impact of rising labor and raw material costs occurring industry-wide. Project highlights for the first quarter 2007 include; but, not limited, to the following:
As of December 2006, Olympus had completed 63 drill holes for 11,330 metres largely in the North Deposit area. Results from this drilling have continued to be positive. To evaluate new exploration approaches at Phuoc Son, eight kilometres of Induced Polarization (IP) surveys were completed over the known mineralization at the North and South deposits. The orientation survey successfully identified the known mineralized deposits the exploration licence is in the process of being renewed.
The Dak Sa North Deposit has been significantly extended in strike length and now extends in excess of 900 meters in a north-south direction. In April 2006, resource estimates were completed to update the North Deposit ore body, incorporating the results of drilling to March 31, 2006. On March 7, 2007, the Company released updated resource estimates for Phuoc Son incorporating the results of drilling up to October 2006. Exploration drilling completed in the Bai Choui Area located between the North and South deposits returned favorable results. Consequently, further exploration and step-out drilling is planned in 2007 to address this highly prospective mineralized area and to advance it to resource status. A NI 43-101 Compliant Independent Technical Report is being prepared which will include the updated resource estimate and incorporate drill results to date.
Management’s Discussion and Analysis Three Months Period Ended March 31, 2007 Compared to Three Months Period Ended March 31, 2006
The Bong Mieu (VN220) plant went into commercial production effective October 1, 2006. Since September 30, 2006, our Bong Mieu Central (VN220) mine no longer defers costs net of revenues as the mine is in commercial production. A total of 1,460 ounces of gold were sold for proceeds of $1,119,084 during the first quarter of 2007.
During the quarter ended March 31, 2007, the Company’s costs and expenses were $4,015,019, representing an increase of $3,055,948 from $959,071 for quarter ended March 31, 2006. The difference is principally due to: cost of sales of $1,577,892, a non-cash increase of $645,245 in stock-based compensation related to the grant of options, a decrease of $27,561 related to regulatory fees for the TSX listing, an increase of $257,708 in management fees and salaries mainly related to the staffing
Table of Contentsincreases, an increase of $76,293 of professional fees related to audit, legal and compliance work, an increase of $26,869 in office and general administration expenses, a decrease of $37,169 in investor relations and promotion, an increase of $113,542 in consulting fees, a decrease of $80,456 in travel, an increase in amortization of $450,826 mainly due to the start of commercial production at the Bong Mieu Central (VN220) mine in fourth quarter 2006 and an increase of $37,796 in exploration activities in Southeast Asia.
Interest expense increased from nil in 2006 to $128,879 in 2007, as a result of the Macquarie financing arrangement. Transactions costs of $265,488 were expensed in Q1 2007 when the potential Zedex merger was withdrawn.
Twelve Months Ended December 31, 2006 Compared to Twelve Months Ended December 31, 2005
The Bong Mieu (VN220) plant went into commercial production effective October 1, 2006, with revenues of $1,644,040 (2,316 oz) in fourth quarter 2006. After September 30, 2006, our Bong Mieu Central (VN220) mine no longer defers costs net of revenues as the mine is in commercial production. A total of 4,651 ounces of gold were sold for proceeds of USD$2,917,582 during 2006 of which 2,335 oz with proceeds of USD$1,469,309 were netted against deferred development costs.
During the year ended December 31, 2006, the Company’s costs and expenses were $6,557,755, representing an increase of $3,554,551 from $3,003,204 for year ended December 31, 2005. The difference is principally due to: cost of sales of $1,535,891, a non-cash decrease of $344,044 in stock-based compensation related to the grant of options, an increase of $163,682 related to regulatory fees for the TSX listing, an increase of $638,129 in management fees and salaries mainly related to the staffing increases, an increase of $165,862 of professional fees related to audit, legal and compliance work, an increase of $277,369 in office and general administration expenses, an increase of $165,973 in consulting fees, an increase in amortization of $576,318 mainly due to the start of commercial production at the Bong Mieu Central (VN220) mine in fourth quarter 2006 and an increase of $196,092 in exploration activities in Southeast Asia.
The 2006 results also reflect a deferred exploration cost write off of $438,931 related to properties no longer being pursued by the Company and a $4,280,000 impairment charge against deferred development costs related to the Bong Mieu Central (Ho Gan) mine. During the fourth quarter 2007, management determined that the Bong Mieu Central mine was not going to reach the original estimated future throughput levels, resulting in the estimated undiscounted future cash flows being less than the carrying value of the Bong Mieu Central (Ho Gan) related assets. Consequently, the Company measured and recorded an impairment charge of $4,280,000. Foreign exchange gains of $9,062 were experienced in 2006 in comparison to foreign exchange gains of $239,626 in 2005 as a result of the stable exchange rates that occurred between Canada and United States in 2006. Interest income increased from $21,029 in 2005 to $272,156 in 2006, as the average invested cash balance was signific antly higher than 2005 as a result of a private placement in March 2006. Interest expense increased from $23,203 in 2005 to $127,262 in 2006, as a result of the Macquarie financing arrangement.
Twelve Months Ended December 31, 2005 Compared to Twelve Months Ended December 31, 2004
As at December 31, 2005, the Company had not begun production on any of its properties and does not have revenues or cash flows from operations.
During the year ended December 31, 2005, the Company’s total operating expenses of $3,063,799 were higher than in 2004 ($2,083,370). The difference is principally due to a non-cash increase of $780,000 in stock-based compensation related to the grant of options which vested during the year. Management fees also increased by $138,000 due to the addition of one officer and to another position becoming full time. Consulting fees increased $81,000 over the previous year in relation to an agreement with a previous officer of the Company.
Other items such as interest income decreased by $8,700 compared to 2004 as the average invested cash balance was lower during 2005.
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Table of ContentsTwelve Months Ended December 31, 2004 Compared to Twelve Months Ended December 31, 2003
During the year ended December 31, 2004, the Company’s total operating expenses were $2,083,370 compared to $1,414,199 in 2003. The major components of this increase are as follows: management fees and salaries and stock-based compensation increased by $296,094 and $147,824, respectively, as senior officers were added to the management team. Travel has also increased $211,536 as a result of more frequent visits to the properties by the senior staff and travel related to investor relations efforts. The above variations are reflective of the increased level of activity of the Company.
As the Company has no production the only revenue the Company receives is interest revenue and miscellaneous income. Other items such as interest income increased by $12,766 compared to 2003 as the average invested cash balance was higher. The Company has recorded an $18,000 gain in 2004 from the sale of marketable securities. Also in 2004, $20,632 related to applications for mineral properties in countries other than Vietnam have been expensed.
Government Economic, Fiscal, Monetary or Political Policies or Factors
In order to explore, invest, mine, export or import equipment in Vietnam, the Company goes through a licensing process to obtain the specific licenses. This can be a lengthy process and, as a result, the Company must include the licensing process into the project plan when determining the time frame of a project. However, obtaining licenses can take longer than anticipated and could result in additional costs to the Company if delays are experienced that impact our projects or existing operations.
On January 11, 2007, Vietnam became a full member of the World Trade Organization (‘‘WTO’’). After becoming a full member of the WTO, various commitments Vietnam has made for joining the WTO will become effective. These commitments impact a number of areas such as tariffs and duties on goods, foreign service providers’ access to Vietnam, foreign ownership, reforms on Vietnam’s legal and institutional set up for trade, foreign exchange, commercial business, trading rights, policy making, duties, restrictions, pricing and export restrictions. The overall changes will further expand Vietnam’s access to the global economy and facilitate doing business in Vietnam. These reforms have no immediate impact on the Company but would likely make it easier in the future for the Company to engage in business activities in Vietnam.
5B. Liquidity and Capital Resources
The Company receives cash for use in exploration, development and future operations mainly from the issuance of common shares, debt financing, exercise of warrants/stock options, investment income generated by its cash position, gold sales and the occasional sale of selected assets.
As at March 31, 2007, the cash and cash equivalents’ balance was $13,529,901 compared to $15,231,450 as at March 31, 2006. There was a $15,660,000 private placement closed on March 31, 2006 where the Company issued 27,000,000 shares at $0.58 in comparison to a $12,000,000 private placement that closed March 19, 2007 where the Company issued 21,428,571 shares at $0.56 per share. The remaining net proceeds are being directed mainly to exploration activities in Southeast Asia, development of the Dak Sa deposits at Phuoc Son and for general corporate purposes. In February 2006, the Company also entered into a US$2.0 million loan facility (the ‘‘Facility’’) with Macquarie Bank Limited (‘‘MBL’’) of Sydney, Australia. The Company drew down the US$2.0 million in the first quarter. The Facility bears an interest rate of LIBOR plus 2.75% and is repayab le on July 31, 2007 (amended from June 30, 2007) but may be extended to June 30, 2008 at the option of MBL. In consideration for setting up the facility, MBL was paid a US$50,000 fee and was granted 5,376,092 purchase warrants to acquire the same number of common shares of the Company at an exercise price of $0.4347 until July 31, 2007 and $0.4514 until the ultimate repayment date (currently July 31, 2007 with an option to extend until June 30, 2008). The Company can also accelerate exercise of the warrants if its common shares trade at a 100% premium to the exercise price for 30 consecutive trading sessions. The Facility agreement specifies some restrictions including, but not limited to, the Company must not incur any indebtedness other than permitted financial indebtedness as defined
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Table of Contentsunder the Facility agreement. Permitted indebtedness includes any agreement entered into the ordinary course of business to acquire an asset or service where payment for the asset or service is deferred for a period of not more than 90 days and does not exceed, in aggregate, an amount of US $100,000 for each transaction party. Each transaction party is defined as Olympus, Bong Mieu and Formwell. The Facility agreement specifies that the transaction parties must not allow any encumbrance over its assets other than a permitted encumbrance or acquire an asset that is subject to an encumbrance that is not a permitted encumbrance. Each transaction party must not sell, assign, transfer or dispose of or partially dispose of any assets except an asset that does not form part of the secured property or an asset which is replaced by a similar asset. Each transaction party must not reduce its capital, buy back or redeem its shares or other securities issued to it or provide any financial assistance. Each transaction pa rty may not make a distribution without the prior written consent of MBL. A distribution is defined as a dividend, distribution or any other amount related to a marketable security issued by the transaction party or interest or fee paid by the transaction party on any financial accommodation provided by a person holding a direct or indirect interest in the transaction party. The requirement for a written consent for distributions has not had a significant impact on our cash obligations to date as we have not paid out any dividends. Intercompany loans amongst transaction parties cannot be repaid to the lending transaction party unless the lending transaction party uses the proceeds of repayment to repay the MBL Facility. The above restriction on intercompany loan settlement does not significantly impact our ability to meet cash obligations as it does not prevent the provision of intercompany loans and only affects the method and timing of intercompany loan settlements. The loan is secured and guaranteed by Bo ng Mieu Gold Mining Company Limited and Formwell Holdings Limited. As at June 20, 2007, it is anticipated that MBL will exercise their warrants before June 30, 2007 and the loan facility will likely be extinguished.
In Vietnam, Bong Mieu and Phuoc Son are able to receive funding from the Company based on loan agreements and the receipt of a Vietnamese State Bank Certificate with respect to foreign loans and repayments. Any foreign loans must receive a certification of registration of borrowing and repayment with the State Bank of Vietnam. The total of the foreign loan amounts and legal capital must not exceed the investment capital stated in the investment license. In the case of Bong Mieu and Phuoc Son, the total of the loans and legal capital are below the stated investment capital of the investment license for each project.
Profits earned in Vietnam transferred abroad annually shall be the amount of profits of a fiscal year distributed to the foreign investor after payment of corporate income tax, plus (+) other profits earned in the year, such as profits from assignment of capital, from assignment of assets, items of corporate income tax which were paid and then refunded to the foreign investor in accordance with the provisions of the Law on Corporate Income Tax; less (−) items which the foreign investor has used or undertaken to use to re-invest in Vietnam, profit items which the foreign investor has used to pay out the expenses of such foreign investor for production and business operations or for private needs of the investor in Vietnam, and profit items provisionally transferred during the year. The amount of income that an investor is permitted to transfer abroad in a fiscal year shall be determined after the Company submits an audited financial report and a tax finalization report for the fiscal year with the local tax office which manages the enterprise. Foreign investors shall be permitted to transfer profits abroad in the following circumstances: (i) Annual transfer and one-off transfer of the whole of the amount of profits distributed or earned after the end of the fiscal year and after filing a tax finalization report with the tax office, (ii) Provisional transfer during a fiscal year once every quarter or once every six months after payment of corporate income tax in accordance with the Law on Corporate Income Tax (except for foreign investors exempt from corporate income tax in accordance with the provisions of the Law on Corporate Income Tax and the Law on Foreign Investment in Vietnam), (iii) Transfer of profits upon termination of business operation in Vietnam in accordance with the Law on Foreign Investment in Vietnam.
During the three month period ended March 31, 2007, Olympus invested $1,098,016in exploration and development and $531,579 in acquisitions of capital assets.
The Company received its mining permit at Phuoc Son on January 25, 2006. The Company is evaluating project funding for Phuoc Son to determine whether it will be raised either through equity
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Table of Contentsor debt financing. Although the Company has been successful in accessing the equity markets in the past, there is no guarantee that this will continue to be available. The ability of the Company to continue operations beyond 2006 is dependent upon obtaining the necessary funding to continue its exploration programs or the realization of proceeds from the sale of one or more of its properties and/or assets, of which there can be no assurance. The Company has an estimated budgeted spend of US$5M on its exploration program in 2007 and in total for 2007 and 2008 approximately US$39M for the Phuoc Son exploration, development and mine construction. Achieving these budgeted expenditures is dependent upon obtaining the necessary funding during 2007. The Company’s capital requirements in the future are largely dependent on the success of the exploration activities.
5C. Research and development, patents and licenses, etc
The Company holds an Investment Licence and a Mining Licence covering 30 square km within the Bong Mieu Gold Property area. The Investment Licence area contains three deposits: Bong Mieu Central and Bong Mieu East (open-pit deposits) and Bong Mieu Underground. The Exploration Licence renewal application for the portion of the property not covered by the Mining Licence has been submitted and is being reviewed by the Vietnamese authorities.
On January 25, 2006, the Company received the granting of a Mining Licence by the Government of Vietnam to mine and develop its high-grade Dak Sa deposits within the Phuoc Son Gold property area. The Company is the process of obtaining two additional licenses, the construction license and the import license for mining equipment.
The Company is in the process of renewing the exploration license for the Bong Mieu Gold Property and Phuoc Son Property area.
5D. Trend Information
Not Applicable
5E. Off-Balance Sheet Arrangements
The Company is not engaged in any off-balance sheet arrangements.
5F. Tabular Disclosure of Contractual Obligations
Table No. 5: Tabular Disclosure of Contractual Obligations as at March 31, 2007
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period |
| Contractual Obligations | | | Total | | | Less than
One Year | | | 1-3 Years | | | 3-5 Years | | | More than
Five Years |
| Debt Facility | | | | $ | 2,309,200 | | | | | $ | 2,309,200 | | | | | $ | — | | | | | | — | | | | | | — | |
| Capital lease obligations | | | | | 330,786 | | | | | | 330,786 | | | | | | — | | | | | | — | | | | | | — | |
| Operating lease obligations | | | | | 44,445 | | | | | | 40,808 | | | | | | 3,637 | | | | | | — | | | | | | — | |
| Purchase obligations – supplies and services | | | | | 1,154,263 | | | | | | 1,139,888 | | | | | | 14,375 | | | | | | — | | | | | | — | |
| Purchase obligations – capital | | | | | 1,042,583 | | | | | | 1,030,833 | | | | | | 11,750 | | | | | | — | | | | | | — | |
| Purchase obligations – power supply | | | | | 181,850 | | | | | | 181,850 | | | | | | — | | | | | | — | | | | | | — | |
| Asset retirement obligations | | | | | 1,262,314 | | | | | | 59,173 | | | | | | 1,203,141 | | | | | | — | | | | | | — | |
| Total | | | | $ | 6,325,441 | | | | | $ | 5,092,538 | | | | | $ | 1,232,903 | | | | | | — | | | | | | — | |
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Table of ContentsITEM 6: Directors, Senior Management, and Employees
6A. Directors and Senior Management
Table No. 6: Directors and Senior Management
| | | | | | | | | |
| Name | | | Title | | | Date of Birth | | | Date of First
Election or
Appointment |
| David A. Seton | | | Executive Chairman and Director | | | Dec. 13, 1955 | | | Aug. 1, 1996 |
| Jon Morda | | | Director | | | Jan. 13, 1952 | | | Aug. 16, 2006 |
| John A.G. Seton | | | Director | | | Jan. 10, 1963 | | | Jul. 7, 1999 |
| Peter G. Meredith(1) | | | Director | | | May 26, 1943 | | | Mar. 23, 2004 |
| Kevin Flaherty | | | Director | | | Dec. 20, 1959 | | | May 1, 2007 |
| Colin D. Patterson | | | CEO and President | | | Jan. 29, 1954 | | | Jul. 15, 2005 |
| T. Douglas Willock | | | Director | | | Jan 8,1953 | | | Feb.16,2006 |
| Peter Tiedemann | | | CFO, Corporate Secretary | | | Sept 18,1942 | | | Jul. 25, 2006 |
| Roger F. Dahn | | | VP Exploration | | | Sep. 24, 1959 | | | Jan. 12, 2004 |
| Pamela Campagnoni | | | VP Finance | | | Dec. 6, 1972 | | | Aug. 1, 2006 |
| Charles Barclay | | | VP Operations | | | Dec. 18, 1950 | | | Mar. 1,2006 |
| (1) | Completed his term as director as of June 7, 2007 |
A brief education and relevant work history of our Directors and Management follows:
David A. Seton
Mr. David Seton has served variously as a director or managing director of a number of companies listed on the New Zealand and Australian Stock Exchanges. He takes responsibility for the overall coordination of Olympus’ strategic planning as Executive Chairman and Director of Olympus. He has seventeen years business experience in Vietnam and over 25 years in the mining industry. David Seton is the brother of John Seton.
Jon Morda
Jon Morda has a Bachelor of Arts degree from the University of Toronto (1975) and is a member of the Institute of Chartered Accountants of Ontario (1980). He has over 20 years’ experience in the mining industry, with several positions as Chief Financial Officer of mineral exploration and gold producing companies listed on the Toronto Stock Exchange. Mr. Morda is presently Chief Financial Officer of Alamos Gold Inc. in Toronto, a TSX listed company.
John A.G. Seton
John Seton, a lawyer, is a former President of Olympus Pacific, and has extensive Business experience in Vietnam, serving at one time as Chairman of the Vietnam/New Zealand Business Council. He is or has been a director of a number of companies listed on the Australian Stock Exchange and the New Zealand Stock Exchange. He is currently the Chairman of Australian-listed Summit Resources Ltd. and Zedex Minerals Limited and a Director of New Zealand-listed SmartPay Limited. John Seton is the brother of David Seton.
Peter G. Meredith
A Canadian Chartered Accountant, Mr. Meredith is Deputy Chairman of Ivanhoe Mines Ltd. having served previously as CFO of Ivanhoe Mines Ltd. for 10 years. Previously, he spent 31 years with Deloitte and Touche LLP, on of the world’s largest accounting firms. He was a senior partner with Deloitte for 20 years and was a member of its board of directors. He brings extensive experience
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Table of Contentsin regulatory compliance and corporate finance, with an emphasis on public resource companies. Peter holds directorships with the following corporations:Asia Gold Corp. (TSX- Venture Exchange), Entrée Gold Inc. (TSX Exchange), Jinshan Gold Mines Inc. (TSX Exchange), Ivanhoe Mines Limited (TSX Exchange, NASDAQ, NYSE) and the Great Canadian Gaming Corporation (TSX Exchange).
T. Douglas Willock
Douglas Willock has over 20 years of experience in the investment banking industry having co-led the Canadian mining groups of National Bank Financial (formerly, Lévesque Beaubien Geoffrion Inc.) and Deutsche Bank Securities Inc. He was a vice-president of Scotia Capital Markets and an assistant vice-president at CIBC World Markets. Doug is currently the President and Chief Executive Officer and a Director of Polar Mining Corporation, a privately held Ontario company. From May 2001 to December 2006, he acted for Exall Resources Limited (now known as Gold Eagle Mines Ltd.), initially as Vice President, Corporate Development and later as a Director. Doug has a Bachelor of Arts (History) from the University of British Columbia and a Masters of Business Administration from the Richard Ivey School of Business at the University of Western Ontario.
Kevin Flaherty
Kevin Flaherty has considerable Board experience with successful publicly traded Canadian mining and exploration companies. Mr. Flaherty is based in Canada and presently is Chairman and Chief Executive Officer of Celtic Minerals Ltd. Kevin Flaherty is independent Director of Olympus Pacific Minerals, Inc. and Chairman of Corp. Governance, member of Audit Committee, and member of Compensation Committee. Kevin has BA in Economics and MBA from University of Calgary.
Colin D. Patterson
Mr. Colin Patterson is a professional engineer and brings over thirty years’ experience in the mining industry to the Applicant. He holds degrees in Mining Engineering from the University of Witwatersrand and Business Economics and Finance from the University of South Africa. In addition to having held senior positions, including Emperor Mines, Pan Palladium and Zedex Minerals Limited., Mr. Patterson has also owned and managed a consulting firm involved in numerous projects worldwide. He is a fellow of the Australian Institute of Mining and Metallurgy, a Chartered Professional Mining Engineer (Australia. Colin spends about 90% of his time on Olympus Pacific Minerals Inc. Colin is a director of Odin Mining and Exploration Ltd., listed on the TSX-Venture exchange, and Phoenix Gold Fund and provides gen eral advisory work for a selected few business colleagues.
Peter Tiedemann
Peter Tiedemann received a Bachelor of Commerce degree from the University of Auckland and has considerable financial and consulting experience spanning some 40 years. His involvement with chief financial officer responsibilities has covered a wide range of companies including Fortune 500 corporations: Canon NZ, Pitney Bowes NZ and DRG New Zealand Ltd. Peter spends about 80% of his time on Olympus Pacific Minerals Inc. Peter is a partner in Tiedemann & Partners and a director of Wholesale Products Trading Limited, both private enterprises. Tiedemann & Partners provides business consulting to clients and Wholesale Products Trading Limited performs non-mining joint venture and project management services.
Roger Dahn
Roger Dahn has a Bachelor of Science (geology) degree from Mount Allison University (1981) and is a member of the Association of Professional Engineers and Geoscientists of New Brunswick. He has over 20 years of experience in the mining exploration industry having worked for a number of major gold mining companies.
Pamela Campagnoni
Ms. Campagnoni received a Bachelor of Commerce degree from the University of Toronto. She went on to successfully obtain her CA designation in 1997 and received her CPA (Illinois) in 2000.
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Table of ContentsMs. Campagnoni spent 10 years in the Assurance practice with Ernst & Young LLP, leaving as a senior audit manager and the last two years with Barrick Gold Corp. as senior manager leading the Accounting Policy and Continuous Disclosure Group.
Charles Barclay
Charles Barclay is a former member of the association of Mine Managers of South Africa. He has 35 years experience in the gold mining sector, of which 25 years have been in senior management roles in developing and ‘third world’ jurisdictions. Since leaving the role of COO of Emperor Mines, Fiji, in 2000, he has worked in Malaysia and Papua New Guinea as an independent consultant designing mines and constructing one before joining Olympus in February 2006.
