The following management’s discussion and analysis (“MD&A”) and financial review, prepared as of May 9, 2013, should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements and related notes for the three months ended March 31, 2013 and 2012 and the audited annual consolidated financial statements and related notes for the year ended December 31, 2012. These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standard 34 Interim Financial Reporting and do not include all the disclosures required for full annual financial statements in accordance with International Accounting Standards (“IFRS”) as issued by the International Accounting Standards Board. The accounting policies and methods of computation applied in these interim financial statements are consistent with those applied in the Company’s audited annual consolidated financial statements for the year ended December 31, 2012. Except as otherwise disclosed, all dollar figures in this report are stated in Canadian dollars. Additional information relevant to the Company can be found on the SEDAR website at www.sedar.com.
Forward Looking Statements
Certain of the statements made and information contained herein are “forward-looking information” within the meaning of the Ontario Securities Act or “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 of the United States. Forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation, risks and uncertainties relating to foreign currency fluctuations; risks inherent in mining including environmental hazards, industrial accidents, unusual or unexpected geological formations, risks associated with the estimation of mineral resources and reserves and the geology, grade and continuity of mineral deposits; the possibility that future exploration, development or mining results will not be consistent with the Company’s expectations; the potential for and effects of labour disputes or other unanticipated difficulties with or shortages of labour; the inherent uncertainty of future production and cost estimates and the potential for unexpected costs and expenses, commodity price fluctuations; uncertain political and economic environments; changes in laws or policies, foreign taxation, delays or the inability to obtain necessary governmental permits; and other risks and uncertainties, including those described under Risk Factors Relating to the Company’s Business in the Company’s Annual Information Form and in each MD&A. Forward-looking information is in addition based on various assumptions including, without limitation, the expectations and beliefs of management, that the Company can access financing, appropriate equipment and sufficient labour. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements.
Overview
Kobex Minerals Inc. (the “Company”) is a Canadian company listed on the TSX Venture Exchange (KXM.V) and the NYSE Market Exchange (KXM). The Company is a natural resource company engaged in the business of acquisition, exploration and development of mineral properties. At present, the Company has no producing properties and consequently has no current operating income or cash flows. The Company is entirely dependent on the equity market for its source of funds. There is no assurance that a commercially viable mineral deposit exists on any of the properties. Further evaluation and exploration will be required before the economic viability of any of the properties is determined.
As at March 31, 2013, the Company had $35,786,635 (December 31, 2012 - $36,071,952) in working capital with no long-term debt. The Company believes that it has sufficient funds to finance its operations for the next twelve months and also to allow the Company to pursue acquisition opportunities.
Strategy and Outlook
The Company continues to explore for mineral resources on its properties and seeks to identify, acquire, and develop other deposits which have the potential to be world class, in the lower cost quartile and in an acceptable risk environment. Over the course of the last year, the Company noticed a steady improvement in the quality of opportunities presented to it as well as more subdued expectations of vendors.
The Company’s activities to support its acquisition strategy were concentrated on mineral commodities that have a large liquid market. The method to evaluate opportunities involves a disciplined and staged process considering i) the technical and economic potential of the property such as established resources, competitive costs and exploration potential, ii) the terms to a transaction, and iii) the business risk given the location of the potential acquisition. If an opportunity meets these conditions after an initial desktop evaluation, the Company proceeds with property visits and more thorough technical, legal and commercial due diligence activities.
During the three months ended March 31, 2013 the Company reviewed over 20 opportunities brought to its attention by vendors or intermediaries. The opportunities reviewed represented a range of commodities including gold, gold-silver, copper, base metal-precious metal polymetallic, nickel, tin, tungsten, manganese and iron ore. Geographically, the opportunities reviewed were located in favourable jurisdictions in North and South America, Asia including South-East Asia, Eastern Europe and Africa. From the reviews, it was concluded that three properties had sufficient merit for property visits to carry out further technical, legal, commercial and business risk due diligence.
