TRANSACTIONS
a) Corporations in which certain of the Company's officers or directors
are shareholders have provided services, at usual professional rates,
as outlined below.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Geological and exploration $ 161,000 $ 163,000 $ 214,000
Direct administrative 130,000 92,000 50,000
----------- ------------ ------------
$ 291,000 $ 255,000 $ 264,000
=========== ============ ============
</TABLE>
b) Included in accounts receivable is $68,680 (1995 - $80,779) due from
companies related by virtue of common management and/or directors.
- - --------------------------------------------------------------------------------
Doane Ryamond [GRAPHIC OMITTED] 14
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
13. INCOME TAXES
a) The provision for income tax (expense) recovery differs from the
result which would be obtained by applying the combined Canadian
Federal and Provincial income tax rate of approximately 44.6% (1995 -
44.6%; 1994 - 44.6%) to loss before income taxes. The difference
results from the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
Computed expected tax recovery $ 549,000 $ 460,000 $ 385,000
Increase in taxes resulting
from the following:
Losses of subsidiaries for which
no tax benefit is recorded (682,000) (35,000) (165,000)
Adjustments and other (345,000) (167,464) (97,800)
------------ ------------ -------------
Income tax (expense) recovery $ (478,000) $ 257,536 $ 122,200
============ ============ =============
</TABLE>
b) The Company's subsidiaries have accumulated losses for Canadian income
tax purposes of approximately $2,843,000 and losses for United States
income tax purposes of approximately $522,000, the related benefits of
which have not been recognized in the financial statements. Unless
sufficient taxable income is earned by the subsidiaries in future
years these losses will expire at various dates to the year 2003 and
2011 for Canadian and United States purposes respectively.
c) The Company and its subsidiaries have available the following amounts
which may be deducted, at the annual rates indicated below, in
determining taxable income of future years.
<TABLE>
<CAPTION>
1996 1995 1994 Rate
-------------- --------------- --------------- ----
<S> <C> <C> <C> <C>
Canadian exploration expense $ 18,635,000 $ 11,024,000 $ 8,940,000 100%
Canadian development expense 2,598,000 2,286,000 1,368,000 30%
Canadian oil and gas property
expense 6,000 6,000 7,000 10%
Foreign exploration and
development expense 1,460,000 461,000 340,000 10%
Undepreciated capital cost 2,148,000 801,000 596,000 10-100%
Share issue costs 1,175,000 351,000 131,000 20%
-------------- --------------- ---------------
$ 26,022,000 $ 14,929,000 $ 11,382,000
============== =============== ===============
</TABLE>
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 15
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
14. SEGMENTED INFORMATION
a) Identifiable assets by significant geographic segment are as follows:
1996 1995
------------- -------------
Canada $ 48,249,349 $ 30,181,754
South America 1,313,193 1,292,694
United States 498,263 425,516
Mexico 425,095 296,572
Africa 952,921 101,782
------------- -------------
$ 51,438,821 $ 32,298,318
============= =============
b) Segmented loss before income taxes by significant geographic segment
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Loss from operations
Canada $ (635,274) $ (358,049) $ (187,872)
South America -- -- --
United States -- -- --
----------- ----------- -----------
(635,274) (358,049) (187,872)
----------- ----------- -----------
Gain on disposal of investment
Canada $ 750,529 $ 84,959 $ 458,097
South America -- -- --
United States -- -- --
----------- ----------- -----------
750,529 84,959 458,097
----------- -----------
Abandonments and write-down of
exploration properties
Canada (1,273,924) (267,916) (1,133,418)
South America (71,971) (457,637) --
United States -- (32,084) --
----------- ----------- -----------
(1,345,895) (757,637) (1,133,418)
----------- -----------
Loss before income taxes
Canada (1,158,669) (541,006) (863,193)
South America (71,971) (457,637) --
United States -- (32,084) --
----------- ----------- -----------
$(1,230,640) $(1,030,727) $ (863,193)
=========== =========== ===========
</TABLE>
Revenue is wholly attributable to Canadian operations in 1996, 1995 and
1994.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 16
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
15. NON-CASH OPERATING ITEMS 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating items not involving cash are:
Minority interest $ (802,946) $ (221,491) $ (664,708)
Equity in (income) loss of investees (36,769) 124,335 (53,049)
Deferred income taxes 478,000 (293,800) (122,200)
