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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 AND 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the Period November 2005 | File No. 001-32267 |
Desert Sun Mining Corp.
(Name of Registrant)
65 Queen Street West, Suite 810, P.O. Box 67, Toronto, Ontario CANADA M5H 2M5
(Address of principal executive offices)
1.
Interim Financial Statements (unaudited) for the period ended September 30, 2005.
2.
Management Discussion and Analysis for the period ended September 30, 2005.
3.
Certification of Chief Executive Officer
4.
Certification of Chief Financial Officer
5.
News Release dated November 3, 2005
6.
News Release dated November 3, 2005 (2)
7.
News Release dated November 10, 2005
8.
News Release dated November 21, 2005
9.
News Release dated November 21, 2005 (2)
10.
News Release dated November 21, 2005 (3)
11.
News Releases dated November 28, 2005, including Material Change Report (2)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F........Form 40-F..XXX.......
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes .....No .XXX.
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________
SEC 1815 (9-05)
Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
(All amounts stated in Canadian dollars, unless otherwise indicated)
CONTENTS
1. INTRODUCTION
3
2. VISION AND STRATEGY
3
3. OVERVIEW OF THE THIRD QUARTER
4
4. OUTLOOK FOR THE REST OF 2005
6
5. CONSOLIDATED FINANCIAL RESULTS OF OPERATIONS
7
6. OPERATIONAL REVIEW
8
7. LIQUIDITY AND CAPITAL RESOURCES
14
8. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
17
9. RISKS & UNCERTAINTIES
17
10. QUARTERLY AND ANNUAL DATA
19
11. MANAGEMENT CHANGES
19
12. RELATED PARTY TRANSACTIONS
20
13. CORPORATE ACCOUNTABILITY
20
14. NON-GAAP MEASURES
21
15. SUPPLEMENT TO THE CONSOLIDATED FINANCIAL STATEMENTS
21
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
This interim report, including this MD&A contains certain "Forward-Looking Statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, which are prospective and reflect management's expectations regarding Desert Sun's future growth, results of operations, performance and business prospects and opportunities. Forward-looking information can often be identified by forward-looking words such as "anticipate", "believe", "expect", "goal", "plan", "intend", "estimate", "may" and "will" or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. All statements, other than statements of historical fact, included herein, including without limitation, state ments regarding potential mineralization and reserves, estimates of future production, projection of future revenue, targets for cash operating costs, costs of capital projects and the timing of commencement of operations, exploration results and future plans and objectives of Desert Sun are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from Desert Sun's expectations are disclosed in its documents filed from time to time with the Toronto Stock Exchange, the United States Securities and Exchange Commission and other regulatory authorities and include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, capital and operating costs varying signif icantly from estimates, uncertainties relating to the availability and costs of financing needed in the future, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors.
Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. Desert Sun undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.
This interim report, including this MD&A, also uses the terms "measured resources", 'indicated resources' and 'inferred resources'. Desert Sun Mining Corp. advises investors that although these terms are recognized and required by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects), the United States Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. In addition, 'inferred resources' have a great amount of uncertainty as to their existence, and economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibi lity or pre-feasibility studies, or economic studies except for Preliminary Assessment as defined under National Instrument 43-101. Investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
1. Introduction
This discussion and analysis of the consolidated operating results and financial condition of Desert Sun Mining Corp. ("Desert Sun", or the "Company") for the three and nine months ended September 30, 2005 should be read in conjunction with the related unaudited interim consolidated financial statements, including the notes thereto, as well as the audited consolidated financial statements and notes for the 16-months ended December 31, 2004, the Annual Information Form on file with the Securities Commissions of all the provinces of Canada and the Annual Report on form 40-F on file with the United States Securities and Exchange Commission.
Desert Sun was originally incorporated (Fredonia Oil & Gas Ltd.) under the laws of British Columbia on May 21, 1980. In 1984, the Company changed its name to Consolidated Fredonia Oil & Gas Ltd., in 1986 to Sun River Gold Corp. and in 1991 to Yellow Point Mining Corp. On August 26, 1994, the Company changed its name to Desert Sun Mining Corp. and on March 20, 2003, Desert Sun was continued under the Canada Business Corporations Act.
The unaudited interim consolidated financial statements and related notes of Desert Sun have been prepared in accordance with accounting principles generally accepted in Canada ("GAAP") for the preparation of interim financial information. Desert Sun's policies are consistent with accounting policies generally accepted in the United States ("US GAAP") in all material respects except as outlined in Note 18 to the audited consolidated financial statements for the 16-months ended December 31, 2004.
Desert Sun's unaudited interim consolidated financial statements and related notes, as well as management's discussion and analysis thereof are expressed in Canadian dollars, except where otherwise indicated.
Mr. Peter Tagliamonte, P.Eng is the Qualified Person, as defined by National Instrument 43-101, for all mining engineering work at the Jacobina Mine and associated development projects. Dr. Bill Pearson, P.Geo. is the Qualified Person as defined under National Instrument 43-101 responsible for the Company's exploration programs and the geoscientific and technical disclosure contained within this document.
Change in the endingdateof Financial Year
In 2004 the Company has changed its financial year end from August 31 to December 31. Under Brazilian law, Jacobina Mineracao e Comercio Ltda. ("JMC") is required to have a year-end of December 31, and as JMC holds a 100% interest in the Jacobina Mine and related exploration and development properties, management believes that it is more cost efficient and in the best interest of shareholders for both companies to have the same financial year-end. The Company implemented this change by having a transition year of 16 months, with the last day of the transition year being December 31, 2004. Below is a comparison of the quarterly periods for the current fiscal year with the comparable periods:
| Current fiscal year | Comparative Period |
First quarter: | 3-months ended March 31, 2005 | 3-months ended November 30, 2003 |
Second quarter: | 3-months ended June 30, 2005 | 4-months ended March 31, 2004 |
Third quarter: | 3-months ended September, 30, 2005 | 3-months ended June 30, 2004 |
Fiscal year: | 12-months ended December 31, 2005 | 16-months ended December 31, 2004 |
This MD&A includes certain forward-looking statements. Please read the cautionary note at the commencement of this report.
2. Vision and Strategy
Desert Sun is a North American-based gold producer engaged in the exploration for, and development, extraction and processing of metals. Desert Sun's strategy is to provide its shareholders with superior returns from high quality assets in areas of low political risk. Desert Sun has a strong and liquid balance sheet, no debt other than equipment supplier credit arrangements and has not hedged or sold forward any of its future gold production.
Desert Sun's principal asset is the Jacobina Gold Mine and the associated 155-kilometer long Bahia Gold Belt, located in the State of Bahia in northeastern Brazil. The mill facilities at Jacobina were commissioned in the first quarter of 2005 and commercial production at the Jacobina Mine was declared as of July 1, 2005. The Company produced at 75% of stated capacity in the third quarter and expects to reach full production capacity, producing at a rate of 100,000 ounces of gold per annum, in the fourth quarter of 2005.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
The common shares of Desert Sun trade on the Toronto Stock Exchange under the trading symbol DSM, on the American Stock Exchange under the symbol DEZ and are also quoted over the counter on the Berlin and Frankfurt Stock Exchanges under the symbol DRT. The Company's share purchase warrants trade on the Toronto Stock Exchange under the symbol DSM.WT.
The Company has a strong management team (recently supplemented with the appointment of Mr. Mike Hoffman as Vice President, Strategic Development with primary responsibility for facilitating the planned expansion of gold production at Desert Sun's Jacobina Mine in Brazil), board of directors and special advisory committee, with diverse expertise in gold exploration, mine development and finance. Management's goal is to grow Desert Sun into a 250,000 ounce per year producer within three to four years. The Company's short-term growth strategy is focused on the development of its Jacobina Mine, where Desert Sun expects to develop four further mining areas within 5 kilometers of the existing plant site.
The Company has three unique growth pillars:
1. a producing gold mine that is expected to reach full production by the end of 2005,
2. development projects that will significantly expand gold production and elevate the Company to an intermediate-sized gold producer within three to four years, and
3. excellent exploration targets on its extensive land holdings that provide the "blue-sky" opportunity for the discovery of further exploitation opportunities.
3. Overview of the Third Quarter
HIGHLIGHTS Resultsfor thethreemonths ended September 30, 2005 Revenues(in thousands ofCanadiandollars) | $ 8,962 |
Cash flow from operating activities(in thousands ofCanadiandollars) | $ 566 |
Net loss for the period(in thousands ofCanadiandollars) | $ (503) |
Gold production Number of ounces produced(inounces) | 18,683 ounces |
Number of ounces sold(inounces) | 16,400 ounces |
Realized gold price(in United States dollars perounce) | US$ 442 |
Total cash costs(in United States dollars perounce) | US$ 292 |
Financial positionatSeptember 30, 2005 Cash and equivalents(in thousands ofCanadiandollars) | $ 11,294 |
Total assets(in thousands ofCanadiandollars) | $ 99,623 |
Shareholders' equity(in thousands ofCanadiandollars) | $ 84,971 |
Total number of shares outstanding(number) | 87,578,894 shares |
The third quarter of fiscal 2005 represents a significant milestone in the evolution of Desert Sun, with the declaration of commercial production as of July 1, 2005 and reporting of operating revenue and cost of operations for the Jacobina Mine for the first time.
