UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
Commission File No.: 000-29916
AMERICAN BONANZA GOLD CORP.
(Exact name of Registrant as specified in its charter)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 305 - 675 West Hastings Street, Vancouver, British Columbia, Canada, V6B 1N2
(Address of principal executive offices)
Catherine Tanaka, Corporate Secretary
Tel: 604-688-7511
Fax: 604-681-0122
Email:ctanaka@americanbonanza.com
Suite 305 - 675 West Hastings Street, Vancouver, British Columbia, Canada, V6B 1N2
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of December 31, 2010:130,199,272 Common Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [ X ]
If this is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.
| Large accelerated filer [ ] | | Accelerated filer [ ] | | Non-accelerated filer [ X ] | |
Indicate by checkmark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP [ ] | | International Financial Reporting Standards as issued
by the International Accounting Standards Board [ ] | | Other [ X ] |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 [ X ] Item 18 [ ]
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
GLOSSARY OF TERMS
The following is a glossary of certain mining and other terms used in this Annual Report:
“AMEC” means AMEC E & C Services Inc.;
“Arrangement” means the arrangement among the Corporation, Old Bonanza, Taurus, Fairstar and FairstarSub relating to the current organizational structure of the Corporation, pursuant to the terms and subject to the conditions set out in the Plan of Arrangement, as amended and supplemented, as more particularly described in this document;
“Arrangement Agreement” means the agreement dated December 21, 2004 and amended on February 21, 2005 among the Corporation, Old Bonanza, Taurus, Fairstar and FairstarSub relating to the Arrangement;
“BCA” means the Business Corporation Act (British Columbia), as amended;
“BLEG” means bulk leach extractable gold;
“Bonanza”,“Corporation” and “New Bonanza” mean American Bonanza Gold Corp., a corporation incorporated under the BCA on December 10, 2004 as 0710887 B.C. Ltd., and its subsidiaries, unless the context suggests otherwise;
“EDGAR” means the U.S. Securities and Exchange Commission’s Electronic Data Gathering, Analysis, and Retrieval System available for viewing publicly filed documents at www.sec.gov;
“Fairstar” means Fairstar Explorations Inc., a corporation incorporated under the laws of Canada;
“FairstarSub” means 0710882 B.C. Ltd., a corporation incorporated under the laws of the Province of British Columbia;
“NI 43-101” means Canadian National Instrument 43-101, Companion Policy 43-101CP, and Form 43-101F1, “Standards of Disclosure for Mineral Projects”, which governs all oral and written disclosure of scientific or technical information, including disclosure of a mineral resource or reserve, made by or on behalf of a Canadian company in respect of a mineral project. NI 43-101 uses for the terms “mineral resource”, “inferred mineral resource”, “indicated mineral resource”, “measured mineral resource”, “mineral reserve”, “probable mineral reserve” and “proven mineral reserve” the meanings ascribed to those terms by the Canadian Institute of Mining, Metallurgy and Petroleum, as the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines adopted by CIM Council on December 11, 2005, as those definitions may be amended from time to time by the Canadian Institute of Mining, Metallurgy and Petroleum. Those definitions are reproduced below in this Glossary for the convenience of readers;
“NPI” means net profits interest, or, the amount payable from the net profit produced by the mine;
“NSR” means net smelter royalty, or, the amount payable from the precious metal produced by the mine after smelting has removed most of the impurities;
“Old Bonanza” means American Bonanza Gold Mining Corp., a corporation incorporated under the BCA which was, immediately prior to the completion of the Arrangement, the parent company of the Corporation;
“Original Copperstone Report” means the technical report entitled “NI 43-101 Technical Feasibility Report, Copperstone Project, La Paz County, Arizona” dated February 2, 2010 prepared under the supervision of Todd Fayram, B.S. Eng, MMSA, Continental Metallurgical Services and filed on SEDAR on March 22, 2010;
“Plan of Arrangement” means the plan of arrangement pursuant to the Arrangement Agreement relating to the current organizational structure of the Corporation as more particularly described in this document;
“Revised Copperstone Report” means the technical report entitled “NI 43-101 Technical Feasibility Report, Copperstone Project, La Paz County, Arizona” dated February 2, 2010 and revised January 10, 2011 prepared by Dr. Corby Anderson, MMSA, C. Eng Fl ChemE, Tom Buchholz, B.S. Eng. MMSA, Chris Pratt, LPG, and Jonathan Brown, M.B.A., C.P.G.
“Royalty” means a payment schedule by which payments are calculated based on a percentage of the value of the mineral produced;
“SEDAR” means the Canadian System for Electronic Document Analysis and Retrieval available for viewing publicly filed documents at www.sedar.com;
“Taurus” means International Taurus Resources Inc., a corporation incorporated pursuant to the laws of the Province of British Columbia; and
“TSX” means the Toronto Stock Exchange.
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the U.S.Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of the Corporation’s future operational or financial performance and are subject to risks and uncertainties.
In certain cases, forward-looking statements can be identified by the use of words such as “believe”, “intend”, “may”, “will”, “should”, “plans”, “anticipates”, “believes”, “potential”, “intends”, “expects” and other similar expressions. Forward-looking statements reflect our current expectations and assumptions, and are subject to a number of known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements, particularly as they relate to the actual results of exploration activities, the estimation or realization of mineral reserves and mineral resources, the timing of construction at the Copperstone Mine, the timing of commencement of and amount of estimated future production, capital expenditures, operating costs, costs and timing of the development of new mineral deposits, requirements for additional capital, future prices of precious and base metals, possible variations in ore grade or recovery rates, failure of plant, equipment or processes to operate as anticipated, accidents, labour disputes, road blocks and other risks of the mining industry, delays in obtaining governmental approvals, permits or financing or in the completion of development or construction activities, currency fluctuations, title disputes or claims limitations on insurance coverage, credit payment risks, global financial conditions and the timing or magnitude of such events are inherently risky and uncertain.
Key assumptions upon which the Company’s forward-looking statements are based include the following:
the price for gold will not fall significantly;
the assumptions in the financial analysis in the Revised Copperstone Report are materially accurate;
the Company will be able to secure additional financing to continue its exploration and development activities;
there will be no significant adverse changes in currency exchange rates;
there will be no significant changes in the ability of the Company to comply with environmental, safety and other regulatory requirements;
the Company will be able to obtain regulatory approvals (including licenses and permits) in a timely manner;
the absence of any material adverse effects arising as a result of political instability, terrorism, sabotage, natural disasters, equipment failures or adverse changes in government legislation or the socio-economic conditions in the surrounding area to the Company’s operations;
the Company’s capital costs and operating costs will not increase significantly;
the Company will be able to procure mining extraction plant and equipment in a timely manner; and
key personnel will continue their employment with the Company.
additional assumptions are included, among other places, in this Annual Report under Item 4. “Information on the Corporation”.
These assumptions should be considered carefully by investors. Investors are cautioned not to place undue reliance on the forward-looking statements or the assumptions on which the Company’s forward-looking statements are based. Investors are advised to carefully review and consider the risk factors identified in this Annual Report under the heading “Risk Factors” for a discussion of the factors that could cause the Company’s actual results, performance and achievements to be materially different from any anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Investors are further cautioned that the foregoing list of assumptions is not exhaustive and it is recommended that prospective investors consult the more complete discussion of the Company’s business, financial condition and prospects that is included in this Annual Report including the documents incorporated by reference herein.
Although the Company believes that the assumptions on which the forward-looking statements are made are reasonable, based on the information available to the Company on the date such statements were made, no assurances can be given as to whether these assumptions will prove to be correct. The forward looking statements expressed herein are made as of the date of this Annual Report. The Company does not undertake to update such forward looking statements except where required to do so by law. Investors should not place undue reliance on forward-looking statements. The forward-looking statements contained in this Annual Report are expressly qualified by this cautionary statement.
GLOSSARY OF TECHNICAL TERMS
| Aeolian | Deposits arranged/transported by the wind, due to the erosive action of the wind, such as sand and other loose materials. |
| Ag | Used as the abbreviation for silver. |
| Albite | One of the components of plagioclase. |
| Alteration | Chemical and mineralogical changes in a rock mass resulting from reaction with hydrothermal fluids or changes in pressure and temperature. |
| Anomalous | Adjective describing a sample, location or area at which either (i) the concentration of an element(s) or (ii) a geophysical measurement is significantly different from (generally higher than) the average background concentrations in an area. Though it may not constitute mineralization, an anomalous sample or area may be used as a guide to the possible location of mineralization. |
| Anomaly | An area defined by one or more anomalous points. |
| Argillaceous | Rocks or substances composed of clay, or having a notable proportion of clay in their composition. |
| Argillite | A sedimentary rock composed of compacted mud and clay particles. |
| Argillic | Pertaining to clay or clay minerals. |
| Assay | Quantitative test of minerals and ore by chemical and/or fire techniques. |
| Assemblage | A biostratigraphic unit defined and identified as a group of associated fossils. |
| Au | Aurum (Latin for gold) used as an abbreviation for gold. |
| Axial trace | The intersection of the axial plane of a fold with the surface of the earth or any other specified surface. |
| Azurite | A deep blue common secondary mineral. |
| Barite | A mineral. The principal ore of barium. |
| Biotite | Common rock-forming mineral, dark brown to green in colour. |
| BLM | Bureau of Land Management, the United States federal lands administrative authority. |
| Bonanza-grade | More than 34 grams of gold per tonne or more than one troy ounce of gold per ton. |
| Breccia | A coarse-grained clastic rock, composed of angular broken rock fragments held together by a mineral cement or in a fine-grained matrix. |
| Bulk sample | A large sample consisting of tons or hundreds of tons which is then milled and the grade computed from the results. |
| Bull quartz | White, coarse-grained, barren quartz. |
| C-Zone | North-east of the open pit at the Copperstone property. |
| Calcite | A mineral, calcium carbonate. One of the commonest minerals. The principal constituent of limestone. |
| Carbonate vein | A vein consisting chiefly of carbonate minerals, such as limestone or dolomite. |
| Chalcopyrite | Copper pyrites. A mineral. An important ore of copper. |
| Channel-sample | Material sampled from a groove cut across a rock exposure. |
| Chlorite | Silicates closely related to micas. Common in low-grade metamorphic rocks. |
| Chrysocolla | A mineral. Usually in green to blue-green masses. |
| Crosscut | A horizontal opening driven across the direction of the main workings. |
| D Zone | North of the open-pit at the Copperstone property. |
| Decline | A passage or tunnel driven at a decline from the surface for the working of a mine. |
| Deformation | Any change in the original form or volume of rock masses produced by tectonic forces; folding, faulting, and solid flow are common modes of deformation. |
| Dip | The acute angle that a rock surface makes with a horizontal plane. Direction of dip is always perpendicular to strike. |
| Doré | Unparted gold and silver poured into moulds when molten to form buttons or bars. |
| Drift | Workings driven in or near a mineralized zone and parallel to the course of the vein or the long dimension of the mineralized zone. |
| Drifting | Proceeding with mining to create a drift. |
| Electron | The elementary particle of mass 9 x 10-28 grams and unit electrical charge. |
| Epidote | A common mineral in metamorphic rocks. |
| Fabric | The orientation in space of the elements of which a rock is composed |
| Face | The surface exposed by excavation. The working face, front, or forehead is the face at the end of the tunnel heading, or at the end a full-size excavation, |
| Fault or BlockFault | A fracture in a rock across which there has been displacement. Block faults are usually steep, and break the earth’s crust into “blocks” that are displaced vertically and/or laterally relative to each other. |
| Fe | Chemical symbol for the element iron. |
| Felsic | Mnemonic term derived from (fe) for feldspar, (l) for lenads of feldspathoids, and (s) for silicia and applied to light-coloured rocks containing an abundance of one or all of these constituents. Also applied to the minerals themselves, such as quartz, feldspars, feldspathoids and muscovite. |
| ft | foot or feet, as the context requires. |
| Gabbroic | Plutonic rock consisting of calcic plagioclase and clinopyroxene, with or without orthopyroxene and olivine. Apatite and magnetite or ilmenite are common accessories. Loosely used: Any coarse-grained igneous rock. |
| Geochemistry | The chemistry of the earth and its rocks, minerals, etc. |
| GeophysicalExploration | Exploring for minerals or determining the nature of Earth materials by measuring a physical property of the rocks and interpreting the results in terms of geologic features or the economic deposits sought. Physical measurements may be taken on the surface, in boreholes, or from airborne or satellite platforms. |
| Glacio-lacustrine | Produced by or belonging to lakes formed by or in relationship to glaciers. |
| Gneiss | A coarse-grained rock in which bands rich in granular minerals alternate with bands in which schistose minerals predominate. |
| Gouge | A layer of soft material along the wall of a vein. Finely abraded material occurring between the walls of a fault. |
| Grade | The amount of valuable mineral in each tone of ore, expressed as ounces per ton or grams per tonne for precious metal and as a percentage by weight for other metals. |
| Granitic | Of, pertaining to, or composed of, granite or granite like rock. |
| Greywacke | Dark, coarse-grained sandstone, usually with an admixture of clay. |
| g/t | Grams per tonne. |
| Hanging wall | The rock on the upper side of a mineral vein or deposit. |
| Hematite | A mineral. The principal ore of iron. |
| Highwall | The unexcavated face of exposed overburden and coal or ore in an opencast mine, or the face or bank on the uphill side of a contour strip mine excavation. |
| Homoclinal | A structural condition in which the beds dip uniformly in one direction. |
| Hydrothermal | Of or pertaining to heated water, to the action of heated water, or to the products of the action in heated water. |
| Intrusion | A body of igneous that involves other rock. |
| Intrusive | A rock formed by the process of emplacement of magma in pre-existing rock. |
| IP | Induced polarization survey. |
| Kriging | 1. A weighted, moving-average interpolation method in which the set of weights assigned to samples minimizes the estimation variance, which is computed as a function of the variogram model and locations of the samples relative to ach other, and to the point or block being estimated.
2. In the estimation of ore reserves by geostatistical methods, the of a weighted, moving-average approach to account for the estimated values of spatially distributed variables, and also to assess the probable error associated with the estimates. |
| Lacustrine | Produced by or belong to lakes. |
| Latite | The extrusive equivalent of monzonite and a variety of trachyandesite in which potash feldspar and plagioclase are present either as normative or modal minerals in nearly equal amounts. |
| Leach | To wash or drain by percolation. To dissolve minerals or metals out of the ore, as by the use of cyanide or chlorine solutions, acids, or water. |
| Lens | A body of ore or rock thick in the middle and thin at the edges. |
| Listric fault | A curved downward-flattening fault, generally concave upward. Listric faults may be characterized by normal or reverse separation. |
| Lithology | The physical character of a rock, generally as determined megascopically or with the aid of a low-power magnifier. The microscopic study and description of rocks. |
| Mafic | Subsilicic, basic. Contrasted with felsic. In general, synonymous with “dark minerals”, as usually used. |
| Malachite | A mineral. Common alteration product of copper ores. |
| Marcasite | White iron pyrites. A common ore mineral. |
| Metallogenic | Relating to the formation of gold deposits, millions of years ago. |
| Metamorphicrock | Includes all those rocks which have formed in the solid state in response to pronounced changes in temperature, pressure, and chemical environment, which take place, in general, below the shells of weathering and cementation. |
| Metasediments | Partly metamorphosed sedimentary rocks. |
| Metasomatize | To replace one mineral by another of different chemical composition owing to reactions set up by the introduction of material from external sources. (Metasomatism = replacement) |
| Mineralization | The process by which a mineral or minerals are introduced into a rock resulting in an economically valuable or potentially valuable deposit. |
| NSR | Net smelter return. |
| Opt | Troy ounces per short ton of gold unless indicated to be another metal. |
| Ore | A mineral or aggregate of minerals more or less mixed with gangue which can be profitably mined given economic circumstances at the time. The Company does not hold any interest in properties where the mineralization has been determined to be ore. |
| Ounce (or oz.) | Meaning a troy ounce. There are 31.1034 grams to a troy ounce and there are 12 troy ounces to a troy pound, a common unit of measurement for precious metals. |
| Outcrop | An exposure on the surface of the underlying rock. |
| Overburden | Material of any nature, consolidated or unconsolidated, that overlies a deposit of useful materials, ores, or coal, especially those deposits that are mined from the surface by open cuts. |
| Panel sample | Material sampled from sections divided across a rib or face. |
| Paragenesis | A general term used to denote a gneiss derived from a sedimentary rock. |
| Petrographic | Some or all of the igneous rocks are derived from a common parent magma. |
| Phyllite | An argillaceous rock intermediate in metamorphic grade between slate and schist. |
| Pleistocene | The earlier of the two epochs comprised in the Quaternary period, in the classification generally used. Also called Glacial epoch, Ice age, Post-Pliocene and Post-Tertiary. Also, the series of sediments deposited during that epoch, including both glacial deposits and ordinary sediments. |
| Plagioclase | A mineral group. One of the commonest rock-forming minerals. |
| Planar | Relating to, or in the form of a plane. |
| Porphyritic | Textural term for igneous rocks in which larger crystals are set in a finer groundmass which may be crystalline or glassy, or both. |
| Porphyry | An igneous rock containing conspicuous crystals or phenocrysts in a fine-grained groundmass; type of mineral deposit in which ore minerals are widely disseminated, generally of low grade but large tonnage. |
| Potassic | Of, pertaining to, or containing potassium. |
| Precious metals | Gold, platinum, silver and palladium. |
| PreliminaryAssessment | A study that includes an economic analysis of the potential viability of mineral resources taken at an early stage of the project prior to the completion of a preliminary feasibility study. |
| Propylite | An altered, greenstone-like andesitic rock consisting of such minerals as calcite, chlorite, epidote, serpentine, quartz, pyrite, and iron ore and resulting from hydrothermal alteration. |
| Pyrite | Iron pyrites. Fool’s gold. A mineral. An important ore of sulphur; sometimes mined for the associated gold or copper. |
| Pyroclastic | General term for a class of rocks made up of detrital volcanic materials that have been explosively or aerially ejected from a volcanic vent. |
| Pyrrhotite | Magnetic pyrites. |
| Quartz | A common rock forming mineral composed of silicon and oxygen. |
| Raise | A mine shaft driven from below upward; also called upraise, rise, and riser. |
| Ramp | A fault that is a gravity (normal) fault near the surface of the earth, but curves through the vertical to dip in the opposite direction at depth; where the displacement is that characteristic of thrusts. |
| Reserves: | Mineral Reserve: The economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined. |
| Probable Mineral Reserve: The economically mineable part of an Indicated, and in some circumstances a Measured, Mineral Resource, demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. |
| Proven Mineral Reserve: The economically mineable part of a Measured Mineral Resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified. |
| Resistivity | That factor of the resistance of a conductor which depends upon the material and its physical condition. |
| Resources: | Resource: A concentration or occurrence of natural material of intrinsic economic interest in or on the Earth’s crust in such form and quantity and such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. |
| Inferred Mineral Resource: That part of a mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. |
| Indicated Mineral Resource: That part of a mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. |
| Measured Mineral Resource: That part of a mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity. |
| Rhyolite | An extrusive igneous (volcanic) rock with phenocrysts of quartz and alkalic feldspar, commonly of porphyritic texture. |
| Rib | The sides of a decline or tunnel. |
| Sedimentary | Rock formed of sediment, as conglomerate, sandstone and shale, formed of fragments of other rock transported from their sources and deposited in water; rocks formed by precipitation from solution as rock salt or gypsum or non-organic secretions of organisms, e.g., most limestone. |
| Sericite | Fine-grained variety of mica. |
| Shear | A fold formed as a result of the minute displacement of beds along closely spaced fractures or cleavage planes. |
| Schist | A medium or coarse-grained metamorphic rock with subparallel orientation of the micaceous minerals which dominate its composition. |
| Silica | Silicon dioxide. |
| Siliceous | Said of a rock containing abundant silica. |
| Silicification | The introduction of or replacement by, silica. Generally the silica formed is fine grained quartz, chalcedony, or opal, and may fill both up pores and replace existing minerals. The term covers all varieties of such processes, whether late magmatic, hydrothermal or diagenetic. |
| Specularite | Hematite, occurring in tabular or disklike crystals of gray colour and splendent metallic luster. |
| Sphalerite | A mineral, dimorphous with wurtzite. Isometric. The principal ore of zinc. |
| Splays | Divergent small faults at the extremities of large normal faults, especially rifts. |
| Stope | An excavation from which the ore has been extracted, either above or below a level, in a series of steps. |
| Stoping | The loosening and removal of ore in a mine either by working upward (overhead or overhand) or downward (underhand). |
| Strata | A tabular or sheet-like body of sedimentary rock. |
| Stratigraphy | That branch of geology which treats of the formation, composition, sequence, and the correlation of stratified rocks as parts of the earth’s crust. |
| Strike | Direction of line formed by intersection of a rock surface with a horizontal plane. Strike is always perpendicular to direction of dip. |
| StructuralControl | The influence of structural features on ore deposition, e.g., ore minerals filling fractures. |
| Sulphide | Group of minerals consisting of metals combined with sulphur; common metallic ores (or “Sulfide”). |
| Syenite | A plutonic igneous rock consisting principally of alkalic feldspar usually with one or more mafic minerals such as hornblende or biotite. |
| Tailings (tails) | Those portions of washed ore that are regarded as too poor to be treated further. Debris from stamp mills or other ore-dressing machinery. |
| Tertiary | The period of geological time extending from 66 to 2 million years ago, which includes the Palaeogene and Neogene epochs. |
| Ton | Short ton which measures 2,000 pounds. |
| Tonne | Metric ton which measures 2,204.6 pounds or 1000 kilograms. |
| Tpd | Ton per day. |
| Tuff | A rock formed of compacted volcanic fragments, generally less than 4 millimetres in diameter. |
| Ultramafic | Ultrabasic. Some igneous rocks and most varieties of meteorites containing less than 45% silica; containing virtually no quartz or feldspar and composed essentially of ferromagnesian silicates, metallic oxides and sulfides, and native metals, or of all three. |
| Vein | A tabular or sheet-like mineral deposit with identifiable walls, often filling a fracture or fissure. |
| Veinlet | A small vein; the distinction between vein and veinlet tends to be subjective. |
| Volcanic | Pertaining to the activity, structures or rock types of a volcano. |
TABLE OF CONTENTS
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
Currency and Exchange Rates
All dollar amounts set forth in this Annual Report are in Canadian dollars, except where otherwise indicated. The following table sets forth the average rate of exchange for the Canadian dollar for the periods indicated (calculated by using the average of the exchange rates on the last day of each month during the period):
| | | | | | (C$) | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| Average Rate During Period | | 1.0299 | | | 1.1373 | | | 1.0693 | | | 1.0665 | | | 1.1307 | |
The following table sets forth the high and low exchange rates in Canadian dollars, for the periods indicated, in each case based on the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York:
| | | | | (C$) | | | | | | | | | | | | | |
| | | Feb/11 | | | Jan/11 | | | Dec/10 | | | Nov/10 | | | Oct/10 | | | Sep/10 | |
| High Rate | | 0.9958 | | | 1.0015 | | | 1.0175 | | | 1.0266 | | | 1.0319 | | | 1.0535 | |
| Low Rate | | 0.9714 | | | 0.9869 | | | 0.9946 | | | 1.0000 | | | 1.0048 | | | 1.0256 | |
On December 31, 2010, the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York was $1.00 US = $0.9946 CDN.
On March 30, 2011, the noon buying rate in New York City for cable transfer in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York was $1.00 US = $0.9717 CDN.
Selected Financial Data
The following table sets forth selected consolidated financial information for the Corporation for, and as of the end of, each of the last five fiscal years ended December 31, 2010. The financial information is derived from the consolidated financial statements of the Corporation and is presented in Canadian dollars. The consolidated financial statements as at December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 were audited by KPMG LLP, Chartered Accountants (see Item 17).
The selected consolidated financial information presented below should be read in conjunction with the audited consolidated financial statements of the Corporation included elsewhere herein.
| | For the Year Ended December 31, | |
| | | | | | | |
| | 2010 | 2009 | 2008 | 2007 | 2006 | |
| | | $ | $ | $ | $ | |
| Net loss (Canadian GAAP) | (6,661,268) | (11,041,089) | (3,883,826) | (946,457) | (1,740,706) | |
| Net loss per share (Canadian GAAP) | (0.05) | (0.09) | (0.03) | (0.01) | (0.02) | |
| Net loss (U.S. GAAP) | (6,533,571) | (10,055,195) | (7,098,594) | (2,456,339) | (5,867,442) | |
| Net loss per share (U.S. GAAP) | (0.05) | (0.09) | (0.06) | (0.02) | (0.06) | |
| Weighted average number of shares | 122,765,013 | 117,594,853 | 115,662,976 | 100,958,861 | 96,280,740 | |
| Total cash and cash equivalents | 3,104,650 | 957,923 | 2,650,636 | 4,266,063 | 6,150,005 | |
| Working capital | 7,979,474 | 2,638,431 | 5,726,261 | 5,963,158 | 6,958,811 | |
| Total debt | Nil | Nil | Nil | Nil | Nil | |
| Total assets (Canadian GAAP) | 41,583,325 | 45,335,078 | 57,167,469 | 60,963,361 | 59,751,226 | |
| Total assets (US GAAP) | 14,616,133 | 18,285,759 | 28,283,648 | 35,009,200 | 36,383,664 | |
| Shareholders’ equity (Canadian GAAP) | 40,503,949 | 44,610,786 | 55,428,282 | 59,336,557 | 57,799,245 | |
| Shareholders’ equity (US GAAP) | 13,536,757 | 17,561,467 | 27,393,069 | 34,200,947 | 33,541,709 | |
The selected consolidated financial data has been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Selected financial data has also been provided under United States generally accepted accounting principals (“US GAAP”) to the extent that amounts are different from Canadian GAAP. The consolidated financial statements included in Item 17 in this Annual Report are prepared under Canadian GAAP. Included within the consolidated financial statements in Note 15 is a reconciliation between Canadian and U.S. GAAP.
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
General
Precious metals exploration and development is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. The marketability of minerals acquired or discovered by the Corporation may be affected by numerous factors which are beyond the control of the Corporation and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of mining facilities, mineral markets and processing equipment, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection, any of which could result in the Corporation not receiving an adequate return on invested capital.
Uncertainties and risks relating to the start-up of operations at the Copperstone Mine
There are inherent construction and permitting-related risks to the development of all new mining projects. These risks include:
availability and delivery of critical equipment;
hiring of key personnel for construction and commissioning;
delays associated with contractors;
budget overruns due to changes in the cost of fuel, power, materials, supplies and currency fluctuations; and
potential opposition from non-governmental organizations, First Nations, environmental groups or local groups.
While the Corporation has undertaken systematic work programs at the Copperstone Mine to mitigate these risks, it is common in new mining operations to experience such unexpected costs, problems and delays during construction, development and mine start-up, often due to circumstances beyond the Corporation’s control. In addition, delays in the commencement of mineral production often occur. Accordingly, the Corporation cannot provide assurance that its activities will result in profitable mining operations at the Copperstone Mine. The Corporation will be required to rely upon outside consultants, engineers and others for construction expertise in respect of building the Copperstone Mine. The Corporation will also rely on an outside contractor for mining services, and will be dependent on such contractor’s expertise. While the Corporation has taken or will take steps to ensure such consultants have industry experience, there is no guarantee that such consultants and contractors will prove to have the required skills. The Corporation’s operations, earnings and ultimate financial success could be materially adversely affected.
Additional Funding Requirements
The Corporation believes it has sufficient funds to restart mining at the Copperstone Mine. If there is a shortfall in the funds required, the Corporation will require additional financing in the near future in order complete construction of the mine and to advance the Copperstone Mine towards production and to carry out its other acquisition, exploration and development activities. Failure to obtain such financing on a timely basis could cause a delay in the development timeline of the Copperstone Mine, cause the Corporation to forfeit its interest in certain properties, miss certain acquisition opportunities, delay or indefinitely postpone further exploration and development of its projects with the possible loss of such properties and reduce or terminate its operations. If the Corporation’s future revenues decrease as a result of lower commodity prices, or otherwise, it will affect the Corporation’s ability to expend the necessary capital to replace its reserves or to maintain its production. If the Corporation’s cash flow from operations is not sufficient to satisfy its capital expenditure requirements, there can be no assurance that additional debt or equity financing will be available on terms acceptable to the Corporation to meet these requirements or be available on favourable terms.
Permits and Licenses
The operations of the Corporation will require licenses, permits and other approvals from various governmental authorities, including those responsible for managing the use of public lands and management of public resources such as air and water. Governmental authorities that will be, or have already, issuing permits include: the United States Department of the BLM, the ADEQ, the EPA, La Paz County in Arizona, the United States Mine Safety and Health Administration (“MSHA”), the Arizona State Mine Inspector, and the United States Federal Communication Commission (the “FCC”). There can be no assurance that the Corporation will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development, construction and operation of the Copperstone Mine, or that once received, the Corporation will be able to maintain such permits and licenses. The failure to obtain a material permit or license, or the loss of such permit or license, could have a material adverse effect on the Corporation’s business and operations.
Current Global Financial Conditions
The recent events in global financial markets have had a profound impact on the global economy. The mining industry has been impacted by these market conditions. Some of the key impacts include volatility in global equities, commodities, foreign exchange, precious metals markets and a lack of market liquidity. A continued slowdown in the financial markets or other economic factors such as fuel and energy costs, the state of the financial markets, interest rates and tax rates may adversely affect the Corporation’s development. The global credit/liquidity crisis could impact the cost and availability of finance and the Corporation’s overall liquidity. The devaluation and volatility of global equity markets impacts the valuation of the Common Shares. If these increased levels of volatility and market instability continue, the Corporation’s operations and financial conditions could be adversely impacted.
Exploration, Development and Production Risks
An investment in the Corporation’s Common Shares is speculative due to the nature of the Corporation’s involvement in the evaluation, acquisition, exploration and development and production of minerals.
Mineral exploration and development involves a high degree of risk and there is no assurance that expenditures made on future exploration by the Corporation will result in new discoveries of commercial quantities of ore.
While the Corporation has a limited number of specific identified exploration or development prospects, management will continue to evaluate prospects on an ongoing basis in a manner consistent with industry standards. The long-term commercial success of the Corporation depends on its ability to find, acquire, develop and commercially produce reserves. No assurance can be given that the Corporation will be able to locate satisfactory properties for acquisition or participation. Moreover, if such acquisitions or participations are identified, the Corporation may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations uneconomic. The Corporation has no earnings record and no producing resource properties.
The exploration for and development of mineral deposits involves significant risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to locate and establish Mineral Reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is difficult to ensure that the exploration or development programs planned by the Corporation will result in a profitable commercial mining operation. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade, metallurgy and proximity to infrastructure; metal prices which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection.
The Corporation’s operations will be subject to all of the hazards and risks normally encountered in the exploration, development and production of minerals. These include unusual and unexpected geological formations, rock falls, seismic activity, flooding and other conditions involved in the extraction of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability. Although precautions to minimize risk will be taken, operations are subject to hazards that may result in environmental pollution, and consequent liability that could have a material adverse impact on the business, operations and financial performance of the Corporation.
Uncertainty of Mineral Reserves and Mineral Resources
Mineral reserves and resources estimates for the Corporation’s properties are estimates of the size and grade of deposits based on limited sampling and on certain assumptions and parameters. No assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery of gold will be realized. The ore grade actually recovered may differ from the estimated grades of the mineral reserves and mineral resources. Prolonged declines in the market price of gold may render mineral reserves containing relatively lower grades of gold mineralization uneconomic to exploit and could materially reduce the Corporation’s reserves. Should such reductions occur, the Corporation could be required to take a material write-down of its investment in mining properties or delay or discontinue production or the development of new projects, resulting in increased net losses and reduced cash flow. Market price fluctuations of gold, as well as increased production costs or reduced recovery rates, may render mineral reserves containing relatively lower grades of mineralization uneconomical to recover and may ultimately result in a restatement of mineral resources. Short-term factors relating to mineral reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may impair the profitability of a mine in any particular accounting period. Mineral reserves are not revised in response to short-term cyclical price variations in metal markets. Mineral resources which are not mineral reserves do not have demonstrated economic viability.
Uncertainty Relating to Inferred Mineral Resources
Inferred Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. Due to the uncertainty which may attach to Inferred Mineral Resources, there is no assurance that Inferred Mineral Resources will be upgraded to Proven and Probable Mineral Reserves as a result of continued exploration.
Prices, Markets and Marketing of Natural Resources
The price of the Common Shares, the Corporation’s financial results and exploration, development and mining activities are anticipated to be significantly adversely affected by declines in the price of gold and silver. The price of gold fluctuates widely and is affected by numerous factors beyond the Corporation’s control such as the sale or purchase of metals by various central banks and financial institutions, interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of major metals-producing countries throughout the world. Future serious declines in the price of gold could cause continued development of and commercial production from Primero’s properties to be impracticable. Depending on the price of gold, cash flow from future mining operations may not be sufficient and the Corporation could be forced to discontinue production and may lose its interest in, or may be forced to sell, some of its properties. Future production from the Copperstone Mine is dependent on gold prices that are adequate to make these properties economic. Furthermore, Mineral Reserve calculations and life-of-mine plans using significantly lower gold prices could result in material write-downs of the Corporation’s investment in mining properties and increased amortization, reclamation and closure charges. Government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of natural resources and environmental protection, are all factors which may effect the marketability and price of natural resources. The exact effect of these factors cannot be accurately predicted, but any one or a combination of these factors could result in the Corporation not receiving an adequate return for shareholders.
