RUBICON MINERALS CORPORATION
Management’s Discussion & Analysis
For the Year Ended December 31, 2007
Suite 1540 – 800 West Pender Street, Vancouver BC V6C 2V6
Tel: 604.623.3333 Toll free: 1.866.365.4706 Fax: 604.623.3355 E-mail: rubicon@rubiconminerals.com
www.rubiconminerals.com
INTRODUCTION
This Management Discussion and Analysis (“MD&A”) dated March 31, 2008 includes financial information from, and should be read in conjunction with, the audited consolidated financial statements for the fiscal year ended December 31, 2007. Please refer to the cautionary notices at the end of this MD&A, especially in regard to forward looking statements. Rubicon Minerals Corporation (the “Company”) reports its financial position, results of operations and cash flows in accordance with Canadian generally accepted accounting principles (“GAAP”) in Canadian dollars. Please see note 17 of the audited consolidated financial statements of the Company for a reconciliation between Canadian and United States GAAP.
Rubicon Minerals Corporation is a Canadian based mineral exploration-stage company that explores for commercially viable gold and base metal deposits. In addition the Company selectively invests in other mineral exploration and resource companies which the Company deems to be of merit.
The Company’s key assets are in the Red Lake gold camp, in the Province of Ontario. In addition, the Company has recently acquired significant land packages in Alaska, USA and Nevada, USA as described below under highlights. The Company does not have any assets or mineral properties that are in production or that contain a reserve.
The Company is a reporting issuer in the provinces of British Columbia, Alberta, Ontario and Quebec in Canada as well as with the SEC in the United States. The Company’s common shares trade on the TSX in Canada under the symbol ‘RMX’ and on the American Stock Exchange in the United States under the symbol ‘RBY’.
HIGHLIGHTS
McEwen Acquisition and Financing
On May 18th, 2007 the Company closed the McEwen acquisition and financing, with Rob McEwen (“McEwen”) and associated companies. Mr. McEwen was the former Chairman and CEO of Goldcorp Inc. Pursuant to the acquisition agreement, the Company acquired from Evanachan Limited, a 513,000 acre property in Alaska surrounding the world-class Pogo Gold Mine and from Lexam Explorations Inc., a 225,000 acre property in the northeastern part of Nevada. Rubicon issued approximately 31.4 million shares for the Alaska properties at a deemed price of $0.70 per share and approximately 8.6 million shares for the Nevada properties at a deemed price of $0.70 per share. In addition, McEwen made a $10 million private placement in the Company and secured subscriptions for a further $5 million by other parties. In all, a total of 21,428,564 financing units were subscribed for at a price of $0.70 per unit. The price was based on the average of the closing prices of the Company’s shares on the TSE, on the 5 days immediately prior to the agreement date. Each unit included one common share and one half of one warrant. One whole warrant is exercisable at $1.50 for one additional common share for a period of 2 years from the date of the financing.
Further details of the transactions are available on Sedar in the material change report of May 28, 2007.
$10.4 Million Financing
On October 25, 2007, the Company signed an agreement with Research Capital Corp. for a $10,000,080, bought deal, flow-through share financing. The Company agreed to issue 4,651,200 flow-through shares at a price of $2.15 per share, a 21% premium above the $1.78 closing price of the Company’s stock the day prior to the agreement. An all share commission is to be paid to the underwriter amounting to 7% of the value of the bought deal financing at a deemed share price of $1.78 per share totaling 393,261 shares. In addition, the Directors of the Company have authorized a further 186,047 flow-through shares to be issued to other investors under the same terms for further proceeds of $400,000. This portion of the financing is not subject to a commission.
Under the terms of the subscription agreements all funds from the financing will be spent on Canadian exploration expenditures on the Company’s Ontario properties before the end of 2008. These expenditures will be renounced to the investors for the 2007 tax year.
Further details of the transaction are available on Sedar in the material change report of November 2, 2007.
Red Lake Exploration
100% Controlled Projects
2007 Exploration Highlights - Phoenix Gold Project
The Phoenix Gold Zone was discovered by Rubicon in 2004. Since that time, the zone has been tested through drilling at an average 30-metre spacing over a strike length of 500 metres and to a depth of 200 metres. The zone remains open at depth and along strike for expansion.
On January 29, 2007, the Company announced an expansion of its exploration programs on its 100% controlled Phoenix Gold Project to include a surface drilling of deep footwall targets and an evaluation of further exploration from underground. The Phoenix Gold Project has significant physical assets including the McFinley shaft which currently extends to a depth of 450 feet (137 metres). To follow up currently known zones and to gain better access to deep drill targets, surface drill programs could be supplemented by underground drilling to afford year-round drill access. Accordingly, a review of the permitting and cost/benefit analysis to allow exploration from underground is ongoing.
To the end of December 2007 the Company has incurred nearly $2.6 million in exploration expenditures, completing 13,705 metres of drilling on its 100% owned Phoenix Gold Project. Interim results were returned and released June 19, 2007 and further results were released July 30th, 2007. Each of the three new target areas drilled to date have intersected gold-bearing zones and are open for follow-up drilling:
1) North Peninsula Target: A total of twelve holes have tested the North Peninsula Target, on four east-southeasterly oriented sections, spaced approximately 50 metres apart. Recent results, including 14.65 g/t gold over 0.80 metres, 9.49 g/t gold over 1.00 metre, 5.94 g/t gold over 2.15 metres and 1.25 g/t gold over 7.65 metres, continue to indicate the overall robust nature and continuation of the gold mineralization at depth and along strike.