Review of Financial Results |
|
Adjusted net earnings/ (loss)(in thousands ofCanadiandollars) (non-GAAPmeasure) Net loss for the period, as reported | $ (503) |
Stock-based compensation | 834 |
Foreign exchange gain | (109) |
Adjusted net earnings | $ 222 |
Desert Sun recorded adjusted net earnings for the three month period ended September 30, 2005 of $222,000, before charges for a non-cash stock-based compensation expense of $834,000 and a foreign exchange gain of $109,000, mainly generated on the translation of non-cash working capital.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
The reported net loss for the three month period was $503,000, compared with a net loss of $543,000 for the comparable three month period ended June 30, 2004. The net loss for the nine month period ended September 30, 2005, including a non-cash stock based compensation expense of $4.58 million, was $6.86 million compared with a net loss for the ten months ended June 30, 2004 of $6.49 million that included a non-cash stock based compensation expense of $4.58 million.
Revenues from mining operations in the three months to September 30, 2005 were $8.96 million and operating earnings from the Jacobina Mine were $1.24 million, before taxes. Production from the Jacobina Mine for the three months ended September 30, 2005 was 18,683 ounces of gold at an average cash cost of US$292 per ounce. Cash costs were principally affected by the level of production from the Jacobina Mine for the period being at 75% of full capacity during this planned ramp-up phase, and the strength of the Brazilian Real (the effective rate in the quarter was R$2.3294: US$1.00).
Gold production costs (non-GAAP measures) for the three months ended September 30, 2005(United States dollars per ounce, unaudited)
Direct mining costs |
| 279 |
Selling, transportation and refining |
| 9 |
Mine operating costs |
| 288 |
Royalties |
| 4 |
Total operating costs |
| 292 |
Depreciation, depletion and amortization |
| 67 |
Total production costs |
| 359 |
Operating statistics for the three months ended September 30, 2005 |
|
|
Tonnes mined |
| 340,913 |
Tonnes milled |
| 300,505 |
Gold ore grade(grams per tonne) |
| 2.03 |
Gold recovery rate (%) |
| 95.4 |
The Company anticipates that total operating costs should decrease by approximately US$30 to US$35 per ounce as production levels increase to full capacity, and by a further approximately US$30 to US$35 per ounce from January 2006 when some 70% of operating costs will be protected from the current strength of the Brazilian Real through the Company's currency protection program.
On March 3, 2005 Desert Sun entered into agreements with BankBoston to purchase Brazilian Real (R$) for monthly delivery of the equivalent of US$1 million per month beginning in January 2006 at an exchange rate averaging R$3.00:US$1.00 for the year. The Company is monitoring the exchange rate between the Brazilian Real and the US Dollar closely and will enter into further contracts for 2007 at an opportune time.
General and administration costs for the three and nine months ended September 30, 2005 were $859,000 and $3.65 million respectively, compared with $623,000 and $2.39 million in the three and 10 months ended June 30, 2004. The major components continue to be management and administrative services, investor relations and shareholder information and general office expenses.
At September 30, 2005, Desert Sun had treasury assets with a market value of $11.29 million. Cash flow generated from operations was an inflow of $566,000 in the three months ended September 30, 2005 including additions to non-cash working capital items, compared with a cash outflow of $7.09 million in the preceding six months ended June 30, 2005, and an outflow of $553,000 in the three months ended June 30, 2004.
Capital expenditures in the three month period on property, plant and equipment and mineral properties were $7.69 million. This included $2.94 million on property, plant and equipment (primarily machinery and equipment), $1.62 million on sustaining capital development at the Jacobina Mine, $880,000 at Morro do Vento, $1.01 million on the remaining development projects (primarily Canavieiras and the Morro do Vento Extension) and $1.24 million on exploration at Pindobacu and along the Bahia Gold Belt.
Gold production in the third quarter was 18,683 ounces, compared to 11,873 ounces of gold in the second quarter. In the three months ended September 30, 2005, 16,400 ounces of gold were sold at an average price of US$442, compared with 9,889 ounces sold in the three months ended June 30, 2005 at an average price of US$427 per ounce.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
CORE BUSINESS - GOLD MINING
Jacobina Mine
Desert Sun owns 100% of the Jacobina property, which includes the Jacobina Gold Mine, the Morro do Vento project currently under development, additional projects in the mine area slated for near term development, and the associated 155-kilometer long Bahia Gold Belt:
In the first (2002 - 2003) of a three-stage development program, completed in September 2003, Desert Sun secured exclusive ownership of the Jacobina property and completed a feasibility study that supported the reopening of the Jacobina Mine.
The second stage (2003 - 2005), which was completed in June 2005, involved bringing the Jacobina Mine back into production in line with the proposals contained in the SNC Lavalin feasibility study, as modified through the development process. Rehabilitation of the Jacobina Mine started in earnest in April 2004. Existing facilities were refurbished and improvements made in the mining and processing methods. The plant facilities were completed in February 2005, with a rated capacity of 4,200 tonnes per day and expected annualized production of some 100,000 ounces. The first gold pour took place in March 2005 and commercial production was declared as of July 1, 2005.
With production at the Jacobina Mine approaching 100% of design capacity, the Company has initiated the third stage (2005 - 2009) of its development program, the goal of which is the expansion of annual production through development of additional mining areas within the immediate vicinity of the existing plant facilities to over 250,000 ounces per annum. Planning done to date has highlighted the potential for developing four additional mining areas over the next three to four years in order to successfully achieve this goal.
The mining method is sublevel retreat, longhole stoping, using electric-hydraulic jumbos, 15-tonne LHDs (Load Haul Dump) and 35-tonne trucks. A ramp and drifts provide access to the mine for labour, equipment and materials. The plant uses conventional crushing, grinding and carbon-in-pulp ("CIP") technology.
Labour,safety andtraining
At September 30, 2005 Desert Sun employed 468 (June 30, 2005: 390; March 31, 2005: 293) personnel on site at the Jacobina Mine and at the various exploration projects. This staff complement was supplemented by temporary contractors for a total of 754 (June 30, 2005: 713; March 31, 2005: 618) individuals on site. In the year to date, the Company has conducted 9,766 hours of safety training, including 3,703 hours in the current quarter.
Environmental
Under Desert Sun's operational management, the Jacobina Mine has had no environmental spills or incidents. All effluent monitoring requirements are in compliance with Operating Licence conditions.
In the period under review, the Company received the Mine Operating Licence for Morro do Vento as well as the Mill Operating Licence for the expansion to 195,000 tonnes per month from the Brazilian environmental review agency, Centro de Recursos Ambientais (CRA).
4. Outlook for the rest of 2005
Total production for 2005 is forecast at approximately 55,000 ounces, including 11,935 ounces of gold in the pre-production phase. Annual steady state production, being 100,000 ounces per annum, is expected to be reached in the fourth quarter of 2005. Average head grade is projected to be 2.1 g Au/t with an average recovery rate expected at the plant of 96.5%. The production forecast is based on milling 4,200 tonnes per day.