6B. Compensation
Table No. 7: Compensation of Directors, Management and Employees
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | | Year(1) | | | Annual Compensation | | | Long Term Compensation | | | |
| Salary
($)(2) | | | Bonus
($) | | | Other
Annual
Compen-
sation ($) | | | Awards | | | Payouts | | | |
| Securities
Under Options/
SARs Granted
(#)(3) | | | Restricted
Shares or
Restricted
Share Units
($) | | | LTIP
Payouts
($) | | | All
Other
Compensation
($) |
| David A. Seton(4) | | | | | 2006 | | | | | | 174,375 | | | | | | 70,319 | | | | Nil | | | Nil | | | N/A | | | N/A | | | Nil |
| Chairman & CEO | | | | | 2005 | | | | | | 164,822 | | | | | | 40,608 | | | | Nil | | | | | 2,000,000 | | | | N/A | | | N/A | | | Nil |
| | | | | | 2004 | | | | | | 65,323 | | | | Nil | | | Nil | | | Nil | | | N/A | | | N/A | | | Nil |
| Peter Tiedemann | | | | | 2006 | | | | | | 65,742 | | | | N/A | | | N/A | | | | | 100,000 | | | | N/A | | | N/A | | | N/A |
| Acting CFO & Secretary | | | | | 2005 | | | | | | N/A | | | | N/A | | | N/A | | | | | N/A | | | | N/A | | | N/A | | | N/A |
| | | | | | 2004 | | | | | | N/A | | | | N/A | | | N/A | | | | | N/A | | | | N/A | | | N/A | | | N/A |
| Colin Patterson(5) | | | | | 2006 | | | | | | 192,710 | | | | 70,319 | | | N/A | | | Nil | | | N/A | | | N/A | | | N/A |
| CEO and President | | | | | 2005 | | | | | | 119,603 | | | | 39,554 | | | N/A | | | | | 2,000,000 | (6) | | | N/A | | | N/A | | | N/A |
| | | | | | 2004 | | | | | | N/A | | | | N/A | | | N/A | | | | | N/A | | | | N/A | | | N/A | | | N/A |
| Roger Dahn | | | | | 2006 | | | | | | 149,947 | | | | N/A | | | N/A | | | | | 316,140 | | | | N/A | | | N/A | | | N/A |
| VP Exploration(7) | | | | | 2005 | | | | | | 132,000 | | | | N/A | | | N/A | | | | | 197,500 | | | | N/A | | | N/A | | | N/A |
| | | | | | 2004 | | | | | | 120,000 | | | | N/A | | | N/A | | | | | 250,000 | | | | N/A | | | N/A | | | N/A |
| Charles Barclay(8) | | | | | 2006 | | | | | | 176,907 | | | | 33,557 | | | N/A | | | | | 1,000,000 | | | | N/A | | | N/A | | | N/A |
| VP Operations | | | | | 2005 | | | | | | N/A | | | | N/A | | | N/A | | | | | N/A | | | | N/A | | | N/A | | | N/A |
| | | | | | 2004 | | | | | | N/A | | | | N/A | | | N/A | | | | | N/A | | | | N/A | | | N/A | | | N/A |
| Erik H. Martin(9) | | | | | 2006 | | | | | | 82,235 | | | | 10,665 | | | Nil | | | | | 12,110 | | | | N/A | | | N/A | | | N/A |
| Former CFO | | | | | 2005 | | | | | | 136,171 | | | | 3,835 | | | Nil | | | | | 300,000 | | | | N/A | | | N/A | | | Nil |
| | | | | | 2004 | | | | | | 49,000 | | | | Nil | | | Nil | | | | | 200,000 | | | | N/A | | | N/A | | | N/A |
| Joseph J. Baylis(10) | | | | | 2006 | | | | Nil | | | Nil | | | Nil | | | Nil | | | N/A | | | N/A | | | N/A |
| Former President | | | | | 2005 | | | | | | 87,710 | | | | Nil | | | Nil | | | 1,250,000(11) | | | N/A | | | N/A | | | US$73,333 |
| & CEO | | | | | 2004 | | | | | | 145,859 | | | | Nil | | | Nil | | | Nil | | | N/A | | | N/A | | | N/A |
| Donald Robson(12) | | | | | 2006 | | | | | | N/A | | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A |
| Former Vice- | | | | | 2005 | | | | | | N/A | | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A | | | N/A |
| President & CFO | | | | | 2004 | | | | | | 55,000 | | | | Nil | | | Nil | | | Nil | | | N/A | | | N/A | | | N/A |
NOTES:
| (1) | Financial years ended December 31. |
| (2) | Amounts converted to Canadian dollars using Bank of Canada exchange rates at end of December for each respective year rounded to the nearest dollar. |
| (3) | Figures represent options granted during a particular year; see ‘‘Aggregate Option’’ table for the aggregate number of options outstanding at year end. |
| (4) | Mr. Seton was appointed as Chief Executive Officer of the Company on November 17, 2005. |
| (5) | Mr. Patterson was appointed President of the Company on July 15, 2005. |
| (6) | Of these options, 1,000,000 shares are subject to vesting on achievement of set objectives. |
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Table of Contents| (7) | Mr. Dahn was appointed VP Exploration of the Company on January 12, 2004. |
| (8) | Mr. Barclay was appointed Country Manager (Vietnam) of the Company on March 1, 2006. |
| (9) | Mr. Martin ceased to be the Chief Financial Officer of the Company on July 25, 2006. |
| (10) | Mr. Baylis ceased to be the President and Chief Executive Officer of the Company on July 12, 2005. |
| (11) | The options are subject to an exercise provision (the ‘‘Exercise Provision’’) whereby Mr. Baylis may not sell more than 500,000 optioned shares within any six month period upon exercise of all or any part of the option without the prior written consent of the Company and the Company, may within that ten day notice period (the ‘‘Exercise Sale Notice’’) pay to Mr. Baylis, in lieu of issued common shares of the Company upon such proposed exercise of the option, a cash amount equal to the spread between the exercise price of the option proposed to be exercised and the average of the closing price of the Company’s common shares as reported on the Toronto Stock Exchange (‘‘Exchange’’) for the five trading days preceding the date of the Exercise Sale Notice and, in the event of such election and payment by the Company, that portion of the option will be cancelled. If Mr. Baylis proposes in the Exercise Sale Notice to sell 100,000 or more shares within 7 days of the exercise of the option the Company will have the right, in lieu of the foregoing cash payment, to arrange for the purchase of such shares over the facilities of the Exchange. |
| (12) | Mr. Robson ceased to be the Chief Financial Officer on October 12, 2004 and on June 16, 2005 ceased to be the Vice-President. |
6B.1. Termination Agreements for Directors and Senior Officers
The Company currently has the following arrangement set forth below in place with respect to remuneration received or that may be received by the executive officers or directors of the Company in respect of compensating such officer or director in the event of termination of employment (as a result of resignation, retirement, change of control, etc.) or a change in responsibilities following a change of control, where the value of such compensation exceeds $100,000 per officer or director.
On July 15, 2005, the Company entered into a management services agreement (‘‘the Agreement’’) with Mr. Joseph Baylis, the former President and Chief Executive Officer of the Company, doing Business as Wyndspire Advisors, which provides for a base salary of US$160,000 plus reimbursement of expenses (the ‘‘Fee’’) and the payment of up to $10,000 for reimbursement of all legal fees and disbursements incurred in connection with his resignation as President and Chief Executive Officer and the entering into the Agreement for the appointment as independent consultant. In the event of termination, without cause, or default by the Company, Mr. Baylis was entitled to receive a severance payment in lieu of notice, equal to the full compensation through to the date of termination plus a lump sum payment equal to the balance of the Fee which would otherwise have been paid for the remainder of the term, and any options were to remain in full force and effect for the balance of their term. The Agreement was for a term of a one year.
Under the terms of a management services agreement dated July 16, 2005, (the ‘‘Management Services Agreement’’), between the Company and Orangue Holdings Limited (‘‘Orangue’’), a company associated with David A. Seton, Chairman and Chief Executive Officer the Company, it was agreed that Orangue would provide a Manager – David A. Seton (the ‘‘Consultant’’) to serve as Chief Executive Officer of the Company for a period of two years at a rate of US$150,000 per year with annual bonus up to a maximum of $150,000 measured against objectives set by the Board. Under the Management Services Agreement, the Consultant received 1,000,000 fully vested stock options of the Company and an additional 1,000,000 vesting on achievement of set objectives. The Company can terminate the Management Services Agreement by paying a severance to Orangue equal to three months or six months of services depending if the termination occurs within the first 12 months or the last 12 months of the Management Services Agreement, respectively. On March 22, 2007, an extension and amendment of the existing July 16, 2005 contract was signed. The extension period covers from July 16, 2007 to July 16, 2009. Main amendments to the contract: (i) $180,000 CAD per annum and half-yearly bonus of up to 50% of the annual fee each January and July at the discretion of the Board with no performance critera; (ii) grant of 3,000,000 five-year share options exercisable (subject to TSX approval) at CAD 0.75 a share. The share options will be vested over 2 years (1/3 immediately, 1/3 on 16 July 2008 and 1/3 on the earlier of 16 July 2009 and completion of contract; (iii) ‘‘takeover of control’’ definition to include an involuntary change in composition of the majority board.
Under the terms of a management services agreement dated July 16, 2005 between the Company and Momentum Resources International Pty Ltd., a company owned by Colin Patterson, President of the Company, it was agreed that Colin Patterson would provide two years of service as President of the Company at an annual fee of US $156,000 per year with a half-yearly incentive bonus up to a
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Table of Contentsmaximum of 50% of the annual fee based on Board review and approval of set objectives. Under the agreement, Mr. Patterson would receive on two occasions options to purchase 1,000,000 shares at a specified price. The Company can terminate the agreement by paying a severance amount equal to three months or six months of services depending if the termination occurs within the first 12 months or the last 12 months of the Management Services Agreement, respectively. On March 22, 2007, an extension and amendment of the existing July 16, 2005 contract was signed. The extension period covers from July 16, 2007 to July 16, 2009. Main amendments to the contract: (i) an annual fee of $250,000 USD per annum; (ii) grant of 1,000,000 five-year share options exercisable (subject to TSX approval) at CAD 0.65 a share. The share options will be vested over two years (1/3 immediately, 1/3 on 16 July 2008 and 1/3 on the earlier of 16 July 2009); (iii) ‘‘takeover of control’’ definition to include an involuntary change in composition of the majority board; (iv) amendment to providing for six month’s pay in lieu of the current three months for termination without cause; and (v) bonus paid out at discretion of Board based on amended guidelines as agreed upon by Mr. Patterson, Chairman of the Board and Chairman of the Compensation Committee.
If Mr. Patterson resigns as a result of a takeover of control, the Company must pay: (i) his fees from notice of resignation to the date of the resignation plus any awards previously made available that are unpaid at the time; (ii) in lieu of further fees subsequent to date of resignation, one year’s fee and bonus based on Mr. Patterson’s highest monthly fees in effect during the previous six months period immediately preceeding the date of resignation multiplied by twelve and highest half year bonus paid in the previous 24 months multiplied by 2; (iii) in lieu of common shares of the Company issuable upon exercise of options, if any, previously granted to Mr. Patterson under the Company’s incentive programs and remaining unexercised on the fourth day following the Date of Resignation, which options shall be cancelled upon the payment referred to herein, a cash amount equal to the aggregate spread between the exercise price of al l options held by Mr. Patterson, whether or not then fully exercisable, and the higher of (a) the average of the closing prices of the Company’s common shares as reported on the TSX Venture Exchange (or such other stock exchange on which the Company’s shares may be listed for 30 days preceeding the Date of Resignation or (b) the average price actually paid for the most highly priced one percent (1%) of the Company’s common shares, however and for whatever reason by any person who achieves control of the Company; (iv) Mr. Patterson shall have the right exercisable up to the fourth day following the Date of Resignation, to elect to waive the application of following termination of Mr. Patterson’s services. Mr. Patterson may exercise this election on or before 5:00p.m. Vancouver time on such fourth day by delivering notice in writing to the Company of such waiver whereupon: (a) Mr. Patterson’s options on shares of the Company shall remain in full force and effect for one year from the date of termination and in accordance with the original terms but shall be deemed to have been amended to the effect that any provisions which would otherwise defer exercise of such options or terminate such options as a result of the termination of Mr. Patterson’s services shall be null and void and (b) the Company shall be relieved of any obligation in connection with termination of Mr. Patterson’s employment to make the payment in under (iii).
Under the terms of a management services agreement dated June 5, 2006 between the Company and Action Management Ltd., a company owed by Charles Barclay, VP Operations, it was agreed that Mr. Barclay would provide two years of service as VP Operations at an annual fee of US $151,800 with an semi-annual bonus of up to a maximum of 25% of the annual fee based on Board review and approval of set objectives. Under the agreement, Mr. Barclay would receive options to purchase 1,000,000 shares at a specified price based on specific criteria. The Company can terminate the agreement by paying a severance amount equal to three months or six months of services depending if the termination occurs within the first three months or after the first three months of the Management Services Agreement, respectively. If Mr. Barclay resigns as a result of a takeover of control, the Company must pay (i) his fees from notice of resignation to the date of the res ignation plus any awards previously made available that are unpaid at the time; (ii) in lieu of further fees subsequent to date of resignation, one year’s fee and bonus based on Mr. Barclay’s highest monthly fees in effect during the previous six months period immediately preceeding the date of resignation multiplied by twelve and highest half year bonus paid in the previous 24 months multiplied by 2; (iii) in lieu of
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Table of Contentscommon shares of the Company issuable upon exercise of options, if any, previously granted to Mr. Barclay under the Company’s incentive programs and remaining unexercised on the fourth day following the Date of Resignation, which options shall be cancelled upon the payment referred to herein, a cash amount equal to the aggregate spread between the exercise price of all options held by Mr. Barclay, whether or not then fully exercisable, and the higher of (a) the average of the closing prices of the Company’s common shares as reported on the TSX Venture Exchange (or such other stock exchange on which the Company’s shares may be listed for 30 days preceeding the Date of Resignation or (b) the average price actually paid for the most highly priced one percent (1%) of the Company’s common shares, however and for whatever reason by any person who achieves control of the Company; and (iv) Mr. Barclay shall have the right exercisable up to the fourth day following the Date of R esignation, to elect to waive the application of following termination of Mr. Barclay’s services. Mr. Barclay may exercise this election on or before 5:00p.m. Vancouver time on such fourth day by delivering notice in writing to the Company of such waiver whereupon: (a) Mr. Barclay’s options on shares of the Company shall remain in full force and effect for one year from the date of termination and in accordance with the original terms but shall be deemed to have been amended to the effect that any provisions which would otherwise defer exercise of such options or terminate such options as a result of the termination of Mr. Barclay’s services shall be null and void and (b) the Company shall be relieved of any obligation in connection with termination of the Mr. Barclay’s employment to make the payment under (iii).
Under the terms of the service agreement dated March 1, 2005 between the Company and Roger Dahn, VP Exploration, it was agreed that Mr Dahn would provide three years of service as VP Exploration at an annual fee of $150,000 with a cash bonus of up to a maximum of one-third of the annual fee and would receive an annual options grant of no less than 300,000 options per annum. The Company can terminate the agreement by giving the service provider one lump sum equal to the term remaining on the agreement. Effective August 1, 2007, Mr. Dahn will become a consultant to the Company instead of a direct employee.
Under the terms of the service agreement dated April 1, 2007 between the Company and Wholesale Products Trading Limited, a company associated with Peter Tiedemann, it was agreed that Mr Tiedemann is to serve as Chief Financial Officer of the Company effective on the date of the agreement until terminated. Mr. Tiedemann, As Chief Financial Officer will be compensated as follows: will be paid at a monthly fee of US$11,250 (yielding an annual fee of US$135,000), subject to adjustments made pursuant to the terms of the agreement; half-yearly reviews of performance to be carried out on February 1 and August 1 2008 which will be measured against Set Objectives; which based on this review, the Board may at its discretion, pay a half-yearly incentive bonus of up to 12.5% of the Annual Fee each January and July for as long as Mr. Tiedemann continues to provide service to the Company; on the date of the Agreement and subject to regulatory acceptance, Mr. Tiedemann will receive options to purchase capital in the Company at any time up to and including a date five years from the date of this Agreement 1,000,000 shares at $0.65 per share and will vest 1/3 on issue, 1/3 at the end of year one and 1/3 at the end of two years. This service agreement may be terminated by Mr. Tiedemann by giving the Company at least six weeks written notice, provided that the Company shall have the right to give written notice to Mr. Tiedemann that the Company is waiving the full notice period and is permitting this Agreement and the services of Mr. Tiedemann to be terminated upon a date that is less than six weeks after the date of Mr. Tiedemanns’s Termination Notice as determined by the company and further provided that all fees, benefits, and bonuses payable to Mr. Tiedemann and all other obligations of the Company to Mr. Tiedemann shall cease upon such termination. The Company may terminate this agreement and the engagement of Mr. Tiedemann without cause, in which event, the Company is obligated to provide Mr. Tiedemann with a severance pay in lieu of notice which shall be payable on the 5th day following the notice of the termination and shall consist of the following amounts: Mr. Tiedemann’s full fee though the date of termination at the date in effect at the time of the Company’s Notice of Termination, plus an amount equal to that amount, if any, of any awards previously made to the Mr. Tiedemann which have not been paid; in lieu of further fee for the periods subsequent to the date of Company’s Notice of Termination, a severance payment equal to six (6) months of Mr. Tiedemann’s then existing annual
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Table of Contentsfee; options on shares of the Company shall remain in full force and effect for the balance of the term of such options and the option agreements shall be deemed to have been amended, to the extent required, to the effect that any of such provision which would otherwise delay the vesting of such options or terminate such options as a result of the termination of Mr. Tiedemann’s services shall be null and void.
6B.2. Stock Option Plan
On September 12, 2003, the Company adopted a stock option plan which was re-approved by its shareholders on June 8, 2006. On June 7, 2007, the shareholders approved a new stock option plan to replace the existing plan. Under the plan, options to purchase shares of the Company may be granted to directors, officers, employees and consultants of the Company. The maximum number of shares that may be issued under the plan is 12% (on a non-diluted basis) of the Company’s issued and outstanding shares. Options granted under the plan have a maximum term of five years and vesting dates are determined by the Board of Directors on an individual basis at the time of granting.
| | |
| 1. | The maximum number of options that can be issued at any one time cannot be higher than 12% of the Company’s issued and outstanding share capital (on a non-diluted basis). |
| | |
| 2 | Options are subject to an accelerated expiry term (the ‘‘Accelerated Term’’) for those options held by individuals who are no longer associated with the Company. The Accelerated Term requires that options held by individuals who resign or are terminated from the Company expire on the earlier of: (i) the original expiry term; or (ii) 90 days from the date of resignation or termination; or (ii) the date provided for in the employment or consulting agreement between participant and the Company; however, shareholder approval is required if this would cause the options to extend beyond original expiry. |
| | |
| 3. | The maximum number of shares that may be reserved for option grant to any one individual insider in any 12 month period may not exceed 5% of the common shares issued and outstanding (on a non-diluted basis) on the date of grant; |
| | |
| 4. | The maximum number of shares that may be reserved for issuance to insiders of the Company may not exceed 10% of the common shares issued and outstanding (on a non-diluted basis) on the date of grant; |
| | |
| 5. | The maximum number of shares that may be issued to insiders, as a group, within a one year period may not exceed 10% of the common shares issued and outstanding (on a non-diluted basis) on the date of issuance; |
| | |
| 6. | The maximum number of shares that may be issued to any non-employee directors, as a group, during any 12 month period shall not exceed 5% of the common shares issued and outstanding (on a non-diluted basis) on the date of grant; |
| | |
| 7. | Subject to the policies, rules and regulations of any lawful authority having jurisdiction (including Exchange), the Board may, at any time, withour further action by its shareholders, amend the Plan or any Option granted hereunder in such respects as it may consider advisable. The Board may not, however, without the consent of the Participant, alter or impair any of the rights or obligations under an Option theretofore granted. No Common Shares shall be issued under any amendment to this Plan unless and until the amended Plan has been approved by the Exchange. The Plan may be abandoned or terminated in whole or in part at any time by the Board, except with respect to any Option then outstanding under the Plan |
| | |
| 8. | The Option Price of any Option granted shall be determined by the Board but shall not be less than the volume weighted average trading price of the common shares on the Exchange, or another stock exchange where the majority of the trading volume and value of the listed shares occurs, for the 5 trading days immediately prior to the date of grant (or, such other price required by the Exchange) (calculated by dividing the total value by the total volume of securities traded for the relevant period) (‘‘Market Price’’). |
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Table of Contents | | |
| 9. | Upon the announcement of any form of transaction (a ‘‘Change of Control Transaction’’) which, if completed, would constitute a Change of Control and under which Common Shares of the Company are to be exchanged, acquired or otherwise disposed of, including a take-over bid, or tender offer made for all or any of the issued and outstanding common shares, the Company shall, as soon as practicable following the announcement of such Change of Control Transaction, notify each Participant currently holding an Option of the Change of Control Transaction, and all Options of the Participant which have not vested shall be deemed to be fully vested and exercisable solely for purposes of permitting the Participant to exercise such Options in or der to participate in the Change of Control Transaction in respect of the Common Shares (the ‘‘Optioned Shares’’) thereby acquired. |
During the year ended December 2005, 8,420,000 options were granted and were valued at $1,306,520. The total stock-based compensation expense recognized during the year ended December 31, 2005 for stock options granted in the current and prior years but vesting during 2005 was $961,075 using the fair value method and was credited to contributed surplus. Compensation cost for 2005 has been calculated using the Black-Scholes pricing model with the following weighted average assumptions: fair value of options granted of $0.155 (2004 – $0.21), expected life of options of 3 years (2004 – 3 years), expected stock price volatility of 78.7% (2004 – 78.7%), expected dividend yield of 0% (2004 – 0%) and risk-free interest rate of 2.98% (2004 – 3.45%).
6C. Board Practices
Each director is currently serving a (1) year term, renewable at the annual shareholder meeting. Zedex has right to nominate two directors. Zedex had nominated John Seton and H. David Kennedy. H. David Kennedy had resigned and Zedex chose not to replace Mr. Kennedy.
The Company has an Audit Committee, which recommends to the Board of Directors the engagement of the independent auditors of the Company and reviews with the independent auditors the scope and results of the Olympus’ audits, the Company’s internal accounting controls, and the professional services furnished by the independent auditors to the Company. The current members of the Audit Committee, each of whom is independent, are as follows: Jon Morda (Chairman),
Peter G. Meredith, and T. Douglas Willock.
The Company’s Compensation Committee is comprised of three independent directors: T. Douglas Willock (Chairman), Peter Meredith and Jon Morda.
Corporate Governance Committee is comprised of Peter Meredith (Chairman), John Seton and T. Douglas Willock.
6D. Employees
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2003 | | | 2004 | | | 2005 | | | 2006 |
| Vietnam | | | | | 28 | | | | | | 34 | | | | | | 79 | | | | | | 340 | |
| Toronto | | | | | 1 | | | | | | 2 | | | | | | 5 | | | | | | 5 | |
| Total | | | | | 29 | | | | | | 36 | | | | | | 84 | | | | | | 345 | |
In 2006, on average, there was also approximately 105 contract workers that were engaged in Vietnam that are not included in the above average employee headcount.
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Table of Contents6E. Share Ownership
The following table shows the shareholdings of the Directors and Senior Management, as at March 31, 2007.
