UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
(Amendment No. 2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
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 1238 – 200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4
(Address of principal executive offices)
Catherine Tanaka, Corporate Secretary
Tel: 604-688-7511
Fax: 604-681-0122
Email:ctanaka@americanbonanza.com
Suite 1238 – 200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4
(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, 2011:198,549,355 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 [ ]
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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:
| International Financial Reporting Standards as issued | ||
| US GAAP [ ] | by the International Accounting Standards Board [ X ] | Other [ ] |
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 [ ] 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 ]
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EXPLANATORY NOTE
This Amendment No. 2 to the Annual Report on Form 20-F for the fiscal year ended December 31, 2011 (the “Amendment No. 2”) amends the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2011 as filed with the Securities and Exchange Commission (the “SEC”) on April 2, 2012, as subsequently amended on Form 20-F/A (Amendment No. 1) as filed with the SEC on April 6, 2012 (such Form 20-F, as amended by such Amendment No. 1, the “2011 Form 20-F”). This Amendment No. 2 amends the 2011 Form 20-F in order to provide disclosure in Item 5.B (Liquidity and Capital Resources) as well as in Note 13 to the financial statements to indicate that the Company’s December 31, 2010 comparative statement of cash flow was amended to correct an error in the classification of investing cash flows for expenditures incurred on mineral properties, plant and equipment totaling $406,078 which had not been paid and were included in accounts payable as at December 31, 2010. This resulted in the classification amendment which increased cash flows from investing activities and reduced cash flows from operating activities by $406,078 compared to those previously presented.
Except as provided above, no other changes have been made to the 2011 Form 20-F or the Company’s audited financial statements as included in the 2011 Form 20-F. Amendment No. 2 does not reflect events occurring after the filing of the 2011 Form 20-F.
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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”,“Company”, “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, 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;
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“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.
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| NOTE TO UNITED STATES READERS |
| REGARDING DIFFERENCES IN UNITED STATES AND |
| CANADIAN REPORTING PRACTICES |
Financial Information
The Company prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), and they are subject to Canadian auditing and auditor independence standards. IFRS differs in some respects from United States generally accepted accounting principles, (“U.S. GAAP”) or (“United States GAAP”), and thus our financial statements may not be comparable to financial statements of United States companies.
Resource and Reserve Estimates
Certain terms contained in this Form 20-F have been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 –Standards of Disclosure for Mineral Projects(“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in SEC Industry Guide 7 under the United States Securities Act of 1933, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards. Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.
In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral 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. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this annual report and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
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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 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, the expectation that the Corporation will be able to improve gold recoveries and operating efficiencies, 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 Corporation’s forward-looking statements are based include the following:
- the price for gold will not fall significantly below the price assumptions used in the Study (as defined below) contained in the Revised Copperstone Report (base case $962/oz);
- the assumptions in the financial analysis in the Revised Copperstone Report are materially accurate;
- the Corporation 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 Corporation to comply with environmental, safety and other regulatory requirements;
- the Corporation will be able to obtain regulatory approvals 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 Corporation’s capital costs and operating costs will not increase significantly;
- the Corporation will be able to procure mining extraction equipment in a timely manner;
- key personnel will continue their employment with the Corporation;
- the Corporation will be able to transition to owner operated mining from contract mining without significant cost increases or consequential decreases in operating efficiency; and
- 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 Corporation’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 Corporation’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 Corporation’s business, financial condition and prospects that is included in this Annual Report including the documents incorporated by reference herein.
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Although the Corporation believes that the assumptions on which the forward-looking statements are made are reasonable, based on the information available to the Corporation 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 Corporation 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.
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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. |
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| 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 mineral reserves 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. |
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| 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. |
| 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. |
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| 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. |
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| 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. |
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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. |
| Structural Control | 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”). |
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| 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. |
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TABLE OF CONTENTS
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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$) | |||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||
| Average Rate During Period | 0.9866 | 1.0299 | 1.1373 | 1.0693 | 1.0665 | ||||||||||
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/12 | Jan/12 | Dec/11 | Nov/11 | Oct/11 | Sep/11 | |||||||||||||
| High Rate | 1.0040 | 1.0295 | 1.0423 | 1.0522 | 1.0658 | 1.0482 | ||||||||||||
| Low Rate | 0.9844 | 0.9966 | 1.0052 | 1.0055 | 0.9892 | 0.9736 | ||||||||||||
On December 30, 2011, 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 = $1.0170 CDN.
On March 28, 2012, 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 = $0.9984 CDN.
Selected Financial Data
The following tables sets forth selected financial information for the Corporation for the period of January 1, 2007 to December 31, 2009 under Canadian and U.S. GAAP as well as for the period January 1, 2010 to December 31, 2011 prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The information for the last two fiscal years ended December 31, 2011 and 2010 have been extracted from the Company’s audited consolidated financial statements and related notes included herein and should be read in conjunction with such financial statements appearing under the heading “Item 8 A. Consolidated Statements and Other Financial Information” and with the information appearing under the heading “Item 5 - Operating and Financial Review and Prospects”. As required by the Canadian Accounting Standards Board, the Company adopted IFRS on January 1, 2010 and the Company’s financial information for 2010 has been restated to comply with IFRS. Information prior to the transition date has not been restated. The consolidated financial statements included in Item 17 in this Annual Report are prepared under IFRS.
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| Reported under IFRS | For the Year Ended December 31, | |||||
| 2011 | 2010 | |||||
| $ | $ | |||||
| Net loss | (5,392,433 | ) | (6,164,028 | ) | ||
| Net loss per share | (0.03 | ) | (0.05 | ) | ||
| Weighted average number of shares | 182,241,377 | 122,765,013 | ||||
| Total cash and cash equivalents | 1,822,511 | 3,104,650 | ||||
| Working capital | (1,265,503 | ) | 7,979,474 | |||
| Total liabilities | 6,391,530 | 1,079,376 | ||||
| Total assets | 63,695,854 | 36,463,574 | ||||
| Shareholders’ equity | 57,304,324 | 35,384,198 | ||||
| Reported under Canadian and U.S. | |||||||||
| GAAP | For the Year Ended December 31, | ||||||||
| 2009 | 2008 | 2007 | |||||||
| $ | $ | $ | |||||||
| Net loss (Canadian GAAP) | (11,041,089 | ) | (3,883,826 | ) | (946,457 | ) | |||
| Net loss per share (Canadian GAAP) | (0.09 | ) | (0.03 | ) | (0.01 | ) | |||
| Net loss (U.S. GAAP) | (10,055,195 | ) | (7,098,594 | ) | (2,456,339 | ) | |||
| Net loss per share (U.S. GAAP) | (0.09 | ) | (0.06 | ) | (0.02 | ) | |||
| Weighted average number of shares | 117,594,853 | 115,662,976 | 100,958,861 | ||||||
| Total cash and cash equivalents | 957,923 | 2,650,636 | 4,266,063 | ||||||
| Working capital | 2,638,431 | 5,726,261 | 5,963,158 | ||||||
| Total liabilities | 724,292 | 1,739,187 | 1,626,804 | ||||||
| Total assets (Canadian GAAP) | 45,335,078 | 57,167,469 | 60,963,361 | ||||||
| Total assets (US GAAP) | 18,285,759 | 28,283,648 | 35,009,200 | ||||||
| Shareholders’ equity (Canadian GAAP) | 44,610,786 | 55,428,282 | 59,336,557 | ||||||
| Shareholders’ equity (US GAAP) | 17,561,467 | 27,393,069 | 34,200,947 | ||||||
| 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.
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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, delivery and successful startup and operation of critical equipment;
hiring of key personnel for construction, commissioning and operations;
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’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 to complete commissioning of the mine and to complete the advancement of the Copperstone Mine into commercial 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 have issued 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 maintain all necessary licenses and permits that may be required to carry out exploration, development, construction and operation of the Copperstone Mine. 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.
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.
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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.
Mining operations generally involve a high degree of risk. The Corporation’s operations are subject to all the hazards and risks normally encountered in the exploration, development and production of gold including unusual and unexpected geologic formations, seismic activity, rock bursts, cave-ins, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, delaying or indefinite postponement of exploration, development or production, damage to life or property, environmental damage and possible legal liability. Although appropriate precautions to mitigate these risks are taken, milling operations are subject to hazards such as equipment failure or failure of retaining dams around tailings disposal areas which 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, which may or may not prove to be correct. 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.
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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 the Corporation’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.
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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.
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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
The ability of the Corporation to continue as a going concern is dependent on its ability to attain profitable operations. If the profitability of operations is delayed, additional financing may be necessary to achieve this profitability. With the Corporation currently transitioning from commissioning stage to commercial production, it may require additional financing to carry out its near-term operating plans and achieve the required profitability. The Corporation has, however, demonstrated its ability to raise funds when required, as evidenced by the successful closing of the gold prepayment facility noted previously. In addition, the Corporation now has evidence of its ability to produce saleable gold concentrates based on the preliminary operating statistics and sales information available subsequent to year end.
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.
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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, 2011. 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.
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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.
A U.S. holder of common shares may suffer adverse U.S. federal income tax consequences if the Corporation is determined to be a “passive foreign investment company”.
If the Corporation is a “passive foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”) for any year during a U.S. shareholder’s holding period for its common shares, then certain potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of common shares. The Corporation believes that it was classified as a PFIC during the tax year ended December 31, 2011, and may be a PFIC in subsequent tax years. If the Corporation is a PFIC for any year during a U.S. shareholder’s holding period, then such U.S. shareholder generally will be required to treat any gain realized upon a disposition of common shares, or any so-called “excess distribution” received on its common shares, as ordinary income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a timely and effective "qualified electing fund" election (“QEF Election”) or a "mark-to-market" election with respect to the common shares. A U.S. shareholder who makes a QEF Election generally must report on a current basis its share of the Corporation's net capital gain and ordinary earnings for any year in which the Corporation is a PFIC, whether or not the Corporation distributes any amounts to its shareholders. However, U.S. shareholders should be aware that there can be no assurance that the Corporation will satisfy record keeping requirements that apply to a qualified electing fund, or that the Corporation will supply U.S. shareholders with information that such U.S. shareholders require to report under the QEF Election rules, in the event that the Corporation is a PFIC and a U.S. shareholder wishes to make a QEF Election. Thus, U.S. shareholders may not be able to make a QEF Election with respect to their common shares. A U.S. shareholder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the common shares over the taxpayer’s basis therein. This paragraph is qualified in its entirety by the discussion below under the heading “Certain United States Federal Income Tax Considerations.” Each U.S. shareholder should consult its own tax advisor regarding the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.
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| 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 1238 – 200 Granville Street, Vancouver, British Columbia, V6C 1S4, 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 198,549,355 common shares are issued and outstanding and nil Class A preferred shares are issued and outstanding as at December 31, 2011. 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.
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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:
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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 did not exercise 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.
The Copperstone Mine
The Corporation’s focus for the past three years has been on the development, construction and 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 development of the Copperstone Mine. The following are the milestones the Corporation met during 2010, 2011 and the first two months of 2012 towards commercial production at 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 did not include a crusher and crusher building, which Bonanza purchased separately. The mill had 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) represented significant cost savings to the Company.
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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. The Equipment was delivered to the Copperstone Mine in 2011. The equipment was purchased from J.W. Jones Company of Paragon, Indiana.
Construction on the Copperstone Mine and Tailings complex commenced and was completed during 2011. Mining commenced during 2011, and in February, 2012, the Corporation made its first shipment of concentrate from the Copperstone Mine.
Mine Contractor
On November 2, 2010 the Corporation determined it would retain Mining and Environmental Services LLC (“MES”), of Idaho Springs, Colorado, to conduct contract mining at Copperstone. MES entered into a formal agreement with the Corporation on March 23, 2011. Bonanza and MES mutually agreed to terminate the Mining Agreement and Professional Services Agreement, effective October 11, 2011. The Corporation purchased a mining fleet for the transition to owner-mining in October 2011. The mining equipment purchased includes drill jumbos, loader-hauler-dumpers, exploration and production drills, ore haul trucks, a rock bolter and other specialized underground mining equipment.
Permitting
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.
On April 20, 2011 Bonanza received the final key permit required for gold mining and processing at Copperstone. The aquifer protection permit (the "APP") was issued by the Water Quality Division of the Arizona Department of Environmental Quality (the "ADEQ") as aquifer protection permit number P-106172. The Corporation now has all permits necessary to conduct mining operations in accordance with the Revised Copperstone Feasibility Study.
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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.
Equity Financing
During 2011 the Corporation completed two public offerings by way of short form prospectus.
On January 21, 2011, the Corporation closed a marketed public offering of units including those issued pursuant to the over-allotment option, which was exercised in full by Wellington West Capital Markets Inc. (the “Agent”) (the “Offering”). A total of 50 million units were sold, at a price of $0.35 per unit, for gross proceeds of $17.5 million. Each unit consists 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 warrants will not be listed for trading. 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. Share issue cost related to this financing totaled $1,794,787 including the fair value of Agent warrants estimated as $314,375 using the Black-Scholes pricing model.
On September 29, 2011, the Corporation closed a bought financing deal of 11,500,000 common shares issued at $0.53 per share for gross proceeds of $6,095,000 (“the Offering”). The Corporation paid a cash commission equal to 6% of the gross proceeds of the Offering and issued agent warrants to purchase that number of common shares of the Corporation equal to 6% of the Offering at a price of $0.61 per share, exercisable until March 29, 2013. An over-allotment option was exercised in full resulting in the issuance of an additional 1,725,000 shares at a price of $0.53 per share on October 27, 2011 for gross proceeds of $914,250. Share issue cost related to this financing totaled $820,085 including fair value of Agent warrants estimated as $67,412 using Black-Scholes pricing model.
The planned use of funds from the two offerings which closed during 2011, are summarized below (in $ millions):
| Planned use of funds: | ||||||||||||
| September | Total | |||||||||||
| January 2011 | 2011 | Financing | Actual | |||||||||
| Processing Plant | 5.2 | - | 5.2 | 7.8 | ||||||||
| Underground development | 2.7 | 4.5 | 7.2 | 6.7 | ||||||||
| Tailing | 1.7 | - | 1.7 | 4.1 | ||||||||
| Mine Operation start up | 2.9 | - | 2.9 | 3.1 | ||||||||
| Reclamation bond | 1.1 | - | 1.1 | 1.5 | ||||||||
| Commission cost | 2.3 | - | 2.3 | - | ||||||||
| Contingency | 1.3 | - | 1.3 | 1.3 | ||||||||
| Accelerate exploration drilling | - | 1.0 | 1.0 | - | ||||||||
| Corp. G&A | 0.6 | - | 0.6 | 0.8 | ||||||||
| Total | 17.8 | 5.5 | 23.3 | 25.3 | ||||||||
The shortfall of approximately $2 million was funded with the subsequent prepayment facility that was completed by the Corporation.
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During 2010 the Corporation 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 Mine | 198,194(2) |
| 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 operate the Copperstone Gold Mine in Arizona. 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).
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 2012 at the Copperstone Mine.
The following sets forth the aggregate cumulative expenditures, net of cost write-down, made by the Corporation on certain of its projects as at the end of each fiscal period set out below:
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| Summary of Cumulative Project Expenditures | |||||||||||||||
| Project | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| Copperstone | 58,413,514 | 27,202,998 | 28,885,347 | 27,315,717 | 24,938,311 | ||||||||||
| Fenelon | - | - | 5,000,000 | 15,509,685 | 14,768,533 | ||||||||||
| Taurus | - | - | - | - | 5,324,013 | ||||||||||
| Gold Bar | - | - | 200,000 | 200,000 | 1,062,471 | ||||||||||
| Northway | - | - | 4,644,865 | 4,626,469 | 4,223,809 | ||||||||||
| Martiniere | - | - | 3,243,735 | 3,225,200 | 3,129,259 | ||||||||||
| Northshore | - | - | - | - | 914,286 | ||||||||||
| Other | - | - | - | - | 190,542 | ||||||||||
| Pamlico | - | - | - | - | - | ||||||||||
| 58,413,514 | 27,202,998 | 41,973,947 | 50,877,071 | 54,551,224 | |||||||||||
| C. | Organizational Structure |
As of December 31, 2011, 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 28, 2012:
| (1) | Bonanza Explorations 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 for a further 10 year term. 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 Project 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.
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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 Project 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 Project 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, all of which were paid or settled by December 31, 2003;
(b) assumption of an estimated CDC payroll tax liability of up to US$180,000, which was paid in 2007;
(c) US$345,000 payable to CDC and or its principal on or before July 31, 2002 (paid);
(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.
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.
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Title
The Copperstone Project totals approximately 11,788 acres and is located in La Paz County, Arizona, about 16 km north of the town of Quartzite. The property consists of 546 contiguous unpatented lode mining claims covering an area of approximately 10,502 acres (20.6 acres per claim). The property also includes two mineral leases on Arizona State mineral lands in T 7 N, R 19 W, sections 6 and 7 totaling approximately 1,338 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$76,000. Annual lease fees paid to the State of Arizona in 2011 was approximately $16,000. 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 the price of gold is over US$551 per ounce. In addition, the D-Zone is subject to a 3% royalty on the first 50,000 tons of mineralized material extracted from a specific portion of the D-Zone.
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.
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Significant infrastructure exists from the previous Cyprus mining operation conducted from 1988 to 1993. Prior to 2011, the infrastructure consisted 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. See “Current Work Programs” section below for an update on the infrastructure present at Copperstone.