Anticipated further weakening of the US dollar, geopolitical tensions and lower levels of producer hedging have the potential to continue to push gold prices higher. For example, see Barry Cooper of CIBC World Markets forecast of October 2005: "Our 2006 forecast rises to $525 per ounce from $475, and we are introducing a 2007 gold price forecast of $550 per ounce. We have also increased our long term gold price from $400 to $450 per ounce ...". Desert Sun's gold production is entirely unhedged, enabling it to fully participate in the expected higher gold prices.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
5. Consolidated Financial Results of Operations
in thousands of Canadian dollars, except per share amounts
| Three months: September 30, 2005 | Three months: June 30, 2005 | Three months: March 31, 2005 | Fiscal year: 2004 | Fiscal year: 2003 |
Revenue |
|
|
|
|
|
Mining operations | (8,962) | 0 | 0 | 0 | 0 |
Investment income | (78) | (136) | (113) | (673) | (82) |
Expenses |
|
|
|
|
|
Mining operations | 5,879 | 0 | 0 | 0 | 0 |
Government royalty | 90 | 0 | 0 | 0 | 0 |
Selling, transport and refining | 204 | 0 | 0 | 0 | 0 |
Depreciation, depletion and amortization | 1,551 | 0 | 0 | 0 | 0 |
Generaland administration: |
|
|
|
|
|
- Amortization (corporate) | 1 | 1 | 1 | 7 | 3 |
- Consultingfees | 31 | 29 | 643 | 421 | 153 |
- Directors' and committee memberfees | 11 | 13 | 13 | 63 | 0 |
-Investor relations and shareholder information | 91 | 182 | 126 | 794 | 389 |
-Management and administrative services | 308 | 281 | 276 | 910 | 398 |
- Officeand miscellaneous | 115 | 126 | 99 | 511 | 233 |
-Professionalfees | 61 | 75 | 12 | 229 | 119 |
-Taxes | 183 | 35 | 0 | 0 | 0 |
- Transferagent,listing and filing fees | 14 | 88 | 85 | 235 | 167 |
-Travel and entertainment | 44 | 135 | 74 | 562 | 298 |
-Non-recurringcashbonus | 0 | 0 | 495 | 768 | 318 |
Stock-based compensation | 834 | 3,750 | 0 | 4,419 | 249 |
Foreign exchange loss / (gain) | (109) | 65 | 0 | 18 | 8 |
Financial expenses | 174 | 0 | 0 | 2 | 1 |
Income taxes | 61 | 0 | 0 | 0 | 0 |
Net Loss for the Period | 503 | 4,644 | 1,711 | 8,266 | 2,254 |
Per Share:Basicand diluted | 0.01 | 0.06 | 0.02 | 0.14 | 0.09 |
Operating cash inflow / (outflow) | 566 | (4,828) | (2,260) | (2,887) | (1,558) |
Three months ended September 30, 2005
On a consolidated basis, Desert Sun recorded a net loss from operations of $503,000 in the three months ended September 30, 2005, or 1 cent per share; compared with $4.6 million (or 6 cents per share) in the three months ended June 30, 2005 and $1.7 million (or 2 cents per share) in the three months ended March 31, 2005.
The statement of operations highlights significant increases in overheads over fiscal 2003 and fiscal 2004, which includes increased management remuneration due to a higher staff complement and an increased contractual time commitment on the part of the officers of the Company; higher listing and filing fees as a result of the increased market capitalization of the Company (used to calculate exchange annual sustaining fees) and the listing of the Company's securities on the American Stock Exchange; and consulting fees that include $626,500, being the value expensed for the 500,000 warrants issued during the course of considering various financing alternatives for the Company earlier this year (as valued in terms of the Black-Scholes Model). Head office cash operating costs, i.e. general and administration expenses less non-cash consulting fees and corporate amortization, amounted to $858,000 in th e three months ended September 30, 2005, compared with $964,000 in the three months ended June 30, 2005 and $701,000 in the quarter ended March 31, 2005. The Company is projecting a sustainable level of approximately $800,000 per quarter.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
Significant operating expenses are as follows:
Management and administrative services expenses of $308,000 were incurred in the three months ended September 30, 2005, compared with $281,000 and $771,000 in the three months ended June 30 and March 31, 2005 respectively. The expense for the first quarter included bonuses paid upon the achievement of significant milestones of $495,000. Also included in the above expense is $23,000 per quarter paid to a company controlled by a director of Desert Sun, for administrative services. Management costs have now reached a relatively stable level, higher than fiscal 2004 as a result of the growth in the Company with additional officers and staff being added as well as increased time commitments by existing officers and staff, and ongoing management consulting and administration fees of approximately $300,000 per quarter can be expected.
Investorrelationsand shareholders' information activities cost $91,000 in the three months ended September 30, 2005, compared with $182,000 and $126,000 in the second and first quarters respectively. The Company sustains an investor relations campaign directed to increase awareness of the Company and its project both in North America and Europe. Significant activities during the period included compiling a new investor presentation and brochure ($26,000), the co-hosting of a promotional event in Toronto ($9,000), and attendance at trade shows ($18,000).
Travel and entertainment expenses decreased to $44,000 in the three months ended September 30, 2005, from $135,000 in the second quarter and $74,000 in the three months ended March 31, 2005. The travel and entertainment costs relate principally to the investor relations and marketing activities of management as they endeavour to keep investors informed about developments at the Company. Travel and entertainment expenditure in the quarter was comprised mainly of visits by senior management to Brazil ($15,000) and attendance at trade shows ($22,000).
Office and miscellaneous expenses in the three months ended September 30, 2005 were $115,000 (June 30, 2005: $126,000; March 31, 2005: $99,000). Desert Sun shares corporate office space and administrative services with certain other public companies, which together during 2004 negotiated and upgraded additional office space. The costs of ongoing office administration should be modest as the Company is reimbursed by these other companies for their proportionate share (currently approximately 77%) of all common expenses such as office rental, telephone, computer maintenance and office supplies. The largest component of this expense category in the period under review was insurance –including public liability, directors and officers and health insurance – of $58,000. Office rent amounted to $16,000 and telephone and communications costs totaled $17,000.
Taxes, in the third quarter, comprised mainly indirect Brazilian taxes such as charges on financial transactions, while in the second quarter (when all expenditure in Brazil was capitalized) they related to Ontario Capital Taxes.
6. Operational Review
In the nine months ended September 30, 2005 the Company achieved significant milestones at the Jacobina Mine and associated exploration program:
1. The Jacobina Mine has been reactivated and at full production, anticipated to be reached in the fourth quarter of 2005, will produce 100,000 ounces of gold per annum. The first gold was poured at the reactivated Jacobina Mine in March 2005, commercial production was declared effective July 1, 2005 and was at 75% of capacity for the third quarter ended September 30, 2005.
2. The Jacobina Mine produced a total of 11,935 ounces from the first gold pour at the end of March 2005 to June 30, 2005. Of this total, 9,889 ounces were sold by June 30, 2005 at an average net sale price of US$427 per ounce and the proceeds of US$4.2 million, less the attributable costs of production, were credited against mine development costs.
3. During the second quarter of 2005, the mill processed 210,400 tonnes with an average grade of 2.16g Au/t resulting in the production of 11,873 ounces of gold.
4. In the three months ended September 30, 2005, the first quarter of commercial production, the mill processed 300,505 tonnes with an average grade of 2.03 g Au/t resulting in the production of 18,683 ounces of gold. The metallurgical recovery rate was 95.4%. Sales of gold in the third quarter totaled 16,400 ounces at an average net sale price of US$442 per ounce. Sales of silver generated a by-product credit of approximately US$6,000.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
5. The estimated mineral reserves, which are included in the table of mineral resources below, determined at a US$350 per ounce gold price, are as follows:
Estimated Mineral Reserves as of August 1, 2005 1 |
| ||||||
Area | Proven | Probable | Proven & Probable |
| |||
| Tonnes | g Au/t | Tonnes | g Au/t | Tonnes | g Au/t | Ounces Contained |
Joao Belo 2 | 1,955,000 | 2.02 | 9,147,000 | 2.04 | 11,102,000 | 2.04 | 727,000 |
Morro do Vento 4 | Nil | Nil | 3,586,000 | 2.09 | 3,586,000 | 2.09 | 241,000 |
Basal Reef 3 | Nil | Nil | 2,304,000 | 2.51 | 2,304,000 | 2.51 | 186,000 |
Serra de Corrego 3 | Nil | Nil | 972,000 | 2.14 | 972,000 | 2.14 | 67,000 |
Total | 1,955,000 | 2.02 | 16,009,000 | 2.13 | 17,964,000 | 2.11 | 1,221,000 |
Less: Production March to July 2005 | 341,980 | 2.08 | 22,869 | ||||
Estimated Mineral Reserves as of August 1, 2005 5 | 17,620,000 | 2.11 | 1,200,000 |
1 Mineral reserves have been classified in accordance with CIM standards under NI 43-101.
2 Desert Sun Mining mineral reserve estimate March 1, 2005 (Pearson and Tagliamonte, 2005) (see DSM Press Release March 3, 2005).
3 As per original Dynatec mineral reserve estimation of September 2003 in the SNC Lavalin feasibility study (see DSM Press Release September 12, 2003).
4 Desert Sun Mining mineral reserve estimate August 11, 2005 (reviewed by Devpro Mining Inc.) (see DSM Press Release August 11, 2005).
5 Totals have been rounded.
6. An internal review and evaluation of the Company's development projects was completed in January 2005, with Morro do Vento identified as the next project to be developed. A pre-feasibility study of Morro do Vento, which is located 0.5 km from the processing plant, was completed in August 2005 and confirmed the economic viability of developing the Morro do Vento Mine. Micon International Limited of Toronto completed the review of mineral resources; AMEC Americas Limited of Vancouver completed a review of the mill expansion and Devpro Mining Inc. of Sudbury, in conjunction with Desert Sun staff, completed the mine plan and mineral reserve estimate. All licences and permits necessary to initiate work at Morro do Vento have been received from the Brazilian environmental review agency, Centro de Recursos Ambientais (CRA).