6.E.1 Details of Share Ownership
Table No. 8: Shareholdings of Directors and Senior Management as at March 31, 2007
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Title of Class | | | Name of Beneficial Owner | | | Shares Held | | | Options Vested
or Vesting
within 60 days | | | Beneficial
Ownership | | | Percent of
Class |
| Common | | | David A. Seton | | | | | 23,334 | | | | | | 2,100,000 | | | | | | 2,123,334 | | | | | | 1.12 | |
| Common | | | John A. G. Seton | | | | | 144,245 | | | | | | 933,333 | | | | | | 1,077,578 | | | | | | 0.57 | |
| Common | | | Peter Tiedemann | | | | | 20,000 | | | | | | 433,333 | | | | | | 453,333 | | | | | | 0.24 | |
| Common | | | Jon Morda | | | | | 28,500 | | | | | | 366,667 | | | | | | 395,167 | | | | | | 0.21 | |
| Common | | | Peter G. Meredith | | | | | Nil | | | | | | 783,333 | | | | | | 783,333 | | | | | | 0.42 | |
| Common | | | T. Douglas Willock | | | | | 91,000 | | | | | | 325,667 | | | | | | 416,667 | | | | | | 0.22 | |
| Common | | | Colin D. Patterson | | | | | 155,000 | | | | | | 1,333,333 | | | | | | 1,488,333 | | | | | | 0.79 | |
| Common | | | Roger Dahn | | | | | Nil | | | | | | 747,500 | | | | | | 747,500 | | | | | | 0.40 | |
| Common | | | Pam Campagnoni | | | | | Nil | | | | | | 33,333 | | | | | | 33,333 | | | | | | 0.02 | |
| Common | | | Joseph Baylis | | | | | 50,000 | | | | | | 1,350,000 | | | | | | 1,400,000 | | | | | | 0.74 | |
| Common | | | Charles Barclay | | | | | Nil | | | | | | 1,000,000 | | | | | | 1,000,000 | | | | | | 0.53 | |
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Table of ContentsThe following table sets forth the Company’s outstanding stock options as at March 31, 2007 of Directors and Senior Management:
Table No. 9: Stock Options Outstanding as at March 31, 2007
| | | | | | | | | | | | | | | | | | |
| Name | | | Number of
Common-voting
Shares | | | Exercise Price | | | Grant Date | | | Expiration Date |
| David A. Seton | | | | | 100,000 | | | | | | 0.50 | | | | Jan 6, 2003 | | | Jan 6, 2008 |
| | | | | | 1,000,000 | | | | | | 0.32 | | | | Aug 31, 2005 | | | Aug 31, 2010 |
| | | | | | 1,000,000 | | | | | | 0.32 | | | | Sept 29, 2005 | | | Sept 29, 2010 |
| | | | | | 3,000,000 | | | | | | 0.75 | | | | Mar 5, 2007 | | | Mar 5, 2012 |
| John A. G. Seton | | | | | 100,000 | | | | | | 0.50 | | | | Jan 6, 2003 | | | Jan 6, 2008 |
| | | | | | 500,000 | | | | | | 0.32 | | | | Aug 31, 2005 | | | Aug 31, 2010 |
| | | | | | 1,000,000 | | | | | | 0.75 | | | | Mar 5, 2007 | | | Mar 5, 2012 |
| Jon Morda | | | | | 250,000 | | | | | | 0.32 | | | | Aug 31, 2005 | | | Aug 31, 2010 |
| | | | | | 350,000 | | | | | | 0.65 | | | | Mar 5, 2007 | | | Mar 5, 2012 |
| Peter G. Meredith | | | | | 200,000 | | | | | | 0.44 | | | | Apr 19, 2004 | | | Apr 19, 2009 |
| | | | | | 500,000 | | | | | | 0.32 | | | | Aug 31, 2005 | | | Aug 31, 2010 |
| | | | | | 250,000 | | | | | | 0.65 | | | | Mar 5, 2007 | | | Mar 5, 2012 |
| T. Douglas Willock | | | | | 159,000 | | | | | | 0.55 | | | | Feb16, 2006 | | | Feb16, 2011 |
| | | | | | 500,000 | | | | | | 0.65 | | | | Mar 5, 2007 | | | Mar 5, 2012 |
| Colin D. Patterson | | | | | 1,000,000 | | | | | | 0.32 | | | | Aug 31, 2005 | | | Aug 31, 2010 |
| | | | | | 1,000,000 | | | | | | 0.32 | | | | Sept 29, 2005 | | | Sept 29, 2010 |
| | | | | | 1,000,000 | | | | | | 0.65 | | | | Mar 5, 2007 | | | Mar 5, 2012 |
| Roger Dahn | | | | | 250,000 | | | | | | 0.50 | | | | Feb18, 2004 | | | Feb18, 2009 |
| | | | | | 197,500 | | | | | | 0.32 | | | | Aug 31, 2005 | | | Aug 31, 2010 |
| | | | | | 300,000 | | | | | | 0.50 | | | | Aug 9, 2006 | | | Aug 9, 2011 |
| Pam Campagnoni | | | | | 100,000 | | | | | | 0.51 | | | | Jul 18, 2006 | | | Jul 18, 2011 |
| Jean Bailly | | | | | 66,667 | | | | | | 0.32 | | | | Aug 31, 2005 | | | Aug 31, 2006 |
| Joseph Baylis | | | | | 500,000 | | | | | | 0.40 | | | | Sept 12, 2003 | | | Sept 12, 2008 |
| | | | | | 850,000 | | | | | | 0.40 | | | | Jul 15, 2005 | | | Jul 15, 2010 |
| Charles Barclay | | | | | 500,000 | | | | | | 0.36 | | | | Jan 25, 2006 | | | Jan 25, 2011 |
| | | | | | 500,000 | | | | | | 0.43 | | | | Nov 3, 2006 | | | Nov 3, 2011 |
| Peter Tiedemann | | | | | 100,000 | | | | | | 0.51 | | | | Jul 18, 2006 | | | Jul 18, 2011 |
| | | | | | 1,000,000 | | | | | | 0.65 | | | | Mar 5, 2007 | | | Mar 5, 2012 |
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Table of ContentsITEM 7: Major Shareholders and Related Party Transactions
7A. Major Shareholders
To the knowledge of the directors and senior officers of the Company, the only persons or companies who beneficially own, directly or indirectly or exercise control or direction over shares carrying more than 5% of the voting rights attached to all outstanding shares of the Company are as at March 31, 2007:
| | | | | | | | | | | | |
| Name | | | No. of Shares | | | Percentage |
Dragon Capital Group Limited
Ho Chi Minh City, Vietnam | | | | | 72,833,441 | (1) | | | | | 38.98 | % |
Zedex Minerals Limited
Auckland, New Zealand | | | | | 31,356,849(2 | ) | | | | | 16.78 | % |
Notes:
| (1) | Of these securities 39,369,227 shares are registered in the name of Vietnam Growth Fund Limited, 19,708,500 shares are registered in the name of Vietnam Enterprise Investments Limited, 12,285,714 are registered in the name of Vietnam Dragon Fund Limited, 1,270,000 shares are registered in the name of Dragon Capital Markets Limited and 200,000 shares are registered in the name of Dragon Capital Management Limited. |
| (2) | Mr. John A. G. Seton, director, is an insider and director of Zedex Minerals Limited. |
Beginning in October 2004, the Dragon Capital Group Limited started to acquire an interest in the Company and has continued to increase its ownership over 2005 and 2006, resulting in an ownership percentage of 39.05% as at September 30, 2006.
Since December 31, 2002, as a result of share issuances, the percentage ownership by Zedex Minerals Limited of the Company has decreased from 19% to 16.39% as at September 30, 2006.
As at December 31, 2002, Ivanhoe Mines Ltd. owned 18% of the Company which increased to 19% in 2004 as a result of the Vend-In Agreement. On May 25, 2005, Ivanhoe Mines Ltd. entered an agreement to sell their interest in the Company to the Vietnam Growth Fund Limited, part of the Dragon Capital Group Limited, and as a result, Ivanhoe Mines Limited holds no shares in the Company.
As at June 15, 2007, the Company was aware of 510 record holders in the United States, the host country, representing ownership of 8.30 per cent of the outstanding shares of the Company. The number of record holders consists of 463 non-objecting beneficial owners and 38 registered owners representing 10,889,254 shares and 4.737,329 shares, respectively.
7B. Related Party Transactions
During the years ended December 31, 2006, 2005 and 2004 and for the three-month period ended March 31, 2007, the Company entered into the following transactions with related parties:
| | |
| (a) | Paid $17,260 to Zedex Minerals in 2005 for a short-term loan of $1,500,000, bearing 10% interest. The loan was entered into and repaid during the third quarter of 2005. The Company also paid $3,852 to Zedex in 2005 as reimbursement of office expenses. The Company paid $126,371 to Zedex in 2004; comprised mainly of a refund of exploration contribution as stipulated in the Vend-In Agreement, net of amounts due by Zedex to the Company at the time of payment. In 2003, an amount of $115,108 was receivable from Zedex for their share of the exploration expense on the Phuoc Son project offset by a $52,989 accounts payable. One directors of the Company is related to Zedex; namely John Seton. |
| | |
| (b) | Paid or accrued $581,396 in 2006 [2005 – $420,597; 2004 – $453,611; 2003 – $387,229] for management fees and $147,377 in 2006 [2005 – $214,702] in reimbursement of expenses incurred on behalf of the Company to companies controlled by officers of the Company. The companies that were paid for management fees and reimbursement of expenses include the following: Bractea Enterprises Limited (previously named EHM Accounting) associated with Erik Martin in 2006, 2005, 2004 and 2003;Orangue Holdings Limited associated with |
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Table of Contents | | |
| | David Seton in 2006, 2005, 2004 and 2003; Momentum Resources International Pty Ltd associated with Colin Patterson in 2005; Wholesale Products Trading Limited associated with Peter Tiedemann in 2006; A. Fisher & Associates associated with Arthur Fisher in 2003; Claymore Management associated with John Seton in 2003; Braetek Enterprises associated with Jean Bailly in 2004; Sentinel Resources associated with Rod Murfitt in 2004; and Wyndspire Advisors associated with Joseph Baylis in 2004 and 2003. For the three-month period ended March 31, 2007, $130,188 for management fees and $25,778 in reimbursement of expenses incurred to companies controlled by officers of the Company including Orangue Holdings Limited associated with David Seton, Wholesale Products Trading Limited associated with Peter Tiedemann and Momentum Resources International Pty Ltd associated with Colin Patterson. Expenses that were reimbursed include the following costs: airfare, accomodation, meals, car rental, telecommunications , computer, courses, conferences and licenses. |
| | |
| (c) | Paid or accrued $67, 424 in 2006 [2005 – $26,536] and $21,230 for the three-month period ended March 31, 2007 in legal fees to a company controlled by John Seton, a director of the Company. In 2004, paid $10,269 [2003 – $66,677] in consulting fees to a Claymore Management Limited which is associated with John Seton, a director of the Company. |
| | |
| (d) | On January 1, 2006, Zedex was assigned the 2% gross production royalty less incremental costs when Ivanhoe assigned all its rights, title and interest in and to the debt, gross production royalties and royalty agreement. Refer to Exhibit 3.19 for the Assignment Agreement. Paid or accrued $26,228 in 2006 and $21,331 in royalties to Zedex, a shareholder of the Company, for the three-month period ended March 31, 2007. The royalty is calculated as 2% of the net sales amount equal to the revenues for gold and silver less refining and delivery costs. |
| | |
| (e) | Paid $320,380 (US$261,537) in 2005 to Dragon Capital Management (‘‘Dragon’’) in arrangement fees in regards to the equity financing closed on January 12, 2005 and the debt financing entered into on June 7, 2005. Dragon was granted 1,270,000 warrants exercisable at $0.40/unit for a period of one year from the date of closing. In December 2004, Dragon Capital Markets Limited (‘‘Dragon’’) offered debt financing of U.S. $2,000,000 (the ‘‘Loan’’) and equity financing of up to 12.7 million common shares of Olympus at C$0.40 per share subject to an over-allotment option. The term of the loan was two years bearing an interest rate equal to 8.5% per annum. Securi ty for the loan consisted of a pledge over Bogomin’s inventory and equipment and assignment of rights and interests in the Refining Contract. Olympus paid Dragon an arrangement fee of $320,380 and one non-transferable share purchase warrant for every 10 common shares sold under the equity financing allowing Dragon to purchase a share of Olympus at $0.40 per share for a period of one year from the date of closing of the equity financing. Refer to Item 7B(f) for repayment details on this loan. |
| | |
| (f) | On June 7, 2005, the Company entered into a US$2.0 million debt financing with Vietnam Growth Funds (a fund controlled by Dragon). The loan was repaid in full on October 13, 2005. Refer to Item 7B (e) for details on the Loan. |
| | |
| (g) | Vend-In Agreement in 2004 with Zedex and Ivanhoe as referred to as an exhibit in Section 10C under material contracts. As at December 31, 2004, Ivanhoe owned 19.6% of the outstanding common shares of the Company. One director of the Company, Peter Meredith, is a senior officer of Ivanhoe. |
| | |
| (h) | On March 19, 2007, the Company completed a non-brokered private placement of common shares of 21,528,571 at $0.56 per share with the net proceeds of $11,976,118. Of the $12,000,000 placement, $2,400,000 and $2,400,000 of common shares were purchased at $0.56 per share by Vietnam Growth Fund Limited and Vietnam Dragon Fund Limited (funds controlled by Dragon) and $2,450,000 of common shares at $0.56 per share were purchased by Zedex. |
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Table of ContentsThese transactions were in the normal course of operation and were measured at the exchange value which represented the amount of consideration established and agreed to by the related parties. These transactions were equivalent to terms agreed upon in similar transactions with non-affiliated parties. The transactions described under (b), (c) and (d) are expected to continue in the future whereas the transactions described under (a), (e), (f) (g) and (h) are completed and not expected to continue.
7C. Interests of Experts and Counsel
None.
ITEM 8: Financial Information
8A. Consolidated Statements and Other Financial Information
Reference is made to Item 17 Financial Statements for the financial statements included in this Registration Statement.
There are no legal proceedings of a material nature pending against the Company, or its subsidiaries. The Company is unaware of any legal claim known to be contemplated by any governmental authorities.
The Company has never paid a dividend and it is unlikely that the Company will declare or pay a dividend until warranted.
8B. Significant Changes
Reference is made to Item 17 Financial Statements, specifically Note 18 of the December 31, 2006 financial statements for a description of the differences of Canadian GAAP from U.S. GAAP. These descriptions would also apply in describing the March 31, 2007 U.S. GAAP differences. There are no changes between the type of March 31, 2007 U.S. GAAP differences when compared to the December 31, 2006 US GAAP differences. Refer to the Table No. 1 for the March 31, 2007 US GAAP selected financial data under Item 3A.
On June 26, 2007, the Company announced that it has filed a preliminary short form prospectus in the provinces of British Columbia, Alberta and Ontario for an offering of units (‘‘Units’’) on a best efforts basis resulting in gross proceeds of $25,000,000 (the ‘‘Offering’’). The Offering will be led by Loewen Ondaatje, McCutcheon Ltd. and assisted by a selling syndicate including M Partners Inc. (collectively, the ‘‘Agents’’). Each Unit will be comprised of one common share of the Company (a ‘‘Share’’) and one-half of one common share purchase warrant (‘‘Warrant’’). The terms of the offering, including number of Units offered, the offering price of the Unit and the exercise price of Warrants, will be determined at the time of pricing. Each whole Warrant will entitle the holder to acquire one common share of the Company for a period of 36 months after the closing of the Offering at an exercise price. The Company has also granted the Agents an option exercisable, in whole or in part, no later than 24 hours prior to the closing of the Offering, to increase the size of the Offering by such number of additional Units (the ‘‘Additional Units’’) as is equal to 15% of the number of Units sold under the Offering. The Additional Units will have the same terms as the Units. The Offering is scheduled to close on or about July 17, 2007 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals, including the approval of the Toronto Stock Exchange and the securities regulatory authorities. The net proceeds from the Offering will be used for further exploration and development of the Company’s Bong Mieu Gold and Phuoc Son Gold properties in Vietnam and the Capcapo property in the Philippines, begin the construction of the mine on the Phuoc Son Gold Property, and for working capital and general corporate purposes.
On June 26, 2007, the Company announced that its board of directors has approved the adoption of a Shareholder Rights Plan, subject to TSX and shareholder approval. The purpose of the Rights Plan is to provide shareholders and the Company’s Board of Directors with adequate time to consider
55
Table of Contentsand evaluate any unsolicited bid made for the Company, to provide the Board with adequate time to identify, develop and negotiate value-enhancing alternatives, if considered appropriate, to any such unsolicited bid, to encourage the fair treatment of shareholders in connection with any take-over bid for the Company and to ensure that any proposed transaction is in the best interests of the Company’s shareholders. The rights issued under the Rights Plan will become exercisable only if a person, together with its affiliates, associates and joint actors, acquires or announces its intention to acquire beneficial ownership of shares which when totalled with its current holdings total 20% or more of the Company’s outstanding common shares (determined in the manner set out in the Rights Plan), other than by a Permitted Bid. Permitted Bids must be made by way of a take-over bid circular prepared in compliance with applicable securities laws and, among other conditions, must remain open for 60&n bsp;days. In the event a take-over bid does not meet the Permitted Bid requirements of the Rights Plan, the rights will entitle shareholders, other than any shareholder or shareholders making the take-over bid, to purchase additional common shares of the Company at a substantial discount to the market price of the common shares at that time.
On March 19, 2007, the Company completed a non-brokered private placement, of 21,428,571 shares at a price of $0.56 per share, for gross proceeds of C$12,000,000. All shares issued have a hold period in Canada of four months from the closing of the placement. The net proceeds are intended to be used for ongoing exploration, feasibility studies and development work on the Company’s mineral projects and for general corporate purposes.
During the first quarter of 2006, Olympus increased its cash position by $14,826,463. The increase was mainly due to a $15,660,000 private placement closed on March 31, 2006 where the Company issued 27,000,000 shares at $0.58. Also during first quarter of 2006, the Company received its mining permit at Phuoc Son on January 25, 2006. In February 2006, the Company also entered into a US$2.0 million loan facility with Macquarie Bank Limited of Sydney, Australia. They Company drew down the US$2.0 million in the first quarter.
On March 21, 2006, the Company issued 3,406,758 common shares to Zedex in full repayment of the US$1,024,000 advance exploration contribution repayable. This amount was originally owed to Ivanhoe Mines Ltd., but on January 1, 2006, Ivanhoe assigned it to Zedex Minerals.
On October 1 2006, the Bong Mieu Central Open Pit mine went into commercial production.
ITEM 9: The Offer and Listing
9A. Common Share Trading Information
The Company’s shares trade on the Toronto Stock Exchange (‘‘TSX’’) in Canada, under the symbol ‘‘OYM’’. The initial listing date was effective on the TSX on April 3, 2006. Prior to April 3, 2006, the Company traded on the TSX Venture in Canada.
Table No.10 lists the high and low sales prices on the TSX and the TSX Venture (‘‘TSXV’’) for actual trades of the Company’s shares. The Company’s shares started trading on the TSX on April 3, 2006 and prior to that they were listed on the TSXV. As of March 31 2007, the closing price for a Share was $0.59.
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Table of ContentsTable No. 10: TSX and TSX-V Common-Voting Shares Trading Activity
| | | | | | | | | | | | |
| Period Ended | | | High
(CAD$) | | | Low
(CAD$) |
| Monthly: | | | | | | | | | | | | |
| 31-May-07 | | | | $ | 1.20 | | | | | $ | 0.71 | |
| 30-Apr-07 | | | | $ | 0.77 | | | | | $ | 0.55 | |
| 31-Mar-07 | | | | $ | 0.65 | | | | | $ | 0.56 | |
| 28-Feb-07 | | | | $ | 0.72 | | | | | $ | 0.47 | |
| 31-Jan-07 | | | | $ | 0.59 | | | | | $ | 0.46 | |
| 31-Dec-06 | | | | $ | 0.57 | | | | | $ | 0.48 | |
| Quarterly | | | | | | | | | | | | |
| 31-Mar-07 | | | | $ | 0.72 | | | | | $ | 0.46 | |
| 31-Dec-06 | | | | $ | 0.57 | | | | | $ | 0.37 | |
| 30-Sep-06 | | | | $ | 0.56 | | | | | $ | 0.30 | |
| 30-June-06 | | | | $ | 0.94 | | | | | $ | 0.45 | |
| 31-Mar-06 | | | | $ | 0.74 | | | | | $ | 0.31 | |
| 31-Dec-05 | | | | $ | 0.45 | | | | | $ | 0.25 | |
| 30-Sep-05 | | | | $ | 0.40 | | | | | $ | 0.26 | |
| 30-June-05 | | | | $ | 0.34 | | | | | $ | 0.22 | |
| 31-Mar-05 | | | | $ | 0.40 | | | | | $ | 0.24 | |
| 31-Dec-04 | | | | $ | 0.45 | | | | | $ | 0.32 | |
| 30-Sep-04 | | | | $ | 0.47 | | | | | $ | 0.28 | |
| 30-June-04 | | | | $ | 0.45 | | | | | $ | 0.35 | |
| 31-Mar-04 | | | | $ | 0.57 | | | | | $ | 0.36 | |
| Annual (Fiscal Year): | | | | | | | | | | | | |
| Ended December 31, 2006 | | | | $ | 0.94 | | | | | $ | 0.30 | |
| Ended December 31, 2005 | | | | $ | 0.45 | | | | | $ | 0.215 | |
| Ended December 31, 2004 | | | | $ | 0.57 | | | | | $ | 0.28 | |
| Ended December 31, 2003 | | | | $ | 0.87 | | | | | $ | 0.27 | |
| Ended December 31, 2002 | | | | $ | 1.65 | | | | | $ | 0.34 | |
On April 3, 2006, the Company started trading its common shares on the Toronto Stock Exchange under the symbol ‘‘OYM’’ and, consequently, no longer trades on TSX Venture Exchange.
9B. Plan of Distribution
Not applicable.
9C. Markets
See 9A. above
9D. Selling Shareholders
Not applicable.
9E. Dilution
9F. Expenses of the Issue
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Table of Contents | |
| ITEM 10: | Additional Information |
10A. Share Capital
Table No. 11: History of Share Capital
Common share attributes: unlimited shares authorized, one vote per share, no par value per share.
| | | | | | | | | | | | | | | |
Fiscal Year
(except for 2007) | | | Nature of
Share Issuance | | | Number of Shares | | | Total Capital
Raised |
| March 31, 2007 | | | Private Placement(4)(5) | | | | | 21,428,571 | | | | | | | |
| | | | Issued upon exercise of options | | | | | 609,400 | | | | | | | |
| | | | Bonus shares issued | | | | | 117,060 | | | | | $ | 12,436,775 | |
| 2006 | | | Private Placement(4) | | | | | 27,000,000 | | | | | | | |
| | | | Issued upon exercise of options | | | | | 1,155,833 | | | | | | | |
| | | | Issued upon exercise of warrants | | | | | 1,270,000 | | | | | | | |
| | | | Issued upon debt repayment(3) | | | | | 3,406,758 | | | | | $ | 16,391,245 | |
| 2005 | | | Private Placement(4) | | | | | 32,645,000 | | | | | | | |
| | | | Issued upon exercise of warrants | | | | | 1,452,540 | | | | | $ | 10,960,446 | |
| 2004 | | | Issued upon exercise of options | | | | | 45,000 | | | | | | | |
| | | | Issued upon exercise of warrants | | | | | 2,879,021 | | | | | | | |
| | | | Vend-In transaction(1) | | | | | 13,483,113 | | | | | $ | 6,418,673 | |
| 2003 | | | Private placements(4) | | | | | 21,163,459 | | | | | | | |
| | | | Issued upon exercise of options | | | | | 570,000 | | | | | | | |
| | | | Issued upon exercise of warrants | | | | | 9,330,000 | | | | | $ | 10,031,063 | |
| 2002 | | | Settlement of debt(2) | | | | | 3,780,000 | | | | | | | |
| | | | Bonus shares for bridge loans(2) | | | | | 317,345 | | | | | | | |
| | | | Stock options exercised | | | | | 332,350 | | | | | | | |
| | | | Warrants exercised | | | | | 4,208,910 | | | | | $ | 3,912,886 | |
Notes:
| (1) | On June 29, 2004, the Company closed a ‘‘Vend-In Agreement’’, whereby it acquired the remaining 42.82% interest in the NVMC joint venture. The consideration for the acquisition was the issuance of 13,483,133 common shares of the Company: Zedex receiving 3,205,467 shares and Ivanhoe 10,277,646 shares. |
| (2) | In 2002, pursuant to a debt restructuring agreement to settle the remaining balance owing to Ivanhoe of US$3,750,000, the Company issued 3,030,000 common shares at a value of $0.50 per share in exchange for debt of US$1,000,000, and 750,000 common shares as bonus shares at a value of $0.50 per share totalling $375,000. The Company issued 317,345 common shares as bonus shares at a value of $244,356 to lenders, of which 59,113 common shares were issued to Zedex at a value of $45,157. |
| (3) | In 2006, pursuant to an Assignment Agreement, dated January 1, 2006, a prepaid contribution of U.S. $1,024,226 due to Ivanhoe was assigned to Zedex Minerals Limited, a shareholder of the Company. On March 21, 2006, the Company issued 3,406,758 common shares to Zedex in full payment of the prepaid contribution. |
| (4) | These private placements were conducted in Canada. |
| (5) | On March 19, 2007, the Company completed a non-brokered private placement, of 21,428,571 shares at a price of $0.56 per share, for gross proceeds of C$12,000,000. All shares issued have a hold period in Canada of four months from the closing of the placement. The net proceeds are intended to be used for ongoing exploration, feasibility studies and development work on the Company’s mineral projects and for general corporate purposes. |
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Table of ContentsAs at March 31, 2007
| | | | | | | | | |
| | | | Number
of units
outstanding | | | Terms |
| Warrants | | | | | 5,376,092 | | | | Exercisable for one common share at an exercise price of $0.4347 until June 30, 2007 and $0.4514 until June 30, 2008, if the MBL loan is extended to June 30, 2008. |
| Warrants | | | | | 1,890,000 | | | | Exercisable for one common share at $0.58 for a period of two years from March 31, 2006. |
| Total Warrants | | | | | 7,266,092 | | | | |
| Stock Options(1) | | | | | 17,136,500 | | | | The options granted under the option plan have a term of up to five years and the vesting dates are determined by the Board of Directors at the time of granting. As at September 30, 2006, the weighted average exercise price of the options outstanding is $0.39 per option. |
| Stock Bonus Program | | | | | 74,270 | | | | Employees have the option to take their bonus in either cash or double the cash amount to be received in common shares. If the employee opts for the share bonus, the common shares will be received one year after the last day of the bonus period. The price of the common shares to determine the number of bonus shares is based on the approval date of the bonus from the Board. If an employee terminates employment before the 1 year of service, the bonus reverts back to cash form that is paid out on termination. Common shares related to the bonus are due to be issued during 2007, subject to any termination s that may occur before the issuance date. |
Note:
| (1) | The stock options are granted to employees and directors under the Stock Option Plan. Details with respect to stock options issued to directors and senior management are discussed in Item 6E.1 under Table No. 9. |
10B. Memorandum and Articles of Association
Common shares
The Company is authorized to issue an unlimited number of Common Shares (‘‘Shares’’), with no par value.
