Management Discussion and Analysis
For
Golden Goliath Resources Ltd.
For the Fiscal Year ended August 31, 2011
The following management discussion and analysis has been prepared as of December 16, 2011. The selected financial information set out below and certain comments which follow are based on and derived from the audited prepared consolidated financial statements of Golden Goliath Resources Ltd. (the “Company” or “Golden Goliath”) for the year ended August 31, 2011 and should be read in conjunction with them.
Forward Looking Information
Certain statements contained in the following Management’s Discussion and Analysis constitutes forward looking statements. Such forward looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from actual future results and achievements expressed or implied by such forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date the statements were made. Readers are also advised to consider such forward looking statements while considering the risks set forth below.
General
Golden Goliath is a Canadian listed public company with its shares traded on the TSX Venture Exchange under the symbol “GNG” as a Tier 2 company.
Golden Goliath is a junior exploration company with no revenues from mineral producing operations. The Company’s properties are all located in the State of Chihuahua, Mexico. Activities include acquiring mineral properties and conducting exploration programs. The mineral exploration business is risky and most exploration projects will not become mines. The Company may offer to a major mining company the opportunity to acquire an interest in a property in return for funding by the major mining company, of all or part of the exploration and development of the property. For the funding of property acquisitions and exploration that the Company conducts, the Company does not use long term debt. Rather, it depends on the issue of shares from the treasury to investors. Such stock issues in turn depend on numerous factors, important among which are a positive mineral exploration climate, positive stock market conditions, a company’s track record and the experience of management.
Overall Performance
During the year ended August 31, 2011, the Company compiled the final report for the drilling program on the Las Bolas / Los Hilos property to provide a comprehensive summary to Agnico-Eagle Mines so they can properly conduct future exploration on the property. Preliminary work also began on the Nopelera property continuing to the date hereof with a focus on mapping and sampling all outcrops, road building and rehabilitation of old adits.
Las Bolas Property
During the fiscal year ended August 31, 2011 the Company completed its drilling program on the las Bolas/Los Hilos property and then worked with the legal team from Agnico-Eagle Mines Limited (“Agnico”( (NYSE:AEM; TSX:AEM) on the final agreement for the Las Bolas property option and joint venture. During December 2011 the Company signed the final Earn-in and Shareholders Agreement with a Mexican subsidiary of Agnico-Eagle Mines Limited (“Agnico”) (NYSE: AEM) (TSX: AEM) for the exploration and development of the Company’s Las Bolas/Los Hilos property (see map). Under the terms of the agreement, which is subject to conditions, including TSX-V approval, Agnico’s Mexican subsidiary has the right to earn a 51% interest in the property by spending $5,000,000 on the property over a period of 5 years. The first year’s work commitment is a firm commitment of $500,000 with expenditure requirements increasing each year thereafter. Upon exercising its option, Agnico will have the right to earn an additional 20% interest by spending $4 million over another period of four years and completing a feasibility study or by spending $10 million over a longer period of eight years.
The Company views this agreement as an important milestone.
Nopalera Property
During the year ending August 31, 2011, the Company continued field work on its 100% owned Nopalera property. Nopalera is a large claim which adjoins the Los Hilos claims on the west side. Nopalera hosts a very large and intense alteration zone which is related to a porphyry intrusion and has a chemical trace element signature that is very similar the Fresnillo PLC’s new flagship discovery called Orisyvo. The Orisyvo claims are contiguous to the Nopalera property on its south east corner. Fresnillo has released documents showing that Orisyvo has a resource of at least 9.2 million ounces of gold. Fresnillo’s sister company Peñoles has also surrounded the Golden Goliath claims with their own staking. This has led to the development of awhat is essentially an area play with three major companies, Frenillo, Peñoles and Agnico Eagle mines Ltd. and one junior company, namely Golden Golaith Resources.
Work on Nopalera during the year included compilation and interpretation of all of the historic data on the property, as well as the construction of new access roads and the rehabilitation and sampling of several small old mine workings. In addition, the Company purchased a new geophysical instrument (called Terraspect) which allows the identification of specific clay minerals. Clay mineralogy is important as it distinguishes between hydrothermal alteration generated at depth by metaliferous fluids, from clay minerals formed by meteoric weathing and provides vectors for drilling. The Company believes that Nopalera has a geologic setting, stratigraphic interval and pathfinder distribution pattern which indicates that gold mineralization may lie at depth. These characteristics are also very similar to those believed to be present at the Orisyvo.