7. In 2005, Desert Sun has continued to make solid progress with its US$5million exploration program within the Bahia Gold Belt and to November 3, 2005 had completed 127 holes totaling 24,462 metres of diamond drilling to test three major target areas: the Canavieiras and Morro do Vento Extension targets in the Jacobina Mine area, and the northern Bahia Gold Belt target area, 50 km north of the town of Jacobina. At the end of September 2005 there were five drills operating: two underground and one surface rig at Canavieiras, one underground rig at Morro do Vento Extension and one surface drill at Pindobacu-Fumaga. One surface drill from Pindobacu was transferred to the mine for the deep drill program at Joao Belo, while the remaining surface drill was transferred to the mine at the end of October when the drilling program was completed at Pindobacu. Planned drilling for the 2005 program is nea ring completion and work has commenced on estimating an updated mineral resource, which is expected to be completed by the end of this year when all assay results have been received.
JACOBINA MINE
Reactivation of the Jacobina Mine started in earnest in April 2004. By May 2004, the underground mine was de-watered, by June 2004 the antiquated rail haulage system was removed, the drifts enlarged to accommodate mechanized equipment and new ramp development started, and in July 2004 ore development commenced. A complete fleet of new equipment was purchased from Atlas Copco and Volvo, which included 15-tonne LHDs (Load Haul Dump), 35-tonne haulage trucks, electric hydraulic 2-boom jumbos, and electric hydraulic ITH (in-the-hole) production drills. New ventilation, compressed air, and electrical systems were installed. Mine offices, heavy equipment mechanical shops, warehouses, staff facilities and a haulage road were completed by October 2004. The plant has been completely refurbished and modernized, with four additional leach tanks installed to increase leach time and gold recovery from the histor ical 92% to 96.5%. A new regeneration kiln has been installed and the CIP (carbon-in-pulp) circuit has been upgraded with a 100% increase in the screen capacity. A new crushing plant has been constructed with a throughput capacity of 500 tonnes per hour. The production plant has been fully automated with Siemens technology and is now operating with 40% less manpower.
The capital project, including development of the Jacobina Mine, refurbishment of the mill facilities and the purchase of all machinery, equipment and vehicles, cost approximately US$37 million. The original 2003 SNC Lavalin Feasibility Study projected costs of US$34 million. Lower development costs were offset by later than expected pre-operational revenue, as a result of the delayed delivery of the long hole drills.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
EXPLORATION
The Bahia Gold Belt, wholly owned by Desert Sun, totals 131,539 hectares that includes 5,996 hectares in the mining lease, 97,476 hectares of granted exploration concessions and 28,067 hectares of filed applications for exploration concessions. The property covers a strike length of 155 kilometers over the Jacobina Group sedimentary rocks, which underlie the Serra do Jacobina mountains. The Company is conducting a major exploration program along the Belt, and has outlined four primary target areas for more detailed follow-up. These targets include the Pindobacu area 50 kilometers north of Jacobina where geological mapping, prospecting, and rock and soil geochemical sampling has identified gold-bearing quartz veins, stockworks and extensive silicified zones in a thick package of fuchsite-bearing, locally oxidized (after pyrite) quartzites and metaconglomerates that may be the northern and separate ex tension of the Serra do Corrego Formation; a new basinal entry point area with significant conglomerates, located five kilometers north of Pindobacu; and a 45+ kilometer strike length extension of the Serra do Corrego Formation conglomerates, which hosts the existing mines.
The following table provides the current mineral resource estimate that has been reviewed and confirmed by Terry Hennessey, P.Geo. of Micon International. The resource estimation methodology and classification used is the same as outlined in the August 2003 report by Mr. Hennessey filed on SEDAR. Mineral resources include the above mineral reserves.
Summary of Mineral Resources as at December 12, 2004*
Category | Area | Tonnes | Grade | Contained Gold |
|
|
| (g/t Au) | (ounces) |
Measured | Joao Belo | 2,300,000 | 2.41 | 180,000 |
| Itapicuru** | 250,000 | 5.70 | 45,000 |
| Serra do Corrego | 10,000 | 7.50 | 3,000 |
| Canavieiras | 56,000 | 6.73 | 12,000 |
| Subtotal | 2,620,000 | 2.83 | 240,000 |
Indicated | Joao Belo | 10,300,000 | 2.37 | 790,000 |
| Itapicuru** | 9,390,000 | 2.63 | 790,000 |
| Serra do Corrego | 910,000 | 2.39 | 70,000 |
| Canavieiras | 850,000 | 3.61 | 100,000 |
| Joao Belo Sul | 770,000 | 2.55 | 60,000 |
| Subtotal | 22,200,000 | 2.49 | 1,810,000 |
Total | Joao Belo | 12,600,000 | 2.38 | 970,000 |
Measured and | Itapicuru** | 9,630,000 | 2.71 | 840,000 |
Indicated | Serra do Corrego | 920,000 | 2.44 | 72,000 |
| Canavieiras | 900,000 | 3.80 | 110,000 |
| Joao Belo Sul | 770,000 | 2.55 | 60,000 |
| Total | 24,800,000 | 2.53 | 2,050,000 |
Inferred | Joao Belo | 5,300,000 | 2.33 | 390,000 |
| Joao Belo-other reefs | 1,000,000 | 3.88 | 120,000 |
| Itapicuru** | 3,800,000 | 3.17 | 390,000 |
| Serra do Corrego | 1,800,000 | 2.95 | 170,000 |
| Canavieiras | 3,700,000 | 2.41 | 290,000 |
| Joao Belo Sul+ | 3,900,000 | 1.67 | 210,000 |
| Other Areas | 2,700,000 | 3.23 | 280,000 |
| Total | 22,200,000 | 2.61 | 1,900,000 |
* Totals have been rounded.
** Itapicuru includes Morro do Vento, Morro do Vento Extension and Basal/Main Reef.
+ Previously included in Other Areas.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
Morro do Vento
·
At the Morro do Vento target area located 0.5 kilometers north of the processing plant, the target intermediate reef package is 40 to 70 meters wide, and extends along the full two kilometer strike length.
·
An internal review and evaluation of the Company's development projects was completed in January 2005, which established Morro do Vento as the next project to be developed upon completion of the Jacobina Mine. An internal study was completed in April indicating that underground mining is the best option for this project and an independent 43-101 compliant pre-feasibility study was completed in early August 2005.
·
Highlights of the pre-feasibility study:
·
Mineral reserves estimated to be 3,586,000 tonnes at 2.09 g Au/t containing 241,000 ounces of gold
Morro do Vento Mine to produce 50,000 ounces per year at a cash cost of US$240 per ounce, beginning in 2006
Capital cost (net of pre-production cash flow) is estimated at US$17.2 million
Recovered gold including pre-production is estimated at 229,000 ounces
20% Internal Rate of Return with a Net Present Value of US$8.4 million at a 5% discount rate
5.5 year mine life with excellent potential to outline additional mineral reserves
·
The Morro do Vento mine will be the second production area at Jacobina and will add an additional 50,000 ounces per year bringing overall production to 150,000 ounces per year. The mining method and equipment will be similar to that currently used at the Jacobina Mine operations. The throughput of the processing plant will need to be expanded from 4,200 tonnes per day to 6,500 tonnes per day to accommodate the additional ore.
·
The Company has started work on collaring the 720 Level access portal for Morro do Vento and slashing the access adit. A power line directly to the Morro do Vento site is currently under construction and the mining equipment has been ordered. A strong mine development team has been assembled that will oversee all work on the project.
·
The total indicated mineral resources at Morro do Vento are estimated to be 5,790,000 tonnes grading 2.18 g Au/t, containing 406,000 ounces of gold using a conventional polygonal method. Inferred mineral resources are estimated to be 2,470,000 tonnes grading 2.42 g Au/t, containing 192,000 ounces of gold. The pre-feasibility study considered the indicated mineral resources above the 800 level only, which total 5,018,000 tonnes grading 2.08 g Au/t, containing 335,000 ounces of gold. Probable mineral reserves at US$350 per ounce gold price are estimated to be 3,586,000 tonnes at 2.09 g Au/t containing 241,000 ounces of gold. There is excellent potential to both upgrade and expand mineral resources below the 800 level.
·
Mining will be by conventional long hole open stoping using top hammer long hole drills, 6.2 m3 LHDs, and 35-tonne low profile haulage trucks. Geotechnical aspects of the mine design have been reviewed by MLF Geotecnica Mechanica de Rochas Ltda ("MLF") of Nova Lima, Brazil, who indicated that ground conditions are expected to be good and there should be no problems with ground stability with the current mine design. AMEC Americas Inc. of Vancouver, B.C. ("AMEC") considers that the Morro do Vento mineralization will behave in a metallurgically similar way to the Joao Belo ore currently being processed and that treatment of any ratio of these ores will not significantly impact metallurgical plant performance.