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. Reported production by Cyprus at Copperstone of 514,000 oz of gold from 5,600,000 Mt of ore grading 0.089 oz/t of 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.
Santa Fe Pacific Gold Corporation (Santa Fe) leased the property in 1993 and completed 12,500 ft of reverse circulation drilling on seven exploration targets. Santa Fe intersected significant gold mineralization in the footwall of the Copperstone fault with hole DCU-8 having an intercept assaying 0.646 oz/t of gold over 15 ft.
In 1995, Royal Oak Mines leased the property from the Patch Living Trust and drilled 35 drill holes totaling about 25,875 ft between 1995 and 1997. The drill program concentrated on deep extensions of the mineralization in the Copperstone Fault to the north and down dip to the east of the open pit. Results showed several high-grade gold intersections to the north and east of the open-pit with potential for underground mining.
In August of 1998, Old Bonanza (then operating under the name Asia Minerals) entered into a joint venture with Royal Oak Mines to explore and develop the Copperstone property. During the summer of 1998, Old Bonanza drilled 15 holes with a total of about 10,050 ft of drilling completed. A series of drill holes within what was then termed the D-Zone showed relatively high-grade gold intersections. In early 2000, Old Bonanza conducted additional diamond and reverse-circulation drilling with a total footage of 7,470 ft. The holes were designed to test the strike extension of the D-Zone with the best intercept in hole A00-10 which assayed 0.943 oz/t Au over 10.5 ft
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.
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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 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.
Mineral Reserves
Mineral Reserves at Copperstone identified by the Study and used for the economic analysis are developed as of January 10, 2011:
| Reserve Classification | Tonnes | Grade (g/tonne Gold) | Contained Grams of Gold | Contained Ounces of Gold |
| Proven Reserves | 904,000 | 8.8 | 7,930,000 | 255,000 |
| Probable Reserves | 6,000 | 6.3 | 37,000 | 1,000 |
| Proven & Probable | 910,000 | 8.8 | 7,970,000 | 256,000 |
These diluted Mineral Reserves at Copperstone were calculated by Chris Fedora, under the supervision of Tom Buchholz, B.S. Eng, MMSA-QPM under NI43-101, using a 4.5 g/t cutoff grade, 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. Numbers may not add up due to rounding. Reserves were calculated using the Key Base Case assumptions set out below and further described below in the Highlights of the Feasibility Study section (please refer to the Feasibility Study for a complete review of assumptions, risks and other disclosure regarding the Study):
| 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 |
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| Tax Regime | U.S. Federal, Arizona State |
| Gold Recovery: | 90% |
| Cutoff Grade: | 0.131 ounces/ton (4.5 grams per tonne gold) |
These Mineral Reserves are based on a Reserve 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 has begun 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 underway, 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 mineraldeposits 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 cautionednot to assume that part or all of an inferred resource exists, or is economically orlegally 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 | 933,000 | 10.4 | 9,600,000 | 311,000 |
| Indicated | 8,000 | 7.9 | 65,000 | 2,000 |
| Measured & Indicated | 941,000 | 10.3 | 9,700,000 | 313,000 |
| Inferred | 335,000 | 12.2 | 4,100,000 | 132,000 |
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. Numbers may not add up due to rounding.
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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 | 941,000 | 10.3 | 9,700,000 | 313,000 |
| 6.9 | 537,000 | 13.7 | 7,400,000 | 237,000 |
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 | 335,000 | 12.2 | 4,100,000 | 132,000 |
| 6.9 | 240,000 | 15.6 | 3,700,000 | 121,000 |
This cutoff grade analysis indicates that a significant portion of the Mineral 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.
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.
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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.
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 the 2006 to 2008 drill campaign, the Corporation completed 59 drill holes totaling 57,395 ft. This drill campaign concentrated on new targets to include the South Pit Zone, Southwest Zone, and other targets. Drilling was surface drilling only. A distribution of the holes drilled follows:
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South Pit Zone – 13 holes totaling 13,217 ft
Southwest Zone – 13 holes totaling 13,816 ft
Other Targets – 33 holes totaling 30,362 ft (Includes geophysical (26 holes), footwall (4 holes), and D-Zone (3 holes).
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.
Highlights of the Feasibility Study
On February 3, 2010 Bonanza announced the positive results of its 2010 Feasibility Study (the “Study”) at Copperstone. The Study, which was 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.
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 $68,089,302 and the IRR increases to 120.5% . The table below provides a range of economic results at various gold price assumptions.
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Copperstone Economic Sensitivities at various Gold Prices:
| Gold Price Case | Gold Price (US$/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 |
| 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.
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.
Highlights of results from the Study include (results shown are for the Base Case):
| 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: | All permits received during 2011 |
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: | $13.25 per ton milled |
| Mining dilution: | 10.3% at zero gold grade |
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| Tax Regime | U.S. Federal, Arizona State |
| Gold Recovery: | 90% |
| Cutoff Grade: | 0.131 ounces/ton (4.5 grams per tonne gold) |
This financial analysis has been estimated based on the diluted Proven and Probable Mineral Reserves which are derived from only the Measured and Indicated Mineral Resources. The cost estimates were based on contract mining and processing of the flotation concentrates at off-site processing facilities located in the southwestern United States. (For discussion of Mineral Reserves and Resources see Section 4.D Mineral Reserves and Resources)
Copperstone Economic Sensitivities at various discount rates:
| Discount Rate Case | Discount Rate (%) | IRR (%) | Undiscounted pre-tax Income (US$) | 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.
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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.
On April 20, 2011 Bonanza received the final key permit required for gold mining and processing at Copperstone. The aquifer protection permit (the "APP") was issued by the Water Quality Division of the Arizona Department of Environmental Quality (the "ADEQ") as aquifer protection permit number P-106172.
Copperstone is a modern previously mined site with a clean, non-sulfide bearing mineral resource, and the mine plan called for no additional disturbance to the public lands. The mine plan was designed to have a very low environmental impact, and this design contributed to a permitting process that is more rapid than is typical for new mine development.
Capital Cost Estimates
The Study results estimated 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 were 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 represented 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 covered the direct field costs of completing the project, plus the indirect costs associated with design, construction and commissioning of the facilities.
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Year-to-date actual cost totaled to US$25.3 million with overrun occurred in mining start-up and plant construction. Reasons for the overrun were related to contractor performance and equipment issues.
The Copperstone Mine produced approximately 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. Then existing infrastructure included a 69 KV power line and substation and three water wells, all sufficient for the new mine at Copperstone. Additional infrastructure on site included offices, maintenance shops and a laboratory building. High grade gold mineralization in the D-Zone that is scheduled for Year One mining production had already been accessed at the time of the Study in a 600 meter long underground tunnel driven by Bonanza.
Operating Cost Estimates
The Study results estimated 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. While the Corporation has transitioned away from contract mining to owner-operated mining, it does not expect operating costs to increase significantly.
The Copperstone Development Team
Along with Bonanza’s personnel, Bonanza assembled a team of industry-leading mining and environmental consulting firms to expedite the mine development and permitting process. 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). As the project advances, the makeup of this team continues to change, as Bonanza gets closer to operating Copperstone with less reliance on consulting firms.
Current Work Program
During 2011, Bonanza completed the construction activities at Copperstone and began commissioning of the gold processing plant. Infrastructure at Copperstone has been expanded to include offices, communications, safety equipment such as the underground refuge chambers, truck maintenance shops, crushing, grinding, and gold processing plant. Electrical power for mine production needs has been extended to the underground mine. All infrastructure has been installed for an operating gold mine.
During 2011 the Corporation made the decision for Copperstone to become owner-mining and therefore the Corporation and Mining & Environmental Services LLC, the contract miners, mutually agreed to terminate the Mining Agreement and Professional Services Agreement.
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During October 2011, the Corporation purchased a mining fleet for the transition to owner-mining. The mining fleet purchase included drills, loader, haul trucks, a rock bolter and other specialized underground mining equipment. In addition to the 700 ton per day milling facilities purchased in 2010, the Corporation also purchased a jaw crusher and a cone crusher during February 2011. The crushers have 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.
During 2011, the Corporation received its final permitting which allowed for final project approval from the U.S Bureau of Land Management.
Construction of the Copperstone mill, mine, and tailings facility started in earnest in June 2011. Construction of the mill foundation was completed in August 2011, with structural steel and equipment being placed. The foundations for the ore bin and crusher were completed by the end of August 2011. All of the site administrative facilities have been rehabilitated and in use.
Earth work on the tailings pond commenced in mid July 2011 and the first phase of the pond is complete.
On November 8, 2011, Copperstone gold mine entered the final phase of construction and commenced dry commissioning of the Copperstone gold processing plant.
In the Feasibility Study, the design capacity at Copperstone is 450 tons per day resulting in an average of approximately 46,000 ounces for the first 3 years of projection within a minelife of 6.3 years with a total estimated production of approximately 213,000 ounces of gold.
During March 2012, the Corporation placed onto transport its first two shipments of gold bearing concentrates. Gold content grades in the concentrates exceeded original estimates. The Corporation continues to pursue further improvements to the gold grade in concentrate.
The Corporation is encouraged to experience continued improvements to throughput as the miners and processing plant operators gain familiarity with the operation, and optimization of the mine and processing plant continues. As part of the optimization program to improve the gold grades in concentrate, a Gemini table has been installed and has been in use for about one month. Recently, a second Knelson concentrator has been installed, and is currently being brought on-line and optimized for best performance.
Head grades during two weeks of mid-February averaged 0.41 ounces per ton of gold which is above the expected life-of-mine average grade. Currently the Corporation has insufficient data to report any increase in the currently predicted grades over the first year of the mine life. The rising head grades are partially a result of the processing plant working through the low grade rock which has been stockpiled at surface for startup. This initial low grade material is currently being replaced by mine ore production. The surface ore stockpile currently contains approximately 2,700 tons of ore.
The processing plant continues to perform well, as indicated by the consistent and low grade tailings assays, in the order of 0.06 ounces per ton gold during the two weeks of mid-February. Low gold grades in the tailings indicate that most of the gold being fed into the plant is being collected in the gravity and flotation circuits where high grade concentrates are being produced. The gold processing plant has been treating ore grade rock for a short time, and accordingly performance estimates are preliminary in nature.
During the two weeks of mid-February, overall gold recovery in the processing plant was estimated to be 85%, according to preliminary data. During February, the gold grade of ore delivered to the processing plant roughly doubled as compared to January (a partial month), and the tailings grade rose as a consequence. As the operators become more familiar with the plant and the Copperstone ores, the Corporation expects the processing plant to adapt more quickly to the changing grades, and achieve consistently low tailings grades. This would effectively increase the overall gold recovery. Additionally, optimization of the gravity circuit is aimed at further improving the gold recovery over the next several months.
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Underground mine performance continues to improve. During 2012, the mine has been focused both on development mining to gain access to future ore bearing stopes, and mining ore from currently available stopes. Over a ten day operating cycle, excluding one day when the mine did not produce ore, the mine averaged 214 tons of ore per day, nearly half of the design mining rate of 450 tons per day of ore. Surface ore stockpiles currently contain approximately 2,700 tons of ore, which will allow the gold processing plant to continue increasing throughput as the mine tonnages increase to provide ore to the processing plant. The Corporation's objective is to bring mine production up to design levels as the processing plant works through the surface stockpile, so that when the stockpile is drawn down, both the mine and the processing plant will be up to their 450 tons of ore per day target levels. Plans have been formulated for resource expansion drilling. The Corporation-owned underground drilling rig has been refurbished and delivered to Copperstone. While preliminary in nature, the current exploration plan has the goal of now commencing underground resource expansion drilling during April of 2012. Drilling has been re-scheduled by one month to allow for the installation of all underground infrastructure needed for the drill.
Future Work
In 2012 Bonanza will continue to operate the newly constructed Copperstone gold mine, with a primary objective of reaching design output as soon as possible. Plans have been formulated for resource expansion drilling. While preliminary in nature, the current exploration plan has the goal of now commencing underground resource expansion drilling during the first half of 2012. During 2012, Bonanza has plans to pursue other growth opportunities beyond Coppertone. There can be no assurance that these plans will come to fruition.
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.
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| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
Not Applicable.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
As at December 31, 2011, the Corporation had 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 IFRS (see Item 17).
| A. | Operating Results |
As at December 31, 2011, the Corporation had cash and cash equivalents of $1,822,511 and a working capital deficiency of $1,265,503 compared with a working capital position of $7,979,474 as at December 31, 2010. Current year change in working capital was the result of successful financings of $23,526,019 net proceeds by issuance of common shares. Use of funds for operating activities in the period totalled $2,983,135 (December 31, 2010 – $905,254). Use of funding towards the processing plant and development of the Copperstone mine totalled $25,085,629 (2010 – $2,853,338). Cash outlays were offset by the sale of marketable securities for net proceeds of $4,900,490 (2010 - $960,191). The loss for the year ended December 31, 2011 was $5,392,433 or $0.03 per share compared with a net loss of $6,164,028 or $0.05 per share for the year ended December 31, 2010. A significant component of the current period’s loss was related stock based compensation of $3,113,349 (2010 -$nil) and general and administrative expenses of $1,686,466 (2010 – $688,587) which increased due to change in project allocation of expenses.
Subsequent to December 31, 2011, the Corporation completed a USD $6 million gold prepayment facility which removed the Corporation’s working capital deficiency. The Corporation has sufficient funding to meet its operating and capital expenditure requirements through to production without raising additional capital as of March 28, 2012.
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. At the time of purchase, the mill had operated for less than 2 years and is in good condition. The Corporation also acquired a full set of engineering drawings. The mill included 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 did not include a crusher and crusher building, which Bonanza purchased separately.
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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. Upon completion of refurbishment, the milling and flotation circuit was installed at the Copperstone Mine site during 2011.
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. The jaw crusher and cone crusher were also installed at the Copperstone Mine during 2011.
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.
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. The Corporation terminated its agreement with MES in November, 2011, making the transition to owner operated mining.
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. Share issue cost related to this financing totaled $1,794,787 including the fair value of Agent warrants estimated as $314,375 using the Black-Scholes pricing model.
On September 29, 2011, the Corporation closed a bought financing deal of 11,500,000 common shares issued at $0.53 per share for gross proceeds of $6,095,000 (“the Offering”). The Corporation paid a cash commission equal to 6% of the gross proceeds of the Offering and issued agent warrants to purchase that number of common shares of the Corporation equal to 6% of the Offering at a price of $0.61 per share, exercisable until March 29, 2013. An over-allotment option was exercised in full resulting in the issuance of an additional 1,725,000 shares at a price of $0.53 per share on October 27, 2011 for gross proceeds of $914,250. Share issue cost related to this financing totaled $860,085 including the fair value of Agent warrants estimated as $67,412 using Black-Scholes pricing model..
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:
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| December 31, | |||||||||
| 2011 | 2010 | 2009 | |||||||
| IFRS | IFRS | Canadian GAAP | |||||||
| $ | $ | $ | |||||||
| Net loss | (5,392,433 | ) | (6,164,028 | ) | (11,041,089 | ) | |||
| Net loss per share | (0.03 | ) | (0.05 | ) | (0.09 | ) | |||
| Total cash and cash equivalents | 1,822,511 | 3,104,650 | 957,923 | ||||||
| Working capital | (1,265,503 | ) | 7,979,474 | 2,638,431, | |||||
| Total assets | 63,695,854 | 36,463,574 | 45,335,078 | ||||||
| Total liability | 6,391,530 | 1,079,376 | 724,292 | ||||||
| Shareholders’ equity | 57,304,324 | 35,384,198 | 44,610,786 | ||||||
Year Ended December 31, 2011
For the year ended December 31, 2011, the Corporation had a net loss of $5,392,433 or $0.03 per share compared to a net loss of $6,164,028 or $0.05 per share with the corresponding period in 2010.
A significant component of the current year’s loss was related to stock-based compensation expense of $3,113,349 (2010 – $nil) as a result of options granted in 2011.
General and administrative costs increased to $1,686,466 from $688,587 in 2010. Some significant components of the general and administration costs include management fees, consultant fees and salaries of $1,016,187 (2010 –$292,590) the increase resulting from changes in allocation of project expenditures. Public company expenses were $347,723 (2010 - $208,223), the change was the result of increases in investor relations spending and business activities related to the start up of the Copperstone project. Legal and accounting were $197,666 (2010 -$134,928) which related to increase in business activity.
The loss on sale of marketable securities related to the sale of the Balmoral shares. 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 onetime 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. On September 13, 2011, these shares were sold at $1.10 per share, resulting in a realized loss of $225,000. A commission of $49,510 was paid for the sale resulting in a total loss of $274,510.
Exploration expenses for the year were $272,275 (2010 – $283,594) primarily related to all costs associated with maintaining the Corporation’s exploration offices in Reno, Nevada.
Business development costs decreased in the year to $167,681 compared to $257,916 in 2010. The decrease was due to the Copperstone project nearing production and less requirement for business development services.
Interest income increased by $67,150 compared to 2010. The increase in interest income relates to a higher cash balances on hand during the year relating to financing.
Other income of $33,174 during 2011 relates to adjustment of credits for mineral properties disposed in the prior year.
In 2010, there was a mineral property write down of $3,724,821 relating to the impairment of several exploration projects. The Corporation assessed all mineral property, plant and equipment at December 31, 2011 and no indications of impairment or recovery existed.
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Year Ended December 31, 2010
For the year ended December 31, 2010, the Corporation had a net loss of $6,164,028 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 $3,724,821 (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.