The holders of the Shares are entitled to one vote per Share at any meeting of the shareholders of the Corporation and to receive, out of all profits or surplus available for dividends, any dividend declared by the Corporation on the Shares. Any dividend declaration by the Company will require consent from Macquarie Bank as indicated in the MLB facility agreement which is described in detail under Item 5B. In the event of liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, holders of Shares are entitled to receive the remaining property of the Corporation. All shares presently outstanding are duly authorized, validly issued and fully paid. Shares have no preference, conversion, exchange, pre-emptive or cumulative voting rights.
Provisions as to the modification, amendment or variation of such rights and provisions are contained in the Business Companies Act (Ontario) (the ‘‘Act’’) and the regulations promulgated thereunder. Certain fundamental changes to the articles of the Company will require the approval of two-thirds of the votes cast on a resolution submitted to a special meeting of the Company’s shareholders called for the purpose of considering the resolution. These items include (i) an amendment to the provisions relating to the outstanding capital of the Company, (ii) a sale of all or
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Table of Contentssubstantially all of the assets of the Company, (iii) an amalgamation of the Company with another company, other than a subsidiary, (iv) a winding-up of the Company, (v) a continuance of the Company into another jurisdiction, (vi) a statutory court approved arrangement under the Act (essentially a corporate reorganization such as an amalgamation, sale of assets, winding-up, etc.), and (vii) a change of name.
Although the Act does not specifically impose any restrictions on the repurchase or redemption of shares, under the Act a corporation cannot repurchase its shares or declare dividends if there are reasonable grounds for believing that (a) the corporation is, or after payment would be, unable to pay its liabilities as they become due, or (b) after the payment, the realizable value of the corporation’s assets would be less than the aggregate of (i) its liabilities and (ii) its stated capital of all classes of its securities. Generally, stated capital is the amount paid on the issuance of a share.
Articles and By-laws
The following presents a description of certain terms and provisions of the Company’s articles and by-laws.
General
The Company was incorporated in the Province of Ontario on July 4, 1951 under the name of Meta Uranium Mines Limited. The Company’s name was changed to Metina Developments Inc. on August 24, 1978 and then continued from Ontario into British Columbia under Company Act (B.C.) under the name Olympus Holdings Ltd. on November 5, 1992 under No. C-435269. The name was then changed to Olympus Pacific Minerals Inc. on November 29, 1996 and the Company was continued from B.C. into the Yukon under the Business Corporations Act (Yukon) on November 17, 1997 under No. 26213. The Company was continued from the Yukon into a Canadian Business Corporation under the Canadian Business Corporations Act (CBCA) on July 13, 2006 under Certificate of Continuance Number 659785-8.
The Company’s corporate objectives and purpose are unrestricted.
Directors
Pursuant to section 3.12 of the by-laws of the Company (the ‘‘By-Laws’’) and section 120(1) of the Canada Business Corporation Act (the ‘‘CBCA’’), a director or an officer of the Company shall disclose to the Company, in writing or by requesting to have it entered in the directors’ meeting minutes or the directors’ committee meeting minutes, the nature and extent of any interest that he or she has in a material contract or material transaction, whether made or proposed, with the Company, if the director or officer: (a) is a party to the contract or transaction; (b) is a director or an officer, or an individual acting in a similar capacity, of a party to the contract or transaction; or (c) has a material interest in a party to the contract or transactio n. Section 3.12 of the By-Laws also provides that such a director or officer shall not vote on any resolution to approve such a contract or transaction except as provided under the CBCA. Section 120(5) of the CBCA permits sucha director to vote on any resolution to approve a contract or transaction if it: (a) relates primarily to his or her remuneration as a director, officer, employee or agent of the Company or an affiliate; (b) is to indemnify or insure a current or former director or officer, or another individual who acts or has acted at the Company’s request as a director or officer, or an individual acting in a similar capacity, of another entity; or (c) is with an affiliate.
If a quorum of directors is present, the directors are entitled to vote compensation to themselves. Section 125 of the CBCA provides that subject to the By-Laws, the articles or a unanimous shareholder agreement, the directors may fix the remuneration of directors, officers and employees of the Company. Section 3.13 of the By-Laws provides that the directors shall be paid such remuneration for their services as the board of directors may from time to time determine.
Section 189 of the CBCA provides that unless the By-Laws, the articles or a unanimous shareholder agreement provide otherwise, the directors may, without authorization of the
60
Table of Contentsshareholders: (a) borrow money on the credit of the Company; (b) issue, reissue, sell or pledge debt obligations of the Company; (c) give a guarantee on behalf of the Company to secure the performance of an obligation of any person; and (d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company, owned or subsequently acquired, to secure any obligation of the Company.
There are no provisions in the By-Laws or the CBCA relating to the retirement or non-retirement of directors under an age limit requirement. Pursuant to section 105(2) of the CBCA, a director need not be a shareholder. Pursuant to section 3.3 of the By-Laws and section 105(3) of the CBCA, at least twenty-five per cent of the directors of the Company must be resident Canadians. However, if the Company has less than four directors, at least one director must be a resident Canadian. Section 102(2) of the CBCA requires that the Company shall have no fewer than three directors, at least two of whom are not officers or employees of the Company or of any of the Company’s affiliates.
Annual and special meetings
The annual meeting and special meetings of shareholders are held at such time and place as the board of directors shall determine. Notice of meetings is sent out to shareholders not less than 10 days nor more than 50 days before the date of such meeting. All shareholders at the record date are entitled to notice of the meeting and have the right to attend the meeting. The directors do not stand for reelection at staggered intervals.
There are no provisions in either the Company’s Articles of Incorporation or Bylaws that would have the effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or its subsidiary, except for one of our provisions that limits how many directors may be appointed between annual meetings which could delay a change of control. There are no by-law provisions governing the ownership threshold above which shareholder ownership must be disclosed.
10C. Material Contracts
The following material contracts have been entered into by the Company within the past two years:
| | |
| 1) | Debt Finance Facility Agreement between Olympus Pacific Minerals Inc., Bong Mieu Gold Mining Company Limited, Formwell Holdings Limited and Macquarie Bank Limited, dated February 8, 2006. Refer to Item 5B for details on this agreement. |
| | |
| 2) | Joint Venture Agreement between Mien Trung Industrial Company (‘‘Minco’’) and New Vietnam Mining Corp (‘‘NVMC’’), dated March 5, 2003. Refer to Item 4A for details on this agreement. |
| | |
| 3) | Vend-In Agreement on March 1, 2004 and Extension of Vend-In Agreement on June 21, 2004 between the Company, Invanhoe Mines Ltd. and Zedex Minerals Limited. Refer to Item 4A for details on these agreements. |
| | |
| 4) | Agreement for Fulfilment of Contract, dated September 16, 2006, between Phuoc Son Gold Co. Ltd. and Huong Toan Company Ltd. This contract was cancelled on November 26, 2006. Refer to Item 4D.1 for details on this contract and cancellation. |
| | |
| 5) | Purchase Contract CE0780, dated January 24, 2005, between the Company and Gekko System Pty. Ltd. of Australia. The purpose of the agreement is for the purchase of the grinding module, gravity and flotation circuits and for an Inline Leach Reactor required to bring the Ho Gan deposit on the Company’s 80% owned Bong Mieu Gold Property into production. |
| | |
| 6) | Mining License No 116 / GP- BTNMT – dated January 23, 2006. Refer to Item 4D.1 (a) for details on this license. |
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Table of Contents | | |
| 7) | Gold Export Certificate – dated January 25, 2006 and January 5, 2007. Refer to Item 4D.2 (a) for details on this license. |
| | |
| 8) | Memorandum of Agreement and Supplement – November 24, 2006 – Refer to Item 4A for details on this agreement. |
| | |
| 9) | Certificate of Incorporation and Articles of Incorporation – May 31, 2007, refer to Item 4A for details on this document |
10D. Exchange Controls
There are no laws, governmental decrees or regulations in Canada that restrict the export or import of capital or which affect the remittance of dividends, interest or other payments to non-resident holders of our shares, other than the withholding tax requirements (Reference is made to Item 10E) and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires that persons and entities report the importation or exportation of currency or monetary instruments of a value equal to or greater than $10,000 to Canadian customers officers in the prescribed form and manner.
There are no limitations under the laws of Canada or the Province of Ontario, or in our constituting documents, with respect to the right of non-resident or foreign owners to hold or vote Shares other than those imposed by the Investment Canada Act.
The Investment Canada Act is a federal Canadian statute which regulates the acquisition of control of existing Canadian businesses and the establishment of new Canadian businesses by an individual, government or entity that is a ‘‘non-Canadian’’ as defined in the Investment Canada Act. Such investments are generally reviewable under the Investment Canada Act by the Minister, designated as being responsible for the administration of the Investment Canada Act. Reviewable investments, generally, may not be implemented prior to the Minister’s determining that the investment is likely to be of ‘‘net benefit to Canada’’ based on the criteria set out in the Investment Canada Act. Generally investments by non-Canadians consisting of the acquisition of control of Canadian businesses which are otherwise non-reviewable and the establishment of new Canadian businesses are subject to certain notification requirements under the Investment Canada Act in the prescribed form and manner.
Management of the Company believes that it is not currently a ‘‘non-Canadian’’ for purposes of the Investment Canada Act and therefore it is not subject to the Act. However, if the Company were to become a ‘‘non-Canadian’’ in the future, acquisitions of control of Canadian businesses by the Company would become subject to the Investment Canada Act. Generally, the direct acquisition by a ‘‘non-Canadian’’ of an existing Canadian business with gross assets of $5 million or more is reviewable under the Inves tment Canada Act, unless the business is acquired by a WTO investor in which the thresholds are $250 million and $265 million for transactions closing in 2005 and 2006, respectively. Generally, indirect acquisitions of existing Canadian businesses (with gross assets over $50 million) are reviewable under the Investment Canada Act, except in situations involving ‘‘WTO investors’’ where indirect acquisitions are generally not reviewable but are nonetheless subject to notification. In transactions involving Canadian businesses engaged in the production of uranium, providing financial services, providing transportation services or which are cultural businesses, the benefit of the higher ‘‘WTO investor’’ thresholds do not apply.
Acquisitions of businesses related to Canada’s cultural heritage or national identity (regardless of the value of assets involved) may also be reviewable under the Investment Canada Act. In addition, investments to establish new, unrelated businesses are not generally reviewable but are nonetheless subject to nofication. An investment to establish a new business that is related to the non-Canadian’s existing business in Canada is not subject to notification under the Investment Canada Act unless such investment relates to Canada’s cultural heritage or national identity.
Any proposed take-over of the Company by a ‘‘non-Canadian’’ would likely only be subject to the simple notification requirements of the Investment Canada Act, as in all likelihood that non-Canadian would be a ‘‘WTO investor’’ for purposes of the Investment Canada Act provided that
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Table of Contentsthe high WTO threshold is not met. Generally, a ‘‘WTO investor’’ is an individual, other than a Canadian, who is a national of a country that is a member of the World Trade Organization or a business entity controlled by such an individual. Virtually all countries of the Western world are members of the World Trade Organization. The Company would have to have a gross asset base of at least $5 million for a direct acquisition, and at least $50 million for an indirect acquisition, before the reviewable transaction provisions of the Investment Canada Act would apply to a third party non-Canadian acquirer that is not a WTO investor.
10E. Taxation
10E.1. Certain Canadian Federal Income Tax Consequences – General
The following is a brief summary of some of the principal Canadian federal income tax consequences to a holder of the common-voting shares of the Company (a ‘‘ Holder’’) who deals at arm’s length with the Company, holds the shares as capital property and who, for the purposes of the Income Tax Act (Canada) (the ‘‘Act’’) and the Canada – United States Income Tax Convention (the ‘‘Treaty’’), is at all relevant times resident in the United States, is not and is not deemed to be resident in Canada and does not use or hold and is not deemed to use or hold the shares in carrying on a Business in Canada. Special rules, which are not discussed below, may apply to a U.S. Holder that is an insurer that carries on Business in Canada and elsewhere.
Under the Act and the Treaty, a. Holder of the common-voting shares will generally be subject to a 15% withholding tax on dividends paid or credited or deemed by the Act to have been paid or credited on such shares. The withholding tax rate is 5% where the Holder is a corporation that beneficially owns at least 10% of the voting shares of the Company and the dividends may be exempt from such withholding in the case of some Holders such as qualifying pension funds and charities. Reference is made to ‘‘Item 10E.4 – United States Taxation’’ for a more detailed discussion of the United States tax considerations relating to an investment in the Shares.
10E.2. Dividends
A Holder will be subject to Canadian withholding tax (‘‘Part XIII Tax’’) equal to 25%, or such lower rate as may be available under an applicable tax treaty, of the gross amount of any dividend paid or deemed to be paid on common shares. Under the Canada-U.S. Income Tax Convention (1980) as amended by the Protocols signed on 6/14/1983, 3/28/1984, 3/17/1995, and 7/29/1997 (the ‘‘Treaty’’), the rate of Part XIII Tax applicable to a dividend on common shares paid to a Holder who is a resident of the United States and who is the beneficial owner of the dividend, shall not exceed 15%. If the Holder is a company that owns at least 10% of the voting stock of the Company paying the dividend, the withholding tax rate is reduced to 5% and, in all other cases, the tax rate is 15% of the gross amount of the dividend (under the provisions of the Canada – US Income Tax Convention). The Company will be required to withhold the applicable amount of Part XIII Tax from each dividend so paid and remit the withheld amount directly to the Receiver General for Canada for the account of the Holder.
10E.3. Disposition of Common Shares
A Holder who disposes of a common share, including by deemed disposition on death, will not normally be subject to Canadian tax on any capital gain (or capital loss) thereby realized unless the common share constituted ‘‘taxable Canadian property’’ as defined by the Tax Act. Generally, a common share of a public corporation will not constitute taxable Canadian property of a Holder if the share is listed on a prescribed stock exchange unless the Holder or persons with whom the Holder did not deal at arm’s length alone or together held or held options to acquire, at any time within the five years preceding the disposition, 25% or more of the shares of any class of the capital stock of the Company. The TSX is a prescribed stock exchange under the Tax Act. A Holder who is a resident of the United States and realizes a capital gain on a disposition of a common share that was taxable Canadian property will nevertheless, by virtue of the T reaty, generally be exempt from Canadian tax
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Table of Contentsthereon unless (a) more than 50% of the value of the common shares is derived from, or from an interest in, Canadian real estate, including Canadian mineral resource properties, (b) the common share formed part of the Business property of a permanent establishment that the Holder has or had in Canada within the 12 month period preceding the disposition, or (c) the Holder is an individual who (i) was a resident of Canada at any time during the 10 years immediately preceding the disposition, and for a total of 120 months during any period of 20 consecutive years, preceding the disposition, and (ii) owned the common share when he ceased to be resident in Canada.
A Holder who is subject to Canadian tax in respect of a capital gain realized on a disposition of a common share must include one-half of the capital gain (taxable capital gain) in computing the Holder’s taxable income earned in Canada. The Holder may, subject to certain limitations, deduct one-half of any capital loss (allowable capital loss) arising on a disposition of taxable Canadian property from taxable capital gains realized in the year of disposition in respect to taxable Canadian property and, to the extent not so deductible, from such taxable capital gains realized in any of the three preceding years or any subsequent year.
10E.4. United States Taxation
The following summary is a general discussion of the material United States Federal income tax considerations to US holders of our Shares under current law. It does not discuss all the tax consequences that may be relevant to particular holders in light of their circumstances or to holders subject to special rules, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our shares is not effectively connected with the conduct of a trade or Business in the United States, shareholders who acquired their stock through the exercise of employee stock options or otherwise as compensation, shareholders who hold their stock as ordinary assets and not capital assets and any other non-US holders.
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), Treasury Regulations, published Internal Revenue Service (‘‘IRS’’) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. This discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation that, if enacted, could be applied, possibly on a retroactive basis, at any time. The following discussion is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of our shares and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders an d prospective holders of our shares should consult their own tax advisors about the Federal, state, local, estate and foreign tax consequences of purchasing, owning and disposing of our shares.
US Holders
As used herein, a ‘‘US Holder’’ includes a holder of shares of the Company who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, any entity that is taxable as a corporation for US tax purposes and any other person or entity whose ownership of our shares is effectively connected with the conduct of a trade or Business in the United States. A US Holder does not include persons subject to special provisions of Federal income tax law, such as tax exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our shares is not effectively connected with conduct or trade or Business in the United States, shareholders who acquired their stock through the exercise of employee stock options or otherwise as compensation and shareholders who hold their stock as ordinary assets and not as capital assets.
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Table of ContentsDistributions on our Shares
US Holders receiving dividend distributions (including constructive dividends) with respect to our shares are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that we have current or accumulated earnings and profits as defined under US Federal tax law, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the US Holder’s United States Federal income tax liability or, alternatively, may be deducted in computing the US Holder’s United States Federal taxable income by those who itemize deductions. (See more detailed discussion at ‘‘Foreign Tax Credit’’ below). To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as a return of capital up to the US Holder’s adjusted basi s in the shares and thereafter as gain from the sale or exchange of the shares. Preferential tax rates for net capital gains are applicable to a US Holder that is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a US Holder that is a corporation.
With effect from January 1, 2003 and ending December 31, 2010, the United States reduced the maximum tax rate on certain qualifying dividend distributions to 15% (tax rate for low income holders is 5% until 2007 and 0% for 2008 and thereafter). In order for dividends paid by foreign corporations to qualify for the reduced rates, (1) the foreign corporation must meet certain requirements, including that it not be classified as a foreign investment company or a passive foreign investment company for United States federal income tax purposes in either the taxable year of the distribution or the preceding taxable year, and (2) the US Holder must meet the required holding period. In order to meet the required holding period, the US Holder must hold our Common Shares for at least 60 days during the 121-day period beginning 60 days before the ex-dividend date.
Dividends paid on our shares will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A US Holder that is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from us (unless we qualify as a ‘‘foreign personal holding company’’ or a ‘‘passive foreign investment company’’, as defined below) if such US Holder owns shares representing at least 10% of our voting power and value. The availability of this deduction is subject to several complex limitations that are beyond the scope of this discussion.
In the case of foreign currency received as a dividend that is not converted by the recipient into US dollars on the date of receipt, a US Holder will have a tax basis in the foreign currency equal to its US dollar value on the date of receipt. Generally, any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for US dollars, will be ordinary income or loss. However, for tax years after 1997, an individual whose realized foreign exchange gain does not exceed US $200 will not recognize that gain, to the extent that there are not expenses associated with the transaction that meet the requirement for deductibility as a trade or Business expense (other than travel expenses in connection with a Business trip or as an expense for the production of income).
Foreign Tax Credit
A US Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of our shares may be entitled, at-the option of the US Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the US Holder during that year. There are significant and complex limitations that apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the US Holder’s United States Federal income tax liability that the US Holder’s foreign source income bears to his or its worldwide taxable income. In the determination of the applicatio n of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this
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Table of Contentsclassification process. There are further limitations on the foreign tax credit for certain types of income such as ‘‘passive income’’, ‘‘high withholding tax interest’’, ‘‘financial services income’’, ‘‘shipping income’’, and certain other classifications of income. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of our shares should consult their own tax advisors regarding their individual circumstances.
Disposition of our Shares
A US Holder will recognize a gain or loss upon the sale of our shares equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in our shares. This gain or loss will be a capital gain or loss if the shares are a capital asset in the hands of the US Holder, and will be a short-term or long-term capital gain or loss depending upon the holding period of the US Holder. Preferential tax rates for long-term gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. Corporate capital losses (other than losses of corporations electing under Subchapter S or the Code) are deductible to the extent of capital gains. Non-corporate taxpayers may deduct net capital losses, whether short-term or long-term, up to US $3,000 a year (US $1,500 in the case of a married individual filing separately). For US Holders which are individuals, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For US Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against c apital gains until such net capital loss is thereby exhausted.
Other Considerations
In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of our shares:
Passive Foreign Investment Company
As a foreign corporation with US Holders, we could potentially be treated as a passive foreign investment company (‘‘PFIC’’), as defined in Section 1296 of the Code, if 75% or more of our gross income in a taxable year is passive income, or the average percentage of our assets (by value) during the taxable year which produce passive income or which are held for production of same is at least 50%. Passive income is generally defined to include gross income in the nature of dividends, interest, royalties, rents and annuities; excess of gains over losses from certain transactions in any commodities not arising inter alia from a PFIC whose Business is actively involved in such commodities; certain foreign currency gains; and other similar types of income. US Holders owning shares of a PFIC are subject to an additional tax and to an interest charge based on the value of deferral of tax for the period during which the shares of the PFIC are own ed, in addition to treatment of any gain realized on the disposition of shares of the PFIC as ordinary income rather than as a capital gain. However, if the US Holder makes a timely election to treat a PFIC as a qualified electing fund (‘‘QEF’’) with respect to such shareholder’s interest therein, the above-described rules generally will not apply. Instead, the electing US Holder would include annually in his gross income his pro rata share of the PFIC’s ordinary earnings and any net capital gain regardless of whether such income or gain was actually distributed. A US Holder of a QEF can, however, elect to defer the payment of United States Federal income tax on such income inclusions. Special rules apply to US Holders who own their interests in a PFIC through intermediate entities or persons.
The IRS has issued proposed regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by a Non-Electing US Holder that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.
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Table of ContentsGenerally, in such cases, the basis of our shares in the hands of the transferee and the basis of any property received in the exchange for those shares would be increased by the amount of gain recognized. A US Holder who has made a timely QEF election (as discussed below) will not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. The specific tax effect to the US Holder and the transferee may vary based on the manner in which our shares are transferred. Each US Holder should consult a tax advisor with respect to how the PFIC rules affect their tax situation.
Shareholder Election
These adverse tax consequences may be avoided, if the US Holder has elected to treat the PFIC as a qualified electing fund (a ‘‘QEF’’) with respect to that US Holder effective for each of the PFIC’s taxable years beginning on or after January 1, 1987, which include any portion of the US Holder’s holding period.
The procedure a US Holder must comply with in making an effective QEF election will depend on whether the year of election is the first year in the US Holder’s holding period in which we are a PFIC. If the US Holder makes a QEF election in such first year (i.e. a timely QEF election), then the US Holder may make the QEF election by simply filing the appropriate documents at the time the US Holder files his tax return for such first year. If, however, we qualified as a PFIC in a prior year and the QEF election was not made by the US Holder, then in addition to filing documents, the US Holder must generally recognize gain as if it had sold the QEF stock on the first day of the taxable year in which the QEF election is made, if (i) the US Holder holds stock in the PFIC on that day, and (ii) the US Holder can establish the fair market value of the PFIC stock on that day. The US Holder will treat that deemed sale transaction as a disposition of PFIC stock and w ill, thereafter, be subject to the rules described below applicable to US shareholders of a QEF.
In general, US shareholders of a QEF are taxable currently on their pro rata share of the QEF’s ordinary income and net capital gain regardless of whether such income or gain was actually distributed. A US Holder of a QEF can, however, elect to defer the payment of United States Federal income tax on such income inclusions.
Mark to Market Election
Effective for tax years of US Holders beginning after December 31, 1997, US Holders who hold, actually or constructively, marketable stock of a foreign corporation that qualifies as a PFIC may elect to mark such stock to the market (a ‘‘mark-to-market election’’). If such an election is made, such US Holder will not be subject to the special taxation rules of PFIC described above for the taxable years for which the mark-to-market election is made. A US Holder who makes such an election will include in income for the taxable year an amount equal to the excess, if any, of the fair market value of our shares as of the close of such tax year over such US Holder’s adjusted basis in such shares. In addition, the US Holder is allowed a deduction for the lesser of (i) the excess, if any, of such US Holder’s adjusted tax basis in the shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any of (A) the mark-to-market gains for our shares included by such US Holder for prior tax years, including any amount which would have been included for any prior year but for Section 1291 interest on tax deferral rules discussed above with respect to a US Holder, who has not made a timely QEF election during the year in which he holds (or is deemed to have held) our shares and we are a PFIC (‘‘Non-Electing US Holder’’), over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. A US Holder’s adjusted tax basis in our shares will be increased or decreased to reflect the amount included or deducted as a result of mark-to-market election. A mark-to-market election will apply to the tax year for which the election is made and to all later tax years, unless the PFIC stock ceases to be marketable or the IRS consents to the revocation of the election.
The PFIC and QEF election rules are complex. US Holders should consult a tax advisor regarding the availability and procedure for making the QEF election as well as the applicable method for recognizing gains or earnings and profits under the foregoing rules.