Amortization and depreciation 29,294 25,700 37,900
Abandonments and write-downs 1,345,895 757,637 1,133,418
Gain on disposal of investments (750,529) (84,959) (458,097)
Gain on reduction of interest in
affiliates and subsidiaries (807,386) (101,515) (39,220)
----------- ----------- -----------
$ (544,441) $ 205,907 $ (165,956)
=========== =========== ===========
16. NET CHANGE IN NON-CASH OPERATING
WORKING CAPITAL 1996 1995 1994
-------------- ------------ -------------
Accounts receivable $ (42,314) $ 322,002 $ (473,394)
Accounts payable (554,284) 380,780 (104,554)
Inventory (3,266,056) - -
-------------- ------------ -------------
$ (3,862,654) $ 702,782 $ (577,948)
============== ============ =============
</TABLE>
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND UNITED STATES
The Company follows Canadian generally accepted accounting principles
("GAAP") which are different in some respects from those applicable in the
United States and from practices prescribed by the United States Securities
and Exchange Commissions, as described below:
a) Income (loss) from operations
Under Canadian GAAP interest income is included in the determination
of income (loss) from operations. Under US GAAP interest income is
excluded from "income from operations" and is categorized as "other"
in the consolidated statement of operations.
In addition, under US GAAP the following items are included in the
determination of income (loss) from operations:
- costs related to the acquisition, exploration and development of
mineral properties which have not led to the identification of a
commercially feasible property are expensed in the year incurred.
- carrying costs related to the Jolu Mill are expensed in the year
incurred.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 17
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND UNITED STATES
(Continued)
b) Acquisition of additional interest in subsidiaries
The Company has determined that its current policy with respect to the
acquisition of interest in subsidiary companies and the allocation of
costs under the purchase method as set out in Note 2(a) does not
differ materially from US GAAP as set out in A.P.B. 16.
c) Deferred exploration costs
Under Canadian GAAP the costs relating to the acquisition, exploration
and development of mineral properties are capitalized on an area of
interest basis and charged against income through unit-of-production
depletion, when properties are developed to the stage of commercial
production. Costs related to abandoned properties, and costs related
to properties which the Company has assessed, based on the price of
gold and general economic and market conditions, as not viable, are
charged to other expenses in the year in which such determination is
made.
Under US GAAP the costs relating to the exploration of mineral
properties as defined above, which have not led to the identification
of a commercially feasible property, are expensed in the year incurred
and are charged to income (loss) from operations. As a result, all
costs associated with the exploration properties described in Note 7
have been written off for US GAAP purposes. The deferred exploration
costs under US GAAP as set out in the table below relate solely to the
Komis deposit.
d) Jolu Mill carrying costs
Under US GAAP the carrying costs related to the Jolu Mill would be
expensed in the year incurred, while under Canadian GAAP these costs
have been capitalized to the carrying value of the mill.
e) Long-term debt
Foreign currency exchange gains and losses from translation of
long-term debt are deferred and amortized over the period to maturity
under Canadian GAAP. United States accounting principles require that
such amounts be charged to earnings in the year in which they are
incurred. The Company has determined that the effect on earnings for
the year ended September 30, 1996 is immaterial.
- - --------------------------------------------------------------------------------
Doane Ryamond [GRAPHIC OMITTED] 18
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND UNITED STATES
(Continued)
f) Fair value of financial instruments
U.S. GAAP requires the disclosure of the fair value of financial
instruments as described below. Such fair value estimates are made on
the dates indicated based on relevant market information and the
nature and terms of the financial instruments. Although management is
not aware of any factors which would affect the estimated fair value
amount significantly, such amounts have not been comprehensively
re-valued for purposes of these financial disclosures subsequent to
the balance sheet dates and estimates of fair value at dates
subsequent to September 30, 1996 and 1995 may differ significantly
from the amounts presented.