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. As at December 31, 2011, 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.
Other accounting estimates that were used for the preparation of the financial statement include:
Recoverability of accounts receivable
Provision is made against accounts that in the estimation of management may be impaired. The recoverability assessment of accounts receivable is based on a range of factors including the age of the receivable and the creditworthiness of the customer. The provision is assessed monthly with a detailed formal review of balances and security being conducted annually. Determining the recoverability of an account involves estimation as to the likely financial condition of the customer and their ability to subsequently make payments. To the extent that future events impact the financial condition of the customers these provisions could vary significantly.
Estimated reserves, resources and exploration potential
Reserves are estimates of the amount of product that can be extracted from the Corporation’s properties, considering both economic and legal factors. Calculating reserves and estimates requires decisions on assumptions about geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, prices and exchange rates. Estimating the quantity and/or grade of reserves require the analysis of drilling samples and other geological data. Estimates of reserves may change from period to period as the economic assumptions used to estimate reserves change from period to period, and because additional geological data is generated during the course of operations. Changes in reported reserves may affect the Corporation financial position.
Impairment of property, plant and equipment
Assets or cash generating units are evaluated at each reporting date to determine whether there are any indications of impairment. If any such indication exists, a formal estimate of recoverable amount is performed and an impairment loss recognized to the extent that carrying amount exceeds recoverable amount. The recoverable amount of an asset or cash generating group of assets is measured at the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties, and is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion prospects, and its eventual disposal.
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Present values are determined using a risk-adjusted pre-tax discount rate appropriate to the risks inherent to the asset. Future cash flow estimates are based on expected production and sales volumes, commodity prices (considering current and historical prices, price trends and related factors), reserves, operating costs, restoration and rehabilitation costs and future capital expenditure. The Corporation’s management is required to make these estimates and assumptions which are subject to risk and uncertainty; hence there is a possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying value of the asset may be impaired and the impairment would be charged against the consolidated statement of comprehensive income.
Fair value of share-based compensation
The Corporation grants share-based awards to certain officers, employees, directors and other eligible persons. For equity settled awards, the fair value is charged to the consolidated statement of comprehensive income and credited to the related reserve account, on a straight-line basis over the vesting period, after adjusting for the estimated number of awards that are expected to vest.
The fair value of the equity-settled awards is determined at the date of the grant using the Black-Scholes option pricing model. Option pricing models require the input of highly subjective assumptions, including the expected price and volatility. Changes in these assumptions can materially affect the fair value estimate and, therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Corporation’s stock options.
Decommissioning, restoration and similar liabilities
Decommissioning and restoration obligation provisions represents management’s best estimate of the present value of the future costs. Significant estimates and assumptions are made in determining the amount of obligations provisions. Those estimates and assumptions deals with uncertainties such as: requirements of the relevant legal and regulatory framework; the magnitude of possible disturbance; and the timing, extent and costs of required restoration and rehabilitation activity. These uncertainties may result in future actual expenditure differing from the amounts currently provided.
Taxation
The provision for income taxes and composition of income tax assets and liabilities requires management’s judgment as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgment is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized in the balance sheet.
Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future production and sales volumes, commodity prices, reserves, operating costs, and other capital management transactions. The application of income tax legislation also requires judgments. These judgments and assumptions are subject to risk and uncertainty, therefore there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognized on the balance sheet and the amount of other tax losses and temporary differences not yet recognized.
Actual results could differ from those estimates.
| B. | Liquidity and Capital Resources |
The Corporation had a working capital deficiency of $1,265,503 compared with a working capital position of $7,979,474 as at December 31, 2010. Current year change in working capital was the result of successful financing of $23,526,019 net proceeds by issuance of common shares. Use of funds for operating activities in the period totalled $2,983,135 (December 31, 2010 – $905,254). Use of funding towards the processing plant and development of the Copperstone mine totalled $25,085,629 (2010 – $2,853,338). Cash outlays were offset by the sale of marketable securities for net proceeds of $4,900,490 (2010 - $960,191).
The Company’s December 31, 2010 comparative statement of cash flow has been amended to correct an error in the classification of investing cash flows for expenditures incurred on mineral properties, plant and equipment totaling $406,078 which had not been paid and were included in accounts payable as at December 31, 2010. This resulted in the classification amendment which increased cash flows from investing activities and reduced cash flows from operating activities by $406,078 compared to those previously presented.
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Subsequent to December 31, 2011, the Corporation completed a USD $6 million gold prepayment facility which removed the Corporation’s working capital deficiency. The Corporation has sufficient funding to meet its operating and capital expenditure requirements through to production without raising additional capital as of March 28, 2012.
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.
During the year ended December 31, 2010, the Corporation sold an additional 5,528,947 of Hawthorne Gold Corp. Hawthorne shares at an average price of $0.177 per share for gross proceeds of $976,535 and incurred commission of $16,344.
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. Share issue cost related to this financing totaled $1,794,787 including the fair value of Agent warrants estimated as $314,375 using the Black-Scholes pricing model.
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.
On September 29, 2011, the Corporation closed a bought financing deal of 11,500,000 common shares issued at $0.53 per share for gross proceeds of $6,095,000 (“the Offering”). The Corporation paid a cash commission equal to 6% of the gross proceeds of the Offering and issued agent warrants to purchase that number of common shares of the Corporation equal to 6% of the Offering at a price of $0.61 per share, exercisable until March 29, 2013. An over-allotment option was exercised in full resulting in the issuance of an additional 1,725,000 shares at a price of $0.53 per share on October 27, 2011 for gross proceeds of $914,250. Share issue costs related to this financing totaled $820,085 including the fair value of Agent warrants estimated as $67,412 using the Black-Scholes pricing model.
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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, 2011:
| Payments due by period | |||||||||||||||
| Less than | More than | ||||||||||||||
| Total | 1 year | 2-3 years | 4-5 years | 5 years | |||||||||||
| Contractual Obligations | $ | $ | $ | $ | $ | ||||||||||
| Mineral Property Interests – Filing Fees(1) | 690,000 | 115,000 | 230,000 | 230,000 | 115,000 | ||||||||||
| Office Lease | 318,000 | 53,000 | 106,000 | 106,000 | 53,000 | ||||||||||
| Total | 1,008,000 | 168,000 | 336,000 | 336,000 | 168,000 | ||||||||||
| (1) | 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. |
The Corporation holds a 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.
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 approximately US$761,000.
On February 15, 2012, the Corporation completed a secured non-interest bearing gold prepayment facility with Resource Income Fund, L.P. ("RIF") whereby the Corporation will sell 3,936 ounces of gold for delivery during 2012, for gross proceeds of US$6,000,000 (the "Facility"). The Facility is a forward contract structured to deliver 3,936 ounces of gold over a 32 week term in the amount of 123 ounces per week starting on May 7, 2012 and ending on December 10, 2012. The 3,936 ounces of gold that have been committed under this gold facility represent approximately 1.5% of the proven mineral reserves at the Copperstone gold mine. The gold may be delivered to RIF on an earlier schedule with no penalty. In connection with the Facility, the Corporation will grant to RIF 4,000 ounces of gold call options, expiring on April 15, 2013 with a strike price of US$2,025 per ounce and 8,000 ounces of gold put options expiring June 30, 2012 with a strike price of $1,300 at a cost of US$120,000. An upfront fee of 3% was paid to RIF upon closing of the Facility.
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| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | Directors and Senior Management |
The following is information as at December 31, 2011:
Directors and Officers
Ronald K. Netolitzky, Director
Mr. Netolitzky, Victoria, British Columbia, age 70, 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 65, 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.
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Giulio T. Bonifacio, Director
Mr. Bonifacio, Vancouver, British Columbia, age 51, is a Certified General Accountant and has been a Director of the Corporation from July 2001 to present; Mr. Bonifacio is the President & CEO of Nevada Copper Corp.
Mr. Bonifacio was Chief Financial Officer of the Corporation from July 2001 to December 2008; 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.
Jamie Newall, Director
Mr. Newall, London, England, age 38, is Investments Director of Intrepid Financial, regarded as one of the leading incubators of natural resource companies. Mr Newall currently sits on the board of Suparna Gold Corp (TSXV: SUG) and EShippers Management Ltd (TSXV: EPX) and previously on the board of Skana Capital Corp (until its recent merger with MENA Hydrocarbons TSXV:MNH). From 2007 to 2009 he was a founding director of GPN Capital a FSA authorised fund advisor specialising in junior resource companies. Before 2007 he was board director of BPL Global. Mr Newall is a graduate of Cambridge University and holds a Masters Degree in Law. Mr. Newall 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 28, 2012, the following directors and officers of the Corporation are also directors, officers or promoters of the following corporations:
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| Name of Director/Officer | Corporation | Business/Area | Position | Period |
| Robert McKnight | Nevada Copper Corp. Savant Explorations Ltd. | Copper/Nevada Metals/Worldwide | Executive VP Director | Oct 2010 to Present May 2007 to Present |
| Giulio Bonifacio | Earthworks Industries Inc. Nevada Copper Corp. | Landfill/California Copper/Nevada | Director President & CEO, Director | Feb 2002 to Present Aug 2006 to Present |
| Brian Kirwin | Nevada Copper Corp. Mesa Exploration Corp. | Copper/Nevada Uranium/Utah | Director Director | Aug 2006 to Present Dec. 2005 to Present |
| Ronald Netolitzky | Aurcana Corp. Aben Resources Ltd. Blue Sky Uranium Corp. Boss Power Corp. Copper Canyon Resources Eagle Plain Resources Ltd. Golden Band Resources Inc. Pacific Iron Ore Corp. Strongbow Resources Inc. Skeena Resources Limited Solomon Resources Ltd. Virginia Energy Resources Inc. (formerly Santoy) | Silver, zinc/Mexico Gold Uranium Uranium Copper/Canada Minerals/Yukon & BC Gold/Saskatchewan Iron/Ore Uranium/N. America Gold/International Gold/Argentina Uranium | Director Director Director Director Director Director Chairman, Dir. Director Director Director Director Director | Sept 1997 to Present Mar 2011 to Present Nov 2009 to Present Sept 2007 to Present May 2006 to Present May 2004 to Present July 1989 to Present July 2008 to Present Jan 2005 to Present Apr 1983 to Present Aug 1989 to Present May 2003 to Present |
| James F. Bagwell | ABBA Corp. | Consulting/United States | Partner | May 2006 to Present |
| Jamie Newall | Suparna Gold Corp. Opal Energy EShippers Management Ltd | Gold/Suriname Resource Exploration/Canada Shell/Canada | Director Director Director | 2009 to Present Nov 2011 to Present 2008 to Present |
| Joe Chan | Nevada Copper Corp. Mesa Uranium Corp. | Copper/Nevada Uranium/Utah | Officer Officer | Sept 2006 to Present May 2009 to Present |
Brian Kirwin and Joe Chan devote approximately 100% 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, 2009, 2010 and 2011, in respect of each of the individuals who were, as of December 31, 2011, members of its administrative, supervisory or management bodies (collectively the “Named Executive Officers”):
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Summary Compensation Table
| Annual Compensation (US$) | Long-Term Compensation | ||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Other Annual Compen- sation | Securities Under Options/SARs Granted (#)(1) | Restricted Shares ($) | All other Compen- sation |
| Brian P. Kirwin President, CEO | 2011 2010 2009 | 253,744 190,000 190,000 | 100,000 Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil |
| Joe Chan CFO | 2011 2010 2009 | 143,750 135,000 120,000 (CDN$) | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil |
| (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 March 29, 2011 Directors compensation was increased from $15,000 per year to $24,000 per year. The Non-Executive Chairman receives an annual fee of $40,000.
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, 2011, the Corporation has granted rights to purchase or acquire an aggregate of 18,005,000 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, 2011 as traded on the TSX was $0.48.
The share options held by the directors and Named Executive Officers of the Corporation as at December 31, 2011 are as follows:
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Name of Optionees | No. of Common Shares Subject to Option (#) | Date of Grant | Exercise Price $ | Expiry Date | Market Value on Date of Grant |
| Brian P. Kirwin | 500,000 600,000 830,000 1,350,000 3,400,000 | November 6, 2007 August 6, 2008 January 26, 2009 March 18, 2009 March 2, 2011 | $0.22 $0.07 $0.06 $0.085 $0.39 | November 6, 2012 August 6, 2013 January 26, 2014 March 18, 2014 March 2, 2016 | $0.22 $0.07 $0.06 $0.085 $0.39 |
| Giulio T. Bonifacio | 700,000 3,080,000 | March 2, 2011 September 1, 2011 | $0.39 $0.53 | March 2, 2016 September 1, 2016 | $0.39 $0.53 |
| Robert McKnight | 250,000 400,000 550,000 | November 6, 2007 March 2, 2011 September 1, 2011 | $0.22 $0.39 $0.53 | November 6, 2012 March 2, 2016 September 1, 2016 | $0.22 $0.39 $0.53 |
| James F. Bagwell | 100,000 400,000 800,000 | March 25, 2010 March 2, 2011 September 1, 2011 | $0.19 $0.39 $0.53 | March 25, 2015 March 2, 2016 September 1, 2016 | $0.19 $0.39 $0.53 |
| Ron Netolitzky | 400,000 | September 1, 2011 | $0.53 | September 1, 2016 | $0.53 |
| Jamie Newall | 100,000 | June 23, 2011 | $0.365 | June 23, 2016 | $0.365 |
| Joe Chan | 25,000 25,000 160,000 150,000 100,000 | November 6, 2007 August 6, 2008 January 26, 2009 March 18, 2009 March 2, 2011 | $0.22 $0.07 $0.06 $0.085 $0.39 | November 6, 2012 August 6, 2013 January 26, 2014 March 18, 2014 March 2, 2016 | $0.22 $0.07 $0.06 $0.085 $0.39 |
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.
Old Bonanza entered into an employment agreement with Mr. Brian P. Kirwin on April 1, 2003, and on July 1, 2006 the agreement was amended and entered into directly with the Corporation and supersedes the employment agreement with Old Bonanza. On March 29, 2011, the Compensation Committee reviewed Mr. Kirwin's salary and increased his annual compensation from US$190,000 to US$275,000 plus 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, Jamie Newall and Giulio Bonifacio. The Audit Committee meets at least once per quarter.
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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 March 28, 2012, the Corporation had 85 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 28, 2012:
| Name, Municipality of Residence and Position with Corporation | Number of Common Shares Beneficially Owned or Controlled (1)(2)(3) | Percentage of Issued Share Capital |
| Brian Kirwin Reno, Nevada President, CEO & Director | Common Shares: 1,679,119 Options: 6,680,000 Warrants: nil | 1.3% |
| Giulio Bonifacio Vancouver, B.C. Director | Common Shares: 4,750,930 Options: 3,780,000 Warrants: nil | 2.4% |
| Robert McKnight North Vancouver, B.C. Director | Common Shares: 350,000 Options: 1,200,000 Warrants: Nil | 0.1% |
| Ronald Netolitzky Victoria, B.C. Director | Common Shares: 1,405,800 Options: 400,000 Warrants: 145,000 | 1% |
| James Bagwell South Carolina, USA Director | Common Shares: 890,000 Options: 1,300,000 Warrants: nil | 0% |
| Jamie Newall London, England Director | Common Shares: nil Options: 100,000 Warrants: nil | 0% |
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| Name, Municipality of Residence and Position with Corporation | Number of Common Shares Beneficially Owned or Controlled (1)(2)(3) | Percentage of Issued Share Capital |
| Joe Chan Vancouver, B.C. CFO | Common Shares: 177,450 Options: 460,000 Warrants: Nil | 0% |
| (1) | Common shares beneficially owned, directly or indirectly, or over which control or direction is exercised, as at March 28, 2012, 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) | 3,080,000 Stock Options were exercised in 2011 by Giulio Bonifacio; 550,000 Stock Options were exercised in 2011 by Robert McKnight; 400,000 Stock Options were exercised in 2011 by Ronald Netolitzky; 800,000 Stock Options were exercised in 2011 by James Bagwell. |
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:
Name | Securities Acquired on Exercise (#) | Aggregate Value Realized ($) | Unexercised Options at FY-End (#) | Value of Unexercised in-the-Money Options at FY-End ($)(1) |
| Brian P. Kirwin | Nil | Nil | 500,000 Common Shares at $0.22 per share expiring November 6, 2012 600,000 Common Shares at $0.07 per share expiring August 6, 2013 830,000 Common Shares at $0.06 per share expiring January 26, 2014 1,350,000 Common Shares at $0.085 per share expiring March 18, 2014 3,400,000 Common Shares at $0.39 per share expiring March 2, 2016 | 130,000 246,000 348,600 533,250 306,000 |
| Giulio T. Bonifacio | 500,000(2) 600,000(2) 770,000(2) 1,210,000(2) | 110,000 222,000 292,600 429,550 | 500,000 Common Shares at $0.22 per share expiring November 6, 2012 600,000 Common Shares at $0.07 per share expiring August 6, 2013 770,000 Common Shares at $0.06 per share expiring January 26, 2014 1,210,000 Common Shares at $0.085 per share expiring March 18, 2014 700,000 Common Shares at $0.39 per share expiring March 2, 2016 3,080,000 Common Shares at $0.53 per share expiring September 1, 2016 | Nil Nil Nil Nil 63,000 Nil |
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Name | Securities Acquired on Exercise (#) | Aggregate Value Realized ($) | Unexercised Options at FY-End (#) | Value of Unexercised in-the-Money Options at FY-End ($)(1) |
| Robert McKnight | 200,000(2) 150,000(2) 200,000(2) | 74,000 57,000 71,000 | 250,000 Common Shares at $0.22 per share expiring November 6, 2012 200,000 Common Shares at $0.07 per share expiring August 6, 2013 150,000 Common Shares at $0.06 per share expiring January 26, 2014 200,000 Common Shares at $0.085 per share expiring March 18, 2014 400,000 Common Shares at $0.39 per share expiring March 2, 2016 550,000 Common Shares at $0.53 per share expiring September 1, 2016 | 65,000 Nil Nil Nil 36,000 Nil |
| Ronald Netolitzky | 400,000(3) | 100,000 | 400,000 Common Shares at $0.39 per share expiring September 1, 2016 400,000 Common Shares at $0.53 per share expiring September 1, 2016 | Nil Nil |
| James Bagwell | 250,000(2) 200,000(2) 150,000(2) 200,000(2) | 55,000 74,000 57,000 71,000 | 250,000 Common Shares at $0.22 per share expiring November 6, 2012 200,000 Common Shares at $0.07 per share expiring August 6, 2013 150,000 Common Shares at $0.06 per share expiring January 26, 2014 200,000 Common Shares at $0.085 per share expiring March 18, 2014 100,000 Common Shares at $0.19 per share expiring March 25, 2015 400,000 Common Shares at $0.39 per share expiring March 2, 2016 800,000 Common Shares at $0.53 per share expiring September 1, 2016 | Nil Nil Nil Nil 29,000 36,000 Nil |
| Jamie Newall | Nil | Nil | 100,000 Common Shares at $0.365 per share expiring June 23, 2016 | 11,500 |
| Joe Chan | Nil | Nil | 25,000 Common Shares at $0.22 per share expiring November 6, 2012 25,000 Common Shares at $0.07 per share expiring August 6, 2013 160,000 Common Shares at $0.06 per share expiring January 26, 2014 150,000 Common Shares at $0.085 per share expiring March 18, 2014 100,000 Common Shares at $0.39 per share expiring March 2, 2016 | 65,000 10,250 67,200 59,250 9,000 |
| (1) | Based on the closing price on December 31, 2011 of $0.48 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, 2011 and the exercise price. |
| (2) | These stock options were exercised on August 29, 2011. The closing price of the shares on August 29, 2011 was $0.44 per share. |
| (3) | These stock options were exercised on September 2, 2011. The closing price of the shares on September, 2011 was $0.64 per share. |
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| 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 28, 2012:
Name and Municipality of Residence | Number of Common Shares owned or controlled | Percentage of Issued Share Capital |
| Sprott Asset Management LP | 24,905,012 | 12.5% |
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:
Name and Municipality of Residence | Number of Common Shares owned or controlled | Percentage of Issued 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:
Name and Municipality of Residence | Number of Common Shares owned or controlled | Percentage of Issued 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)
As at March 28, 2012, the Corporation had 230 registered shareholders in the United States, holding a total of 22,451,258 common shares representing 11.3% 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.