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Table of ContentsControlled Foreign Corporation
If more than 50% of the voting power of all classes of stock or the total value of our stock is owned, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of whom own 10% or more of the total combined voting power of all classes of our stock (‘‘United States shareholder’’), we could be treated as a ‘‘controlled foreign corporation’’ under Subpart F of the Code. This classification would cause many complex results including the required inclusion by such United States shareholders in income of their pro rata share of our ‘‘Subpart F income’’ (as specially defined by the Code). If we are both a PFIC and controlled foreign corporation, we will generally not be treated as a PFIC with respect to United States shareholders of the controlled foreign corporation. Th is rule generally will be effective for our taxable years ending with or within such taxable years of United States shareholders. In addition, under Section 1248 of the Code, a gain from the sale or exchange of shares by a US Holder who is or was a United States shareholder at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of our earnings and profits attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because it is not clear that Subpart F would apply to the US Holders of our shares, a more detailed review of these rules is outside of the scope of this discussion.
10F. Dividends and Paying Agents
Holders of Shares are entitled to receive dividends in cash, property or Shares when and if dividends are declared by the Board of Directors out of funds legally available therefore. There are no limitations on the payment of dividends. To date, the Company has never paid any dividends to its shareholders.
10G. Statements by Experts
Not applicable.
10H. Documents on Display
Copies of the documents referred to in this document may be inspected during normal business hours, at the offices of the Company at Suite 500, 10 King Street East, Toronto, Ontario, Canada. Its telephone number is (416) 572- 2525.
10I. Subsidiary Information
Not applicable.
| |
| ITEM 11: | Quantitative and Qualitative Disclosures about Market Risk |
Not applicable.
| |
| ITEM 12: | Description of Securities other than Equity Securities |
Not Applicable.
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Table of Contents Part II
ITEM 13: Defaults, Dividend Arrearages and Delinquencies
None.
| |
| ITEM 14: | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
ITEM 15: Controls and Procedures
Not applicable.
ITEM 16: Audit Committee
16A. Audit Committee Financial Expert – Not Applicable
16B. Not Applicable.
16C. Not Applicable.
16D. Not Applicable.
16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
There were no purchases made by or on behalf of the Company or any ‘‘affiliated purchaser’’ of the Company’s equity securities.
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Table of Contents Part III
ITEM 17: Financial Statements
| |
| 1. | Consolidated Balance Sheets of Olympus Pacific Minerals Inc. as at December 31, 2006 and 2005, Consolidated Statements of Operations and Deficit and Cash Flows for each of the three years ended December 31, 2006, 2005 and 2004, reported on by Ernst & Young LLP, Chartered Accountants. These statements are prepared in accordance with Canadian generally accepted accounting principles, which differ in certain respects from United States generally accepted accounting principles. See Note 18 to the consolidated financial statements. |
| |
| 2. | Unaudited Balance Sheet as at March 31, 2007, Statements of Operations and Deficit for the three months ended March 31, 2007 and 2006, and Statements of Cash Flows for the three-month periods ended March 31, 2007 and 2006. |
| |
| ITEM 18: | Financial Statements |
See Item 17. Financial Statements.
| |
| ITEM 19: | Exhibits |
19A. Financial Statements
| |
| 1. | Consolidated Balance Sheets of Olympus Pacific Minerals Inc. as at December 31, 2006 and December 31, 2005, Consolidated Statements of Operations and Deficit and Cash Flows for each of the three years ended December 31, 2006, 2005, and 2004, reported on by Ernst & Young LLP, Chartered Accountants. These statements are prepared in accordance with Canadian generally accepted accounting principles, which differ in certain respects from United States generally accepted accounting principles. See Note 18 to the consolidated financial statements. |
| |
| 2. | Unaudited Balance Sheet as at March 31, 2007, Statements of Operations and Deficit and Cash Flows for the three-month periods ended March 31, 2007 and 2006. |
19B. Exhibits
| | | | | | |
| 1 | . | | | | Articles of Incorporation and Bylaws |
| 1 | .1. | | | | Certificates of Status, Amendment, Continuance |
| 1 | .2. | | | | Bylaws as currently in effect. |
| 2 | . | | | | Instruments defining the rights of holders of equity – refer to exhibit 1 under 19B. |
| 3 | . | | | | Material Contracts |
| 3 | .1. | | | | Mining Permit – dated July 22, 1992 |
| 3 | .2. | | | | Right to Use Land Certificate – dated October 9, 1993 |
| 3 | .3. | | | | Investment License – No: 140 / GP, dated March 5, 1991 and Amendments |
| 3 | .4. | | | | Gold Export Certificates – dated January 25, 2006 and January 5, 2007 |
| 3 | .5. | | | | Debt Finance Facility Agreement – dated February 8, 2006 |
| 3 | .6. | | | | Mining License No 116/GP – BTNMT – dated January 23, 2006 |
| 3 | .7. | | | | Investment License No. 2355/GP – dated October 20, 2003 |
| 3 | .8. | | | | Joint Venture Agreement – dated March 5, 2003. |
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| | | | | | |
| 3 | .9. | | | | Agreement for Fulfilment of Contract, dated September 16, 2006 and cancellation of agreement on November 27, 2006. |
| 3 | .10. | | | | Memorandum of Agreement and Supplement – November 24, 2006 |
| 3 | .11. | | | | Stock Option Plan – September 12, 2003 |
| 3 | .12. | | | | Management service agreement with Orangue Holdings Limited – dated July 16, 2005 |
| 3 | .13. | | | | Management service agreement with Momentum Resources International Pty Ltd. – dated July 16, 2005 |
| 3 | .14. | | | | Management service agreement with Action Management Limited – dated June 5, 2006 |
| 3 | .15. | | | | Service agreement with R. Dahn – dated March 1, 2005 and amendments August 2006 |
| 3 | .16. | | | | Consulting agreement with Mr. Baylis – dated July 15, 2005 |
| 3 | .17. | | | | Argor Heraeus Refining Contract – dated January 11, 2005 |
| 3 | .18. | | | | Dragon Equity and Debt Financing dated December 17, 2004 |
| 3 | .19. | | | | Assignment Agreement among Ivanhoe Mines Ltd., Zedex Minerals Limited, and Olymous Pacific Minerals, Inc. dated January 1, 2006 |
| 3 | .20. | | | | Certificate to Incorporation and Articles of Incorporation of Kadabra Mining Corp – May, 2007. |
| 3 | .21. | | | | Management Service Agreement with Wholesale Products Limited dated April 1, 2007 |
| 3 | .22. | | | | Share Placement Documents dated March 19, 2007 |
| 3 | .23. | | | | Shareholders Rights Plan – dated June 26, 2007 |
| 3 | .24. | | | | Stock Option Plan – dated June 7, 2007 |
| 4 | . | | | | List of Subsidiaries |
| | | | | | – None – |
| 5 | . | | | | Consents |
| 5 | .1. | | | | Consent of Ernst & Young LLP |
| 5 | .2. | | | | Consent of Micon International Limited |
| 5 | .3. | | | | Consent of Watts, Griffis and McOuat Limited |
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Table of ContentsSIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that is has duly caused and authorized the undersigned to sign this registration statement on its behalf.
| | | | | | |
| | | | Olympus Pacific Minerals Inc. |
| | | | By: | | | /s/ P. Tiedemann |
| | | | | | | Peter Tiedemann
Chief Financial Officer and Corporate Secretary |
Date: June 29, 2007
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Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Olympus Pacific Minerals Inc.
We have audited the consolidated balance sheets of Olympus Pacific Minerals Inc. as at December 31, 2006 and 2005 and the consolidated statements of operations and deficits and cash flows for each of the years in the three-year period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates mad e by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006 in accordance with Canadian generally accepted accounting principles.
| | | |
| Toronto, Canada, | | | Ernst & Young LLP |
| March 28, 2007 [except as to note 18, which is as at June 26, 2007] | | | Chartered Accountants
Licensed Public Accountants |
Comments by Auditors for U.S. Readers on Canada – U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of an explanatory paragraph [following the opinion paragraph] when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in note 1 to the financial statements. Our report to the Board of Directors dated March 28, 2007 [except as to note 18, which is as at June 26, 2007] is expressed in accordance with Canadian reporting standards which do not permit a reference to such events when they are adequately disclosed in the financial statements.
| | | |
| Toronto, Canada, | | | Ernst & Young LLP |
| June 26, 2007 | | | Chartered Accountants
Licensed Public Accountants |
F-1
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Consolidated Balance Sheets
| | | | | | | | | | | | |
As at
Canadian dollars | | | December 31
2006 | | | December 31
2005 |
| ASSETS | | | | | | | | | | | | |
| Current | | | | | | | | | | | | |
| Cash | | | | | 4,101,536 | | | | | | 404,987 | |
| Accounts receivable | | | | | 803,027 | | | | | | 150,984 | |
| Prepaid expenses | | | | | 900,957 | | | | | | 94,533 | |
| Inventory (note 13) | | | | | 617,043 | | | | | | 259,514 | |
| | | | | | 6,422,563 | | | | | | 910,018 | |
| Long-term | | | | | | | | | | | | |
| Property, plant & equipment (note 7) | | | | | 10,697,757 | | | | | | 6,449,922 | |
| Mineral properties (note 3) | | | | | 10,015,755 | | | | | | 10,060,904 | |
| Deferred financing costs (note 8c) | | | | | 695,773 | | | | | | — | |
| Deferred exploration and development costs (note 3) | | | | | 13,724,846 | | | | | | 13,089,242 | |
| | | | | | 35,134,131 | | | | | | 29,600,068 | |
| | | | | | 41,556,694 | | | | | | 30,510,086 | |
| LIABILITIES | | | | | | | | | | | | |
| Current | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | | | | | 1,899,646 | | | | | | 1,549,803 | |
| Capital lease obligations (note 12) | | | | | 412,894 | | | | | | — | |
| Advance exploration contributions repayable (note 6) | | | | | — | | | | | | 1,191,175 | |
| Loan facility (note 5) | | | | | 2,330,800 | | | | | | — | |
| Asset retirement obligation (note 4) | | | | | 59,173 | | | | | | — | |
| | | | | | 4,702,513 | | | | | | 2,740,978 | |
| Long-term | | | | | | | | | | | | |
| Asset retirement obligation (note 4) | | | | | 890,322 | | | | | | 382,509 | |
| | | | | | 890,322 | | | | | | 382,509 | |
| | | | | | 5,592,835 | | | | | | 3,123,487 | |
| SHAREHOLDERS’ EQUITY | | | | | | | | | | | | |
| Share capital (note 8a) | | | | | 66,074,507 | | | | | | 49,709,671 | |
| Contributed surplus (note 8b,c,d) | | | | | 4,347,990 | | | | | | 2,656,679 | |
| Deficit | | | | | (34,458,638 | ) | | | | | (24,979,751 | ) |
| | | | | | 35,963,859 | | | | | | 27,386,599 | |
| | | | | | 41,556,694 | | | | | | 30,510,086 | |
| | | | | | |
| | | | ‘‘signed’’ | | | ‘‘signed’’ |
| On behalf of the Board of Directors | | | David A. Seton
Chairman & Chief
Executive Officer | | | Jon Morda
Director & Chairman of
Audit Committee |
See accompanying notes to the Consolidated Financial Statements
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Consolidated Statements of Operations and Deficit
| | | | | | | | | | | | | | | | | | |
| For the years ended December 31 (Canadian dollars) | | | 2006 | | | 2005 | | | 2004 |
| Sales – Gold | | | | | 1,644,040 | | | | | | — | | | | | | — | |
| Cost and expenses | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | | | 1,535,891 | | | | | | — | | | | | | — | |
| Amortization | | | | | 596,176 | | | | | | 19,858 | | | | | | 22,022 | |
| General exploration | | | | | 158,700 | | | | | | (37,392 | ) | | | | | 20,632 | |
| Royalty expense | | | | | 47,960 | | | | | | — | | | | | | — | |
| Consulting fees | | | | | 315,763 | | | | | | 149,790 | | | | | | 68,791 | |
| Office and general administrative | | | | | 508,269 | | | | | | 230,900 | | | | | | 221,826 | |
| Investor relations and promotion | | | | | 256,207 | | | | | | 184,519 | | | | | | 163,173 | |
| Management fees and salaries | | | | | 1,515,417 | | | | | | 877,288 | | | | | | 739,331 | |
| Professional fees | | | | | 353,402 | | | | | | 187,540 | | | | | | 203,233 | |
| Shareholders’ information | | | | | 37,767 | | | | | | 33,266 | | | | | | 43,225 | |
| Transfer agent and regulatory fees | | | | | 189,237 | | | | | | 25,555 | | | | | | 56,250 | |
| Travel | | | | | 425,895 | | | | | | 370,805 | | | | | | 374,865 | |
| Stock-based compensation (note 8b) | | | | | 617,071 | | | | | | 961,075 | | | | | | 180,764 | |
| | | | | | 6,557,755 | | | | | | 3,003,204 | | | | | | 2,094,112 | |
| Other (income) expense | | | | | | | | | | | | | | | | | | |
| Interest income | | | | | (272,156 | ) | | | | | (21,029 | ) | | | | | (29,749 | ) |
| Interest expense | | | | | 127,262 | | | | | | 23,203 | | | | | | 9,890 | |
| Write off of deferred exploration costs (note 3) | | | | | 438,931 | | | | | | — | | | | | | — | |
| Impairment charge (note 3) | | | | | 4,280,000 | | | | | | — | | | | | | — | |
| Foreign exchange (gain) loss | | | | | (8,865 | ) | | | | | (236,917 | ) | | | | | 108,206 | |
| | | | | | 4,565,172 | | | | | | (234,743 | ) | | | | | 88,347 | |
| Loss for the year | | | | | 9,478,887 | | | | | | 2,768,461 | | | | | | 2,182,459 | |
| Deficit, beginning of the year | | | | | 24,979,751 | | | | | | 22,211,290 | | | | | | 20,028,831 | |
| Deficit, end of the year | | | | | 34,458,638 | | | | | | 24,979,751 | | | | | | 22,211,290 | |
| Basic and diluted loss per common share | | | | $ | 0.06 | | | | | $ | 0.02 | | | | | $ | 0.02 | |
| Weighted average number of basic and diluted common shares outstanding | | | | | 164,678,791 | | | | | | 116,581,239 | | | | | | 89,683,403 | |
See accompanying notes to the Consolidated Financial Statements
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | |
| For the years ended December 31 (Canadian dollars) | | | 2006 | | | 2005 | | | 2004 |
| Operating activities : | | | | | | | | | | | | | | | | | | |
| Loss for the period | | | | | (9,478,887 | ) | | | | | (2,768,461 | ) | | | | | (2,182,459 | ) |
| Items not affecting cash | | | | | | | | | | | | | | | | | | |
| Amortization | | | | | 596,176 | | | | | | 19,858 | | | | | | 22,022 | |
| Amortization of deferred financing costs | | | | | 81,090 | | | | | | — | | | | | | — | |
| Stock-based compensation expense | | | | | 617,071 | | | | | | 961,075 | | | | | | 180,764 | |
| Accretion expense | | | | | 29,097 | | | | | | — | | | | | | — | |
| Write off of deferred exploration costs | | | | | 438,931 | | | | | | — | | | | | | — | |
| Impairment charge | | | | | 4,280,000 | | | | | | — | | | | | | — | |
| Foreign exchange loss (gain) | | | | | 16,281 | | | | | | (39,944 | ) | | | | | (135,458 | ) |
| Changes in non-cash working capital balances | | | | | | | | | | | | | | | | | | |
| Accounts receivable | | | | | (646,075 | ) | | | | | (50,295 | ) | | | | | (25,686 | ) |
| Prepaid expenses | | | | | (806,424 | ) | | | | | 7,057 | | | | | | (45,038 | ) |
| Accounts payable and accrued liabilities | | | | | 292,661 | | | | | | 1,147,817 | | | | | | (106,151 | ) |
| Inventory | | | | | (357,529 | ) | | | | | (259,514 | ) | | | | | — | |
| Due to/from related parties | | | | | — | | | | | | — | | | | | | (21,611 | ) |
| Cash used in operating activities | | | | | (4,937,608 | ) | | | | | (982,407 | ) | | | | | (2,313,617 | ) |
| Investing activities : | | | | | | | | | | | | | | | | | | |
| Deferred financing fees | | | | | (209,238 | ) | | | | | — | | | | | | — | |
| Deferred exploration and development costs | | | | | (5,072,261 | ) | | | | | (4,666,219 | ) | | | | | (3,811,533 | ) |
| Acquisition of capital assets | | | | | (3,747,249 | ) | | | | | (6,335,240 | ) | | | | | (150,724 | ) |
| Disposal of marketable securities | | | | | — | | | | | | — | | | | | | 28,000 | |
| Cash used in investing activities | | | | | (9,028,748 | ) | | | | | (11,001,459 | ) | | | | | (3,934,257 | ) |
| Financing activities : | | | | | | | | | | | | | | | | | | |
| Shares issued | | | | | 16,543,966 | | | | | | 11,881,771 | | | | | | 1,160,259 | |
| Decrease in subscription received in advance | | | | | — | | | | | | (4,680,000 | ) | | | | | 4,680,000 | |
| Repayable loan | | | | | 2,314,200 | | | | | | 2,706,227 | | | | | | — | |
| Loan repayment | | | | | — | | | | | | (2,706,227 | ) | | | | | — | |
| Share issue cost | | | | | (1,195,261 | ) | | | | | (410,546 | ) | | | | | — | |
| Cash provided by financing activities | | | | | 17,662,905 | | | | | | 6,791,225 | | | | | | 5,840,259 | |
| Increase (decrease) in cash and cash equivalents during the period | | | | | 3,696,549 | | | | | | (5,192,641 | ) | | | | | (407,615 | ) |
| Cash acquired – Vend-In Agreement transaction | | | | | — | | | | | | — | | | | | | 30,062 | |
| Cash – beginning of the period | | | | | 404,987 | | | | | | 5,597,628 | | | | | | 5,975,181 | |
| Cash – end of the period | | | | | 4,101,536 | | | | | | 404,987 | | | | | | 5,597,628 | |
See accompanying notes to the Consolidated Financial Statements
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
1. Nature of Operations
Olympus Pacific Minerals Inc. (the ‘‘Company’’ or ‘‘Olympus’’) and its subsidiaries are engaged in the acquisition, exploration, development and mining of gold bearing properties in Southeast Asia. The Company focuses its activities on two multi-project properties located in Central Vietnam – the Bong Mieu Gold property and the Phuoc Son Gold property.
The Company is exploring and developing its mineral properties. The Company has one gold plant in Vietnam and this plant commenced commercial production effective October 1, 2006. The recoverability of the amounts shown for mineral properties and related deferred costs are dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of those reserves and upon future profitable production. To date, the Company has not earned significant revenues from its plant and is considered to be in the development stage.
2. Summary of Significant Accounting Policies
Basis of presentation and consolidation
These audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant inter-company balances and transactions are eliminated on consolidation.
Estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles 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 year. Actual results could differ from these estimates.
Cash and equivalents
Cash and cash equivalents are comprised of cash on hand and short-term investments that mature within 90 days from the date of acquisition.
Mineral properties
The Company records its interests in mineral properties and areas of geological interest at cost. All direct and indirect costs, comprised of cash paid and/or the assigned value of share consideration, relating to the acquisition of these interests are capitalized on the basis of specific claim blocks or areas of geological interest until the project to which they relate is placed into production, sold or where management has determined impairment. The capitalized cost of the mineral properties is tested for recoverability whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognized if it is determined that the carrying amount is not recoverable and exceeds fair value. The net proceeds from the sale of a portion of a mineral project which is sold before that project reaches the production stage will be credited against the cost of the overall project. The sale of a portion of a mineral project which has reached the production stage will result in a gain or loss recorded in the statement of operations.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
Mineral properties are amortized on the basis of units produced in relation to the proven and probable reserves available on the related project following commencement of commercial production. The recorded amount may not reflect recoverable value as this will be dependent on the development program, the nature of the mineral deposit, commodity prices, adequate funding and the ability of the Company to bring its projects into production.
Asset Retirement Obligations (‘ARO’)
The Company recognizes the fair value of an asset retirement obligation as a liability, in the period of disturbance or acquisition associated with the retirement of tangible long-lived assets that results from the acquisition, construction, development, and/or normal use of the assets. The Company concurrently recognizes a corresponding increase in the carrying amount of the related long-lived asset that is depreciated over the life of that asset. The fair value of the asset retirement obligation is estimated using the expected cash flow approach that reflects a range of possible outcomes discounted at a credit-adjusted risk-free interest rate. Subsequent to the initial measurement, the asset retirement obligation is adjusted to reflect the passage of time or changes in the estimated future cash flows underlying the obligation. Changes in the obligation due to the passage of time are recognized in income as an operating expense using the interest method. Change s in the obligation due to changes in estimated cash flows are recognized as an adjustment of the carrying amount of the long-lived asset that is depreciated over the remaining life of the asset.
Deferred exploration and development costs
The Company defers all exploration and development expenses relating to mineral projects and areas of geological interest until the project to which they relate is placed into production, sold or where management has determined impairment. These costs will be amortized over the proven and probable reserves available on the related property following commencement of production.
Foreign currency translation
The monetary assets and liabilities of the Company that are denominated in currencies other than the Canadian dollar are translated at the rate of exchange at the balance sheet date and non-monetary items are translated at historical rates. Revenues and expenses are translated at the average exchange rate for the year. Exchange gains and losses arising on translation are included in the statement of operations.
Property, plant and equipment
The Company records building, plant and equipment at cost. Buildings, plant and equipment involved in service, production and support are amortized, net of residual value, using the straight-line method, over the estimated productive life of the asset. Productive lives for these assets range from 3 to 10 years, but the productive lives do not exceed the related estimated mine life based on proven and probable reserves. Computer hardware and software is amortized, net of residual value, using the straight-line method over 3 years. Repairs and maintenance expenditures are expensed as incurred. Expenditures that extend the useful lives or productive capacity of existing facilities or equipment are capitalized and amortized over the remaining useful life of the related assets.
In the normal course of our business, the Company has entered into certain leasing arrangements whose conditions meet the criteria for the leases to be classified as capital leases. For capital leases, the Company records an asset and an obligation at an amount equal to the present value at the
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
beginning of the lease term of minimum lease payments over the lease term. In the case of all our leasing arrangements, there is transfer of ownership of the leased assets to the Company at the end of the lease term and therefore the Company amortizes these assets on a basis consistent with our other owned assets.
Asset impairment – Long-lived assets
The Company reviews and evaluates the carrying value of its mineral properties, property, plant and equipment and deferred exploration and development costs when events or changes in circumstances indicate that the carrying amounts of related assets or groups of assets might not be recoverable. In assessing impairment for these assets, if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset, an impairment loss is measured and recorded based on discounted cash flows. Future cash flows are based on estimated future recoverable mine production, expected sales prices (considering current and historical prices), production levels and costs, and further expenditures. All long-lived assets at a particular operation or project are combined for purpose of performing the recoverability test and estimating future cash flows.
Stock-based compensation
The Company uses the fair-value method of accounting for stock options granted to employees and directors. Under this method, the fair value of stock options is estimated at the grant date and is recognized as an expense over the vesting period. The majority of the Company’s stock options vest on the passage of time and continued service requirements. For some of the stock options granted, the options vest based on meeting two of three criteria: (a) specified production levels, (b) specified minimum share price and market capitalization and /or (c) minimum threshold of ounces of gold geological resources for the Company. Compensation expense is recognized for these options based on the best estimate of the number of options that are expected to eventually vest and the estimate is revised, if necessary, if subsequent information indicates the expected number of options that vest are likely to differ from initial estimates.
The Company applies an estimated forfeiture rate when calculating the expense. Compensation expense is reversed for options that are cancelled prior to vesting.
Any consideration paid upon the exercise of stock options or warrants plus any previously recognized amounts in contributed surplus is credited to common shares.
The Company has a bonus share program that allows employees to elect to take their bonus in either cash or double the cash amount in common shares. If the employee chooses the share bonus, the common shares will be received one year after the last day of the bonus period. If the employee chooses the cash bonus, the cash is received within the same fiscal year. If an employee terminates employment before the one year of service, the bonus reverts back to cash without double up and is paid out on termination. The bonus is recognized as a liability at the time of the award. If the employee elects to be paid in common shares, a further share based equity award is recognized based on the market price of the Company’s shares at the date of grant and is recognized over the one year additional service period as compensation expense and contributed surplus. No compensation cost is recognized for estimated forfeitures.
Loss per share
Basic loss per share is calculated using the weighted-average number of common shares outstanding during the year.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on earnings per share is determined assuming that proceeds received on exercise would be used to purchase common shares at the average market price during the period. As there is currently a loss per share, there is no dilutive effect as all outstanding options and warrants are anti-dilutive.