The junior exploration sector continues to experience difficult times following the decline of close to 50% in the TSX Venture Composite Index in 2012 by further falls in 2013 to date. Declining equity prices have made it difficult for junior and intermediate companies to finance their activities as is evidenced by the growing use of royalty and income-streaming companies to provide financing. The minerals industry, particularly its junior sector, remains stressed and the Company believes it is in a period that is advantageous to Companies with a strong cash balance, such as Kobex, to acquire mineral properties on favourable terms relative to their development potential.
As at May 9, 2013, the Company has cash and investments of approximately $35 million and is well funded to take advantage of mineral opportunities which are being brought to its attention in the prevailing business environment.
Mineral Properties
The Company currently has two properties in its portfolio, the Mel property and the Barb property. Mr. Leo King, P. Geo, consultant, and qualified person under the meaning of National Instrument NI 43-101, reviewed and approved the technical information relating to these two properties in the Mineral Properties section of this MD&A. These properties do not have a carrying value on the Company’s unaudited condensed consolidated interim financial statements.
Mel Property, Yukon
The Company has an undivided 100% interest in the Mel Property situated in the Watson Lake Mining District, Yukon Territory. The Company has agreed to pay a royalty of 1% of any Net Smelter Returns from the property to Breakwater Resources Ltd. The Mel Property currently consists of 257 mineral claims.
Four sediment-hosted, zinc-rich zones have been identified on the Mel Property; the Main Mel, Jeri, Jeri North and Mel East Zones. Mineralization on the Main Mel Zone and the showings on the south end of the Jeri and Mel East Zones occur within a stratigraphic zone resting upon a cryptograined limestone unit overlain by a distinctive argillite unit. The argillite unit grades upwards into wavy banded argillaceous limestone. Mineralization at the Main Mel Zone consists of coarse-grained sphalerite and galena disseminated throughout a mixture of mudstone, silica carbonate and coarse crystalline barite. Minor amounts of fine grained, sparsely disseminated pyrite occur locally. As previously disclosed, the Main Mel Zone was the focus of a 48-hole program that resulted in an Indicated Mineral Resource of 6.78 million tonnes of 7.1% zinc, 2.03% lead and 54.69% barite. The Main Mel Zone is open down dip with potential to host a larger zinc-lead resource.
At the Jeri North Zone, the same stratigraphic interval hosting the Main Mel Zone contains zinc mineralization in a massive chert overlain by a volcanic flow and volcaniclastic sequence. Significant mineralization has also been intersected in several holes drilled on the Jeri Zone. Strong alteration of the footwall carbonate to zinc-bearing hydrothermal dolomite and silicified dolomite has been exposed along the middle syncline fold limb for several kilometres. Sampling on the Jeri Zone has yielded up to 16% zinc over 5 metres. Similar style zinc mineralization has been found at the Mel East Zone.
The Company carried out an exploration program in 2012 which included a follow-up geochemical soil sampling program and a resampling program of drill core from the Main Mel zone. Results of the 2012 soil sampling program confirm the presence of elevated zinc in soils within the N-S trending Jeri North Zone as previously identified in the original 1996 soil survey. Lead values are typically low. The 2012 soil sampling extended two of the previously identified anomalous zinc zones and increased the resolution of all four zones within the area covered by the soil geochemical survey.
A total of 107 samples from previously sampled core were selected for re-sampling. The samples that represented half of the remaining core were assayed for zinc, lead and barium. Quality control measures included inserting standards, duplicates and blanks into the sample stream. The zinc and lead values were generally repeatable within acceptable limits when compared to historic sample results. About 70% of the barium analyses were lower when compared to previous results.
The Company continues to review its strategy on the Mel property and as part of this review is considering what activities would be included in a next phase of property exploration and evaluation. A future drilling program would test the southern portion of the Jeri Zone where zinc-bearing, silicified dolomite has been exposed by surface trenching and tested by previous limited drilling. Similar style mineralization is present at the Mel East Zone where anomalous lead-zinc soil geochemistry and IP anomalies have defined a drill target.
