BUFFALO GOLD LTD.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
(Unaudited, Prepared by Management)
September 30, 2008
2400- 1111 West Georgia Street
Vancouver, BC, Canada V6E 4M4
Phone: 604.685.5492 Fax: 604.685.2536
www.buffalogold.ca
NOTICE TO READER
These unaudited consolidated financial statements for the third financial quarter ended September 30, 2008 have not been reviewed by our auditors, Davidson & Company LLP, Chartered Accountants. They have been prepared by Buffalo Gold Ltd.’s management in accordance with accounting principles generally accepted in Canada, consistent with previous quarters and years except for the adoption of new accounting policies as described in note 3. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2007.
BUFFALO GOLD LTD.
Consolidated Statements of Operations
(Expressed in Canadian dollars)
(Unaudited, Prepared by Management)
Continuance of operations(note 2)
On behalf of the board of directors |
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“Brian McEwen” |
| “James Stewart” |
|
Brian McEwen | Director | James Stewart | Director |
The accompanying notes are an integral part of these consolidated financial statements..
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BUFFALO GOLD LTD.
Consolidated Statements of Operations
(Expressed in Canadian dollars)
(Unaudited, Prepared by Management)
The accompanying notes are an integral part of these financial statements.
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BUFFALO GOLD LTD.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
(Unaudited, Prepared by Management)
The accompanying notes are an integral part of these consolidated financial statements.
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BUFFALO GOLD LTD.
Consolidated Statements of Shareholders’ Equity
(Expressed in Canadian dollars)
(Unaudited, Prepared by Management)
The accompanying notes are an integral part of these financial statements.
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
1.
BASIS OF PRESENTATION
These consolidated financial statements include the accounts of Buffalo Gold Ltd. and all of its subsidiaries and investments. Buffalo Gold Ltd. and its subsidiaries are collectively referred to as the “Company”. The principal subsidiaries and investments of the Company and their geographic locations at September 30, 2008 are listed below:
Entity |
| Location |
| Ownership Interest |
| Status |
Sardinia Gold Mines SPA (“SGM”) |
| Italy |
| 100% |
| Consolidated |
SGM Ricerche SPA (“SGM Ricerche”) |
| Italy |
| 100% |
| Consolidated |
Buffalo Gold Minerals Inc. |
| Canada |
| 100% |
| Consolidated |
Buffalo PNG Ltd. (“Buffalo PNG”) |
| Papua New Guinea |
| 100% |
| Consolidated |
Madison Enterprises (PNG) Ltd. (“Madison PNG”) |
| Papua New |
| 60% |
| Consolidated |
Gold FX Limited (“Gold FX”) |
| Australia |
| 100% |
| Consolidated |
Canon Investments Pty Ltd. (“Canon”) |
| Australia |
| 100% |
| Consolidated |
Bondi Mining Limited (“Bondi”) |
| Australia |
| 42% |
| Equity investment |
AMI Resources Inc. (“AMI”) |
| Canada |
| 22% |
| Equity investment |
Buffalo Gold Ltd. is an Alberta Corporation engaged in the business of the acquisition, exploration, development of mineral properties, with the primary aim of developing properties to a stage where they can be exploited for a profit. The Company adds value by investing in strategic companies and developing assets through exploration moving towards the overall strategy of becoming a mid-tier gold producer. The Company’s shares are listed on the TSX Venture Exchange (the “Exchange”) and, accordingly, the Company is subject to restrictions on share issuances and certain types of payments as set out in Exchange policies. The Company’s shares are also listed on the Over the Counter market (“OTC”) in the United States and the Frankfurt Stock Exchange in Germany.
2.
CONTINUANCE OF OPERATIONS
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) on the ongoing assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than through a process of forced liquidation. The Company has a history of operating losses and it had working capital deficiency of $3,596,912 at September 30, 2008 (December 31, 2007 – $2,121,615). The Company intends to undertake exploration and development programs that will require the Company to raise further funds or sell assets. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The operations of the Company have been primarily funded by the issuance of share capital and debt. Continued operation of the Company is dependent on the Company's ability to complete additional equity financings or generate profitable operations in the future. Such financings may not be available or may not be available on reasonable terms.
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
3.
ADOPTION OF ACCOUNTING POLICIES
Accounting policies to be implemented effective January 1, 2008
The Company has adopted new Canadian Institute of Chartered Accountants (“CICA”) Handbook sections:
Sections 3862, Financial Instruments – Disclosureand3863,Financial Instruments – Presentation, replace Section 3861,Financial Instruments – Disclosure and Presentation. These new sections incorporate many of the disclosure requirements in the previous section, but place an increased emphasis on disclosure about risk, including both qualitative and quantitative information about the risk exposures arising from financial instruments.
An updated Section 1400,General Standards on Financial Statement Presentation, which includes requirements to assess and disclose a company’s ability to continue as a going concern.
Section 1535,Capital Disclosures establishes disclosure requirements about the Company’s objectives, policies and processes for managing capital, as well as quantitative information about the capital.