The North Peninsula Target is characterized by two distinct gold zones:
| i) | The Lower Zone has returned assays that include 34.14 g/t gold over 1.00 metre, 28.07 g/t gold over 0.90 metres, 10.59 g/t gold over 1.57 metres (incl. 16.90 g/t gold over 0.92 metres), 10.46 g/t gold over 1.50 metres (incl. 25.60 g/t gold over 0.50 metres), and 9.49 g/t gold over 1.00 metres. Technical details of the zone are summarized below: |
The Lower Zone, currently intersected between 230 metres and 380 metres below surface occurs within a package of intensely altered mafic rocks, capped by ultramafic units. Alteration is characterized by intense silicification, biotite alteration and arsenopyrite replacement (locally up to fifty percent of the interval) of carbonate veins over widths ranging from four to nine metres. The overall thickness of the Lower Zone varies from 50 to 80 metres.
The structural relationship of the ultramafic rocks, acting as a barrier to gold bearing fluids and capping the underlying mafic rocks, is considered a very prospective setting for gold mineralization. The intense style of alteration, the structural relationship of the ultramafic and mafic rocks, and the gold mineralization point to a number of striking similarities to documented zones from the Red Lake Mine (Goldcorp).
| ii) | The Upper Zone has returned assays which include 14.65 g/t gold over 0.80 metres, 9.90 g/t gold over 1.30 metres, 5.94 g/t gold over 2.15 metres (incl. 9.42 g/t gold over 1.15 metres) and 4.44 g/t gold over 1.30 metres. Technical details of the zone are summarized below: |
The Upper Zone, situated less than 120 metres below surface, is developed within variably altered mafic volcanic rocks, characterized by the presence of intense biotite alteration, colloform/crustiform, quartz-carbonate veining and varying amounts of sulphides, including five to ten percent arsenopyrite. A westerly dipping fault zone associated with the gold bearing zone has been observed in all of the drill holes completed on the North Peninsula Target to date. The style of the gold mineralization, alteration and the presence of an intense fault zone, which acts as a conduit for the gold bearing fluids, is very similar to the setting of the gold mineralization observed at the Phoenix Gold Target, 1500 metres to the northeast. The Phoenix Gold target has 67 significant drill intercepts, averaging 10.66 g/t gold over 2.00 metres and is currently defined over a strike length of 500 metres and to a depth of 200 metres. A resource estimate has not been calculated for the Phoenix Zone, to date.
2) West Mine Target: The West Mine Target is located west of the historical underground workings at the Phoenix Project and has previously (see news release dated June 19, 2007) returned 42.99 g/t gold over 1.55 metres, from a fault zone containing visible gold. WMT-07-02, drilled 30 metres to the south, intersected the same structure however it did not contain any significant gold grades. Based on the gold mineralization observed to date and the moderate to strong alteration associated with this fault zone, this area continues to be a prospective target for follow up drilling.
3) KZ Target: 2.89 g/t gold over 9.00 metres (incl. 9.60 g/t gold over 1.00 metre and 7.29 g/t gold over 1.00 metre) and 5.41 g/t gold over 2.40 metres. The KZ Target has been intersected in two drill holes, KZ-07-01 and KZ-07-02. Intersected at a shallow depth of 80 to 100 metres below surface, the gold mineralization is hosted by a package of intensely silicified and fuchsite altered ultramafic rocks. Although the style of gold mineralization at the KZ Target is different than the North Peninsula Target, it is also situated in the vicinity of a north-trending, regional-scale, geophysical discordance that is interpreted to be a major fault zone. This second major fault zone is approximately 800 metres northeast of the North Peninsula Zone fault and is parallel to it. The presence of significant fault zones in close proximity to the mineralization described above is considered significant. Elsewhere on the property, at the Phoenix Zone, where 67 drill holes have been completed from surface to approximately 250 metres below surface, gold mineralization and fault zones are intimately associated.
4) Deep Footwall Target: 23.55 g/t gold over 1.00m. Occurring at a vertical depth of 1,250 metres this zone represents the deepest gold intercept on the Phoenix Project to date. The gold is hosted in a 15 metre thick package of altered and mineralized mafic volcanic rocks within highly deformed ultramafic rocks. The Deep Footwall Target was intersected at the eastern side of the property and is interpreted to dip westwards. Since this is the first drill hole that has tested this target area, true widths of gold-bearing zones are not yet known. The geological environment of the Deep Footwall contact is analogous to the Red Lake Mine High Grade Zone, where ultramafic rocks overlie mafic volcanic rocks and act as a 'trap' for gold bearing fluids. With the exception of this drill hole, this target area is completely untested at depth and along strike (>2,500 metres).
Subsequent to the closing of a brokered flow through financing of $10 million announced on November 15, 2008, the company revised its plans to drill a minimum of 10,000m on the Phoenix property in 2008. This will include a series of property-wide deep drill holes to test targets up to 1000 metres below surface where no previous drilling has been carried out.
On March 31, 2008, the Company announced further results from the F2 Zone from which drill hole F2-07 returned 8.0 metres (26.5 feet) grading 36.50 g/t gold (1.06 oz/ton). This hole was a follow up to previously reported high-grade assays from the initial three discovery holes drilled in this area (see news release dated March 12, 2008). Reported intercepts are core lengths. Determination of true thicknesses will require additional drilling.
Adams Lake Property
The Company considers the project to be strategically located in the camp. Exploration plans for 2008 include a 10,000m drill program to commence during the second quarter of 2008. During the months of September and October 2007, the company completed soil sampling survey over priority target areas on the property to aid in potential drill targeting. Results of the soil sampling survey have identified high priority drill targets. The gold anomalies in soils appear to be closely correlated with major faults and known surface gold showings, particularly the fold nose itself which represents prime structural sites for Red Lake-style gold mineralization. Soil anomalies are interpreted as high level 'leakage' into younger rocks overlying more prospective Balmer assemblage rocks which, four kilometres to the west, host the world class Red Lake Mine.
East Bay Property
The Company has vested (as of January 30, 2007) 100% interest in 25 unpatented mining claims (44 units: Herbert Option and Seargeant Option). During 2004, Wolfden Resources Ltd., as operator, funded a $0.6 million drilling exploration program on the East Bay West (4 claims) where anomalous gold up to 8.75 g/t over 0.54 metres was returned along with thick intervals of anomalous gold of 0.59 g/t over 40.5 metres and 0.74 g/t over 28.2 metres. Wolfden subsequently elected not to continue with its option on this project.