Need for Additional Mineral Reserves
Because the Copperstone Mine has a limited life based on Proven and Probable Mineral Reserves, the Corporation will be required to continually replace and expand its Mineral Reserves as it produces gold. The Corporation’s ability to maintain or increase its annual production of gold will be dependent in significant part on its ability to expand Mineral Reserves at the Copperstone Mine, to bring new mines into production and to complete acquisitions.
Title Matters
Although title to the properties has been reviewed by the Corporation, no assurances can be given that there are no title defects affecting such properties. The properties may be subject to prior unregistered liens, agreements or transfers, or other undetected title defects. There is no guarantee that title to the properties will not be challenged or impugned. The Corporation is satisfied, however, that evidence of title to each of the properties is adequate and acceptable by prevailing industry standards.
Environmental Risks
All phases of the natural resources business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of international conventions and state and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with operations. The legislation also requires that facility sites and mines be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of tailings or other pollutants into the air, soil or water may give rise to liabilities to government bodies and third parties and may require the Corporation to incur costs to remedy such discharge. No assurance can be given that environmental laws will not result in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise adversely affect the Corporation’s financial condition, results of operations or prospects.
Companies engaged in the exploration and development of mineral properties generally experience increased costs and delays as a result of the need to comply with applicable laws, regulations and permits. The Corporation believes it is in substantial compliance with all material laws and regulations which currently apply to its activities.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities, causing operations to cease or be curtailed and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in natural resource exploration and development activities may be required to compensate those suffering loss or damage by reason of its activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws.
Amendments to current laws, regulations and permits governing operations and activities of natural resources companies, or more stringent implementation thereof, could have a material adverse impact on the Corporation and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties or require abandonment or delays in developments of new properties.
Regulatory Requirements
Natural resource activities may be affected in varying degrees by political and financial instability, inflation and haphazard changes in government regulations relating to this industry. Any changes in regulations or shifts in political or financial conditions are beyond the Corporation’s control and may adversely affect the Corporation’s business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation and safety.
No Significant Revenues
To date, the Corporation has not recorded any revenues and has no dividend record. The Corporation has also not commenced commercial production on any property. There can be no assurance that significant losses will not occur in the near future or that the Corporation will be profitable in the future. The Corporation’s operating expenses and capital expenditures may increase in subsequent years as consultants, personnel and equipment costs associated with advancing exploration, development and commercial production of the Corporation’s properties increase. The Corporation expects to continue to incur losses unless and until such time as it achieves commercial production and generates sufficient revenues to fund its continuing operations. The development of the Corporation’s properties will require the commitment of substantial resources to conduct time-consuming development. There can be no assurance that the Corporation will generate any revenues or achieve profitability.
Dilution and Future Sales of Common Shares
The Corporation may issue additional Common Shares in the future, which may dilute a shareholder’s ownership interest in the Corporation.
Going Concern
Values attributed to the Corporation’s assets may not be realizable. The Corporation has a limited operating history and its ability to continue as a going concern depends upon a number of significant variables. The amounts attributed to the Corporation’s exploration properties in its financial statements represent acquisition and exploration costs and should not be taken to represent realizable value. Further, the Corporation has no proven history of performance, revenues, earnings or success. As such, the Corporation’s ability to continue as a going concern, the ability of the Corporation to obtain the necessary financing to complete the development of its mineral property interests (if required) and to thereafter commence the profitable production of minerals therefrom or alternatively, upon the Corporation’s ability to dispose of its interests on a profitable basis.
Reliance on Operators and Key Employees
The success of the Corporation will be largely dependent upon the performance of its management and key employees. The Corporation does not have any key man insurance policies and therefore, there is a risk that the death or departure of any member of management or any key employee could have a material adverse effect on the Corporation. In assessing the risk of an investment in the Corporation’s Common Shares, potential investors should realize that they are relying on the experience, judgment, discretion, integrity and good faith of the management of the Corporation. (See Item 6 “Directors, Senior Management and Employees”)..
Availability of Equipment
Natural resource exploration, development and extraction activities are dependent on the availability of mining, drilling and related equipment in the particular areas where such activities will be conducted. Demand for such limited equipment or access restrictions may affect the availability of such equipment to the Corporation and may delay exploration, development or extraction activities. Certain equipment may not be immediately available, or require long lead time orders. A delay in obtaining necessary equipment for mineral extraction could have a material adverse effect on the Corporation’s operations and financial results.
Competition
The Corporation actively competes for acquisitions, leases, licences, concessions, claims, skilled industry personnel and other related interests with a substantial number of other companies, many of which have significantly greater financial resources than the Corporation.
The Corporation’s ability to successfully bid on and acquire additional property rights to participate in opportunities and to identify and enter into commercial arrangements with other parties will be dependent upon developing and maintaining close working relationships with its future industry partners and joint operators and its ability to select and evaluate suitable properties and to consummate transactions in a highly competitive environment.
Insurance
The Corporation’s involvement in the exploration for and development of natural resource properties may result in the Corporation becoming subject to liability for certain risks, and in particular unexpected or unusual geological operating conditions, including rock bursts, cave ins, fires, floods, earthquakes, pollution, blow-outs, property damage, personal injury or other hazards. Although the Corporation will obtain insurance in accordance with industry standards to address such risks, such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. In addition, such risks may not, in all circumstances be insurable or, in certain circumstances, the Corporation may elect not to obtain insurance to deal with specific risks due to the high premiums associated with such insurance or other reasons. The payment of such uninsured liabilities would reduce the funds available to the Corporation. The occurrence of a significant event that the Corporation is not fully insured against, or the insolvency of the insurer or such event, could have a material adverse effect on the Corporation’s financial position, results of operations or prospects.
No assurance can be given that insurance to cover the risks to which the Corporation’s activities will be subject will be available at all or at economically feasible premiums. Insurance against environmental risks (including potential for pollution or other hazards as a result of the disposal of waste products occurring from production) is not generally available to the Corporation or to other companies within the industry. The payment of such liabilities would reduce the funds available to the Corporation. Should the Corporation be unable to fund fully the cost of remedying an environmental problem, the Corporation might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy.
The Market Price of the Common Shares May Be Subject to Wide Price Fluctuations
The market price of the Common Shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of the Corporation, divergence in financial results from analysts’ expectations, changes in earnings estimates by stock market analysts, changes in the business prospects for the Corporation, general economic conditions, changes in mineral reserve or resource estimates, results of exploration, changes in results of mining operations, legislative changes and other events and factors outside of the Corporation’s control. As a result of any of these factors, the market price of the Common Shares at any given point in time may not accurately reflect the long-term value of the Corporation.
In addition, stock markets have from time to time experienced extreme price and volume fluctuations, which, as well as general economic and political conditions, could adversely affect the market price for the Common Shares.
The Corporation is unable to predict whether substantial amounts of Common Shares will be sold in the open market. Any sales of substantial amounts of Common Shares in the public market, or the perception that such sales might occur, could materially and adversely affect the market price of the Common Shares.
Negative Operating Cash Flow
The Corporation had negative operating cash flow for its financial year ended December 31, 2010. Until at least such time as the Corporation is able to produce revenue from operations, the Corporation does not expect to have any positive cash flow. To the extent that the Corporation has negative cash flow in future periods, the Corporation may need to deploy a portion of its cash reserves to fund such negative cash flow.
Loss of Entire Investment
An investment in the Common Shares is speculative and may result in the loss of an investor’s entire investment. Only potential investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in the Corporation.
Currency Exposure
Currency fluctuations may affect the costs the Corporation incurs at its operations and may affect the Corporation’s operating results and cash flows. The principal source of funds for the Corporation has traditionally been through the sale of its common shares, which are sold in Canadian dollars, while a significant portion of the Corporation’s expenditures are incurred in United States dollars. Additionally, gold is sold throughout the world principally based upon the United States dollar price. Fluctuations in the exchange rate of the Canadian dollar to the United States dollar could have a material adverse effect on the Corporation’s results of operations, may delay the development of its mineral projects, and reduce the funds available for further mineral exploration.
Joint Venture Interests
The Corporation may enter into joint ventures with one or more mining companies in respect of its other mineral properties.The Corporation may require additional funding to meet obligations under any joint venture agreement, and there is no guarantee such funding will be available. The inability of the Corporation to meet its funding commitments under any joint venture agreement could result in the dilution of the Corporations interest in the property subject to the joint venture agreement. In addition, should any of the Corporation’s joint venture partners determine not to fund their commitments under such joint venture agreement, the development of that project may be materially delayed or stopped, and the operations or financial results of the Corporation materially affected.
Conflicts of Interest
Certain of the directors of the Corporation are directors of other mineral resource companies and, to the extent that such other companies may be interested in a project also of interest to the Corporation, or may in the future participate in one or more ventures in which the Corporation participates, such directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In the event that such a conflict of interest arises, at a meeting of the directors of the Corporation, a director who has such a conflict will abstain from voting for or against the approval of such acquisition or participation. In the appropriate cases, the Corporation will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. From time to time several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participating in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program.
Legal Proceedings Against Foreign Directors
The Corporation is incorporated under the laws of British Columbia, Canada, and some of the Corporation’s directors and officers are residents of Canada. Consequently, it may be difficult for United States investors to effect service of process within the United States upon the Corporation or upon its directors or officers, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended. Furthermore, it may be difficult for investors to enforce judgments of U.S. courts based on civil liability provisions of the U.S. federal securities laws in a foreign court against the Corporation or any of the Corporation’s non-U.S. resident officers or directors.
Shareholder Dilution
It is likely that additional capital required by the Corporation will be raised through the issuance of additional equity securities, resulting in dilution to the Corporation’s shareholders.
Classification as a Passive Foreign Investment Corporation
The Corporation believes it is a Passive Foreign Investment Corporation (“PFIC”), as that term is defined in Section 1297 of the Internal Revenue Code of 1986, as amended, and believes it will be a PFIC in the foreseeable future. Consequently, this classification may result in adverse tax consequences for U.S. holders of the Corporation’s shares. For an explanation of these effects on taxation, see the discussion about taxation in Item 10 of this Annual Report. U.S. shareholders and prospective holders of the Corporation’s shares are also encouraged to consult their own tax advisers.
ITEM 4.INFORMATION ON THE CORPORATION
A.History and Development of the Corporation
The Corporation was incorporated in the Province of British Columbia, Canada under the BCA on December 10, 2004 as 0710887 B.C. Ltd. and changed its name to American Bonanza Gold Corp. on February 10, 2005. Pursuant to the Plan of Arrangement described below, the Corporation is the successor to Old Bonanza. The Corporation was incorporated specifically in connection with the Arrangement and had no operations prior to the completion of the Arrangement. As the Plan of Arrangement resulted in Old Bonanza shareholders owning approximately 63% of the Corporation, for accounting purposes, the Corporation is treated as a continuance of Old Bonanza. Old Bonanza was incorporated under the Business Corporations Act (Alberta) on November 17, 1980 and continued into the Province of British Columbia, Canada on July 19, 1994.
The Corporation’s registered and records office is located at Suite 1500 – 1055 West Georgia Street, Vancouver, BC, V6C 4N7. The Corporation’s corporate head office is located at Suite 305 - 675 West Hastings Street, Vancouver, British Columbia, V6B 1N2, telephone number (604) 688-7523 and its exploration office is located at 290 Gentry Way, Suite 6, Reno, Nevada, United States, 89502.
The Corporation has an authorized share capital of an unlimited number of common shares without par value and an unlimited number of Class A preferred shares, of which 130,199,272 common shares are issued and outstanding and nil Class A preferred shares are issued and outstanding as at December 31, 2010. All of the Corporation’s common shares rank equally with respect to voting rights and liquidation preferences. The Class A preferred shares as a class are issuable in series and entitle holders, on a liquidation or dissolution of the Corporation, to a preference over the holders of common shares with respect to any repayment of capital or distribution of assets. The Class A preferred shares do not entitle holders to vote at general meetings of shareholders. The directors may by resolution determine the number and name of the shares of any series of Class A preferred shares, and any special rights attaching to any series of Class A preferred shares.
March 2005 Plan of Arrangement
Effective March 30, 2005, pursuant to the Arrangement Agreement, Old Bonanza and Taurus were combined together as subsidiaries of the Corporation and the Corporation acquired Fairstar’s shares in FairstarSub, which held Fairstar’s 38% interest in the Fenelon Project and the Casa Berardi Claims located in Quebec in exchange for shares of the Corporation.
The exchange transaction between the Corporation and Old Bonanza was a common control transaction which is accounted for at Old Bonanza’s historical cost by the continuity of interests method. Accordingly, Old Bonanza is the acquirer of Taurus’ assets and liabilities for accounting purposes. The consolidated financial statements of the Corporation include the results of operations of Old Bonanza consolidated with those of the Corporation and Taurus from the date of acquisition. For legal purposes, Old Bonanza and Taurus became wholly owned subsidiaries of the Corporation.
Fairstar transferred its 38% interest in the Fenelon gold project and its interests in the Casa Berardi gold projects in Quebec to its wholly-owned newly incorporated subsidiary company, FairstarSub. The Corporation acquired all outstanding shares of FairstarSub in exchange for 6,500,000 common shares of the Corporation and $300,000 cash paid directly to certain creditors of Fairstar. This transaction has been accounted for as an asset acquisition by the Corporation.
The excess purchase price over the net book value of net assets acquired has been allocated to mineral properties and includes the effect of recording future income tax liabilities on the temporary differences arising on the transactions.
The shares of the Corporation commenced trading on the TSX at the opening on March 31, 2005 under the symbol BZA. Trading of the shares of Old Bonanza and Taurus was halted on the TSX Venture Exchange at the close of business on March 29, 2005, and with the completion of the Plan of Arrangement, these two companies were delisted from the TSX Venture Exchange.
Three Year History
The Corporation is a Development Stage Corporation engaged in the identification, acquisition and exploration of precious metal properties located in the American Southwest of the United States. The Corporation holds interests in several mineral exploration projects, the material property being:
| Material | |
| Properties | Jurisdiction |
| | |
| Copperstone | Arizona |
The following provides an overview of the location of the Corporation’s properties:
The Corporation has interests in several other exploration projects located in Arizona and Nevada which are not sufficiently advanced to be material to the Corporation, and are not considered significant properties by the Corporation at this time. Due to limited exploration activities in the previous three years and/or limited plans for the property, the Corporation wrote down the carrying value of Goldbar, Northshore and some other properties by $2,075,404 as of December 31, 2008.
A detailed summary of the Corporation’s projects (excluding those that have been subsequently written off and returned and certain non-material properties) are set forth in “Business Overview” below.
Disposition of Taurus Property
On June 7, 2007 the Corporation signed a definitive option agreement with respect to its 100% owned Taurus property in the historic mining camp of Cassiar, British Columbia, whereby Cusac Gold Mines Ltd. (“Cusac”) could acquire 100% of the Taurus property by making certain cash and share payments to the Corporation. On December 19, 2007, as part of Hawthorne Gold Corporation’s (“Hawthorne”) proposed merger with Cusac, Bonanza agreed to the assignment to Hawthorne of the definitive option agreement between Bonanza and Cusac regarding the Taurus property. On December 23, 2008 the Corporation amended the option agreement with Hawthorne. Under the amended agreement, Hawthorne issued to Bonanza 6.75 million common shares of Hawthorne. On December 31, 2008 Bonanza received 6.75 million shares of Hawthorne representing 12.7% of the issued and outstanding shares of Hawthorne and transferred its interest in the Taurus property to Hawthorne. Total consideration received by Bonanza on the sale of the Taurus property included $3,000,000 in cash and 6,828,947 common shares of Hawthorne. The Corporation recognized a loss on sale of the Taurus property of $977,782 in 2008. During 2009, the Corporation disposed 1,300,000 of its holding of Hawthorne shares and during the year ended December 31, 2010, the Corporation sold the remaining 5,528,947 shares.
Termination of Noyon-Northway Joint Venture
On November 15, 2007, the Corporation entered into a letter of intent with Agnico-Eagle Mines Limited ("Agnico-Eagle"), to jointly explore and develop the Noyon-Northway Property and Agnico-Eagle's adjoining Vezza Property. The letter of intent was replaced by a formal option and joint venture agreement on December 10, 2007. On July 20, 2009, Agnico-Eagle elected to terminate the Option Agreement. Under the terms of the Option Agreement, because Agnico-Eagle has not exercised its option, each company resumed full ownership of its respective Properties that were subject to the Option Agreement. Bonanza assumed ownership of the Noyon-Northway Properties on the Termination Date without any obligations to Agnico-Eagle.
Development of Copperstone Mine
The Corporation’s focus for the past three years has been on the exploration and development and, if warranted, commencement of commercial production at the Copperstone Mine. In connection with this goal, on February 3, 2010 the Corporation Bonanza announced the positive results of its NI 43-101 compliant 2010 Feasibility Study (the “Study”) at Copperstone (see Section D – Property, Plants and Equipment – Copperstone). The Study began during 2008, and was designed to update the preliminary economic assessment completed on March 27, 2006. Based on the Study, the Corporation determined to proceed with the the development of the Copperstone Mine. The following are the milestones the Corporation met during 2010 and the first two months of of 2011 towards the development of the Copperstone Mine.
Purchase of Mill Equipment
On August 16, 2010, Bonanza completed the purchase of a 700 ton per day milling and flotation/gravity plant for the Copperstone Mine. The mill was located in Calumet, Michigan, and includes a rod mill, ball mill, fume scrubber, flotation cells, cleaner cells, concentrate filter drum, tank thickeners, water storage tank, concentrate ore samplers, cyclones, duplex gravity concentrating jigs, the mill building, control panel and conveyor. The mill does not include a crusher and crusher building, which Bonanza still requires. The mill has operated for only two years and is in very good condition, and comes with a full set of engineering drawings, which will help accelerate construction timelines and reduce costs. The purchase price paid by the Company for the plant, being US$400,000 in cash and 1,250,000 Common Shares (the “Mill Shares”) of Bonanza, for a total purchase price of approximately US$612,500 (based on a valuation for the Mill Shares of $0.17 per share) represents significant cost savings to the Company and is expected to reduce the capital cost of bringing the Copperstone Mine into production by over $500,000. Major components of the milling and flotation circuit have been delivered to Bonanza’s Arizona based construction contractor’s yard in preparation for the commencement of construction.
In addition to the milling facilities, the Corporation also purchased a jaw crusher and a cone crusher. The jaw crusher is a Nordberg P1008VF Portable Jaw Plant with ST1008 Jaw Crusher (32" x 40"), a 16 foot x 44" Vibrating Grizzly feeder, a Kent Model KHB-86 Rock Breaker with 16' Boom and an associated control tower. The crusher has a capacity of up to 200 tons per hour and will crush all of the coarse run-of-mine mill feed for the planned mining operations. The equipment was purchased from Earthworks Machinery Company of Roseville, California. The cone crusher is a Nordberg 4 foot cone crusher and includes a 16 foot x 6 foot screen and associated conveyors and motors. Delivery for the equipment is expected during May 2011. The equipment was purchased from J.W. Jones Company of Paragon, Indiana.
Mine Contractor
The Company plans to conduct mining operations at the Copperstone Mine through a mining contractor. On November 2, 2010 the Company announced it had selected Mining and Environmental Services LLC (“MES”), of Idaho Springs, Colorado, to conduct contract mining. MES entered into a formal agreement with the Corporation on March 23, 2011 and will mobilize upon receipt of the final state permits to start pre-development mining activities, including rehabilitation of the existing decline and the development of the initial high grade stopes. MES has been a successful mining contractor for 15 years and has been the construction contractor or construction project manager for mine, tunnel and mill rehabilitation, mine development, special projects, and closure or cleanup work at over 150 sites in the western United States. MES’s underground contracting and mine service projects include work for several major mining companies and numerous governmental and private entities.
Permitting
The Corporation worked towards obtaining the permits necessary to place the Copperstone Mine into production in accordance with the Study. On October 25, 2010, the United States Department of the Interior’s Bureau of Land Management (“BLM”) issued federal permits for mining at the Copperstone Mine. The BLM’s Decision Record is supported by the Proposed Reopening of the Copperstone Mine Environmental Assessment DOI-BLM-AZ-C020-2010-0015-EA (the “EA”), and the Finding of No Significant Impact (the “FONSI”).
The FONSI determines that the Proposed Action (construction of the Copperstone Mine) does not constitute a major federal action affecting the quality of the human environment and that an Environmental Impact Statement is unnecessary. The FONSI determines that the proposed action under the EA will assure that no significant adverse impact will occur to the human environment in terms of air quality, global warming, cultural resources, hazardous material, human health and public safety, lands and realty management, mineral resource management, native American religious concerns, non-native invasive species, recreation, surface protection, visual resources, water quality – drinking and ground, wildlife, wild horse and burro management.
Bonanza received RCRA ID Number AZD982500910 as a Conditionally Exempt Small Quantity Generator on March 30, 2010 pursuant to EPA’s Resource Conservation and Recovery Act (“RCRA”) administered by the Arizona Department of Environmental Quality (“ADEQ”).
On February 15, 2011 the Corporation received the air quality control permit (“AQP”) for construction and mining at Copperstone. The AQP was issued by the ADEQ as air quality control permit number 50890. The process of obtaining the AQP began in March, 2010, with the submission of the administratively complete permit application, and the permit was received in under one year.
The final remaining key permit required at the Copperstone gold mine is the aquifer protection permit (“APP”), which is in process with the ADEQ. The process for obtaining the APP began in April, 2010 with the submission of the administratively complete permit application. Bonanza anticipates completion of the process during the first quarter of 2011.
Disposition of Remaining Canadian Exploration Properties
On November 10, 2010, the Company completed the sale of its eastern Canadian exploration properties, consisting of the Fenelon, Northway-Noyon, La Martiniere and Northshore properties, to Balmoral Resources Ltd. The Company received a one time cash payment of $3.7 million and 4,500,000 common shares of Balmoral Resources Ltd. in consideration for its interest in the properties. The proceeds of the sale were allocated to working capital and used to fund the development of the Copperstone Mine.
In December of 2010, the Corporation announced that it would proceed with a public offering through Wellington West Capital Markets Inc. (the “Agent) by short form prospectus in Canada for proceeds of up to $17.5 million. In January, 2011 the Corporation closed the public offering for a total of 50 million units at a price of $0.35 per unit for gross proceeds of $17.5 million. Each Unit consisted of one common share and one half of one warrant, with each whole warrant entitling the holder to purchase a further common share at a price of $0.45 per common share at any time until July 21, 2012. The Corporation paid the Agent a cash commission equal to 6% of the gross proceeds of the offering, and issued to the Agent warrants to purchase 2,963,700 common shares at a price of $0.38 per common share, exercisable until July 21, 2012. The funds from the offering are expected to be sufficient to enable the Corporation to commence production at the Copperstone Mine.
Equity Financing
During 2010 the Corporaiton completed several private placements of equity securities. On June 16, 2010, the Corporation completed a private placement of 1,594,500 flow-through Common Shares at a price of $0.16 per Common Share for proceeds of $255,000. On August 11, 2010, the Corporation completed a private placement of 3,333,717 units, at a price of $0.15 per unit for proceeds of $500,058. Each unit consisted of one Common Share, and one half of one Common Share purchase warrant, with each full warrant entitling the holder to acquire one Common Share at a price of $0.23 per unit until August 11, 2012. On August 24, 2010, the Corporation completed a private placement of 4,675,166 units at a price of $0.15 per unit for proceeds of $701,275. Each unit consisted of one Common Share, and one half of one Common Share purchase warrant, with each full warrant entitling the holder to acquire one Common Share at a price of $0.23 per unit until August 24, 2012.
The proceeds of the June 16, 2010 financing were allocated to exploration of the Company’s exploration projects in Québec and Ontario. The following table describes how these funds were used:
| Use | | Amount $ |
| Exploration of Québec and | | 255,000 |
| Ontario exploration projects | | |
The proceeds of the August 11, 2010 and August 24, 2010 financings were allocated to complete the purchase of the Calumet Mill, for development of the Copperstone Mine and working capital. All funds were used for the purchase and transportation of the mill and development of the Copperstone Mine, and no funds were used for working capital. The following table describes how these funds were used:
| Use | | Amount $ |
| Purchase of Mill | | 1,003,081(1) |
| Development of Copperstone | | 198,194(2) |
| Mine | | |
___________________________________________________
Notes:
| (1) | Includes the purchase price for the Calumet Mill, disassembly and a portion of the costs of transporting the mill to the Copperstone Mine site. |
| | |
| (2) | Includes payment to the Bureau of Land Management, ongoing engineering, and site maintenance. |
B. Business Overview
General
The Corporation’s most important property is the Copperstone project located in Arizona. The Corporation also holds interests in several exploration projects located Nevada and Arizona, which are less material to the Corporation due to their less advanced status.
The Corporation’s current primary business objective is to bring the advanced stage, 100% lease hold interest, Copperstone gold property in Arizona into production during 2011. On February 3, 2010 Bonanza announced the positive results of its NI 43-101 compliant 2010 Feasibility Study (the “Study”) at Copperstone (see Section D –Property, Plants and Equipment – Copperstone). The Study began during 2008, and was designed to update the preliminary economic assessment completed on March 27, 2006. The Corporation obtained a resource estimate and preliminary economic assessment on the Copperstone Property from AMEC on March 27, 2006. The purpose of the preliminary assessment was to (a) formalize the large amount of quality work and data compiled to date, (b) provide a clear picture of those areas with the potential to add resources, and (c) establish a preliminary economic analysis of Copperstone.
The Corporation used the information provided by the preliminary economic assessment to prepare a three dimensional geologic exploration model at Copperstone. This exploration model is based on pit mapping, underground mapping, a substantial amount of new drilling, geophysical data and structural modeling, and will guide planned drilling to further expand the resource. The exploration model was completed in mid 2006, and was used to guide further exploration drilling at Copperstone, designed to expand the resources. A phase I exploration drilling program, based on the new exploration model, was completed in December 2006. Phase II exploration drilling designed to follow up the positive results of Phase I drilling was completed during the fall of 2007 and identified two zones of thick, high grade and apparently continuous gold mineralization. Phase III target definition drilling was completed during 2008 with encouraging results. The two new zones of gold mineralization have been shown to contain significant gold that may ultimately provide extended mine life should the Copperstone Project be placed into production.
As a mining company in the exploration and development stage, the future liquidity of the Corporation will be affected principally by the level of exploration and development expenditures and by its ability to generate sufficient cash flows from the Copperstone Mine or to raise an adequate level of capital through the equity markets. In management’s opinion, the Corporation’s working capital is sufficient for its planned expenditures in 2011 at the Copperstone Mine.
The following sets forth the aggregate cumulative expenditures, net off cost write-down, made by the Corporation on certain of its projects as at the end of each fiscal period set out below:
| Summary of Project Expenditures |
| Project | 2010 | 2009 | 2008 | 2007 | 2006 | |
| | $ | $ | $ | $ | $ | |
| Copperstone | 30,627,219 | 28,885,347 | 27,315,717 | 24,938,311 | 22,904,331 | |
| Fenelon | - | 5,000,000 | 15,509,685 | 14,768,533 | 14,183,469 | |
| Taurus | - | - | - | 5,324,013 | 6,583,770 | |
| Gold Bar | - | 200,000 | 200,000 | 1,062,471 | 1,035,264 | |
| Northway | - | 4,644,865 | 4,626,469 | 4,223,809 | 3,915,092 | |
| Martiniere | - | 3,243,735 | 3,225,200 | 3,129,259 | 2,659,280 | |
| Northshore | - | - | - | 914,286 | 524,051 | |
| Other | - | - | - | 190,542 | 159,368 | |
| Pamlico | - | - | - | - | - | |
| | 30,627,219 | 41,973,947 | 50,877,071 | 54,551,224 | 51,964,625 | |
C. Organizational Structure
As of December 31, 2010, the only active subsidiary of the Corporation was its wholly owned subsidiary, Bonanza Explorations Inc. (“Bonanza Explorations”) (a Nevada corporation). The following diagram sets out the corporate structure of the Corporation and its active subsidiary as of March 22, 2011:
| (1) | Bonanza Exploration Inc. owns the Copperstone Property in Arizona, Gold Bar Project, Nevada, and other exploration properties located in Arizona and Nevada. |
D. Property, Plants and Equipment
Copperstone
General
The Corporation holds a 100 percent leasehold interest in the Copperstone Project. The landlord is The Patch Living Trust and the lease was for a 10 year term starting June 12, 1995 and was renewed on June 12, 2005. The lease is renewable by the Corporation for one or more ten-year terms at the Corporation’s option under the same terms and conditions. The Corporation is obligated to pay for all permitting and state lease bonding, insurance, taxes, and to pay a 1 percent production gross royalty so long as the price of gold in US dollars is less than US$350 per ounce (royalty increases to a maximum of 6 percent as price of gold increases to over US$551 per ounce), with a minimum advance royalty per year of US$30,000.
Copperstone Gold Project
In August, 1998, Old Bonanza entered into an agreement with Arctic Precious Metals Inc. (“APMI”), a wholly owned subsidiary of Royal Oak Mines Inc. (“Royal Oak”), to explore and develop the Copperstone gold property in La Paz County, Arizona, U.S.A. Under the agreement, Old Bonanza acquired 25 percent of APMI’s leasehold interest in the Copperstone project for a cash payment of US$500,000 with an option to increase its interest in the project to 80 percent through property expenditures of US$3 million and a future cash payment to APMI of US$1 million. In 1995 APMI had acquired a renewable lease for the Copperstone project from the Patch Living Trust.
In April, 1999, APMI became subject to Chapter 11 proceedings under U.S. bankruptcy law and in November, 1999 Old Bonanza entered into a conditional Purchase and Sale Agreement with APMI, concerning the purchase by Old Bonanza of the 75 percent interest owned by APMI in the Copperstone project.
In March, 2002, Old Bonanza acquired all APMI’s leasehold interest in the Copperstone mining property by obtaining an assignment of APMI’s interest in the lease with the Patch Living Trust. The assignment was approved in a lengthy US Bankruptcy Court process. As a result, Old Bonanza’s interest in the Copperstone mining property increased from 25 percent to 100 percent, subject only to the existing lease and its royalty arrangements. This acquisition was funded by a loan of US$1,100,000 from Brascan Financial Corporation which was repaid in October 2003.
Copperstone D-Zone Joint Venture
The Corporation’s interest in the D-Zone is held through the Copperstone D-Zone joint venture. The joint venture was formed in September, 2000, when Old Bonanza entered into an agreement with Centennial Development Corporation (“CDC”) for the underground exploration and extraction of mineralized materials from only the D-Zone of up to 50,000 tons of mineralized material from the Copperstone property (the “Copperstone D-Zone Joint Venture”, as amended).
During 2001, Phase One was completed and Old Bonanza earned an additional 5 percent interest in the Copperstone D-Zone Joint Venture for a total earned interest of 60 percent.
On February 14, 2002, Old Bonanza entered into an agreement with CDC whereby it would acquire the remaining 40 percent interest of the D-Zone Joint Venture not already owned for the following consideration:
(a) assumption of a total of US$325,000 of Copperstone related liabilities and if these liabilities exceed the estimated amount then the additional amounts would be paid equally by CDC and Old Bonanza. These liabilities were previously recorded by Old Bonanza as at December 31, 2000 and as at December 31, 2003 all of these liabilities were either paid or settled;
(b) assumption of an estimated CDC payroll tax liability of up to US$180,000 that may arise. If these liabilities exceed the estimated amount, then the additional amounts would be paid equally by CDC and Old Bonanza;
(c) US$345,000 payable to CDC and or its principal on or before July 31, 2002;
(d) a net smelter royalty of three percent paid to CDC from the first 50,000 tons of mineralized material extracted from the D-Zone, subsequent to repayment of an outstanding third party loan, which has since been repaid; and,
(e) US$70,000 from initial proceeds from extraction of mineralized materials from the D-Zone, following repayment of the outstanding third party loan referenced above.
During 2002, Old Bonanza paid US$345,000 to CDC in accordance with the above agreement and recorded a further US$180,000 in accounts payable to reflect the estimated CDC payroll tax liability that may arise. The Corporation paid this US$180,000 in 2007. Upon payment of the 3% royalty and the US$70,000 referred to above, the Corporation will have earned the remaining 40% interest in the D-Zone Joint Venture.
Location and Access
The Copperstone Project is located in La Paz County, Arizona, United States. The closest communities are Quartzite, located 16 km to the south and Parker, located 40 km to the north. Phoenix is 106 km east of the Copperstone Project. The property is accessible from Phoenix on Interstate 10 to Quartzite and Route 95 from Quartzite. An 8 km unpaved mine road connects the property to Route 95.