Section 3031,Inventories, which replaces the previous Section 3030, establishes standards for the measurement and disclosure of inventories. The new standard provides more extensive guidance on the determination of cost, including allocation of overhead, requires impairment testing and expands the disclosure requirements.
Adoption of these accounting standards will not have a material effect on the Company’s financial statements.
Accounting policies to be implemented effective January 1, 2009
In February 2008, the CICA issued Section 3064,Goodwill and Intangible Assets, which replaces Section 3062,Goodwill and Other Intangible Assets and Section 3450,Research and Development Costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The new Section will be applicable to the Company’s financial statements for its fiscal year beginning January 1, 2009. The Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.
International Financial Reporting Standards (“IFRS”)
In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five-year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing Canada’s own GAAP and the date for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ended December 31, 2010. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
4.
MARKETABLE SECURITIES
At September 30, 2008, the Company held the following available-for-sale securities:
|
| Cost | Market Value |
Solomon Gold plc | Common shares | $ 318,999 | $ 22,077 |
Gold Aura | Common shares | 390,628 | 85,491 |
|
| $ 709,627 | $ 107,568 |
At December 31, 2007, the Company held the following available-for-sale securities:
|
| Cost | Market Value |
Solomon Gold plc | Common shares | $ 318,999 | $ 160,524 |
AMI Resources Inc. | Common shares | 670,782 | 361,375 |
Gold Aura Limited | Common shares | 390,628 | 286,396 |
|
| $1,380,409 | $ 808,295 |
5.
INVENTORIES
| September 30 2008 | December 31 2007 | ||
|
|
|
|
|
Gold doré bars | $ | 29,756 | $ | 77,945 |
Work in progress |
| 890,557 |
| 505,553 |
Materials and supplies |
| 512,402 |
| 415,609 |
| $ | 1,432,715 | $ | 999,107 |
6.
PROPERTY, PLANT AND EQUIPMENT
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
7.
EQUITY INVESTMENTS
Kinbauri Gold Corp.
|
|
|
Balance, December 31, 2007 | $ | 4,465,152 |
Equity in loss for the period |
| (665,794) |
Sale of shares |
| (815,167) |
Transfer to marketable securities |
| (2,984,191) |
Balance, September 30, 2008 | $ | - |
At December 31, 2007, the Company held 26% of the issued common shares of Kinbauri. In the nine months ended September 30, 2008, the Company sold 2,400,000 shares of Kinbauri for net proceeds of $1,382,640. At February 28, 2008 the Company shareholding in Kinbauri fell below 20% and Kinbauri ceased to be an equity investee.
Bondi Mining Ltd.
|
|
|
Balance, December 31, 2007 | $ | 8,615,362 |
Equity in loss for the period |
| (822,048) |
Impairment |
| (7,043,314) |
Balance, September 30, 2008 | $ | 750,000 |
At September 30, 2008 Company held 42% of the issued common shares of Bondi. The Company wrote down the value of its investment in Bondi at September 30, 2008 considering factors such as, but not limited to, current equity market conditions and the outlook for uranium prices.
AMI Resources Inc.
|
|
|
Balance, December 31, 2007 | $ | - |
Purchase of shares and warrants |
| 2,868,000 |
Equity in loss for the period |
| (239,712) |
Impairment |
| (2,488,188) |
Balance, September 30, 2008 | $ | 140,100 |
In May 2007, the Company acquired 1,445,500 shares of AMI, a publicly traded company, at a cost of $670,782. Longview Capital Partners Incorporated (“Longview Incorporated”), a company with an officer and a director in common with the Company, is a significant shareholder of AMI.
In January 2008, the Company acquired 5,724,500 common shares of AMI at a price of $0.40 per share in a private transaction with Longview Incorporated. As a result of this transaction, the Company owned 7,170,000 common shares at September 30, 2008, representing approximately 22% of AMI’s issued and outstanding share capital.
The Company wrote down its investment in AMI considering primarily the proceeds received on the subsequent sale of this investment.
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
8.
EXPLORATION PROPERTIES
The carrying values of the Company’s exploration properties were:
The Company incurred exploration expenses as follows:
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
8.
EXPLORATION PROPERTIES (CONTINUED)
The Company’s exploration expenditures (recoveries) by property were:
The Company sold its interest in all uranium properties in 2007 but received invoices for work performed on those properties in the current period.
Mt. Kare
In April 2008, the Company gave notice to Madison Minerals Inc. (“Madison”) that the Company wishes to implement a joint venture at the Mt. Kare project in Papua New Guinea following a 90-day notice period. At June 30, 2008, Company had a 60% interest in the Mt. Kare project and Madison held the remaining 40%. Madison and the Company collectively hold a 10% interest in trust for the local landowners, which is included in their interests. The Company and Madison will have to contribute on a pro rata basis to the project costs or their ownership interests will be diluted. Madison has indicated that it will not be contributing to the joint venture and will be subject to dilution.