The project occupies four-kilometres of strike length of the East Bay Trend, immediately adjacent to and on strike of the GAZ zone (an inferred resource of 1.4 million tonnes grading 8.0 g/t gold controlled by Goldcorp/Premier Gold). The East Bay claims are underlain by the East Bay ultramafic body, an important unit associated with gold elsewhere along the trend, including at Rubicon's Phoenix Gold Project. Plans are to advance East Bay exploration with a 10,000m drill program in 2008.
Partnered Projects
McCuaig JV Property
The Joint Venture (Rubicon Minerals Corp. 60% and Golden Tag Resources 40%) completed a 1,172 metre (one drill hole plus a wedge hole) on the McCuaig Project, incurring $222,450 in expenditures during February-March 2007. A 935 metre initial mother hole intersected a 26-metre section (interpreted as greater than 90% true thickness) of intensely veined and altered basalts at 844 metres downhole. The zone contains variable amounts of sulphides including trace to 2% fine-grained arsenopyrite and anomalous gold. Visible gold occurs in a 4.5-metre thick (interpreted as greater than 90% true thickness) shear containing arsenopyrite at the base of the altered zone. The geological setting is considered to be analogous to the Bruce Channel mineralization currently being explored at the adjacent Gold Eagle Mines discovery and also to the setting of the major gold deposits of the camp.
A secondary hole, (MC-07-01AW), was wedged off the mother hole from 822 metres to produce a second cut through the altered zone. Assay results returned 4.24 g/t gold over 1.7 metres in the mother hole and 15.65 g/t gold over 1.55 metres, in the wedge hole. Both gold intercepts occur within an identifiable structure at the base of the vein zone. The two intercepts demonstrate good continuity within the shear structure which is open along strike and down dip.
The intercept is interpreted to be down dip of the No. 1 vein at the adjacent McKenzie Mine. This mine produced 651,000 ounces of gold between 1935 and 1966. However unlike the No. 1 vein, which was developed within granite, the McCuaig structure is within Balmer mafic volcanics which, elsewhere in the camp, are host to significant gold deposits.
On May 8, 2007 the Joint Venture announced plans to conduct a $1.5M drill exploration program to follow-up on the 15.65 g/t over 1.55 metre winter intercept. The program was designed to test for gold associated with the greater than 20 metre wide gold bearing alteration zone. Drilling commenced in late June and a total of 7307.75m was completed by the end of October. Assays returned thick (up to 10 metres) anomalous low grade gold sections (100+ ppb) with local veined and visible gold-bearing sections developed within intrusive and Balmer assemblage rocks. These include 9.30 g/t gold over 0.75 metres, part of a section averaging 2.13 g/t gold over 4.7 metres and 5.05g/t gold over 0.7 metres, part of a section averaging 1.03 g/t gold over 9.25 metres. These results are hosted in the margin of a quartz veined diorite intrusive. Drilling has also confirmed the presence of major NE trending fault zones up to 16 metres thick which represent important regional features for possible follow up.
DMC Property
In November, 2005, the Company signed an option agreement on its DMC property whereby Agnico-Eagle Mines Ltd. (Agnico) has the option to acquire a 51% interest in the property by spending $2.25 million in exploration costs over a three year period, including a firm commitment to spend $500,000 in exploration in the first year of the agreement (completed). Agnico-Eagle Mines Ltd. is required to make cash payments totaling $110,000 including a $25,000 firm commitment in the first year (completed). Upon vesting, Agnico-Eagle will have a further option to increase its interest up to 65%.
During 2006, Agnico funded a 3,832 metre drill program on the DMC property and incurred a total of $676,893 in exploration expenditures. The program identified a permissive gold bearing environment on the project. In February 2007, Agnico funded $282,694 in exploration expenditures by completing a Phase I, three hole, 1399-metre drill program on the property. All three holes intersected zones containing visible gold, the most significant returned 57.37 g/t gold over 0.5 metres associated with a 10 cm quartz vein containing visible gold.
During September and October of 2007, Agnico-Eagle Mines Ltd. funded a 1455m drill program on the property to follow-up anomalous gold results returned from the 2007 Q1 program. This program fulfilled the second year expenditure requirements under the terms of the Option Agreement. To complete the third year commitment to the Agreement Agnico was required to spend $1.0M prior to January 25, 2009 and make a cash payment of $50,000 prior to January 25, 2008 which would vest their 51% interest in the property. Subsequent to year end Agnico advised Rubicon that it would not maintain its option on the DMC property.
Red Lake North Property
The Company has optioned a 55% interest in 47 unpatented mining claims (329 units) known as the Red Lake Project located in Bateman, Black Bear, Coli Lake and McDonough Townships to Solitaire Minerals Corporation (“Solitaire”). Under terms of the Letter Agreement dated April 18, 2006 (effective date of the Agreement is May 1, 2006), Solitaire must incur $2,500,000 over 4 years, make a an initial cash payment of $5,000 (completed) and issue to the Company 50,000 shares of Solitaire (completed) to earn a 55% interest in the property. The property is subject to a sliding scale NSR of 1.75% to 2.5% depending on the price of gold.