Title
The Copperstone Project totals approximately 8,821 acres and is located in La Paz County, Arizona, about 16 km north of the town of Quartzite. The property consists of 335 contiguous unpatented lode mining claims covering an area of approximately 6,901 acres (20.6 acres per claim) and comprised of 274 “Copperstone”, 51 CSA, and 10 “Iron Reef” claims. The property also includes mineral leases on Arizona State mineral lands in T 7 N, R 19 W, section 31 and T 7N, R 19 W, sections 6 and 7 totaling approximately 1,920 acres.
The land is under the jurisdiction of the United States Bureau of Land Management (BLM). The Patch Living Trust (“PLT”) of Scottsdale, Arizona owns the title to the central 284 mineral claims. In June 1995, the Copperstone property was leased from PLT by APMI for a 10 year term and is renewable at the option of the lessee. On June 12, 2005, the lease was renewed for an additional 10 years. The annual claim fees payable to the BLM are approximately US$42,000. Annual lease fees paid to the State of Arizona in 2010 was approximately $10,000. An annual minimum US$30,000 advance royalty is payable to PLT under the terms of the lease and is subject to a maximum of 6 percent production gross royalty if price of gold is over US$551 per ounce.
Accessibility, Climate, Local Resources, Infrastructure, and Physiography
The Copperstone Project is located 16 km north of the town of Quartzite, Arizona and about 40 km south of the town of Parker, the county seat of La Paz. The property is accessible from the Highway 95, north of Quartzite, and then turning west on a 4-mile gravel road to the mine site. The site access road is well maintained and suitable for all anticipated mine usage. The main east-west line for the Santa Fe railroad is about 15 miles north of the property.
The climate in the area is very dry with an average annual precipitation of 4 inches. Summers are warm with an average temperature from May to September of 88.7 degrees Fahrenheit. Winters are mild with an average temperature from October to April of 63 degrees Fahrenheit. The maximum and minimum temperatures for the area are about 120 degrees Fahrenheit and 20 degrees Fahrenheit, respectively.
Significant infrastructure exists from the previous Cyprus mining operation conducted from 1988 to 1993. The present infrastructure consists of office, shops, storage facilities, various housing trailers, power, and water. Operational water can be available from existing on-site wells while potable water must be trucked on site. Presently, the mine communication utilizes a satellite phone, cell phones, and satellite internet.
The Copperstone Property is located on sandy desert terrain, with scattered small hills and local sand dunes. The area is relatively flat with surface elevations ranging from about 725 to 900 feet.
History
During the period 1987 to 1993, Cyprus Minerals (“Cyprus”) operated a 2,500 ton per day open-pit mine at Copperstone that produced approximately 500,000 ounces of gold from the Copperstone fault. The mine was closed at the economic limit of open-pit mining. Total mine production was 6,000,000 tons at a grade of 0.11 ounces/ton (3.8 g/t) gold. Gold recovery for the life of mine was 89 percent. The strip ratio of the pit was 10:1. Cyprus drilled 496 reverse circulation and 73 core holes for a total of 569 holes. Following the mine closure in 1993, Cyprus reclaimed the tailings pond and removed the Carbon-in-Pulp mill. Office, shop and warehouse facilities remain at the site. Furthermore, the 69 kv power line and substation remains in service, together with the three water wells with a 200 hp pumping capacity.
Geology
The Copperstone Project occurs within the “Basin and Range” province of the south-western USA. The regional geology is strongly influenced by Tertiary age detachment faults and younger high angle normal faults. The Copperstone gold deposit is related to the Moon Mountain or Copper Peak detachment fault. Gold mineralization at Copperstone occurs principally within the moderate to low-angle Copperstone Fault which has been interpreted to be a listric fault associated with the underlying Moon Mountain detachment fault. Gold occurs as native flakes within fault breccia, gouge and shear zones related to the faulting. The wall and host rocks are typically Triassic sediments and Jurassic quartz latite volcanics. Gold is commonly associated with hematite, chlorite, quartz, manganese oxide and copper oxide mineralization.
Gold Mineralization
Gold mineralization at Copperstone occurs mostly as particles with about 80% as small flakes ranging between 4 to 40 microns. Coarse gold ranges in size from 50 to 150 microns. Gold typically is free and associated with early and late stage quartz/amethyst and occasionally calcite.
Coarse gold occurs in the quartz latite porphyry cut by amethyst-quartz vein fringes, as flakes in fracture, and on the wall rock associated with copper oxides. Previous operators concluded that much of the coarse gold is directly depositional in origin, because it occurs as discrete three-dimensional grains.
Mineral Resource and Mineral Reserve Estimations
On February 3, 2010, Bonanza announced the positive results of its NI43-101 compliant 2010 Feasibility Study (the “Study”) at Copperstone. The Study was prepared under the guidance of Todd Fayram, B.S. Eng, MMSA-QP(M). On March 17, 2010 Bonanza received the Original Copperstone Report, which included the Study. On December 20, 2010, the British Columbia Securities Commission advised the Corporation that it did not consider Todd Fayram to be independent of the Corporation, and accordingly advised that the Original Copperstone Report did not comply with National Instrument 43-101. On January 10, 2011, Bonanza received the Revised Copperstone Report, which also included the Study and which was prepared by authors independent of the Company for the purposes of NI 43-101. The Revised Copperstone Report restates and replaces the Original Copperstone Report. The Study was prepared to present the results of a comprehensive evaluation of the Copperstone deposit and provide an economic evaluation of future underground mining operations at the past producing Copperstone Mine.
Subject to the assumptions made in the Study, the Study demonstrated mining the Copperstone Mine would be profitable. Re-activation of mining at the Copperstone Mine remains the Company’s primary objective. (see Section 4.D Current Work Programs for further details of the Study).
Mineral Reserves
Mineral Reserves at Copperstone identified by the Study and used for the economic analysis are developed as of January 29, 2010:
Reserve Classification
| Tonnes
| Grade
(g/tonne Gold) | Contained Grams of
Gold | Contained Ounces
of Gold |
| Proven Reserves | 820,965 | 9.670 | 7,939,131 | 255,253 |
| Probable Reserves | 5,285 | 6.935 | 36,655 | 1,178 |
| Dilution | 85,217 | 0 | 0 | 0 |
| Proven & Probable | 911,367 | 8.750 | 7,975,786 | 256,431 |
These Mineral Reserves at Copperstone were calculated by Chris Fedora, under the supervision of Tom Buchholz, B.S. Eng, MMSA-QPM under NI43-101, both acting through Vezer’s Industrial Professionals, an independent consulting firm contracted by Bonanza to perform underground mine design, stope planning, mine scheduling, and calculate mineral reserves. Reserves were calculated using the Key Base Case assumptions set out above .
These Mineral Reserves are based on a Resource cutoff grade of 4.5 g/tonne gold, and capped at 171 g/tonne gold. The mine has been designed primarily as a trackless drift and fill mining operation, with ramp access and paste backfilling. Mining dilution across the life of the project is estimated at 10.3% . Pre-production development and mining of gold bearing Reserves are planned to begin in the D-Zone, north of the existing open pit, where Bonanza has exposed Proven Mineral Reserves in a tunnel driven from the north end of the open pit. Truck haulage is planned for transporting the ore from the underground mine to the surface processing facility.
Mineral Resources
CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING ESTIMATES OF
MEASURED AND INDICATED RESOURCES
The table and discussion below use the terms “measured” and “indicated” resources. The Corporation advises U.S. investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.
CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING ESTIMATES OF
INFERRED RESOURCES
The table and discussion below use the term “inferred resources”. The Corporation advises U.S. investors that while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their 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 feasibility or pre-feasibility studies, except in rare cases.U.S. investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally minable.
Mineral Resources identified at Copperstone and included in the Study (which include the Mineral Reserves set out above) are set out in the below table:
Resource Classification
| Tonnes
| Grade
(g/tonne Gold)
| Contained Grams of
Gold
| Contained Ounces
of Gold |
| Measured | 933,062 | 10.37 | 9,675,742 | 311,083 |
| Indicated | 8,294 | 7.88 | 65,334 | 2,101 |
| Measured & Indicated | 941,357 | 10.35 | 9,741,086 | 313,183 |
| Inferred | 369,000 | 12.21 | 4,506,648 | 144,892 |
These Mineral Resources at Copperstone were calculated as of January 29, 2010 by Telesto Nevada Inc.; the QP under NI43-101 is Jon Brown, M.B.A., C.P.G., who is in the employ of Telesto Nevada Inc. Telesto is an independent consulting firm contracted by Bonanza to perform such activities. These Mineral Resources are based on a cutoff grade of 5.1 g/t gold, and capped at 171 g/t gold. The electronic database consists of data from 986 drill holes for a total of 99,919 assay values, using three foot (3’) composites.
Resource calculation methods differ between the current Resources and the 2006 Resources in that the current Resources contain a small number of new drill holes, and utilize smaller resource blocks (5’x5’x3’) which should better model the mineral deposit compared to the 2006 Resources which used larger blocks (18’x12’x6’), and the current Resources utilize a more conservative interpolation method (Inverse Distance Cubed) compared to the 2006 Resources which were kriged.
Mineral Resource Cutoff Grade Analysis
The Study also examined the Measured, Indicated Mineral and Inferred Resources at various gold cutoff grades, which are set out in the below tables:
Measured and Indicated Resources at Various Cut-Off Grades
Gold Grade Cutoff
(g/t Gold) | Tonnes
| Grade (g/t
Gold) | Contained Grams of
Gold | Contained Ounces of
Gold |
| 5.1 | 941,357 | 10.35 | 9,741,086 | 313,183 |
| 6.9 | 536,731 | 13.71 | 7,358,194 | 236,572 |
Inferred Resources at Various Cut-Off Grades
Gold Grade Cutoff
(g/t Gold) | Tonnes
| Grade (g/t
Gold) | Contained Grams of
Gold | Contained Ounces of
Gold |
| 5.1 | 369,000 | 12.21 | 4,506,648 | 144,892 |
| 6.9 | 240,000 | 15.60 | 3,750,305 | 120,575 |
This cutoff grade analysis indicates that a significant portion of the Resources are available for mining at higher cutoff grades, which suggests resiliency with respect to gold price risk.
Past Work Programs
Santa Fe Pacific Gold Corporation leased the Copperstone property for one year beginning in 1993 and drilled 12,500 feet in 17 wide spaced reverse circulation holes to explore for new gold mineralization. One hole (DCU-08) intersected significant mineralization (0.65 ounces per ton of gold over 15 feet) in the footwall of the Copperstone Fault.
This hole was not followed-up and the lease was terminated in 1994. APMI drilled 28,330 feet in 33 surface holes on the property between 1995 and 1997. The main objectives of this drilling were to test for deep, down-dip extensions of the Copperstone Fault below the open-pit and the strike extension of the fault to the north of the open-pit. This drilling resulted in the discovery of high grade gold mineralization on-strike to the north of the open-pit (the “D zone”) and down-dip to the north-east (the “C zone”). Old Bonanza and APMI entered into the Copperstone joint venture agreement in August, 1998. Bonanza subsequently drilled 10,000 feet in 15 core holes to further define the gold mineralization in the C and D zones. This drilling program was subject to quality control and quality assurance procedures established jointly with MRDI Canada. On completion of the drilling program, MRDI was retained to complete an independent scoping study of a new underground mine in the C and D zones. The MRDI study was completed in February, 1999.
Recently Completed Work Programs
Old Bonanza completed an underground decline which now extends from the northern end of the Open Pit over 1,800 feet to the north, intersecting the southern portion of the D-Zone high grade mineralized target. A cross cut has been driven westward, into the footwall, to establish two underground drill stations, Drill Bay #1 and #2. Underground channel and panel sampling programs have demonstrated continuity to the gold grades in the southern portion of the D-Zone.
A substantial, detailed surface and underground core drilling program has been completed and forms the basis for the AMEC Report. This extensive core drilling from surface and underground has located and defined the grade profile of the Copperstone Fault in the D-Zone and other zones, which provide detailed data, and will assist in the design of future underground workings and stopes.
Including the D-Zone and the ore mined from the pit, the Copperstone Fault is known to be mineralized over a strike length of about 3,600 feet, a vertical extent of 600 feet, and a down dip extent of 1,800 feet. True thickness of the gold mineralization in the targeted zones ranges up to 40+ feet thick in the Copperstone Fault. Additionally, it appears that sub-parallel structures well into the hanging wall and footwall of the Copperstone Fault contain unexplored occurrences of high grade mineralization.
Subsequent exploration by the Corporation has consisted primarily of exploration and infill drilling. During the 2003 to 2005 drill campaign, the Corporation completed 263 drill holes totaling 169,977 ft, of which 243 drill holes totaling 152,436 ft are included in the AMEC database used to estimate resources. A distribution of the holes drilled follows:
Highwall – 163 holes totaling 133,206 ft (143 holes in AMEC database)
Footwall – 22 holes totaling 14,259 ft (all in AMEC database)
Underground – 78 holes totaling 22,512 ft (all in AMEC database).
American Bonanza drilling includes both surface and underground drilling. Drilling was concentrated in the A-, B-, C-, and D-Zones. The drilling program was designed to convert indicated and inferred resources into measured resources or reserves in the D, C and Highwall zones while testing additional exploration targets down dip and along strike. While the results of the drill campaign were often encouraging, in general, the drilling returned lower grades than those from previous campaigns, often removing continuity previously thought to exist between higher grade intercepts. A detailed geologic mapping and structural study has been completed in the pit area and in the underground workings. In addition, geophysical exploration data has been collected across the Copperstone site.
Notable drill results from the D-Zone underground drilling program include: 3.3 metres grading 51.2 g/t gold in CUDH-04-26; 4.5 metres grading 25.4 g/t gold in CUDH-04-32; and 1.5 metres grading 54 g/t gold in CUDH-04-50. Most of these holes are drilled at an angle to the Copperstone Fault, which has a maximum thickness in the D-Zone area of 7 metres, so the true thicknesses of these intercepts are less than the shown drilled thicknesses.
Notable drill results from the Highwall surface drilling program include: 3 meters grading 38.2 grams per ton gold in drill hole number H04-43, 3 meters grading 35.2 grams per ton gold in drill hole number H04-36, and 1.5 meters grading 17.8 grams per ton in drill hole number H4-48. These holes are drilled at nearly right angles to the Copperstone Fault and therefore closely represent true thicknesses.
The first results of the second main work effort at Copperstone, the exploration for new discoveries, were announced during January 2005. The Footwall exploration target and the separate Lower Highwall zone represent structures apparently semi-parallel to the Copperstone Fault and are entirely new potential mineralized zones. Notable drill results from the Exploration surface drilling program include drill hole CRD-04-09 which encountered a near true thickness of 3.3 metres grading 16.4 g/t gold in a zone below the Highwall Zone currently termed the Lower Highwall Zone. Concurrently with the economic studies described below the Corporation will accelerate drilling for the exploration of new discoveries.
A three dimensional geologic exploration model was prepared by the Corporation for Copperstone during 2006. In addition to incorporating the work collected in the AMEC study, this new exploration model is based on pit mapping, underground mapping, a substantial amount of new drilling, geophysical data and structural modeling and the new exploration model has guided drilling to further expand the resource during the last half of 2006 and through 2008 and will continue into the future as long as drilling results confirm the usefulness of the model.
This exploration modeling guided the work program for 2006 that consisted of exploration drilling to both add resources and test exploration targets. The drilling was an expanded continuation of the 2005 drilling program. Step-out exploration drilling of targets to the northeast and northwest were also completed to test for other bonanza-type, gold zones, above and within the Copperstone Fault. Past geophysical results completed on the Copperstone Property will be reviewed. The 2007 drilling followed up positive results from the 2006 drilling campaign.
During 2006, nine (9) of 10 targets were drilled within 1,000 meters of the known high grade gold resources with the objective of discovering potential to significantly increase Copperstone’s resources. Six (6) targets returned results that warranted follow up drilling during Phase II during 2007. Phase I drilling began during August 2006 and drilling was completed by the end of 2006 with 27 reverse circulation drill holes totaling 7,695 meters (25,247 feet).
The Phase I drill results are highlighted by drill hole 06CS-22 located 914 meters (3,000 feet) west of the open pit that intercepted several zones of gold mineralization including 1.5 meters grading 25.82 grams per tonne gold (5 feet grading 0.752 ounces per ton) within 13.72 meters grading 3.91 grams per tonne gold (45 feet grading 0.114 ounces per ton). Drill hole 06CS-22 also encountered a separate zone of 3 meters grading 3.57 grams per tonne gold (10 feet grading 0.104 ounces per ton).
Drill holes 06CS-15, 17, and 18 intercepted a gold bearing, steeply dipping fault zone that is a suspected feeder to the main Copperstone mineralized zone. Drill hole 06CS-17 encountered a 1.5 meter zone grading 11.66 grams per tonne gold (5 feet grading 0.34 ounces per ton), and 06CS-18 encountered a 1.5 meter zone grading 5.86 grams per tonne gold (5 feet grading 0.171 ounces per ton). This fault may connect to the strong mineralization reported in drill hole 06CS-12 which contains a 3.05 meter intercept grading 6.7 grams per tonne gold (10 feet grading 0.194 ounces per ton). Two nearby holes drilled in 2006 as part of the Phase I drilling program have intersected strong quartz-amethyst veining in a structure similar to the steep feeder zone.
Phase II of the exploration drilling program described above was completed during 2007. Phase II was designed to follow up on strongly anomalous gold intercepts encountered in Phase I with closer spaced core drilling to determine continuity and geometry of gold mineralization. Other geophysical targets that have been reinterpreted as a result of the Phase I drilling were also tested during Phase II drilling.
In August 2006, Bonanza began Phase II exploration drilling, an aggressive drilling campaign. Phase I and II drilling consisted of 44 drill holes with a combined length of 13,177 meters (43,227 feet). Ten targets were drilled, all within 1,200 meters of the current resource and mine infrastructure.
Several targets returned encouraging results, and two substantial new gold zones were discovered, those being the South Pit Target and the Southwest target areas.
The South Pit Target was first identified by Phase I drill hole 06CS-12 which encountered strong gold mineralization and favorable alteration and structure, so the decision was taken to continue drilling in Phase II. The South Pit target is at the south end of the open pit from which over one half million ounces of gold were produced between 1987 and 1993, and is south of the current high grade gold resource. The South Pit target is now identified by six drill holes drilled along a north-south line, all with significant gold intercepts, has a known strike length of 500 meters, and is open along its entire length to the east and west. The drill results are:
-3.0 meters grading 39.4 grams per tonne gold in drill hole 07CS-36
-includes 1.5 meters grading 69.3 grams per tonne gold
-2.1 meters grading 14.1 grams per tonne gold also in drill hole 07CS-36
-includes 1.0 meters grading 28.5 grams per tonne gold
-4.6 meters grading 4.9 grams per tonne gold in drill hole 07CS-37
-includes 1.5 meters grading 11.2 grams per tonne gold
-7.6 meters grading 10.6 grams per tonne gold in drill hole 07CS-34
-includes 3.0 meters grading 18.9 grams per tonne gold
-2.4 meters grading 6.8 grams per tonne gold in drill hole 07CS-32
-and 2.7 meters grading 5.5 grams per tonne gold
-4.6 meters grading 4.8 grams per tonne gold in drill hole 06CS-12
-includes 3.0 meters grading 6.6 grams per tonne gold
Follow up drilling to expand the zone to the east and west was planned as part of the Phase III Exploration drilling in 2008.
The Southwest Target is located approximately 1,000 meters southwest of the open pit, and is currently identified by three drill holes with high grade gold intercepts. Drill hole 07CS-30 is located approximately 20 meters west of drill hole 06CS-22, and drill hole 07CS-31 is located about 50 meters south of hole 07CS-30. The new gold zone strikes approximately 20 degrees west of north (near parallel to the Copperstone Fault) and has an intermediate dip to the northeast (same direction as the Copperstone Fault). The zone remains open in all directions, and may represent the discovery of a new gold bearing structure similar to the Copperstone Fault which hosts the high grade gold resources. The results are:
-5.2 meters grading 18.3 grams per tonne gold in drill hole 07CS-30
-includes 1.5 meters grading 58.8 grams per tonne gold
-4.6 meters grading 12.3 grams per tonne gold in drill hole 07CS-31
-includes 3.2 meters grading 16.1 grams per tonne gold
-1.5 meters grading 25.8 grams per tonne gold in drill hole 06CS-22
-within 13.7 meters grading 3.91 grams per tonne gold
Phase III Exploration drilling was conducted during 2008. Phase III drilling consisted of 15 drill holes with a combined length of 7,000 meters (22,966 feet). The drilling focused on two areas, the South Pit and Southwest mineralized zones.
The Phase III Southwest gold zone drill hole assay results are:
-3.0 meters grading 10.5 grams per tonne gold in drill hole 08CS-45
-includes 1.5 meters grading 17.2 grams per tonne gold
-9.1 meters grading 5.4 grams per tonne gold also in drill hole 08CS-45
-includes 1.5 meters grading 14.3 grams per tonne gold
-0.9 meters grading 17.3 grams per tonne gold also in drill hole 08CS-45
-includes 0.6 meters grading 23.8 grams per tonne gold
-4.6 meters grading 2.1 grams per tonne gold in drill hole 08CS-46
-includes 1.5 meters grading 3.8 grams per tonne gold
-4.6 meters grading 3.9 grams per tonne gold in drill hole 08CS-47
Security of Samples
The drill samples are collected by Bonanza personnel at the drill for each drill hole. All of Bonanza’s facilities are secure inside the fenced compound. The core is transported to Bonanza’s core processing facility on site at the Copperstone Mine by Bonanza personnel.
All core is logged for recovery and other geotechnical features, prior to being sawed lengthwise in half by Bonanza personnel. Individual core samples are selected on a geological basis to characterize the gold mineralization associated with various rock types, alteration types and structural horizons. Subsequent to sawing and sampling, the remaining half core is geologically logged and stored on site as reference samples. The samples are bagged, labelled and tied at the Copperstone Mine site by Bonanza personnel. Geologic information is recorded on standardized sample description forms which included color, rock type, alteration, mineral species and abundance. Samples are stored in a secure facility at the Copperstone Mine site.
DATS Trucking, Inc. collects samples from the secure facility, Copperstone and transports the samples to representatives of American Assay Laboratories (“AAL”) in Sparks, Nevada. There, representatives of AAL receive and take custody of the samples. AAL is ISO / IEC 17025 certified and has successfully completed Canadian proficiency testing.
Sampling and Analysis
At the AAL laboratory, the core samples are dried, crushed to -10 mesh, pulverized to -150 mesh, split to 1,000 gram pulps, and fire assayed for gold two times using 2-assay ton fire assay charges with a gravimetric finish. Reported gold grades are the average of these two assays for each sample. Samples are routinely assayed in duplicate. There is a good correlation between the duplicate assays. All samples greater than 0.100 opt, standards, and blanks are routinely submitted to additional labs for verification. Standards are routinely inserted for assay. Check assays are routinely submitted to BSI-Inspectorate, Sparks, Nevada 5-assay ton gold analysis. BSI-Inspectorate is ISO 9002 certified. Bonanza personnel deliver the samples to the check lab.
Current and Future Work Program
On July 23, 2009, Bonanza announced results from drilling at the southern edge of the D-Zone mineralization. Drill hole 08CS-54 encountered a 6.1 meter mineralized zone within the Copperstone Fault with an average grade of 37.8 grams per tonne gold (1.1 ounces of gold per ton) approximately 60 feet south of the southern margin of the D-Zone.
On February 3, 2010 Bonanza announced the positive results of its NI43-101 compliant 2010 Feasibility Study (the “Study”) at Copperstone. The Study, prepared by Continental Metallurgical Services under the guidance of Todd Fayram, B.S. Eng, MMSA-QP(M), and subsequently reviewed and confirmed in the Revised Copperstone Report, was prepared to present the results of a comprehensive evaluation of the Copperstone deposit and provide an economic evaluation of future underground mining operations at the past producing Copperstone mine. The Study indicates Copperstone will be a profitable gold mine with positive economics from the re-activation of mining, pursuing the gold mineralization from the past open pit to the future high grade underground mining. Reactivation of mining at Copperstone remains Bonanza’s primary objective.
Highlights of the Study
The Copperstone Gold Mine is estimated it will produce on average 45,891 ounces of gold annually for the first 3 years, and have a capital investment payback period of only 13 months. The Study details a total capital cost of US$17.74 million, including working capital, G&A startup, reclamation bonding, and contingencies. The Study estimates the cash production cost to be US$415 per ounce of gold produced.
The After Tax Net Present Value (“AT-NPV”) of the mine is US$51,291,204 and the Internal Rate of Return (“IRR”) is 96.3% in the base case using a future gold price estimate of $962 per ounce and a 5% discount rate. Using the current spot gold price ($1104 per ounce onwww.kitco.comon December 28, 2009) the AT-NPV rises to $68,089,302 and the IRR increases to 120.5% . The table below provides a range of economic results at various gold price assumptions.
Copperstone Economic Sensitivities at various Gold Prices:
Gold Price Case
| Gold Price
(US$/Oz)
| IRR (%)
| Undiscounted pre-
tax Cash Flow (US$)
| Net Cumulative
After-Tax Cash
Flow (US$) | Net Present Value
After-Tax (US$)
(Discounted) |
| Very Low | $650 | 17.0% | $7,380,073 | $7,380,073 | $4,488,124 |
| Low | $850 | 74.3% | $50,162,532 | $47,461,378 | $37,194,541 |
| Base Case | $962 | 96.3% | $74,169,910 | $64,763,463 | $51,291,204 |
| Spot | $1104 | 120.5% | $104,496,256 | $85,434,230 | $68,089,302 |
| High | $1250 | 145.1% | $135,727,452 | $106,035,800 | $84,874,376 |
| Very High | $1400 | 170.4% | $167,814,296 | $126,868,118 | $101,878,924 |
The Study results indicate a total of 256,430 ounces of gold can be mined from current known diluted Proven and Probable Mineral Reserves during the 6.3 year mine life at Copperstone. The Study also indicates a cash production cost of $415 per ounce of gold. Bonanza plans to continue the rapidly progressing permitting process, and move Copperstone to production during 2010.
The Study supports a trackless underground mining operation, delivering ore to an on-site crushing, grinding, gravity concentration and finally flotation concentration of the gold bearing ore. The flotation concentrate will be shipped off-site to a gold recovery plant in the southwestern United States. The mine and recovery plant have been designed to reduce capital costs and speed permitting timelines while maintaining high rates of return.
Highlights of results from the Study include (results shown are for the Base Case, except the Spot Gold price case which uses Spot gold price of $1104 as discussed above):
| | Net Present Value Base Case: | $51 million (USD) |
| | Net Present Value Spot Gold Case: | $68 million (USD) |
| | Internal Rate of Return: | 96% |
| | Gold Production: | 25,000 to 55,000 ounces per year |
| | Mine Life: | 6.3 years with expansion potential |
| | Payback Period: | 13 months |
| | Capital Cost: | $17.74 million (USD), including contingencies, working capital, reclamation bonding, etc. |
| | Total Mined Ounces: | 256,431 ounces |
| | Total Gold Recovered: | 230,700 ounces |
| | Average Resource Grade (M&I): | 0.302 oz per ton, 10.4 grams per tonne |
| | Cash Production Cost: | $415 per ounce of gold produced |
| | Total Production Cost: | $624 per ounce of gold produced |
| | Permit Timeline Target: | July 2010 |
The Base Case is on an After Tax basis, with future cash flows discounted to present. Key Base Case assumptions for the Study include:
| | Gold Price: | $962 per ounce of gold (USD) |
| | Discount Rate: | 5% |
| | Production Rate: | 450 tons per day = 157,500 tons per year |
| | Cumulative Mine Production (P&P): | 1.0 million tons @ a diluted grade of 0.256 ounces per ton (8.76
grams per tonne) gold |
| | Cash operating costs: | $95.64 per ton of ore milled |
| | Mining: | $60.64 per ton mined, including development |
| | Processing ore: | $21.75 per ton milled |
| | G&A: | $13.25 per ton milled |
| | Mining dilution: | 10.3% at zero gold grade |
| | Tax Regime | U.S. Federal, Arizona State |
| | Gold Recovery: | 90% |
| | Cutoff Grade: | 0.131 ounces/ton (4.5 grams per tonne gold) |
This financial analysis has been estimated based on the diluted Proven and Probable Mineral Reserves which are derived from only the Measured and Indicated Mineral Resources. The cost estimates are based on contract mining and processing of the flotation concentrates at off-site processing facilities located in the southwestern United States. The Study report and associated documentation will be filed on SEDAR on a timely basis. (For discussion of Mineral Reserves and Resources see Section 4.D Mineral Reserves and Resources)
Copperstone Economic Sensitivities at various discount rates:
Discount Rate
Case
| Discount
Rate (%)
| IRR (%)
| Undiscounted pre-tax
Income (US$)
| Net Cumulative
After-Tax Cash
Flow (US$) | Net Present Value
After-Tax (US$)
(Discounted) |
| Very Low | 0 | 97.2% | $74,169,910 | $65,571,347 | $64,763,463 |
| Low | 3 | 97.2% | $74,169,910 | $65,571,347 | $58,904,720 |
| Base Case | 5 | 97.2% | $74,169,910 | $65,571,347 | $51,291,204 |
| High | 7 | 97.2% | $74,169,910 | $65,571,347 | $46,878,448 |
| Very High | 8 | 97.2% | $74,169,910 | $65,571,347 | $44,844,903 |
These economic results using various discount rates to discount the value of future cash flows from mining operations were calculated using the Key Base Case assumptions set out above, with the only variable being the discount rate. While in the current economic environment the risk free rate of return on capital is near 2%, and the site location in Arizona generally would not attract an increase in the discount rate to reflect country risk, the Study uses 5% to maintain the conservative nature of the estimates.
Processing Plant
The Study compiles and reviews the detailed metallurgical testing that has been completed, in order to select an appropriate processing method and to optimize process operating parameters. Samples of various ore types and grades have been prepared and sent to various laboratories and testing facilities for metallurgical testing. These laboratories include: Hazen Research–1986–Cyanide Leaching; Hazen Research–1986–Mineralogy; Cyprus Metallurgy–1986-Phase I to III–Cyanidation and Flotation; Resource Development Inc.–1999–Cyanide Leaching; McClelland Laboratories–2000–Cyanidation, Gravity and Flotation; Echo Bay Minerals–2001–Flotation; McClelland Laboratories–2005–Cyanidation, Gravity, Flotation; CAMP–2009–Gravity and Flotation. The testing consisted of cyanidation studies including bottle roll and column leach tests, gravity concentration tests, flotation studies including flotation only and flotation tests followed by cyanidation, and reagent consumption tests.
Metallurgical test work supports gold recoveries of 90% utilizing a process which involves crushing, grinding, gravity gold recovery, and floating a gold concentrate followed by offsite recovery of gold from the concentrate. This is the circuit designed for the Study.
The results indicate that the gravity recoverable gold potential in the 2009 composite samples appears very good at about 25-40% at typical weight recoveries (1.0% to 1.25%) used to produce a salable material with a gold content from 8 to 15 ounces of gold per ton. Bulk gold flotation recoveries are reasonable and at a grind of 200 mesh with direct flotation recoveries of about 70 to 75% are indicated and when combined with gravity, 86 to 94% recoveries are achievable.
Permitting Copperstone
In November 2009, another milestone on the road to mine development was met, as the Copperstone Mine Plan of Operations was accepted as complete by the United States Department of the Interior’s Bureau of Land Management (“BLM”). The BLM is the lead governmental agency with oversight of Bonanza’s mining operations.
On October 25, 2010 the BLM issued the federal permits for mining at Copperstone. The BLM’s Decision Record is supported by the Proposed Reopening of the Copperstone Mine Environmental Assessment DOI-BLM-AZ-C020-2010-0015-EA (the “EA”), and the Finding of No Significant Impact (the “FONSI”). The FONSI determines that the Proposed Action (construction of the Copperstone gold mine) does not constitute a major Federal Action affecting the quality of the human environment and that an Environmental Impact Statement is unnecessary. The FONSI determines that the proposed action under the EA will assure that no significant adverse impact will occur to the human environment in terms of air quality, global warming, cultural resources, hazardous material, human health and public safety, lands and Realty management, mineral resource management, native American religious concerns, non-native invasive species, recreation, surface protection, visual resources, water quality – drinking and ground, wildlife, wild horse and burro management.
On February 15, 2011 the Corporation received the air quality control permit (“AQP”) for construction and mining at Copperstone. The AQP was issued by the Arizona Department of Environmental Quality (“ADEQ”) as air quality control permit number 50890. The process of obtaining the AQP began in March, 2010, with the submission of the administratively complete permit application, and the permit was received in under one year.
The final remaining key permit required at the Copperstone gold mine is the aquifer protection permit (“APP”), which is in process with the ADEQ. The process for obtaining the APP began in April, 2010 with the submission of the administratively complete permit application. Bonanza anticipates completion of the process during the first quarter of 2011.
The Copperstone site has substantial mine development advantages which could result in a shorter than typical mine permitting process and reduce the capital cost for the new underground mine. Copperstone is a modern previously mined site with a clean, non-sulfide bearing mineral resource, and the current mine plan calls for no additional disturbance to the public lands. The mine plan has been designed to have a very low environmental impact, and this design could contribute to a permitting process that is more rapid than is typical for new mine development.