The Company is pursuing an aggressive exploration program for the Nopalera claim leading to a major diamond drilling program as soon as practicable.
Other Properties
Throughout the year ended August 31, 2011, the Company did not perform any significant work on its other properties. With work on the Las Bolas and Los Hilos properties being conducted by Agnico, the Company is looking forward to focusing on some of these other properties.
Selected Annual Information
The following table sets forth selected consolidated information of the Company at August 31 for each of the last three fiscal years prepared in accordance with Canadian Generally Accepted Accounting Principles. The selected consolidated financial information should be read in conjunction with the Audited Consolidated Financial Statements of the Company.
Canadian Dollars | 2011 | 2010 | 2009 |
| | | | |
Revenues | 73,474 | 12,440 | 23,965 |
Comprehensive loss | (1,021,160) | (1,412,984) | (2,196,183) |
Net loss per share | (0.01) | (0.02) | (0.04) |
Total assets | 12,022,608 | 10,232,227 | 8,222,221 |
Long term debt | 58,000 | 37,000 | 26,000 |
Dividends | Nil | Nil | Nil |
Results of Operation
For the year ending August 31, 2011, the Company incurred a net loss $1,021,160 compared to $1,412,984 for the year ending August 31, 2010. In the fourth quarter the Company incurred a net loss of $362,630 compared to a net loss of $205,464 during the third. The significant differences between these periods include:
•
A write down of mineral property exploration costs of $118,769 in the fourth quarter of 2011 compared to nil in the prior three quarter and $74,298 in 2010.
•
Stock based compensation fees were nil in 2011 compared to $492,137 in 2010. The Company granted no stock option in its 2011 fiscal. While the Company granted the 2010 options at a premium to the market price, these charges are a result of mandatory accounting practices which require a calculation using the Black-Scholes option valuation model to expense stock options. As volatility is one variable in the calculation of this non cash charge, the large volatility of junior mining stocks has resulted in a large value to be expensed for stock options.
•
An increase in cash over last year is a result of the exercise of warrants early in 2011 bringing in approximately $2.7 million.
•
Revenue was higher in the fourth quarter of 2011 due to the receipt of option payments totalling $55,843 consisting of cash and shares for the Corona and El Chamizal option agreements.
•
Consulting fees increased $27,313 during the past year compared to last year due to the Company retaining corporate development expertise.
•
Professional fees, transfer agent fees and filing fees were all less this past year as a result of the costs associated with a private placement in 2010.
•
Wages and benefits were higher this year compared to last due to the hiring of local labour in Uruachic.
As of August 31, 2011, deferred mineral property exploration costs totalled $8,646,694 compared to $7,754,997 at August 31, 2010. During the year, the Company incurred a total of $1,079,756 in exploration expenditures including $217,084 on assaying, $266,099 on drilling and $47,340 doing geology and mapping mainly on its Las Bolas/Los Hilos properties and Nopalera. $377,349 of facilities and other in deferred exploration costs included such expenses as core boxes, rental of a core shack, water truck and other preparatory work for the drill program.
Summary of Quarterly Results
The following table sets forth selected quarterly financial information for each of the last eight (8) quarters prepared in accordance with Canadian Generally Accepted Accounting Principles.
Quarter Ending | Revenue | Comprehensive Loss | Net Loss per Share |
| | | | |
August 31, 2011 | 64,204 | 362,630 | 0.01 |
May 31, 2011 | 6,309 | 205,464 | 0.00 |
February 28, 2011 | 367 | 277,529 | 0.01 |
November 30, 2010 | 2,727 | 175,537 | 0.00 |
August 31, 2010 | 3,989 | 274,176 | 0.01 |
May 31, 2010 | 5,010 | 689,676 | 0.01 |
February 28, 2010 | 443 | 262,720 | 0.00 |
November 30, 2009 | 2,998 | 186,412 | 0.00 |
NOTE:
The revenue relates to interest earned, except for the fourth of quarter of 2011 when the Company received option payments consisting of cash and shares totalling $55,843. There were no discontinued operations or extraordinary items on the Company’s financial statements during the above mentioned periods.
Liquidity and Capital Resources
The Company has financed its operations almost exclusively through the sale of its common shares to investors and will be required to continue to do so for the foreseeable future.
The Company had working capital of $2,713,392 at August 31, 2011 compared to $1,808,507 at August 31, 2010. The Company’s cash and short-term investment position at August 31, 2011 was $2,736,606.