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| 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, 2011 the Corporation recovered management and consulting fees of $171,125 (2010 – $79,091; 2009 - 82,375) and general and administration expenses of $15,375 (2010 - $133,409; 2009 - $54,125) from these companies. As at December 31, 2011, there was $17,763 (2010 - $2,629) 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, 2011, December 31, 2010 and January 1, 2010;
- Consolidated Statements of Operations and Deficit and Comprehensive Loss for the years ended December 31, 2011 and 2010;
- Consolidated Statements of Cash Flows for the years ended December 31, 2011 and December 31, 2010; 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. | Offer and Listing Details |
The common shares of Old Bonanza were listed and posted for trading on the TSX Venture Exchange until March 30, 2005, at which time the common shares of the Corporation as the successor to Old Bonanza pursuant to the Arrangement were listed and posted for trading on the TSX. See Item 4.A. “History and Development of the Corporation – Plan of Arrangement” for more information relating to the Arrangement. The following table sets forth the annual high and low closing prices, in Canadian dollars, for the shares of Old Bonanza as the predecessor to the Corporation on the TSX Venture Exchange and the Corporation on the TSX for the last five full financial years:
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| Fiscal Year Ending | High | Low |
| December 31, 2011 | 0.64 | 0.32 |
| 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 |
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 2011 | High | Low |
| First Quarter | 0.41 | 0.32 |
| Second Quarter | 0.42 | 0.33 |
| Third Quarter | 0.64 | 0.33 |
| Fourth Quarter | 0.64 | 0.42 |
| 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 |
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, 2012 | 0.59 | 0.47 |
| January, 2012 | 0.58 | 0.47 |
| December, 2011 | 0.54 | 0.465 |
| November, 2011 | 0.64 | 0.495 |
| October, 2011 | 0.64 | 0.42 |
| September, 2011 | 0.64 | 0.445 |
The common shares of the Corporation also trade on the over-the-counter market in the United States (previously on the pink sheets and as of May 27, 2011 on the OTCQX). 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 or the OTCQX, as applicable, for the last five full financial years:
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| Fiscal Year Ending | High | Low |
| December 31, 2011 | 0.645 | 0.33 |
| 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 |
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 or the OTCQX, as applicable:
| Fiscal 2011 | High | Low |
| First Quarter | 0.50 | 0.3224 |
| Second Quarter | 0.441 | 0.345 |
| Third Quarter | 0.651 | 0.34 |
| Fourth Quarter | 0.645 | 0.382 |
| 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 |
The following table sets forth the high and low prices, in U.S. dollars, of the common shares of the Corporation on the OTCQX for the last six months:
| High | Low | |
| February, 2012 | 0.5825 | 0.486 |
| January, 2012 | 0.57 | 0.47 |
| December, 2011 | 0.541 | 0.427 |
| November, 2011 | 0.645 | 0.4652 |
| October, 2011 | 0.619 | 0.382 |
| September, 2011 | 0.651 | 0.43 |
| 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 over-the-counter market in the United States (previously on the pink sheets and as of May 27, 2011 on the OTCQX).
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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.
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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 material contracts entered into by the Corporation within the two years before the date of this annual report, or in effect as of the date of this annual report, other than material contracts entered into in the ordinary course of business:.
Employment agreement with Mr. Brian P. Kirwin subsequently dated July 1, 2006 with the Corporation and which superseded employment agreements in place with Old Bonanza. On March 29, 2011, the Compensation Committee reviewed Mr. Kirwin's salary and increased his annual compensation from US$190,000 to US$275,000. 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 employment agreement with Old Bonanza was previously filed on EDGAR (www.sec.gov) with Old Bonanza’s Annual Report for the year ended December 31, 2003 as Exhibits 4.1 and 4.2. 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.
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Purchase Agreement for the Calumet Flotation and Grinding Mill, entered into by the Corporation with NJB Mining, Inc. of Scottsdale, Arizona, on May 12, 2012, pursuant to which the Corporation acquired a flotation and grinding circuit and related equipment, for US$650,000, paid as to $400,000 in cash, with the balance paid through the issue of 1,250,000 common shares.
Purchase and sale agreement dated November 3, 2010 between the Corporation and Balmoral Resources Ltd. (“Balmoral”) (attached as Exhibit 4.12) for the sale of the Corporation’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 were subject to a four month hold period and a pooling agreement.
Agency Agreement between the Corporation and Wellington West Capital Markets Inc. (“Wellington”) dated January 17. 2011 pursuant to which Wellington acted as agent for the Corporation in connection with a public offering in Canada of units, each unit consisting of one common share and one half of one warrant, at a price of $0.35 per unit. The offering closed on January 21, 2011. The Corporation paid Wellington a cash commission equal to 6% of the gross proceeds raised, and issued to Wellington warrants to purchase 2,963,700 common shares exercisable at $0.38 per share until July 21, 2012.
Underwriting Agreement between the Corporation and Wellington West dated September 14. 2011 pursuant to which Wellington acted as underwriter for the Corporation in connection with a public offering in Canada of common shares at a price of $0.53 per common share. The offering closed on September 29, 2011. The Corporation paid Wellington a cash commission equal to 6% of the gross proceeds raised, and issued to Wellington warrants to purchase 690,000 common shares exercisable at $0.61 per share until March 29, 2013. Pursuant to the terms of the agreement, Wellington had the right to over-allot the financing by up to 1,725,000 common shares. On October 27, 2011 Wellington exercised the over-allotment option in full.
Secured promissory note and guaranty entered into among the Corporation, Bonanza Explorations Inc. and Resource Income Fund L.P. (“RIF”) dated, February 14, 2012 pursuant to which RIF loaned to the Corporation US$6.0 million. The Corporation will repay the loan through the delivery of 3.936 ounces of gold in 32 equal weekly instalments, commencing May 7, 2012. In connection with the note, the Corporation granted RIF 4,000 ounces of gold call options with a strike price of US$2,025 per ounce, expiring April 15, 2013. Repayment of the note is secured by a pledge of the shares of Bonanza Explorations Inc. pursuant to a share pledge agreement between the Corporation and RIF, dated February 14, 2012, and by a security interest over the assets of the Corporation pursuant to security agreements between the Corporation and RIF, and Bonanza Explorations Inc. and RIF, dated February 14, 2012.
Master Purchase Contract & Bill of Sale between the Corporation and Auramet Trading, LLC dated February 14, 2012 pursuant to the Corporation agreed to sell, and Auramet agreed to purchase, 100% of gold production from the Copperstone Project.
| 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.
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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 or deemed to be 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.
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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 entities considered fiscally transparent under applicable law, 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 a U.S. holder that is a corporate shareholder 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 generally 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.
Provided that the Corporation’s common shares are listed on a “designated stock exchange” for purposes of the Tax Act (which currently includes the TSX) at the time of disposition, a common share will generally not constitute taxable Canadian property to a U.S. Holder unless, 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.
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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.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of common shares.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership and disposition of common shares. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of common shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term "U.S. Holder" means a beneficial owner of common shares that is for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the U.S.;
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia;
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common shares that is not a U.S. Holder. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership and disposition of common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Corporation. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of common shares.
If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership and disposition of common shares.
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Passive Foreign Investment Company Rules
If the Corporation were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”, as defined below) for any year during a U.S. Holder’s holding period, then certain potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of common shares. The Corporation believes that it was classified as a PFIC during the tax year ended December 31, 2011, and may be a PFIC in subsequent tax years. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Corporation (or any subsidiary of the Corporation) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Corporation and any subsidiary of the Corporation.
In addition, in any year in which the Corporation is classified as a PFIC, such holder would be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file a IRS Form 8621.
The Corporation generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Corporation is passive income (the “income test”) or (b) 50% or more of the value of the Corporation’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business, or supplies regularly used or consumed in a trade or business and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described above, if the Corporation owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Corporation will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, “passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by the Corporation from certain “related persons” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
Under certain attribution rules, if the Corporation is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of the Corporation’s direct or indirect equity interest in any company that is also a PFIC (a ‘‘Subsidiary PFIC’’), and will be subject to U.S. federal income tax on their proportionate share of (a) any “excess distributions,” as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Corporation or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of common shares. Accordingly, U.S. Holders should be aware that they could be subject to tax even if no distributions are received and no redemptions or other dispositions of common shares are made.
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Default PFIC Rules Under Section 1291 of the Code
If the Corporation is a PFIC for any tax year during which a U.S. Holder owns common shares, the U.S. federal income tax consequences to such U.S. Holder of the acquisition, ownership and disposition of common shares will depend on whether and when such U.S. Holder makes an election to treat the Corporation and each Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or makes a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code (described below) with respect to (a) any gain recognized on the sale or other taxable disposition of common shares and (b) any excess distribution received on the common shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for the common shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any “excess distribution” received on common shares or with respect to the stock of a Subsidiary PFIC, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.
If the Corporation is a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares, the Corporation will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Corporation ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such common shares were sold on the last day of the last tax year for which the Corporation was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its common shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain of the Corporation, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Corporation, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Corporation is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Corporation. However, for any tax year in which the Corporation is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
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A U.S. Holder that makes a timely and effective QEF Election with respect to the Corporation generally (a) may receive a tax-free distribution from the Corporation to the extent that such distribution represents “earnings and profits” of the Corporation that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period for the common shares in which the Corporation was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for the common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder meets certain requirements and makes a “purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value on the day the QEF Election is effective. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Corporation ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Corporation is not a PFIC. Accordingly, if the Corporation becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Corporation qualifies as a PFIC.
U.S. Holders should be aware that there can be no assurances that the Corporation will satisfy the record keeping requirements that apply to a QEF, or that the Corporation will supply U.S. Holders with information that such U.S. Holders are required to report under the QEF rules, in the event that the Corporation is a PFIC. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed United States federal income tax return. However, if the Corporation does not provide the required information with regard to the Corporation or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the common shares are marketable stock. The common shares generally will be “marketable stock” if the common shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and surveillance requirements, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange effectively promote active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.
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A U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for the common shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the common shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Corporation is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the common shares, as of the close of such tax year over (b) such U.S. Holder’s tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the common shares, over (b) the fair market value of such common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years). Losses that exceed this limitation are subject to the rules generally applicable to losses provided in the Code and Treasury Regulations.
A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the common shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the common shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or excess distributions from a Subsidiary PFIC.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of common shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common shares are transferred.
Certain additional adverse rules may apply with respect to a U.S. Holder if the Corporation is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common shares.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with its own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
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The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares.
Ownership and Disposition of Common Shares to the Extent that the PFIC Rules do not Apply
The following discussion is subject to the rules described above under the heading “Passive Foreign Investment Company Rules.”
Distributions on Common Shares
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Corporation, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Corporation is a PFIC. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Corporation, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares. (See “ Sale or Other Taxable Disposition of Common Shares” below). However, the Corporation may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Corporation with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares generally will not be eligible for the “dividends received deduction”. In addition, the Corporation does not anticipate that its distributions will constitute qualified dividend income eligible for the preferential tax rates applicable to long-term capital gains. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of cash received plus the fair market value of any property received and such U.S. Holder's tax basis in such common shares sold or otherwise disposed of. A U.S. Holder’s tax basis in common shares generally will be such holder’s U.S. dollar cost for such common shares. Gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, the common shares have been held for more than one year.
Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Considerations
Additional Tax on Passive Income
For tax years beginning after December 31, 2012, certain individuals, estates and trusts whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax on “net investment income” including, among other things, dividends and net gain from dispositions of property (other than property held in a trade or business). U.S. Holders should consult with their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of common shares.
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Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, recently enacted legislation generally imposes new U.S. return disclosure obligations (and related penalties) on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of $50,000. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at a domestic financial institution. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28% (and increasing to 31% for payments made after December 31, 2012), if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
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| 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 1238 – 200 Granville 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.
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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 USEOF 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 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2011, under the supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer, pursuant to Rule 13a-15(b) or Rule 15d-15(b) promulgated under the Exchange Act. As a result of this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2011.
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) or Rule 15d-15(f) promulgated under the Exchange Act. 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, 2011, using the framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management concluded that our internal controls over financial reporting were not effective as of December 31, 2011. Material adjustments were identified during the year-end audit process relating to certain accounting matters that were adjusted for in the December 31, 2011 consolidated financial statements. These adjustments indicate a material weakness which arose as a result of limited finance staff with financial reporting expertise to address and review more complex accounting matters.
Management is currently reviewing the Corporation’s internal control and systems requirements in the context of the continuing operations at Copperstone and will consider the need for additional finance personnel during 2012. Subsequent to year end the Corporation has hired two additional finance staff members with financial expertise which will assist management in ensuring the Corporation’s internal controls over financial reporting are effective.
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This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management's report was not subject to attestation by our registered independent public accounting firm because we are not an accelerated filer or large accelerated filer.
| ITEM 16A. | Audit Committee Financial Expert |
The Corporation’s Board of Directors has determined that both Mr. Robert McKnight and Mr. Giulio Bonifacio fulfill the role of a Financial Expert on the Corporation’s audit committee. Both Messrs McKnight and Bonifacio are “independent” as the term is defined under the applicable rules of the American Stock Exchange. Mr. Bonifacio is a professional accountant with extensive experience and knowledge in areas of corporate finance, securities matters, project finance and mergers & acquisitions. Mr. McKnight has a Master’s in Business Administration and has experience in financial, accounting and taxation matters. 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, Giulio Bonifacio and Jamie Newall. 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 26 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. Giulio Bonifacio has over 26 years in senior executive positions in the mining industry. Mr. Bonifacio is a professional accountant with extensive experience and knowledge in areas of corporate finance, securities matters, project finance and mergers & acquisitions. Mr. Bonifacio is the founder, President & CEO of Nevada Copper Corp. and has a successful track record of raising equity and project capital for development projects of merit. Mr. Bonifacio has held senior executive finance roles with Getty Resources Limited, TOTAL S.A. and Vengold Inc. Mr. Bonifacio has served on many audit committees of TSX and TSX-V listed companies and currently is a member of Eathworks Industries audit committee.
Mr. Jamie Newall is Director of Investment for the UK and European pipeline of Intrepid Financial’s investments. Mr. Newall currently sits on the board of Suparna Gold Corp., Opal Energy and EShippers Management Ltd. Prior to Intrepid he was a board director of BPL Global the leading broker in trade credit and political risk with particular focus on commodities and emerging markets. Jamie is a graduate of Cambridge University and holds a Masters Degree in Law.
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.