·
Access will be via the 720 Level adit, at the north end of the Morro do Vento area, which is approximately 200 metres from the crusher and accessed via the existing Jacobina Mine (Joao Belo Zone) haul road. Existing mine infrastructure, including mechanical shops, warehousing and staff facilities will be utilized to accommodate the Morro do Vento operation.
·
The results of the study have identified a number of modifications to the milling facilities to increase the throughput from 4,200 tonnes per day to 6,500 tonnes per day:
·
Installation of a new secondary crushing circuit to produce a finer crushed product prior to grinding.
Replacement of the grinding cyclones and corresponding feed pumps with higher capacity units in order to handle the increased throughput.
Installation of a new thickener that would function in parallel with the existing circuit. The current sand/slime system would be abandoned.
In the leaching area, an increase in the number of mechanically agitated leach tanks to provide the optimal leach residence time is required. A new leach feed vibrating screen, leach feed sampler and leach transfer pumps are also required to handle the increased capacity.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
Installation of a new CIP tails vibrating screen and sampler to handle the increased tailings capacity.
Replacement of the tailings disposal pipeline with a new larger diameter pipeline to handle the increased capacity.
Installation of new process water distribution pumps to handle the increased water requirements.
Primary crushing, carbon in pulp, carbon stripping and reactivation, reagent handling and refining circuits were deemed to have sufficient capacity to accommodate the increased capacity.
All environmental licenses required for the Morro do Vento operation have been received. The existing freshwater supply and discharge water systems will be utilized, as well as the storm water drainage system. Closure costs associated with the Morro do Vento mine are considered to be included with the Jacobina Mine complex closure plan.
Total capital cost is estimated to be US$31.2 million for the project. Gold produced from capital development in ore, amounts to US$14 million making the total new capital requirements for the project of US$17.2 million. The underground mine sustaining capital has been estimated to be US$5.8 million, to primarily be incurred in the years 2007 and 2008 for equipment rebuilds and ongoing mine development.
Devpro Mining Inc. (Devpro) was contracted by Desert Sun to co-ordinate the preparation of this pre-feasibility level report. Mr. Terrence Hennessey, P.Geo. of Micon International Limited (Micon) reviewed the geological aspects of the study and the mineral resource estimates. Mr. Rick Adams, P.Eng. of Devpro reviewed the mining methods and layouts, preparation of the mineral reserve estimates, and mine capital and operating cost estimates. Mr. Joe Milboume, P.Eng. of AMEC prepared a study of the milling and metallurgical aspects of the Morro do Vento deposit mineralization, and MLF reviewed the geomechanical aspects of the project with respect to ground stability. The individuals cited above are all independent qualified persons as defined under National Instrument 43-101.
Morro do Vento Extension
The Morro do Vento Extension target is located immediately north of the processing plant at the Jacobina Mine area. In 2004 a drill hole intersected 4.94 g Au/t over a true width of 12.6 metres in the Main Reef in the Morro do Vento Extension. From January 1 to November 3, 2005, 24 drill holes totaling 8,511 metres have been completed. Drilling continues to focus on exploring the southern continuation of the Basal and Main reefs into the Morro do Vento area. The Main Reef, which is stratigraphically about 50 metres above the Basal Reef, is a major target that was intersected in the new drill holes and is the northern extension of the same reef previously mined in the Morro do Vento area. The first hole in the Morro do Vento portion of the target zone returned 5.81 g Au/t over 2.3 metres true width in the Main Reef and 4.47g Au/t over 1.8 metres true width in the Basal Reef.
Highlights from new holes in the Morro do Vento Extension target include:
Surface Drilling
2.26g Au/t over a true width of 7.6 metres in the Basal Reef
3.23g Au/t over a true width of 3.5 metres in the Basal Reef
Underground Drilling
3.66g Au/t over a true width of 4.8 metres in 14.5 metres true width grading 1.99g Ault in Basal Reef
Rehabilitation of the old access levels has allowed more efficient drilling from underground. An underground drilling program has commenced at the Morro do Vento Extension area from the 645-metre level to test the potential for the Main Reef at higher elevations. The surface drilling program has now been completed on the 600-metre long target area between the Morro do Vento Extension and the north end of Morro do Vento; results from these eight holes are pending.
Canavieiras
The Canavieiras area at Jacobina comprises three target areas: conglomerate reefs located between 50 to 100 meters below the historical mine workings; the southeast extension of the reefs that were previously mined; and reefs above the historical mine workings. The former Canavieiras Mine is located 3 kilometers north of the processing plant and is located in a block bounded by faults that is approximately 1.2 kilometers long and 700 meters wide.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
To November 3, 2005, 54 holes totaling 7,095 metres have been completed at Canavieiras. Recent results include:
Step-out hole, 230 metres south of old mine workings:
• 3.94g Au/t over a true width of 9.6 metres in a wider section grading 2.36g Au/t over a true width of 31.4 metres (Middle Unit reef) and 3.20g Au/t over a true width of 5.9 metres (Liberino reef)
Reefs below old workings:
• 11.72g Au/t (9.68 highs cut to 30g Au/t) over a true width of 3.9 metres (top of Middle Unit reef only — results for balance of zone and Lower Unit reef pending)
• 3.93g Au/t over a true width of 11.1 metres in 30.0 metres grading 1.75 g Au/t
• 4.44g Au/t over a true width of 6.2 metres including 3.14g Au/t over a true width of 9.5 metres
• 4.26g Au/t over a true width of 5.8 metres in Middle Unit reef and 4.95g Au/t over a true width of 3.1 metres in Lower Unit reef
The step-out hole contains three major gold mineralized reefs, which are the southern continuation of the same mineralized stratigraphy in the old Canavieiras Mine area. This step-out hole extends the known strike length of the mineralized zone to 700 metres from the previously reported 400 metres. The potential to outline substantial additional resources in the new area to the south is excellent. The Company has re-habilitated the No. 6 adit, located 230 metres south of the old workings, to enable further drilling from underground in this highly prospective area. The grades and widths in the new holes at Canavieiras continue to confirm and expand upon the excellent results obtained at Canavieiras earlier this year. With the exception of the step-out hole to the south, these new holes tested primarily the southeastern extension of the mineralized reef package near and below the old mine workings. Th is zone is open along strike to the south and to the east. Re-sampling of old core suggests that historic grades may have underestimated grades in some areas. Re-interpretation of all of the available drilling and geological data for Canavieiras is continuing, to develop an accurate 3-D model which will facilitate further exploration and form the basis for future resource estimation.
Pindobacu
Desert Sun is carrying out a reconnaissance diamond drill program to test several targets identified from geological mapping/sampling and soil geochemistry undertaken by Desert Sun, as well as an induced polarization geophysical survey by Fugro-LASAGeomag, in the northern portion of the Bahia Gold Belt at Pindobacu; an area located 50 kilometers due north of the town of Jacobina. The Pindobacu target is accessible by paved road from Jacobina and is 2 kilometers west of the town of Pindobacu. The mineralogy and geochemistry of this system are remarkably similar to the gold mineralization in the quartz pebble conglomerates in the Jacobina Mine area to the south. The regional Pindobacu Fault system, which forms the eastern boundary of the Jacobina Basin, is clearly a major focus of hydrothermal alteration and mineralization. This mineralized structure probably extends for at least 15 kilometers along s trike and the alteration zone is up to 100 meters wide.
To November 3, 2005, 36 holes totaling 5,943 metres have been completed to test the Pindobacu target area. The more recent drill holes at Pindobacu have tested the core area that extends at least 700 metres along strike at a deeper level (100 metres to 150 metres below surface) than the original series of 100-metre spaced holes (50 metres to 80 metres below surface). Assay results for chip sampling in a shaft located at the Pindobacu "garimpo working" returned 3.27g Au/t over a true width of 14.1 metres in a vertical section including 6.85g Au/t over a true width of 5.0 metres.
Highlights from new holes at the Pindobacu target include:
• 4.40g Au/t over a true width of 3.4 metres
• 2.61 g Au/t over a true width of 1.8 metres
The Company continues to develop a better understanding of the structure and controls on gold mineralization in the Pindobacu area and has developed a new model accordingly. The deeper series of holes has confirmed that the strong alteration zone extends downdip to at least 150 metres, however, assay results on these holes are pending. It is likely that there could be a series of hydrothermal centres with significant gold mineralization along this extensive structure. Gold mineralization occurs within fractured, faulted and brecciated quartzites in the hinge area of a major east-dipping fold structure.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
Jacobina Basin Study
Dr. Paul Karpeta, an expert on Precambrian quartz pebble conglomerate-hosted gold deposits with extensive experience working on deposits in Witwatersrand, South Africa and Tarkwa, Ghana, recently carried out a study of the Jacobina Basin in an attempt to identify additional entry points outside of the Jacobina Mine area. Entry points are the areas in a basin where major streams carry and deposit sediments into the basin and are typically marked by the thickest conglomerates with the largest pebbles. This work, which was done in close collaboration with Desert Sun personnel led by senior geologist Pedro Moura de Macedo, identified a significant area of Jacobina Group sediments with quartz pebble conglomerate layers, which are exposed in a large tectonic window across an area5,000meters long by900meters wide about five kilometers northwest of Pindobacu. Gold garimpos (free miner work ings) occur around this "window" near the contact with volcanic rocks of the Mundo Novo Formation, which have been thrust over the conglomerates and then subsequently eroded. In contrast to the mine area, the sedimentary rocks here are relatively flat lying hence only a small portion of the overall stratigraphic sequence is actually exposed.