In the third quarter of 2011, the Company accelerated the expiry of various share purchase warrants and agents warrants issued pursuant to a private placement completed in January and February 2010. A total of 10,885,942 warrants were exercised during the year at a price of $0.25 resulting in a total of $2,721,486 being added to the Company’s working capital.
In January and February 2010 the Company completed a private placement of 19,721,466 units at a price of $0.15 per unit for gross proceeds of $2,958,220. Each unit consisted of one common share and one half of one share purchase with each whole warrant entitling the holder to purchase one additional common share for a period of two years at a price of $0.25. Once resale restrictions on the shares have expired and upon the Company’s shares trading at or above a weighted average trading price of $0.40 for 20 consecutive trading days, the Company may give notice that the warrants will expire 30 days from the date of providing such notice (in writing to warrant holders and via a news release). Total finder’s fees of $163,860 were paid and 1,084,400 agent’s warrants having the same terms as the warrants under the units was paid. On March 18, 2011, the Company announced it was accelerating the warrant expiry date. As such, all but 59,191 warrants expired unexercised.
Capital Resources
Other than property taxes which are approximately $60,000 per year, the Company does not have any capital resource commitments.
Transactions with Related Parties
Related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Amounts due to related parties are unsecured with no specific terms for repayment.
During the year ended August 31. 2011, the Company paid $120,000 (2010: $120,000) recorded as management fees for geological and management services to a company controlled by a director
During the year ended August 31, 2011, the Company paid $41,188 (2010 – 40,993) in wages and benefits to a director.
A private company controlled by one of the directors charged $42,579 for the year ended August 31 2011 (2010: $47,689), in respect of rent and office administration costs on behalf of the Company. The Company has an administrative services agreement with Hastings Management Corp. whereby Hastings provides office space, office furniture, boardroom facilities, access to photocopier, fax and such other amenities normally associated with office needs; and providing such other additional instructions and directions as the Company may require.
During the twelve months ended August 31, 2011, the Company paid $60,000 (2010 - $60,000) in consulting fees to a director of the Company.
Due from related parties consist of $90 (2010 – $21,108) due from companies controlled by a director. Accounts receivable include $86 (2010 - $575) due from a director. Accounts payable and accrued liabilities include $4,084 (2010 - $Nil) due to a director and officer.
Critical Accounting Estimates
The Company records its interest in mineral properties at cost, less option income realized. The cost of mineral properties and related exploration costs are deferred until the properties are brought into production, sold or abandoned. These deferred costs will be amortized on the unit-of-production basis over the estimated useful life of the properties following the commencement of production or are written-off if the properties are sold, allowed to lapse or abandoned. Amounts shown for the mineral properties and their related deferred exploration costs represent costs incurred and are not intended to reflect present or future values. Management reviews capitalized costs on its mineral properties on a periodic basis and will recognize impairment in value based upon current exploration results and upon management’s assessment of the future probability of profitable revenues from the property or from sale of the property.
Changes in Accounting Policy
The Company has made the following designations of its financial instruments: cash and short-term investments as held-for-trading; marketable securities as available for sale (Level 1); accounts receivable, amounts due from related parties and exploration advances as loans and receivables and accounts payable and accrued liabilities and employee benefits obligations as other financial liabilities. The carrying values of the Company’s financial investments, other than its available for sale securities, were a reasonable approximation of fair value. The Company has determined that no adjustments are currently required for transaction costs related to the acquisition of financial assets and financial liabilities that are classified as other than held-for-trading.
Disclosures about the inputs to financial instrument fair value measurements are made within a hierarchy that prioritizes the inputs to fair value measurement.
The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data.
International Financial Reporting Standards (“IFRS”)
The Canadian Accounting Standards Board confirmed January 1, 2011 as the date IFRS will replace Canadian standards and interpretations as Canadian Generally Accepted Accounting Principles (Canadian GAAP) for publicly accountable enterprises (which includes investment funds and other reporting issuers). Changing from the Current Canadian GAAP to IFRS may materially affect an issuer’s reported financial position and results of operations. It may also affect certain business functions. The Company’s transition date of September 1, 2011 will require the restatement, for comparative purposes, of amounts reported by the Company for the year commencing September 1, 2010.