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| 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 1238 – 200 Granville Street, Vancouver, British Columbia, Canada V6C 1S4.
| ITEM 16C. | Principal Accountant Fees and Services |
In Canadian Dollars | Year ending December 31, 2011 | Year ending December 31, 2010 |
| Audit fees | 326,250 | 153,071 |
| Audit-related fees | Nil | Nil |
| Tax fees – Canadian | 22,000 | Nil |
| Tax fees – US | Nil | Nil |
| All other fees | Nil | Nil |
| Total fees billed | 348,250 | 153,071 |
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).
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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, 2011.
| ITEM 16F. | Change in Registrant’s Certifying Accountant |
Not Applicable.
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| ITEM 16G. | Corporate Governance |
Not Applicable.
| ITEM 16H. | Mine Safety Disclosure |
Bonanza operates the Copperstone Gold Mine in Arizona. For the year ended December 31, 2011, the information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and this Item is included in Exhibit 16.1 to this annual report.
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, 2011, December 31, 2010 and January 1, 2010 |
| Consolidated Statements of Operations, Comprehensive Loss and Cash Flows, for the fiscal years ended December 31, 2011 and December 31, 2010. |
| Notes to Consolidated Financial Statements |
| ITEM 18. | FINANCIAL STATEMENTS |
See Item 17.
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| 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 | Purchase Agreement between the Corporation and Balmoral Resources Ltd. dated November 3, 2010(3) | |
| 4.3 | Purchase Agreement between the Corporation and NJB Mining, Inc. dated May 12, 2010(4) | |
| 4.4 | Agency Agreement between the Corporation and Wellington West Capital Markets Inc. (“Wellington”) dated January 17, 2011(4) | |
| 4.5 | Underwriting Agreement between the Corporation and Wellington West dated September 14, 2011(4) | |
| 4.6 | Secured promissory note and guaranty Corporation, Bonanza Explorations Inc. and Resource Income Fund L.P. (“RIF) dated, February 14, 2012(4) | |
| 4.7 | Pledge Agreement between the Corporation and RIF dated February 14, 2012(4) | |
| 4.8 | Security Agreement between the Corporation and RIF dated February, 2012(4) | |
| 4.9 | Security Agreement between the Bonanza Explorations Inc. and RIF dated February 14, 2012(4) | |
| 4.10 | Master Purchase Contract and Bill of Sale Agreement between the Corporation and Auramet Trading, LLC dated February 14, 2012(4) | |
| 8.0 | List of Principal Subsidiaries: Bonanza Exploration Inc. (Nevada) | |
| 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. | |
| 16.1 | Mine Safety Disclosure(5) |
| (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 Annual Report on Form 20-F for the year ended December 31, 2010 filed with the SEC on April 6, 2011. |
| (4) | Previously filed with the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2011 filed with the SEC on April 2, 2012. |
| (5) | Previously filed with the Registrant’s Annual Report on Form 20-F/A for the year ended December 31, 2011 (Amendment No. 1) filed with the SEC on April 6, 2012. |
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AMERICAN BONANZA GOLD CORP.
Amended Consolidated Financial Statements
Years ended December 31, 2011 and 2010
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 | 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 Shareholders of American Bonanza Gold Corp.
We have audited the accompanying consolidated financial statements of American Bonanza Gold Corp. which comprise the consolidated balance sheets as at December 31, 2011 and December 31, 2010 and January 1, 2010, the consolidated statements of operations and comprehensive loss, changes in equity and cash flows for the years ended December 31, 2011 and December 31, 2010, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, 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 is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated balance sheets of American Bonanza Gold Corp. as at December 31, 2011 and December 31, 2010 and January 1, 2010, and its consolidated financial performance and its consolidated cash flows for the years ended December 31, 2011 and December 31, 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Restatement of Financial Statements
Without modifying our opinion, we draw attention to Note 13(b) to the consolidated financial statements as at and for the year ended December 31, 2011 which indicates that these consolidated financial statements have been restated from those on which we originally reported on March 28, 2012 and more extensively discusses the reason for the restatement.
//s// KPMG LLP
Chartered Accountants
September 4, 2012
Vancouver, Canada
| 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. |
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| AMERICAN BONANZA GOLD CORP. | |||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||
| (In Canadian Dollars) | December 31, | December 31, | January 1, | ||||||
| 2011 | 2010 | 2010 | |||||||
| $ | $ | $ | |||||||
| (note 13 | ) | (note 13 | ) | ||||||
| ASSETS | |||||||||
| CURRENT ASSETS: | |||||||||
| Cash and cash equivalents | 1,822,511 | 3,104,650 | 957,923 | ||||||
| Amounts receivable (note 3) | 155,780 | 114,442 | 455,680 | ||||||
| Prepaid expenses | 632,895 | 34,758 | 32,926 | ||||||
| Inventory (note 4) | 973,216 | - | - | ||||||
| Marketable securities (note 5) | - | 5,805,000 | 1,879,842 | ||||||
| 3,584,402 | 9,058,850 | 3,326,371 | |||||||
| DEFERRED SHARE ISSUE COSTS | - | 181,726 | - | ||||||
| MINERAL PROPERTIES, PLANT AND EQUIPMENT (note 6) | 58,413,514 | 27,202,998 | 37,829,945 | ||||||
| RECLAMATION BOND (note 7) | 1,697,938 | 20,000 | 20,000 | ||||||
| 60,111,452 | 27,404,724 | 37,849,945 | |||||||
| TOTAL ASSETS | 63,695,854 | 36,463,574 | 41,176,316 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
| CURRENT LIABILITIES | |||||||||
| Accounts payable and accrued liabilities | 4,849,905 | 1,079,376 | 687,940 | ||||||
| RECLAMATION AND SITE RESTORATION (note 7) | 1,541,625 | - | 40,621 | ||||||
| 6,391,530 | 1,079,376 | 728,561 | |||||||
| SHAREHOLDERS’ EQUITY | |||||||||
| Share capital (note 8) | 85,411,531 | 62,449,075 | 60,650,619 | ||||||
| Other equity reserve (note 8) | 9,750,370 | 6,319,728 | 6,396,978 | ||||||
| Accumulated other comprehensive income (loss) | 13,373 | (906,088 | ) | (285,353 | ) | ||||
| Deficit | (37,870,950 | ) | (32,478,517 | ) | (26,314,489 | ) | |||
| 57,304,324 | 35,384,198 | 40,447,755 | |||||||
| TOTAL LIABILITIES AND SHAREHOLDER’SEQUITY | 63,695,854 | 36,463,574 | 41,176,316 |
Subsequent events (note 15)
APPROVED ON SEPTEMBER 4, 2012 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 COMPREHENSIVE LOSS | ||||||
| (In Canadian Dollars) | ||||||
| For the year ended December 31, 2011 and 2010 | 2011 | 2010 | ||||
| $ | $ | |||||
| EXPENSES (INCOME): | ||||||
| Share-based payments (note 8) | 3,113,349 | - | ||||
| Management fees, consulting and salaries | 1,016,187 | 292,590 | ||||
| Investor relations | 347,723 | 208,223 | ||||
| Loss on sale of marketable securities | 274,510 | 1,205,004 | ||||
| Exploration | 272,275 | 283,594 | ||||
| Legal and accounting | 197,666 | 134,928 | ||||
| Business development | 167,681 | 257,916 | ||||
| Office and administration | 75,924 | 12,358 | ||||
| Insurance | 48,946 | 40,488 | ||||
| Interest and accretion of asset retirement obligation | 12,069 | 1,431 | ||||
| Amortization | 4,560 | 8,110 | ||||
| Foreign exchange (gain) loss | (38,054 | ) | 13,749 | |||
| Interest income | (67,229 | ) | (79 | ) | ||
| Other income | (33,174 | ) | - | |||
| Mineral properties write down (note 6) | - | 3,724,821 | ||||
| Loss on mineral property disposal | - | 70,355 | ||||
| LOSS BEFORE INCOME TAXES | (5,392,433 | ) | (6,253,488 | ) | ||
| DEFERRED INCOME TAXES RECOVERY | - | 89,460 | ||||
| LOSS FOR THE YEAR | (5,392,433 | ) | (6,164,028 | ) | ||
| OTHER COMPREHENSIVE INCOME (LOSS): | ||||||
| Unrealized loss on available-for-sale marketable securities, net of tax | (904,510 | ) | (379,111 | ) | ||
| Reclassification of loss realized in the year | 274,510 | 1,205,004 | ||||
| Currency translation adjustments | 1,549,461 | (1,446,628 | ) | |||
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | 919,461 | (620,735 | ) | |||
| COMPREHENSIVE LOSS FOR THE YEAR | (4,472,972 | ) | (6,784,763 | ) | ||
| LOSS PER COMMON SHARE | ||||||
| Basic and diluted | (0.03 | ) | (0.05 | ) | ||
| WEIGHTED AVERAGE NUMBER OF SHARES | 182,241,377 | 122,765,013 | ||||
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 year ended December 31, 2011 and 2010 | 2011 | 2010 | ||||
| $ | $ | |||||
| (AMENDED NOTE 13) | ||||||
| CASH PROVIDED BY (USED IN): | ||||||
| OPERATING ACTIVITIES | ||||||
| Loss for the year | (5,392,433 | ) | (6,164,028 | ) | ||
| Items not affecting cash: | ||||||
| Share-based compensation | 3,113,349 | - | ||||
| Loss on marketable securities | 274,510 | 1,205,004 | ||||
| Amortization | 4,560 | 8,110 | ||||
| Accretion of reclamation and site restoration | 12,069 | 1,431 | ||||
| Interest income | 67,229 | 79 | ||||
| Unrealized foreign exchange (gain) / loss | (38,054 | ) | 13,749 | |||
| Write-down of mineral properties | - | 3,724,821 | ||||
| Non-cash portion of loss on sale of properties | - | 70,355 | ||||
| Deferred income taxes | - | (89,460 | ) | |||
| (1,958,770 | ) | (1,229,939 | ) | |||
| Changes in non-cash operating accounts: | ||||||
| Inventory | (973,216 | ) | - | |||
| Amounts receivable | (41,338 | ) | 341,238 | |||
| Prepaid expenses | (598,137 | ) | (1,832 | ) | ||
| Accounts payable and accrued liabilities | 655,555 | (14,642 | ) | |||
| Interest received | (67,229 | ) | (79 | ) | ||
| (2,983,133 | ) | (905,254 | ) | |||
| INVESTING ACTIVITIES | ||||||
| Sale of marketable securities, net of commission | 4,900,490 | 960,191 | ||||
| Reclamation bond | (1,677,938 | ) | - | |||
| Purchase of mineral properties, plant and equipment | (25,085,629 | ) | (2,853,338 | ) | ||
| Payment received on mineral property sale, net of cost | - | 3,631,897 | ||||
| (21,863,077 | ) | 1,738,750 | ||||
| FINANCING ACTIVITIES | ||||||
| Issue of common shares, net of issue costs | 23,526,019 | 1,326,980 | ||||
| Effect of exchange rates on cash and cash equivalents | 38,054 | (13,749 | ) | |||
| INCREASE (DECREASE) IN CASH AND CASHEQUIVALENTS | (1,282,139 | ) | 2,146,727 | |||
| CASH AND CASH EQUIVALENTS, beginning of year | 3,104,650 | 957,923 | ||||
| CASH AND CASH EQUIVALENTS, end of the year | 1,822,511 | 3,104,650 | ||||
| SUPPLEMENTARY INFORMATION: | ||||||
| Non-cash investing and financing activities: | ||||||
| Purchase of mineral properties, plant and equipment included in accounts payable and accrued liabilities | 3,683,186 | 568,212 | ||||
| Reclamation and site restoration obligation included in mineral properties, plant and equipment | 1,529,556 | - | ||||
| Fair value of warrants as financing costs and cost of property | 428,237 | - | ||||
| Capitalization of share based compensation in mineral properties, plant and equipment. | 258,000 | - | ||||
| Depreciation capitalized in mineral properties, plant and equipment | 164,552 | - | ||||
| Deferred finance costs of prior year reclassified to share capital | 181,726 | - | ||||
The accompanying notes are an integral part of these consolidated financial statements
- 5 -
| AMERICAN BONANZA GOLD CORP. |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| (In Canadian Dollars) |
| For the year ended December 31, 2011 and 2010 |
| Accumulated | ||||||||||||||||||
| Other | Other | |||||||||||||||||
| Share Capital | Equity | Comprehensive | ||||||||||||||||
| Shares | Amount | Reserve | Income (Loss) | Deficit | Total | |||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||
| Balance, January 1, 2010 | 118,245,889 | 60,650,619 | 6,396,978 | (285,353 | ) | (26,314,489 | ) | 40,447,755 | ||||||||||
| Private placement | 9,603,383 | 1,393,081 | - | - | - | 1,393,081 | ||||||||||||
| Shares issued for plant purchase | 1,250,000 | 212,500 | - | - | - | 212,500 | ||||||||||||
| Exercise of options | 1,100,000 | 192,875 | (77,250 | ) | - | - | 115,625 | |||||||||||
| Other comprehensive income | - | - | - | (620,735 | ) | - | (620,735 | ) | ||||||||||
| Loss for the period | - | - | - | - | (6,164,028 | ) | (6,164,028 | ) | ||||||||||
| Balance, December 31, 2010 | 130,199,272 | 62,449,075 | 6,319,728 | (906,088 | ) | (32,478,517 | ) | 35,384,198 | ||||||||||
| Private placement, net of share issue costs | 63,225,000 | 21,894,378 | - | - | - | 21,894,378 | ||||||||||||
| Exercise of warrants | 295,083 | 107,084 | - | - | - | 107,084 | ||||||||||||
| Exercise of options | 4,830,000 | 592,050 | - | - | - | 592,050 | ||||||||||||
| Reclass option exercised | - | 368,944 | (368,944 | ) | - | - | - | |||||||||||
| Stock-based compensation | - | - | 3,371,349 | - | - | 3,371,349 | ||||||||||||
| Agent warrants valuation | - | - | 428,237 | - | - | 428,237 | ||||||||||||
| Other comprehensive income | - | - | - | 919,461 | - | 919,461 | ||||||||||||
| Loss for the period | - | - | - | - | (5,392,433 | ) | (5,392,433 | ) | ||||||||||
| Balance, December 31, 2011 | 198,549,355 | 85,411,531 | 9,750,370 | 13,373 | (37,870,950 | ) | 57,304,324 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements
- 6 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 1. | NATURE OF OPERATIONS |
American Bonanza Gold Corp. (the “Corporation”) was incorporated in British Columbia on December 10, 2004. The Corporation is domiciled in Vancouver, Canada. 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, with the exception of Copperstone property (note 6) has not yet determined whether its other exploration mineral properties contain mineral reserves which are economically recoverable. The recoverability of amounts capitalized is dependent upon the discovery of economically recoverable reserves, securing and maintaining title in the properties, obtaining the necessary financing to complete the exploration and development of these projects and upon the attainment of future profitable production. | |
These financial statements have been prepared using International Financial Reporting Standards applicable to a going- concern which assumes the Corporation 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. | |
As at December 31, 2011, the Corporation had cash and cash equivalents of $1,822,511 and a working capital deficiency of $1,265,503. Subsequent to December 31, 2011, the Corporation completed a USD $6,000,000 gold prepayment facility and made two separate provisional gold sale shipments (note 15). | |
The ability of the Corporation to continue as a going concern is dependent on its ability to attain profitable operations. If the profitability of operations is delayed, additional financing may be necessary to achieve this profitability. With the Corporation currently transitioning from commissioning stage to commercial production, it may require additional financing to carry out its near-term operating plans and achieve the required profitability. The Corporation has, however, demonstrated its ability to raise funds when required, as evidenced by the successful closing of the gold prepayment facility noted previously. In addition, the Corporation now has evidence of its ability to produce saleable gold concentrates based on the preliminary operating statistics and sales information available subsequent to year end. | |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
These consolidated financial statements represent the Corporation’s first IFRS annual consolidated financial statements and have been prepared in accordance with IFRSs as issued by the International Accounting Standards Board (“IASB”). IFRS comprises IFRSs, International Accounting Standards (“IASs”), and interpretations issued by the IFRS Interpretations Committee (“IFRICs”) and the former Standing Interpretations Committee (“SICs”). The Corporation adopted IFRS in accordance with IFRS 1–First-time Adoption of International Financial Reporting Standards (“IFRS 1”) with a transition date of January 1, 2010 and these consolidated financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2011, with significant accounting policies as described below. | |
First-time adoption of IFRS | |
The Corporation’s consolidated financial statements were previously prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). The basis of preparation of these consolidated financial statements is different to that of the Corporation’s prior year consolidated financial statements prepared in accordance with Canadian GAAP due to the Corporation’s transition to IFRS. The disclosures required by IFRS 1 demonstrating the impact of the transition to IFRS with a transition date of January 1, 2010 on the financial position and financial performance of the Corporation are provided in note 13. Note 13 includes reconciliations of the Corporation’s consolidated balance sheets and statements of operations and comprehensive loss as at the date of transition and for the 2010 comparative periods prepared in accordance with Canadian GAAP and as previously reported or revised, to those prepared and reported in these consolidated financial statements in accordance with IFRS. |
- 7 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
Principles of consolidation(continued) | |
The consolidated financial statements include the accounts of the Corporation and its controlled subsidiary. Control is achieved when the Corporation has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. | |
The only subsidiary of the Corporation as at December 31, 2011 is the wholly-owned subsidiary, Bonanza Explorations Inc. (a United States, Nevada Corporation). The primary activity of the subsidiary is the development and operation of the Copperstone gold project and the exploration of other mineral properties in the United States. All inter-company transactions and balances have been eliminated upon consolidation. | |
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 in active markets. Changes in fair value are included in other comprehensive income. Impairment losses are recognized in income. | |
Inventory | |
Supplies inventory includes the cost of consumables used in operations and is valued at the lower of average cost and net realizable value. Replacement cost is being used to estimate net realizable value. | |
Product inventories comprise ore concentrate, ore in stockpiles and work-in-progress. Product inventories are recorded at the lower of average cost and net realizable value. Stockpiled ore is coarse ore that has been extracted from the mine and is available for further processing. Stockpiled ore is valued at the lower of average production cost and net realizable value. The cost of stockpiled ore includes the cost of mining the ore and associated amortization and depletion. Costs based on the average cost per tonne stockpiled are removed from stockpiled ore and added to work in process inventory when stockpiled ore is crushed. | |
Work-in-progress includes crushed ore, materials, direct labour, other direct costs, production overheads and amortization of plant, equipment and mineral properties directly involved in the mining and production processes. Waste removal costs related to production are inventoried as incurred. When inventories have been written down to net realizable value, a new assessment of net realizable value is made in each subsequent period. When the circumstances that caused the write down no longer exist, the amount of the write down is reversed. | |
Mineral Properties | |
(1) Exploration and evaluation assets | |
Exploration and evaluation expenditures incurred in respect of a property before the acquisition of a mineral interest are expensed as incurred to general mineral exploration expense. Once a license to explore an area has been secured, expenditures on exploration and evaluation expenditures are capitalized to exploration and evaluation assets and classified as a non-current asset. Costs related to mineral activities, which include acquisition, exploration, and evaluation 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. |
- 8 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
| (i) Exploration and evaluation assets (continued) | |
Option payments received on mineral property interests optioned to third parties are credited against previous capitalized acquisition and exploration and evaluation costs for that mineral property interest and to income to extent that amounts exceed those costs. | |
All capitalized exploration and evaluation expenditures are monitored for indicators of impairment. Where a potential impairment is indicated, assessments are performed for each area of interest. To the extent that the exploration and evaluation expenditure is not expected to be recoverable, the expected impairment loss is charged to income. | |
When proven and probable reserves are determined and development is approved, capitalized exploration and evaluation costs for that area of interest are first tested for impairment and then are reclassified to mineral property, plant and equipment (“MPPE”). | |
| (ii) Mineral Property Costs | |
Mine development costs, including reclassified acquisition and exploration and evaluation assets are recorded at cost less accumulated amortization and accumulated impairment losses. Costs associated with commissioning new assets, net of incidental revenues, are capitalized as mineral property costs until commercial production is rendered. The Corporation has determined that the Copperstone project will be considered to have reached commercial production once it achieves 60% utilization of the designed capacity for a period of 30 consecutive days. The Copperstone project had not reach commercial production as at December 31, 2011. | |
Mine development and stope access incurred during the development of a mine are capitalized into MPPE. Mine development and stope access incurred during the commercial production phase are production costs that are included in the costs of inventory produced during the period that the these costs are incurred, unless the mine development and stope access activity can be shown to give rise to future benefits from the mineral property such as increased reserves, in which case the costs would be capitalized to MPPE. As at December 31, 2011, stope access costs were capitalized as MPPE. | |
| (iii) Property and equipment | |
Plant and equipment is carried at cost less accumulated amortization and impairment losses. The cost of an item of plant and equipment consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use, initial estimates of costs of dismantling and removing an item and restoring the site. The Corporation acquired its Copperstone project production equipment including mill, crushers and mobile equipment and such expenditures are recorded at cost. Most of this equipment was used and requires refurbishing and offsite preparation prior to construction in the Copperstone site in 2011. Currently, only the mobile equipment is depreciated as use began in the quarter ending December 31, 2011. The mobile equipment is being depreciated on a straight line basis over a 5 year period and such depreciation was capitalized to MPPE. None of the other plant and equipment was ready for its intended use as of December 31, 2011, and hence no amortization was taken during the current fiscal year. | |