Future income taxes
Future income taxes are recorded using the liability method. Under the liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.
Stripping Costs
Stripping costs incurred during the production phase of a mine are accounted for as variable production costs that are included in the costs of the inventory produced during the period that the stripping costs are incurred.
Revenue Recognition
Revenue from the sale of gold and by-products, such as silver, are recognized when; (i) the significant risks and rewards of ownership have been transferred, (ii) reasonable assurance exists regarding the measurement of the consideration that will be derived from the sales of goods, and the extent to which goods may be returned, and (iii) ultimate collection is reasonably assured. The risks and rewards of ownership for the gold and silver reside with the mine site until gold and silver reaches the Zurich airport and the dore bars are consigned for transport to the refinery. Consequently, revenue is recognized when the gold and silver reaches the refinery. The realized sales price per troy ounce of gold is the AM-fixing of the London Bullion Market in US dollars as prescribed under the sales contract. The quantity of ounces sold is determined by applying a variable recovery rate as well as a return rate of 99.95% for gold and 98% for silver.
For accounting purposes, the refining and transport charges are classified as part of cost of sales and revenues from by-products are netted against costs of sales.
Inventory
Inventory is comprised of ore in stockpiles, operating supplies, dore bars and gold in circuit and is recorded at the average cost, determined from the weighted average of the cost of similar items at the beginning of a month and the cost of similar items added during the month. Dore bars and gold in circuit inventory cost includes the laid-down cost of raw materials plus direct labour and an allocation of applicable overhead costs. Gold in circuit inventory represents gold in the processing circuit that has not completed the production process, and is not yet in a saleable form.
Ore in stockpiles is measured by estimating the number of tonnes added and removed from the stockpile, the number of contained ounces (based on assay data) and estimated metallurgical recovery rates (based on the expected processing method). Costs are allocated to a stockpile based on relative
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead, depreciation, depletion and amortization relating to mining operations, and removed at the stockpiles average cost per recoverable unit.
Interest Cost Accounting
Interest cost is considered an element of the historical cost of an asset when a period of time is necessary to prepare it for its intended use. The Company capitalizes interest costs to assets under development or construction while development or construction activities are in progress. Capitalizing interest costs ceases when construction of the asset is substantially complete and it is ready for its intended use. The interest rate for capitalization purposes is based on the weighted average rates of Olympus’s outstanding borrowings unless a specific obligation was incurred directly related to the specific asset (e.g. project financing). In that case, the specific interest rate is used as well as the weighted average interest rate on other obligations if the asset expenditures exceed the specific borrowing.
3. Mineral Properties and Deferred Exploration and Development Costs
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Mineral Properties | | | Deferred Exploration and
Development Costs |
| | | | December 31,
2006 | | | December 31,
2005 | | | December 31,
2006 | | | December 31,
2005 |
| Phuoc Son | | | | | 6,116,904 | | | | | | 6,116,904 | | | | | | 9,527,650 | | | | | | 7,069,408 | |
| Bong Mieu | | | | | 3,944,000 | | | | | | 3,944,000 | | | | | | 9,167,689 | | | | | | 6,019,834 | |
| | | | | | 10,060,904 | | | | | | 10,060,904 | | | | | | 18,695,339 | | | | | | 13,089,242 | |
| Accumulated amortization(1) | | | | | | | | | | | | | | | | | | | | | | | | |
| Write-off(2) | | | | | (45,149 | ) | | | | | — | | | | | | (251,562 | ) | | | | | — | |
| Impairment charge(3) | | | | | — | | | | | | — | | | | | | (438,931 | ) | | | | | — | |
| | | | | | — | | | | | | — | | | | | | (4,280,000 | ) | | | | | — | |
| Total | | | | $ | 10,015,755 | | | | | $ | 10,060,904 | | | | | $ | 13,724,846 | | | | | $ | 13,089,242 | |
| (1) | Accumulated amortization relates to the Bong Mieu central mine which commenced commercial production on October 1, 2006. |
| (2) | Write off of $438,931 of Deferred Exploration costs relates to certain areas of the Bong Mieu property where exploration activities did not produce positive results |
| (3) | During fourth quarter 2007, management determined that the Bong Mieu Central mine was not reaching originally estimated future throughput. Consequently, an impairment charge of $4,280,000 was taken on the Bong Mieu Central (Hogan) deferred exploration and development costs. |
Bong Mieu Gold Property
The Company holds Mining and Investment Licences covering 30 square kilometres within the Bong Mieu gold property area. The Investment Licence covers three deposits: Bong Mieu Central (an open pit), Bong Mieu East (a potentially open-pit deposit) and Bong Mieu Underground (an underground deposit) which operated by the French from 1896 to 1941. Olympus acquired this project in 1997. Olympus owns 80% and the Company’s Vietnamesepartner owns 20% of the Bong Mieu property. The Company constructed the Bong Mieu Central open pit mine and associated infrastructure in 2005 and 2006, and commercial gold production commenced in the fourth quarter of 2006. The Company must pay a 3% net smelter return royalty equal to 3% of the sales price to the Vietnamese government when the gold is melted in Vietnam and 2% royalty based on 80% of the revenues of Bong Mieu Central to Zedex Minerals Limited.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
Phuoc Son Gold Property
The Company holds an 85% interest in the Phuoc Son Gold Project with a focus of exploration, development and production of gold and other potential minerals in the specified project area, located in Phuoc Son and Nam Giang districts in the Quang Nam Province. In 2003, the Company’s subsidiary, New Vietnam Mining Company (‘‘NVMC’’), entered into a joint venture with Mien Trung Industrial Company (‘‘Minco’’), a mining company controlled by the local provincial government, to form the Phuoc Son Gold Company (‘‘PSGC’’). PSGC has an investment license on the Phuoc Son property. NVMC’s initial interest in PSGC is 85% and Minco has a 15% interest. After five years, from the end of the period in which PSGC makes a profit for 12 consecutive months, Minco can increase its interest by 15% to 30% if Minco chooses to acquire such interest from NVMC by paying fair market value. After 20 years, Minco can increase its interest to a total of 50% if Minco chooses to acquire such additional 20% interest from NVMC by paying fair market value. Fair market value shall be determined by using an independent accounting firm to perform the fair market value assessment and that assessment will be considered final and binding for both parties. If Minco does not proceed on exercising its right of acquisition within three months from the dates of entitled acquisition, Minco will be considered as having waived its right to acquire the interest.
4. Asset Retirement Obligation
| | | | | | | | | | | | |
| | | | December 31, 2006 | | | December 31, 2005 |
| Balance, beginning of the year | | | | $ | 382,509 | | | | | $ | — | |
| Increase in obligation | | | | | 515,545 | | | | | | 382,509 | |
| Foreign exchange adjustment | | | | | 22,344 | | | | | | — | |
| Accretion | | | | | 29,097 | | | | | | — | |
| Balance, end of the period | | | | | 949,495 | | | | | | 382,509 | |
| Current portion | | | | | 59,173 | | | | | | — | |
| Non-current portion | | | | $ | 890,322 | | | | | $ | 382,509 | |
The asset retirement obligation relates to the Bong Mieu property in Vietnam. The Company estimated the cost of rehabilitating the site at US$1,083,160 over the next 10 years. Such estimated costs have been discounted using a credit adjusted risk-free rate of 6.9%
5. Loan Facility
On February 8, 2006, the Company entered into a US$2.0 million loan facility agreement (the ‘‘Facility’’) with Macquarie Bank Limited (‘‘MBL’’) of Sydney, Australia. The Company drew down the US$2.0 million in the first quarter of 2006. The Facility bears an interest rate of LIBOR plus 2.75% and is repayable on July 31, 2007 (amended from June 30, 2007) but may be extended to June 30, 2008 at the option of MBL. In consideration for setting up the facility, MBL was paid a US$50,000 fee and was granted 5,376,092 purchase warrants to acquire the same number of common shares of the Company at an exercise price of $0.4347 until July 31, 2007 and $0.4514 until the ultimate repayment date (currently July 31, 2007 with an option to extend until June 30, 2008). The Company can also accelerate exercise of the warrants if its common shares trade at a 100% p remium to the exercise price for 30 consecutive trading sessions. The Facility agreement specifies some restrictions including, but not limited to, the Company must not incur any indebtedness other than permitted financial indebtedness as defined under the Facility agreement. Permitted indebtedness includes any agreement entered into the ordinary course of business to acquire an asset or service where payment for the asset or service is deferred for a period of not more than 90 days and does
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
notexceed, in aggregate, an amount of US $100,000 for each transaction party. Each transaction party is defined as Olympus, Bong Mieu and Formwell. The Facility agreement specifies that the transaction parties must not allow any encumbrance over its assets other than a permitted encumbrance or acquire an asset that is subject to an encumbrance that is not a permitted encumbrance. Each transaction party must not sell, assign, transfer or dispose of or partially dispose of any assets except an asset that does not form part of the secured property or an asset which is replaced by a similar asset. Each transaction party must not reduce its capital, buy back or redeem its shares or other securities issued to it or provide any financial assistance. Each transaction party may not make a distribution without the prior written consent of MBL. A distribution is defined as a dividend, distribution or any other amount related to a marketable security issued by the transaction party or interest or fee paid by the transac tion party on any financial accommodation provided by a person holding a direct or indirect interest in the transaction party. The requirement for a written consent for distributions has not had a significant impact on our cash obligations to date as we have not paid out any dividends. Intercompany loans amongst transaction parties cannot be repaid to the lending transaction party unless the lending transaction party uses the proceeds of repayment to repay the MBL Facility. The above restriction on intercompany loan settlement does not significantly impact our ability to meet cash obligations as it does not prevent the provision of intercompany loans and only affects the method and timing of intercompany loan settlements.
6. Advance Exploration Contributions
The advance exploration contributions (the ‘‘Prepaid Contribution’’) due to Ivanhoe Mines Ltd. as at December 31, 2005, were adjusted to US$1,024,226 (C$1,191,175) and represent the balance due to Ivanhoe as at November 30, 2002. The amount was repayable on January 5, 2006 at which time it would be repaid in cash unless such payment would reduce the Company’s working capital to less than US$1,000,000, in which case the Company would settle by issuing Ivanhoe common shares of the Company having an aggregate market value equal to such remaining amount, determined on the basis of the average closing prices of the Company’s shares over the preceding 20 trading days.
Pursuant to an Assignment Agreement dated January 1, 2006, the Prepaid Contribution of US$1,024,226 due to Ivanhoe was assigned to Zedex Minerals Limited (‘‘Zedex’’). On March 21, 2006, the Company issued 3,406,758 common shares to Zedex in full payment of the Prepaid Contribution. Shares were issued at the average closing prices of the Company’s shares over the preceding 20 trading days which was equal to $0.34475.
7. Property, Plant & Equipment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in dollars) | | | 2006 | | | 2005 |
| | | | Cost | | | Accumulated
depreciation | | | Net
book value | | | Cost | | | Accumulated
depreciation | | | Net
book value |
| Buildings | | | | | 502,412 | | | | | | 47,161 | | | | | | 455,251 | | | | | | 452,865 | | | | | | 27,272 | | | | | | 425,593 | |
| Leasehold improvements | | | | | 103,005 | | | | | | 13,333 | | | | | | 89,672 | | | | | | 15,087 | | | | | | 8,127 | | | | | | 6,960 | |
| Plant and equipment | | | | | 5,613,823 | | | | | | 281,354 | | | | | | 5,332,469 | | | | | | 4,567,371 | | | | | | 103,031 | | | | | | 4,464,340 | |
| Office equipment, furniture and fixtures | | | | | 867,883 | | | | | | 292,234 | | | | | | 575,649 | | | | | | 503,090 | | | | | | 176,276 | | | | | | 326,814 | |
| Motor vehicles | | | | | 376,548 | | | | | | 153,956 | | | | | | 222,592 | | | | | | 283,187 | | | | | | 106,392 | | | | | | 176,795 | |
| Infrastructure | | | | | 2,047,585 | | | | | | 69,855 | | | | | | 1,977,730 | | | | | | 356,175 | | | | | | 8,942 | | | | | | 347,233 | |
| Construction in progress | | | | | 2,044,394 | | | | | | — | | | | | | 2,044,394 | | | | | | 702,187 | | | | | | — | | | | | | 702,187 | |
| | | | | | 11,555,650 | | | | | | 857,893 | | | | | | 10,697,757 | | | | | | 6,879,962 | | | | | | 430,040 | | | | | | 6,449,922 | |
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
8. Capital Stock
a) Common Shares
The Company is authorized to issue an unlimited number of common shares with one vote per share and no par value per share. The following table shows movements in the capital stock of the Company for the years ended December 31, 2004, December 31, 2005 and December 31, 2006.
| | | | | | | | | | | | |
| | | | Number of
Shares | | | Amount $ |
| Common shares, January 1, 2004 | | | | | 81,341,526 | | | | | | 32,330,552 | |
| Issued upon exercise of options | | | | | 45,000 | | | | | | 8,650 | |
| Issued upon exercise of warrants | | | | | 2,879,021 | | | | | | 1,151,609 | |
| Vend-In transaction | | | | | 13,483,113 | | | | | | 5,258,414 | |
| Common shares, January 1, 2005 | | | | | 97,748,660 | | | | | | 38,749,225 | |
| Private placements | | | | | 32,645,000 | | | | | | 11,063,500 | |
| Issued upon exercise of warrants | | | | | 1,452,540 | | | | | | 435,762 | |
| Share issue costs | | | | | — | | | | | | (538,816 | ) |
| Common shares, January 1, 2006 | | | | | 131,846,200 | | | | | | 49,709,671 | |
| Private placement | | | | | 27,000,000 | | | | | | 15,660,000 | |
| Issued upon exercise of options | | | | | 1,155,833 | | | | | | 558,067 | |
| Issued upon exercise of warrants | | | | | 1,270,000 | | | | | | 636,270 | |
| Issued upon debt repayment (see note 6) | | | | | 3,406,758 | | | | | | 1,174,480 | |
| Share issue costs | | | | | — | | | | | | (1,663,981 | ) |
| Common shares, December 31, 2006 | | | | | 164,678,791 | | | | | | 66,074,507 | |
The following table shows movements in contributed surplus of the Company for the years ended December 31, 2006 and 2005.
| | | | | | | | | | | | | | | | | | |
| | | | 2006 | | | 2005 | | | 2004 |
| Balance, beginning of the year | | | | | 2,656,679 | | | | | | 1,567,334 | | | | | | 367,440 | |
| Valuation of options | | | | | 556,109 | | | | | | 961,075 | | | | | | 180,764 | |
| Valuation of warrants | | | | | 1,445,573 | | | | | | 128,270 | | | | | | — | |
| Exercise options and warrants | | | | | (310,371 | ) | | | | | — | | | | | | — | |
| Adopt fair value accounting | | | | | — | | | | | | — | | | | | | 1,019,130 | |
| Balance, end of the year | | | | | 4,347,990 | | | | | | 2,656,679 | | | | | | 1,567,334 | |
On March 31, 2006, the Company completed a brokered private placement of $15,660,000. The Company issued 27,000,000 common shares at $0.58 per share. Agents for the Offering were paid a cash commission equal to 7% of the gross proceeds and were issued 1,890,000 compensation warrants. Each compensation warrant is exercisable for one common share at $0.58 and expires on March 31, 2008.
In the first quarter of 2006, the Company issued 3,406,758 common shares to Zedex in full payment of the Prepaid Contribution according to the Vend-In Agreement provision for repayment of the Prepaid Contribution via issuance of common shares (see note 6).
b) Stock Options
On September 12, 2003, the Company adopted a stock option plan which was re-approved by its shareholders on June 16, 2005. Under the plan, options to purchase shares of the Company may be
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
granted to directors, officers, employees and consultants of the Company. The maximum number of shares that may be issued under the plan is 10% of the Company’s issued and outstanding shares. Options granted under the plan have a maximum term of five years and vesting dates are determined by the Board of Directors on an individual basis at the time of granting.
The following table provides a summary of the stock option activity for the years ended December 31, 2006 and 2005.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2006 | | | December 31, 2005 | | | December 31, 2004 |
| | | | Number of
Options | | | Weighted
Average
Exercise
Price | | | Number of
options | | | Weighted
Average
Exercise
Price | | | Number of
options | | | Weighted
Average
Exercise
Price |
| Outstanding, beginning of the year | | | | | 11,298,667 | | | | | $ | 0.37 | | | | | | 4,244,500 | | | | | $ | 0.52 | | | | | | 4,593,500 | | | | | $ | 0.52 | |
| Granted | | | | | 1,965,000 | | | | | | 0.45 | | | | | | 8,420,000 | | | | | | 0.33 | | | | | | 1,315,000 | | | | | | 0.48 | |
| Exercised | | | | | (1,155,833 | ) | | | | | 0.33 | | | | | | — | | | | | | — | | | | | | (45,000 | ) | | | | | 0.19 | |
| Cancelled/ Expired | | | | | (630,334 | ) | | | | | 0.44 | | | | | | (1,365,833 | ) | | | | | 0.51 | | | | | | (1,619,000 | ) | | | | | 0.54 | |
| Outstanding, end of the period | | | | | 11,477,500 | | | | | | 0.39 | | | | | | 11,298,667 | | | | | | 0.37 | | | | | | 4,244,500 | | | | | | 0.51 | |
| Options exercisable at the end of the year | | | | | 9,619,793 | | | | | | | | | | | | 7,980,333 | | | | | | | | | | | | 3,201,166 | | | | | | | |
The following table summarizes information about the stock options outstanding as at December 31, 2006.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| OPTIONS OUTSTANDING | | | OPTIONS EXERCISABLE |
Range of
Exercise Prices | | | Number
Outstanding As at
December 31, 2006 | | | Weighted
Average
Remaining Life
(years) | | | Weighted
Average
Exercise Price | | | Number
Exercisable As at
December 31,
2006 | | | Weighted
Average
Exercise Price |
| $0.30-0.36 | | | | | 6,452,500 | | | | | | 3.73 | | | | | $ | 0.32 | | | | | | 5,336,251 | | | | | $ | 0.32 | |
| $0.40-0.45 | | | | | 2,570,000 | | | | | | 2.35 | | | | | | 0.41 | | | | | | 1,995,209 | | | | | | 0.41 | |
| $0.50-0.55 | | | | | 1,705,000 | | | | | | 3.06 | | | | | | 0.51 | | | | | | 1,538,333 | | | | | | 0.51 | |
| $0.60-0.65 | | | | | 750,000 | | | | | | 0.12 | | | | | | 0.60 | | | | | | 750,000 | | | | | | 0.60 | |
| | | | | | 11,477,500 | | | | | | 3.08 | | | | | | 0.39 | | | | | | 9,619,793 | | | | | | 0.39 | |
During the year ended December 31, 2006, 1,965,000 options were granted and were valued at $428,628. The total stock-based compensation expense recognized during the year for stock options granted in the current and prior years and that vested during the current year was $524,197 [2005 – $961,075, 2004 — $180,764] using the fair value method and was credited to contributed surplus.
c) Warrants
The following is a summary of the 7,266,092 warrants outstanding as at December 31, 2006 [2005 – 1,270,000, 2004 – 8,762,560]. On January 12, 2006, 1,270,000 warrants were exercised at $0.40 per share.
| | | | | | | | | |
| Total Outstanding | | | Exercise Price | | | Expiry Date |
| | | | | $ | 0.43 | | | | June 30, 2007 |
| 5,376,092 | | | | $ | 0.45 | | | | June 30, 2008 |
| 1,890,000 | | | | $ | 0.58 | | | | March 31, 2008 |
According to the Facility with Macquarie Bank entered into on February 8, 2006, the Company granted 5,376,092 purchase warrants (see note 5). 2,688,046 of the warrants became issuable upon
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
receipt of the TSXV approval of the warrants, and 2,688,046 of the warrants were issuable on or before the first advance under the facility which occurred on February 14, 2006. The fair value of the warrants was estimated to be $973,073 using the Black-Scholes model with the assumptions of a risk-free interest rate of 3.8%, expected volatility of 74% and 79%, expected time until exercise of 1.25 years and 1 year respectively. The amount was recorded as contributed surplus and as a deferred financing cost to be amortized over the term of the facility.
On March 31, 2006, 1,890,000 warrants were issued to Paradigm Capital Inc., M Partners Inc. and CIBC World Markets Inc. in conjunction with the private placement that closed on that day. The fair value of the warrants was estimated to be $472,500 using the Black-Scholes model with the assumptions of a risk-free interest rate of 3.8%, expected volatility of 68% and expected time until exercise of 2 years. The amount was included as part of issue costs and contributed surplus.
| |
| d) | Bonus Share Program |
During the year ended December 31, 2006, employees who opted for their bonus to be paid in common shares will receive 191,330 common shares in 2007. On the grant date, the fair value of the incremental share award including the cash bonus was $113,224. The total compensation expense recognized for the bonus share program for the year ended December 31, 2006 was $92,874 [2005 and 2004 – nil] including the incremental share award and the original cash bonus award.
9. Related Party Transactions
During the period ended December 31, 2006, the Company entered into the following transactions with related parties:
| |
| a) | Paid or accrued $67,424 in legal fees to a company controlled by a director of the Company as compared to $26,536 in 2005. Services are not under contract and are engaged as required. |
| |
| b) | Paid or accrued $581,396 in management fees and $147,377 in reimbursement of expenses incurred on behalf of the Company to companies controlled by officers of the Company. In 2005, the Company paid or accrued $420,597 in management fees and $214,702 in reimbursement of expenses incurred on behalf of the Company to companies controlled by officers of the Company. These fees and expenses have been incurred as part of ongoing contracts with the related parties. |
| |
| c) | Paid or accrued $26,228 in royalties and $6,136 in expenses to Zedex, a shareholder of Olympus. In 2005 the company paid Zedex $17,260 in interest for a short term loan and $3,852, in expenses. Royalties incurred are a result of an ongoing contract with the related party. |
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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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
10. Commitments and Contractual Obligations
| | | | | | | | | | | | | | | | | | |
As at December 31, 2006
Payments Due by Period | | | Total | | | Less than One Year | | | 2 – 10 Years |
| Debt facility | | | | $ | 2,330,800 | | | | | $ | 2,330,800 | | | | | $ | — | |
| Capital lease obligation | | | | | 412,894 | | | | | | 412,894 | | | | | | — | |
| Operating lease | | | | | 950,588 | | | | | | 950,588 | | | | | | — | |
| Purchase Obligations – supplies and services | | | | | 2,069,333 | | | | | | 2,069,333 | | | | | | — | |
| Purchase obligations – capital | | | | | 1,475,203 | | | | | | 1,475,203 | | | | | | — | |
| Purchase obligations – power supply | | | | | 244,734 | | | | | | 244,734 | | | | | | — | |
| Asset retirement obligations | | | | | 1,262,314 | | | | | | 59,173 | | | | | | 1,203,141 | |
| Total | | | | $ | 8,745,866 | | | | | $ | 7,542,725 | | | | | $ | 1,203,141 | |
11. Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, receivables, accounts payable and accrued liabilities, capital lease obligations and loan facility.
Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest rate or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted.
Currency risk
The Company is exposed to financial risk arising from fluctuations in foreign exchange rates and the degree of volatility of these rates. The Company does not use derivative instruments to reduce its exposure to foreign currency risk, primarily with respect to the US dollar. The Company has a number of investments in foreign subsidiaries and joint ventures, whose net assets are exposed to currency translation risk.
A certain amount of the transactions with respect to the Bong Mieu and Phuoc Son projects are denominated in the Vietnamese Dong, which is not freely convertible into foreign currency, and there are restrictions on the removal of capital from the country. These restrictions may have an adverse impact on the Company’s ability to repatriate funds from Vietnam.