Drilling to test the deeper potential of the Main Mel Zone would also be a component of future exploration programs
Barb Property, Yukon
The Barb property is located in the Watson Lake Mining District in Southeast Yukon, approximately 100 kilometres north of the town of Watson Lake. The wholly-owned property consists of 21 mineral claims.
The geological setting within the property is prospective for hosting large, massive sulphide deposits.
The property is underlain by Devonian/Mississippian phyllitic rocks that form the western limb of a north-northwest trending syncline. The phyllitic rocks form two conformable units; a dark green to black phyllite overlies a light grey, fine-grained unit. An extensive quartz-sericite schist unit, locally sulphide-bearing and of possible volcanic origin, occurs within phyllitic rocks at the Money Zone.
Historic work on the property includes four diamond drill holes, geochemical and geophysical surveys. Base metal mineralization at the Money Zone has been identified on the property. A preliminary drill test of the Money Zone consisting of four holes was completed in 1991 with one hole intersecting 0.5 metres assaying 5.87% zinc and 1.82% lead.
In September 1998, an airborne electromagnetic and magnetic geophysical survey was flown over the property. Several anomalous features considered to represent moderate to high priority targets were outlined as a result of the survey. A high priority geophysical target is located immediately to the west and parallel to the Money zone and is co-incident with an IP anomaly previously identified but not drill tested. Drill testing the geophysical target would be considered as part of a future exploration program.
The geological setting within the property is prospective for hosting large, massive sulphide deposits. A drill program to test the high priority geophysical target is warranted.
Selected Quarterly Financial Information and First Quarter Discussion
The following selected financial information is derived from the unaudited condensed consolidated interim financial statements of the Company. All amounts are expressed in Canadian dollars, except the numbers of shares.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Mar 31 | | | Dec 31 | | | Sep 30 | | | Jun 30 | | | Mar 31 | | | Dec 31 | | | Sep 30 | | | Jun 30 | |
| | | 2013 | | | 2012 | | | 2012 | | | 2012 | | | 2012 | | | 2011 | | | 2011 | | | 2011 | |
| Current assets | | $ | 36,058,718 | | | $ | 36,298,420 | | | $ | 36,683,930 | | | $ | 37,024,429 | | | $ | 37,589,915 | | | $ | 38,323,600 | | | $ | 39,455,995 | | | $ | 39,469,944 | |
| Leasehold improvements | | | - | | | | - | | | | 885 | | | | 1,785 | | | | 2,685 | | | | 3,585 | | | | 7,615 | | | | 8,034 | |
| Total assets | | | 36,058,718 | | | | 36,298,420 | | | | 36,684,815 | | | | 37,026,214 | | | | 37,592,600 | | | | 38,327,185 | | | | 39,463,610 | | | | 39,477,978 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | | 272,083 | | | | 226,468 | | | | 262,347 | | | | 218,124 | | | | 189,277 | | | | 204,557 | | | | 202,391 | | | | 207,603 | |
| Equity | | | 35,786,635 | | | | 36,071,952 | | | | 36,422,468 | | | | 36,808,090 | | | | 37,403,323 | | | | 38,122,628 | | | | 39,261,219 | | | | 39,270,375 | |
| Total liabilities and shareholders' equity | | | 36,058,718 | | | | 36,684,815 | | | | 36,684,815 | | | | 37,026,214 | | | | 37,592,600 | | | | 38,327,185 | | | | 39,463,610 | | | | 39,477,978 | |
| | |
| Working capital | | | 35,786,635 | | | | 36,071,952 | | | | 36,421,583 | | | | 36,806,305 | | | | 37,400,638 | | | | 38,119,043 | | | | 39,253,604 | | | | 39,262,341 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consulting | | | 57,923 | | | | 35,463 | | | | 43,867 | | | | 47,959 | | | | 73,803 | | | | 28,546 | | | | 30,210 | | | | 35,881 | |