Fair value approximates the amounts reflected in the financial
statements for cash and cash equivalents, accounts receivable,
accounts payable and long-term debt.
g) Segmented information
Geographical segmented information is presented in the financial
statements. This information is not required in order to conform with
U.S. GAAP.
h) Non-cash financing and investing activities
Under Canadian GAAP, activities that do not affect cash are included
in the determination of financing and investing activities in the
statement of changes in financial position. U.S. GAAP requires the
exclusion of activities that do not affect cash from the determination
of financing and investing activities. Under U.S. GAAP, the issue of
shares for mineral properties amounting to $930,000 (1995 - $nil; 1994
- $nil) would be excluded from the statement of cash.
Under U.S. GAAP, the purchase of the minority interest in Waddy Lake
in 1995 by way of issuance of common shares in the amount of
$5,586,292 would not be a use and source of cash, respectively.
i) Gain on reduction of interest in subsidiaries and affiliates
Under Canadian GAAP, an investor should include in income any dilution
gains or losses resulting from the issue of shares by a subsidiary or
equity investee. It is the position of the Securities and Exchange
Commission in the U.S. that gain recognition is not appropriate in the
case of subsidiaries and equity investees that are in the development
stage. The subsidiaries and equity investees of Golden Rule are
engaged in the acquisition and development of mineral properties and
are considered to be in the development stage, therefore, changes in
the Company's proportionate shares of the subsidiaries and equity
investees resulting from the issuance of shares should be accounted
for as an equity transaction under U.S. rules. Any write-down from a
permanent impairment in value of the investment in the subsidiaries
and equity investees would be charged firstly to shareholder's equity
in the amount of any previous related credits and then to earnings.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 19
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND UNITED STATES
(Continued)
The following dilution gains and losses were incurred in the years noted.
The transactions giving rise to the gains and losses are described in
detail below:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
Subsidiaries
<S> <C> <C> <C>
Northern Abitibi Mining Corp. $ (8,942) $ 46,848 $ (2,368)
Hixon Gold Resources Inc. 459,324 56,472 17,471
Manson Creek Resources Ltd. 357,004 2,837 35,635
Waddy Lake Resources Inc. - (12,777) (44,189)
------------ ----------- -----------
807,386 93,380 6,549
------------ ----------- -----------
Equity investments
Stade Exploration Inc. - 8,135 15,305
Eastfield Resources Inc. - - 17,366
------------ ---------- ------------
- 8,135 32,671
------------ ---------- ------------
$ 807,386 $ 101,515 $ 39,220
============ ========== ============
</TABLE>
Northern Abitibi Mining Corp.
In 1996, the Company recorded a loss of $8,942 when Northern Abitibi issued
1,250,000 shares pursuant to a private placement for total consideration of
$250,000 where the price per share was less than the average carrying value
per share of the Company's interest in Northern Abitibi. The Company's
interest was reduced to 38.9% from 41.7%.
In 1995, the Company recorded a gain of $46,848 when Northern Abitibi
issued 1,502,000 shares pursuant to an agreement to acquire mineral
properties for total consideration of $445,084 where the price per share
exceeded the average carrying value per share of the Company's interest in
Northern Abitibi. The Company's interest was reduced to 41.7% from 45.7%.
In 1994, the Company recorded a total loss of $2,368 when Northern Abitibi
issued 300,000 shares on the exercise of stock options and 150,000 shares
pursuant to an agreement to acquire mineral properties for total
consideration of $105,533. In each case the price per share received by
Northern Abitibi was less than the average carrying value per share of the
Company's interest in Northern Abitibi. The Company's interest was reduced
to 71.5% from 75.3%.