12. Capital Lease Obligation
The company has capital leases at its Bong Mieu Central mine.
| | | | | | | | | | | | |
| | | | December 31,
2006 | | | December 31,
2005 |
| Total minimum lease payment | | | | $ | 412,894 | | | | | $ | — | |
| Less: current portion | | | | | 412,894 | | | | | | — | |
| | | | | $ | — | | | | | $ | — | |
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
13. Inventory
| | | | | | | | | | | | |
| | | | December 31,
2006 | | | December 31,
2005 |
| Dore Bars | | | | $ | 73,047 | | | | | $ | — | |
| Ore in stockpiles | | | | | 76,337 | | | | | | — | |
| Gold in circuit | | | | | 18,800 | | | | | | — | |
| Mine operating supplies | | | | | 448,859 | | | | | | 259,514 | |
| Total | | | | $ | 617,043 | | | | | $ | 259,514 | |
14. Income Taxes
A reconciliation of income taxes at statutory rates with reported taxes is as follows:
| | | | | | | | | | | | | | | | | | |
| | | | 2006
$ | | | 2005
$ | | | 2004
$ |
| Loss | | | | | (9,479,000 | ) | | | | | (2,768,000 | ) | | | | | (2,182,459 | ) |
| Expected Recovery | | | | | (3,223,000 | ) | | | | | (945,000 | ) | | | | | (742,036 | ) |
| Issue Costs | | | | | (215,000 | ) | | | | | (105,000 | ) | | | | | (120,000 | ) |
| Foreign Tax Differential | | | | | 1,418,000 | | | | | | (268,000 | ) | | | | | — | |
| Non Deductible expenses | | | | | 116,000 | | | | | | 596,000 | | | | | | 114,308 | |
| Benefit of current year loss not recognized | | | | | 1,904,000 | | | | | | 722,000 | | | | | | 747,728 | |
| Total income tax recovery | | | | | — | | | | | | — | | | | | | — | |
The components of the Company’s future income tax assets are as follows:
| | | | | | | | | | | | | | | | | | |
| | | | 2006
$ | | | 2005
$ | | | 2004
$ |
| Non-capital losses carried forward | | | | | 3,888,000 | | | | | | 2,415,000 | | | | | | 1,827,000 | |
| Deferred exploration and development costs | | | | | 301,000 | | | | | | — | | | | | | — | |
| Issue costs | | | | | 616,000 | | | | | | 263,000 | | | | | | 186,000 | |
| Capital Assets | | | | | 25,000 | | | | | | 25,000 | | | | | | 20,000 | |
| Resource related deductions | | | | | 692,000 | | | | | | 641,000 | | | | | | 638,000 | |
| Future income tax asset | | | | | 5,522,000 | | | | | | 3,344,000 | | | | | | 2,671,000 | |
| Valuation allowance | | | | | (5,522,000 | ) | | | | | (3,344,000 | ) | | | | | (2,671,000 | ) |
| Net future income tax asset | | | | | — | | | | | | — | | | | | | — | |
The Company has available for deduction against future taxable income non-capital losses of approximately $10,719,611 (2005 – $5,815,000, 2004 – $5,021,000). These losses, if not utilized, will expire in 2013. Subject to certain restrictions, the Company also has resources expenditures available to reduce taxable income in future years. Future tax benefits which may arise as a result of these non-capital losses and resource deductions have not been recognized in these consolidated financial statements.
15. Memorandum of Agreement
On November 23, 2006, a Memorandum of Agreement and Supplement to Memorandum of Agreement (collectively, the ‘‘MOA’’) was entered into by Abra Mining and Industrial Corporation (‘‘AMIC’’), the Company and Jabel Corporation (‘‘Jabel’’) that allows the Grantee (defined as the
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
Company and ‘‘a Philippine national’’) to acquire an option to earn a 60% interest in AMIC’s Capcapo mining tenement (the ‘‘property’’) located in the Province of Abra in the Philippines upon completing a specified level of expenditures on the property.
The MOA is a binding agreement that is conditional on the completion of due diligence program in second quarter 2007 to validate historical drilling information. Once the due diligence procedures are complete and the drilling information is validated, a formal agreement will be signed and a cash payment of U.S. $200,000 will be made by the Grantee to AMIC. Under Philippine law, foreign-owned entities can only hold up to 40% of a Mineral Production Sharing Agreement (‘‘MPSA’’). Consequently, the Company can only directly hold 40% in the MPSA and will have to identify a Philippine national corporation to hold the additional 20%. The Phillipine national corporation has not yet been identified. A Philippine national corporation is one which is not more than 40% foreign-owned. Six months after the signing of the formal agreement, the Grantee will issue common shares of the Company to AMIC with a total value of U.S. $350,000 based on the averag e of the trading price of the Company’s common shares for the five trading days preceding the date of the signing of the formal agreement. Once the Grantee has spent U.S. $3 million on exploration and development work on the property, the Grantee will issue to AMIC further common shares of the Company with a total value of U.S. $450,000 based on the average of the trading price of the Company’s common shares for the five trading days preceding their date of issuance. To earn the 60% interest, a cumulative spending of U.S. $6 million by the Grantee on exploration and development must occur by the end of the 5th year after the signing of the formal agreement. The Grantee earns a 20% interest after the first U.S. $1 million is spent, an additional 20% interest after an additional U.S. $2 million has been spent and an additional 20% int erest after an additional U.S. $3 million has been spent. Once the 60% interest has been earned, a new joint venture company (‘‘NEWCO’’) would be formed of which the Grantee would hold a 60%. If the Grantee obtains less than the 60% interest, the Grantee would share in less than 60% of the results of the joint venture. One year after full commercial production is achieved on the property, a royalty would be paid to Jabel, the underlying title holder of the property, equal to either 3% of gross value of production or 6% of annual Profit of NEWCO, as defined in the agreement, whichever is higher.
16. Comparative Consolidated Financial Statements
The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 2006 consolidated financial statements.
17. Subsequent Event
On March 19, 2007, the Company completed a non-brokered private placement, of 21,428,571 shares at a price of $0.56 per share, for gross proceeds of $12,000,000. All shares issued have a hold period in Canada of four months from the closing of the placement. The net proceeds are intended to be used for ongoing exploration, feasibility studies and development work on the Company’s mineral projects and for general corporate purposes.
18. Differences from Generally Accepted Accounting Principles
These consolidated financial statements have been prepared in accordance with Canadian GAAP. A reconciliation of our income statement, balance sheet and statements of cash flows between US GAAP and Canadian GAAP is presented below together with a description of the significant measurement differences affecting these financial statements.
| |
| a) | Exploration and development expenditures |
For Canadian GAAP purposes, the Company capitalizes exploration and development costs incurred on our properties after proven and probable reserves have been found as well as on
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
properties where the Company has found non-reserve material that does not meet all the criteria required for classification as proven or probable reserves. The determination as to whether the existence of non-reserve material should result in the capitalization of mine exploration and development costs is based on various factors, including: the existence and nature of known mineralization; the location of the property (for example, whether the presence of existing mines and ore bodies in the immediate vicinity increases the likelihood of development of a mine on the property); the results of recent drilling on the property; and the existence of a pre-feasibility or feasibility study or other analysis to demonstrate that mineralization is expected to be commercially recoverable. Under US GAAP, exploration and development expenditures incurred on properties where mineralization has not been classified as a proven and probable reserve under Securities Exchange Commission (‘‘SEC’’) Indus try Guide No.7 are expensed as incurred. Accordingly, certain expenditures are capitalized for Canadian GAAP purposes but expensed under US GAAP. Accordingly, any amortization, impairment charges or write-offs on deferred development and exploration costs under Canadian GAAP would be reversed under US GAAP as these costs have already been expensed.
| |
| b) | Production Start Date |
Different criteria are applied under Canadian GAAP as compared to U.S. GAAP for determining the production start date of a mine for accounting purposes. The production start date for the Bong Mieu Central Open pit (Ho Gan) mine, which began producing gold during 2006, was July 1, 2006 under U.S. GAAP and October 1, 2006 under Canadian GAAP. Once a mine is considered to be in the production stage, sales, cost of sales, depreciation and amortization and inventory are recorded. As a result, under Canadian GAAP, these sales, cost of sales, depreciation and amortization and inventory were capitalized to deferred development costs for the three months ended September 30, 2006. This results in a further difference in amortization expense as a result of the differing carrying value of the mineral properties and capital assets.
Under U.S. GAAP, the production start date is determined by a number of factors including when all major capital expenditures have been completed for a mine, completion of a reasonable period of testing, the ability to produce gold in a saleable form and whether production / sales and extraction prior to production start date are considered de minimus. Under Canadian GAAP, the production start date is based on whether all major capital expenditures have been made, anticipated activity levels have been reached such as recovery rate, mining, crushing and processing tonnes per day and the ability to consistently extract and produce gold. Under Canadian GAAP, incidental revenue does not necessarily infer that production stage has been reached. The criteria that resulted in the accounting difference would be the de minimus sales / production and extraction criteria resulting in the earlier production start date under U.S. GAAP.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
| |
| c) | Consolidated Balance Sheets |
For the years ended December 31
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 2006 | | | 2005 |
| | | | Notes | | | Canadian
GAAP | | | Adjustments | | | US GAAP | | | Canadian
GAAP | | | Adjustments | | | US GAAP |
| Current assets | | | | | | | | | | | 6,422,563 | | | | | | — | | | | | | 6,422,563 | | | | | | 910,018 | | | | | | — | | | | | | 910,018 | |
| Long-term assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mineral properties | | | | | (b | ) | | | | | 10,015,755 | | | | | | (37,500 | ) | | | | | 9,978,255 | | | | | | 10,060,904 | | | | | | — | | | | | | 10,060,904 | |
| Capital assets(ii) | | | | | (b | ) | | | | | 10,697,757 | | | | | | (79,332 | ) | | | | | 10,618,425 | | | | | | 6,449,922 | | | | | | — | | | | | | 6,449,922 | |
| Deferred Financing Costs (i) | | | | | | | | | | | 695,773 | | | | | | (486,537 | ) | | | | | 209,236 | | | | | | — | | | | | | — | | | | | | — | |
| Deferred exploration and development costs | | | | | (a | ) | | | | | 13,724,846 | | | | | | (13,724,846 | ) | | | | | — | | | | | | 13,089,242 | | | | | | (13,089,242 | ) | | | | | — | |
| | | | | | | | | | | | 35,134,131 | | | | | | (14,328,215 | ) | | | | | 20,805,916 | | | | | | 29,600,068 | | | | | | (13,089,242 | ) | | | | | 16,510,826 | |
| Total Assets | | | | | | | | | | | 41,556,694 | | | | | | (14,328,215 | ) | | | | | 27,228,479 | | | | | | 30,510,086 | | | | | | (13,089,242 | ) | | | | | 17,420,844 | |
| Total Liabilities (i) | | | | | | | | | | | 5,592,835 | | | | | | (486,537 | ) | | | | | 5,106,298 | | | | | | 3,123,487 | | | | | | — | | | | | | 3,123,487 | |
| Total Shareholders’ equity | | | | | | | | | | | 35,963,859 | | | | | | (13,841,678 | ) | | | | | 22,122,181 | | | | | | 27,386,599 | | | | | | (13,089,242 | ) | | | | | 14,297,357 | |
Total liabilities and
Shareholders’ equity | | | | | | | | | | | 41,556,694 | | | | | | (14,328,215 | ) | | | | | 27,228,479 | | | | | | 30,510,086 | | | | | | (13,089,242 | ) | | | | | 17,420,844 | |
| (i) | Under US GAAP, deferred financing costs are netted against the loan. |
| (ii) | Under Canadian GAAP, capitalized interest is recorded as an addition to deferred development costs and under US GAAP, capitalization interest is recorded as an addition to capital assets. |
d) Reconciliation of consolidated net income
For the years ended December 31
| | | | | | | | | | | | | | | | | | | | | |
| | | | Notes | | | 2006 | | | 2005 | | | 2004 |
| Net loss under Canadian GAAP | | | | | | | $ | 9,478,887 | | | | | $ | 2,768,461 | | | | | $ | 2,182,459 | |
| Sales | | | (b) | | | | | (1,193,954 | ) | | | | | — | | | | | | — | |
| Cost and expenses | | | (a) & (b) | | | | | 1,536,989 | | | | | | — | | | | | | — | |
| Exploration and development expenditures | | | (a) | | | | | 5,128,332 | | | | | | 4,666,219 | | | | | | 4,537,678 | |
| Reverse impairment charge | | | (a) | | | | | (4,280,000 | ) | | | | | — | | | | | | — | |
| Reverse write-down | | | (a) | | | | | (438,931 | ) | | | | | — | | | | | | — | |
| Net loss and comprehensive loss under US GAAP | | | | | | | $ | 10,231,323 | | | | | $ | 7,434,680 | | | | | | 6,720,137 | |
| Basic and diluted loss per share | | | | | | | $ | 0.06 | | | | | $ | 0.06 | | | | | $ | 0.07 | |
e) Consolidated statements of cash flow under US GAAP
Exploration and development expenditures that were capitalized under Canadian GAAP, but expensed under US GAAP represent the differences in cash flows from operating and investing activities between US GAAP and Canadian GAAP.
F-19
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
For the years ended December 31
| | | | | | | | | | | | | | | | | | |
| | | | 2006 | | | 2005 | | | 2004 |
| Activities | | | | | | | | | | | | | | | | | | |
| Operating | | | | | (10,009,869 | ) | | | | | (5,648,626 | ) | | | | | (6,125,150 | ) |
| Investing | | | | | (3,956,487 | ) | | | | | (6,335,240 | ) | | | | | (122,724 | ) |
| Financing | | | | | 17,662,905 | | | | | | 6,791,225 | | | | | | 5,840,259 | |
| Cash and equivalents at the beginning of year | | | | | 404,987 | | | | | | 5,597,628 | | | | | | 5,975,181 | |
| Cash acquired – Vend-In Agreement | | | | | — | | | | | | — | | | | | | 30,062 | |
| Cash and equivalent at end of year | | | | | 4,101,536 | | | | | | 404,987 | | | | | | 5,597,628 | |
| |
| f) | US GAAP Recent Developments |
| |
| (i) | In February 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued SFAS 155, ‘‘Accounting for Certain Hybrid Financial Instruments’’ which amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, ‘‘Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.’’ This Statement: |
| | |
| • | Permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation |
| | |
| • | Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133 |
| | |
| • | Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation |
| | |
| • | Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives |
| | |
| • | Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. |
The fair value election provided for in paragraph 4(c) of this Statement may also be applied upon adoption of this Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of this Statement. Provisions of this Statement may be applied to instruments that the Company holds at the date of adoption on an instrument-by-instrument basis. Adoption of this Statement is required as of the beginning of the first fiscal year that begins after December 31, 2006. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.
| |
| (ii) | In March 2006, the FASB issued SFAS 156, ‘‘Accounting for Servicing of Financial Assets,’’ which amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement: |
| | |
| • | Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations. |
F-20
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
| | |
| • | Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. |
| | |
| • | Permits an entity to choose either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. |
| | |
| • | At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value. |
| | |
| • | Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. |
Adoption of SFAS 156 is required as of the beginning of the first fiscal year that begins after December 31, 2006. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.
| |
| (iii) | In June 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes — an interpretation of FASB No. 109’’ (‘‘FIN 48’’). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109 and provides guidance on recognizing, measuring, presenting and disclosing in the financial statements tax positions that a company has taken or expected to take on a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 to have a material imp act on its consolidated financial statements. |
| |
| (iv) | In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’ (‘‘SFAS 157’’). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement addresses how to calculate fair value measurements required or permitted under other accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company at this time has not evaluated the impact, if any, of SFAS 157 on its financial statements. |
| |
| (v) | In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, ‘‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R)’’ (‘‘SFAS 158’’). SFAS 158 requires companies to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans. SFAS158 requires prospective application, recognition and disclosure requirements effective for the Company’s fiscal year ending December 31, 2006; these requirements did not have any impact on the Company ’s consolidated financial statements for the year ended December 31, 2006. Additionally, SFAS 158 requires companies to measure plan assets and obligations at their year-end balance sheet date. This requirement is effective for the Company’s fiscal year ending December 31, 2008. The Company does not expect the adoption of SFAS 158 to have any material impact on its consolidated financial statements. |
F-21
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements
December 31, 2006
All dollar amounts are in Canadian Dollars unless otherwise stated
| |
| (vi) | In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities -Including an Amendment of SFAS 115. SFAS No.159 permits entities to measure many financial instruments and certain other items at fair value that currently are not required to be measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected would be reported in earnings at each subsequent reporting date. SFAS No. 159 is effective for the Company’s fiscal year beginning January 1, 2008. The Company is in the process of evaluating the impact of this statement, if any, on its consolidated financial statements. |
END OF NOTES TO FINANCIAL STATEMENTS
F-22
Table of ContentsNOTICE TO THE READER
The accompanying unaudited interim consolidated financial statements and all information contained in the attached 2007 first quarter report have been prepared by and are the responsibility of the management of the Company.
The Audit Committee of the Board of Directors, consisting of three members, has reviewed the financial statements and related financial reporting matters.
The Company’s independent auditors, Ernst & Young LLP, Chartered Accountants, have not performed a review of these consolidated financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditors.
F-23
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Consolidated Balance Sheets
Unaudited
| | | | | | | | | | | | |
As at
Canadian dollars | | | March 31
2007 | | | December 31
2006 |
| ASSETS | | | | | | | | | | | | |
| Current | | | | | | | | | | | | |
| Cash | | | | | 13,529,901 | | | | | | 4,101,536 | |
| Accounts receivable | | | | | 462,739 | | | | | | 803,027 | |
| Prepaid expenses | | | | | 343,501 | | | | | | 900,957 | |
| Inventory (note 12) | | | | | 827,586 | | | | | | 617,043 | |
| | | | | | 15,163,727 | | | | | | 6,422,563 | |
| Long-term | | | | | | | | | | | | |
| Property, plant & equipment (note 6) | | | | | 10,627,025 | | | | | | 10,697,757 | |
| Mineral properties (note 3) | | | | | 9,961,884 | | | | | | 10,015,755 | |
| Deferred financing costs (note 7c) | | | | | — | | | | | | 695,773 | |
| Deferred exploration and development costs (note 3) | | | | | 15,099,233 | | | | | | 13,724,846 | |
| | | | | | 35,688,142 | | | | | | 35,134,131 | |
| | | | | | 50,851,869 | | | | | | 41,556,694 | |
| LIABILITIES | | | | | | | | | | | | |
| Current | | | | | �� | | | | | | | |
| Accounts payable and accrued liabilities | | | | | 1,794,400 | | | | | | 1,899,646 | |
| Capital lease obligations (note 11) | | | | | 330,786 | | | | | | 412,894 | |
| Loan facility (notes 2 and 5) | | | | | 1,984,843 | | | | | | 2,330,800 | |
| Asset retirement obligation (note 4) | | | | | 58,625 | | | | | | 59,173 | |
| | | | | | 4,168,654 | | | | | | 4,702,513 | |
| Long-term | | | | | | | | | | | | |
| Asset retirement obligation (note 4) | | | | | 892,286 | | | | | | 890,322 | |
| | | | | | 892,286 | | | | | | 890,322 | |
| | | | | | 5,060,940 | | | | | | 5,592,835 | |
| SHAREHOLDERS’ EQUITY | | | | | | | | | | | | |
| Share capital (note 7a) | | | | | 78,535,164 | | | | | | 66,074,507 | |
| Contributed surplus (notes 7b,c,d) | | | | | 5,017,625 | | | | | | 4,347,990 | |
| Deficit | | | | | (37,761,860 | ) | | | | | (34,458,638 | ) |
| | | | | | 45,790,929 | | | | | | 35,963,859 | |
| | | | | | 50,851,869 | | | | | | 41,556,694 | |
See accompanying notes to the Consolidated Financial Statements
F-24
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Consolidated Statements of Operations and Comprehensive Loss
Unaudited
| | | | | | | | | | | | |
| For the three months ended ended March 31 (Canadian dollars) | | | 2007 | | | 2006 |
| Sales – Gold | | | | | 1,119,084 | | | | | | — | |
| Cost and expenses | | | | | | | | | | | | |
| Cost of sales | | | | | 1,577,892 | | | | | | — | |
| Amortization | | | | | 460,899 | | | | | | 9,377 | |
| General exploration | | | | | 74,906 | | | | | | 37,110 | |
| Royalty expense | | | | | 21,331 | | | | | | — | |
| Consulting fees | | | | | 159,444 | | | | | | 45,902 | |
| Office and general administrative | | | | | 75,654 | | | | | | 48,785 | |
| Investor relations and promotion | | | | | 38,770 | | | | | | 75,939 | |
| Management fees and salaries | | | | | 506,365 | | | | | | 248,657 | |
| Professional fees | | | | | 119,897 | | | | | | 43,604 | |
| Shareholders’ information | | | | | 3,664 | | | | | | 10,032 | |
| Transfer agent and regulatory fees | | | | | 105,200 | | | | | | 132,761 | |
| Travel | | | | | 50,008 | | | | | | 130,464 | |
| Stock-based compensation (note 7b) | | | | | 821,685 | | | | | | 176,440 | |
| | | | | | 4,015,715 | | | | | | 959,071 | |
| Other (income) expense | | | | | | | | | | | | |
| Interest income | | | | | (37,082 | ) | | | | | (2,164 | ) |
| Interest expense | | | | | 128,879 | | | | | | — | |
| Write-off of deferred transaction costs | | | | | 265,488 | | | | | | — | |
| Foreign exchange loss | | | | | 49,306 | | | | | | 4,837 | |
| | | | | | 406,591 | | | | | | 2,673 | |
| Loss and comprehensive loss | | | | | 3,303,222 | | | | | | 961,744 | |
| Basic and diluted loss per common share | | | | $ | 0.02 | | | | | $ | 0.01 | |
| Weighted average number of common shares outstanding | | | | | 165,038,584 | | | | | | 133,010,570 | |
OLYMPUS PACIFIC MINERALS INC.
Consolidated Statements of Deficit
Unaudited
| | | | | | | | | | | | |
| For the three months ended March 31 (Canadian dollars) | | | 2007 | | | 2006 |
| Deficit, beginning of the year | | | | | 34,458,638 | | | | | | 24,979,751 | |
| Loss for the period | | | | | 3,303,222 | | | | | | 961,744 | |
| Deficit, end of the period | | | | | 37,761,860 | | | | | | 25,941,495 | |
See accompanying notes to the Consolidated Financial Statements
F-25
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Consolidated Statements of Cash Flows
Unaudited
| | | | | | | | | | | | |
| For the three months ended ended March 31 (Canadian dollars) | | | 2007 | | | 2006 |
| Operating activities : | | | | | | | | | | | | |
| Loss for the period | | | | | (3,303,222 | ) | | | | | (961,744 | ) |
| Items not affecting cash | | | | | | | | | | | | |
| Amortization | | | | | 460,899 | | | | | | 9,377 | |
| Write-off of deferred transaction costs | | | | | 209,237 | | | | | | — | |
| Interest expense | | | | | 81,090 | | | | | | — | |
| Stock-based compensation expense | | | | | 821,685 | | | | | | 176,440 | |
| Accretion expense | | | | | 10,215 | | | | | | — | |
| Foreign exchange gain | | | | | (34,225 | ) | | | | | (15,050 | ) |
| Changes in non-cash working capital balances | | | | | | | | | | | | |
| Accounts receivable | | | | | 340,288 | | | | | | (210,585 | ) |
| Prepaid expenses | | | | | 557,456 | | | | | | (110,046 | ) |
| Accounts payable and accrued liabilities | | | | | (65,888 | ) | | | | | 6,331 | |
| Inventory | | | | | (210,543 | ) | | | | | 94,712 | |
| Cash used in operating activities | | | | | (1,133,008 | ) | | | | | (1,010,565 | ) |
| Investing activities : | | | | | | | | | | | | |
| Deferred exploration and development costs | | | | | (1,098,016 | ) | | | | | (1,442,439 | ) |
| Acquisition of property, plant and equipment | | | | | (531,579 | ) | | | | | (94,547 | ) |
| Cash used in investing activities | | | | | (1,629,595 | ) | | | | | (1,536,986 | ) |
| Financing activities : | | | | | | | | | | | | |
| Shares issued | | | | | 12,269,250 | | | | | | 16,215,985 | |
| Repayable loan | | | | | — | | | | | | 2,336,000 | |
| Capital lease obligation | | | | | (78,282 | ) | | | | | — | |
| Share issue cost | | | | | — | | | | | | (1,177,971 | ) |
| Cash provided by financing activities | | | | | 12,190,968 | | | | | | 17,374,014 | |
| Increase in cash and cash equivalents during the period | | | | | 9,428,365 | | | | | | 14,826,463 | |
| Cash – beginning of the period | | | | | 4,101,536 | | | | | | 404,987 | |
| Cash – end of the period | | | | | 13,529,901 | | | | | | 15,231,450 | |
See accompanying notes to the Consolidated Financial Statements
F-26
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
1. Nature of Operations
Olympus Pacific Minerals Inc. (the ‘‘Company’’ or ‘‘Olympus’’) and its subsidiaries are engaged in the acquisition, exploration, development and mining of gold bearing properties in Southeast Asia. The Company focuses its activities on two multi-project properties located in Central Vietnam — the Bong Mieu Gold property and the Phuoc Son Gold property.
The Company is exploring and developing its mineral properties. The Company has one gold plant in Vietnam and this plant commenced commercial production effective October 1, 2006. The recoverability of the amounts shown for mineral properties and related deferred costs are dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of those reserves and upon future profitable production. To date, the Company has not earned significant revenues from its plant and is considered to be in the development stage.