Dr. Karpeta concluded that the Jacobina Basin has been subdivided by cross structures into major compartments, which controlled sedimentation in those compartments. One such cross structure is marked by a prominent lineament about six kilometers south of the town of Pindobacu, north of which is the Pindobacu Compartment and to the south is the Jacobina Compartment. Each of these compartments will have a different stratigraphy and hence different auriferous conglomerates. Typically, within each compartment there is usually one entry point marked by the thickest conglomerates with the biggest pebbles, which typically are the richest conglomerates. Dr. Karpeta concluded that these entry points occur around the Jacobina Mine area in the Jacobina Compartment and potentially around Mina Velha, five kilometers northwest of Pindobacu, in the Pindobacu Compartment.
Dr. Karpeta has commented that there are strong similarities in the style of sedimentation and gold mineralization at Jacobina to those of the Tarkwa and Witwatersrand Belts. He indicated that the presence of extensive hydrothermal alteration is very encouraging, and indicative of the possibility of more extensive gold mineralization elsewhere in the Belt in addition to the obvious potential for extending the known deposits in the Jacobina Mine area. Finally, Dr. Karpeta stated that the exploration done to date at Jacobina is still very limited in comparison to both Tarkwa and Witwatersrand and that exploration along much of the Bahia Gold Belt is just beginning.
7. Liquidity and Capital Resources
The following table summarizes the Company's consolidated cash flows and cash on hand:
(in thousands of Canadian dollars) | Three months: September 30, 2005 | Three months: June 30, 2005 | Three months: March 31, 2005 | Fiscal year: 2004 | Fiscal year: 2003 |
Cash and equivalents | 11,294 | 15,915 | 29,148 | 21,356 | 6,832 |
Working capital | 11,941 | 16,943 | 26,787 | 19,803 | 6,414 |
Cash flow from operating activities | 566 | (4,828) | (2,260) | (2,887) | (1,558) |
Cash used by investing activities | (8,272) | (8,485) | (13,701) | (33,536) | (3,154) |
Cash provided by financing activities | 3,085 | 81 | 23,752 | 50,946 | 9,809 |
Cash Resources
The increase in cash and equivalents from $21.4 million at December 31, 2004 to $29.1 million at March 31, 2005 was primarily attributable to the issuance of capital stock by way of a bought deal in March 2005 that raised $23.3 million. Since March 31, 2005 cash and equivalents have decreased by $17.9 million, to $11.3 million as a result of funding the completion of the refurbishment of the Jacobina Mine as well as an aggressive exploration program. The Jacobina Mine has begun to generate positive cash flow, with the cash on hand to be used to fund the development of the Morro do Vento project, the ongoing exploration program and head office overheads.
In addition to the $23.3 million raised, net of issue costs, through the issuance of common shares (fiscal 2004 – $51 million), $720,000 was received from the exercise of options and $2.9 million from the exercise of warrants in the nine months to September 30, 2005.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
Cash and equivalents at September 30, 2005 consisted of $3.5 million cash on deposit with the Royal Bank in Canada, $2.7 million cash on deposit with Bank Boston and Banco do Brazil in Brazil and $5.1 million cash invested in short-term liquid investments in Canada. The Company's investment strategy for surplus cash requires funds only to be invested in highly liquid and secure investments which can be redeemed on short notice and at no or little additional cost.
Desert Sun remains debt free (except to the extent of supplier extended credit terms) and its gold production and reserves are totally unhedged. Desert Sun has no unfunded pension liabilities. All financial commitments associated with financed equipment are included in liabilities upon receipt of the associated asset by the Company. Other than the agreement for the purchase of Brazilian Real through 2006 (see Section 3), Desert Sun does not have any off-balance sheet arrangements nor does it have any guarantees outstanding.
Uses of Liquidity
Desert Sun's cash requirements over the next 12 months will be primarily to fund:
Development of the Morro do Vento Mine, together with associated mill upgrades;
Exploration within the mining area to facilitate the development of additional mines;
Exploration further afield, but within the 100% controlled, 155-kilometer Bahia Gold Belt; and
Corporate administration and working capital.
The Company currently, and through projected operating revenues, has the financial resources to undertake its aggressive exploration program and to fund anticipated corporate administration and working capital requirements. Management's investigation of alternative financing strategies to the issuing of additional shares, including Brazilian and international project financing loans, to fund development of the additional mining areas over the next three to four years, are at an advanced stage.
Commitments and Contractual Obligations
The Company has entered into contracts with international equipment suppliers for the financing of its initial fleet of mining equipment for use at the Jacobina Mine and at the Morro do Vento project that has entered the pre-production phase. While the amounts payable under the financing contracts relating to the equipment are recorded as current and long-term obligations in the financial statements, the Company has also negotiated a full service contract with these suppliers for the maintenance of the mining equipment provided by them. Financial obligations in terms of this service contract include both a fixed component, which is reflected below, as well as a variable component based on the number of hours that each piece of equipment is in operation.
The Company is also a party to certain management contracts.
(in thousands of Canadian dollars) | Fourth quarter 2005 | Fiscal 2006 | Fiscal 2007 | Fiscal 2008 |
Equipment finance | 843 | 3,123 | 427 | - |
Service contracts | 125 | 499 | 42 | - |
Office lease (Toronto) (') | 69 | 275 | - | - |
Equipment (Toronto) (') | 4 | 16 | 16 | - |
Management contracts | 409 | 1,175 | 1,175 | 133 |
TOTAL | 1,450 | 5,088 | 1,660 | 133 |
(i) Desert Sun shares its premises with other public companies that have common directors and/or officers. Desert Sun's proportional share of these commitments, after recoveries from other companies, is generally 23%.
In connection with exploration and development activities, the Company is required to make certain payments regarding mining licenses, leases, occupation and surface rights. If the properties are no longer of interest to Desert Sun it can stop making these payments, although its property rights will terminate. There are no long-term contractual arrangements with any related parties that create or result in any obligations that are not on an arm's-length basis.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
Change in Non-Cash Working Capital
(in thousands of Canadian dollars) | Three months: September 30, 2005 | Three months: June 30, 2005 | Three months: March 31, 2005 | Fiscal year: 2004 | Fiscal year: 2003 |
Decrease (increase) in current |
|
|
|
|
|
assets: | |||||
Amounts receivable and prepaid expenses | 759 | (2,048) | (645) | (1,386) | (27) |
Other receivables | (1,654) | (595) | (633) | (1,492) | - |
Inventories | (1,453) | (1,339) | (1,887) | (362) | - |
Increase (decrease) in current |
|
|
|
|
|
liabilities: | |||||
Accounts payable and accrued liabilities | 585 | (165) | 1,355 | 2,695 | 471 |
Other payables | 2,039 | 211 | 633 | 1,492 | - |
Other | - | - | - | 6 | - |
Foreiqn Exchange | 57 | (57) | - | - | - |
Total | 333 | (3,993) | (1,177) | 953 | 444 |
The most significant increases in working capital during the three and nine months ended September 30, 2005 resulted from a large investment in inventories and substantial sales tax payments that will be recovered over the next 48 months. The initial stocking of the spares and consumables inventories began late in 2004 and is substantially complete. Inventories required by the Company have been contained as a result of the full service agreement concluded covering the major mining equipment, with all spares in this regard being provided by the supplier on a consignment stock basis. Inventory as at September 30, 2005 was $5.0 million of which $1.5 million consisted of gold bullion and $3.2 million of materials and supplies. An ore stockpile made up the balance.