| Corporate development and investor relations | | | 200 | | | | 200 | | | | 635 | | | | 17,450 | | | | 106 | | | | 108 | | | | 4,830 | | | | 3,443 | |
| Amortization | | | - | | | | 885 | | | | 900 | | | | 900 | | | | 900 | | | | 951 | | | | 950 | | | | 950 | |
| Exploration and evaluation | | | 9,792 | | | | 22,697 | | | | 58,651 | | | | 63,165 | | | | 47,409 | | | | 17,901 | | | | 8,029 | | | | 11,018 | |
| Property evaluation | | | 31,226 | | | | 74,637 | | | | 90,527 | | | | 37,744 | | | | 23,392 | | | | 12,731 | | | | 65,127 | | | | 61,316 | |
| Office and sundry | | | 36,454 | | | | 36,626 | | | | 36,570 | | | | 40,304 | | | | 36,745 | | | | 44,678 | | | | 41,355 | | | | 58,007 | |
| Professional fees | | | 41,973 | | | | 36,766 | | | | 16,534 | | | | 44,069 | | | | 25,658 | | | | 39,552 | | | | 23,183 | | | | 38,647 | |
| Rent | | | 48,331 | | | | 57,512 | | | | 55,583 | | | | 55,579 | | | | 55,413 | | | | 57,586 | | | | 57,299 | | | | 59,699 | |
| Salaries and employee benefits | | | 124,560 | | | | 165,421 | | | | 173,196 | | | | 196,089 | | | | 193,979 | | | | 421,111 | | | | 237,922 | | | | 248,359 | |
| Transfer agent and regulatory fees | | | 13,386 | | | | 14,452 | | | | 14,292 | | | | 13,142 | | | | 19,612 | | | | 11,841 | | | | 15,910 | | | | 13,269 | |
| Travel and accommodation | | | - | | | | 5,051 | | | | - | | | | 1,002 | | | | 2,292 | | | | - | | | | 3,492 | | | | 3,461 | |
| Loss before undernoted items | | | (363,845 | ) | | | (449,710 | ) | | | (490,755 | ) | | | (517,403 | ) | | | (479,309 | ) | | | (635,005 | ) | | | (488,308 | ) | | | (534,050 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other items | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign exchange income (loss) | | | (390 | ) | | | (57 | ) | | | (143 | ) | | | (212 | ) | | | (291 | ) | | | (827 | ) | | | 139,088 | | | | (15,295 | ) |
| Interest income | | | 120,457 | | | | 128,451 | | | | 130,276 | | | | 130,715 | | | | 122,387 | | | | 130,156 | | | | 129,477 | | | | 120,162 | |
| Impairment of marketable securities | | | (8,300 | ) | | | (29,200 | ) | | | (25,000 | ) | | | (208,333 | ) | | | (375,120 | ) | | | (666,667 | ) | | | - | | | | - | |
| Loss before income tax | | | (252,078 | ) | | | (350,516 | ) | | | (385,622 | ) | | | (595,233 | ) | | | (732,333 | ) | | | (1,172,343 | ) | | | (219,743 | ) | | | (429,183 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income tax (expense) | | | - | | | | - | | | | - | | | | - | | | | - | | | | (54,596 | ) | | | - | | | | - | |
| Loss for the period | | | (252,078 | ) | | | (350,516 | ) | | | (385,622 | ) | | | (595,233 | ) | | | (732,333 | ) | | | (1,226,939 | ) | | | (219,743 | ) | | | (429,183 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in fair value of available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| marketable securities | | | - | | | | - | | | | - | | | | - | | | | - | | | | (165,932 | ) | | | (458,768 | ) | | | (600 | ) |
| Net change in fair value of available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| financial assets | | | - | | | | - | | | | - | | | | - | | | | - | | | | 666,667 | | | | - | | | | - | |
Income tax on change in fair value of available-for-sale securities | | | - | | | | - | | | | - | | | | - | | | | - | | | | 54,596 | | | | - | | | | - | |
| Comprehensive loss for the period | | $ | (252,078 | ) | | $ | (350,516 | ) | | $ | (385,622 | ) | | $ | (595,233 | ) | | $ | (732,333 | ) | | $ | (671,608 | ) | | $ | (678,511 | ) | | $ | (429,783 | ) |
| | |
| Basic and diluted loss per common share | | | (0.01 | ) | | | 0.00 | | | | (0.01 | ) | | | (0.01 | ) | | | (0.02 | ) | | | (0.02 | ) | | | (0.01 | ) | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding | | | 46,082,413 | | | | 46,082,413 | | | | 46,082,413 | | | | 46,082,413 | | | | 46,072,419 | | | | 46,057,832 | | | | 46,057,832 | | | | 46,057,832 | |