Office equipment, consisting of office and computer equipment, are recorded at cost and are amortized on a straight-line basis over five years. | |
When significant parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of plant and equipment. The cost of replacing or overhauling a component of plant and equipment is recognized in the carrying amount when there is a future economic benefit to the Corporation and its cost is reasonably determinable. The carrying amount of the replaced component is written off. Costs of repairs and maintenance are expensed as incurred. |
- 9 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
(iv) Amortization and depletion | |
Mineral property costs capitalized during the production phase are amortized when commercial production begins using the units of production method based upon proven and probable reserves. Mine development and stope access costs capitalized during the production phase, not allocated to inventory, are depleted on a unit of production method over the reserves that directly benefit from the stope access. | |
Plant and equipment, including major components, are depreciated using a straight-line method over their estimated useful lives, typically ranging from 5 to 7 years. | |
Amortization methods and useful lives are reviewed at each annual reporting date. | |
Provisions | |
Provisions are recognised when the Corporation has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Where a provision is measured using the cash flows estimated to the settle the obligation, its carrying amount is the present value of those cash flows. | |
Reclamation and restoration | |
The obligations associated with the reclamation and restoration of tangible long-lived assets is recorded in the period it is incurred with a corresponding increase to the carrying amount of the related asset. The obligations recognized are statutory, contractual or legal obligations or a combination thereof. The liability is recorded at the present value of the estimated risk adjusted future cash flows associated with the site closure and reclamation using a risk-free discount rate. The liability is accreted to reflect the passage of time through charges to accretion, which is included in interest and accretion of asset retirement obligation expense. The costs capitalized to the related assets are amortized in a manner consistent with the depletion and amortization of the related asset. Additional disturbances or changes in the estimated costs are recognized as additions or changes to the liability and related tangible long-lived assets when incurred. | |
Income taxes | |
Currenttax | |
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable or receivable related to previous years. | |
Deferred tax | |
Deferred tax is accounted for using the liability method, providing for the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their respective tax bases. | |
Deferred income tax liabilities are recognized for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss in respect of taxable temporary differences associated with investments in subsidiaries and interest in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. | |
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and losses can be utilized, except where the deferred income tax asset related to a deductible temporary difference which arose from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. In respect of deductible temporary differences associated with investments in subsidiaries and interest in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. |
- 10 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
Income taxes(continued) | |
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and is adjusted to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be utilized. To the extent that an asset not previously recognized fulfils the criteria for recognition, a deferred income tax asset is recorded. | |
Deferred tax is measured on an undiscounted basis using the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on tax rates and tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Corporation intends to settle its current tax assets and liabilities on a net basis. | |
Current and deferred tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of comprehensive income. | |
Mining taxes and royalties are treated and disclosed as current and deferred taxes if they have the characteristics of an income tax. This is considered to be the case when they are imposed under government authority and the amount payable is calculated by reference to revenue derived (net of any allowable deductions) after adjustment for items comprising temporary differences. | |
Share capital | |
Common shares | |
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects. | |
Equity Units | |
Proceeds received on the issuance of units, consisting of common shares and warrants are allocated to share capital. | |
Share based payments | |
The Corporation grants share-based payment awards to certain officers, employees, directors and other eligible persons. For equity settled awards, the fair value is charged to the consolidated statement of comprehensive income and credited to the related reserve account, on a straight-line basis over the vesting period, after adjusting for the estimated number of awards that are expected to vest. For share based payments granted to mine employees, the compensation cost is capitalized to mineral interests to the extent of their direct involvement with the mining and development process. | |
The fair value of the equity-settled awards is determined at the date of the grant for employee awards. In calculating fair value, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Corporation. At each balance sheet date, the cumulative expense representing the extent to which the vesting period has expired and management’s best estimate of the awards that are ultimately expected to vest is computed. The movement in cumulative expense is recognised in the consolidated statement of comprehensive income with a corresponding entry against the related reserve. No expense is recognised for awards that do not ultimately vest. |
- 11 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
Share based payments(continued) | |
The fair value of stock option awards is determined by using the Black-Scholes option pricing model. The Black-Scholes model requires inputs, including estimates of the expected term to exercise and future stock price volatility. The expected term to exercise is determined based upon historical data of the average hold period before exercise. Expected volatility is estimated with reference to the historical share price volatility of the Corporation’s share price. | |
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 period. 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. | |
Revenue recognition | |
Once commercial production is declared, revenue from the sale of concentrates at the Corporation’s Copperstone project is recognized when the significant risks and rewards of ownership have passed to the buyer. It is probable that economic benefits associated with the transaction will flow to the Corporation, the sale price can be measured reliably, the Corporation has no significant continuing involvement and the costs incurred or to be incurred in respect of the transaction can be measured reliably. | |
Revenues from gold concentrate sales are subject to adjustment upon final settlement of metal prices, weights, and assays typically a few months after the shipment date. The Corporation records adjustments to revenues based on quoted forward prices until the final settlement period. Adjustments for weights and assays are recorded when results are determinable or on final settlement. Accounts receivable for metal concentrate sales are therefore measured at fair value. | |
Impairment of financial assets | |
The Corporation assesses at the end of each reporting period or when events or circumstances indicated that a financial asset is impaired. | |
Assets carried at amortized cost | |
If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is then reduced by the amount of the impairment. The amount of the loss is recognized in profit or loss. | |
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized. Any subsequent reversal of an impairment loss is recognized in profit or loss. | |
Available for sale | |
If an available for sale asset is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from other comprehensive loss to profit or loss. |
- 12 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) | |
Impairment of non-financial assets | ||
At the end of each reporting period, or when events and circumstances indicate that an impairment may have occurred, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Corporation estimates the recoverable amount of the cash-generating unit to which the assets belong. | ||
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. | ||
If the recoverable amount of a non-financial asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit and loss. | ||
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. | ||
Foreign currency translation | ||
The reporting and functional currency of the Corporation is the Canadian dollar. The functional currency of its United States subsidiary is the United States dollar. | ||
Foreign currency transactions entered directly by the Corporation or its subsidiary are translated into their functional currency as following: | ||
Monetary assets and liabilities are translated at period end exchange rates and other balance sheet items are translated at historical exchange rates. | ||
Income statement items are translated in effect at the time of transaction. | ||
Foreign exchange gains and losses are included in the determination of income. | ||
Transaction of the foreign functional currency subsidiary financial statements into the Parent’s Canadian dollar reporting currency is performed as follows: | ||
Assets and liabilities are translated at period end exchange rates and other balance sheet items are translated at historic exchange rates. | ||
Income statement items are translated at average exchange rates prevailing during the period. | ||
Exchange gains and losses on the translation of the foreign operations into the Corporation’s functional currency are excluded from the determination of income and reported as a foreign currency translation adjustment in the other comprehensive income in the shareholder’s equity. | ||
- 13 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
Financial instruments | |
Financial assets | |
All financial assets are initially recorded at fair value and classified upon inception into one of the following four categories: held-to-maturity, available-for-sale, loans-and-receivables or at fair value through profit or loss (“FVTPL”). | |
Financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through profit and loss. Financial assets classified as loans-and-receivables and held-to-maturity are measured at amortized cost using the effective interest method less any allowance for impairment. The effective interest method is a method of calculating the amortized cost of a financial asset and allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. | |
Financial assets classified as available-for-sale are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) except for losses supported by objective evidence which are recognized in profit and loss. | |
Transactions costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset. | |
Financial liabilities | |
All financial liabilities are initially recorded at fair value and classified upon inception as FVTPL or other financial- liabilities. | |
Financial liabilities classified as other financial liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. | |
Financial liabilities classified as FVTPL include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives, are also classified as held-for- trading unless they are designated as effective hedging instruments. Transaction costs on financial liabilities classified as FVTPL are expensed as incurred. At the end of each reporting period subsequent to initial recognition, financial liabilities classified as FVTPL are measured at fair value, with changes in fair value recognized directly in profit or loss in the period in which they arise. The net gain or loss recognized in profit or loss excludes any interest paid on the financial liabilities. | |
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 the United States as detailed in note 6. |
- 14 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
Critical accounting judgments and estimates | |
The preparation of these financial statements requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenue and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. | |
The most significant areas of judgments and estimates made by management are as follows: | |
Recoverability of accounts receivable | |
Provision is made against accounts that in the estimation of management may be impaired. The recoverability assessment of accounts receivable is based on a range of factors including the age of the receivable and the creditworthiness of the customer. The provision is assessed monthly with a detailed formal review of balances and security being conducted annually. Determining the recoverability of an account involves estimation as to the likely financial condition of the customer and their ability to subsequently make payments. To the extent that future events impact the financial condition of the customers these provisions could vary significantly. | |
Estimated reserves, resources and exploration potential | |
Reserves are estimates of the amount of product that can be extracted from the Corporation’s properties, considering both economic and legal factors. Calculating reserves, resources and exploration potential estimates requires decisions on assumptions about geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, prices and exchange rates. | |
Estimating the quantity and/or grade of reserves, resources and exploration potential require the analysis of drilling samples and other geological data. Estimates may change from period to period as the economic assumptions used to estimate reserves, resources and exploration potential change from period to period, and because additional geological data is generated during the course of operations. Changes in reported reserves may affect the Corporation financial position. | |
Impairment of property, plant and equipment | |
Assets or cash generating units are evaluated at each reporting date to determine whether there are any indications of impairment. If any such indication exists, a formal estimate of recoverable amount is performed and an impairment loss recognized to the extent that carrying amount exceeds recoverable amount. The recoverable amount of an asset or cash generating group of assets is measured at the higher of fair value less costs to sell and value in use. | |
Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties, and is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion prospects, and its eventual disposal. | |
Present values are determined using a risk-adjusted pre-tax discount rate appropriate for the risks inherent to the asset. Future cash flow estimates are based on expected production and sales volumes, commodity prices (considering current and historical prices, price trends and related factors), reserves, operating costs, restoration and rehabilitation costs and future capital expenditure. The Corporation’s management is required to make these estimates and assumptions which are subject to risk and uncertainty; hence there is a possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying value of the asset may be impaired and the impairment would be charged against the consolidated statement of comprehensive income. |
- 15 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
Critical accounting judgments and estimates(continued) | |
Fair value of share-based compensation | |
The Corporation grants share-based awards to certain officers, employees, directors and other eligible persons. For equity settled awards, the fair value is charged to the consolidated statement of comprehensive income and credited to the related reserve account, on a straight-line basis over the vesting period, after adjusting for the estimated number of awards that are expected to vest. | |
The fair value of the equity-settled awards is determined at the date of the grant using the Black-Scholes option pricing model. Option pricing models require the input of highly subjective assumptions, including the expected term to exercise and future price volatility. Changes in these assumptions can materially affect the fair value estimate. | |
Decommissioning, restoration and similar liabilities | |
Decommissioning and restoration obligation provisions represents management’s best estimate of the present value of the future costs. Significant estimates and assumptions are made in determining the amount of obligations provisions. Those estimates and assumptions deals with uncertainties such as: requirements of the relevant legal and regulatory framework; the magnitude of possible disturbance; and the timing, extent and costs of required restoration and rehabilitation activity. These uncertainties may result in future actual expenditure differing from the amounts currently provided. | |
Taxation | |
The provision for income taxes and composition of income tax assets and liabilities requires management’s judgment as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgment is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized in the balance sheet. | |
Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows and profitability. These depend on estimates of future production and sales volumes, commodity prices, reserves, operating costs, and other capital management transactions. The application of income tax legislation also requires judgments. These judgments and assumptions are subject to risk and uncertainty, therefore there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognized on the balance sheet and the amount of other tax losses and temporary differences not yet recognized. | |
New Accounting Pronouncements | |
These following discussed new and revised accounting standards have not yet been adopted by American Bonanza, and the Corporation has not yet completed the process of assessing the impact that they will have on its financial statements or whether to early adopt any of the new requirements. | |
Accounting standards effective January 1, 2013 | |
IAS 1 – Presentation of Financial Statements | |
IAS 1 – Presentation of Financial Statements requires an entity to group items presented in the statement of other comprehensive income on the basis of whether they may be reclassified to profit or loss subsequent to initial recognition. For those items presented before tax, the amendments to IAS 1 also require that the tax related to the two separate groups be presented separately. |
- 16 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued) |
New accounting pronouncements(continued) | |
IFRS 10 – Consolidated Financial Statements | |
IFRS 10 – Consolidated Financial Statements, supersedes SIC 12 – Consolidation – special purpose entities and the requirements relating to consolidated financial statements in IAS 27 – Consolidated and Separate Financial Statements. IFRS 10 establishes control as the basis for an investor to consolidate its investees and defines control as an investor’s power over an investee with exposure, or rights, to variable returns from the investee and the ability to affect the investor’s returns through its power over the investee. | |
IFRS 12 – Disclosure of Interests in Other Entities | |
IFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities. Interests are widely defined as contractual and non–contractual involvement that exposes an entity to variability of returns from the performance of the other entity. The required disclosures aim to provide information in order to enable users to evaluate the nature of, and the risks associated with, an entity’s interest in other entities, and the effects of those interests on the entity’s financial position, financial performance and cash flows. | |
IFRS 13 – Fair Value Measurement | |
IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to provide information that enables financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income. IFRS 13 explains ‘how’ to measure fair value when it is required or permitted by other IFRSs. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards. | |
IFRIC 20 – Stripping Costs in the Production Phase of a Surface Mine | |
IFRIC 20 was issued in October 2011. IFRIC 20 clarifies the requirements for accounting for the costs of stripping activity in the production phase when two benefits accrue: (i) usable ore that can be used to produce inventory; and (ii) improved access to further quantities of material that will be mined in future periods. | |
Accounting standards effective January 1, 2015 | |
IFRS 9 – Financial instruments | |
IFRS 9 was issued in November 2009 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. |
- 17 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 3. | AMOUNTS RECEIVABLE |
Amounts receivable consist of the following: |
| December 31, | December 31, | January 1, | ||||||||
| 2011 | 2010 | 2010 | ||||||||
| $ | $ | $ | ||||||||
| Goods and services and harmonized sales tax | 27,167 | 25,705 | 6,077 | |||||||
| Quebec sales tax | 489 | 17,603 | 8,849 | |||||||
| Mining duties and refundable tax credits receivable | 100,625 | 68,505 | 433,998 | |||||||
| Related party receivable (note 10) | 17,763 | - | - | |||||||
| Other | 9,736 | 2,629 | 6,756 | |||||||
| 155,780 | 114,442 | 455,680 |
| 4. | INVENTORY |
| December 31, | December 31, | January 1, | ||||||||
| 2011 | 2010 | 2010 | ||||||||
| $ | $ | $ | ||||||||
| Ore stockpile | 823,965 | - | - | |||||||
| Inventory supplies | 149,251 | - | - | |||||||
| 973,216 | - | - |
| 5. | MARKETABLE SECURITIES |
| Accumulated | ||||||||||
| unrealized | ||||||||||
| Fair Value | Cost | gains (losses) | ||||||||
| $ | $ | $ | ||||||||
| December 31, 2011 | - | - | - | |||||||
| December 31, 2010 – Balmoral Resources Ltd. | 5,805,000 | 5,175,000 | 630,000 | |||||||
| January 1, 2010 – Hawthorne Gold Corp. | 1,879,842 | 2,155,646 | (275,804 | ) |
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 onetime 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. On September 13, 2011, these shares were sold at $1.10 per share, resulting in a realized loss of $225,000. A commission of $49,510 was paid for the sale resulting in a total loss of $274,510.