Hixon Gold Resources Inc.
In 1996, the Company recorded a gain of $459,324 when Hixon issued
2,220,000 shares pursuant to four private placements, 1,186,666 shares
pursuant to the exercise of warrants, 112,000 shares pursuant to the
exercise of stock options and 200,000 shares pursuant to agreements to
acquire mineral properties for total consideration of $1,025,460. The
Company's interest in Hixon was reduced to 45.8% from 64.7%.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 20
<PAGE>
- - -------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND UNITED STATES
(Continued)
Hixon Gold Resources Inc. (continued)
In 1995, the Company recorded a gain of $56,472 when Hixon issued 666,666
shares pursuant to a private placement for total consideration of $98,128.
The Company's interest in Hixon was reduced to 64.7% from 71.3%.
In 1994, the Company recorded a gain of $17,471 when Hixon issued 198,000
shares pursuant to the exercise of stock options for total proceeds of
$31,680. The Company's interest in Hixon was reduced to 71.3% from 73.5%.
In the transactions described for 1996, 1995 and 1994, the price per share
received by Hixon exceeded the average carrying value per share of the
Company's interest in Hixon.
Manson Creek Resources Ltd.
In 1996, the Company recorded a gain of $357,004 when Manson Creek issued
2,200,000 shares pursuant to two private placements and 1,315,000 shares
pursuant to the exercise of stock options for total consideration of
$2,295,649. The Company's interest was reduced to 34.9% from 46.0%.
In 1995, the Company recorded a gain of $2,837 when Manson Creek issued
338,000 shares pursuant to an agreement to acquire mineral properties for
total consideration of $141,160. The Company's interest was reduced to
46.0% from 47.5%.
In 1994, the Company recorded a gain of $35,635 when Manson Creek issued
250,000 shares pursuant to an agreement to acquire a mineral property for
total consideration of $200,000. The Company's interest was reduced to
47.5% from 48.6%.
In the transactions described for 1996, 1995 and 1994 the price per share
received by Manson exceeded the average carrying value per share of the
Company's interest in Manson.
Waddy Lake Resources Ltd.
In 1995, the Company incurred a loss of $12,777 when Waddy Lake issued
105,000 shares on the exercise of stock options for total proceeds of
$23,100. In 1994, the Company incurred a loss of $44,189 when Waddy Lake
issued 545,000 shares on the exercise of stock options for total proceeds
of $147,792. In each case the price per share received by Waddy Lake was
less than the average carrying value per share of the Company's interest in
Waddy Lake. In 1995, the Company's interest was reduced from 55% to 54%. In
1994, the Company's interest, after accounting for the acquisition of an
additional 1.65% interest, was reduced from 57% to 55%.
Equity investments
The net gain of $8,135 in 1995 and $32,671 in 1994 incurred on the
transactions by Eastfield and Stade resulted from the exercise of stock
options or from private placements with outside interests.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 21
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND UNITED STATES
(Continued)
The effect of the above differences on the Company's financial statements
are set out below:
<TABLE>
<CAPTION>
Consolidated Balance Sheet
- - --------------------------
1996 1995
------------------------------------- -----------------------------------
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Exploration properties $ 15,375,000 $ -- $ 13,445,799 $ --
Production property and
equipment 24,612,815 23,625,248 13,873,427 12,976,665
Deferred income taxes 1,347,400 296,400 1,403,400 976,400
Minority interest 6,806,248 2,342,422 4,693,731 1,024,082
Deficit (6,022,403) (16,870,414) (5,960,864) (16,206,776)
Consolidated Statement of Operations 1996 1995 1994
- - ------------------------------------ ------------ ------------ ------------
Loss from operations under Canadian GAAP $ (635,274) $ (358,049) $ (187,872)
Interest income (260,968) (234,433) (282,006)
Exploration expenses (3,260,674) (2,578,375) (1,929,915)