Sidace area claims:
In January of 2007 Solitaire incurred $113,795 in exploration expenditures, to extend a 2006 drill hole to 1791 metres in the north-eastern portion of the property to test for higher grade gold zones down-dip of the Main Discovery Zone (MDZ) located on the adjacent Goldcorp/Planet Exploration Inc. property. The style of mineralization reported on the adjacent property is consistent with locally thick gold zones developed within folded quartz-sericite schist which are reported to exhibit an increase in both gold grade and thickness with depth (analogous with the Hemlo deposit). The hole was completed to 1956 metres below surface prior to yearend and intersected 123 metres (core length) of permissive schist units characterized by significant alumina- and potassium-rich minerals (white feldspar, sillimanite, garnet, sericite and biotite), variable amounts of pyrite and pyrrhotite (trace to 5%) and local sphalerite, stibnite and galena (trace to 3%). This stratigraphy is interpreted to be the equivalent of the stratigraphy host to the MDZ on adjacent claims. Assays returned for a 50.4 metre section of sericite-bearing schist indicate a thick section of elevated gold (0.74 g/t over 36.1 metres) including 3.42 g/t gold over 4.6 metres and individual assays up to 7.7 g/t gold over 1.0 metre. The drill hole was completed to a depth of 2269m in early 2008 and remained in the anomalous gold-bearing sericite schist unit to the claim boundary. Follow-up drill recommendations are being considered subject to partner approval and drill availability.
Main Block claims:
During August and September 2007, Solitaire Minerals Corp. funded a 2703m drill program on the Main Block Claims of the Red Lake North Property. Hole RLN-07-07 intersected a 500-metre thick section of moderate to strong biotite and sericite alteration within the stratigraphy. This altered section is interpreted to be the southwest extension of the Sidace Lake area stratigraphy, located five kilometres to the northeast of the Main Block claims, which in that area is host to an extensively drilled gold discovery (the 'MDZ') controlled by Goldcorp Inc. / Planet Exploration Inc. Visible gold in hole RLN-07-07 is observed at 387 metres down the hole within the altered section. The interval returned 9.70 g/t gold over 1.4 metres (including 19.95 g/t gold over 0.65 metres). The presence of visible gold associated with the broad zones of biotite and sericite alteration indicates a geological setting that warrants further exploration.
Humlin Property
The Company has optioned a 55% interest in 19 unpatented mining claims (216 units) known as the Humlin Project located in Fairlie Township to Solitaire Minerals Corporation (“Solitaire”). Under terms of the Letter Agreement dated April 18, 2006 (Effective Date of the Agreement is May 1, 2006), Solitaire must incur $2,500,000 over 4 years, make a an initial cash payment of $5000 (completed) and issue to the Company 50,000 shares of Solitaire (completed) to earn a 55% interest in the property. The property is subject to a sliding scale NSR of 1.75% to 2.0% depending on the price of gold, including the underlying Hammell Agreement.
During the first year of the agreement exploration expenditures in the amount of $250,000 are a firm and binding commitment. A 2007 winter drill program consisting of 1380 metres was completed in February 2007 completing the first year commitment. No significant assays were returned.
No work was conducted in the remainder of 2007, but exploration plans currently are being formulated for the second year of the option agreement as Solitaire must spend $400,000 to maintain the option in good standing prior to April 30, 2008 (subsequently extended to the end of 2008 to accommodate drill schedules and availability).
English Royalty Division
The English Royalty Division refers to Rubicon’s active program of acquiring mineral properties for the purpose of optioning out to other mining exploration companies. As such, it provides the Company with an ongoing revenue stream of cash and shares and a residual royalty position in all the properties acquired.
During the year ended December 31, 2007, the Company finalized 26 new property agreements and spent $498,805 on acquisition and maintenance costs and recovered $885,500 in cash and shares.
Future Exploration Plans
Pursuant to the McEwen property acquisition and financing, the Company increased its treasury by $15 million and additionally acquired large land packages in Alaska and Nevada. With the proceeds of the financing, Rubicon plans to complete a $5 million exploration budget in Red Lake before May, 2008. The Company also closed a $10M bought deal flow through financing in November of 2007. Proceeds from the flow-through private placements will be used to incur CEE with respect to the ongoing exploration and development of the Company's Red Lake mineral property or other Ontario-based mineral projects. The Company plans to drill a minimum of 40,000 metres on its Red Lake projects, including a minimum 30,000 metres (with the balance in contingency) on its 100% controlled projects exclusive of partner funded programs.
Qualified Person
The 2007 exploration work in Red Lake is supervised by Terry Bursey, P.Geo., the Qualified Person under the definition of NI 43-101. All assays were conducted on sawn NQ2 or NQ-sized half core sections. Assays are processed by ALS Chemex Labs, Accurassay Laboratories and/or SGS Minerals Services using the metallic screen fire assay procedure, fire assay or fire assay gravimetric finish. Standards and blanks were included at regular intervals in each sample batch. Gold standards were prepared by CDN Resource Laboratories Ltd.
ALASKA EXPLORATION
During the second quarter, Rubicon acquired a 512,960 acre land package in Alaska, southeast of Fairbanks, pursuant to the McEwen transaction discussed above. The lands surround the world class Pogo Gold Deposit, which has reported reserves of 3.62 million ounce gold (7.7 million tons grading 0.47 opt as of 12/31/05 (7.0 million tonnes @ 16.12 gpt)) owned by Sumitomo Minerals (60%) and Teck-Cominco (40%) – see www.teckcominco.com for further details of the deposit. Approximately 2/3 of the package is 100% owned by Rubicon (New Horizon Claims) and the other 1/3 consists of lands subject to an option agreement with Rimfire Minerals Corporation that allows the Company to earn up to a 75% interest (see website www.rubiconminerals.com for property map). The exploration targets are high- grade gold deposits of the Pogo type. The Pogo deposit has a distinctive geochemical expression (gold, bismuth, arsenic) and was discovered as a result of drill-testing stream silt anomalies and a multi element soil anomaly.
Rimfire Option
Under the terms of the Rimfire option agreement, Rubicon must complete expenditures totaling US$4.8 million in exploration over six years to earn a 60% interest in five properties. Upon vesting, Rubicon may obtain a further 10% interest in the properties by completing a feasibility study, and at Rimfire's election, may obtain an additional 5% (for a total of 75%) by providing a project financing loan to be repaid from Rimfire’s free cash flow upon production.