- 18 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 6. | MINERAL PROPERTIES, PLANT AND EQUIPMENT |
| Exploration & | ||||||||||||
| Mineral | Property, Plant | Evaluation | ||||||||||
| Properties | and Equipment | Properties | TOTAL | |||||||||
| $ | $ | $ | $ | |||||||||
| Cost | ||||||||||||
| January 1, 2010 | - | 126,558 | 37,815,443 | 37,942,001 | ||||||||
| Addition: | - | 1,689,203 | 1,296,425 | 2,985,628 | ||||||||
| Property write down | - | - | (3,724,821 | ) | (3,724,821 | ) | ||||||
| Property disposal | - | - | (8,628,424 | ) | (8,628,424 | ) | ||||||
| Currency Adjustment | - | (45,959 | ) | (1,205,196 | ) | (1,251,155 | ) | |||||
| December 31, 2010 | - | 1,769,802 | 25,553,427 | 27,323,229 | ||||||||
| Addition | 5,385,292 | 22,583,802 | 2,065,491 | 30,034,585 | ||||||||
| Transfer | 28,045,493 | - | (28,045,493 | ) | - | |||||||
| Recapitalized depreciation | - | 164,552 | - | 164,552 | ||||||||
| Currency Adjustment | 753,792 | 426,575 | 1,180,367 | |||||||||
| December 31, 2011 | 33,430,785 | 25,271,948 | - | 58,702,733 | ||||||||
| Accumulated amortization | ||||||||||||
| January 1, 2010 | - | (112,056 | ) | - | (112,056 | ) | ||||||
| Depreciation | - | (8,110 | ) | - | (8,110 | ) | ||||||
| Currency Adjustment | - | (65 | ) | - | (65 | ) | ||||||
| December 31, 2010 | - | (120,231 | ) | - | (120,231 | ) | ||||||
| Depreciation | - | (169,112 | ) | - | (169,112 | ) | ||||||
| Currency Adjustment | - | 124 | - | 124 | ||||||||
| December 31, 2011 | - | (289,219 | ) | - | (289,219 | ) | ||||||
| Net book value | ||||||||||||
| January 1, 2010 | - | 14,502 | 37,815,443 | 37,829,945 | ||||||||
| December 31, 2010 | - | 1,649,571 | 25,553,427 | 27,202,998 | ||||||||
| December 31, 2011 | 33,430,785 | 24,982,729 | - | 58,413,514 |
- 19 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 6. | MINERAL PROPERTIES, PLANT AND EQUIPMENT(continued) |
Mineral Property–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. | |
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. The Corporation is required to pay to the Mining Contractor $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. | |
All required property payments were made with respect to the Copperstone project as of December 31, 2011, and all claims are in good standing until August 2012. Claim fees are renewed on an annual basis. | |
During the first quarter of 2011, the Copperstone project was reclassified to mineral property assets under development from exploration and evaluation assets as proven and probable reserves were determined to exist and the development of the project was approved by management. | |
Exploration and Evaluation assets | |
Canadian Mineral Interests | |
At September 30, 2010, the Corporation wrote down the carrying value of its Fenelon, Northway, Martiniere and Northshore properties by $3,547,892 due to the anticipated sale of these mineral properties to Balmoral. | |
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. | |
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 2012. Northern Canadian Minerals Inc. holds a 5% interest in the Gold Bar property subject to certain dilution provisions. |
- 20 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 6. | MINERAL PROPERTIES, PLANT AND EQUIPMENT(continued) |
Gold Bar(continued) | |
During the quarter ended December 31, 2010, the Corporation wrote off the carrying value of $176,929 as no exploration activity has occurred on this property in recent years. | |
Iskut Joint Venture | |
By agreement dated June 1, 1989 between Golden Band Resources Inc. (“Golden Band”), and Barrick Gold Corp., formerly Prime Resources Corp. (“Barrick”) and American Bonanza Gold Corp., formerly American Ore Ltd. (“American Bonanza”) formed a joint venture with mineral claims located next to the Snip mine in northern British Columbia. | |
American Bonanza had written down its interest down to zero value in previous years. | |
During March 2011, American Bonanza and Golden Band acquired Barrick’s Iskut Joint Venture interest with 47.5% to American Bonanza and 52.5% to Golden Band in return for acknowledging Barrick’s resignation as operator and discharged Barrick from all of its duties and obligations as the operator of the Iskut JV. No consideration was paid by American Bonanza and Golden Band to acquire the JV’s net assets, which included exploration property interests and no known liabilities were known to exist at the time of the acquisition. | |
In June 2011, the Corporation and its joint venture partner Golden Band signed a letter agreement to sell their JV interest to Skyline Gold Corporation. The general terms of the Skyline agreement require the payment of 5,000,000 common shares of Skyline and 2,500,000 warrants which are exercisable for a period of five years to be split proportionately between the Corporation (47.5%) and Golden Band (52.5%). One warrant can be converted into a common share of Skyline at a price of $0.50 per share. The sale was subject to negotiating the final terms of the agreement, meeting certain conditions specified in the letter of agreement and receiving approval from the regulatory authorities, which closed subsequent to December 31, 2011 (see note 15). | |
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 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. |
- 21 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 7. | RECLAMATION AND SITE RESTORATION |
The Corporation incurs reclamation and closure cost obligations relating to its operating and development projects. The present value of the obligation relating to Copperstone mine was $1,541,625 as at December 31, 2011 reflecting anticipated cash flows to be incurred over the next 7 years. Significant reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance and other costs. | |
The undiscounted value of these obligations is $1,708,625 (December 31, 2010 – $1,677,930, January 1, 2010 – $nil), calculated using an effective weighted inflation rate assumption of 3.43% (December 31, 2010 – nil, January 1, 2010 – nil). Accretion expense of $12,069 has been charged to earnings for the year ended December 31, 2011 (December 31, 2010 – $1,431) to reflect an increase in the carrying amount of the reclamation and closure costs obligation which has been determined using an effective weighted discount rate of 1.68% (2010 – 2.74%). Changes to the reclamation and closure cost obligation during the years ended December 31, are as follows: |
| 2011 | 2010 | ||||||
| $ | $ | ||||||
| Reclamation and closure costs – beginning of year | - | 40,621 | |||||
| Incurrence of obligations | 1,529,556 | - | |||||
| Accretion expense | 12,069 | 1,431 | |||||
| Reduction of obligations on dispositions of mining interests | - | (42,052 | ) | ||||
| Reclamation and closure costs obligations – end of year | 1,541,625 | - |
The Corporation was required to place a reclamation bond with the US Bureau of Land Management for $1,677,938 for the Copperstone project. In addition the Corporation has a $20,000 bond in place relating to its Canadian properties which is pending release as the properties had been sold in 2010.
- 22 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 8. | SHARE CAPITAL |
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. | |
Issued and outstanding | |
As at December 31, 2011, the Corporation had 198,549,355 common shares issued and outstanding (December 31, 2010 – 130,199,272 and January 1, 2010 – 118,245,889). | |
No Class A Preferred Shares have been issued. | |
On January 21, 2011, the Corporation closed a marketed public offering of units including those issued pursuant to the over-allotment option, which was exercised in full by Wellington West Capital Markets Inc. (the “Agent”) (the “Offering”). A total of 50 million units were sold, at a price of $0.35 per unit, for gross proceeds of $17.5 million. Each unit consists 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 warrants will not be listed for trading. 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. Share issue cost related to this financing totaled $1,794,787 including the fair value of Agent warrants estimated as $314,375 using the Black-Scholes pricing model. | |
On September 29, 2011, the Corporation closed a bought financing deal of 11,500,000 common shares issued at $0.53 per share for gross proceeds of $6,095,000 (“the Offering”). The Corporation paid a cash commission equal to 6% of the gross proceeds of the Offering and issued agent warrants to purchase that number of common shares of the Corporation equal to 6% of the Offering at a price of $0.61 per share, exercisable until March 29, 2013. An over-allotment option was exercised in full resulting in the issuance of an additional 1,725,000 shares at a price of $0.53 per share on October 27, 2011 for gross proceeds of $914,250. Share issue costs related to this financing totaled $820,085 including the fair value of Agent warrants estimated as $67,412 using the Black-Scholes pricing model. | |
During the year ended December 31, 2011, the Corporation issued 295,083 shares for gross proceeds of $107,084 from the exercise of share purchase warrants and 4,830,000 shares for gross proceeds of $592,050 from the exercise of stock options. | |
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. Stock options granted under this plan are subject to vesting terms based on the board of director’s discretion. Currently, all stock options issued and outstanding are vested completely at the date of issue. | |
As at December 31, 2011, the Corporation has stock options outstanding to acquire an aggregate of 18,005,000 common shares and are held by directors, officers, employees and consultants with a weighted average remaining contractual life of 3.51 years expiring between November 6, 2012 to September 2, 2016. |
- 23 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 8. | SHARE CAPITAL(continued) |
| Number of | Weighted average | ||||||
| Options | exercise price | ||||||
| $ | |||||||
| Outstanding, December 31, 2009 | 11,660,000 | 0.10 | |||||
| Exercised | (1,100,000 | ) | 0.12 | ||||
| Outstanding, December 31, 2010 | 10,560,000 | 0.10 | |||||
| Granted | 12,275,000 | 0.44 | |||||
| Exercised | (4,830,000 | ) | 0.12 | ||||
| Outstanding, December 31, 2011 | 18,005,000 | 0.33 | |||||
| Exercisable, December 31, 2011 | 18,005,000 | 0.33 |
The following table summarizes stock options outstanding and exercisable at December 31, 2011:
| Outstanding and Exercisable | |||||||
| Weighted average | |||||||
| remaining life | |||||||
| Exercise price | Amount outstanding | (years) | |||||
| $0.06 - $0.09 | 4,980,000 | 2.03 | |||||
| $0.19 - $0.22 | 1,250,000 | 1.04 | |||||
| $0.37 - $0.39 | 6,945,000 | 4.19 | |||||
| $0.53 | 4,830,000 | 4.68 | |||||
| 18,005,000 | 3.51 | ||||||
During the year ended December 31, 2011, under the fair value based method, $3,371,349 (2010 – $nil) in compensation expense was recorded for options granted to employees of which $3,113,349 was charged to operations and $258,000 was capitalized to mineral interests.
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:
| 2011 | 2010 | ||||||
| Risk free interest rate | 2.16% | - | |||||
| Expected dividend yield | - | - | |||||
| Stock price volatility | 75.6% | - | |||||
| Forfeiture rate | 0% | - | |||||
| Expected life of options | 5.0 years | - |
The risk free rate of return is the yield on a zero-coupon Canadian Treasury Bill of a term consistent with the assumed option life. The expected volatility is based on the Corporation’s historical prices. The expected average option term is the average expected period to exercise, based on the historical activity patterns for historical grants.
- 24 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 8. | SHARE CAPITAL(continued) |
Warrants
At December 31, 2011, the Corporation had 32,363,058 outstanding common share purchase warrants.
| Number of | Weighted average | ||||||
| Warrants | exercise price | ||||||
| $ | |||||||
| Balance, December 31, 2009 | - | - | |||||
| Granted | 4,004,441 | 0.23 | |||||
| Balance, December 31, 2010 | 4,004,441 | 0.23 | |||||
| Granted | 28,653,700 | 0.45 | |||||
| Exercised | (295,083 | ) | 0.36 | ||||
| Balance, December 31, 2011 | 32,363,058 | 0.42 |
The following table summarizes the warrants outstanding and exercisable at December 31, 2011:
| Outstanding and Exercisable | |||||||
| Weighted average | |||||||
| remaining life | |||||||
| Exercise price | Amount outstanding | (years) | |||||
| $0.23 | 3,887,608 | 0.63 | |||||
| $0.38 | 2,963,700 | 0.56 | |||||
| $0.45 | 24,821,750 | 0.56 | |||||
| $0.61 | 690,000 | 1.24 | |||||
| 32,363,058 | 0.58 | ||||||
The fair value of agent’s warrants used to calculate share issuance costs has been estimated using the Black-Scholes option pricing model using the following weighted average assumptions:
| 2011 | 2010 | ||||||
| Risk free interest rate | 1.57% | - | |||||
| Expected dividend yield | - | - | |||||
| Stock price volatility | 63.9% | - | |||||
| Forfeiture rate | 0% | - | |||||
| Expected life of options | 1.5 years | - |
- 25 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 9. | KEY MANAGEMENT PERSONNEL COMPENSATION |
Key management personnel include executive officers and directors of the Corporation. Compensation of the Corporation’s key management personnel is comprised of the following: |
| Year ended | |||||||
| Dec 31, 2011 | Dec 31, 2010 | ||||||
| $ | $ | ||||||
| Executive salaries and short-term benefits | 703,820 | 434,750 | |||||
| Share-based payments | 2,144,400 | - | |||||
| 2,848,220 | 434,750 | ||||||
| 10. | RELATED PARTY TRANSACTIONS |
The Corporation’s related parties consist of companies which have certain directors in common as follows: | |
The Corporation recovered under cost-sharing arrangements the following expenditures from companies which have certain directors in common: |
| Year ended | |||||||
| Dec 31, 2011 | Dec 31, 2010 | ||||||
| $ | $ | ||||||
| Management and consulting fees | 171,125 | 79,091 | |||||
| General and administration expenses | 15,375 | 133,409 | |||||
| 186,500 | 212,500 | ||||||
As of December 31, 2011, a receivable balance of $17,763 remained outstanding from its related parties.
- 26 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 11. | INCOME TAXES | |
| (a) | Effective tax rate: | |
The effective income tax rates differ from Canadian statutory rates for the following reasons in the years ended December 31, 2011 and 2010: | ||
| 2011 | 2010 | |||||
| $ | $ | |||||
| Combined federal and provincial tax rates at the expected rate of 26.5% (2010 – 29.9%) | (1,428,994 | ) | (1,869,793 | ) | ||
| Permanent differences | 825,037 | (146,482 | ) | |||
| Deferred tax assets not recognized | 1,152,954 | 195,376 | ||||
| Deferred tax recovery resulting from reduction in statutory rate and expiry of loss carry-forwards and other | (715,947 | ) | 1,820,899 | |||
| Tax-effect of unrealized gains recorded to other comprehensive income | 166,950 | (89,460 | ) | |||
| Recovery of income taxes | - | (89,460 | ) |
The income tax recovery for the years ending December 31, 2011 and 2010 are as follows:
| 2011 | 2010 | ||||||
| $ | $ | ||||||
| Current income tax recovery | - | - | |||||
| Deferred income tax liability | - | (89,460 | ) | ||||
| - | (89,460 | ) |
| (b) | Deferred income tax assets and liabilities |
| 2011 | 2010 | ||||||
| Deferred tax assets and liabilities have been recognized for the following: | $ | $ | |||||
| Office equipment | (88,910 | ) | - | ||||
| Marketable securities | - | (89,460 | ) | ||||
| Tax loss carry forwards | 88,910 | 89,460 | |||||
| Net deferred income tax liabilities | - | - | |||||
| Deferred tax assets have not been recognized with respect to the following: | |||||||
| Tax losses | 3,277,533 | 2,515,224 | |||||
| Resource properties | 2,653,327 | 3,313,422 | |||||
| Other deductible temporary differences | 1,118,386 | 67,648 | |||||
| 7,049,247 | 5,896,294 |
The Corporation has Canadian tax loss carry forwards of approximately $7.1 million and US tax loss carry forwards of approximately $3.5 million as at December 31, 2011. The non-capital losses can offset deferred income for tax purposes which expire between 2026 and 2031. In addition, the Corporation has approximately $16 million of resource pools and other future deductions in Canada and $29.4 million in the United States as at December 31, 2011, which can be utilized to be deducted against future resource profits.