The conversion from Canadian GAAP to IFRS will require the implementation of a new set of accounting standards, and the internal controls over financial reporting will need to address the initial reporting of IFRS financial statements, including related note disclosures, as well as on-going financial reporting. The Company is working through a planned IFRS transition plan. The first stage was for management and the accounting department to be introduced to IFRS. The Company’s management and accounting team have attended IFRS workshops and have purchased IFRS implementation resources to aid in the transition process. The Company is currently in the second stage and is assessing what the impact of these changes will have on the Company’s financial reporting. The accounting team plans to prepare a September 1, 2010 transition date opening balance sheet in accordance with IFRS in the 2011 fiscal year to assist with determining the accounting policies best suited for financial reporting. Management will be relying on outside consultants and auditors to assist with the transition where sufficient technical expertise does not exist in-house.
The following accounting policies will or may impact the Company’s financial reporting under IFRS:
Exploration for and Evaluation of Mineral Resources
The Company is in the exploration stage and under Canadian GAAP currently capitalizes all costs related to the acquisition and exploration of its mining rights. Management regularly reviews the carrying value of its mineral rights for evidence of impairment, and makes a provision when the carrying values are estimated to exceed their net recoverable amounts.
Under IFRS 6"Exploration for and Evaluation of Mineral Resources" exploration and evaluation assets shall continue to be measured at cost, but the Company will have to determine an accounting policy specifying which expenditures are to be recognized as exploration and evaluation assets, and then apply that policy consistently. This standard will not apply to expenditures incurred for investigating properties before the Company has the legal right to explore the property, nor to expenditures incurred in the development stage of a property once technical and economic feasibility are demonstrable.
In addition, under IFRS 6 and under International Accounting Standard (IAS) 36,"Impairment of Assets", the Company will be required to assess at the end of each reporting period whether there is any indication that the asset may be impaired. IFRS also allows the reversal of impairments if conditions that gave rise to those impairments no longer exist. Canadian GAAP prohibits reversal of impairment losses. It is expected therefore, that there will be increased volatility in impairment recognition due to increase in frequency of assessment and possibility of reversal of impairments.
Other Policy Differences
A number of differences between Canadian GAAP and IFRS have been identified, but their applicability and potential impact to the Company have not yet been assessed, including the accounting for income taxes, stock-based compensation, and financial instruments and disclosure requirements. These differences will or may have a material impact on the Company's financial statements for the year ending August 31, 2012.
System and Internal Control Impacts
In addition to the impact of IFRS on accounting policies, management is also in the process of assessing the impact of IFRS adoption on the Company's internal controls over financial reporting, disclosure controls and procedures, information technology and data systems. As a preliminary assessment, the Company does not expect that the conversion to IFRS will have a significant impact on its accounting processes and internal controls, information technology and data systems.
As the review of the accounting policies is completed, appropriate changes to ensure the integrity of internal control over financial reporting will be made. For example, under IFRS 6 and IAS 36, discussed above, the Company will be required to assess at the end of each reporting period whether there has been any indication that the asset may be impaired. Additional controls will be needed to ensure that the recorded balance is fairly stated at each reporting period. It is anticipated that such controls will include senior management oversight on the development of key assumptions and variables.
Financial Instruments and Other Instruments
The Company has not entered into any specialized financial agreements to minimize its investment risk, currency risk or commodity risk. As of the date hereof, the Company’s investment in resource properties has full exposure to commodity risk, both upside and downside. As the metal prices move so to does the underlying value of the Company’s metal projects.
Outstanding Share Data
The authorized share capital consists of an unlimited number of common shares. As of August 31, 2011 and the date hereof, an aggregate of 92,216,445 common shares were issued and outstanding.
The Company had no warrants outstanding as of August 31, 2011.
As of August 31, 2011, the Company had 4,700,000 incentive stock options outstanding with a weighted average remaining contractual life of 2.63 years at a weighted average exercise price of $0.27.
Investor Relations
The Company has an agreement with Free Market News Network for US$500 per month to provide market awareness and coverage of the Company.
Disclosure Controls and Procedures
Disclosure controls and procedures (“DC&P”) are intended to provide reasonable assurance that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified by securities regulations and that information required to be disclosed is accumulated and communicated to management. Internal controls over financial reporting (“ICFR”) are intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with Canadian generally accepted accounting principles.
TSX Venture listed companies are not required to provide representations in the annual filings relating to the establishment and maintenance of DC&P and ICFR, as defined in Multinational Instrument 52-109. In particular, the CEO and CFO certifying officers do not make any representations relating to the establishment and maintenance of (a) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation, and (b) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in their certificates regarding the absence of misrepresentations and fair disclosure of financial information. Investors should be aware that inherent limitation on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in Multinational Instrument 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Additional information relating to the Company can be found on SEDAR atwww.sedar.com and also on the Company’s website atwww.goldengoliath.com.