Carrying charges Jolu Mill (115,135) (113,153) (116,895)
----------- ----------- -----------
Loss from operations under U.S. GAAP $(4,272,051) $(3,284,010) $(2,516,688)
=========== =========== ===========
</TABLE>
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 22
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND UNITED STATES
(Continued)
<TABLE>
<CAPTION>
Consolidated Statement of Operations 1996 1995 1994
- - ------------------------------------ ------------ ------------ -----------
<S> <C> <C> <C>
Net (loss) income under Canadian GAAP $ (61,539) $ (574,520) $ 15,984
Exploration expenses, expensed in
year incurred (3,260,674) (2,578,375) (1,929,915)
Abandonments, added back 1,345,895 757,637 1,133,418
Carrying charges Jolu Mill (115,135) (113,153) (116,895)
Change in gain on disposal of mineral
properties and other assets 6,262 778,421 156,621
Change in income taxes 624,000 (24,700) (121,400)
Dilution gains adjustment (807,386) (101,515) (85,777)
Change in minority interest in loss of
subsidiaries 225,856 836,542 (9,430)
----------- ----------- -----------
Net loss under U.S. GAAP $(2,042,721) $(1,019,663) $ (957,394)
=========== =========== ===========
Primary loss per share (U.S. GAAP) $ (0.10) $ (0.07) $ (0.07)
=========== =========== ===========
</TABLE>
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 23
<PAGE>
- - --------------------------------------------------------------------------------
Golden Rule Resources Ltd.
Notes to the Consolidated Financial Statements
September 30, 1996 and 1995
- - --------------------------------------------------------------------------------
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND UNITED STATES
(Continued)
In addition, U.S. GAAP requires the disclosure of the following:
a) Amounts paid for rent, interest and income taxes, the details of which
are as follows:
1996 1995 1994
----------- ----------- -----------
Rent $ 55,716 $ 46,493 $ 47,515
Interest $ - $ - $ -
Income taxes $ 24,494 $ 19,037 $ 17,227
b) The United States Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109) which became effective for fiscal years
beginning after December 31, 1992. SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse.
The Company has determined that the adoption of SFAS 109 would have
had no effect on the reconciliation as at September 30, 1996.
At September 30, 1996, the companies subsidiaries have accumulated
losses for Canadian income tax purposes of $2,843,000 and losses for
United States income tax purposes of $522,000 that may be offset
against future taxable income through the years 2003 and 2011
respectively.
Under Canadian GAAP, the Company has not recognized the related
benefits of these loss carry-forwards in the financial statements.
Under US GAAP, the Company has fully reserved the tax benefits of
these operating losses because the likelihood of realization of the
tax benefits cannot be determined. These carry-forwards are subject to
review by Revenue Canada, Taxation and by the Internal Revenue
Service.
- - --------------------------------------------------------------------------------
Doane Raymond [GRAPHIC OMITTED] 24
<PAGE>
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATED at Calgary, Alberta, this 26day of March, 1997.
GOLDEN RULE RESOURCES LTD.
By: /S/ ROBERT J. LEMMON
--------------------------------
Robert J. Lemmon, Treasurer
<PAGE>
FORM 20-F
REGISTRATION STATEMENT - GOLDEN RULE RESOURCES LTD.
EXHIBIT INDEX
PAGE
1.1 Consolidated Financial Statements for the year ended
September 30, 1996 including the following:
i) Auditors' Report
ii) Consolidated Balance Sheet
iii) Consolidated Statement of Operation
iv) Consolidated Statement of Shareholders Equity
v) Consolidated Statement of Change in Financial Position
vi) Consolidated Notes to the Financial Statement
<PAGE>
EXHIBIT 1.2
1.2 Schedule
i) Auditors' Report 55
ii) Schedule I Marketable Securities 56
iii) Schedule II Amounts Receivable for Related Parties 57
iv) Schedule V Property, Plant and Equipment 59
v) Schedule VI Accumulated Depreciation - Property,
Plant and Equipment 61