Results of Operations – Three months ended March 31, 2013
For the three months ended March 31, 2013, the Company reported a loss of $252,078 ($0.01 per share), a decrease of $480,255 from the loss of $732,333 ($0.02 per share) for the three months ended March 31, 2012. The decrease is a result of the following items:
| (i) | Due to the continuous decline in the stock market value of its investment in Blue Sky Uranium Corp. shares, the Company recorded an impairment of the value of its marketable securities in the first quarter of 2013 of $8,300; a reduction of $366,820 when compared with the impairment of $375,120 in the first quarter of 2012. As at March 31, 2013, the quoted market value of the Blue Sky shares was $62,500 (December 31, 2012 - $70,800). |
| (ii) | Share-based compensation fell in the three months ended March 31, 2013 by $33,329. The current quarter expense was $228 ($nil – three months ended March 31, 2012) as a result of the vesting of 133,332 share options out of the 400,000 share options granted on March 13, 2013. However, that was more than offset in the three months ended March 31, 2013, by an adjustment made to reduce share-based compensation expense by $33,467 in respect of prior periods that reduced salaries and employee benefits expense. |
| (iii) | Exploration and evaluation costs combined with property evaluation expenses of $41,018 in the current period are $29,783 lower than $70,801 in the comparable quarter in 2012 reflecting lower levels of expenditure on the Mel and the Barb properties offset in part by an increase in property evaluation expenses of $7,834. |
| (iv) | General and administrative expenses other than exploration and evaluation, property evaluation costs and share-based compensation, for the first quarter of 2013 were $356,066 or $52,442 lower as compared to the first quarter in the prior year. The decrease can be attributed mostly to lower vacation pay accruals and director’s fees. |
| (v) | Interest income for the three month period ended March 31, 2013 was $120,457 compared to $122,387 for the 2012 period. The decrease is a result of slightly higher interest rates earned on the Company’s decreasing cash balances. |
Selected Annual Financial Information
The following selected financial information is derived from the audited consolidated financial statements and notes thereto.
| | | | |
| | | Years Ended December 31 | |
| | | | 2012 | | | | 2011 | |
| Total Assets | | | 36,298,420 | | | | 38,327,185 | |
| Long Term Financial Liabilities | | | - | | | | - | |
| Interest income | | | 511,830 | | | | 498,899 | |
| General and Administrative Expenses | | | (1,518,955 | ) | | | (1,909,477 | ) |
| Exploration and evaluation | | | (191,922 | ) | | | (67,916 | ) |
| Property evaluation | | | (226,300 | ) | | | (210,049 | ) |
| Loss for the year | | | (2,063,704 | ) | | | (2,356,348 | ) |
| Loss per Common Share - Basic and Diluted | | | (0.04 | ) | | | (0.05 | ) |
Liquidity and Capital Resources
The Company’s cash and cash equivalent position at March 31, 2013 was $30,704,138; an increase of $418 from December 31, 2012. Total assets at March 31, 2013 were $36,058,718, a decrease of $239,702 from $36,298,420 at December 31, 2012. The decrease in the Company’s assets is the direct result of cash outlays for operating expenses in the current quarter.
No share options were exercised in the current quarter but the Company received $13,028 from the exercise of options in the three months ended March 31, 2012. As at May 9, 2013, the Company had working capital of approximately $35.7 million.