Exploration during the Year
Rubicon's summer 2007 Alaska exploration program focused on the 100% owned New Horizon Claims and the Rimfire joint venture claims - Rubicon can earn up to 75%. A total of four holes (1105.4m) were drilled in the Maple Leaf Area on the New Horizon Claims and seven holes (1749.7m) were drilled on the Rimfire option. Weakly anomalous gold mineralization was returned over narrow intervals at both Maple Leaf and California North. No further work is planned for the Maple Leaf Area at this time, however additional drilling is warranted at California North (Rimfire option) where a 45 ft thick qtz-aspy zone indicates the presence of a large hydrothermal system. This area is considered to be on strike with the main Pogo geochemical anomaly. IP and magnetics may assist in targeting additional drill holes.
This project is at a relatively early stage and plans for 2008 include the completion of the systematic soil auger sampling program that was initiated in 2007, reconnaissance mapping and prospecting over high priority target areas south and west of Teck's soil geochemical anomalies (priority drill target's for Teck west of the Pogo Mine) and an estimated 2000 metres of drilling. All work will be carried out under and managed by Avalon Development with at least one Rubicon geologist assigned to the project.
Rubicon has spent approximately $2.5 million on the Alaska projects to date and the planned expenditures for 2008 are an additional $2.5 million inclusive of land hold costs.
The Alaska projects are under the supervision of Curt Freeman, MS., PGeo, Qualified Person as defined by NI 43-101.
NEVADA EXPLORATION
During the second quarter, Rubicon acquired a 225,000 acre land package in Elko County, Northeastern Nevada pursuant to the McEwen transaction discussed above. Exploration of this property is in the preliminary stage. Lexam Explorations Inc., a McEwen controlled company, from whom the property was acquired, had previously carried out approximate $1 million worth of exploration. Pursuant to the McEwen acquisition and financing agreements, Rubicon must spend $500,000 exploring the property before mid May 2008. A data compilation was initiated in September which will lead to recommendations for follow up exploration projects.
RISKS AND UNCERTAINTIES
The success of the Company depends upon a number of factors, many of which are beyond our control. Typical risk factors and uncertainties, among others, include political risks, financing risks, title risks, commodity prices, exchange rate risks, operating and environmental hazards encountered in the exploration, development and mining business and changing laws and public policies. Risk factors are more fully described in our Annual Information Form, on file at www.sedar.com .
Additional information on the Company, including our Annual Information Form and other public filings, are available on SEDAR at www.sedar.com.
SELECTED ANNUAL INFORMATION (based on Canadian GAAP)
Fiscal Year ended | 2007 | 2006 | 2005 |
| Interest and miscellaneous income | $941,330 | $355,300 | $82,232 |
| Gain on sale of investments | $7,822 | $128,880 | $76,765 |
| Net loss | $2,216,381 | $3,787,920 | $3,644,284 |
| Basic and diluted net loss per share | $.02 | $0.05 | $0.06 |
| Total assets | $101,017,670 | $31,885,579 | $33,320,369 |
| Total long-term financial liabilities (Non-controlling interest and stock compensation) | $Nil | $Nil | $407,479 |
| Cash dividends | Nil | Nil | Nil |
The major factors that caused significant variations in net loss were the recording of stock-based compensation after stocks options are granted, the write-down of properties based on a periodic review of such properties, gains on sales of investments and tax recoveries recorded on the renunciation of exploration expenditures to flow-through share holders. The flow-through share tax recovery was recorded for the first time in 2005 due to pronouncement EIC-146 issued by the CICA in 2004 and adopted by the Company in 2005. In 2006 the plan of arrangement increased administrative expenses considerably. The significant increase in total assets of approximately $70 million in 2007 arose from the McEwen acquisition and financing (see note 2), wherein the Company acquired approximately $40 million in mineral properties and $15 million in cash. None of these factors have identifiable trends.
OPERATING RESULTS
Fiscal year ended December 31, 2007 compared to Fiscal year ended December 31, 2006
For the fiscal year 2007, the Company incurred a net loss of $2.2 million ($0.02 per share) compared to a net loss of $3.8 million ($0.05 per share) incurred in fiscal year 2006, a decrease in net loss of $1.6 million.
For the fiscal year 2007, the Company recorded other comprehensive income of $341,053, compared to nil in the prior year. Comprehensive loss (the total of the net loss and the other comprehensive loss) for the fiscal year 2007 was $1.8 million compared to $3.8 million in the prior year comparative period, a decrease in comprehensive loss of $2 million.
The decrease in loss was due to the net effect of some expense categories increasing and some decreasing. In general, savings were made from the sharing of office resources, accounting and investor relations costs with Paragon Minerals Corporation. Significant items making up this change were as follows:
| · | Professional fees were higher by $71,762 caused by increased legal fees, SOX evaluation fees, and accounting advice and services arising out of the McEwen financing issues. |
| · | Salary expense was higher by $247,399 due to a combination of increased staffing from the prior year, salary increases and other staff issues. |
| · | Re-organization costs from the December 2006 plan of arrangement were concentrated in that year and so were $860,748 lower in the current period. |
| · | Write off of mineral properties was lower by $34,127 in the current year. On average, the Company’s portfolio of properties is improving in quality. |
| · | Interest income was higher by $586,030 due to interest earned on money received in the 10.4 million (net) financing of October 2007 and the $15 million dollar McEwen financing of May 2007. |
| · | Option receipts in excess of property costs which represent amounts received from optionees of the Company’s properties was lower by $131,197. This line item is now mostly ERD option receipts in excess of acquisition costs. Although gross receipts were higher in 2007, high staking costs caused a net reduction in receipts over costs. |
| · | Gains on investment sales were down by $134,502 due to a more aggressive policy on liquidating small holdings of exploration companies. |
| · | Loss in equity investments was lower by $1,262,939. The lower loss was due to distribution, in the prior year of the Africo Resources Ltd. investment, to shareholders under the December 2006 Plan of Arrangement. In the current year the Company has only recorded its share of losses in Constantine Metal Resources Ltd. to July 10 which were significantly less. The Company has no equity accounted investments as of December 31, 2007. |
| · | Future income tax recovery was lower by $453,840 because there was no renunciation of flow-through share expenditures in the current year. |
| · | Effective January 1, 2007, the Company adopted section 1530 of the CICA handbook which introduces new standards for reporting and display of comprehensive income. Other comprehensive income for the fiscal year 2007 was $341,053 (2006 - Nil). The income was the cumulative effect of recognizing unrealized gains of $784,505 on the Company’s portfolio of junior mining stocks – mostly caused by the recognition of unrealized gains in the value of Constantine Metal Resources Ltd on it ceasing to be an equity investment. This gain was offset by unrealized losses of $423,600 on re-valuation of the company’s option rights associated with Africo Resources Ltd. Africo’s share price dropped significantly in the period. See the discussion under “Changes in Accounting Policies and Initial Adoption” for a detailed discussion on the adoption of the accounting policy. |
Fiscal year ended December 31, 2006 compared to Fiscal year ended December 31, 2005
For the fiscal year 2006, the Company incurred a net loss of 3.8 million ($0.05 per share) compared to a net loss of $3.6 million ($0.08 per share) incurred in fiscal year 2005, an increase in net loss of $140,000.