Capital Cost Estimates
The Study results estimate a total Capital Cost of $17.74 million. This includes direct costs for procurement and construction totaling $9.8 million, which includes the processing plant, including purchase and installation of the crushing and grinding circuits, the gravity and flotation recovery circuits, and buildings, communications, etc with an estimated cost of $5.2 million, and direct costs also include $2.7 million for pre-production underground mine development, and lastly, direct costs include $1.7 million for tailings management and reclaim systems. Indirect costs included in the Capital Cost estimate are: $2.9 million for working capital, $1.1 million for reclamation bonding, $0.4 million for owner’s costs, $2.3 million for other indirect costs, and finally, a contingency budget of $1.3 million.
Ongoing capital required for further tailings impoundment expansion, bonding, reclamation, and demobilization of the contractor are estimated at $1.6 million. These costs are budgeted to be derived from operating cash flow after mine operations have commenced.
The Capital Cost estimates in the Study report represent a total estimated preproduction cost to design, procure, construct, and commission the various facilities described in this study to bring the Copperstone Mine back into gold production. According to the authors of the report, the estimate is categorized as Feasibility level with an expected accuracy range of ±7.5% at the bottom line. All costs are expressed in first quarter 2009 US dollars, with no allowance for escalation or interest during construction. The estimate covers the direct field costs of completing the project, plus the indirect costs associated with design, construction and commissioning of the facilities.
The Copperstone Mine produced nearly one-half million ounces of gold between 1987 and 1993 through open pit mining. Existing infrastructure which remains from this time or which has been subsequently installed by Bonanza is considerable, and serves to reduce the current capital requirements for the mine. Existing infrastructure includes a 69 KV power line and substation and three water wells, all sufficient for the new mine at Copperstone. Additional infrastructure on site includes offices, maintenance shops and a laboratory building. High grade gold mineralization in the D-Zone that is scheduled for Year One mining production has already been accessed in a 600 meter long underground tunnel driven by Bonanza.
Operating Cost Estimates
The Study results estimate a total Mine Operating Cost of US$95.64 per ton of ore processed. This includes a mining cost of US$60.64 per ton of ore and waste mined, a gold recovery cost of US$21.75 per ton of ore processed, and US$13.25 per ton of ore processed for G&A and corporate costs.
The Mine Operating Cost estimates in the Study report represent the total estimated mining and gold production costs, and total corporate costs to accomplish gold production as designed in the new underground mine planned at Copperstone. According to the authors of the report, the estimate is categorized as Feasibility level with an expected accuracy range of ±7.5% at the bottom line. All costs are expressed in first quarter 2009 US dollars. The estimate covers the costs of mining, processing and administering operations to produce gold. Stated another way, the cash production cost of producing one ounce of gold at Copperstone is calculated in the Study results to be US$415 per ounce of gold produced. The total production cost of producing one ounce of gold at Copperstone is similarly calculated to be US$624 per ounce of gold produced.
The Copperstone Development Team
Along with Bonanza’s personnel, Bonanza has assembled a team of industry-leading mining and environmental consulting firms to expedite the mine development and permitting process; all are underway and making good progress. Included are: Schlumberger Water Management Consultants (lead permit coordinator, tailing site facility design, hydrological planning), Call & Nicholas International Geotechnical Consultants (geomechanical studies for underground mining and backfilling), Vezer’s Industrial Professionals (underground mine design, stope planning, mine scheduling, mineral reserves), Telesto Nevada Inc. (mineral resources), and Continental Metallurgical Services (feasibility report, metallurgical study, mill design, economics, construction scheduling).
Future Work
In 2011 Bonanza will continue to progress the mine development and permitting process and construction to bring Copperstone into production.
Other Properties
The properties set out below are not sufficiently advanced to be considered material to the Corporation. Consequently, only a brief description of these properties is included here.
Gold Bar
The Gold Bar project in Nevada comprises 70 patented and unpatented claims covering 5 square kilometres which are prospective for gold. Gold Bar is subject to a 2 percent net smelter royalty capped at US$1,000,000 on future production. The Gold Bar properties are located in the Battle Mountain/Eureka mineral trend in Eureka County, 50 kilometres northwest of Eureka, Nevada. They are accessible by vehicle, travelling 33 kilometres west on US 50, then north, 25 kilometres on dirt roads.
The Gold Bar properties cover a past-producing bulk tonnage gold mine. The Corporation has data about the Gold Bar properties from the previous owners of the properties in the 1970s and 1980s. These data are used to focus the Corporation’s exploration efforts onto high-grade underground mineable targets low-grade bulk mineable mineralization. Several potential drill targets have been identified and may be drilled by the Corporation in the future depending on the size of its exploration budget and which of the Corporation’s various projects appear to management to be of the highest priority.
The Corporation has been in discussions with several parties interested in a Joint Venture or acquisition to explore the project during 2008. These discussions are ongoing in 2011.
During the year ended December 31, 2008, the Corporation wrote-down the carrying amount of the Gold Bar property by $880,785 to $200,000 and in 2010 the Corporation wrote-down the remaining $200,000 due to limited exploration activity in the last three years and based upon on management’s current plans with respect to the property.
ITEM 4A.UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The Corporation has no producing properties and, consequently, has no current operating income or cash flow from its mineral projects.
The Corporation did not engage, does not currently engage, nor does it expect to engage, in any hedging transactions to protect against fluctuations between the Canadian dollar and the U.S dollar. The Corporation’s financial statements are denominated in Canadian dollars and all references to dollars herein are in Canadian dollars unless otherwise indicated.
The following discussion of operating results and financial position of the Corporation should be read in conjunction with the Corporation’s consolidated financial statements and related notes prepared in accordance with Canadian GAAP (see Item 17). See note 15 to the consolidated financial statements for a discussion of material reconciling items to US GAAP.
A. Operating Results
The Corporation’s working capital as at December 31, 2010 was $7,979,474 compared with a working capital position of $2,638,431 as at December 31, 2009. The change in working capital was the result of funds used for operating activities in the period totalling $512,925 (December 31, 2009 – $629,049) and use of funding in the exploration expenditures at Copperstone, Fenelon and other properties totalling $1,783,036 (2009 – $1,840,431) offset by the proceeds of sale from the Canadian properties totaling 3,700,000 (2009 - $nil). An additional $1,476,380 (2009 - $nil) was used to purchase a processing plant for the Copperstone mine. Cash outlays were further offset by the sale of marketable securities for gross proceeds of $976,535 (2009 – $572,453). Cash provided by financing, net of issue costs, for the period was $1,508,706 (2009 – $204,314). The loss for the year ended December 31, 2010 was $6,590,086 or $0.05 per share compared with a net loss of $11,041,089 or $0.09 per share for the year ended December 31, 2009. A significant component of the current period’s loss was related to a loss on the disposal of marketable securities for $1,205,004 (2009 – gain of $55,399) and on mineral properties write-down totaling $4,214,729 (2009 – $10,743,555).
Between 2001 and 2006, the Corporation completed substantial drilling campaigns (over 400 holes totalling over 150,000 feet) that defined the measured, indicated and inferred resources at Copperstone. Over the past three years the Corporation has been studying the best way to put Copperstone into production while completing further exploration drilling to increase the size of the resource.
The Corporation completed and released the positive results of its NI43-101 compliant Feasibility Study (the “Study”) in February, 2010 (updated January, 2011). The Study was prepared to present the results of a comprehensive evaluation of the Copperstone deposit and provide an economic evaluation of future underground mining operations at the past producing Copperstone mine. The Study indicates Copperstone will be a profitable gold mine with positive economics from the re-activation of mining, pursuing the gold mineralization from the past open pit to the future high grade underground mining. Re-activation of mining at Copperstone remains the Corporation’s primary objective.
In August 2010, the Corporation completed the purchase of a 700 ton per day milling and flotation circuit at Copperstone for a cash payment of US$400,000 and the issuance of 1,250,000 common shares. The purchase price of the mill was valued at US$612,500. This purchase represents a significant cost savings and is expected to reduce the capital cost of the Copperstone project by approximately $400,000. The mill has operated for less than 2 years and is in good condition. The Corporation has acquired a full set of engineering drawings, which will help accelerate construction timelines and reduce costs. The mill includes a rod mill, ball mill, fume scrubber, flotation cells, cleaner cells, concentrate filter drum, tank thickeners, water storage tank, concentrate ore samplers, cyclones, duplex gravity concentrating jigs, the mill building, control panel and conveyor. The mill does not include a crusher and crusher building, which Bonanza had purchased separately.
The milling and flotation/gravity plant and building were shipped to a facility in Globe, Arizona for refurbishing and some major components of the milling and flotation circuit were delivered to Bonanza’s Arizona based construction contractor’s yard in preparation for construction. Work is progressing on updating the engineering plans for the mill and mill foundation. Upon completing the modernization and design work, RAM will transport and reassemble the mill at Copperstone, expected to commence in early April.
Work has also started on the rehabilitation of the existing buildings and other infrastructure at the Copperstone mine site including updating the electrical supply systems. Bonanza has drilled geotechnical holes to obtain information required for designing the foundation for the crushing plant in anticipation of the full construction phase.
In addition to the milling facilities, the Corporation also purchased a jaw crusher and a cone crusher. The jaw crusher is a Nordberg P1008VF Portable Jaw Plant with ST1008 Jaw Crusher (32" x 40"), a 16 foot x 44" Vibrating Grizzly feeder, a Kent Model KHB-86 Rock Breaker with 16' Boom and an associated control tower. The crusher has a capacity of up to 200 tons per hour and will crush all of the coarse run-of-mine mill feed for the planned mining operations. The equipment was purchased from Earthworks Machinery Company of Roseville, California. The cone crusher is a Nordberg 4 foot cone crusher and includes a 16 foot x 6 foot screen and associated conveyors and motors. Delivery for the equipment is expected during May 2011. The equipment was purchased from J.W. Jones Company of Paragon, Indiana.
In October, 2010 the Corporation reported that the United States Department of the Interior’s Bureau of Land Management (“BLM”) issued the federal permits for mining at the Copperstone gold mine. The BLM’s Decision Record is supported by the Proposed Reopening of the Copperstone Mine Environmental Assessment DOI-BLM-AZ-C020-2010-0015-EA (the “EA”), and the Finding of No Significant Impact (the “FONSI”).
The FONSI determines that the Proposed Action (construction of the Copperstone gold mine) does not constitute a major Federal Action affecting the quality of the human environment and that an Environmental Impact Statement is unnecessary. The FONSI determines that the proposed action under the EA will assure that no significant adverse impact will occur to the human environment in terms of air quality, global warming, cultural resources, hazardous material, human health and public safety, lands and Realty management, mineral resource management, native American religious concerns, non-native invasive species, recreation, surface protection, visual resources, water quality – drinking and ground, wildlife, wild horse and burro management.
In February, 2011 the Corporation posted an approximately $1.6 million cash reclamation bond with BLM for Copperstone. The bond was posted to guarantee that Bonanza is positioned to complete all required reclamation at the end of the mine life at Copperstonee based on the current mine plan of operations. The Corporation will perform partial reclamation work at the Copperstone site concurrent with mining operations.
Outstanding permits from the State of Arizona are expected to be complete during the first quarter 2011.
In November 2010, the Corporation reported the selection of Mining and Environmental Services LLC ("MES"), of Idaho Springs, Colorado, to conduct contract mining at the wholly owned Copperstone gold mine in Arizona. MES will mobilize upon receipt of the final state permits to start pre-development mining activities, including rehabilitation of the existing decline and the development of the initial high grade stopes.
In November, 2010 the Corporation closed the sale of Bonanza’s eastern Canadian exploration properties with Balmoral Resources Ltd. (“Balmoral”). In consideration for the properties, Balmoral made a one-time cash payment to Bonanza of Cdn $3.7 million dollars and issued 4.5 million common shares of Balmoral to Bonanza, and assumed all ongoing liabilities in respect of the properties acquired. The Balmoral shares were valued at $1.15 per share giving total share value of $5,175,000.
In January, 2011 the Corporation closed the public offering of Units by Wellington West Capital Markets Inc (the “Agent”) for a total of 50 million units at a price of $0.35 per Unit for gross proceeds of $17.5 million. Each Unit consisted of one common share and one half of one warrant, with each whole warrant entitling the holder to purchase a further common share at a price of $0.45 per common share at any time until July 21, 2012. The Corporation paid the Agent a cash commission equal to 6% of the gross proceeds of the Offering, and issued to the Agent warrants to purchase 2,963,700 common shares at a price of $0.38 per common share, exercisable until July 21, 2012.
Selected Information
The following table sets forth selected consolidated annual financial information of the Corporation for, and as of the end of, each of the last three fiscal years. The selected consolidated financial information should be read in conjunction with the consolidated financial statements of the Corporation:
| | December 31, |
| | 2010 | 2009 | 2008 | |
| | | | $ | |
| Net loss | (6,590,086) | (11,041,089) | (3,883,826) | |
| Net loss per share | (0.05) | (0.09) | (0.03) | |
| Total cash and cash equivalents | 3,104,650 | 957,923 | 2,650,636 | |
| Working capital | 7,979,474 | 2,638,431, | 5,726,261 | |
| Total assets | 41,583,325 | 45,335,078 | 57,167,469 | |
| Total liability | 1,079,376 | 724,292 | 1,739,187 | |
| Shareholders’ equity | 40,503,949 | 44,610,786 | 55,428,282 | |
| | | | | |
| Year Ended December 31, 2010 | | | | |
For the year ended December 31, 2010, the Corporation had a net loss of $6,590,086 or $0.05 per share compared to a net loss of $11,041,089 or $0.09 per share with the corresponding period in 2009. A significant component of the current period’s loss was related to a loss on the disposal of marketable securities for $1,205,004 (2009 –gains of $55,399) and mineral property write-down for $4,214,729 (2009 – $10,743,555). General and administrative costs decreased slightly to $688,587 from $791,781 in 2009. Some significant components of the general and administration costs include management fees, consultant fees and salaries of $292,590 (2009 –$440,601), legal and accounting $134,928 (2009 - $121,655) and public company expenses $208,223 (2009 -$115,646).
Exploration office expenses increased to $283,594 in the period from $208,724 in 2009. Activities relating to property evaluations and investigations are ongoing. Exploration expenses in the period also include all costs associated with maintaining the Corporation’s exploration offices in Reno, Nevada.
Total development and exploration expenditures at the Copperstone project during the year December 31, 2010 totalled $1,741,872 or $23,828,667 since the program began in 2003. In addition, $1,476,380 was spent on capital expenditures to acquire processing facilities.
Year Ended December 31, 2009
For the year ended December 31, 2009, the Corporation had a net loss of $11,041,089 or $0.09 per share compared to a net loss of $3,883,826 or $0.03 per share with the corresponding period in 2008. Stock-based compensation expense for this period was $356,887 (2008 - $96,119). Write-down of mineral properties totalled $10,743,555 in 2009 compared to $2,075,404 in 2008. Interest income decreased to $21,573 during the year ended December 31, 2009 compared to $112,140 in 2008. General and administrative costs decreased to $791,781 from $876,202 in 2008 as a result of Management’s effort to preserve working capital. Some significant components of the general and administration costs include management fees, consultant and salaries of $440,601 (2008 – $335,877), legal and accounting $121,655 (2008 - $104,700) and public company expenses $115,646 (2008 - $226,836).
Exploration office expenses increased to $208,724 in the period from $134,205 in 2008. Activities relating to property evaluations and investigations are ongoing. Exploration expenses in the period also include all costs associated with maintaining the Corporation’s exploration offices in Reno, Nevada.
Year Ended December 31, 2008
For the year ended December 31, 2008, the Corporation had a net loss of $3,883,826 or $0.03 per share compared to a net loss of $946,457 or $0.01 per share with the corresponding period in 2007. Stock-based compensation expense for this period was $96,119 (2007 - $459,800). Interest income decreased to $112,140 from $134,163 which was the direct result of decreased cash balances and lower interest rates for the current period compared to the same period during 2007. General and administrative costs decreased to $876,202 from $1,046,378 in 2007. Significant components of the decreases include management fees, consultant and salaries which decreased to $335,877 from $390,901, legal and accounting decreased to $104,700 from $169,582 and public company expenses decreased to $226,836 from $278,386. Decreases this year was the result of reduced business activities. Other significant components in the current year loss include mineral property write-down of $2,075,404 (2007 –nil) and loss on mineral property disposal $977,782 (2007 – nil).
Exploration office expenses increased to $134,205 in the year from $111,467 in 2007. Activities relating to property evaluations and investigations are ongoing. Exploration expenses in the period also include all costs associated with maintaining the Corporation’s exploration offices in Reno, Nevada.
Critical Accounting Estimates
Critical accounting estimates used in the preparation of the financial statements include the Corporation’s estimated net recoverable value for its mineral properties. The business of mineral exploration and extraction involves a high degree of risk since very few properties that are explored and developed ultimately achieve commercial production. At present, none the Corporation’s properties have a known body of commercial ore except Copperstone reserves which was determined by a 43-101 compliant feasibility study.
The Corporation’s impairment determination and resulting estimated net recoverable value on its mineral projects represents management's best estimate of the value that will be recovered based on a net present value approach. Key assumptions in the estimate include future gold prices, recoverable ounces of gold and the discount rate applied, as well as the availability of necessary financing. Actual outcomes could differ materially from this estimate. The Corporation is in an industry that is exposed to a number of risks and uncertainties, including exploration, development, commodity, operating, ownership, political, funding, currency and environmental risk. While factoring these risks the Corporation has relied on very preliminary resource estimates on its properties, however, these estimates include assumptions that are potentially subject to significant changes that are not yet determinable. Accordingly, there is always the potential for a material change to the presentation in the financial statements relating to the carrying value of the Corporation’s mineral properties.
Other significant areas requiring the use of management estimates and assumptions relate to the valuation of amounts receivable, future income tax assets and liabilities and assumptions used in valuing options and warrants in stock-based compensation calculations. Actual results could differ from those estimates.
B. Liquidity and Capital Resources
The Corporation’s working capital as at December 31, 2010 was $7,979,474 compared with a working capital position of $2,638,431 as at December 31, 2009. The increase in working capital in the period was the result of the sale of the Canadian mineral properties with gross proceeds totalling $3,700,000 (2009 – nil) and sale of marketable securities of $976,535 (2009 – $572,453) offset by expenditures in the period at the Copperstone, Fenelon and other gold properties totalling $1,783,036 (2009 – $1,840,431) and purchase of milling plant $1,476,380 (2009 – nil). Use of funds to support operating activities was $512,925 (2009 – $629,049). As of December 31, 2010, a receivable in the amount of $68,505 (2009 – $433,998) from the Ministry of Natural Resources and the Government of Quebec related to exploration expenditures that occurred in that province during the current and previous years remained outstanding. Issuance of common share totalling $1,508,706 during this year compare to $204,314 during 2009.
On June 22, 2007 the Corporation entered into an option agreement with Cusac for Cusac to acquire the Taurus Project from the Corporation for total cash consideration of up to $11,000,000 plus up to 3,000,000 common shares of Cusac. On December 19, 2007 Cusac and Hawthorne Gold Corp. (“Hawthorne”) entered into a definitive merger agreement entitling holders of Cusac common shares to receive one common share of Hawthorne in exchange for each 19 common shares of Cusac. The Corporation, Cusac and Hawthorne also entered into an option assignment and amending agreement (the “Agreement”) whereby Cusac assigned to Hawthorne all its rights to the option to acquire the 46 mineral claims of the Taurus Project from the Corporation. The assignment agreement amended the terms of the original option agreement and required Hawthorne to pay $6 million over two years, consisting of $1 million by December 22, 2007 (paid), $2 million by June 22, 2008 (paid), $1.5 million by June 22, 2009 and $1.5 million by December 22, 2009. On June 22, 2007, the Corporation received its first instalment of 1,500,000 common shares of Cusac and on December 22, 2007 and June 22, 2008 the Corporation received the $1,000,000 and $2,000,000 option payments respectively.
In December 2008, the agreement was further amended to delete the 2009 payments and all subsequent royalty payments in favour of issuance of 6,750,000 Hawthorne common shares to the Corporation. The Corporation received the Hawthorne shares in full on December 30, 2008, which were valued at $2,362,500 based on the quoted market price and the Corporation recognised a loss on property disposal of $977,782. During 2009, the Corporation sold 1,300,000 of these securities and realised a gain of $68,712. During the year ended December 31, 2010, the Corporation sold an additional 5,528,947 Hawthorne shares at an average price of $0.177 per share for gross proceeds of $976,535 and incurred commission of $16,344.
On April 2, 2009, the Corporation completed a non-brokered private placement of 2,582,913 flow-through shares, at a price of $0.08 per share for gross proceeds of approximately $206,600. No commission was paid on the financing.
On June 16, 2010 the Corporation completed a non-brokered private placement of 1,594,500 flow-through shares, at a price of $0.16 per share for gross proceeds of $255,120. No commission was paid on the financing.
On August 10, 2010 the Corporation completed a non-brokered private placement of 3,333,717 units (the “Units”) at a price of $0.15 per Unit for gross proceeds of approximately $500,000. Each Unit consists of one common share, and one half of one common share purchase warrant with each full warrant entitling the holder to acquire one common share at a price of $0.23 until August 11, 2012. A 5% finder’s fee was paid on the financing.
On August 16, 2010 the Corporation closed the purchase of a milling and flotation for a purchase price of US$400,000 and the issuance of 1,250,000 common shares. The common shares issued were valued at $0.17 per share for $212,500.
On August 24, 2010 the Corporation completed a non-brokered private placement of 4,675,166 units (the “Units”) at a price of $0.15 per Unit for gross proceeds of approximately $700,000. Each Unit consists of one common share (a “Common Share”), and one half of one common share purchase warrant (a “Warrant”), with each full Warrant entitling the holder to acquire one common share at a price of $0.23 until August 24, 2012.
In January, 2011 the Corporation closed the public offering of Units by Wellington West Capital Markets Inc (the “Agent”) for a total of 50 million Units at a price of $0.35 per unit for gross proceeds of $17.5 million. Each Unit consisted of one common share and one half of one warrant, with each whole warrant entitling the holder to purchase a further common share at a price of $0.45 per common share at any time until July 21, 2012. The Corporation paid the Agent a cash commission equal to 6% of the gross proceeds of the Offering, and issued to the Agent warrants to purchase 2,963,700 common shares at a price of $0.38 per common share, exercisable until July 21, 2012.
In February, 2011 the Corporation posted an approximately $1.6 million cash reclamation bond with BLM for Copperstone. The bond was posted to guarantee that Bonanza is positioned to complete all required reclamation at the end of the mine life at Copperstone based on the current mine plan of operations.
The recoverability of amounts capitalized is dependent upon the discovery of economically recoverable reserves, securing and maintaining title on the properties and obtaining the necessary financing to complete the exploration and development of these projects and upon the attainment of future profitable production.
C. Research and Development, Patents and Licenses, etc.
None.
D. Trend Information
Management is not currently aware of any trends, commitment, event or uncertainty that may reasonably be expected to have a material impact on the Corporation’s business other than the summary of risk factors, included in Item 3.D. “Risk Factors”, that are typically inherent in the business of precious metals exploration.
E. Off-Balance Sheet Arrangements
The Corporation does not utilize off-balance sheet arrangements.
F. Contractual Obligations
The following table sets forth the Corporation’s known contractual obligations as at December 31, 2010:
| | Payments due by period | |
| | | Less than | | | More than | |
| | Total | 1 year | 1-3 years | 4-5 years | 5 years | |
| Contractual Obligations | $ | $ | $ | $ | $ | |
| Long-Term Debt Obligations(3) | Nil | Nil | Nil | Nil | Nil | |
| Lease Obligation – Payment to The Patch | 150,000 | 30,000 | 90,000 | 30,000 | Nil | |
| Living Trust on Copperstone Property(1)(4) | | | | | | |
| Mineral Property Interests – Filing Fees(2) | 931,000 | 186,000 | 621,000 | 30,000 | 94,000 | |
| Office Rental Agreement | 25,000 | 25,000 | Nil | Nil | Nil | |
| Total | $1,106,000 | $241,000 | $711,000 | $60,000 | $94,000 | |
| (1) | Amount in U.S. dollars. |
| | |
| (2) | Mineral property interest costs are contingent on retaining an interest in the property. All agreements are subject to cancellation without penalty. Filing fees, which include claim rental fees, do not have to be paid if the property is forfeited to the appropriate government authority. Filing fee amount may vary subject to the acquisition or disposal of mineral properties. |
| | |
| (3) | The Corporation has entered into an Employment Agreement with Brian Kirwin. In the event of termination without cause, or any change in the effective control of the Corporation that occurs, the Corporation must pay Mr. Kirwin an amount equal to three years’ salary and benefits of US$570,000. |
| | |
| (4) | Old Bonanza holds a 100 percent leasehold interest in the Copperstone Project. The landlord is The Patch Living Trust and the lease is for a 10 year term starting June 12, 1995 and was renewed on June 12, 2005. The lease is renewable by Old Bonanza for one or more ten-year terms at Old Bonanza’s option under the same terms and conditions. Old Bonanza is obligated to pay for all permitting and state lease bonding, insurance, taxes, and to pay a 1 percent production gross royalty so long as the price of gold in US dollars is less than US$350 per ounce (royalty increases to 6 percent as price of gold increases to over US$551 per ounce), with a minimum advance royalty per year of US$30,000. |
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.Directors and Senior Management
The following is information as at December 31, 2010:
Directors and Officers
Ronald K. Netolitzky, Director
Mr. Netolitzky, Victoria, British Columbia, age 69, holds a M.Sc. in Geology, and has a wealth of experience in the mining industry and has achieved exploration success on three major gold deposits which have subsequently been put into production: the Snip, Eskay Creek and Brewery Creek mines. He was chairman of Viceroy Exploration Ltd. until its acquisition by Yamana. Previously he was Chairman of Viceroy Resources Corporation, after serving as its President and Chief Executive Officer. Mr. Netolitzky is also the former Chairman of both Loki Gold Corporation and Baja Gold Inc. Mr. Netolitzky has not entered into a non-competition agreement with the Corporation. On January 14, 2004, Mr. Ronald Netolitzky was subjected to a petition seeking a Bankruptcy Order. The petition was brought as collateral litigation and related to a guarantee provided by Mr. Netolitzky. The petitioner, BC Pacific Capital Corporation, did not proceed with the petition, and the petition was placed in abeyance. The court, upon application by Mr. Netolitzky which was not opposed, dismissed the petition.
Robert T. McKnight, Director
Mr. McKnight, North Vancouver, British Columbia, age 62, holds an MBA, is a registered Professional Engineer and is Executive Vice President of Nevada Copper Corp. since October 1, 2010. He was formerly Vice President & Director of Selwyn Resources Ltd. and Director of an indirect Guyana subsidiary of StrataGold Corporation, Feb 2004 to Oct 2010; Director of Savant Resources Ltd, May 2007-Present (resigned as CFO Jan 2008); Manager, Financial Services, AMEC Americas Ltd, September 2003 to January 2004; President, Finisterre Holdings Inc., a private company, 1996 to Dec 2007; Vice President of Pincock Allen & Holt Ltd. from September 1998 to June 2001; Director and Principal of Endeavour Financial Corporation from February 1990 to November 1997 and prior thereto various senior corporate development roles with TOTAL CFP Group Minerals, Getty Resources Ltd, Cassiar Resources, and Brascan Resources Ltd. Mr. McKnight is the Chairman of the Corporation’s Audit Committee. Mr. McKnight is also currently a Director of Savant Explorations Ltd, which is currently listed on the TSX Venture Exchange. Mr. McKnight has not entered into a non-competition agreement with the Corporation.
James Bagwell, Director
Mr. Bagwell, Tampa, Florida, age 64, holds a B.Sc. degree in Economics and Business Administration, and was a director of Taurus since 1996. He is a business executive and entrepreneur with a career spanning over 38 years. He has been involved in many new company formation, management, financial and as an investor in industries including retail, wholesale, manufacturing, real estate, mining, farming, medical, and charitable groups. He is also a partner with ABBA Corp. Mr. Bagwell is a member of the Corporation's Audit Committee. Mr. Bagwell has not entered into a non-competition agreement with the Corporation.
Giulio T. Bonifacio, Director
Mr. Bonifacio, Vancouver, British Columbia, age 50, is a Certified General Accountant and has been a Director of the Corporation from July 2001 to present; Mr. Bonifacio was Chief Financial Officer of the Corporation from July 2001 to January 2009; Executive Vice President of the Corporation July 2001 to May 2007; Vice President, Finance, Treasurer and Secretary of Vengold Inc., from 1994 until June 2001 and prior thereto various senior financial roles with TOTAL CFP Group Minerals and Getty Resources Limited. Mr. Bonifacio is also currently a member of the board of directors and audit committee of companies listed on the TSX and TSX Venture Exchange. Mr. Bonifacio has not entered into a non-competition agreement with the Corporation.
Brian P. Kirwin, President and Chief Executive Officer (“CEO”), Director
Mr. Kirwin, Reno, Nevada, age 50, holds a M.Sc. in Mineral Exploration and has been the President and Chief Executive Officer of Bonanza since December 2000; President of the Corporation June 2000 - December 2000; Vice President, Exploration of Vengold Inc. May 1996 to June 2000. From 1989 to April, 1996 he was employed by Placer Dome Inc. in various capacities; most recently as Senior Evaluations Geologist in the Corporate Development group from February 1994 to April 1996. Mr. Kirwin has not entered into a non-competition agreement with the Corporation.
Joe Chan, Vice President and Chief Financial Officer
Mr. Joe Chan, Vancouver, age 63, is a Certified Management Accountant, and has been Chief Financial Officer of the Corporation since January 2009 and prior was Vice President, Controller of the Corporation since January 31, 2006; Controller of Old Bonanza since March 2005; Controller for Taurus from January, 2004; Project Accountant for Compania Minera Antamina SA, Peru from 1998 to 2002. Mr. Chan has not entered into a non-competition agreement with the Corporation.
Certain Affiliations
Some of the directors of the Corporation are also directors and officers of other corporations. It is possible, therefore, that a conflict may arise between their duties as a director or officer of the Corporation and their duties as a director or officer of such other corporations. All such conflicts must be disclosed by them in accordance with the BCA, and they are required to govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
As of March 22, 2011, the following directors and officers of the Corporation are also directors, officers or promoters of the following corporations:
Name of
Director/Officer | Corporation | Business/Area | Position | Period |
| Robert McKnight | Nevada Copper Corp. | Copper/Nevada | Executive VP | Oct 2010 to Present |
| | | | Director | |
| | Savant Explorations Ltd. | Metals/Worldwide | | May 2007 to Present |
| Giulio Bonifacio | Earthworks Industries Inc. | Landfill/California | Director | Feb 2002 to Present |
| | Mesa Uranium Corp. | Uranium/Utah | Director | Dec. 2005 to Present |
| | Nevada Copper Corp. | Copper/Nevada | President & CEO, | Aug 2006 to Present |
| | | | Director | |
| | Sonora Gold & Silver Corp. | Gold/Silver/Tanzania | Director | 2010 to Present |
| | Ocean Park Ventures Corp. | Copper/Alaska | Director | 2011 to Present |
| | Boni Holdings (1982) Ltd. | Private Co. | President and Director | 1991 to Present |
| Brian Kirwin | Nevada Copper Corp. | Copper/Nevada | Director | Aug 2006 to Present |
| | Mesa Uranium Corp. | Uranium/Utah | Director | Dec. 2005 to Present |
| Ronald Netolitzky | Aurcana Corp | Silver, zinc/Mexico | Director | Sept 1997 to Present |
| | Aben Resources Ltd. | Gold | Director | Mar 2011 to Present |
| | Blue Sky Uranium Corp. | Uranium | Director | Nov 2009 to Present |
| | Boss Power Corp. | Uranium | Director | Sept 2007 to Present |
| | Copper Canyon Resources | Copper/Canada | Director | May 2006 to Present |
| | Eagle Plain Resources Ltd. | Minerals/Yukon & BC | Director | May 2004 to Present |
| | Golden Band Resources Inc. | Gold/Saskatchewan | Chairman, Dir. | July 1989 to Present |
| | Pacific Iron Ore Corp. | Iron/Ore | Director | July 2008 to Present |
| | Strongbow Resources Inc. | Uranium/N. America | Director | Jan 2005 to Present |
| | Skeena Resources Limited | Gold/International | Director | Apr 1983 to Present |
| | Solomon Resources Ltd. | Gold/Argentina | Director | Aug 1989 to Present |
| | Virginia Energy Resources | Uranium | Director | May 2003 to Present |
| | Inc. (formerly Santoy) | | | |
| James F. Bagwell | ABBA Corp. | Consulting/United States | Partner | May 2006 to Present |
| Joe Chan | Nevada Copper Corp. | Copper/Nevada | Officer | Sept 2006 to Present |
| | Mesa Uranium Corp. | Uranium/Utah | Officer | May 2009 to Present |
Brian Kirwin and Joe Chan devote approximately 95% of their time to the affairs of the Corporation.
Other Information
None of the Corporation’s officers or directors have a family relationship with each other. There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which the Corporation’s directors or senior management were selected.