Investing Activities
MiningInterests (in thousands of Canadian dollars) | Three months: September 30, 2005 | Three months: June 30, 2005 | Three months: March 31, 2005 | Fiscal year: 2004 | Fiscal year: 2003 |
Jacobina Mine - capital and development costs | (1,620) | (4,835) | (7,745) | (15,954) | - |
Morro do Vento - pre-production costs | (876) | (387) | (185) |
|
|
Exploration and development projects | (2,259) | (1,044) | (1,446) | (9,785) | (3,112) |
Property, plant and equipment | (3,517) | (2,219) | (4,325) | (7,797) | (42) |
Total | (8,272) | (8,485) | (13,701) | (33,536) | (3,154) |
Development of the Jacobina Mine infrastructure is complete, the first gold pour took place in March 2005 and commercial production was declared effective July 1, 2005 with the mill operating at 75% of design capacity in the third quarter. Acquisitions of capital assets (net) in the nine month period were $13.9 million, but $3.8 million thereof was financed in terms of credit arrangements with the suppliers.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
Financing Activities
In March 2005 Desert Sun closed a bought deal financing with a syndicate of underwriters led by Sprott Securities Inc. and including CIBC World Markets Inc, Salman Partners Inc., Canaccord Capital Corporation, First Associates Investments Inc., Haywood Securities Inc. and Pacific International Securities Inc. pursuant to which the underwriters agreed to purchase 10,729,614 units at a price of $2.33 per unit for aggregate gross proceeds of $25,000,001. Each unit consisted of one common share and one-quarter of one common share purchase warrant. Each whole warrant is exercisable at a price of $2.50 until November 20, 2008. The share purchase warrants trade on the Toronto Stock Exchange under the symbol DSM.WT. A further $2.9 million was received as a result of the exercise of share purchase warrants in the nine months to September 30, 2005 and $720,000 was received from the exercise of stock options.
Share Incentive Plans
A significant factor that has and will continue to contribute to the Company's success is its ability to attract and retain qualified and competent people. To help accomplish this, the Company has adopted a Stock Option Plan and a Share Compensation Plan, together designed to advance the interests of the Company by encouraging directors, officers, employees and consultants to have equity participation in Desert Sun. As at September 30, 2005 a total of 9.13 million options to acquire common shares were outstanding at an average exercise price of $1.43, of which 1.35 million were granted during 2005. Upon approval of Desert Sun's new Stock Option Plan by shareholders on April 20, 2005, 2.4 million options to purchase common shares granted since September 2004, including the 1.1 million options granted in 2005, were deemed to have been issued and $2.4 million was charged to operations as stock-based co mpensation in the current period. An additional 250,000 stock options were granted in the third quarter, which were valued in terms of the Black-Scholes option pricing model at $294,250.
In the period, 1.5 million shares were allocated to directors, officers and consultants under the new Share Compensation Plan approved by shareholders of April 20, 2005. An additional $2.0 million of stock-based compensation expense was recognized as a result. Of the common shares allocated, 941,666 shares were issued in the period with the remaining 583,334 to be issued on the first and second anniversaries of the original grants.
8. Critical Accounting Policies and Estimates
Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of any contingent assets and liabilities as at the date of the consolidated financial statements, as well as the reported amounts of revenues earned and expenses incurred during the period. These estimates are based on historical experience and other assumptions that are believed to be reasonable under the circumstances. The Company's significant accounting policies are summarized in Note 2 of the audited consolidated financial statements for the 16-months ended December 31, 2004. Critical accounting policies and estimates in the period included capitalization of exploration / development expenditures and the recognition of impairment of those assets, accounting for foreign currency translation, stock-based compensation, and contingent lia bilities. Actual results could differ from these estimates.
9. Risks & Uncertainties
Nature of Mining, Mineral Exploration and Development Projects
The Company's mining operations, and exploration and development projects are subject to conditions beyond its control, which can affect the cost of mining for varying lengths of time. Such conditions include environmental hazards, explosions, unusual or unexpected geological formations or pressures, pillar collapses, and periodic interruptions in both production and transportation due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability. Through high operational standards, emphasis on training and continuous improvement, Desert Sun works to reduce the mining risks. The Company maintains insurance to cover normal business risks.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
Gold Price
The principal business of the Company is the production of gold. Desert Sun's future profitability is largely dependent on movements in the price of gold. Gold prices are affected by numerous factors beyond the Company's control, including central bank sales, producer hedging activities, the relative exchange rate of the United States dollar with other major currencies, global and regional demand, political and economic conditions and production costs and levels in major gold producing regions. In addition, the price of gold has on occasion been subject to rapid short-term changes due to speculative activities. Desert Sun is better positioned than many of its competitors to withstand low commodity prices due to the relatively low cash cost per ounce at the Jacobina Mine. However, if as a result of a sustained decline in gold prices, revenues from gold sales were to fall below cash operating costs, t he feasibility of continuing operations would be evaluated and if warranted, could be discontinued. The Company does not enter into gold price hedging programs, which would only be considered to the extent necessary to satisfy any lender requirements for project finance transactions.
Currency Fluctuations
The Company holds cash reserves in both Canadian and United States dollars and in Brazilian Reais. By virtue of its international operations, the Company incurs costs and expenses in a number of foreign currencies other than the Canadian dollar. The exchange rates covering such currencies have varied substantially and accordingly, could significantly impact the results of operations. Desert Sun's future operating results and cash flow will be primarily affected by changes in the United States dollar / Brazilian Real exchange rate as substantially all revenues will be earned in United States dollars, while a substantial portion of the operating (75%) and capital (50%) expenditures are expected to be incurred in Brazilian Reais. Desert Sun will actively protect the proceeds from its United States dollar denominated revenues against strengthening of the Brazilian Real when this is considered prudent.
On March 3, 2005 Desert Sun entered into agreements with BankBoston to purchase Brazilian Real (R$) for monthly delivery in the equivalent of US$1 million per month beginning January 2006 at an exchange rate averaging R$3.0:US$1 for 2006. The Company is monitoring the exchange rate between the Brazilian Real and the United States Dollar closely and may enter into further contracts for 2007 at an opportune time.
The appreciation of the Brazilian Real against the United States dollar continues to be largely dependent on high interest rates in Brazil, which are attracting significant inflows of foreign capital. The Company believes that as interest rates begin to move lower, the Brazilian Real will begin to weaken. If considered appropriate, the Company may hold surplus cash balances in Brazil in order to take advantage of high local interest rates as an offset to the strength of the Brazilian Real.
Mineral Resource and Mineral Reserve Estimates
The figures for mineral resources and mineral reserves are determined in accordance with National Instrument 43-101, Standards of Disclosure for Mineral Projects, issued by the Canadian Securities Administrators. There are numerous uncertainties inherent in estimating mineral resources and mineral reserves, including many factors beyond the Company's control. Such estimation is a subjective process, and the accuracy of any mineral resources and mineral reserves estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. Differences between management's assumptions, including economic assumptions such as metal prices and market conditions, could have a material effect in the future on the Company's financial position and results of operation.
Risk of contingent liabilities
Desert Sun owns 100% of Jacobina Mineragao e Comercio Ltda. ("JMC"), the Brazilian company that holds the mining and exploration licences, fixed property, and associated plant and equipment. In terms of the agreement under which the Company acquired JMC, Valencia Ventures Inc. ("Valencia") provided certain indemnities to Desert Sun for outstanding liabilities. These amounts include taxes payable to the Brazilian Federal and State authorities, liabilities to third parties, as well as labour and health related claims by former employees. Claims relating to silicosis, for the period prior to the Company's acquisition of JMC, for which Valencia has indemnified Desert Sun could amount to some $6 to $9 million. It is management's belief that the majority of the health related claims are substantially without merit and Desert Sun and Valencia intend to defend the actions vigorously.
For a more complete description of the uncertainties and risk factors faced by the Company, please refer to Management's Discussion and Analysis of the audited consolidated financial statements for the 16-months ended December 31, 2004.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
10. Quarterly Data
Summary of Quarterly Results(unaudited)
in thousands of Canadian dollars, except per share amounts
| 2005 3rd quarter to Sept. 30 2005 | 2005 2nd quarter to June 30 2005 | 2005 1st quarter to March 31 2005 | 2004 5th quarter to Dec. 31 2004 | 2004 4th quarter to Sept. 30 2004 | 2004 3rd quarter to June 30 2004 | 2004 2nd quarter to March 31 2004 | 2004 1st quarter to Nov. 30 2003 |
| 3-months | 3-months | 3-months | 3-months | 3-months | 3-months | 4-months | 3-months |
|
|
|
|
|
|
|
|
|
Revenue | 8,962 | -- | -- | -- | -- | -- | -- |
|
Net Loss for the period | 503 | 4,644 | 1,711 | 1,368 | 567 | 543 | 4,953 | 835 |
Net Loss per share – basic and diluted | 0.01 | 0.06 | 0.02 | 0.01 | 0.01 | 0.01 | 0.09 | 0.02 |
Included in the net loss for the 2004 fiscal year were the following non-cash stock-based compensation expenses (as calculated in terms of the Black-Scholes option pricing model): for the three months ended June 30, 2004: $104,600 and for the four months ended March 31, 2004: $4,314,424. Excluding these book entries the net loss for the fifth, fourth, third, second (four-month) and first quarters would be $1,368,317, $566,701, $438,264, $638,262 and $834,985, respectively.
In the first quarter of fiscal 2005, the net loss included consulting services relating to the evaluation of financing alternatives that were settled through the issue of 500,000 share purchase warrants. The net loss for the three months ending March 31, 2005, excluding this non-cash expense (that was valued in terms of the Black-Scholes option pricing model), was $1,084,305.