The increase was the net effect of some items increase and some decreasing. Significant items making up this change were as follows:
| · | Investor relations expense increased by $96,000 due, for the most part, to the printing and mailing costs, to all shareholders, of the 500 page management information circular. The circular included a detailed description of the proposed plan of arrangement. |
| · | Salary expense was higher by $155,000 due to a combination of bonus accruals at year end, salary increases in some cases and staff increases in accounting. |
| · | Stock based compensation was down by $463,000 as only two option grants were made in the year. |
| · | Re-organization costs represent the costs associated with the plan of arrangement, (mostly legal) the planning for which carried on through much of the year. |
| · | Property write-offs were down by $1.5 million as several properties were dropped in the prior year, whereas only the Berg, Newfoundland property was dropped in 2006. |
| · | Interest income was up by $273,000 over the prior year due to interest earned on money received in the 10.6 million (net) financing of April 2006. |
| · | Option receipts and administration fees in excess of property costs were up by $329,000 and represent amounts received from optionees of the Company’s properties, in excess of costs incurred to date by Rubicon. |
| · | Gain on sale of investments was up by $194,000. In 2006, this represented sale of junior mining stocks received from optionees of the Company’s properties including ERD properties and also a gain of $142,000 on shares received pursuant to the Toquima plan of arrangement. |
| · | Debt settlements in the prior year were in regard to costs incurred by Toquima Minerals in its failed IPO. |
| · | The increase in loss on equity investments of $1.05 million is mostly the result of increased losses recorded by Africo Resources Ltd. and revisions to prior year estimates. The Company’s investment in Africo was distributed to its shareholders under the Plan of Arrangement in December. $90,000 of the equity loss represents the Company’s interest in the losses of Constantine Metal Resources Ltd. since July of 2006, in which the Company has held a 24% during the year. |
| · | Current income tax expense of $152,000 represents taxes owing in the Company’s subsidiary, for profits on mineral property option receipts. |
| · | The non-cash, future income tax recovery item reflects the reinstatement of unrecorded prior tax loss benefits, due to the renunciation of flow-through share expenditures. This generally is a reflection of the amount of flow share financings completed in the prior year. |
SUMMARY OF QUARTERLY RESULTS (Based on Canadian GAAP)
| Quarter | | 2007 Fourth | | | 2007 Third | | | 2007 Second | | | 2007 First | | | 2006 Fourth | | | 2006 Third | | | 2006 Second | | | 2006 First | |
| | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Interest and miscellaneous income | | | 381,017 | | | | 218,638 | | | | 313,598 | | | | 115,975 | | | | 90,265 | | | | 130,740 | | | | 114,689 | | | | 19,567 | |
| Gain (loss) on sale of investments | | | (165,503 | ) | | | (11,687 | ) | | | 12,500 | | | | 37,396 | | | | (35,525 | ) | | | 135,929 | | | | - | | | | 99,589 | |
| Net loss | | | 230,576 | | | | 355,458 | | | | 441,774 | | | | 788,869 | | | | 354,376 | | | | 1,216,314 | | | | 1,479,280 | | | | 306,471 | |
| Basic and fully diluted net loss per share | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.01 | | | | 0.01 | | | | 0.02 | | | | 0.02 | | | | 0.01 | |
Prior to the 2006 fourth quarter, significant losses were accrued from Rubicon’s equity interest in Africo Resources Ltd. These losses ceased to accrue upon the distribution of that investment to the Company’s shareholders, early in the 2006 fourth quarter. During 2006 and early 2007, the costs of the December 2006 Plan of Arrangement also increased expenses significantly. Other factors causing significant variations included the recording of stock based compensation and the write-off of abandoned mineral properties. These other factors do not have identifiable trends.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources – Fiscal year ended December 31, 2007.
The Company had working capital of $30.8 million as at December 31, 2007 compared to $11.5 million as at December 31, 2006. This increase is largely due to two financings described below under financing activities. The Company’s investment policy is to invest excess funds only in bankers acceptances guaranteed by major Canadian banks or instruments of equivalent or better security. None of the Company’s funds were invested in asset backed commercial paper during the year.
Cash used in operations decreased by $1.7 million from $3.3 million down to $1.5 million. The major factors causing this were the high cost of the 2006 plan of arrangement and the increase in interest revenue from the increased treasury.
Financing Activities
On May 18, 2007, the Company closed the McEwen financing, issuing 21,428,564 units at $0.70 per unit for gross proceeds of $15 million. Each unit included a ½ warrant that entitles the holder of a full warrant to purchase 1 common share for $1.50 for a period of 2 years.
On November 15, 2007 the Company closed a bought deal flow-through share private placement, issuing 4,651,200 shares at $2.15 per share for gross proceeds of $10 million. This price was a 21% premium over the prior close of $1.78. The Company became committed to spend these funds on Canadian Exploration Expenditures which will be renounced to the investors for tax deduction purposes.