- 27 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 12. | FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL |
The following tables summarize the designation and fair value hierarchy under which the Corporation’s financial instruments are valued. |
| 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). |
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. Reclamation bonds are held by US Bureau of Land Management and approximate their fair value.
HST receivable and mineral exploration tax credits receivable are excluded from financial instruments as they arise from statutory requirements imposed by the Government of Canada, the Province of British Columbia and the Province of Quebec, respectively.
The carrying amounts of marketable securities are equal to fair value, which is based on active market obtained from the closing stock price.
| Classification of financial instruments: | ||||||||||
| Financial assets | Dec 31, 2011 | Dec 31, 2010 | Jan 1, 2010 | |||||||
| Loans and receivables | ||||||||||
| Cash and cash equivalents | 1,822,511 | 3,104,650 | 957,923 | |||||||
| Amounts receivable – other | 27,499 | 2,629 | 6,756 | |||||||
| Reclamation bonds | 1,697,938 | 20,000 | 20,000 | |||||||
| Available for sale securities | ||||||||||
| Marketable securities | - | 5,805,000 | 1,879,842 | |||||||
| Total financial assets | 3,547,948 | 8,932,279 | 2,864,521 | |||||||
| Financial liabilities | ||||||||||
| Other-financial liabilities | ||||||||||
| Accounts payable and accrued liabilities | 4,849,905 | 1,079,376 | 687,940 | |||||||
| Total financial liabilities | 4,849,905 | 1,079,376 | 687,940 |
Fair value hierarchy of financial assets and liabilities measured at fair value:
The Corporation does not have any financial instruments included in Level 1, 2 and 3 other that marketable securities. The carrying amounts of marketable securities are equal to fair value, which is based on an active market obtained from the closing stock price and therefore are included in Level 1.
- 28 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 12. | FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL(continued)Contractual Obligations |
The following table sets forth the Corporation’s known contractual obligations as at December 31, 2011: |
| Payments due by period | ||||||||||||||||
| Less than | More than | |||||||||||||||
| Total | 1 year | 2-3 years | 4-5 years | 5 years | ||||||||||||
| Contractual Obligations | $ | $ | $ | $ | $ | |||||||||||
| Mineral Property Interests – Claim Fees | 690,000 | 115,000 | 230,000 | 230,000 | 115,000 | |||||||||||
| Office Lease | 318,000 | 53,000 | 106,000 | 106,000 | 53,000 | |||||||||||
| Total | 1,008,000 | 168,000 | 336,000 | 336,000 | 168,000 | |||||||||||
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. | |||
| ii) | Currency risk | ||
The Corporation is exposed to currency fluctuations in foreign currencies. The Corporation’s subsidiary has a US dollar functional currency and is not currently exposed to non-US dollar 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, 2011, a variance in foreign currency exchange rate of 10% would have an inconsequential impact on the Corporation’s financial statements. | |||
As of December 31, 2011, the Corporation held the following US$ financial instruments: | |||
| $ | |||
| Cash and cash equivalents | 32,536 | ||
| Accounts payable | - | ||
| (32,536 | ) | ||
| Effect of 10% variation on US exchange: | (3,253 | ) |
- 29 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 12. | FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL(continued) | |
| 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 at December 31, 2011, the Corporation had cash and cash equivalents of $1,822,511 and a working capital deficiency of $1,265,503. Subsequent to December 31, 2011, the Corporation completed a USD $6 million gold prepayment facility (note 15). With the Corporation currently transitioning from commissioning stage to commercial production, it may require additional financing to carry out its near-term operating plans and achieve the required profitability. The Corporation has, however, demonstrated its ability to raise funds when required, as evidenced by the successful closing of the gold prepayment facility noted previously. In addition, the Corporation now has evidence of its ability to produce saleable gold concentrates based on the preliminary operating statistics and sales information available subsequent to year end. 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 and operational 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.
- 30 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 13. | FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) | |
The Corporation adopted IFRS on January 1, 2011, with a transition date of January 1, 2010. Under IFRS 1First-time Adoption of International Financial Reporting Standards, IFRS is applied retrospectively at the transition date with all adjustments to assets and liabilities as stated under Canadian GAAP taken to retained earnings unless certain exemptions are applied. IFRS 1 provides for certain optional exemptions and certain mandatory exceptions for first time IFRS adopters. | ||
| (a) | IFRS exemption options | |
Set forth below are the IFRS 1 applicable exemptions and exceptions applied in the conversion from Canadian GAAP to IFRS: | ||
Share-based payments | ||
IFRS 1 permits the application of IFRS 2,Share Based Payments, only to equity instruments granted after November 7, 2002 that had not vested by the date of transition to IFRS. The Corporation has applied this exemption and applied IFRS 2 for equity instruments granted after November 7, 2002 that had not vested by January 1, 2010. | ||
Business combinations | ||
The Corporation has elected to apply IFRS 3,Business Combinations, prospectively to business combinations that occur after the date of transition. The Corporation has elected this exemption under IFRS 1, which removes the requirement to retrospectively restate all business combinations prior to the date of transition to IFRS. | ||
Site restoration costs | ||
The Corporation has elected to apply the IFRS 1 exemption whereby it has measured the site restoration costs at January 1, 2010 in accordance with the requirements in IAS 37,Provisions, estimated the amount that would have been in property, plant and equipment when the liabilities first arose, and discounted the transition date liability to that date using the best estimate of the historical risk-free discount rate. | ||
Cumulative translation differences | ||
The Corporation has elected to apply the IFRS 1 exemption whereby cumulative translation differences included in accumulated other comprehensive income are reset to zero at the transition date. | ||
| (b) | Correction of an error | |
| The December 31, 2010 comparative statement of cash flow has been amended to correct an error in the classification of investing cash flows for expenditures incurred on mineral properties, plant and equipment totaling $406,078 which had not been paid and were included in accounts payable as at December 31, 2010. This resulted in a classification amendment which increased cash flows from investing activities and reduced cash flows from operating activities by $406,078 compared to those previously presented. | ||
| (c) | Reconciliations | |
The adoption of IFRS has resulted in changes to the Corporation’s reported financial position and results of operations. The Corporation’s adoption of IFRS did not have a material impact on the total operating, investing or financing cash flows. In order to allow the users of the financial statements to better understand these changes, the financial statements previously presented under Canadian GAAP have been reconciled to IFRS. | ||
- 31 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 13. | FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) |
The January 1, 2010, Canadian GAAP Consolidated Balance Sheets have been reconciled to IFRS as follows: |
| Canadian GAAP | IFRS | IFRS | |||||||||||
| January 1, 2010 | Adjustments | January 1, 2010 | Notes | ||||||||||
| $ | $ | $ | |||||||||||
| ASSETS | |||||||||||||
| Current assets | 3,326,371 | - | 3,326,371 | ||||||||||
| Reclamation bond | 20,000 | - | 20,000 | ||||||||||
| Mineral properties, plant and equipment | 41,988,707 | (4,158,762 | ) | 37,829,945 | (i), (ii) | ||||||||
| 45,335,078 | (4,158,762 | ) | 41,176,316 | ||||||||||
| LIABILITIES AND | |||||||||||||
| SHAREHOLDERS' EQUITY | |||||||||||||
| Accounts payable and accrued liabilities | 687,940 | - | 687,940 | ||||||||||
| Asset retirement obligation | 36,352 | 4,269 | 40,621 | (i) | |||||||||
| 724,292 | 4,269 | 728,561 | |||||||||||
| SHAREHOLDERS' EQUITY | |||||||||||||
| Share capital | 59,977,063 | 673,556 | 60,650,619 | (iii) | |||||||||
| Other equity reserve | 6,396,978 | - | 6,396,978 | ||||||||||
| Accumulated other comprehensive loss | (242,322 | ) | (43,031 | ) | (285,353 | ) | (iv) | ||||||
| (ii), (iii), | |||||||||||||
| Deficit | (21,520,933 | ) | (4,793,556 | ) | (26,314,489 | ) | (iv) | ||||||
| 44,610,786 | (4,163,031 | ) | 40,447,755 | ||||||||||
| 45,335,078 | (4,158,762 | ) | 41,176,316 |
- 32 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 13. | FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) |
(continued) | |
The December 31, 2010, Canadian GAAP Consolidated Balance Sheets have been reconciled to IFRS as follows: |
| Canadian GAAP | IFRS | IFRS | |||||||||||
| December 31, 2010 | Adjustments | December 31, 2010 | Notes | ||||||||||
| $ | $ | $ | |||||||||||
| ASSETS | |||||||||||||
| Current assets | 9,058,850 | - | 9,058,850 | ||||||||||
| Deferred share issue costs | 181,726 | - | 181,726 | ||||||||||
| Reclamation bond | 20,000 | - | 20,000 | ||||||||||
| Mineral properties, plant and equipment | 32,322,749 | (5,119,751 | ) | 27,202,998 | (i), (ii) | ||||||||
| 41,583,325 | (5,119,751 | ) | 36,463,574 | ||||||||||
| LIABILITIES ANDSHAREHOLDERS' EQUITY | |||||||||||||
| Accounts payable and accrued liabilities | 1,079,376 | - | 1,079,376 | ||||||||||
| SHAREHOLDERS' EQUITY | |||||||||||||
| Share capital | 61,711,669 | 737,406 | 62,449,075 | (iii) | |||||||||
| Other equity reserve | 6,319,728 | - | 6,319,728 | ||||||||||
| Accumulated other comprehensive income (loss) | 583,571 | (1,489,659 | ) | (906,088 | ) | (iv) | |||||||
| (ii), (iii), | |||||||||||||
| Deficit | (28,111,019 | ) | (4,367,498 | ) | (32,478,517 | ) | (iv) | ||||||
| 40,503,949 | (5,119,751 | ) | 35,384,198 | ||||||||||
| 41,583,325 | (5,119,751 | ) | 36,463,574 |
- 33 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 13. | FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) |
(continued) | |
The Canadian GAAP consolidated statement of operation and comprehensive income (loss) for the year ended December 31, 2010, has been reconciled to IFRS as follows: |
| Canadian | IFRS | ||||||||||||
| GAAP | Adjustments | IFRS | Notes | ||||||||||
| $ | $ | $ | |||||||||||
| EXPENSES (INCOME) | |||||||||||||
| Management fees, consulting and salaries | 292,590 | - | 292,590 | ||||||||||
| Investor relations | 208,223 | - | 208,223 | ||||||||||
| Legal and accounting | 134,928 | - | 134,928 | ||||||||||
| Office and administration | 12,358 | - | 12,358 | ||||||||||
| Insurance | 40,488 | - | 40,488 | ||||||||||
| Exploration | 283,594 | - | 283,594 | ||||||||||
| Business development | 257,916 | - | 257,916 | ||||||||||
| Foreign exchange | 13,749 | - | 13,749 | ||||||||||
| Amortization | 8,110 | - | 8,110 | ||||||||||
| Interest and accretion of asset retirement obligation | 1,431 | - | 1,431 | ||||||||||
| Mineral property write down | 4,214,729 | (489,908 | ) | 3,724,821 | (ii) | ||||||||
| Loss on mineral property disposal | 70,355 | - | 70,355 | ||||||||||
| Loss on sale of marketable securities | 1,205,004 | - | 1,205,004 | ||||||||||
| Interest income | (79 | ) | - | (79 | ) | ||||||||
| LOSS BEFORE INCOME TAXES | (6,743,396 | ) | 489,908 | (6,253,488 | ) | ||||||||
| DEFERRED INCOME TAXES RECOVERY | 153,310 | (63,850 | ) | 89,460 | (iii) | ||||||||
| LOSS FOR THE YEAR | (6,590,086 | ) | 426,058 | (6,164,028 | ) | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | |||||||||||||
| Unrealized loss on available-for-sale marketable securities, net of tax | (379,111 | ) | - | (379,111 | ) | ||||||||
| Reclassification realise loss on marketable securities | 1,205,004 | - | 1,205,004 | ||||||||||
| Cumulative translation adjustments | - | (1,446,628 | ) | (1,446,628 | ) | (ii) | |||||||
| TOTAL OTHER COMPREHENSIVE INCOME ( LOSS) | 825,893 | (1,446,628 | ) | (620,735 | ) | ||||||||
| COMPREHENSIVE LOSS FOR THE YEAR | (5,764,193 | ) | (1,020,570 | ) | (6,784,763 | ) | |||||||
| LOSS PER COMMON SHARE | (0.05 | ) | - | (0.05 | ) | ||||||||
| WEIGHTED AVERAGE NUMBER OF SHARES | 122,765,013 | - | 122,765,013 |
- 34 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 13. | FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) | |
(continued) | ||
Notes to the IFRS reconciliations: | ||
| (i) | Asset retirement obligation | |
On transition to IFRS, the Corporation had an asset retirement obligation consisting of reclamation and closure costs for the Fenelon project based on the present value of obligations estimated to incur in the next eight years. The measurement of the obligation under Canadian GAAP at January 1, 2010, was $36,352, and was determined by applying to the nominal estimate of the obligation a discount rate of 5.25%, which was the risk-free interest rate for the term matching the expected time to expenditure. Under IFRS, the measurement of the obligation must be adjusted at each year-end for changes in the discount rate; such adjustments are not required under Canadian GAAP. Applying the risk-free interest rate of 2.74% at January 1, 2010 to the nominal estimate of the obligation, the present value measurement of the obligation was determined to be $40,621. | ||
| (ii) | Functional currency change | |
On transition to IFRS, there is a change in functional currency from Canadian dollar to the United States dollar for Bonanza Explorations Inc., the Corporation’s subsidiary. This results in adjustment to the carrying value of the subsidiary’s non-monetary assets as of the transition date. As the Corporation has elected to apply the IFRS 1 exemption for cumulative translation differences, the opening journal to adjust the carrying value of the subsidiary’s non-monetary assets is recorded to Deficit. Subsequent adjustments for the non-monetary assets are charged to cumulative translation adjustment (included in other comprehensive income). | ||
| (iii) | Flow-through shares | |
Under IFRS, there is no specific guidance regarding flow-through shares. Therefore, under the IFRS framework, the increase to share capital when flow-through shares are issued is measured based on the current market price of common shares. The incremental proceeds, or "premium", is recorded as an obligation to provide future tax deductions, similar to deferred revenue. When expenditures are incurred and when future renunciation of these expenditures is probable, a deferred tax liability and expense is recognized and the related provision is reversed to deferred tax expense. On transition to IFRS, the Corporation booked an adjustment to decrease the carrying amount of share capital originally recognised under Canadian GAAP to reflect the application of IFRS guidance to all flow-through share issuances made by the Corporation prior to the transition date net of any effect for the premium is recognized under IFRS. | ||
| (iv) | Cumulative translation differences | |
In 2007, the Corporation recorded a foreign currency translation gain of $43,031 in accumulated other comprehensive income. The translation gain has been retained in accumulated other comprehensive income since it was originally recognized. As the Corporation has elected to apply the IFRS 1 exemption for cumulative translation differences, the Corporation recorded an adjusting entry to reset cumulative translation differences to zero at the transition date. | ||
- 35 -
| American Bonanza Gold Corp. |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| (In Canadian Dollars) |
| Year ended December 31, 2011 and 2010 |
| 14. | COMMITMENTS AND CONTINGENCIES |
The Corporation is committed under lease agreements for the office premises in Reno in the amount of US$53,000 per year. | |
The Corporation’s lease obligation to The Patch Living Trust on the Copperstone mineral property is disclosed in note 6. | |
| 15. | SUBSEQUENT EVENTS |
On February 15, 2012, the Corporation completed a secured non-interest bearing gold prepayment facility with Resource Income Fund, L.P. ("RIF") whereby the Corporation will sell 3,936 ounces of gold for delivery during 2012, for gross proceeds of US$6,000,000 (the "Facility"). The Facility is a forward contract structured to deliver 3,936 ounces of gold over a 32 week term in the amount of 123 ounces per week starting on May 7, 2012 and ending on December 10, 2012. The 3,936 ounces of gold that have been committed under this gold facility represent approximately 1.5% of the proven mineral reserves at the Copperstone gold mine. The gold may be delivered to RIF on an earlier schedule with no penalty. In connection with the Facility, the Corporation will grant to RIF 4,000 ounces of gold call options, expiring on April 15, 2013 with a strike price of US$2,025 per ounce and 8,000 ounces of gold put options expiring June 30, 2012 with a strike price of $1,300 at a cost of US$120,000. An upfront fee of 3% was paid to RIF upon closing of the Facility. | |
On February 16, 2012, the sale of the Corporation’s interest in the Iskut Joint Venture was finalized. The Corporation received 2,375,000 shares and 1,187,500 warrants of Skyline Gold Corporation. One warrant can be converted into a common share of Skyline at a price of $0.50 per share. At the closing date, the shares were valued at $331,500. Terms of the agreement are disclosed in Note 6. | |
During March 2012, the Corporation announced it has placed onto transport its first shipment of gold bearing concentrates. | |
Subsequent to December 31, 2011, 1,645,000 warrants were exercised for proceeds of $635,250. |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A 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: September 10, 2012
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