The Company considers that it has adequate resources to maintain its operations for the next year. The funds on hand should also allow the Company to acquire advanced-stage exploration assets. The Company will continue to rely on successfully completing additional equity financing to further the acquisition, exploration and development of mineral exploration projects as needed. There can be no assurance that the Company will be successful in obtaining the required financing.
Except as disclosed, the Company does not know of any trends, demand, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, its liquidity either materially increasing or decreasing at present or in the foreseeable future.
The Company currently does not and also does not expect to engage in currency hedging to offset any risk of currency fluctuations.
Operating Cash Flow
Cash flows from operating activities for the three months ended March 31, 2013 were $418, compared to an outflow of $172,031 for 2012. The net improvement of $172,449 in cash provided or used for operating activities is attributed mostly to lower exploration and evaluation costs ($37,617), salaries and benefits ($36,181), consulting ($15,880) and rent ($7,082) and the change in the reduction of net receivables and payables ($93,153) offset in part by higher property evaluation costs ($7,834) and professional fees ($16,315).
Investing Activities
The Company did not expend funds for investing activities in the three months ended March 31, 2013 and 2012.
Financing Activities
During the three months ended March 31, 2013, no share options were exercised. In the three months ended March 31, 2012, 24,581 share options were exercised at $0.53 per option for total proceeds of $13,028 to the Company.
Contractual Commitments
The Company has entered into a lease agreement with Copper Mountain to sub-lease a portion of their office premises until February 2, 2016 for $16,630 per month in the first year; $16,826 in year 2 and $17,022 in year three for totals of $164,132 for nine months remaining in 2013, annual totals of $201,716 in 2014, $204,066 in 2015 and $17,022 in 2016, in which the Company is responsible for proportionate shares of rent, real estate taxes, operating costs and utilities. These contractual commitments are summarised as follows.
| | | | |
| 2013 | | $ | 164,132 | |
| 2014 | | | 201,716 | |
| 2015 | | | 204,066 | |
| 2016 | | | 17,022 | |
| | | $ | 586,936 | |
Copper Mountain Mining Corporation and the Company have a director in common. Further details of the Company’s expenditure commitments are disclosed in Note 6 to the Company’s December 31, 2012 audited consolidated financial statements.
Critical Accounting Estimates and IFRS
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Significant areas requiring the use of management estimates relate to the determination of the fair value of share-based compensation, other than temporary impairments for investments, environmental obligations and impairment of mineral properties. Actual results may differ from these estimates.
Reference should be made to the Company’s significant accounting policies contained in Note 2 of the Company's audited consolidated financial statements for the years ended December 31, 2012 and 2011. These accounting policies can have a significant impact of the financial performance and financial position of the Company.
Share-based Compensation
The Company records all share-based compensation for options using the fair value method. Under the fair value method, share-based payments are measured at the fair value of the consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable, and are charged to the statement of comprehensive loss at the time of vesting using the graded method. The offset is credited to contributed surplus. Each tranche of an award with different vesting dates is considered a separate grant for the calculation of fair value, and the resulting fair value is amortized over the estimated lives of the respective tranches. Forfeiture estimates are recognized in the period they are estimated, and are revised for actual forfeitures in subsequent periods. Consideration received on the exercise of share options is recorded as share capital and the related contributed surplus is transferred to share capital.
Mineral Properties
Direct costs related to the acquisition of exploration stage resource property interests are capitalized. All other exploration and evaluation expenditures are charged to profit or loss as they are incurred until a property reaches the development stage. Development expenditures incurred subsequent to a development decision, and to increase or to extend the life of existing production, are capitalized and will be amortized on the unit-of-production method based upon estimated proven and probable reserves.
Management of the Company periodically reviews the recoverability of the capitalized mineral properties. Management takes into consideration various information including, but not limited to, results of exploration activities conducted to date, estimated future metal prices, and reports and opinions of outside geologists, mine engineers and consultants. When it is determined that a project or property will be abandoned, then the costs are written-off, or if its carrying value has been impaired, then it is written down to fair value.
Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.
International Financial Reporting Standards (“IFRS”)
New Pronouncements – in effect since January 1, 2013
The following new reporting standards issued by the International Accounting Standards Board (“IASB”) have been applied in preparing these financial statements with effect from January 1, 2013:
| (i) | IFRS 9 is the first step to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on an entity’s business model and the contractual cash flows of the financial asset. Classification is made at the time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument. |
IFRS 9 amends some of the requirements of IFRS 7 Financial Instruments: Disclosures, including added disclosures about investments in equity instruments measured at fair value in other comprehensive income (“OCI”), and guidance on the measurement of financial liabilities and de-recognition of financial instruments. IFRS 9 did not have a material impact on these financial statements.
| (ii) | IFRS 10 Consolidated Financial Statements replaces IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation – Special Purpose Entities. IFRS 10 changes the definition of control so that the same criteria apply to all entities, both operation and special purpose entities, to determine control. The revised definition focuses on the need to have both power over the investee to direct relevant activities and exposure to variable returns before control is present. IFRS 10 did not have a material impact on these financial statements. |
| (iii) | IFRS 11 Joint Arrangements replaces IAS 21 Interests in Joint Ventures. The new standard defines two types of arrangements: Joint Operations and Joint Ventures. Focus is on the rights and obligations of the parties to recognize the individual assets and liabilities to which they have rights or for which they are responsible, even if the joint arrangement operations in a separate legal entity. IFRS 11 did not have a material impact on these financial statements. |
| (iv) | IFRS 12 Disclosure of Interests in Other Entities contains the disclosure requirements for entities, including interests in subsidiaries, widely defined as contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. The standard requires disclosures that 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 12 did not have a material impact on these financial statements. |
| (v) | IFRS 13 Fair Value Measurement replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. IFRS 13 did not have a material impact on these financial statements. |
| (vi) | Amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income, |
applied retrospectively, require that an entity present separately the items of OCI that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. Consequently an entity that presents items of OCI before related tax effects will also have to allocate the aggregated tax amount between these categories. The amendments to IAS 1 did not have a material impact on these financial statements.
| (vii) | IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine issued by the IFRS Interpretations Committee, requires recognition of production stripping costs that improve access to ore to be mined in the future as a non-current asset if, and only if, all the following criteria are met: |
It is probable that future economic benefits will flow to the entity;
The entity can identify the component of the ore body for which access has been improved; and
The costs relating to the stripping activity associated with that component can be measured reliably.
Subsequent to initial recognition, the life of the component will determine the period of depreciation; it will differ from the life of the mine unless the stripping activity improves access to the whole of the remaining ore body.
The interpretation did not have a material impact on these financial statements.
Financial Instruments
The Company's financial instruments as at March 31, 2013 comprise cash and cash equivalents, investments, marketable securities, receivables and accounts payable and accrued liabilities.
Risk Factors
The Company’s operations and results are subject to a number of different risks at any given time. These factors, include but are not limited to disclosure regarding exploration, additional financing, project delay, titles to properties, price fluctuations and share price volatility, operating hazards, insurable risks and limitations of insurance, management, foreign country and regulatory requirements, currency fluctuations and environmental regulations risks. Exploration for mineral resources involves a high degree of risk. The cost of conducting programs may be substantial and the likelihood of success is difficult to assess.
Title Risk: Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company's title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.
Price Risk: The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on the Company’s comprehensive income (loss) due to movements in individual equity prices or general movements in the level of the stock market. Commodity price risk is defined as the potential adverse impact on comprehensive income (loss) and economic value due to commodity price movements and volatilities. The Company’s properties and investments have exposure to zinc, lead, barite and uranium. The prices of these metals may greatly affect the value of the Company and the potential value of its property and investments.
Financial Markets: The Company is dependent on the equity markets as its sole source of operating working capital and the Company’s capital resources are largely determined by the strength of the junior resource markets and by the status of the Company’s projects in relation to these markets, and its ability to compete for the investor support of its projects.