B. Compensation
The following tables set forth the annual and long-term compensation for services in all capacities to the Corporation and its subsidiaries for the three years ended December 31, 2008, 2009 and 2010, in respect of each of the individuals who were, as of December 31, 2010, members of its administrative, supervisory or management bodies (collectively the “Named Executive Officers”):
| Summary Compensation Table |
| | | Annual Compensation (US$) | Long-Term Compensation | |
| | | | | Other | Securities | | |
| | | | | Annual | Under | Restricted | All other |
| Name and Principal | | Salary | Bonus | Compen- | Options/SARs | Shares | Compen- |
| Position | Year | ($) | ($) | sation | Granted (#)(1) | ($) | sation |
| Brian P. Kirwin | 2010 | 190,000 | Nil | Nil | Nil | Nil | Nil |
| President, CEO | 2009 | 190,000 | Nil | Nil | Nil | Nil | Nil |
| | 2008 | 190,000 | Nil | Nil | Nil | Nil | Nil |
| Joe Chan | 2010 | 135,000 | Nil | Nil | Nil | Nil | Nil |
| CFO | 2009 | 120,000 | Nil | Nil | Nil | Nil | Nil |
| | 2008 | 120,000 | Nil | Nil | Nil | Nil | Nil |
| | | (CDN$) | | | | | |
| | (1) | The Corporation does not have a long-term incentive plan other than a stock option plan, and the Corporation has not granted, and does not intend to grant, stock appreciation rights. |
Compensation of Directors
On April 1, 2010 the independent directors’ were paid CDN$15,000 each.
Except as disclosed herein, the Corporation has no standard arrangement pursuant to which Named Executive Officers or directors of the Corporation are compensated by the Corporation for their services, except for the granting from time to time of incentive stock options in accordance with the Corporation’s stock option plan and the policies of the TSX.
Stock Options
The Corporation has in place a stock option plan (the “Plan”). The Plan has been established to provide incentive to qualified parties to increase their proprietary interest in the Corporation and thereby encourage their continuing association with the Corporation. The Plan is administered by the directors of the Corporation. The Plan provides that options may be issued to directors, officers, employees or consultants of the Corporation or a subsidiary of the Corporation. All options expire on a date not later than five years after the date of grant of such option.
As at December 31, 2010, the Corporation has granted rights to purchase or acquire an aggregate of 10,560,000 common shares pursuant to stock options and other outstanding rights to purchase securities, including the options listed below. The closing market price of the common shares on December 31, 2010 as traded on the TSX was $0.35.
The share options held by the directors and Named Executive Officers of the Corporation as at December 31, 2010 are as follows:
| | No. of | | | | Market |
| | Common | | | | Value on |
| | Shares Subject | Date of | Exercise | Expiry | Date of |
| Name of Optionees | to Option | Grant | Price | Date | Grant |
| | (#) | | $ | | |
| Brian P. Kirwin | 500,000 | November 6, 2007 | $0.22 | November 6, 2012 | $0.22 |
| | 600,000 | August 6, 2008 | $0.07 | August 6, 2013 | $0.07 |
| | 830,000 | January 26, 2009 | $0.06 | January 26, 2014 | $0.06 |
| | 1,350,000 | March 18, 2009 | $0.085 | March 18, 2014 | $0.085 |
| Giulio T. Bonifacio | 500,000 | November 6, 2007 | $0.22 | November 6, 2012 | $0.22 |
| | 600,000 | August 6, 2008 | $0.07 | August 6, 2013 | $0.07 |
| | 770,000 | January 26, 2009 | $0.06 | January 26, 2014 | $0.06 |
| | 1,210,000 | March 18, 2009 | $0.085 | March 18, 2014 | $0.085 |
| Robert McKnight | 250,000 | November 6, 2007 | $0.22 | November 6, 2012 | $0.22 |
| | 200,000 | August 6, 2008 | $0.07 | August 6, 2013 | $0.07 |
| | 150,000 | January 26, 2009 | $0.06 | January 26, 2014 | $0.06 |
| | 200,000 | March 18, 2009 | $0.085 | March 18, 2014 | $0.085 |
| James F. Bagwell | 250,000 | November 6, 2007 | $0.22 | November 6, 2012 | $0.22 |
| | 200,000 | August 6, 2008 | $0.07 | August 6, 2013 | $0.07 |
| | 150,000 | January 26, 2009 | $0.06 | January 26, 2014 | $0.06 |
| | 200,000 | March 18, 2009 | $0.085 | March 18, 2014 | $0.085 |
| Joe Chan | 25,000 | November 6, 2007 | $0.22 | November 6, 2012 | $0.22 |
| | 25,000 | August 6, 2008 | $0.07 | August 6, 2013 | $0.07 |
| | 160,000 | January 26, 2009 | $0.06 | January 26, 2014 | $0.06 |
| | 150,000 | March 18, 2009 | $0.085 | March 18, 2014 | $0.085 |
Defined Benefit or Actuarial Plan Disclosure
The Corporation has no defined benefit or actuarial plans.
Termination of Employment, Changes in Responsibility and Employment Contracts
The following summary of the employment agreement entered into with Mr. Kirwin is not complete and is qualified in its entirety by reference to the full text of such agreement.
The Corporation entered into an employment agreement with Mr. Brian Kirwin on April 1, 2003, and as amended July 1, 2006whereby the Corporation agrees to pay Mr. Kirwin a base annual salary currently at US$190,000, benefits and bonus. Each year during the term of this agreement, the Board determines a bonus amount that is considered appropriate, the amount of such bonus to be based on achievements necessary for the growth and development of the Corporation. In the event of termination without cause, or any change in the effective control of the Corporation that occurs, the Corporation must pay Mr. Kirwin an amount equal to three years’ salary and benefits.
C. Board Practices
The directors of the Corporation are elected annually by shareholders at each annual general meeting of the Corporation. Members of the Corporation’s management are appointed by the Corporation’s board and serve until they resign or are replaced by the board.
The Audit Committee of the board functions pursuant to a charter adopted by the board. The function of the Audit Committee generally is to oversee the audit of the Corporation’s financial statements performed by the Corporation’s independent auditors and to recommend the selection of independent auditors. The Audit Committee also assists the board of directors of the Corporation in carrying out its responsibilities relating to the Corporation’s financial, accounting and reporting processes, the Corporation’s system of internal accounting and financial controls, the Corporation’s compliance with related legal and regulatory requirements, and the fairness of transactions between the Corporation and related parties. The members of the Audit Committee are Robert McKnight, Ron Netolitzky and James Bagwell. The Audit Committee meets at least once per quarter.
The board has also established a Compensation Committee, which functions pursuant to a charter adopted by the board. The function of the Compensation Committee generally is to assist the board in carrying out its responsibilities relating to executive and director compensation, including reviewing and recommending director compensation, overseeing the Corporation’s base compensation structure and equity-based compensation programs, recommending compensation of the Corporation’s officers and employees, and evaluating the performance of officers generally and in light of annual goals and objectives. The members of the Compensation Committee are James Bagwell, Robert McKnight and Ronald Netolitzky.
D. Employees
As of December 31, 2010, the Corporation had five employees of whom two are senior executive officers as follows:
Brian Kirwin, President and Chief Executive Officer
Joe Chan, Chief Financial Officer
All other professional staff are retained under consulting contracts.
There are no contracts of collective agreements between the Corporation and any labour union or similar organization.
E. Share Ownership
The following table sets forth security ownership of each of the directors and Named Executive Officers in the Corporation as at March 22, 2011:
| Name, | Number of Common Shares | |
| Municipality of Residence | Beneficially Owned or Controlled | Percentage of Issued |
| and Position with Corporation | (1)(2)(3) | Share Capital |
| Brian Kirwin | Common Shares: 1,679,119 | |
| Reno, Nevada | Options: 6,680,000 | 1.3% |
| President, CEO & Director | Warrants: nil | |
| Giulio Bonifacio | Common Shares: 1,670,930 | |
| Vancouver, B.C. | Options: 3,780,000 | 1.3% |
| Director | Warrants: nil | |
| Robert McKnight | Common Shares:135,000 | |
| North Vancouver, B.C. | Options: 1,200,000 | 0.1% |
| Director | Warrants: Nil | |
| Ronald Netolitzky | Common Shares: 1,405,800 | |
| Victoria, B.C. | Options: 400,000 | 1% |
| Director | Warrants: 145,000 | |
| James Bagwell | Common Shares: 90,000 | |
| South Carolina, USA | Options: 1,300,000 | 0% |
| Director | Warrants: nil | |
| Joe Chan | Common Shares: 42,000 | |
| Vancouver, B.C. | Options: 460,000 | 0% |
| CFO | Warrants: Nil | |
| | (1) | Common shares beneficially owned, directly or indirectly, or over which control or direction is exercised, as at March 22, 2011, based upon information furnished by the respective shareholders. |
| | | |
| | (2) | Stock options entitle the holder to purchase common shares in the capital of the Corporation at a fixed price for a specific period of time. Stock options do not carry any voting rights. Details relating to stock options held by directors and Named Executive Officers of the Corporation are set out under “Stock Options” in Item 6.B. above. |
| | | |
| | (3) | 800,000 Stock Options were exercised in 2010 by Ronald Netolitzky. |
Aggregate Option Exercises in Last Financial Year and Option Values
Details of stock options held by the directors and Named Executive Officers of the Corporation and the value of such options as at the end of the most recently completed financial year are set forth in the following table:
| | | | | Value of |
| | Securities | | | Unexercised |
| | Acquired | Aggregate | | in-the-Money |
| | on | Value | | Options at |
| Name | Exercise | Realized | Unexercised Options at FY-End | FY-End |
| | (#) | ($) | (#) | ($)(1) |
| Brian P. Kirwin | Nil | Nil | 500,000 Common Shares at $0.22 per | 65,000 |
| | | | share expiring November 6, 2012 | |
| | | | 600,000 Common Shares at $0.07 per | 168,000 |
| | | | share expiring August 6, 2013 | |
| | | | 830,000 Common Shares at $0.06 per | 240,700 |
| | | | share expiring January 26, 2014 | |
| | | | 1,350,000 Common Shares at $0.085 per | 357,750 |
| | | | share expiring March 18, 2014 | |
| Giulio T. Bonifacio | Nil | Nil | 500,000 Common Shares at $0.22 per | 65,000 |
| | | | share expiring November 6, 2012 | |
| | | | 600,000 Common Shares at $0.07 per | 168,000 |
| | | | share expiring August 6, 2013 | |
| | | | 770,000 Common Shares at $0.06 per | 223,300 |
| | | | share expiring January 26, 2014 | |
| | | | 1,210,000 Common Shares at $0.085 per | 320,650 |
| | | | share expiring March 18, 2014 | |
| Robert McKnight | Nil | Nil | 250,000 Common Shares at $0.22 per | 32,500 |
| | | | share expiring November 6, 2012 | |
| | | | 200,000 Common Shares at $0.07 per | 56,000 |
| | | | share expiring August 6, 2013 | |
| | | | 150,000 Common Shares at $0.06 per | 43,500 |
| | | | share expiring January 26, 2014 | |
| | | | 200,000 Common Shares at $0.085 per | 53,000 |
| | | | share expiring March 18, 2014 | |
| Ronald Netolitzky | 250,000 | 28,750 | Nil | Nil |
| | 200,000 | 53,000 | | |
| | 150,000 | 41,250 | | |
| | 200,000 | 50,000 | | |
| James Bagwell | Nil | Nil | 250,000 Common Shares at $0.22 per | 32,500 |
| | | | share expiring November 6, 2012 | |
| | | | 200,000 Common Shares at $0.07 per | 56,000 |
| | | | share expiring August 6, 2013 | |
| | | | 150,000 Common Shares at $0.06 per | 43,500 |
| | | | share expiring January 26, 2014 | |
| | | | 200,000 Common Shares at $0.085 per | 53,000 |
| | | | share expiring March 18, 2014 | |
| | | | 100,000 Common Shares at $0.19 per | 26,000 |
| | | | share expiring March 25, 2015 | |
| | | | | Value of |
| | Securities | | | Unexercised |
| | Acquired | Aggregate | | in-the-Money |
| | on | Value | | Options at |
| Name | Exercise | Realized | Unexercised Options at FY-End | FY-End |
| | (#) | ($) | (#) | ($)(1) |
| Joe Chan | Nil | Nil | 25,000 Common Shares at $0.22 per | 3,250 |
| | | | share expiring November 6, 2012 | |
| | | | 25,000 Common Shares at $0.07 per | 7,000 |
| | | | share expiring August 6, 2013 | |
| | | | 160,000 Common Shares at $0.06 per | 46,400 |
| | | | share expiring January 26, 2014 | |
| | | | 150,000 Common Shares at $0.085 per | 39,750 |
| | | | share expiring March 18, 2014 | |
| | (1) | Based on the closing price on December 31, 2010 of $0.35 per share. The value is the product of the number of common shares optioned multiplied by the difference between the closing market price on December 31, 2010 and the exercise price. |
ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.Major Shareholders
The following table sets forth the ownership of the Corporation’s shares by those parties which, to the knowledge of management, owned five percent (5%) or more of the outstanding common shares of the Corporation as at March 22, 2011:
| | Number of Common Shares | Percentage of Issued |
| Name and Municipality of Residence | owned or controlled | Share Capital |
Mr. Landon Clay(1)
Boston, MA | 15,982,309(1) | 9.8% |
Yale University
New Haven, CT | 8,500,000 | 5.2% |
(1) As of March 22, 2011, Mr. Clay owned 15,982,309 shares directly and indirectly through various entities that Mr. Clay has sole control over, including East Hill Hedge Fund LLC, which owns 13,419,417.
The following table sets forth the ownership of the Corporation’s shares by those parties which, to the knowledge of management, owned five percent (5%) or more of the outstanding common shares of the Corporation as at March 20, 2010:
| | Number of Common Shares | Percentage of Issued |
| Name and Municipality of Residence | owned or controlled | Share Capital |
Mr. Landon Clay(1)
Boston, MA | 16,638,450(1) | 14.1% |
Yale University
New Haven, CT | 8,500,000 | 7.2% |
(1) As of March 20, 2010, Mr. Clay owned 16,638,450 shares directly and indirectly through various entities that Mr. Clay has sole control over, including East Hill Hedge Fund LLC, which owns 16,035,417. Check numbers at March 20 (Clay selling in March)
The following table sets forth the ownership of the Corporation’s shares by those parties which, to the knowledge of management, owned five percent (5%) or more of the outstanding common shares of the Corporation as at December 31, 2009:
| | Number of Common Shares | Percentage of Issued |
| Name and Municipality of Residence | owned or controlled | Share Capital |
Mr. Landon Clay
Boston, MA | (1) 16,638,450 | 14.1% |
Yale University N
ew Haven, CT | 8,500,000 | 7.3% |
(1)As of December 31, 2009, Mr. Clay owned 16,638,450 shares directly and indirectly through various entities that Mr. Clay has sole control over, including East Hill Hedge Fund LLC, which owns 16,035,417.
As at March 22, 2011, the Corporation had 232 registered shareholders in the United States, holding a total of 22,255,323 common shares representing 13.6% of the total issued and outstanding shares of the Corporation.
The voting rights attached to all common shares of the Corporation are equal. No shareholder or group of shareholders holds or is entitled to exercise any preferential voting rights with respect to common shares of the Corporation.
The Corporation has not paid any dividends since its incorporation and does not anticipate the payment of dividends in the foreseeable future. At present, the Corporation’s policy is to retain earnings, if any, to finance exploration on its properties. The payment of dividends in the future will depend upon, among other factors, the Corporation’s earnings, capital requirements and operating conditions.
B. Related Party Transactions
The Corporation shares certain premises and facilities with companies which have certain directors in common, under cost-sharing arrangements. During the year ended December 31, 2010 the Corporation recovered management and consulting fees of $79,091 (2009 – $82,375; 2008 – $146,150) and general and administration expenses of $133,409 (2009 - $54,125; 2008 – $82,719) from these companies. As at December 31, 2010, there was $2,629 (2009 - $4,741) of accounts receivable due from companies with certain directors in common.
C. Interests of Experts and Counsel
Not Applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
This Form 20-F includes the following comparative financial statements covering the last three financial years of the Corporation which are set forth in Item 17:
Report of Independent Registered Public Accounting Firm;
Consolidated Balance Sheets as at December 31, 2010 and 2009;
Consolidated Statements of Operations and Deficit and Comprehensive Loss for the years ended December 31, 2010, 2009 and 2008;
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008; and
Notes to the Consolidated Financial Statements.
There are no legal or arbitration proceedings which may have, or have had in the recent past, a significant effect on the Corporation’s financial position or profitability.
The Corporation has not in the past paid and does not anticipate paying any dividends in the future. The payment of dividends is at the discretion of the board of directors of the Corporation.
B. Significant Changes
Except as disclosed in this Annual Report on Form 20-F, there have been no significant changes since the date of the Corporation’s financial statements.
ITEM 9.THE OFFER AND LISTING
A.Offaner d Listing Details
The common shares of Bonanza are listed and posted for trading on the TSX. The following table sets forth the annual high and low closing prices, in Canadian dollars, for the Corporation on the TSX for the last five full financial years:
| Fiscal Year Ending | High | Low |
| December 31, 2010 | 0.425 | 0.135 |
| December 31, 2009 | 0.18 | 0.05 |
| December 31, 2008 | 0.27 | 0.02 |
| December 31, 2007 | 0.34 | 0.17 |
| December 31, 2006 | 0.78 | 0.27 |
The following table sets forth the high and low prices for each full financial quarter, in Canadian dollars, in the last two fiscal years of the Corporation on the TSX:
| Fiscal 2010 | High | Low |
| First Quarter | 0.19 | 0.135 |
| Second Quarter | 0.19 | 0.155 |
| Third Quarter | 0.34 | 0.155 |
| Fourth Quarter | 0.415 | 0.28 |
| Fiscal 2009 | High | Low |
| First Quarter | 0.10 | 0.05 |
| Second Quarter | 0.10 | 0.07 |
| Third Quarter | 0.12 | 0.06 |
| Fourth Quarter | 0.18 | 0.10 |
The following table sets forth the high and low prices, in Canadian dollars, of the common shares of the Corporation on the TSX for the last six months:
| | High | Low |
| February, 2011 | 0.385 | 0.35 |
| January, 2011 | 0.355 | 0.32 |
| December, 2010 | 0.395 | 0.345 |
| November, 2010 | 0.415 | 0.33 |
| October, 2010 | 0.335 | 0.28 |
| September, 2010 | 0.34 | 0.205 |
The common shares of the Corporation also trade on the pink sheets in the United States. The following table sets forth the annual high and low closing prices, in U.S. dollars, for the shares of the Corporation on the pink sheets for the last five full financial years:
| Fiscal Year Ending | High | Low |
| December 31, 2010 | 0.35 | 0.15 |
| December 31, 2009 | 0.18 | 0.03 |
| December 31, 2008 | 0.28 | 0.02 |
| December 31, 2007 | 0.29 | 0.16 |
| December 31, 2006 | 0.70 | 0.23 |
The following table sets forth the high and low prices for each full financial quarter in the last two fiscal years, in U.S. dollars, for the shares of the Corporation on the pink sheets:
| Fiscal 2010 | High | Low |
| First Quarter | 0.19 | 0.15 |
| Second Quarter | 0.17 | 0.15 |
| Third Quarter | 0.33 | 0.15 |
| Fourth Quarter | 0.35 | 0.31 |
| Fiscal 2009 | High | Low |
| First Quarter | 0.08 | 0.03 |
| Second Quarter | 0.10 | 0.05 |
| Third Quarter | 0.12 | 0.05 |
| Fourth Quarter | 0.18 | 0.09 |
The following table sets forth the high and low prices, in U.S. dollars, of the common shares of the Corporation on the pink sheets for the last six months:
| | High | Low |
| February, 2011 | 0.40 | 0.35 |
| January, 2011 | 0.50 | 0.31 |
| December, 2010 | 0.39 | 0.31 |
| November, 2010 | 0.41 | 0.32 |
| October, 2010 | 0.32 | 0.27 |
| September, 2010 | 0.34 | 0.20 |
B. Plan of Distribution
Not Applicable.
C.Markets
The Corporation’s common shares were listed and posted for trading on the TSX effective March 31, 2005, prior to which the shares of Old Bonanza were listed and posted for trading on the TSX Venture Exchange. Such shares are also listed for trading on the pink sheets.
On December 20, 2010, the British Columbia Securities Commission issued an order that all trading in the Company’s securities cease (the “CTO”) for failing to comply with the requirements of NI 43-101. Under NI 43-101, all of the authors of a technical report that discloses for the first time mineral reserves on a property material to a company must be independent of that company. The Executive Director of the British Columbia Securities Commission made a determination that, based on the tests set out in NI 43-101, one of the authors of the Original Copperstone Report was not independent at the time of the preparation and filing of the Original Copperstone Report. On December 24, 2010, the Ontario Securities Commission issued a temporary cease trade order against the Company (the “Ontario CTO”) for the same reason. The Company commissioned Dr. Corby Anderson to review the work in the Original Copperstone Report prepared by author Todd Fayram with a view to providing a revised technical incorporating the Study. On January 10, 2011, the Company filed the Revised Copperstone Report, which has been authored by qualified persons all of which are independent of the Company pursuant to NI 43-101. The Revised Copperstone Report restates and replaces the Original Copperstone Report which should no longer be relied upon. The Revised Copperstone Report confirmed the results of the Study. On January 11, 2011 the British Columbia Securities Commission revoked the CTO, and the Ontario CTO expired on January 8, 2011.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not Applicable.
B. Notice of Articles and Articles of Incorporation
Incorporation
The Corporation was incorporated in the Province of British Columbia, Canada under Certificate of Incorporation No. BC0710887 on December 10, 2004 and changed its name to American Bonanza Gold Corp. on February 10, 2005. The Corporation does not have any stated “objects” or “purposes” as such are not required by the corporate laws of the Province of British Columbia. Rather, the Corporation is, by such corporate laws, entitled to carry on any activities whatsoever, other than those specifically precluded under the laws of the Province of British Columbia.
Powers and Functions of Directors
Pursuant to the Corporation’s Articles of Incorporation, a director who holds a disclosable interest (as that term is used in the BCA) in a contract or transaction into which the Corporation has entered or proposes to enter, is liable to account to the Corporation for any profit that accrues to the director or senior officer under or as a result of the contract or transaction to the extent provided in the BCA. A director who holds a disclosable interest in such a contract or transaction is not entitled to vote on any director’s resolution to approve the contract or transaction, except in certain limited circumstances (Part 5, Division 3 of the BCA). A director or officer has a disclosable interest in contract or a transaction if: (a) the contract or transaction is material to the Corporation; (b) the Corporation has entered into, or proposes to enter into, the contract or transaction; and (c) either the director or officer has a material interest in the contract or transaction, or is a director or officer of, or has a material interest in, a person who has a material interest in the contract or transaction. The Corporation did not enter into any contract or transaction in which a director or officer had a disclosable interest during fiscal 2008.
Pursuant to the BCA and the Corporation’s Articles of Incorporation, the board of directors of the Corporation may exercise the general power to borrow on behalf of the Corporation in any manner deemed to be in the best interest of the Corporation and its shareholders. Whether exercising this general borrowing power or otherwise, the directors of the Corporation are under a fiduciary duty at all times to act honestly and in the best interest of the Corporation.
Pursuant to the requirements of the BCA, a person must be not less than 18 years of age to act as a director of a British Columbia company. There are no provisions for the retirement or non-retirement of directors under an age limit. There are no requirements under the BCA or the Corporation’s Articles of Incorporation that a director be a shareholder of the Corporation.
Rights and Restrictions Attached to Shares
The common shares are not subject to any future call or assessment and all have equal voting rights. There are no special rights or restrictions of any nature attached to any of the common shares. All of the common shares rank equally with respect to all benefits which might accrue to the holders including any redemption of shares or the division of corporate assets in the event of a liquidation. There are no sinking fund provisions or any provisions discriminatory or advantageous to shareholders controlling a specific number of common shares. Subject to the BCA, the directors may from time to time declare and authorize the payment of dividends. The Corporation may also issue Class A preferred shares in one or more series with special rights and restrictions. The Class A preferred shares as a class are issuable in series and entitle holders, on a liquidation or dissolution of the Corporation, to a preference over the holders of common shares with respect to any repayment of capital or distribution of assets. The Class A preferred shares do not entitle holders to vote at general meetings of shareholders. The directors may by resolution determine the number and name of the shares of any series of Class A preferred shares, and any special rights attaching to any series of Class A preferred shares.
Alteration of Share Rights
Pursuant to the BCA and the Corporation’s Articles of Incorporation, to change the rights of holders of the Corporation’s shares requires the approval of shareholders by a special resolution.
Shareholder Meetings
The directors of the Corporation must hold an annual general meeting at least once in each calendar year and may, whenever they think fit, call a meeting of shareholders at such location inside or outside British Columbia, as they determine. Notice to shareholders must be provided at least 21 days before any such meeting.
Ownership of Securities
There are no limitations on the right to own shares of the Corporation imposed by foreign law or the constituent documents of the Corporation.
C. Material Contracts
The following summary of the employment agreement entered into with Mr. Brian P. Kirwin is not complete and is qualified in its entirety by reference to the full text of such agreement.
Bonanza entered into an employment agreement with Mr. Brian P. Kirwin on April 1, 2003 and as amended on July 1, 2006 whereby the Corporation agrees to pay Mr. Kirwin a base salary currently at US$190,000, benefits and bonus. Each year during the term of this Agreement, the Board determines a bonus amount that is considered appropriate, the amount of such bonus to be based on achievements necessary for the growth and development of the Corporation. In the event of termination without cause, or any change in the effective control of the Corporation that occurs, the Corporation must pay Mr. Kirwin an amount equal to three years’ salary and benefits.
The July 2006 employment agreements were previously filed on EDGAR (www.sec.gov) with the Corporation’s Annual Report for the year ended December 31, 2006 as Exhibits 4.5 and 4.6.
Old Bonanza entered into the Arrangement Agreement with Taurus, Fairstar, FairstarSub and the Corporation dated December 21, 2004 which was previously filed with Old Bonanza’s Annual Report for the year ended December 31, 2003.
On June 7, 2007 the Corporation signed a definitive option agreement with respect to its 100% owned Taurus property whereby Cusac Gold Mines Ltd. (“Cusac”) could acquire 100% of the Taurus property by making certain cash and share payments to the Corporation. On December 19, 2007, as part of Hawthorne Gold Corporation’s (“Hawthorne”) proposed merger with Cusac, the Corporation agreed to the assignment to Hawthorne of the definitive option agreement with Cusac. See Item 4.DTaurus Gold Projectfor further discussion. The option agreement with Cusac and assignment agreement with Hawthorne were previously filed on EDGAR (www.sec.gov) with the Corporation’s Annual Report for the year ended December 31, 2007 as Exhibits 4.8 and 4.9.
On June 21, 2007, the Corporation entered into a letter of intent with Agnico-Eagle Mines Limited (“Agnico-Eagle”), to jointly explore and develop the Northway Property and Agnico-Eagle's adjoining Vezza Property. The letter of intent was replaced by a formal option and joint venture agreement on December 10, 2007. See Item 4.DNorthway Projectfor further discussion. The option and joint venture agreement was previously filed on EDGAR (www.sec.gov) with the Corporation’s Annual Report for the year ended December 31, 2007 as Exhibits 4.10.
On December 22, 2008, the Corporation entered into a Mineral Option Amending Agreement with Hawthorne Gold Corp. (attached as Exhibit 4.11) . On December 31, 2008, the sale of the Taurus Property to Hawthorne was completed and the Corporation received 6.75 million common shares of Hawthorne, representing 12.7% of the issued and outstanding shares of Hawthorne.
On November 3, 2010 the Corporation entered into a Purchase Agreement with Balmoral Resources Ltd. (“Balmoral”) (attached as Exhibit 4.12) for the sale of Bonanza’s eastern Canadian exploration properties to Balmoral. The transaction closed on November 10, 2010. In consideration for the properties, Balmoral made a one-time cash payment of $3.7 million and issued 4.5 million common shares to the Corporation which were valued at Cdn $5.175 million for a total transaction value of over $8.9 million. The Balmoral shares issued to the Corporation are subject to a four month hold period and a pooling agreement.
D. Exchange Controls
The Corporation is incorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares of the Corporation, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See “Taxation”, below.
There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Corporation on the right of a non-resident to hold or vote its common shares, other than as provided in the Investment Canada Act (Canada) (the “Investment Act”).
The following discussion summarizes the material features of the Investment Act for a non-resident who proposes to acquire a controlling number of the Corporation’s common shares. It is general only, it is not a substitute for independent advice from an investor’s own advisor, and it does not anticipate statutory or regulatory amendments. The Corporation does not believe the Investment Act will have any affect on it or on its non-Canadian shareholders due to a number of factors including the nature of its operations and the Corporation’s relatively small capitalization.
The Investment Act generally prohibits implementation of a “reviewable” investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an “entity”) that is not a “Canadian” as defined in the Investment Act (i.e. a “non-Canadian”), unless after review by the Minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada.
An investment in the Corporation’s common shares by a non-Canadian (other than a “WTO investor” as that term is defined in the Investment Act and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization) when the Corporation was not controlled by a WTO investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Corporation and the value of the assets of the Corporation, as determined in accordance with the regulations promulgated under the Investment Act, was over CDN$5 million, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada’s cultural heritage or national identity, regardless of the value of the assets of the Corporation.
An investment in the common shares of the Corporation by a WTO investor, or by a non-Canadian when the Corporation was controlled by a WTO investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Corporation and the value of the assets of the Corporation, as determined in accordance with the regulations promulgated under the Investment Act, was not less than a specified amount, which for 2006 equals or exceeds CDN$265 million. A non-Canadian would acquire control of the Corporation for the purposes of the Investment Act if the non-Canadian acquired a majority of the common shares of the Corporation. The acquisition of less than a majority but one-third or more of such common shares would be presumed to be an acquisition of control of the Corporation unless it could be established that, on the acquisition, the Corporation was not controlled in fact by the acquirer through the ownership of the common shares.
The foregoing assumes the Corporation will not engage in the production of uranium or own an interest in a producing uranium property in Canada, or provide any financial service or transportation service, as the rules governing these businesses are different.
Certain transactions relating to the common shares of the Corporation would be exempt from the Investment Act, including (a) an acquisition of the common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities, (b) an acquisition of control of the Corporation in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Act, and (c) an acquisition of control of the Corporation by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Corporation, through the ownership of the common shares, remained unchanged.
E.Taxation
Certain Canadian Federal Income Tax Information for United States Residents
The following summarizes the principal Canadian federal income tax considerations generally applicable to the holding and disposition of common shares of the Corporation by a holder (a) who, for the purposes of the Income Tax Act (Canada) the (“Tax Act”), is not resident in Canada, deals at arm’s length and is not affiliated with the Corporation, holds the common shares as capital property and does not use or hold the common shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) who, for the purposes of the Canada-United States Income Tax Convention (the “Treaty”), is a resident of the United States, has never been a resident of Canada, has not held or used (and does not hold or use) common shares in connection with a permanent establishment or fixed base in Canada, and who qualifies for the full benefits of the Treaty. The Canada Revenue Agency has recently introduced special forms to be used in order to substantiate eligibility for Treaty benefits, and affected holders should consult with their own advisors with respect to these forms and all relevant compliance matters.
Holders who meet all such criteria in clauses (a) and (b) above are referred to herein as a “U.S. Holder” or “U.S. Holders”, and this summary only addresses such U.S. Holders. The summary does not deal with special situations, such as particular circumstances of traders or dealers, limited liability companies, tax-exempt entities, insurers, financial institutions (including those to which the mark-to-market provisions of the Tax Act apply), or otherwise.
This summary is based on the current provisions of the Tax Act and the regulations thereunder, all proposed amendments to the Tax Act and regulations publicly announced by the Minister of Finance (Canada) to the date hereof, the current provisions of the Treaty and our understanding of the current administrative practices of the Canada Revenue Agency. It has been assumed that all currently proposed amendments to the Tax Act and regulations will be enacted as proposed and that there will be no other relevant change in any governing law, the Treaty or administrative policy, although no assurance can be given in these respects. This summary does not take into account provincial, U.S. or other foreign income tax considerations, which may differ significantly from those discussed herein.
This summary is not exhaustive of all possible Canadian income tax consequences. It is not intended as legal or tax advice to any particular U.S. Holder and should not be so construed. The tax consequences to a U.S. Holder will depend on that U.S. Holder’s particular circumstances.Accordingly, all U.S. Holders or prospective U.S. Holders should consult their own tax advisors with respect to the tax consequences applicable to them having regard to their own particular circumstances. The discussion below is qualified accordingly.
Dividend
Dividends paid or deemed to be paid or credited by the Corporation to a U.S. Holder are subject to Canadian withholding tax. Under the Treaty, the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross dividend (or 5% in the case of corporate shareholders owning at least 10% of the Corporation’s voting shares), provided the U.S. Holder can establish entitlement to the benefits of the Treaty.