In addition, during the fiscal year ended December 31, 2007, the Company issued 3,152,792 (2006 – 2,128,813) common shares from the exercise of warrants and agents options for cash proceeds of $1,238,360 (2006 – $1,779,452) and issued 1,547,374 (2006 – 668,628) common shares from the exercise of options for cash proceeds of $1,099,365 (2006 – $740,925) for total net cash proceeds of $27,737,051 (2006 - $13,828,600) including the October 2007 $10.4 million financing.
Other sources of funds included recovery of exploration costs from optionees of the Company’s properties and option payments received - $2,844,874 (2006 – $1,742,082) including $481,142 in option share payments.
The Company currently has sufficient funds to meet its working capital requirements and other requirements for the next 24 months.
Other future sources of capital include the Africo option/warrant obligation. Under this term of the Plan of Arrangement, Africo held back from distribution to Rubicon shareholders approximately 625,000 shares of its capital for the exercise of Africo Plan of Arrangement options and warrants, outstanding at the completion of the plan of arrangement. Pursuant to the Plan, proceeds from these exercises will be returned to Rubicon. Where options or warrants are forfeited or allowed to expire, Rubicon may exercise them for Africo shares at no cost. The exercise of these instruments, by their holders, or the value of Africo shares received, is dependent upon future Africo share prices and in the case of warrants, Rubicon and Paragon share prices. There can be no assurance that the current valuation of this asset will eventually be received. The fair value, to Rubicon, of these options and warrants was $2.1 million at December 31, 2006. During the year, Rubicon received cash proceeds of $1,128,163 from exercises of these Africo options and plan of arrangement warrants. In addition, the Company received 45,408 Africo shares at no cost, (market value $97,627 at December 31, 2007) due to the expiration without exercise of certain options and warrants. An additional reduction in value of the remaining unexercised Africo options to $439,629 as of December 31, 2007 was caused by a reduction in the share price of Africo shares during the fiscal year.
Investing Activities – Fiscal year ended December 31, 2007.
For the fiscal year ending December 31, 2007, the Company spent $11.4 million in cash on mineral property acquisition and exploration. Of that amount the Company recovered $2,844,874 of exploration expenditures and option payments from optionees of the Company’s properties in cash. In addition, the Company received $163,789 in exploration administration fees from joint venture partners and 333,399 in share option payments. Total recoveries were $3,342,062.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements other than what is disclosed under commitments in note 14 of the consolidated financial statements of the Company.
COMMITMENTS
Pursuant to the McEwen agreement, the Company became committed to spend $5 million on the Alaska properties before May 18, 2009 including sufficient funds to maintain the Rimfire option in good standing to May 18, 2008.
At December 31, 2007, the Company has $224,502 (2006 - $303,960) in remaining lease payments for the use of its Vancouver office to September, 2010.
At December 31, 2007, the Company is committed to incur $9,984,996 (2006 - nil; 2005 - 112,497) in eligible exploration expenditures in order to complete obligations entered into pursuant to flow-through share purchase agreements.
The Company is required to make certain cash and share option payments and incur exploration costs to maintain its mineral properties in good standing. These payments and costs are at the Company’s discretion and are based upon available financial resources and the exploration merits of the mineral properties which are evaluated on a periodic basis.
TRANSACTIONS WITH RELATED PARTIES
Paragon Minerals Corporation
Paragon Minerals Corporation (“Paragon”) is the spin-off company that acquired Rubicon’s Newfoundland mineral properties under the plan of arrangement. Paragon shares offices and office expenses with Rubicon and at the period-end, had one common director (two at December 31, 2006) and shared the CFO and office support staff. In addition, the CEO of Paragon provided management services to Rubicon on a part time basis to the end of December 2007.
As at December 31, 2007, Paragon owed the Company $76,049 (2006 - $20,443) for shared and reimbursable costs. This balance is included in amounts receivable net of $6,574 (2006 - $4,899) owing to Paragon for expense reimbursements.
Legal services
David Reid is a director of the Company and a partner at the law firm Davis LLP. For the fiscal year ended December 31, 2007, Davis LLP invoiced the Company $913,422 (2006 - $729,706). Significant events requiring legal services during the period included completion of the December plan of arrangement and legal work relating to the McEwen acquisition and financing. At the period end, $nil (2006 - $91,324) remained outstanding for accrued legal fees to Davis LLP.
See note 10, “Related Party Transactions”, in the consolidated financial statements for additional information on related party transactions with the Company.
CRITICAL ACCOUNTING ESTIMATES
The Company’s accounting policies are described in detail in Note 4 of the consolidated financial statements for the year ended December 31, 2007. The Company considers the following policies to be most critical in understanding its financial results:
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting policies requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on past experience, industry trends and known commitments and events. By their nature, these estimates are subject to measurement uncertainty and the effects on the financial statements of changes in such estimates in future periods could be significant. Actual results will likely differ from those estimates.
Carrying value of mineral property costs
The Company has capitalized the cost of acquiring mineral property interests and on-going exploration and maintenance costs. Capitalized property costs are expensed in the period in which the Company determines that the mineral property interests have no future economic value. Capitalized property costs may also be written down if future cash flow, including potential sales proceeds and option payments, related to the property are estimated to be less than the carrying value of the property. The Company reviews the carrying value of its mineral properties periodically, and whenever events or changes in circumstances indicate the carrying value may not be recoverable, reductions in the carrying value of each property would be recorded to the extent that the carrying value of the investment exceeds the property’s estimated fair value.
Stock-based compensation
The Company has adopted the fair value based method of accounting for stock option and compensatory warrant awards granted to directors, employees and consultants. Under this method, the fair value of stock options is calculated at the date of grant or vesting and is expensed, capitalized or recorded as share issue costs over the vesting period, with the offsetting credit to contributed surplus. If the stock options are exercised, the proceeds are credited to share capital.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock options and compensatory warrants granted. This model is subject to various assumptions. The assumptions the Company makes will likely change from time to time. At the time the fair value is determined, the methodology the Company uses is based on historical information, as well as anticipated future events.