Subsequent to quarter-end, the Company signed a memorandum of understanding (“MOU”) with China Railway Resources Co. Ltd. (“CRRC”). On completion of the transaction contemplated by the MOU, the joint venture agreement would be replaced with a new agreement (note 15).
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
9.
DEVELOPMENT PROPERTY
Furtei
The Company acquired a 90% interest in the Furtei Mine, located in Sardinia, Italy, through its acquisition of Sargold Resource Corp in 2007. The Sardinian operations have lost money since their acquisition by the Company and the Company’s principal Sardinian subsidiary, SGM, is insolvent. The Company plans to close its Sardinian operations at the end of November 2008 and has accordingly written down the Furtei Mine to $nil.
The carrying value of the Company’s development property is:
Nine months ended |
| Beginning |
| Acquired |
| Additions |
| Write-off |
| Ending |
|
|
|
|
|
|
|
|
|
|
|
Furtei | $ | 47,468,294 | $ | - | $ | 5,176,039 | $ | 52,644,333 | $ | - |
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From December 31, 2007 to September 30, 2008, the Company incurred costs of $8,571,277 on mine operations and generated revenue of $3,395,238. The Company capitalized the net amount of $5,176,039 to the carrying value of the mine.
10.
SHARE CAPITAL
The authorized share capital comprises an unlimited number of common shares without par value. At September 30, 2008, 107,177,732 common shares were issued and outstanding (December 31, 2007 – 97,793,619 common shares).
In January 2008, the Company completed the second tranche of a brokered private placement of 9,104,001 units at a price of $0.45 per unit to generate gross proceeds of $4,096,800 of which $211,500 was received in 2007. Each unit comprises one common share and a half-warrant with each full warrant exercisable to purchase a common share at $0.75 for a period of two years. The Company incurred cash offering costs of $474,078. In addition, the Company issued 1,114,711 broker warrants.
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
11.
STOCK OPTIONS
The Company has an incentive stock option plan (the “Plan”) to grant options to directors, officers, employees and consultants of the Company. The maximum number of shares reserved for issuance under the Plan may not exceed 10% of the issued share capital of the Company. Under the Plan, the exercise price of each option may not be less than the market price of the Company’s shares at the date of grant. Options granted under the Plan have a term not to exceed five years and vesting provisions are determined by the board of directors.
The change in stock options outstanding is as follows:
| September 30, 2008 |
| September 30, 2007 | ||
| Stock Options Outstanding | Weighted Average Exercise Price US$ |
| Stock Options Outstanding | Weighted Average Exercise Price US$ |
|
|
|
|
|
|
Balance, January 1 | 6,977,072 | 0.75 |
| 3,698,500 | 1.14 |
|
|
|
|
|
|
Granted | - | - |
| - | - |
Exercised | - | - |
| (275,000) | 0.35 |
Expired or forfeited | (549,500) | 0.95 |
| - | - |
Balance, September 30 | 6,427,572 | 0.73 |
| 3,423,500 | 1.20 |
12.
WARRANTS
At September 30, 2008, the following share purchase warrants were outstanding:
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
12.
WARRANTS (CONTINUED)
The change in share purchase warrants outstanding is as follows (where applicable, Canadian dollar denominated amounts have been converted to US dollars at prevailing exchange rates):
13.
RELATED PARTY TRANSACTIONS
The Company incurred the following expenses with officers, a former officer, directors, a former director, companies and a law firm in which officers or directors of the Company, or their spouses, hold an interest:
Included in accounts payable at September 30, 2008 is $56,415 (December 31, 2007 - $249,675) due to officers, directors and consulting companies in which officers or directors hold an interest.
These transactions were in the normal course of operations and were measured at the exchange value which represented the amount of consideration established and agreed to by the related parties.
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BUFFALO GOLD LTD.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the Nine Months Ended September 30, 2008
(Unaudited, Prepared by Management)
14.
CAPITAL MANAGEMENT
The Company considers that its capital comprises shareholders' equity and long-term liabilities. The Company's objectives in managing capital are to ensure that it has sufficient funds to support the development of a gold exploration and mining company and maintain creditor confidence; and to safeguard the Company’s ability to obtain financing when the need arises.
The Company does not have any externally or internally imposed capital requirements. In maintaining its capital, the Company has a strict investment policy which includes investing surplus cash only in highly liquid, highly rated financial instruments. The Company regularly reviews its capital management approach. There were no changes in the Company’s approach to capital management during the period.
15.
SUBSEQUENT EVENTS
a)
In October 2008, the Company signed a MOU with CRRC, a wholly owned subsidiary of China Railway Group Limited (“CREC”) to invest in the Company and to finance the Mt. Kare project in Papua New Guinea and earlier stage projects in Australia. The MOU is contingent on CRRC completing due diligence on the Company and its assets, on the Papua New Guinea government approving renewal of the Mt. Kare exploration license 1093 and receiving all approvals, including approval from the TSX Venture Exchange.
b)
In November 2008, the Company disposed of its equity investment in AMI for net proceeds of approximately $140,000.
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