Disposition
A U.S. Holder is not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a common share in the open market unless the share is “taxable Canadian property” to the holder thereof, and the U. S. Holder is not entitled to relief under the Treaty.A common share will be taxable Canadian property to a U.S. Holder if, at any time during the 60 month period ending at the time of disposition, (i) the U.S. Holder or persons with whom the U.S. Holder did not deal at arm’s length (or the U.S. Holder together with such persons) owned 25% or more of the issued shares of any class or series of the Corporation and (ii) more than 50% of the fair market value of the share was derived directly or indirectly from certain types of assets, including real or immoveable property situated in Canada, Canadian resource properties or timber resource properties, and options, interests or rights in respect of any of the foregoing. Common shares may also be deemed to be taxable Canadian property under the Tax Act in certain specific circumstances. A U.S. Holder holding Common shares as taxable Canadian property should consult with the U.S. Holder’s own tax advisors in advance of any disposition of Common shares or deemed disposition under the Tax Act in order to determine whether any relief from tax under the Tax Act may be available by virtue of the Treaty, and any related compliance procedures.
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE CORPORATION’S COMMON SHARES.
Material United States Federal Income Tax Consequences
The following is a general discussion of the material United States Federal income tax law for U.S. holders that hold such common shares as a capital asset, as defined under United States Federal income tax law and is limited to discussion of U.S. Holders that own less than 10% of the common stock. This discussion does not address all potentially relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. See Item 10 “Additional Information – Canadian Federal Income Taxation” and “Certain United States Federal Income Tax Consequences”.
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any future legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. The following discussion is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of common shares of the Corporation and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of common shares of the Corporation are encouraged to consult their own tax advisors about the Federal, state, local, and foreign tax consequences of purchasing, owning and disposing of common shares of the Corporation.
U.S. Holders
As used herein, a “U.S. Holder” is a holder of common shares of the Corporation who or which is a citizen or individual resident (or is treated as a citizen or individual resident) of the United States for federal income tax purposes, a corporation or partnership created or organized (or treated as created or organized for federal income tax purposes) in the United States, including only the States and District of Columbia, or under the law of the United States or any State or Territory or any political subdivision thereof, or a trust or estate the income of which is includable in its gross income for federal income tax purposes without regard to its source, if, (i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States trustees have the authority to control all substantial decisions of the trust. For purposes of this discussion, a U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers and Holders who acquired their stock through the exercise of employee stock options or otherwise as compensation.
Distributions on common shares of the Corporation
U.S. Holders, who do not fall under any of the provisions contained within the “Other Consideration for U.S. Holders” section, and receiving dividend distributions (including constructive dividends) with respect to common shares of the Corporation are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that the Corporation has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s United States Federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s United States Federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the Corporation, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
Dividends paid on the common shares of the Corporation will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from the Corporation (unless the Corporation qualifies as or a “passive foreign investment company”, as defined below) if such U.S. Holder owns shares representing at least 10% of the voting power and value of the Corporation. The availability of this deduction is subject to several complex limitations which are beyond the scope of this discussion.
Foreign Tax Credit
A U.S. Holder, who does not fall under any of the provisions contained within the “Other Considerations for U.S. Holders” section, and who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Corporation may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its world-wide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. Effective for tax years beginning before January 1, 2007, there are further limitations on the foreign tax credit for certain types of income. For tax years after December 31, 2006, the number of foreign tax credit limitation categories or baskets is reduced to two: passive category income and general category income. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of common shares of the Corporation are encouraged to consult their own tax advisors regarding their individual circumstances.
Disposition of common shares of the Corporation
A U.S. Holder, who does not fall under any of the provisions contained within the “Other Considerations for U.S. Holders” section, will recognize gain or loss upon the sale of common shares of the Corporation equal to the difference, if any, between the amount of cash plus the fair market value of any property received, and the Holder’s tax basis in the common shares of the Corporation. This gain or loss will be capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder unless the Corporation were to become a controlled foreign corporation. For the effect on the Corporation of becoming a controlled corporation, see “Controlled Foreign Corporation Status” below. Any capital gain will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are individuals, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
Other Considerations for U.S. Holders
In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Corporation.
Passive Foreign Investment Company
A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a passive foreign investment company (“PFIC”) is subject to U.S. federal income taxation under one of three alternative tax methods at the election of each such U.S. Holder.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes but is not limited to interest, dividends and certain rents and royalties or (ii) the average percentage, by value (or, if the company is a controlled foreign corporation or makes an election, adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. The Corporation believes that it is presently a PFIC.
Each U. S. Holder who holds stock in a PFIC must determine under which of the alternative tax methods the U.S. Holder wishes to be taxed. Under one method, a U.S. Holder who elects in a timely manner to treat the Corporation as a Qualified Electing Fund (“QEF”), as defined in the Code, (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which the Corporation qualifies as a PFIC on his pro-rata share of the Corporation’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the U.S. Holder’s taxable year in which (or with which) the Corporation taxable year ends, regardless of whether such amounts are actually distributed.
A QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares (or deemed to be realized on the pledge of his common shares) as capital gain; (ii) treat his share of the Corporation’s net capital gain, if any, as long-term capital gain instead of ordinary income, and (iii) either avoid interest charges resulting from PFIC status altogether (see discussion of interest charge below), or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Corporation’s annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as nondeductible “personal interest.”
The procedure a U.S. Holder must comply with in making a timely QEF election will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which the Corporation is a PFIC. If the U.S. Holder makes a QEF election in such first year, (sometimes referred to as a “Pedigreed QEF Election”), then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files its tax return for such first year. If, however, the Corporation qualified as a PFIC in a prior year, then in addition to filing documents, the U.S. Holder may also elect to recognize as an “excess distribution” (i) under the rules of Section 1291 (discussed below), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the application date or (ii) if the Corporation is a controlled foreign corporation (“CFC”), the Holder’s pro rata share of the corporation’s earnings and profits. Either the deemed sale election or the deemed dividend election will result in the U.S. Holder being deemed to have made a timely QEF election.
With respect to a situation in which a Pedigreed QEF election is made, if the Corporation no longer qualifies as a PFIC in a subsequent year, normal Code rules and not the PFIC rules will apply.
If a U.S. Holder has not made a QEF Election at any time (a “Non-electing U.S. Holder”), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reason of a pledge) of his common shares and (ii) certain “excess distributions”, as specially defined, by the Corporation.
A Non-electing U.S. Holder generally would be required to pro-rate all gains realized on the disposition of his common shares and all excess distributions over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to the first taxable year of the Corporation during such U.S. Holder’s holding period and beginning after January 1, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-electing U.S. Holder that is not a corporation must treat this interest charge as “personal interest” which, as discussed above, is wholly non-deductible. The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.
If the Corporation is a PFIC for any taxable year during which a Non-electing U.S. Holder holds common shares, then the Corporation will continue to be treated as a PFIC with respect to such common shares, even if it is no longer by definition a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such common shares had been sold on the last day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued proposed regulations that would treat as taxable certain transfers of PFIC stock by Non-electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.
If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it is made after the first year during which the Corporation is a PFIC and the U.S. Holder holds shares of the Corporation) (a “Non-Pedigreed Election”), the QEF rules apply prospectively but do not apply to years prior to the year in which the QEF first becomes effective. U.S. Holders are encouraged to consult their tax advisors regarding the specific consequences of making a Non-Pedigreed QEF Election.
Certain special, generally adverse, rules will apply with respect to the common shares while the Corporation is a PFIC whether or not it is treated as a QEF. For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such stock.
The foregoing discussion is based on currently effective provisions of the Code, existing and proposed regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change. Any such change could affect the validity of this discussion. In addition, the implementation of certain aspects of the PFIC rules requires the issuance of regulations which in many instances have not been promulgated and which may have retroactive effect. There can be no assurance that any of these proposals will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion. Accordingly, and due to the complexity of the PFIC rules, U.S. Holders of the Corporation are strongly urged to consult their own tax advisors concerning the impact of these rules on their investment in the Corporation.
Mark-to-Market Election for PFIC Stock
A U.S. Holder of a PFIC may make a mark-to-market election with respect to the stock of the PFIC if such stock is marketable as defined below. This provision is designed to provide a current inclusion provision for persons that are Non-Electing Holders. Under the election, any excess of the fair market value of the PFIC stock at the close of the tax year over the Holder’s adjusted basis in the stock is included in the Holder’s income. The Holder may deduct any excess of the adjusted basis of the PFIC stock over its fair market value at the close of the tax year. However, deductions are limited to the net mark-to-market gains on the stock that the Holder included in income in prior tax years, or so called “unreversed inclusions.”
For purposes of the election, PFIC stock is marketable if it is regularly traded on (1) a national securities exchange that is registered with the SEC, (2) the national market system established under Section 11A of the Securities Exchange Act of 1934, or (3) an exchange or market that the IRS determines has rules sufficient to ensure that the market price represents legitimate and sound fair market value.
A Holder’s adjusted basis of PFIC stock is increased by the income recognized under the mark-to-market election and decreased by the deductions allowed under the election. If a U.S. Holder owns PFIC stock indirectly through a foreign entity, the basis adjustments apply to the basis of the PFIC stock in the hands of the foreign entity for the purpose of applying the PFIC rules to the tax treatment of the U.S. owner. Similar basis adjustments are made to the basis of the property through which the U.S. persons hold the PFIC stock.
Income recognized under the mark-to-market election and gain on the sale of PFIC stock with respect to which an election is made is treated as ordinary income. Deductions allowed under the election and loss on the sale of PFIC with respect to which an election is made, to the extent that the amount of loss does not exceed the net mark-to-market gains previously included, are treated as ordinary losses. The U.S. or foreign source of any income or losses is determined as if the amount were a gain or loss from the sale of stock in the PFIC.
The above provisions apply to tax years of U.S. persons beginning after December 31, 1997, and to tax years of foreign corporations ending with or within such tax years of U.S. persons.
The rules of Code Section 1291 applicable to nonqualified funds generally do not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. If Code Section 1291 is applied and a mark-to-market election was in effect for any prior tax year, the U.S. Holder’s holding period for the PFIC stock is treated as beginning immediately after the last tax year of the election. However, if a taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified fund after the beginning of a taxpayer’s holding period for such stock, a coordination rule applies to ensure that the taxpayer does not avoid the interest charge with respect to amounts attributable to periods before the election.
Controlled Foreign Corporation Status
If more than 50% of the voting power of all classes of stock or the total value of the stock of the Corporation is owned, directly or indirectly, by U.S. Holders, each of whom own 10% or more of the total combined voting power of all classes of stock of the Corporation, the Corporation would be treated as a “controlled foreign corporation” or “CFC” under Subpart F of the Code. This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of “Subpart F income” (as defined by the Code) of the Corporation and the Corporation’s earnings invested in “U.S. property” (as defined by the Code). In addition, under Section 1248 of the Code, gain from the sale or exchange of common shares of the Corporation by such a 10% U.S. Holder of Corporation at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of earnings and profits of the Corporation attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because the Corporation may never be a CFC, a more detailed review of these rules is beyond of the scope of this discussion.
Elimination of Overlap Between Subpart F Rules and PFIC Provisions
Under the Taxpayer Relief Act of 1997, a PFIC that is also a CFC will not be treated as a PFIC with respect to certain 10% U.S. Holders. For the exception to apply, (i) the corporation must be a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder must be subject to the current inclusion rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a “United States Shareholder,” see “Controlled Foreign Corporation,” above). The exception only applies to that portion of a U.S. Holder’s holding period beginning after December 31, 1997. For that portion of a United States Holder before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.
As a result of this provision, if the Corporation were ever to become a CFC, U.S. Holders who are currently taxed on their pro rata shares of Subpart F income of a PFIC which is also a CFC will not be subject to the PFIC provisions with respect to the same stock if they have previously made a Pedigreed QEF Election. The PFIC provisions will however continue to apply to PFIC/CFC U.S. Holders for any periods in which they are not subject to Subpart F and to U.S. Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects to recognize gain on the PFIC shares held in the Corporation as if those shares had been sold.
F. Dividends and Paying Agents
Not Applicable.
G. Statement by Experts
Not Applicable.
H. Documents on Display
All material contracts may be inspected on SEDAR at www.sedar.com and at the Corporation’s corporate head office at 305 – 675 West Hastings Street, Vancouver, British Columbia, during normal business hours.
I. Subsidiary Information
Not Applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market Risk
Market risk includes the risk that future cash flows will fluctuate because of changes in market prices, including foreign exchange rates, interest rates, and commodity prices. While management is able to mitigate certain of these risks, the volatility of the markets has created challenges to mitigating the full extent of some of these risks. Foreign exchange rates and interest rates are beyond the control of management and it is reasonably possible market volatility will continue.
Transaction Risk and Currency Risk Management
Our operations do not employ complex financial instruments or derivatives, and we do not have significant or unusual financial market risks. In the event we experience substantial growth in the future, our business and results of operations may be materially affected by changes in interest rates on new debt financings, the granting of credit options to our customers, and certain other credit risks associated with our operations.
Interest Rate Risk and Equity Price Risk
We are equity financed and do not have any debt which could be subject to significant interest rate change risks. We have raised equity funding through the sale of securities denominated in Canadian dollars, and will likely raise additional equity funding denominated in Canadian dollars in the future.
Exchange Rate Sensitivity
A significant portion of our administrative operations are in Canada. We typically hold most of our funds in Canadian dollars and report the results of our operations in Canadian dollars. We incur most of our exploration expenditures in Canadian dollars, but some of our agreements are denominated in U.S. dollars. As such, an increase in the value of the United States dollar relative to the Canadian dollar would result in higher foreign exchange losses.
Commodity Price Risk
While the value of our mineral properties can always be said to relate to the price of the commodity and the outlook for same, we do not have any operating mines nor economic ore and therefore do not have any hedging arrangements.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.
PART II
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in rule 13a-15(e) or Rule 15(d) to 15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of December 31, 2010 (under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer), pursuant to Rule 13a-15(b) promulgated under the Exchange Act.
As of September 30, 2010, the Chief Executive Officer and Chief Financial Officer concluded that controls over disclosure and procedures did not operate effectively during the period as indicated by the material misstatement discussed above related to the interim financial statements for the period ended September 30, 2010. Such financial statements were subsequently restated and refiled. Specifically, review of the interim financial statements by management and those charged with governance did not disclose an impairment in the carrying value of the Corporation’s mineral properties as at September 30, 2010 resulting from sale of these properties at a loss.
The weakness relates to inadequate segregation of duties between preparers and reviewers of the financial statements. The Corporation proposes to remedy the weakness by ensuring an independent GAAP technical review of the interim financial statements commencing with its next unaudited interim financial statements.
As of December 31, 2010, the Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporation’s controls over disclosure and procedures have concluded that, as of such date, the Corporation’s controls over disclosure and procedures were not effective due the material weakness in internal control over financial reporting as described above.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) Securities Exchange Act of 1934, as amended. Management (under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer) assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth inInternal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
As of September 30, 2010 the Chief Executive Officer and Chief Financial Officer considered the Corporation’s Internal Controls over Financial Reporting and identified that such controls did not operate effectively during the period with the result that a material misstatement was not prevented or detected in the interim financial statements. Such financial statements were subsequently restated and refiled. Specifically, review of the interim financial statements by management and those charged with governance did not identify an impairment in the carrying value of the Corporation’s mineral properties as at September 30, 2010 resulting from sale of these properties at a loss. The weakness related to inadequate segregation of duties between preparers and reviewers of the financial statements.
As of December 31, 2010, the Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Corporation’s Internal Controls over Financial Reporting have concluded that, as of such date, the Corporation’s Internal Controls over Financial Reporting were ineffective. The auditors identified a material misstatement, which was corrected in the December 31, 2010 consolidated financial statements, in respect of accounting for certain items in the Company’s reconciliation to US GAAP. The weakness arises as a result of limited finance staff with financial reporting expertise to address and review more complex accounting matters. Management is currently reviewing the Company’s internal control and systems requirements in the context of the continuing development at Copperstone and will consider the need for additional finance personnel and external expertise during 2011.
This annual report does not include an attestation report of our Corporation’s registered public accounting firm regarding internal control over financial reporting. Our management's report was not subject to attestation by our Corporation’s registered independent public accounting firm because our Corporation is not an accelerated filer or large accelerated filer.
Changes in Internal Control over Financial Reporting
There have been no changes during the period covered by this Annual Report in the Corporation’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect the Corporation’s internal control over financial reporting other than the remedial actions taken to address the material weaknesses
ITEM 16A. Audit Committee Financial Expert
The Corporation’s Board of Directors has determined that Mr. Robert McKnight fulfills the role of a Financial Expert on the Corporation’s audit committee. Mr. McKnight is “independent” as the term is defined under the applicable rules of the American Stock Exchange. Mr. McKnight has a Master’s in Business Administration and has experience in financial, accounting and taxation matters. Mr. McKnight is the Vice President & Director of Selwyn Resources Ltd., a publicly traded company on the TSX Venture Exchange. The other members of the audit committee have significant financial experience within the mining industry and would be considered financially literate although they would not meet the definition of financial expert.
The independent members of the audit committee are Robert McKnight, Ronald Netolitzky and James Bagwell. All members are considered to be financially literate and independent.
Relevant Education and Experience
Mr. Robert McKnight holds a MBA, is a registered Professional Engineer and is an accomplished mining executive at both senior and junior mining companies having held leadership positions. Mr. McKnight has over 25 years of experience in the resource business with a wealth of knowledge in project finance, mergers and acquisitions, feasibility studies and valuations. Mr. McKnight was a Director of Selwyn Resources Ltd., a company listed on the TSX Venture Exchange, and for a portion of his time with Selwyn, its Chief Financial Officer, from November, 2004 to November, 2010; the CFO of StrataGold Corporation, a company listed on the TSX, from February 2004 to January 2006; Director and at times Chief Financial Officer of Savant Resources Ltd, May 2007- Present (resigned as CFO Jan 2008); Vice President and, for part of the time, Chief Financial Officer of Yukon Zinc Corporation, a company listed on the TSX Venture Exchange, from February 2004 until July 2008; Manager, Financial Services, AMEC Americas Ltd, September 2003 to January 2004; and prior thereto various senior corporate development roles with various TSX and TSX-V resource companies. Mr. McKnight serves on the Audit Committee of Savant Resources Ltd. Mr. McKnight is the Chairman of the Corporation’s Audit Committee.
Mr. Ronald Netolitzky holds a M.Sc. in Geology, and has a wealth of experience in the mining industry and has achieved exploration success on three major gold deposits which have subsequently been put into production: the Snip, Eskay Creek and Brewery Creek mines. He was chairman of Viceroy Exploration Ltd. until its acquisition by Yamana. Previously he was Chairman of Viceroy Resources Corporation, after serving as its President and Chief Executive Officer. Mr. Netolitzky is also the former Chairman of both Loki Gold Corporation and Baja Gold Inc. Mr. Netolitzky is currently a director of a number of reporting issuers listed on the TSX and TSX Venture Exchange.
Mr. James Bagwell, holds a B.Sc. degree in Economics and Business Administration, and is a business executive and entrepreneur with a career spanning over 38 years. He has been involved in many new company formation, management, financial and as an investor in industries including retail, wholesale, manufacturing, real estate, mining, farming, medical, and charitable groups. He is also a partner with ABBA Corp.
As a result of their respective business experience or education, each member of the audit committee (i) has an understanding of the accounting principles used by the Company to prepare its financial statements, (ii) has the ability to assess the general application of such accounting principles in connection with the accounting for estimates, accruals and reserves, (iii) has experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company's financial statements, or experience actively supervising one or more individuals engaged in such activities, and (iv) has an understanding of internal controls and procedures for financial reporting.
ITEM 16B.Code of Ethics
The Corporation has adopted a Code of Ethics that applies to all employees, officers and directors of the Corporation and its subsidiaries, all of whom are expected to abide by the principle that standards of personal behavior should at all times reflect credit on the Corporation and the mining/exploration industry in general. No amendments or waivers to the Code of Ethics have been made since its adoption.
The Corporation’s Code of Ethics provides that officers and employees are prohibited from taking advantage of an opportunity that is discovered through the use of any corporate property, information or contacts or position with the Corporation, and must bring such opportunities to the attention of the Corporation. Officers and employees are also required to bring all potential conflicts of interest to the attention of the Corporation. Directors are not subject to the Code with respect to these two matters but are governed by similar provisions in the British ColumbiaBusiness Corporations Act. See Item 10.B “Notice of Articles and Articles of Incorporation. Powers and Functions of Directors.”
The Code of Ethics was previously filed as an exhibit to the 2005 Annual Report. The Corporation will provide a copy of the Code of Ethics without charge to any person, upon written request to the Secretary of the Corporation at its address at 305 - 675 West Hastings Street, Vancouver, British Columbia, Canada V6B 1N2.
ITEM 16C.
| | Year ending | Year ending |
| In Canadian Dollars | December 31, 2010 | December 31, 2009 |
| Audit fees | 153,071 | 68,950 |
| Audit-related fees | Nil | Nil |
| Tax fees – Canadian | Nil | Nil |
| Tax fees – US | Nil | 17,400 |
| All other fees | Nil | Nil |
| Total fees billed | 153,071 | 86,350 |
Audit Fees
Audit fees were for professional services rendered by KPMG LLP, for the audit of the Registrant’s annual financial statements and services provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees
Audit-related fees were for assurance and related services reasonably related to the performance of the audit or review of the annual statements that are not reported under “Audit Fees” above.
Tax Fees
Tax fees were for tax compliance, tax advice and tax planning professional services. These services consisted of: tax compliance including the review of tax returns, and tax planning and advisory services relating to common forms of domestic and international taxation (i.e. income tax, capital tax, goods and services tax, payroll tax and value added tax).
All Other Fees
Fees disclosed in the table above under the item “all other fees” were incurred for services other than the audit fees, audit-related fees and tax fees described above.
Pre-Approval Policies and Procedures
It is within the mandate of the Corporation’s Audit Committee to approve all audit and non-audit related fees. The Audit Committee has pre-approved specifically identified non-audit related services, including tax compliance and review of tax returns as submitted to the Audit Committee from time to time. The auditors also present the estimate for the annual audit related services to the Audit Committee for approval prior to undertaking the annual audit of the financial statements.
Reliance on Certain Exemptions
At no time since the commencement of the Company's most recently completed financial year has the Company relied on the exemptions in section 2.4 (De Minimis Non-audit Services), section 3.2 (Initial Public Offerings), section 3.4 (Events Outside Control of Member), section 3.5 (Death, Disability or Resignation of Audit Committee Member) or Part 8 (Exemptions) of NI 52-110.
Reliance on the Exemption in Subsection 3.3(2) or Section 3.6
At no time since the commencement of the Company's most recently completed financial year has the Company relied on the exemption in subsection 3.3(2) (Controlled Companies) or section 3.6 (Temporary Exemption for Limited and Exceptional Circumstances) of NI 52-110.
Reliance on Section 3.8
At no time since the commencement of the Company's most recently completed financial year has the Company relied on section 3.8 (Acquisition of Financial Literacy) of NI 52-110.
Audit Committee Oversight
The audit committee has not made any recommendations to the board of directors to nominate or compensate any external auditor.
ITEM 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable.
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Neither the Corporation, nor any “affiliated purchaser” of the Corporation, purchased any of its securities during the Corporation’s fiscal year ended December 31, 2010.
ITEM 16F. Change in Registrant’s Certifying Accountant
Not Applicable.
ITEM 16G. Corporate Governance
Not Applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
The following financial statements of American Bonanza Gold Corp. are attached and incorporated herein:
Description of Financial Statements
Report of Independent Registered Accounting Firm
Consolidated Balance Sheets as at December 31, 2010 and 2009
Consolidated Statements of Operations, Comprehensive Loss and Cash Flows, for the fiscal years ended December 31, 2010, 2009, and 2008
Notes to Consolidated Financial Statements
| AMERICAN BONANZA GOLD CORP. |
| |
| Consolidated Financial Statements |
| Years ended December 31, 2010, 2009 and 2008 |
 | KPMG LLP | Telephone (604) 691-3000 |
| | Chartered Accountants | Fax (604) 691-3031 |
| | PO Box 10426 777 Dunsmuir Street | Internet www.kpmg.ca |
| | Vancouver BC V7Y 1K3 | |
| | Canada | |
INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders
We have audited the accompanying consolidated financial statements of American Bonanza Gold Corp., which comprise the consolidated balance sheets as at December 31, 2010and December 31, 2009, the consolidated statements of operations and deficit, comprehensive loss and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the ConsolidatedFinancial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
| KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. | |
| American Bonanza Gold Corp. |
| Page 2 |
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of American Bonanza Gold Corp. as at December 31, 2010 and December 31, 2009 and its consolidated results of operations and its consolidated cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
| //s// KPMG LLP |
| Chartered Accountants |
| March 29, 2011 |
| Vancouver, Canada |
| American Bonanza Gold Corp. |
| CONSOLIDATED BALANCE SHEETS |
| (In Canadian Dollars) |
| |
| For the years ended December 31, |
| | | 2010 | | | 2009 | |
| | | | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| CURRENT ASSETS: | | | | | | |
| Cash and cash equivalents | $ | 3,104,650 | | $ | 957,923 | |
| Amounts receivable (note 4) | | 114,442 | | | 455,680 | |
| Prepaid expenses | | 34,758 | | | 32,926 | |
| Marketable securities (note 5) | | 5,805,000 | | | 1,879,842 | |
| | | 9,058,850 | | | 3,326,371 | |
| | | | | | | |
| DEFERRED SHARE ISSUE COSTS (note 17(a)) | | 181,726 | | | - | |
| | | | | | | |
| RECLAMATION BOND | | 20,000 | | | 20,000 | |
| | | | | | | |
| PLANT AND EQUIPMENT (note 6) | | 1,695,530 | | | 14,760 | |
| | | | | | | |
| MINERAL PROPERTIES (note 7) | | 30,627,219 | | | 41,973,947 | |
| | $ | 41,583,325 | | $ | 45,335,078 | |
| | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
| | | | | | | |
| CURRENT LIABILITIES: | | | | | | |
| Accounts payable and accrued liabilities | $ | 1,079,376 | | $ | 687,940 | |
| | | | | | | |
| ASSET RETIREMENT OBLIGATION (note 13) | | - | | | 36,352 | |
| | | 1,079,376 | | | 724,292 | |
| | | | | | | |
| SHAREHOLDERS’ EQUITY: | | | | | | |
| Share capital (note 8) | | 61,711,669 | | | 59,977,063 | |
| Contributed surplus (note 8) | | 6,419,728 | | | 6,396,978 | |
| Accumulated other comprehensive income (loss) (note 9) | | 583,571 | | | (242,322 | ) |
| Deficit | | (28,111,019 | ) | | (21,520,933 | ) |
| | | 40,603,949 | | | 44,610,786 | |
| | $ | 41,583,325 | | $ | 45,335,078 | |
| | | | | | | |
| COMMITMENTS (notes 7, 11 and 15) | | | | | | |
| SUBSEQUENT EVENTS (note 17) | | | | | | |
APPROVED ON BEHALF OF THE BOARD:
| Signed: Brian Kirwin | Director | Signed: Robert T. McKnight | Director |
The accompanying notes are an integral part of these consolidated financial statements
- 3 -
| American Bonanza Gold Corp. |
| CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT |
| (In Canadian Dollars) |
| |
| For the years ended December 31, |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | |
| EXPENSES (INCOME): | | | | | | | | | |
| General and administrative (note 10) | $ | 688,587 | | $ | 791,781 | | $ | 876,202 | |
| Stock-based compensation (note 8) | | - | | | 356,887 | | | 96,119 | |
| Exploration | | 283,594 | | | 208,724 | | | 134,205 | |
| Business development | | 257,916 | | | 168,147 | | | 149,818 | |
| Foreign exchange | | 13,749 | | | 22,425 | | | 8,138 | |
| Amortization | | 8,110 | | | 11,540 | | | 11,853 | |
| Interest and accretion of asset retirement obligation | | 1,431 | | | 1,813 | | | 1,723 | |
| Write-down of mineral properties (note 7) | | 4,214,729 | | | 10,743,555 | | | 2,075,404 | |
| Loss on mineral property disposal (note 7) | | 70,355 | | | - | | | 977,782 | |
| Loss (gain) on sale of marketable securities | | 1,205,004 | | | (55,399 | ) | | - | |
| Interest income | | (79 | ) | | (21,573 | ) | | (112,140 | ) |
| | | 6,743,396 | | | 12,227,900 | | | 4,219,104 | |
| | | | | | | | | | |
| LOSS FOR THE YEAR BEFORE INCOMETAXES | | (6,743,396 | ) | | (12,227,900 | ) | | (4,219,104 | ) |
| | | | | | | | | | |
| INCOME TAXES RECOVERY(note 14) | | 153,310 | | | 1,186,811 | | | 335,278 | |
| | | | | | | | | | |
| LOSS FOR THE YEAR | | (6,590,086 | ) | | (11,041,089 | ) | | (3,883,826 | ) |
| | | | | | | | | | |
| DEFICIT, beginning of year | | (21,520,933 | ) | | (10,479,844 | ) | | (6,596,018 | ) |
| | | | | | | | | | |
| DEFICIT, end of year | $ | (28,111,019 | ) | | (21,520,933 | ) | | (10,479,844 | ) |
| | | | | | | | | | |
| LOSS PER COMMON SHARE | | | | | | | | | |
| Basic and diluted | $ | (0.05 | ) | $ | (0.09 | ) | $ | (0.03 | ) |
| | | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES | | 122,765,013 | | | 117,594,853 | | | 115,662,976 | |
| | | | | | | | | | |
| | | | | | | | | | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In Canadian Dollars) | |
| | | | | | | | | | |
| For the years ended December 31, | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | |
| LOSS FOR THE YEAR | $ | (6,590,086 | ) | $ | (11,041,089 | ) | $ | (3,883,826 | ) |
| | | | | | | | | | |
| OTHER COMPREHENSIVE INCOME (LOSS): | | | | | | | | | |
| Unrealized gain (loss) on available-for-sale marketable securities, net of tax (note 9) | | (379,111 | ) | | (282,209 | ) | | 194,867 | |
| Reclassification of loss (gain) realized in the year | | 1,205,004 | | | (55,399 | ) | | - | |
| | | 825,893 | | | (337,608 | ) | | 194,867 | |
| | | | | | | | | | |
| COMPREHENSIVE LOSS FOR THE YEAR | $ | (5,674,193 | ) | $ | (11,378,697 | ) | $ | (3,688,959 | ) |
The accompanying notes are an integral part of these consolidated financial statements
- 4 -
| American Bonanza Gold Corp. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (In Canadian Dollars) |
| For the years ended December 31, |
| | | 2010 | | | 2009 | | | 2008 | |
| CASH PROVIDED BY (USED IN): | | | | | | | | | |
| OPERATING ACTIVITIES | | | | | | | | | |
| Loss for the year | $ | (6,590,086 | ) | $ | (11,041,089 | ) | $ | (3,883,826 | ) |
| Items not affecting cash | | | | | | | | | |
| Stock-based compensation | | - | | | 356,887 | | | 96,119 | |
| Amortization | | 8,110 | | | 11,540 | | | 11,853 | |
| Accretion of asset retirement obligation | | 1,431 | | | 1,813 | | | 1,723 | |
| �� Write-down of mineral properties | | 4,214,729 | | | 10,743,555 | | | 2,075,404 | |
| Non-cash portion of loss on sale of properties | | 70,355 | | | - | | | 977,782 | |
| Loss (gains) on marketable securities | | 1,205,004 | | | (55,399 | ) | | - | |
| Future income taxes | | (153,310 | ) | | (1,186,811 | ) | | (335,278 | ) |
| | | (1,243,767 | ) | | (1,169,504 | ) | | (1,056,223 | ) |
| Changes in non-cash operating accounts | | | | | | | | | |
| Amounts receivable | | 341,238 | | | 300,520 | | | 1,096,414 | |
| Prepaid expenses | | (1,832 | ) | | 69,832 | | | (29,522 | ) |
| Accounts payable and accrued liabilities | | 391,436 | | | 170,103 | | | 121,224 | |
| | | (512,925 | ) | | (629,049 | ) | | 131,893 | |
| INVESTING ACTIVITIES | | | | | | | | | |
| Mineral properties | | (1,783,036 | ) | | (1,840,431 | ) | | (3,725,264 | ) |
| Payment received on mineral property sale, net of costs (note 7) | | 3,631,897 | | | - | | | 1,983,731 | |
| Sale of marketable securities, net of commission (note 5) | | 960,191 | | | 572,453 | | | - | |
| Refund of reclamation bond | | - | | | - | | | 2,000 | |
| Plant and equipment | | (1,476,380 | ) | | - | | | (7,787 | ) |
| | | 1,332,672 | | | (1,267,978 | ) | | (1,747,320 | ) |
| FINANCING ACTIVITIES | | | | | | | | | |
| Issue of common shares, net of issue costs | | 1,508,706 | | | 204,314 | | | - | |
| Deferred share issue costs | | (181,726 | ) | | - | | | - | |
| | | 1,326,980 | | | - | | | 204,314 | |
| | | | | | | | | | |
| INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS | | 2,146,727 | | | (1,692,713 | ) | | (1,615,427 | ) |
| CASH AND CASH EQUIVALENTS,beginning of year | | 957,923 | | | 2,650,636 | | | 4,266,063 | |
| CASH AND CASH EQUIVALENTS, end of year | $ | 3,104,650 | | $ | 957,923 | | $ | 2,650,636 | |
| | | | | | | | | | |
| SUPPLEMENTARY INFORMATION: | | | | | | | | | |
| | | | | | | | | | |
| Cash flows include the following elements: | | | | | | | | | |
| Interest paid | $ | - | | $ | - | | $ | 77,122 | |
| Interest received | | 79 | | | 21,573 | | | 112,140 | |
| Income taxes paid | | - | | | - | | | - | |
| Non-cash financing and investing transactions: | | | | | | | | | |
| Common shares received as proceeds on mineral Property sale (note 7) | | 5,175,300 | | | - | | | 2,362,500 | |
| Common shares issued for property and equipment | | 212,500 | | | - | | | - | |
| Future income tax liability and share issue costs incurred on renouncement of exploration expenditures (note 8) | | 63,850 | | | - | | | 315,165 | |
The accompanying notes are an integral part of these consolidated financial statements
- 5 -
| American Bonanza Gold Corp. |
|
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
American Bonanza Gold Corp. (the “Corporation” or “Company”) was incorporated in British Columbia on December 10, 2004. The Corporation is an exploration stage mining company engaged in the identification, acquisition, exploration and development of precious metals properties located in the United States and Canada. The Corporation has not yet determined whether its mineral properties contain mineral reserves which are economically recoverable with the exception of Copperstone property (notes 7(a)). The recoverability of amounts capitalized is dependent upon the discovery of economically recoverable reserves, securing and maintaining title in the properties and obtaining the necessary financing to complete the exploration and development of these projects and upon the attainment of future profitable production. The amounts capitalized as mineral properties, net of impairment recognised, represent costs to date, and do not necessarily represent present or future values.