The net loss in the second quarter of 2005 includes a non-cash stock-based compensation expense of $2,358,015 following the adoption by the shareholders at their Annual and Special Meeting held on April 20, 2005 of a new Stock Option Plan and the resultant ratification of stock options granted between September 2004 and March 2005. A further non-cash compensation expense in the amount of $1,391,808 was recognized as a result of the grant of common shares following the approval by shareholders of a Share Compensation Plan at the same Annual and Special Meeting. The net loss for the three months ended June 30, 2005, excluding these non-cash expenses, was $893,874.
In the three months ended September 30, 2005, a further non-cash stock-based compensation expense of $256,883 was recognized for stock options that vested in the period, as well as a further $577,461 based on the vesting of the shares previously allocated to directors, officers and consultants under the Share Compensation Plan. The net revenue for the three months ended September 30, 2005, excluding these non-cash expenses, was $331,474.
11. Management Changes
Mr. Mike Hoffman, P.Eng. joined the company as Vice President, Strategic Development in September 2005, assuming primary responsibility for facilitating the planned expansion of gold production at Desert Sun's Jacobina Mine in Brazil and building a strategic development program for the Company. Mr. Hoffman will be based in Toronto at Desert Sun's head office. Mr. Hoffman is a registered Professional Engineer in Ontario with 25 years' experience in the mining industry. Following his graduation from Queens University with an Honours Bachelor of Science Degree in Mining Engineering, Mr. Hoffman worked for several major mining companies and mining consultants in North America, Central America, South America and Africa. Some of these include Rio Algom, MRDI, the BLM Service Group and Royal Oak Mines Inc. In his most recent position, Mr. Hoffman was Vice President, Projects for Goldcorp Inc, where he w as responsible for expansion planning for Goldcorp's flagship Red Lake Mine in northern Ontario. Mr. Hoffman's extensive feasibility and implementation experience will be extremely valuable to Desert Sun as the Company embarks on its aggressive production expansion program.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
12. Related Party Transactions
Included in Other Receivables and Other Payables on the balance sheet is $4.4 million that it is anticipated will be paid in taxes and royalties, to settle historical creditors in Brazil, in respect of claims by former employees of JMC relating to silicosis that were decided by the Brazilian legal system prior to the Company's investment in the project, for which the Company is indemnified by Valencia. This amount does not include any amounts that might become due in respect of outstanding legal claims against JMC relating to silicosis that have not yet been heard by the appropriate Brazilian court, for which the Company is also indemnified by Valencia.
In the nine months ended September 30, 2005 the Company paid $690,000 (16-months ended December 31, 2004: $1.68 million) to settle amounts in terms of the indemnity from Valencia. To date, the Company has been refunded $1.75 million by Valencia, with the outstanding balance of $620,000 included in Amounts Receivable and Prepaid Expenses on the balance sheet at September 30, 2005. An officer and director of the Company is a director of Valencia.
Desert Sun shares its Toronto corporate offices with other public companies that have common directors and / or officers. Desert Sun is reimbursed by these companies for their proportional share of the common expenses such as rent, telephone and office supplies. At September 30, 2005 amounts receivable included $119,000 (December 31, 2004: $158,000) due by these companies to Desert Sun. At the time of this report only $44,000 remained outstanding.
Management and administrative services expense includes $67,500 (2005: $75,000), which was paid to a company controlled by an officer and director of the Company for administrative services.
The Company engages certain directors to provide business advice and administrative services as they are highly qualified and knowledgeable of the Company's affairs. Payments are based on the fair value of such services as determined by management. There are expected to be ongoing service commitments resulting from contractual agreements for these engagements.
13. Corporate Accountability
The audit committee of the board of directors of Desert Sun is responsible for establishing procedures for:
i. the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls and auditing matters; and
ii. the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and in connection therewith, the board of directors has adopted a Corporate Accountability Policy.
This Policy has been adopted to ensure that:
i. Complaints are received, investigated and retained on a confidential and anonymous basis that is in compliance with all applicable laws; and
ii. Employees will not be penalized or retaliated against for making a good faith report of a complaint.
The Audit Committee has the responsibility for overseeing this policy and has delegated the day-to-day administration of this policy to the Corporate Secretary and General Counsel and the Vice President, Investor Relations. All directors, officers and employees of the Company and its subsidiaries are required to promptly report any complaints, following set out procedures, either internally to a designated officer or externally to two independent directors by using the Hotline (an e-mail address and post-office box established for the purpose of receiving complaints). The Hotline is being monitored by two independent directors, so that complaints can be reported in an anonymous (if so desired) and confidential manner. Desert Sun is fully committed to maintaining procedures for the anonymous and confidential reporting of complaints and all reports of complaints will be treated on a confidential basis and, if reported using the Hotline, will be treated on an anonymous basis. Generally, a report of a complaint will only be disclosed to those persons who have a need to know in order to properly carry out an investigation of such complaint in accordance with the procedures set out in the policy.
All employees have received, and acknowledged receipt of, a copy of the Corporate Accountability Policy.
DESERT SUN MINING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2005
14. Non-GAAP Measures
The Company has included certain non-GAAP measures, including cost per ounce data and adjusted net earnings / (loss) to supplement its financial statements, which are presented in accordance with Canadian Generally Accepted Accounting Practice. Non-GAAP measures do not have any standardized meaning prescribed under GAAP and therefore they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The Company has included cost per ounce information data because it understands that certain investors use this information to determine the Company's ability to generate earnings and cash flow for use in investing and other activities. The Company believes that conventional measures of performance prepared in accordance with GAAP do not fully illustrate the ability of its operating mine to generate cash flow. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP. Where cost per ounce data is computed by dividing GAAP operating cost components by ounces sold, the Company has not provided formal reconciliations of these statistics. Cash costs are determined in accordance with the Gold Institute's Production Cost Standard.
The Company uses the financial measure "adjusted net earnings / (loss)" to supplement its consolidated financial statements. The presentation of adjusted measures are not meant to be a substitute for net earnings / (loss) presented in accordance with GAAP, but rather should be evaluated in conjunction with such GAAP measures. Adjusted net earnings / (loss) is calculated as net earnings / (loss) excluding the (a) non-cash stock-based compensation expense, (b) foreign exchange gain / (loss) and (c) future income tax expense (as applicable). The term "adjusted net earnings / (loss)" does not have a standardized meaning prescribed by GAAP and therefore the Company's definitions are unlikely to be comparable to similar measures presented by other companies. The Company's management believes that the presentation of adjusted net earnings / (loss) provides useful information to investor s because it excludes non-cash charges and is a better indication of the Company's profitability from operations. The items excluded from the computation of adjusted net earnings / (loss), which are otherwise included in the determination of net earnings / (loss) prepared in accordance with GAAP, are items that the Company does not consider to be meaningful in evaluating the Company's past financial performance or its future prospects and may hinder a comparison of its period to period profitability.
15. Supplement to the Consolidated Financial Statements
As at November 9, 2005, the following common shares, common share purchase options and share purchase warrants were issued and outstanding:
·87,653,887 common shares;
·9,055,163 common share purchase options at an average price of $1.43, maturing at various dates until September 19, 2010; and
·15,961,308 share purchase warrants at a price of $2.50, maturing on November 20, 2008.
November 9, 2005
FORM 52-109FT2
CERTIFICATION OF INTERIM FILINGS
DURING TRANSITION PERIOD
I, Bruce Humphrey, the President and Chief Executive Officer ofDesert Sun Mining Corp.,certify that:
1. I, have reviewed the interim filings (as this term is defined in Multilateral Instrument 52-109Certification of Disclosure in Issuers' Annual and Interim Filings)ofDesert Sun Mining Corp.(the issuer) for the interim period ending September 30, 2005;
2. Based on my knowledge, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date and for the periods presented in the interim filings.
Date:November 9, 2005
"Bruce Humphrey"
Bruce Humphrey
President and Chief Executive Officer
FORM 52-109FT2
CERTIFICATION OF INTERIM FILINGS
DURING TRANSITION PERIOD
I, Stephen Woodhead, the Chief Financial Officer ofDesert Sun Mining Corp.,certify that:
1. I, have reviewed the interim filings (as this term is defined in Multilateral Instrument 52-109Certification of Disclosure in Issuers' Annual and Interim Filings)ofDesert Sun Mining Corp.(the issuer) for the interim period ending September 30, 2005;
2. Based on my knowledge, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date and for the periods presented in the interim filings.
Date:November 9, 2005
"Stephen Woodhead"
Stephen Woodhead
Chief Financial Officer
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 6-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Desert Sun Mining Corp.
(Registrant)
Dated: January 28, 2006 | Signed:/s/ Tony Wonnacott Tony Wonnacott, Corporate Secretary |