Political Risk: Exploration is presently carried out in Canada and is currently being reviewed worldwide. This exposes the Company to risks that may not otherwise be experienced if all operations were domestic. Political risks may adversely affect the Company’s potential projects and operations. Real and perceived political risk in some countries may also affect the Company’s ability to finance exploration programs and attract joint venture partners, and future mine development opportunities.
Credit Risk: Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash and cash equivalents and receivables. The Company’s limits its exposure to credit loss by placing its cash and cash equivalents with major financial institutions.
Liquidity Risk: Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company ensures that there is sufficient capital in order to meet short-term business requirements, after taking into account the Company’s holdings of cash and investments. The Company raises capital through equity issues and its ability to do so is dependent on a number of factors including market acceptance, share price and exploration results. The Company’s cash and cash equivalents is primarily invested in bank accounts and Government Investment Certificates (GIC’s) which are cashable on demand. The Company expects that its cash on hand at March 31, 2013 provides sufficient financial resources to carry out its operations through the next 12 months and also to allow the Company to pursue acquisition opportunities.
Interest Risk: The Company’s cash and cash equivalents earn interest income at variable rates. The fair value of its cash equivalents is relatively unaffected by changes in short-term interest rates. The Company’s future interest income is exposed to short-term rates.
Currency Risk: Business is transacted by the Company in a number of currencies. Fluctuations in exchange rates may have a significant effect on the cash flows of the Company. Future changes in exchange rates could materially affect the Company’s results in either a positive or negative direction.
Environmental Risk: The Company seeks to operate within environmental protection standards that meet or exceed existing requirements in the countries in which the Company operates. Present or future laws and regulations, however, may affect the Company’s operations. Future environmental costs may increase due to changing requirements or costs associated with exploration and the developing, operating and closing of mines. Programs may also be delayed or prohibited in some areas. Although minimal at this time, site restoration costs are a component of exploration expenses.
Disclosure Control and Procedures
The Company has established disclosure controls and procedures to ensure that information disclosed in this MD&A and the related consolidated financial statements was properly recorded, processed, summarized and reported to the Company’s Board of Directors and Audit Committee. The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluated and assessed the design and the operating effectiveness of the Company’s disclosure controls and procedures and have concluded that the design of these disclosure controls and procedures are effective for the three months ended March 31, 2013.
It should be noted that, while the Company’s CEO and CFO believe that the Company’s disclosure controls and procedures provide a reasonable level of assurance and that they are effective, they do not expect that the disclosure controls and procedures can prevent all errors or mistakes. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Internal Controls Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in NI 52-109 and in Rules 13a-15(b) of the U.S. Exchange Act). A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. It should be noted that a control system, no matter how well conceived or operated, can only provide reasonable assurance, not absolute assurance, that the objectives of the control system are met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities. The Audit Committee fulfills its role of ensuring the integrity of the reported information through its review of the interim and annual consolidated financial statements.
The Company’s management, (with the participation of Mr. Hills, the Company’s CEO, and Mr. Bach, the Company’s CFO) conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2013. This evaluation was based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management has concluded that, as of March 31, 2013, the Company’s internal control over financial reporting was effective.
During the three months ended March 31, 2013, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.
Investor Relations
The Company maintains a website at www.kobexminerals.com, and has not entered into any agreements with any investor relations firms.
Share Data Information
The Company’s authorized share capital is an unlimited number of common shares without par value and 100,000,000 preferred shares without par value. As at March 31, 2013 and May 9, 2013, there were 46,082,413 outstanding common shares and 3,051,178 share options outstanding, of which 2,784,510 options are exercisable, with exercise prices ranging from $0.53 to $1.09 per share.
On March 13, 2013, 200,000 share options were granted to each of two Directors with an exercise price of $0.55; one-third vesting immediately, one-third on the first anniversary of the grant and the remaining third vesting on the second anniversary of the grant.
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