These financial statements have been prepared by management on a going-concern basis, which assumes the Company will continue in operation for the foreseeable future and will be able to realize its assets and settle its liabilities and commitments in the normal course of business. Subsequent to December 31, 2010, the Company completed a public offering of 50 million units for gross proceed of $17.5 million. The Company anticipates that such cash resource will adequately fund the development costs until generation of operating revenue of the Copperstone property and other operating cash flow requirements in 2011. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary should the going concern assumption become inappropriate.
| 2. | CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS |
Recent Accounting Pronouncements
Adoption of International Financial Reporting Standards
The Canadian Accounting Standards Board has announced that Canadian publicly accountable enterprises will adopt IFRS as issued by the International Accounting Standards Board effective January 1, 2011. The Corporation is in the process of assessing the impact of the differences in accounting standards on the Corporation's consolidated financial statements. The Corporation expects to make changes to processes and systems in time to enable the Corporation to record transactions under IFRS, including 2010 fiscal period financial statements presented for comparative purposes in the 2011 financial year.
Business Combinations
In December 2008, the Accounting Standards Board (“AcSB’) issued CICA Handbook Section 1582, Business Combinations, which is converged with International Financial Reporting Standards (“IFRS”) 3, Business Combinations, and replaces CICA Handbook Section 1581, Business Combinations. Section 1582 provides guidance on the application of the purchase method of accounting for business combinations. In particular, Section 1582 addresses the determination of the carrying amount of the assets and liabilities of an acquired company, goodwill and accounting for a non-controlling interest at the time of the business combination. The new standard is effective on a prospective basis to business combinations for which the acquisition date is on or after January 1, 2011. Earlier application is permitted. If an entity applies this Section before January 1, 2011, it shall also adopt CICA Handbook Section 1601 and CICA Handbook Section 1602. This new standard will only have an impact on the Company’s financial statements for future acquisitions if the Company early adopts the standard.
Consolidated Financial Statements and Non-controlling Interests
In December 2008, the AcSB issued CICA Handbook Section 1601, Consolidated Financial Statements, which replaces CICA Handbook Section 1602, Consolidated Financial Statements. Section 1601 establishes standards for the preparation of consolidated financial statements, and applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal year. An entity adopting CICA Handbook Section 1601 for a fiscal year beginning before January 1, 2011 also must adopt CICA Handbook Section 1582, and CICA Handbook Section 1602.
- 6 -
| American Bonanza Gold Corp. |
|
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 2. | CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS(continued) |
Non-controlling Interests
In December 2008, the AcSB issued CICA Handbook Section 1602, Non-controlling Interests, which establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. Section 1602 applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal year. An entity adopting CICA Handbook Section 1602 for a fiscal year beginning before January 1, 2011 also must adopt CICA Handbook Section 1582, and CICA Handbook Section 1601.
These new standards have no impact on the Company’s financial statements as the Company did not early adopt these standards and will apply IFRS from January 1, 2011.
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles, the measurement principles of which materially conform with those established in the United States of America (“US GAAP”), except as explained in note 16.
Principles of consolidation
The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, Bonanza Explorations Inc. (a United States, Nevada corporation).
All inter-company transactions and balances have been eliminated upon consolidation.
Use of estimates
The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant areas requiring the use of management estimates and assumptions relate to the determination of the recoverability of mineral property deferred costs, amounts receivable, future income tax assets and liabilities, asset retirement obligations and assumptions used in valuing options and warrants in stock-based compensation calculations. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit with banks or highly liquid short-term interest bearing securities that are readily convertible to known amounts of cash and those that have maturities of three months or less when acquired.
Marketable securities
Marketable securities are classified as available-for-sale and are carried at the fair value based upon quoted market prices. Changes in fair value are included in other comprehensive income, unless a loss is other than temporary, in which case the loss is charged to operations.
- 7 -
| American Bonanza Gold Corp. |
|
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 3. | SIGNIFICANT ACCOUNTING POLICIES(continued) |
Mineral properties, deferred exploration costs and government assistance
Costs related to mineral activities, which include the investigation, acquisition, exploration, and development of mining properties, are capitalized on a property-by-property basis until such time as the property is placed in production, is sold or abandoned or determined to be impaired. Where exploration activities are conducted jointly with others, only the Corporation’s proportionate cost in the related mineral projects is included in the financial statements. These deferred expenditures are amortized on a units-of-production basis over the estimated useful life of the property based upon proven and probable reserves following commencement of production or written off if the property is abandoned, sold or determined to be impaired. If no exploration activity occurs on properties over a three-year period, there is a presumption of impairment under existing accounting guidelines.
The recovery of the carrying amount of mineral properties is dependent upon the future commercial success of the properties or from proceeds of disposition. The amounts shown for mineral properties, net of impairment realized, represent costs incurred to date and are not intended to reflect present or future values.
The Corporation qualifies for mineral exploration assistance programs associated with the exploration and development of mineral properties located in Quebec. Recoverable amounts are offset against deferred exploration costs incurred when the Corporation has complied with the terms and conditions of the program and the recovery is reasonably assured.
Option payments received on mineral properties are credited against previous capitalized costs.
Office equipment
Office equipment, consisting of office and computer equipment, are recorded at cost and are amortized on a straight-line basis over five years.
Assets under construction
The Company is in the process of acquiring its production equipment including mill, crushers and mobile equipment. Most of this equipment is used and requires refurbishing and offsite preparation prior to construction in the Copperstone site. None of this equipment is ready for its intended use as of December 31, 2010 and hence no amortization was taken during the current fiscal period.
Foreign currency translation
The reporting and functional currency of the Corporation is the Canadian dollar. The functional currency of its United States subsidiary is also the Canadian dollar.
As the Corporation’s U.S. subsidiary is considered an integrated subsidiary (dependent on funding from its parent), the temporal method of translating the accounts of the foreign subsidiaries has been adopted. Under this method, monetary assets and liabilities are translated to Canadian dollars at the prevailing year end exchange rate. Non-monetary assets and liabilities are translated at historical exchange rates. Revenue and expense items are translated at the average rate of exchange for the year. Translation gains and losses are included in the statement of operations.
Financial instruments
The Corporation classifies all financial instruments as either held-to-maturity, available-for-sale, held for trading, loans and receivables and other liabilities. Financial assets held to maturity, loans and receivables and financial liabilities other than those held for trading, are measured at amortized cost. Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive income, unless a loss is other than temporary, in which case the loss is charged to operations. Instruments classified as held for trading are measured at fair value with unrealized gains and losses recognized in the statement of operations.
- 8 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 3. | SIGNIFICANT ACCOUNTING POLICIES(continued) |
The Corporation has classified its cash and cash equivalents as held for trading and therefore measures them at fair market value, with the unrealized gain or loss recorded in income. The amounts receivable has been classified as loans and receivable and accounts payable and accrued liabilities are classified as other liabilities.
The Corporation has classified its marketable securities as available-for-sale securities and therefore carries them at fair value, with unrealized gains or losses recorded in shareholders’ equity as a component of other comprehensive income unless a decline in fair value is other than temporary, in which case such accumulated loss would be recognized in income. These amounts will be reclassified from other comprehensive income to net income when they are realized.
For certain of the Corporation’s financial instruments, including cash and cash equivalents, amounts receivable, and accounts payable and accrued liabilities, the carrying amounts approximate fair values due to their short-term to maturity.
Comprehensive Income
Comprehensive income is the change in shareholders’ equity during a period from transactions and other events and circumstances from non-owner sources. The Corporation reports a consolidated statement of comprehensive loss and accumulated other comprehensive income (loss) in the shareholders’ equity section of the consolidated balance sheet. The components include unrealized gains and losses on securities classified as available-for-sale and foreign currency translation adjustments on self-sustaining foreign operations. The components of accumulated other comprehensive loss for the years ended December 31, 2010 and 2009 are disclosed in notes 5 and 9.
Foreign exchange gains and losses existing from the translation of the financial statements of the Corporation’s operations, formerly determined to be self-sustaining foreign operations, are presented in accumulated other comprehensive income (loss).
Income taxes
The Corporation accounts for income taxes under the asset and liability method. Under this method, temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount are used to calculate future income tax assets or liabilities. Future income tax assets or liabilities are measured using tax rates anticipated to be in effect in the periods that the temporary differences are expected to be settled or realized. A valuation allowance is provided to the extent that it is more likely than not that future income tax assets will not be realized. The effect of a change in income tax rates on future income tax assets and liabilities is recognized in income in the period that the change occurs.
Loss per share
Basic loss per share is calculated by dividing net loss available to the shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated to reflect the dilutive effect of exercising outstanding stock options and warrants by application of the treasury stock method. Outstanding stock options and share purchase warrants that would potentially dilute basic loss per share have not been included in the computation of diluted loss per share because to do so would be anti-dilutive.
Asset retirement obligations
The present value of future asset retirement obligations is recorded as a liability when that liability is incurred with a corresponding increase in the carrying value of the related assets. The liability is accreted to the amount ultimately payable over the period to the date it is paid.
- 9 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 3. | SIGNIFICANT ACCOUNTING POLICIES(continued) |
Impairment of long-lived assets
The Corporation determines if any impairment exists when events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is then required if the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. The amount of loss is measured as the amount by which the long-lived asset’s carrying value exceeds its fair value.
Segmented information
The Corporation conducts its business in a single operating segment being the acquisition, exploration and development of mineral properties. All mineral properties are located in Canada and in the United States as detailed in note 7.
Comparative figures
Certain comparative figures have been reclassified where applicable to conform with the presentation adopted in the current year.
| | Amounts receivable consist of the following: | | |
| | | 2010 | 2009 |
| | | $ | $ |
| | | | |
| | Goods and services and harmonized sales tax | 25,705 | 6,077 |
| | Quebec sales tax | 17,603 | 8,849 |
| | Mining duties and refundable tax credits receivable | 68,505 | 433,998 |
| | Other | 2,629 | 6,756 |
| | | | |
| | | 114,442 | 455,680 |
Government Assistance
The Corporation qualifies for mineral exploration assistance programs associated with incurring exploration and development expenditures on mineral properties located in Quebec. The assistance programs are comprised of a Refundable Tax Credit of 35% of eligible exploration expenses pursuant to Quebec’s Taxation Act and a further 12% refundable credit on eligible expenditures pursuant to Quebec’s Mining Duties Act.
| | | December 31, 2010 |
| | | Fair Value | Cost | Accumulated
unrealized
gains |
| | | $ | $ | $ |
| | | | | |
| | - Balmoral Resources | 5,805,000 | 5,175,000 | 630,000 |
- 10 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 5. | MARKETABLE SECURITIES(continued) |
| | | December 31, 2009 |
| | | Fair Value | Cost | Accumulated
unrealizedgains
(losses) |
| | | $ | $ | $ |
| | | | | |
| | - Hawthorne Gold Corp. | 1,879,842 | 2,155,646 | (275,804) |
On June 22, 2007, the Corporation received 1,500,000 common shares of Cusac Gold Mines Ltd. (“Cusac”) upon the execution of an option agreement. The shares were valued as $300,000 based on quoted market value of the shares.
In April 2008, Cusac and Hawthorne Gold Corp. (“Hawthorne”) merged whereby holders of Cusac common shares received one Hawthorne common share in exchange for 19 common shares of Cusac. Subsequent to the merger, the Corporation therefore held 78,947 shares of Hawthorne. On December 30, 2008 the Corporation received an additional 6,750,000 common shares from Hawthorne which was valued at $2,362,500 based on the quoted market price on that date. During 2009, the Corporation sold 1,300,000 Hawthorne shares for a gross proceed of $575,566 and realised a gain of $68,712. As at December 31, 2009, the Hawthorne common shares fair value was $1,879,842.
During the year ended December 31, 2010 the Corporation disposed of the remaining 5,528,947 shares of Hawthorne for gross proceeds of $976,535 and realised a loss of $1,205,004.
In November 2010, the Corporation signed a definitive agreement with Balmoral Resources Ltd. (“Balmoral”) for the sale of the Corporation’s eastern Canadian exploration properties. In consideration for the properties, Balmoral made a one-time cash payment to Bonanza of $3.7 million dollars and issued 4.5 million common shares of Balmoral to the Corporation valued at $1.15 per share or $5,175,000 in total on that date. As of December 31, 2010 these shares were valued at $5,805,000 resulting in an unrealized gain of $630,000.
| 6. | PLANT AND EQUIPMENT, ASSETS UNDER CONSTRUCTION |
| | | | | December 31, | December 31, |
| | | | | 2010 | 2009 |
| | | | Accumulated | Net Carrying | Net Carrying |
| | | Cost | Amortization | Amount | Amount |
| | | $ | $ | $ | $ |
| | Office equipment | 126,881 | 120,231 | 6,650 | 14,760 |
| | Assets under construction: | | | | |
| | Mill and plant equipment | 1,688,880 | - | 1,688,880 | - |
| | Balance, end of period | 1,815,761 | 120,231 | 1,695,530 | 14,760 |
| | Project | 2010 | 2009 |
| | | $ | $ |
| | | | |
| | Copperstone (a) | 30,627,219 | 28,885,347 |
| | Fenelon (b(i)) | - | 5,000,000 |
| | Gold Bar (c) | - | 200,000 |
| | Northway (b(ii)) | - | 4,644,865 |
| | Martiniere (b(ii)) | - | 3,243,735 |
| | | 30,627,219 | 41,973,947 |
- 11 -
| American Bonanza Gold Corp. |
| |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 7. | MINERAL PROPERTIES(continued) |
Schedule of mineral property expenditures during 2010:
| | | | | | | | | | | | | | | | | | | | | | | | | December | |
| | | | | | | | | | | | | | | | | | | | | | Total | | | 31, | |
| | | | Copperstone | | | Fenelon | | | Gold Bar | | | Northway | | | Martiniere | | | Northshore | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance, beginning of period | | 28,885,347 | | | 5,000,000 | | | 200,000 | | | 4,644,865 | | | 3,243,735 | | | - | | | 41,973,947 | | | 50,877,071 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Decline, drilling and underground support | | 63,601 | | | - | | | - | | | - | | | - | | | - | | | 63,601 | | | 1,890 | |
| | Geological consulting and related | | 569,252 | | | 100,783 | | | - | | | 20,109 | | | 15,122 | | | - | | | 705,266 | | | 834,573 | |
| | Assaying | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 9,218 | |
| | Feasibility | | 560,775 | | | - | | | - | | | - | | | - | | | - | | | 560,775 | | | 760,749 | |
| | Engineering/environmental | | 9,532 | | | - | | | - | | | - | | | - | | | - | | | 9,532 | | | 4,399 | |
| | Advance royalty payment | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 33,000 | |
| | BLM land payments/permit, licenses | | 364,889 | | | 26,646 | | | - | | | - | | | - | | | 2,689 | | | 394,224 | | | 91,603 | |
| | Computer and related | | 30,469 | | | - | | | - | | | - | | | - | | | - | | | 30,469 | | | 5,798 | |
| | Site maintenance and camp: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Utilities and power | | 37,761 | | | - | | | - | | | - | | | - | | | - | | | 37,761 | | | 32,303 | |
| | Property caretakers | | 72,060 | | | 79,409 | | | - | | | - | | | - | | | - | | | 151,469 | | | 144,534 | |
| | Equipment and truck rental | | 17,810 | | | - | | | - | | | - | | | - | | | - | | | 17,810 | | | 10,953 | |
| | Telephone | | 1,131 | | | 8,189 | | | - | | | - | | | - | | | - | | | 9,320 | | | 12,224 | |
| | Maintenance, supplies, other | | 14,592 | | | 105,754 | | | - | | | 1,120 | | | 1,120 | | | - | | | 122,586 | | | 122,884 | |
| | Cost recovery - facility rental | | - | | | (86,726 | ) | | - | | | - | | | - | | | - | | | (86,726 | ) | | (51,402 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accrued government subsidies/repayments | | - | | | (29,805 | ) | | - | | | (4,029 | ) | | (2,191 | ) | | - | | | (36,025 | ) | | (172,295 | ) |
| | Joint venture recovery | | - | | | - | | | - | | | (197,025 | ) | | - | | | - | | | (197,025 | ) | | - | |
| | Sale of mineral properties (note 7(b)) | | - | | | (3,595,484 | ) | | - | | | (3,074,326 | ) | | (2,243,092 | ) | | (2,134 | ) | | (8,915,036 | ) | | - | |
| | Write-down of mineral properties (note 7(b) and (c)) | | - | | | (1,608,766 | ) | | (200,000 | ) | | (1,390,714 | ) | | (1,014,694 | ) | | (555 | ) | | (4,214,729 | ) | | (10,743,555 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1,741,872 | | | (5,000,000 | ) | | (200,000 | ) | | (4,644,865 | ) | | (3,243,735 | ) | | - | | | (11,346,728 | ) | | (8,903,124 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance, end of period | | 30,627,219 | | | - | | | - | | | - | | | - | | | - | | | 30,627,219 | | | 41,973,947 | |
- 12 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 7. | MINERAL PROPERTIES(continued) |
(a) Copperstone
The Corporation is engaged in exploring and developing the Copperstone gold property in La Paz County, Arizona, United States. The Corporation holds a 100% leasehold interest in the Copperstone Project. The landlord is The Patch Living Trust and the lease was for a 10 year term starting June 12, 1995 and was renewed for a further ten years on and from June 12, 2005. The lease is renewable for one or more ten-year terms at the Corporation’s option under the same terms and conditions. The Corporation is obligated to pay for all permitting and state lease bonding, insurance, taxes, and to pay a 1% production gross royalty with the royalty increasing to 6% if the price of gold is over US$551 per ounce. The Corporation pays a minimum advance royalty per year of US$30,000.
The Corporation is required to pay to a third party $70,000 from initial proceeds from mineral extracted from the D-Zone of the Copperstone property and a Net Smelter royalty of 3% from the first 50,000 tonnes of mineralized material extracted from the D-Zone.
During 2002, the Corporation entered into a mining services agreement with an Underground Mining Contractor (“Mining Contractor”) for purposes of the development and extension of an existing underground decline in the D-Zone to establish underground infrastructure for subsequent exploration and development programs. On the basis of meeting certain predetermined performance criteria, the Mining Contractor can earn up to a 5% net profits royalty from the D-Zone bulk sample of up to 50,000 tons of mineralized material that may be completed.
All required property payments were made with respect to the Copperstone project as of December 31, 2010 and all claims are in good standing until August 2011.
(b) Canadian mineral interests
At September 30, 2010, the Corporation wrote down the carrying value of its Fenelon, Northway, Martiniere and Northshore properties by $4,014,729 due to anticipated sale of these mineral properties to Balmoral. The expected proceeds exceeded the then carrying value of these properties by $4,014,729. This amount was allocated to the properties in proportion to their carrying values prior to the write-down.
During the quarter ended December 31, 2010, the Corporation disposed of these Canadian properties for $3.7 million and 4.5 million Balmoral common shares as consideration. The gross proceeds were $8,875,000. The total carrying value of all the Canadian properties was $ 8,915,036 resulting in a loss of $70,355 after considering other transaction related charges and certain asset retirement obligations being assumed by the buyer.
The properties previously owned by the Corporation located in Quebec and Ontario are summarized as follows:
(i) Fenelon Project, Quebec
The Fenelon property, located in the Province of Quebec is approximately 30 kilometers east of the Corporation’s Martiniere gold property, consists of 454 mining claims totaling 17,830 acres. The Corporation acquired its 38% interest in the Fenelon project and an option to acquire the remaining 62% interest as a result of the Arrangement in 2005. Pursuant to a 1998 agreement between Cyprus Canada Inc. (“Cyprus”) and International Taurus Resources Inc. (“Taurus”) and amended in 2000, Taurus was required to pay certain consideration to exercise its option to acquire Cyprus’s 62% ownership interests in the Fenelon Property and the Casa Berardi portfolio of properties (Martiniere, Northway and La Peltrie properties), which are described below in note 7(b)(ii). The remaining consideration included 2,027,579 common shares of Taurus, which were issued in previous periods, and three installments of US$150,000 (total US$450,000), with the first installment to be paid upon commencement of commercial production on any one of the properties and the remaining installments to be made six and twelve months thereafter.
The remaining installments totaling US$450,000 are required to be paid in order to exercise the Corporation’s option to acquire Cyprus’ 62% ownership in the Fenelon property and Cyprus’ interest in the Casa Berardi portfolio of properties.
- 13 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 7. | MINERAL PROPERTIES(continued) |
(b)(i) Fenelon Project, Quebec (continued)
Cyprus will maintain a net smelter return royalty to a maximum of 2% and minimum of 1% in certain conditions on commercial production attributable to Taurus. Upon making the total payment of $450,000, the Corporation would own a 100% interest in the Fenelon property and Casa Berardi portfolio of properties subject only to the right of Cyprus to receive the net smelter return royalty.
During the fourth quarter of 2009, it was determined that, due to market conditions and management's intentions in respect of Fenelon, there was an impairment of the amounts capitalized in respect of this project. An impairment of $10,743,555 was recorded to reduce the carrying amount to the estimated fair value of $5,000,000. This represents management's best estimate of the value that will be recovered based on a net present value approach. Key assumptions in the estimate include future gold prices, recoverable ounces of gold and the discount rate applied, as well as the availability of necessary financing. Actual outcomes could differ materially from this estimate.
During the year 2010, the Company recorded a write-down and sold the Fenelon property.
(b)(ii) Casa Berardi Exploration Portfolio, Quebec
Pursuant to the Option Agreement, as amended by an agreement dated May 1, 2000, between Taurus and Cyprus (note 7(b)(i)), Cyprus granted to Taurus the right to explore certain mineral properties and granted to Taurus an option to purchase all of Cyprus’ interest in Cyprus’ entire Casa Berardi exploration portfolio in the province of Quebec, Canada (the Cyprus Properties). The Taurus exploration portfolio comprises four properties: the Fenelon Project, Martiniere “D”, Northway and La Peltrie located within the Casa Berardi sector of the Abitibi Greenstone belt.
To earn all of Cyprus’ 100% interest in all of the Cyprus Properties, the Corporation must make the cumulative combined payments of US$450,000, commencing on commercial production, which are described above under note 7(b)(i). Once these payments are made, Cyprus is to relinquish all of its rights in respect of all of the properties in exchange for a minimum 1% NSR royalty from certain properties having an underlying royalty and a maximum 2% NSR royalty on those properties not subject to other royalty burdens.
The Martiniere property is located 600 kilometers northwest of Montreal and consists of 226 unpatented crown mining claims covering approximately 3,000 hectares, which are subject to a 2% Net Smelter Return royalty. The Corporation’s Fenelon project is 30 kilometers to the east. The Corporation’s option with Cyprus is for a 100% interest in this property.
The Northway project is located in Quebec, 25 kilometers south of Matagami and 530 kilometers northwest of Montreal. The property consists of two contiguous claim blocks: the 113-claim, 1,600 hectare block and the contiguous 114 claim, 2,000 hectare Noyon block. The Corporation’s option with Cyprus was for a 75% interest in this property with the remaining 25% interest with Caspian Energy Inc. On the Northway block, there is a 2% Net Smelter Return royalty, which may be bought out entirely. During 2006, the Corporation entered into an agreement to acquire the remaining 25% interest of the Northway property from Caspian Energy Inc. in exchange for cash totalling $150,000. As of December 31, 2007 the Corporation had paid the final $75,000 instalment and received the 25% interest.
Effective November 15, 2007, the Corporationentered into an agreement with Agnico-Eagle Mines Limited (“Agnico-Eagle”) for the joint exploration and development of the Corporation’s Northway property and Agnico-Eagle’s Vezza property. During 2009, the Corporation and Agnico-Eagle agreed to terminate the agreement.
During the year 2010, the Company recorded a write-down and sold the Martiniere and Northway properties.
- 14 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 7. | MINERAL PROPERTIES(continued) |
(b)(iii) Northshore Project, Ontario
The Northshore gold property is 100% owned by the Corporation and comprises 550 acres of patented mining claims, situated in Priske Township, Ontario. A NSR royalty ranging from 2% to a maximum of 5% is payable, increasing with gold production in excess of one million ounces. No expenditures, other than the payment of taxes, are required to maintain the property.
During the year ended December 31, 2008, the Corporation wrote-off the carrying value of this property of $979,655 and the property expenditures totalling $2,134 were written off during the year 2010.
During the year 2010, the Company recorded a write-down and sold the Northshore property.
(c) Gold Bar
The Gold Bar property is located in Eureka County, 50 kilometers northwest of Eureka, Nevada. Gold Bar is subject to a 2% net smelter royalty capped at US$1,000,000 on future production. All required payments have been made to hold the claims in good standing until August 2011. Northern Canadian Minerals Inc. holds a 5% interest in the Gold Bar property subject to certain dilution provisions.
During the year ended December 31, 2008, the Corporation wrote-down the carrying amount of the Gold Bar property by $880,785 to $200,000 due to limited exploration activity in the last three years and based upon management’s current plans with respect to the property.
As of December 31, 2010, the Corporation wrote off the carrying value of $200,000 as no exploration activity has occurred on this property in recent years.
(d) Other
The Oatman property is located in Mohave County in Northwest Arizona and covers 600 hectares acquired through the staking of 67 unpatented mining claims in November, 2003.
The Belmont property is located in the Belmont Mining District of Nevada in Nye County, about 40 miles north of Tonopah, in the Walker Lane Mineral Belt. The Corporation acquired the property covering 200 hectares through the staking of 23 unpatented mining claims in February 2004.
The Hassayampa property is located in Yavapai County, central Arizona. The Corporation acquired the property covering 600 hectares through the staking of 73 unpatented mining claims in February, 2004. The Hassayampa project lies within the Black Rock Mining District.
The Vulture Property is located in Maricopa County, central Arizona. The Corporation acquired the property covering 500 hectares through the staking of 61 claims in July, 2004.
During the year ended December 31, 2008, the Corporation wrote-off the carrying value of the Oatman, Belmont, Hassayampa and Vulture properties totalling $214,964 as no exploration activity has occurred on these properties in recent years. This write-down is required to comply with existing accounting guidelines.
Authorized
The Corporation is authorized to issue an unlimited number of common shares and an unlimited number of Class A Preferred Shares without par value. No Class A Preferred Shares have been issued.
- 15 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 8. | SHARE CAPITAL(continued) |
| | Issued | | Number of | | | | |
| | | | Common | | | | |
| | | | Shares | | | Amount | |
| | | | | | | $ | |
| | Balance, December 31, 2007 | | 115,662,976 | | | 60,087,914 | |
| | Flow-through renunciation | | - | | | (315,165 | ) |
| | Balance, December 31, 2008 | | 115,662,976 | | | 59,772,749 | |
| | Private placement – net of share issue costs | | 2,582,913 | | | 204,314 | |
| | Balance, December 31, 2009 | | 118,245,889 | | | 59,977,063 | |
| | Flow-through renunciation (see below) | | - | | | (63,850 | ) |
| | Private placements – net of share issue costs | | 9,603,383 | | | 1,393,081 | |
| | Shares issued for plant purchase | | 1,250,000 | | | 212,500 | |
| | Exercise of options | | 1,100,000 | | | 115,625 | |
| | Re-class option exercised | | - | | | 77,250 | |
| | Balance, December 31, 2010 | | 130,199,272 | | | 61,711,669 | |
On April 2, 2009, the Corporation completed a non-brokered private placement of 2,582,913 flow-through shares, at a price of $0.08 per share for gross proceeds of approximately $206,600. No commission was paid on the financing.
During 2010, exploration expenditures relating to flow-through shares totalling $206,600 were renounced resulting in the Corporation recording a future tax liability of $63,850 with the offset charged to share issue costs.
On June 16, 2010 the Corporation completed a non-brokered private placement of 1,594,500 flow-through common shares, at a price of $0.16 per common share for gross proceeds of $255,120. No commission was paid on the financing.
On August 10, 2010 the Corporation completed a non-brokered private placement of 3,333,717 Units at a price of $0.15 per Unit for gross proceeds of approximately $500,000. Each Unit consists of one common share, and one half of one common share purchase warrant with each full warrant entitling the holder to acquire one common share at a price of $0.23 until August 11, 2012. A 5% cash finder’s fee was paid on the financing.
On August 16, 2010 the Corporationclosed the purchase of a milling and flotation plant for a purchase price of US$400,000 and the issuance of 1,250,000 common shares. The common shares issued were valued at $0.17 per share for $212,500.
On August 24, 2010 the Corporationcompleted a non-brokered private placement of 4,675,166 Units at a price of $0.15 per Unit for gross proceeds of approximately $700,000. Each Unit consists of one common share and one half of one common share purchase warrant, with each full Warrant entitling the holder to acquire one common share at a price of $0.23 until August 24, 2012.
Options
The Corporation grants incentive stock options as permitted pursuant to the Corporation’s Stock Option Plan (the “Plan”) approved by the shareholders. The Plan has been structured to comply with the rules of the Toronto Stock Exchange (“TSX”). The aggregate number of common shares which may be subject to option at any one time may not exceed 10% of the issued common shares of the Corporation as of that date – including options granted prior to the adoption of the Plan. All options may not be granted for a term exceeding 5 years, and the term will be reduced to one year following the date of death. If the Optionee ceases to be qualified to receive options from the Corporation those options shall immediately terminate.
- 16 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 8. | SHARE CAPITAL(continued) |
As at December 31, 2010, the Corporation has stock options outstanding to acquire an aggregate of 10,560,000 common shares and are held by directors, officers, employees and consultants, exercisable at prices between $0.06 and $0.22 per share at varying times up until July 28, 2014.
| | | | Number of | | | Weighted average | |
| | | | Options | | | exercise price | |
| | | | | | | | |
| | Balance, December 31, 2007 | | 9,202,500 | | $ | 0.61 | |
| | Expired | | (390,000 | ) | $ | 1.21 | |
| | Cancelled | | (6,862,500 | ) | $ | 0.68 | |
| | Granted | | 2,385,000 | | $ | 0.07 | |
| | | | | | | | |
| | Balance, December 31, 2008 | | 4,335,000 | | $ | 0.14 | |
| | Granted | | 7,325,000 | | $ | 0.08 | |
| | | | | | | | |
| | Balance, December 31, 2009 | | 11,660,000 | | $ | 0.10 | |
| | Exercised | | (1,100,000 | ) | $ | 0.12 | |
| | | | | | | | |
| | Balance, December 31, 2010 | | 10,560,000 | | $ | 0.10 | |
On May 26, 2008 and December 17, 2008, the Corporation cancelled a total of 5,752,500 options held by certain officers and directors with exercise prices significantly above market prices for nominal consideration. The remaining cancellations were due to terminations in the year.
The following table summarizes stock options outstanding and exercisable at December 31, 2010:
| | Number of | | |
| | Options | Exercise Price | Expiry Date |
| | | | |
| | 1,900,000 | $0.220 | November 6, 2012 |
| | 1,910,000 | $0.070 | August 6, 2013 |
| | 2,530,000 | $0.060 | January 26, 2014 |
| | 3,720,000 | $0.085 | March 18, 2014 |
| | 500,000 | $0.090 | July 28, 2014 |
| | | | |
| | 10,560,000 | | |
During the year ended December 31, 2010, under the fair value based method, $Nil (2009 – $356,887, 2008 - $96,119) in compensation expense was recorded for options granted to employees and non-employees and charged to operations.