Flow-through share renunciations, CICA Emerging Issues Committee - 146
The Company follows the CICA Emerging Issues Committee recommendations for accounting for renunciation of flow-through shares. Upon the renunciation of flow-through shares, a future income tax liability is recognized and shareholder equity is reduced. In the case where the company has written-down future tax assets arising from loss carryforwards or deductible temporary differences, then those write-downs are reversed in the amount of the future tax liability arising from the renunciation. The credit side of the entry is recorded on the income statement.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
Comprehensive Income, CICA Handbook Section 1530
Effective January 1, 2007 the Company adopted section 1530 which introduces new standards for reporting and display of comprehensive income. Comprehensive income is the change in equity (net assets) of an enterprise during a reporting period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Equity, CICA Handbook Section 3251
Effective January 1, 2007, the Company adopted new handbook Section 3251 which establishes standards for the presentation of equity and changes in equity during a reporting period as a result of the comprehensive income reporting requirements of new Section 1530.
Financial Instruments, CICA Handbook Section 3855
Effective January 1, 2007, the Company adopted new handbook Section 3855 which prescribes when a financial asset, financial liability, or non-financial derivative is to be recognized on the balance sheet and whether fair value or cost-based measures are used. It also specifies how financial instrument gains and losses are to be presented.
Pursuant to these new standards, the Company has included a new statement of comprehensive income with its financial statements and has applied fair value accounting to certain of its financial instruments. This has resulted in the recognition of unrealized gains and losses as other comprehensive income or loss which appear on the statement of comprehensive income or loss.
New Accounting Pronouncements
The following pronouncements recently issued by the Canadian Institute of Chartered Accountants (“CICA”) will likely impact the Company’s future accounting policies:
(a) CICA Handbook Section 1535 - Capital Disclosures
This standard requires disclosure of an entity’s objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital and whether the entity has complied with any capital requirements and, if it has not complied, the consequences of such non-compliance. This standard is effective for the Company for interim and annual periods relating to fiscal years beginning on or after January 1, 2008. The Company is currently evaluating the effects of adopting this standard.
(b) Financial Instruments - Disclosure (Section 3862) and Presentation (Section 3863)
These standards replace CICA 3861, Financial Instruments - Disclosure and Presentation. They increase the disclosures currently required, which will enable users to evaluate the significance of financial instruments for an entity’s financial position and performance, including disclosures about fair value. In addition, disclosure is required of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The quantitative disclosures must provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity’s key management personnel. This standard is effective for the Company for interim and annual periods beginning on or after January 1, 2008. The Company expects that its disclosures will be expanded to incorporate the additional requirements.
(c) International Financial Reporting Standards (“IFRS”)
In February 2008 the Canadian Accounting Standards Board announced 2011 as the changeover date for publicly-listed companies to use IFRS, replacing Canada’s own generally accepted accounting principles. The specific implementation is set for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require restatement for comparative purposes of amounts reported by the Company for the year ended December 31, 2010. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.
OUTSTANDING SHARE DATA
As at March 25, 2007, the Company had the following common shares, stock options and warrants outstanding:
| Common shares | | | 147,881,501 | |
| Stock options | | | 4,853,250 | |
| Warrants | | | 10,714,271 | |
| Fully diluted shares outstanding | | | 163,449,022 | |
DISCLOSURE CONTROLS AND PROCEDURES
The CEO and CFO have evaluated the effectiveness of the Company’s disclosure controls and procedures and have concluded, based on their evaluation, that they were effective as of December 31, 2007 to provide reasonable assurance that all material information relating to the Company and its consolidated subsidiary will be made known to management and disclosed in accordance with applicable securities regulations.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management has used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework to evaluate the effectiveness of the Company's internal control over financial reporting. Based on this assessment, management has concluded that as at December 31, 2007, the Company's internal control over financial reporting was effective.
The Company’s auditor, De Visser Gray LLP, has audited the Company’s internal control over financial reporting as at December 31, 2007 and their opinion and report is included with our annual consolidated financial statements.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over financial reporting during the year ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
CAUTIONARY NOTICES
The Company’s consolidated financial statements for the year ended December 31, 2007 and this accompanying MD&A contain statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements often, but not always, are identified by the use of words such as “seek”, “anticipate”, “believe”, “plan”, “estimate”, “expect”, “targeting” and “intend” and statements that an event or result “may”, “will”,“should”, “could”, or “might” occur or be achieved and other similar expressions. Forward-looking statements in this MD&A include statements regarding the Company’s future exploration plans and expenditures, the satisfaction of rights and performance of obligations under agreements to which the Company is a part, the ability of the Company to hire and retain employees and consultants and estimated administrative assessment and other expenses. The forward-looking statements that are contained in this MD&A involve a number of risks and uncertainties. As a consequence, actual results might differ materially from results forecast or suggested in these forward-looking statements. Some of these risks and uncertainties are identified under the heading “RISKS AND UNCERTAINTIES” in this MD&A. Additional information regarding these factors and other important factors that could cause results to differ materially may be referred to as part of particular forward-looking statements. The forward-looking statements are qualified in their entirety by reference to the important factors discussed under the heading “Risk Factors” and to those that may be discussed as part of particular forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause the actual results to differ include market prices, exploration success, continued availability of capital and financing, inability to obtain required regulatory approvals and general market conditions. These statements are based on a number of assumptions, including assumptions regarding general market conditions, the timing and receipt of regulatory approvals, the ability of the Company and other relevant parties to satisfy regulatory requirements, the availability of financing for proposed transactions and programs on reasonable terms and the ability of third-party service providers to deliver services in a timely manner. Forward-looking statements contained herein are made as of the date of this MD&A and the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