The fair value of stock options used to calculate compensation expense has been estimated using the Black-Scholes option pricing model using the following weighted average assumptions:
| | | 2010 | 2009 | 2008 |
| | | | | |
| | Risk free interest rate | - | 1.84% | 3.06% |
| | Expected dividend yield | - | 0% | 0% |
| | Stock price volatility | - | 80% | 78% |
| | Expected life of options | - | 5.0 years | 5.0 years |
The weighted average fair value of options granted during the year ended December 31, 2009 was $0.05 (2008 - $0.04) ..
- 17 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 8. | SHARE CAPITAL(continued) |
Warrants
At December 31, 2010, the Corporation had 4,004,441 outstanding common share purchase warrants.
| | | | | | | Weighted | |
| | | | Number of | | | Average | |
| | | | Warrants | | | Exercise Price | |
| | | | | | | $ | |
| | | | | | | | |
| | Balance, December 31, 2007 | | 9,855,300 | | | 0.32 | |
| | Expired | | (5,574,080 | ) | | 0.34 | |
| | | | | | | | |
| | Balance, December 31, 2008 | | 4,281,220 | | | 0.30 | |
| | Expired | | (4,281,220 | ) | | | |
| | | | | | | | |
| | Balance, December 31, 2009 | | - | | | | |
| | Granted | | 4,004,441 | | | 0.23 | |
| | | | | | | | |
| | Balance, December 31, 2010 | | 4,004,441 | | | 0.23 | |
The following table summarizes the warrants outstanding and exercisable at December 31, 2010:
| | Number of | | |
| | Warrants | Exercise Price | Expiry Date |
| | | | |
| | 1,666,858 | $0.23 | August 11, 2012 |
| | 2,337,583 | $0.23 | August 24, 2012 |
| | | | |
| | 4,004,441 | | |
Contributed Surplus
The following summarizes contributed surplus activity:
| | | | Amount | |
| | | | $ | |
| | Balance, December 31, 2007 | | 5,943,972 | |
| | Stock-based compensation | | 96,119 | |
| | Balance, December 31, 2008 | | 6,040,091 | |
| | Stock-based compensation | | 356,887 | |
| | Balance, December 31, 2009 | | 6,396,978 | |
| | Re-class for options exercised | | (77,250 | ) |
| | Balance, December 31, 2010 | | 6,319,728 | |
- 18 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 9. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
| | | | Amount | |
| | | | $ | |
| | Accumulated other comprehensive income at December 31, 2008 | | 95,286 | |
| | Other comprehensive loss for the year - unrealized loss on available-for-sale securities | | (274,878 | ) |
| | Realised gain on disposal of available-for-sale securities | | (62,730 | ) |
| | Accumulated other comprehensive loss at December 31, 2009 | | (242,322 | ) |
| | Unrealized loss on available-for-sale securities - Hawthorne | | (919,651 | ) |
| | Realised loss on disposal of available-for-sale securities – Hawthorne | | 1,205,004 | |
| | Unrealized gain on available-for-sale securities – Balmoral, net of tax of $89,460 | | 540,540 | |
| | Accumulated other comprehensive gain at December 31, 2010 | | 583,571 | |
The components of other accumulated comprehensive income are:
| | | | December 31, | | | December 31, | | | December 31, | |
| | | | 2010 | | | 2009 | | | 2008 | |
| | | | $ | | | $ | | | $ | |
| | | | | | | | | | | |
| | Currency translation gain | | 43,031 | | | 43,031 | | | 43,031 | |
| | Unrealized loss on Bayswater Uranium | | - | | | - | | | (7,275 | ) |
| | Unrealized gain/(loss) on Hawthorne Gold Corp. | | - | | | (285,353 | ) | | 59,530 | |
| | Unrealized gain on Balmoral Resources | | 630,000 | | | - | | | - | |
| | | | 673,031 | | | (242,322 | ) | | 95,286 | |
| 10. | GENERAL AND ADMINISTRATIVE EXPENSES |
| | | | 2010 | | | 2009 | | | 2008 | |
| | | | $ | | | $ | | | $ | |
| | | | | | | | | | | |
| | Management fees, consulting and salaries | | 292,590 | | | 440,601 | | | 335,877 | |
| | Office and administration | | 12,358 | | | 46,203 | | | 113,922 | |
| | Legal and accounting | | 134,928 | | | 121,655 | | | 104,700 | |
| | Insurance | | 40,488 | | | 67,676 | | | 94,867 | |
| | Public company expenses | | 208,223 | | | 115,646 | | | 226,836 | |
| | | | 688,587 | | | 791,781 | | | 876,202 | |
The Corporation is committed under lease agreements expiring May 31, 2011 for office premises in Vancouver in the amount of $52,000 per year and for the office premises in Reno in the amount of $26,900 per year.
The Corporation’s lease obligation to The Patch Living Trust on the Copperstone mineral property is disclosed in note 7(a).
- 19 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 12. | RELATED PARTY TRANSACTIONS |
| | (a) | The Corporation shares certain premises and facilities with companies which have certain directors in common, under cost-sharing arrangements. During the year ended December 31, 2010 the Corporation recovered management and consulting fees of $79,091 (2009 – $82,375; 2008 – $146,150) and general and administration expenses of $133,409 (2009 - $54,125; 2008 – $82,719) from these companies. |
| | | |
| | (b) | As at December 31, 2010, there were $2,629 (2009 - $4,741) of accounts receivable due from companies with certain directors in common. |
| 13. | ASSET RETIREMENT OBLIGATION |
Prior to the disposition of the Fenelon property, the Corporation’s asset retirement obligations consisted of reclamation and closure costs for the Fenelon project based on the present value of obligations estimated to incur in the next 4 years. Significant reclamation and closure activities were to include land rehabilitation, demolition of buildings and ongoing care and maintenance and other costs.
The liability for reclamation and closure cost obligations prior to disposal was $37,783 (December 31, 2009 - $36,352). An accretion expense component of $1,431 (2009 - $1,360; 2008 - $1,723) has been charged to operations in the year ended December 31, 2010 to reflect an increase in the carrying amount of the asset retirement obligation which has been determined using a discount rate of 5.25% .
During the year 2010, as a result of disposition of the Fenelon project (note 7(b)), the liability accrued of $37,783 was written off against the loss of disposal for the property as it was assumed by the purchaser in the transaction. As at December 31, 2010, the Company has not yet incurred any retirement obligation in respect of the Copperstone Project.
(a) Effective tax rate:
The effective income tax rates differ from Canadian statutory rates for the following reasons in the years ended December 31, 2010, 2009 and 2008:
| | | | 2010 | | | 2009 | | | 2008 | |
| | | | $ | | | $ | | | $ | |
| | | | | | | | | | | |
| | Combined federal and provincial tax rates at the expected rate of 29.9% (2009 – 30.9%; 2008 – 31.0%) | | (2,016,275 | ) | | (3,752,650 | ) | | (1,307,922 | ) |
| | Permanent differences | | - | | | 100,586 | | | 29,797 | |
| | Change in valuation allowance | | 195,376 | | | 1,891,603 | | | 1,332,561 | |
| | Future tax recovery resulting from reduction in statutory rate and expiry of loss carry-forwards and other | | 1,757,049 | | | 902,306 | | | (389,714 | ) |
| | Write-off future income tax liability | | - | | | (328,656 | ) | | - | |
| | Tax-effect of unrealized gains recorded to OCI | | (89,460 | ) | | - | | | - | |
| | | | | | | | | | | |
| | Recovery of income taxes | | (153,310 | ) | | (1,186,811 | ) | | (335,278 | ) |
The Corporation has Canadian tax loss carry forwards of approximately $4.5 million as at December 31, 2010. The non-capital losses can offset future income for tax purposes which expire between 2026 and 2029. In addition, the Corporation has approximately $16 million of resource pools in Canada and $27 million in the United States as at December 31, 2010, which can be utilized to be deducted against future resource profits.
- 20 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 14. | INCOME TAXES(continued) |
The income tax recovery for the years ending December 31, 2010, 2009 and 2008 are as follows:
| | | | 2010 | | | 2009 | | | 2008 | |
| | | | $ | | | $ | | | $ | |
| | | | | | | | | | | |
| | Current | | - | | | - | | | - | |
| | Future tax recovery | | (153,310 | ) | | 1,186,811 | | | 335,278 | |
| | | | (153,310 | ) | | 1,186,811 | | | 335,278 | |
(b) Significant components of the Corporation’s future income tax assets and liabilities are as follows:
| | | | 2010 | | | 2009 | |
| | | | $ | | | $ | |
| | | | | | | | |
| | Future income tax assets: | | | | | | |
| | Tax loss carry forwards-non-capital loss | | 2,443,895 | | | 3,480,976 | |
| | Tax loss carry forwards- capital loss | | 160,789 | | | - | |
| | Book and tax base differences on resource properties | | 3,313,422 | | | 3,079,274 | |
| | Share issue costs | | 37,139 | | | 22,618 | |
| | Book and tax base differences on office equipment | | 30,509 | | | 39,381 | |
| | Marketable securities | | - | | | 41,233 | |
| | Asset retirement obligation | | - | | | 9,779 | |
| | | | 5,985,754 | | | 6,673,261 | |
| | Valuation allowance | | (5,896,294 | ) | | (5,700,921 | ) |
| | Future income tax assets | | 89,460 | | | 972,340 | |
| | | | | | | | |
| | | | | | | | |
| | Future tax liabilities: | | | | | | |
| | Mineral properties | | - | | | (972,340 | ) |
| | Marketable securities | | (89,460 | ) | | - | |
| | Net future income tax liabilities | | - | | | - | |
| 15. | FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL |
Fair values in the consolidated balance sheet:
The carrying amounts reported in the consolidated balance sheet for short term financial assets and liabilities, which includes cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities approximate fair values due to the immediate or short-term maturities of these financial instruments.
The following is a classification of fair value measurements recognized in the consolidated balance sheet using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
| | Fair value measurement at reporting date using: |
| December 31,
2010 | Quoted prices in
active markets
identical assets
(Level 1) | Significant other
observable inputs
(Level 2) | Significant
unobservable
inputs (Level 3) |
| Assets | | | | |
| Cash and cash equivalents | 3,104,650 | 3,104,650 | - | - |
| Marketable securities | 5,805,000 | 5,805,000 | - | - |
- 21 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 15. | FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL(continued) |
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Cash and cash equivalents are classified as held for trading and therefore are recorded at fair value.
The carrying amounts of marketable securities are equal to fair value, which is based on active market obtained from the closing stock price.
Contractual Obligations
The following table sets forth the Corporation’s known contractual obligations as at December 31, 2010:
| | | Payments due by period |
| | | | Less than | | | More than |
| | | Total | 1 year | 1-3 years | 4-5 years | 5 years |
| | Contractual Obligations | $ | $ | $ | $ | $ |
| | Lease Obligation – Payment to The Patch(1) | 150,000 | 30,000 | 90,000 | 30,000 | Nil |
| | Living Trust on Copperstone Property | | | | | |
| | Mineral Property Interests – Filing Fees | 931,000 | 186,000 | 621,000 | 30,000 | 94,000 |
| | Office Rental Agreement | 25,000 | 25,000 | Nil | Nil | Nil |
| | Total | $1,106,000 | $241,000 | $711,000 | $60,000 | $94,000 |
| | (1) Amount in U.S. dollars. | | | | | |
Financial risk factors
The Corporation manages its exposure to financial risks, including foreign exchange risk and interest rate risk, based on a framework to protect itself against adverse rate movements. All transactions undertaken are to support the Corporation’s ongoing business and the Corporation does not acquire or issue derivative financial instruments for trading or speculative purposes. The Corporation’s Board of Directors oversees management’s risk management practices.
The Corporation’s activities are exposed to financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk.
| | a) | Market risks |
| | | | |
| | | i) | Interest rate risk |
| | | | |
| | | | Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Cash and cash equivalents bear interest at market rates. Other current financial assets and liabilities are not exposed to interest rate risk because of their short-term nature or being non-interest bearing. |
- 22 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 15. | FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL(continued) |
| | ii) | Currency risk |
| | | |
| | | The Corporation is exposed to currency fluctuations in foreign currencies. The Corporation holds balances in cash and cash equivalents, and accounts payable and accrued liabilities in foreign currencies (US dollars) and is therefore exposed to gains or losses on foreign exchange. Based on the balance in foreign currencies as at December 31, 2010, a variance in foreign currency exchange rate of 10% would not have a significant impact on the Corporation’s financial statements. |
| | | |
| | | As of December 31, 2010, the Corporation held the following US$ financial instruments: |
| | | | US$ | | |
| | Cash and cash equivalents | | 916,197 | | |
| | Accounts payable | | (163,401 | ) | |
| | | | | | |
| | | | 752,796 | | |
| | | | | | |
| | Effect of 10% variation on US exchange: | | 75,280 | | |
| | b) | Credit risk |
| | | |
| | | Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Corporation to credit risk consist of cash and cash equivalents and amounts receivable. The Corporation has reduced its credit risk by investing its cash equivalents in guaranteed investment certificates with a Schedule 1 Canadian chartered bank. Also, as the majority of its receivables are with the governments of Quebec and Canada in the form of sales tax receivables and government’s incentives, credit risk is considered minimal. |
| | | |
| | c) | Liquidity risk |
| | | |
| | | Liquidity risk is the risk that the Corporation will not be able to meet the obligations associated with its financial liabilities. As of December 31, 2010, the Corporation had enough funds available to meet its financial liabilities and future financial liabilities from its commitments in the next fiscal year. The Corporation handles liquidity risk through the management of its capital structure. |
CAPITAL MANAGEMENT
The Corporation’s objectives of capital management are intended to safeguard the entity's ability to support the Corporation’s exploration and development of its mineral properties and support any expansion plans.
The capital of the Corporation consists of the items included in shareholders’ equity and debt obligations net of cash and cash equivalents. The Corporation manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Corporation’s underlying assets.
To effectively manage the entity’s capital requirements, the Corporation has in place a planning and budgeting process to help determine the funds required to ensure the Corporation has the appropriate liquidity to meet its objectives. The Corporation may issue new shares or seek debt financing to ensure that there is sufficient working capital to meet its short-term business requirements. The Corporation is not subject to externally imposed capital requirements.
- 23 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 16. | RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). A description of US GAAP and practices prescribed by the US Securities and Exchange Commission (“SEC”) that result in material measurement differences from Canadian GAAP are as follows:
Reconciliation
The effect of measurement differences between Canadian GAAP and US GAAP (including practices prescribed by the SEC) on the consolidated balance sheets and statements of operations and deficit and cash flows is summarized as follows:
| | | | 2010 | | | 2009 | |
| | | | $ | | | $ | |
| | | | | | | | |
| | Total assets, under Canadian GAAP | | 41,583,325 | | | 45,335,078 | |
| | Adjustment for mineral properties land use and deferred exploration costs (note 16(a)) | | (26,967,192 | ) | | (27,049,319 | ) |
| | | | | | | | |
| | Total assets, under US GAAP | | 14,616,133 | | | 18,285,759 | |
| | | | 2010 | | | 2009 | |
| | | | $ | | | $ | |
| | | | | | | | |
| | Total liabilities, under Canadian GAAP and US GAAP | | 1,079,376 | | | 724,292 | |
| | | | 2010 | | | 2009 | |
| | | | $ | | | $ | |
| | | | | | | | |
| | Deficit, under Canadian GAAP | | (28,111,019 | ) | | (21,520,933 | ) |
| | Adjustment for mineral properties land use and deferred exploration costs (note 16(a)) | | (26,965,467 | ) | | (27,384,597 | ) |
| | Stock-based compensation (note 16(b)) | | 2,874,967 | | | 2,874,967 | |
| | Elimination of accumulated deficit (note 16(e)) | | (18,683,952 | ) | | (18,683,952 | ) |
| | Adjustment for income tax and mineral properties | | 848,609 | | | (848,609 | ) |
| | Adjustment for flow-through shares (note 16(g)) | | (1,080,960 | ) | | 1,017,110 | |
| | Marketable Securities (note 16(i)) | | (89,460 | ) | | - | |
| | | | | | | | |
| | Deficit, under US GAAP | | (71,207,282 | ) | | (64,546,014 | ) |
- 24 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 16. | RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued) |
| | |
| | Reconciliation(continued) |
| | | | 2010 | | | 2009 | |
| | | | $ | | | $ | |
| | | | | | | | |
| | Share capital, under Canadian GAAP | | 61,711,669 | | | 59,977,063 | |
| | Elimination of share capital on deficit elimination (note 16(e)) | | 18,683,952 | | | 18,683,952 | |
| | Adjustment for flow-through shares (note 16(g)) | | 230,626 | | | 166,776 | |
| | Reclassification of warrant value to contributed surplus (note 16(h)) | | (90,454 | ) | | - | |
| | | | | | | | |
| | Share capital, under US GAAP | | 80,535,793 | | | 78,827,791 | |
| | | | 2010 | | | 2009 | |
| | | | $ | | | $ | |
| | | | | | | | |
| | Contributed surplus, under Canadian GAAP | | 6,319,728 | | | 6,396,978 | |
| | Stock-based compensation (note 16(b)) | | (2,874,967 | ) | | (2,874,967 | ) |
| | Warrant value (note 16(h)) | | 90,454 | | | - | |
| | | | | | | | |
| | Contributed surplus, under US GAAP | | 3,535,215 | | | 3,522,011 | |
| | (vi) | Accumulated Other Comprehensive Income |
| | | | 2010 | | | 2009 | |
| | | | $ | | | $ | |
| | | | | | | | |
| | Accumulated other comprehensive income, under Canadian GAAP | | 583,571 | | | (242,322 | ) |
| | Marketable Securities (note 16(j)) | | 89,460 | | | - | |
| | | | | | | | |
| | | | | | | | |
| | Accumulated other comprehensive income, under US GAAP | | 673,031 | | | (242,322 | ) |
- 25 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 16. | RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued) |
Reconciliation(continued)
| | (vii) | Net loss and loss per share for the year |
| | | | Years ended December 31 | |
| | | | 2010 | | | 2009 | | | 2008 | |
| | | | $ | | | $ | | | $ | |
| | | | | | | | | | | |
| | Loss for the year, under Canadian GAAP | | (6,590,086 | ) | | (11,041,089 | ) | | (3,883,826 | ) |
| | | | | | | | | | | |
| | Adjustment for mineral property land use and deferred exploration costs (note 16(a)) | | (1,741,872 | ) | | (1,840,431 | ) | | (3,264,938 | ) |
| | | | | | | | | | | |
| | Adjustment for income taxes related to mineral properties adjustments (note 16(a)) | | - | | | (848,608 | ) | | 50,170 | |
| | | | | | | | | | | |
| | Adjustment for flow through shares (note 16(g)) | | (63,850 | ) | | - | | | - | |
| | | | | | | | | | | |
| | Adjustment to mineral property impairment loss (note 16(a)) | | 1,824,000 | | | 3,674,933 | | | - | |
| | | | | | | | | | | |
| | Adjustment for marketable securities (note 16(i)) | | (89,460 | ) | | - | | | - | |
| | | | | | | | | | | |
| | Loss for the year, under US GAAP | | (6,661,268 | ) | | (10,055,195 | ) | | (7,098,594 | ) |
| | Other comprehensive income (loss): | | | | | | | | | |
| | Unrealized gain (loss) on available- for-sale marketable securities | | 825,893 | | | (337,608 | ) | | 194,867 | |
| | | | | | | | | | | |
| | Comprehensive loss, under US GAAP | | (5,835,375 | ) | | (10,392,803 | ) | | (6,903,727 | ) |
| | Weighted average number of common shares outstanding under US GAAP, basic and diluted | | 122,765,013 | | | 117,594,853 | | | 115,662,976 | |
| | Basic and diluted loss per share, under US GAAP | | (0.05 | ) | | (0.09 | ) | | (0.06 | ) |
- 26 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 16. | RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued) |
Reconciliation(continued)
| | (viii) | Statement of Cash Flows |
| | | |
| | | Cash provided by (used in) operating activities |
| | | | Years ended December 31 |
| | | | 2010 | | | 2009 | | | 2008 | |
| | | | $ | | | $ | | | $ | |
| | | | | | | | | | | |
| | Cash provided by (used in) operating activities, under Canadian GAAP | | (512,925 | ) | | (629,049 | ) | | 131,893 | |
| | Adjustment for mineral properties and deferred exploration (note 16(a)) | | (2,016,087 | ) | | (1,840,431 | ) | | (3,725,264 | ) |
| | Cash used in operating activities, under US GAAP | | (2,529,012 | ) | | (2,469,480 | ) | | (3,593,371 | ) |
| | | | | | | | | | | |
| | Cash provided by (used in) investing activities, under Canadian GAAP | | 1,332,672 | | | (1,267,978 | ) | | (1,747,320 | ) |
| | Adjustment for mineral properties and deferred exploration (note 16(a)) | | 2,016,087 | | | 1,840,431 | | | 3,725,264 | |
| | Cash provided by (used in) investing activities, under US GAAP | | 3,348,759 | | | 572,453 | | | 1,977,944 | |
| | | | | | | | | | | |
| | Cash provided by financing activities, under Canadian GAAP | | 1,326,980 | | | 204,314 | | | - | |
| | Cash provided by financing activities, under US GAAP | | 1,326,980 | | | 204,314 | | | - | |
| | | | | | | | | | | |
| | Cash and cash equivalents, beginning of year under Canadian GAAP and US GAAP | | 957,923 | | | 2,650,636 | | | 4,266,063 | |
| | Cash and cash equivalents, end of year, Canadian GAAP and US GAAP | | 3,104,650 | | | 957,923 | | | 2,650,636 | |
Notes to US GAAP Reconciliation:
| | (a) | Mineral properties and deferred exploration costs |
| | | |
| | | US GAAP requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Corporation is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. SEC staff has indicated that their interpretation of US GAAP requires mineral property exploration and land use costs to be expensed as incurred until commercially mineable deposits are determined to exist within a particular property as cash flows cannot be reasonably estimated |
- 27 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 16. | RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued) |
| | (a) | Mineral properties and deferred exploration costs(continued) |
| | | | |
| | | prior to such determination. Accordingly, for all periods presented, the Corporation has expensed all mineral property exploration and land use costs for US GAAP purposes. The costs remaining for US GAAP purposes relate to mineral property acquisition costs. This difference in accounting treatment has a consequential impact on the amount of impairment loss recorded. |
| | | | |
| | | For Canadian GAAP, cash flows relating to mineral exploration property costs are reported as investing activities. For US GAAP, these costs would be characterized as operating activities. |
| | | | |
| | (b) | Stock-based compensation |
| | | | |
| | | As permitted by Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation(“SFAS 123 – ASC718”), the Corporation continued to measure compensation costs using the intrinsic value based method for US GAAP purposes of accounting for employee stock-based compensation as prescribed by APB Opinion No. 25 and related interpretations until January 1, 2005. Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market value of the stock at the date of the granting of options to employees and directors to purchase stock over the amount an optionee must pay to acquire the stock at that date. As the exercise price of options granted by the Corporation to employees and directors is equal to or is greater than, the market value at the grant date, the Corporation has determined that the application of this accounting policy for stock options granted to employees and directors resulted in no compensation expense for US GAAP purposes for any of the periods presented. |
| | | | |
| | | The Corporation adopted the fair value based method of accounting for employee stock-based compensation under US GAAP effective January 1, 2005 using the modified prospective transition method. Under this method, the Corporation recognized employee stock-based compensation prospectively beginning January 1, 2005 as if the fair value method had been used for all employee awards granted, modified, or settled in fiscal years beginning after December 15, 1994. Results of prior years were not restated and no cumulative adjustment was required upon adoption. |
| | | | |
| | | During the year ended December 31, 2004 the Corporation adopted and retroactively applied the fair value based method under Canadian GAAP for employee and director stock options granted on or after January 1, 2002, without restatement. The effect of retroactively adopting the fair value based method, without restatement, under Canadian GAAP was to increase the deficit and contributed surplus by $2,874,967 as at January 1, 2004. For US GAAP purposes, no adjustment would be made as the Corporation continued to follow the intrinsic value method until January 1, 2005. |
| | | | |
| | | Effective January 1, 2006, the Corporation adopted the fair value measurement method for stock-based compensation under US GAAP. As a result, accounting for stock-based compensation under Canadian and US GAAP has resulted in no material differences. |
| | | | |
| | (c) | Exploration stage company |
| | | | |
| | | Pursuant to US GAAP and the guidance of the SEC, the Corporation would be subject to the disclosure requirements applicable to a development stage enterprise as the Corporation is devoting its efforts to establishing commercially viable mineral properties. However, the identification of the Corporation as such for accounting purposes does not impact the measurement principles applied to these financial statements. |
| | | | |
| | (d) | Consolidated statements of cash flows |
| | | | |
| | | The Corporation has included a subtotal in cash flows from operating activities. Under US GAAP, no such subtotal would be disclosed. |
- 28 -
| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 16. | RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued) |
| | (e) | Elimination of accumulated deficit |
| | | |
| | | During the year ended December 31, 2005, the Corporation reduced its share capital by $18,683,952 to eliminate its accumulated deficit at closing of the Arrangement. |
| | | |
| | | As it was not necessary to revalue the assets of the Corporation in order to effect this reduction, all conditions necessary under US GAAP quasi-reorganization rules were not met and the recapitalization of the deficit is not recorded. |
| | | |
| | (f) | Income taxes |
| | | |
| | | Under Canadian GAAP, future tax assets and liabilities recorded at substantively enacted tax rates. Under US GAAP, deferred tax assets and liabilities are recorded at enacted tax rates. There were no significant differences between enacted and substantively enacted tax rates for the information presented. |
| | | |
| | (g) | Flow-through equity financings |
| | | |
| | | Under Canadian income tax legislation, a corporation is permitted to issue shares whereby the corporation agrees to incur qualifying expenditures and renounce the related income tax deductions to the investors. The Corporation has accounted for the issue of flow-through shares by reducing shareholders’ equity and recognizing a future income tax liability for the amount of tax credit renounced to the investors, in accordance with Canadian GAAP. |
| | | |
| | | For US GAAP, the amount received by the Corporation on the issuance of flow-through shares in excess of the fair value of common shares is required to be credited to liabilities and included in operations when the Corporation renounces the qualified expenditures. As at December 31, 2010, total flow-through share fair value premiums liabilities were nil – (2009 and 2008 – nil) under US GAAP. |
| | | |
| | | Also, notwithstanding there is no specific contractual restrictions or requirements to segregate the funds received for the flow-through shares, funds that are unexpended at the consolidated balance sheet dates are considered to be restricted funds and are not considered to be cash or cash equivalents under the SEC staff interpretation of US GAAP. Such amounts would be required to be disclosed separately in a consolidated balance sheet prepared in accordance with US GAAP. As at December 31, 2010 unexpended flow-through funds were nil (2009 and 2008 - nil). |
| | | |
| | (h) | Unit offerings |
| | | |
| | | Under Canadian GAAP, the proceeds received on issuance of units, consisting of common shares and warrants, are not required to be allocated to the individual common share and warrant components when the instruments and its components are all determined to be equity instruments. Under US GAAP, the Corporation is required to allocate the proceeds received on unit offerings to the individual common share and warrant components on a relative fair value basis when both components are determined to be equity classified. The fair value of the share purchase warrants was determined using the Black-Scholes method based on the following factors: |
| | | 2010 | 2007 |
| | | | |
| | Risk-free interest rate | 1.23% | 3.75% |
| | Expected dividend yield | 0% | 0% |
| | Stock price volatility | 59.8% | 50.5% |
| | Expected life of options | 1.0 years | 1.5 years |
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| American Bonanza Gold Corp. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| December 31, 2010, 2009 and 2008 |
| 16. | RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued) |
| | | The weighted average fair value of warrants granted during the year ended December 31, 2010 was $0.03 (2007 - $0.02) per warrant. |
| | | |
| | | Under US GAAP, share capital would be reduced and contributed surplus would be increased by $90,454 (2007 - $75,000) to reflect the relative fair values of the shares and warrants. |
| | | |
| | (i) | Marketable Securities |
| | | |
| | | Under Canadian GAAP, the Corporation recognized an income tax recovery of $89,460 due to the existence of a future tax liability being created from realized gains on marketable securities in 2010. Under US GAAP, this future tax recovery would be recognized in other comprehensive income. |
| | | |
| | (j) | Recently Announced Accounting Standards |
| | | |
| | | In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU No. 2009-13”) pertaining to multiple-deliverable revenue arrangements. The new guidance will affect accounting and reporting for companies that enter into multiple-deliverable revenue arrangements with their customers when those arrangements are within the scope of Accounting Standards Codification (“ASC”) 605-25 “Revenue Recognition - Multiple-Element Arrangements”. The new guidance will eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The new guidance will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Because we are adopting IFRS when this guidance is applicable, this standard is not expected to affect our consolidated statements of financial position or results of operations. |
| | a) | In January, 2011 the Corporation closed the public offering of Units by Wellington West Capital Markets Inc (the “Agent”) for a total of 50 million Units at a price of $0.35 per Unit for gross proceeds of $17.5 million. Each Unit consisted of one common share and one half of one warrant, with each whole warrant entitling the holder to purchase a further common share at a price of $0.45 per common share at any time until July 21, 2012. The Corporation paid the Agent a cash commission equal to 6% of the gross proceeds of the Offering, and issued to the Agent warrants to purchase 2,963,700 common shares at a price of $0.38 per common share, exercisable until July 21, 2012. The Corporation incurred cash share issuance costs of $181,726 as of December 31, 2010. Such costs have been deferred on the balance sheet at December 31, 2010 and will be netted against share issue proceeds in share capital upon closing. |
| | | |
| | b) | Subsequent to December 31, 2010, 6,895,000 stock-options were granted to employees, Officers and Directors of the Corporation exercisable at $0.39 expiring March 2, 2016. |
| | | |
| | c) | In February, 2011 the Corporation posted an approximately $1.6 million cash reclamation bond with BLM for Copperstone. The bond was posted to guarantee that Bonanza is positioned to complete all required reclamation at the end of the mine life at Copperstone based on the current mine plan of operations. The Company will perform partial reclamation work at the Copperstone site concurrent with mining operations, as described in the mine plan of operations. |
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ITEM 18. FINANCIAL STATEMENTS
See Item 17.
ITEM 19. EXHIBITS
| Exhibit | |
| Number | Description |
| 1.0 | Articles of the Corporation – American Bonanza Gold Corp.(1) |
| 2.0 | Stock Option Plan dated March 24, 2005 – approved by the shareholders of Old Bonanza and Taurus on March 24, 2005.(1) |
| 4.1 | Employment Agreement for Brian Kirwin.(2) |
| 4.2 | Employment Agreement for Giulio Bonifacio.(2) |
| 4.3 | Arrangement Agreement among the Corporation, Taurus, Fairstar, Old Bonanza and FairstarSub dated December 21, 2004.(2) |
| 4.4 | Amendment to Arrangement Agreement among the Corporation, Taurus, Fairstar, Old Bonanza and FairstarSub dated February 21, 2005.(3) |
| 4.5 | Amended Employment Agreement for Brian Kirwin dated July 1, 2006(4) |
| 4.6 | Amended Employment Agreement for Giulio Bonifacio dated July 1, 2006(4) |
| 4.7 | Amended Employment Agreement for Giulio Bonifacio dated May 1, 2007(5) |
| 4.8 | Mineral Property Option Agreement between the Corporation and Cusac Gold Mines Ltd. dated June 7, 2007(5) |
| 4.9 | Option Assignment and Amending Agreement among Cusac Gold Mines Ltd., Hawthorne Gold Corp. and the Corporation dated December 19, 2007(5) |
| 4.10 | Northway Option Agreement between the Corporation and Agnico Eagle Mines Ltd. dated November 15, 2007(5) |
| 4.11 | Mineral Option Amending Agreement between the Corporation and Hawthorne Gold Corp. dated December 22, 2008(6) |
| 4.12 | Purchase Agreement between the Corporation and Balmoral Resources Ltd. dated November 3, 2010 |
| 8.0 | List of Principal Subsidiaries.(1) |
| 11.0 | Code of Ethics.(1) |
| 12.1 | Section 302 Certification by Chief Executive Officer. |
| 12.2 | Section 302 Certification by Chief Financial Officer. |
| 13.1 | Section 906 Certification by Chief Executive Officer. |
| 13.2 | Section 906 Certification by Chief Financial Officer. |
| (1) | Previously filed with the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2005 filed with the SEC on April 10, 2006. |
| | |
| (2) | Previously filed with the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2003 filed with the SEC on February 3, 2005. |
| | |
| (3) | Previously filed with the Registrant’s Form 6-K filed with the SEC on March 8, 2005. |
| (4) | Previously filed with the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2006 filed with the SEC on March 30, 2007. |
| | |
| (5) | Previously filed with the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2007 filed with the SEC on April 1, 2008. |
| | |
| (6) | Previously filed with the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2008 filed with the SEC on March 31, 2009. |
| | |
| (7) | Previously filed with the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2009 filed with the SEC on March 31, 2010. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
AMERICAN BONANZA GOLD CORP.
| By: | "Brian P. Kirwin” | |
| | Brian P. Kirwin | |
| | President, Chief Executive | |
| Officer and Director | |
| | | |
| | | |
| | | |
| Date: | March 31, 2011 | |