2. Summary of Significant Accounting Policies
Basis of presentation and consolidation
These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant inter-company balances and transactions are eliminated on consolidation.
Change in Accounting Policies
The Company has adopted the following CICA guidelines effective for the Company’s first quarter commencing January 1, 2007:
a) Section 3855 — Financial Instruments — Recognition and Measurement. Section 3855 requires that all financial assets, except losses and receivables and those classified as held to maturity, and derivative financial instruments, must be measured at fair value. All financial liabilities must be measured at fair value when they are classified as held for trading; otherwise, they are measured at cost. Investments classified as available for sale are reported at fair market value (or mark to market) based on quoted market prices with unrealized gains or losses excluded from earnings and reported as other comprehensive income or loss. The Company, as permitted by CICA Handbook Section 3855, has adopted this section prospectively for financial assets valued after January 1, 2007. The adoption of Section 3855 had no effect on the Company’s financial statements except for the prospective reclassification of deferred financing costs from long term assets to net against the loan facility as required under Section 3855.
b) Section 1530 — Comprehensive Income. Comprehensive income is the change in the Company’s net assets that results from transactions, events and circumstances from sources other than the Company’s shareholders and includes items that would not normally be included in net earnings such as unrealized gains or losses on available-for-sale investments. Other comprehensive income includes the holding gains and losses from available for sale securities which are not included in net income (loss) until realized.
Estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles 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 year. Actual results could differ from these estimates.
F-27
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
Cash and equivalents
Cash and cash equivalents are comprised of cash on hand and short-term investments that mature within 90 days from the date of acquisition.
Mineral properties
The Company records its interests in mineral properties and areas of geological interest at cost. All direct and indirect costs, comprised of cash paid and/or the assigned value of share consideration, relating to the acquisition of these interests are capitalized on the basis of specific claim blocks or areas of geological interest until the project to which they relate is placed into production, sold or where management has determined impairment. The capitalized cost of the mineral properties is tested for recoverability whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognized if it is determined that the carrying amount is not recoverable and exceeds fair value. The net proceeds from the sale of a portion of a mineral project which is sold before that project reaches the production stage will be credited against the cost of the overall project. The sale of a portion of a mineral project which has reached the production stage will result in a gain or loss recorded in the statement of operations.
Mineral properties are amortized on the basis of units produced in relation to the proven and probable reserves available on the related project following commencement of commercial production. The recorded amount may not reflect recoverable value as this will be dependent on the development program, the nature of the mineral deposit, commodity prices, adequate funding and the ability of the Company to bring its projects into production.
Asset Retirement Obligations
The Company recognizes the fair value of an asset retirement obligation as a liability, in the period of disturbance or acquisition associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The Company concurrently recognizes a corresponding increase in the carrying amount of the related long-lived asset that is depreciated over the life of that asset. The fair value of the asset retirement obligation is estimated using the expected cash flow approach that reflects a range of possible outcomes discounted at a credit-adjusted risk-free interest rate. Subsequent to the initial measurement, the asset retirement obligation is adjusted to reflect the passage of time or changes in the estimated future cash flows underlying the obligation. Changes in the obligation due to the passage of time are recognized in income as an operating expense using the interest method. Changes in the obligation due to changes in estimated cash flows are recognized as an adjustment of the carrying amount of the long-lived asset that is depreciated over the remaining life of the asset.
Deferred exploration and development costs
The Company defers all exploration and development expenses relating to mineral projects and areas of geological interest until the project to which they relate is placed into production, sold or where management has determined impairment. These costs will be amortized over the proven and probable reserves available on the related property following commencement of production.
Foreign currency translation
The monetary assets and liabilities of the Company that are denominated in currencies other than the Canadian dollar are translated at the rate of exchange at the balance sheet date and non-monetary items are translated at historical rates. Revenues and expenses are translated at the average exchange rate for the year. Exchange gains and losses arising on translation are included in the statement of operations.
F-28
Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
Property, plant and equipment
The Company records building, plant and equipment at cost. Buildings, plant and equipment involved in service, production and support are amortized, net of residual value, using the straight-line method, over the estimated productive life of the asset. Productive lives for these assets range from 3 to 10 years, but the productive lives do not exceed the related estimated mine life based on proven and probable reserves. Computer hardware and software is amortized, net of residual value, using the straight-line method over 3 years. Repairs and maintenance expenditures are expensed as incurred. Expenditures that extend the useful lives or productive capacity of existing facilities or equipment are capitalized and amortized over the remaining useful life of the related assets.
In the normal course of our business, the Company has entered into certain leasing arrangements whose conditions meet the criteria for the leases to be classified as capital leases. For capital leases, the Company records an asset and an obligation at an amount equal to the present value at the beginning of the lease term of minimum lease payments over the lease term. In the case of all our leasing arrangements, there is transfer of ownership of the leased assets to the Company at the end of the lease term and therefore the Company amortizes these assets on a basis consistent with our other owned assets.
Asset impairment — Long-lived assets
The Company reviews and evaluates the carrying value of its mineral properties, property, plant and equipment and deferred exploration and development costs at least annually or when events or changes in circumstances indicate that the carrying amounts of related assets or groups of assets might not be recoverable. In assessing impairment for these assets, if the fair value or total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset, an impairment loss is measured and recorded based on discounted cash flows. Future cash flows are based on estimated future recoverable mine production, expected sales prices (considering current and historical prices), production levels and costs, and further expenditures. All long-lived assets at a particular operation or project are combined for purpose of performing the recoverability test and estimating future cash flows.
Stock-based compensation
The Company uses the fair-value method of accounting for stock options granted to employees and directors. Under this method, the fair value of stock options is estimated at the grant date and is recognized as an expense over the vesting period. The majority of the Company’s stock options vest on the passage of time and continued service requirements. For some of the stock options granted, the options vest based on meeting two of three criteria: (a) specified production levels, (b) specified minimum share price and market capitalization and /or (c) minimum threshold of ounces of gold geological resources for the Company. Compensation expense is recognized for these options based on the best estimate of the number of options that are expected to eventually vest and the estimate is revised, if necessary, if subsequent information indicates the expected number of options that vest are likely to differ from initial estimates. The Company applie s an estimated forfeiture rate when calculating the expense.
Any consideration paid upon the exercise of stock options or warrants plus any previously recognized amounts in contributed surplus is credited to common shares.
The Company has a bonus share program that allows employees to elect to take their bonus in either cash or double the cash amount in common shares. If the employee chooses the share bonus, the common shares will be received one year after the last day of the bonus period. If the employee
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
chooses the cash bonus, the cash is received within the same fiscal year. If an employee terminates employment before the one year of service, the bonus reverts back to cash without double up and is paid out on termination. The bonus is recognized as a liability at the time of the award. If the employee elects to be paid in common shares, a further share based equity award is recognized based on the market price of the Company’s shares at the date of grant and is recognized over the one year additional service period as compensation expense and contributed surplus. No compensation cost is recognized for estimated forfeitures.
Loss per share
Basic loss per share is calculated using the weighted-average number of common shares outstanding during the year.
The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on earnings per share is determined assuming that proceeds received on exercise would be used to purchase common shares at the average market price during the period. As there is currently a loss per share, there is no dilutive effect from all outstanding options and warrants.
Future income taxes
Future income taxes are recorded using the liability method. Under the liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.
Stripping Costs
Stripping costs incurred during the production phase of a mine are accounted for as variable production costs that are included in the costs of the inventory produced during the period that the stripping costs are incurred.
Revenue Recognition
Revenue from the sale of gold and by-products, such as silver, are recognized when; (i) the significant risks and rewards of ownership have been transferred, (ii) reasonable assurance exists regarding the measurement of the consideration that will be derived from the sales of goods, and the extent to which goods may be returned, and (iii) ultimate collection is reasonably assured. The risks and rewards of ownership for the gold and silver reside with the mine site until gold and silver reaches the Zurich airport and the dore bars are consigned for transport to the refinery. Consequently, revenue is recognized when the gold and silver reaches the refinery. The realized sales price per troy ounce of gold is the AM-fixing of the London Bullion Market in US dollars as prescribed under the sales contract. The quantity of ounces sold is determined by applying a variable recovery rate as well as a return rate of 99.95% for gold and 98% for silver.
For accounting purposes, the refining and transport charges are classified as part of cost of sales and revenues from by-products are netted against costs of sales.
Inventory
Inventory is comprised of ore in stockpiles, operating supplies, dore bars and gold in circuit and is recorded at the average cost, determined from the weighted average of the cost of similar items at the
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
beginning of a month and the cost of similar items added during the month. Dore bars and gold in circuit inventory cost includes the laid-down cost of raw materials plus direct labour and an allocation of applicable overhead costs. Gold in circuit inventory represents gold in the processing circuit that has not completed the production process, and is not yet in a saleable form.
Ore in stockpiles is measured by estimating the number of tonnes added and removed from the stockpile, the number of contained ounces (based on assay data) and estimated metallurgical recovery rates (based on the expected processing method). Costs are allocated to a stockpile based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead, depreciation, depletion and amortization relating to mining operations, and removed at the stockpiles average cost per recoverable unit.
Interest Cost Accounting
Interest cost is considered an element of the historical cost of an asset when a period of time is necessary to prepare it for its intended use. The Company capitalizes interest costs to assets under development or construction while development or construction activities are in progress. Capitalizing interest costs ceases when construction of the asset is substantially complete and it is ready for its intended use. In that case, the specific interest rate is used as well as the weighted average interest rate on other obligations if the asset expenditures exceed the specific borrowing.
3. Mineral Properties and Deferred Exploration and Development Costs
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Mineral Properties | | | Deferred Exploration and
Development Costs |
| | | | March 31, 2007 | | | December 31, 2006 | | | March 31, 2007 | | | December 31, 2006 |
| Phuoc Son | | | | $ | 6,116,904 | | | | | $ | 6,116,904 | | | | | $ | 10,285,745 | | | | | $ | 9,527,650 | |
| Bong Mieu | | | | | 3,944,000 | | | | | | 3,944,000 | | | | | | 5,504,677 | | | | | | 9,167,689 | |
| | | | | | 10,060,904 | | | | | | 10,060,904 | | | | | | 15,790,422 | | | | | | 18,695,339 | |
| Accumulated amortization(1) | | | | | (99,020 | ) | | | | | (45,149 | ) | | | | | (252,258 | ) | | | | | (251,562 | ) |
| Write-off(2) | | | | | — | | | | | | — | | | | | | (438,931 | ) | | | | | (438,931 | ) |
| Impairment charge(3) | | | | | — | | | | | | — | | | | | | — | | | | | | (4,280,000 | ) |
| Total | | | | $ | 9,961,884 | | | | | $ | 10,015,755 | | | | | $ | 15,099,233 | | | | | $ | 13,724,846 | |
| (1) | Accumulated amortization relates to the Bong Mieu central mine which commenced commercial production on October 1, 2006. |
| (2) | Write off of $438,931 of Deferred Exploration costs relates to certain areas of the Bong Mieu property where exploration activities did not produce positive results |
| (3) | During fourth quarter 2006, management determined that the Bong Mieu Central mine was not reaching originally estimated future throughput. Consequently, an impairment charge of $4,280,000 was taken on the Bong Mieu Central (Hogan) deferred exploration and development costs. |
Bong Mieu Gold Property
The Company holds Mining and Investment Licences covering 30 square kilometres within the Bong Mieu gold property area. The Investment Licence covers three deposits: Bong Mieu Central (an open pit), Bong Mieu East (a potentially open-pit deposit) and Bong Mieu Underground (an underground deposit) which operated by the French from 1896 to 1941. Olympus acquired this project in 1997. Olympus owns 80% and the Company’s Vietnamesepartner owns 20% of the Bong Mieu property. The Company constructed the Bong Mieu Central open pit mine and associated infrastructure in 2005 and 2006, and commercial gold production commenced in the fourth quarter of 2006. The Company must pay a 3% net smelter return royalty equal to 3% of the sales price to the Vietnamese government when the gold is melted in Vietnam and 2% royalty based on 80% of the revenues of Bong Mieu Central to Zedex Minerals Limited.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
Phuoc Son Gold Property
The Company holds an 85% interest in the Phuoc Son Gold Project with a focus of exploration, development and production of gold and other potential minerals in the specified project area, located in Phuoc Son and Nam Giang districts in the Quang Nam Province. In 2003, the Company’s subsidiary, New Vietnam Mining Company (‘‘NVMC’’), entered into a joint venture with Mien Trung Industrial Company (‘‘Minco’’), a mining company controlled by the local provincial government, to form the Phuoc Son Gold Company (‘‘PSGC’’). PSGC has an investment license on the Phuoc Son property. NVMC’s initial interest in PSGC is 85% and Minco has a 15% interest. After five years, from the end of the period in which PSGC makes a profit for 12 consecutive months, Minco can increase its interest by 15% to 30% if Minco chooses to acquire such interest from NVMC by paying fair market value. After 20 years, Minco can increase its interest to a total of 50% if Minco chooses to acquire such additional 20% interest from NVMC by paying fair market value. Fair market value shall be determined by using an independent accounting firm to perform the fair market value assessment and that assessment will be considered final and binding for both parties. If Minco does not proceed on exercising its right of acquisition within three months from the dates of entitled acquisition, Minco will be considered as having waived its right to acquire the interest.
4. Asset Retirement Obligation
| | | | | | | | | | | | |
| | | | Three-month
period ended
March 31, 2007 | | | Year ended
December 31, 2006 |
| Balance, beginning of the period | | | | $ | 949,495 | | | | | $ | 382,509 | |
| Increase in obligation | | | | | — | | | | | | 515,545 | |
| Foreign exchange adjustment | | | | | (8,798 | ) | | | | | 22,344 | |
| Accretion | | | | | 10,214 | | | | | | 29,097 | |
| Balance, end of the period | | | | | 950,911 | | | | | | 949,495 | |
| Current portion | | | | | 58,625 | | | | | | 59,173 | |
| Non-current portion | | | | $ | 892,286 | | | | | $ | 890,322 | |
The asset retirement obligation relates to the Bong Mieu property in Vietnam. The Company estimated the cost of rehabilitating the site at US$1,083,160 over the next 10 years. Such estimated costs have been discounted using a credit adjusted risk-free rate of 6.9%
5. Loan Facility
On February 8, 2006, the Company entered into a US$2.0 million loan facility agreement (the ‘‘Facility’’) with Macquarie Bank Limited (‘‘MBL’’) of Sydney, Australia. The Company drew down the US$2.0 million in the first quarter of 2006. The Facility bears an interest rate of LIBOR plus 2.75% and is repayable on July 31, 2007 (amended from June 30, 2007) but may be extended to June 30, 2008 at the option of MBL. In consideration for setting up the facility, MBL was paid a US$50,000 fee and was granted 5,376,092 purchase warrants to acquire the same number of common shares of the Company at an exercise price of $0.4347 until July 31, 2007 and $0.4514 until the ultimate repayment date (currently July 31, 2007 with an option to extend until June 30, 2008). The Company can also accelerate exercise of the warrants if its common shares trade at a 100% p remium to the exercise price for 30 consecutive trading sessions. The Facility agreement specifies some restrictions including, but not limited to, the Company must not incur any indebtedness other than permitted financial indebtedness as defined under the Facility agreement. Permitted indebtedness includes any agreement entered into the ordinary course of business to acquire an asset or service where payment for the asset or service is deferred for a period of not more than 90 days and does not exceed, in aggregate, an amount of US $100,000 for each transaction party. Each transaction party is
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
defined as Olympus, Bong Mieu and Formwell. The Facility agreement specifies that the transaction parties must not allow any encumbrance over its assets other than a permitted encumbrance or acquire an asset that is subject to an encumbrance that is not a permitted encumbrance. Each transaction party must not sell, assign, transfer or dispose of or partially dispose of any assets except an asset that does not form part of the secured property or an asset which is replaced by a similar asset. Each transaction party must not reduce its capital, buy back or redeem its shares or other securities issued to it or provide any financial assistance. Each transaction party may not make a distribution without the prior written consent of MBL. A distribution is defined as a dividend, distribution or any other amount related to a marketable security issued by the transaction party or interest or fee paid by the transaction party on any financial accommodation provided by a person holding a direct or indirect interest in the transaction party. The requirement for a written consent for distributions has not had a significant impact on our cash obligations to date as we have not paid out any dividends. Intercompany loans amongst transaction parties cannot be repaid to the lending transaction party unless the lending transaction party uses the proceeds of repayment to repay the MBL Facility. The above restriction on intercompany loan settlement does not significantly impact our ability to meet cash obligations as it does not prevent the provision of intercompany loans and only affects the method and timing of intercompany loan settlements.
6. Property, Plant & Equipment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in dollars) | | | March 31, 2007 | | | December 31, 2006 |
| | | | Cost | | | Accumulated depreciation | | | Net book value | | | Cost | | | Accumulated depreciation | | | Net book value |
| Building | | | | $ | 502,412 | | | | | $ | 74,357 | | | | | $ | 428,055 | | | | | $ | 502,412 | | | | | $ | 47,161 | | | | | $ | 455,251 | |
| Leasehold improvements | | | | | 103,005 | | | | | | 21,401 | | | | | | 81,604 | | | | | | 103,005 | | | | | | 13,333 | | | | | | 89,672 | |
| Plant and equipment | | | | | 5,723,539 | | | | | | 513,321 | | | | | | 5,210,218 | | | | | | 5,613,823 | | | | | | 281,354 | | | | | | 5,332,469 | |
| Office equipment, furniture and fixtures | | | | | 899,064 | | | | | | 340,762 | | | | | | 558,302 | | | | | | 867,883 | | | | | | 292,234 | | | | | | 575,649 | |
| Motor vehicles | | | | | 376,548 | | | | | | 167,911 | | | | | | 208,637 | | | | | | 376,548 | | | | | | 153,956 | | | | | | 222,592 | |
| Infrastructure | | | | | 1,905,475 | | | | | | 177,620 | | | | | | 1,727,855 | | | | | | 2,047,585 | | | | | | 69,855 | | | | | | 1,977,730 | |
| Construction in progress | | | | | 2,412,354 | | | | | | — | | | | | | 2,412,354 | | | | | | 2,044,394 | | | | | | — | | | | | | 2,044,394 | |
| | | | | $ | 11,922,397 | | | | | $ | 1,295,372 | | | | | $ | 10,627,025 | | | | | $ | 11,555,650 | | | | | $ | 857,893 | | | | | $ | 10,697,757 | |
7. Capital Stock
a) Common Shares
The Company is authorized to issue an unlimited number of common shares with one vote per share and no par value per share. The following table shows movements in the capital stock of the Company for the years ended December 31, 2006 and the quarter ended March 31, 2007.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
| | | | | | | | | | | | |
| | | | Number of
Shares | | | Amount $ |
| Common shares, January 1, 2006 | | | | | 131,846,200 | | | | | $ | 49,709,671 | |
| Private placement | | | | | 27,000,000 | | | | | | 15,660,000 | |
| Issued upon exercise of options | | | | | 1,155,833 | | | | | | 558,067 | |
| Issued upon exercise of warrants | | | | | 1,270,000 | | | | | | 636,270 | |
| Issued upon debt repayment | | | | | 3,406,758 | | | | | | 1,174,480 | |
| Share issue costs | | | | | — | | | | | | (1,663,981 | ) |
| Common shares, December 31, 2006 | | | | | 164,678,791 | | | | | $ | 66,074,507 | |
| Private placement | | | | | 21,428,571 | | | | | | 12,000,000 | |
| Issued upon exercise of options | | | | | 609,400 | | | | | | 381,943 | |
| Bonus common shares issued | | | | | 117,060 | | | | | | 78,714 | |
| Common shares, March 31, 2007 | | | | | 186,833,822 | | | | | $ | 78,535,164 | |
The following table shows movements in contributed surplus of the Company for the period ended March 31, 2007 and year ended December 31, 2006.
| | | | | | | | | | | | |
| | | | March 31, 2007 | | | December 31, 2006 |
| Balance, beginning of the year | | | | $ | 4,347,990 | | | | | $ | 2,656,679 | |
| Valuation of options | | | | | 821,685 | | | | | | 556,109 | |
| Bonus common shares issued | | | | | (39,357 | ) | | | | | — | |
| Valuation of warrants | | | | | — | | | | | | 1,445,573 | |
| Exercise options and warrants | | | | | (112,693 | ) | | | | | (310,371 | ) |
| Balance, end of the period | | | | $ | 5,017,625 | | | | | $ | 4,347,990 | |
On March 19, 2007, the Company completed a non-brokered private placement, of 21,428,571 shares at a price of $0.56 per share, for gross proceeds of $12,000,000. All shares issued have a hold period in Canada of four months from the closing of the placement. The net proceeds are intended to be used for ongoing exploration, feasibility studies and development work on the Company’s mineral projects and for general corporate purposes.
On March 31, 2006, the Company completed a brokered private placement of $15,660,000. The Company issued 27,000,000 common shares at $0.58 per share. Agents for the Offering were paid a cash commission equal to 7% of the gross proceeds and were issued 1,890,000 compensation warrants. Each compensation warrant is exercisable for one common share at $0.58 and expires on March 31, 2008.
In the first quarter of 2006, the Company issued 3,406,758 common shares to Zedex in full payment of the Prepaid Contribution according to the Vend-In Agreement provision for repayment of the Prepaid Contribution via issuance of common shares. Shares were issued at the average closing prices of the Company’s shares over the preceding 20 trading days which was equal to $0.34475. Pursuant to an Assignment Agreement dated January 1, 2006, the Prepaid Contribution of US$1,024,226 due to Ivanhoe was assigned to Zedex Minerals Limited (‘‘Zedex’’).
b) Stock Options
On September 12, 2003, the Company adopted a stock option plan which was re-approved by its shareholders on June 16, 2005. Under the plan, options to purchase shares of the Company may be granted to directors, officers, employees and consultants of the Company. The maximum number of shares that may be issued under the plan is 10% of the Company’s issued and outstanding shares.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
Options granted under the plan have a maximum term of five years and vesting dates are determined by the Board of Directors on an individual basis at the time of granting.
The following table provides a summary of the stock option activity for the quarter ended March 31, 2007 and the year ended December 31, 2006.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2007 | | | December 31, 2006 |
| | | | Number of
Options | | | Weighted
Average
Exercise
Price | | | Number of
options | | | Weighted
Average
Exercise
Price |
| Outstanding, beginning of the year | | | | | 11,477,500 | | | | | | 0.39 | | | | | | 11,298,667 | | | | $
0.37 |
| Granted | | | | | 7,100,000 | | | | | | 0.71 | | | | | | 1,965,000 | | | | | | 0.45 | |
| Exercised | | | | | (609,400 | ) | | | | | 0.44 | | | | | | (1,155,833 | ) | | | | | 0.33 | |
| Cancelled/ Expired | | | | | (831,600 | ) | | | | | 0.59 | | | | | | (630,334 | ) | | | | | 0.44 | |
| Outstanding, end of the period | | | | | 17,136,500 | | | | | | 0.51 | | | | | | 11,477,500 | | | | | | 0.39 | |
Options exercisable at the end
of the period | | | | | 11,448,886 | | | | | | | | | | | | 9,619,793 | | | | | | | |
The following table summarizes information about the stock options outstanding for the period ended March 31, 2007.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| OPTIONS OUTSTANDING | | | OPTIONS EXERCISABLE | | | |
| Range of Exercise Prices | | | Number Outstanding
As at March 31,
2007 | | | Weighted
Average
Remaining Life
(years) | | | Weighted
Average
Exercise
Price $ | | | Number
Exercisable As
at March 31,
2007 | | | Weighted
Average
Exercise Price
$ | | | |
| $0.30 - 0.36 | | | | | 6,452,500 | | | | | | 3.48 | | | | | | 0.32 | | | | | | 5,670,970 | | | | | | 0.32 | | | | |
| $0.40 - 0.45 | | | | | 2,170,000 | | | | | | 2.25 | | | | | | 0.41 | | | | | | 1,821,637 | | | | | | 0.41 | | | | |
| $0.50 - 0.55 | | | | | 1,414,000 | | | | | | 2.82 | | | | | | 0.51 | | | | | | 1,363,133 | | | | | | 0.51 | | | | |
| $0.60 - 0.65 | | | | | 3,100,000 | | | | | | 4.93 | | | | | | 0.65 | | | | | | 1,132,218 | | | | | | 0.65 | | | | |
| $0.75 | | | | | 4,000,000 | | | | | | 4.93 | | | | | | 0.75 | | | | | | 1,460,928 | | | | | | 0.75 | | | | |
| | | | | | 17,136,500 | | | | | | | | | | | | | | | | | | 11,448,886 | | | | | | | | | | |
During the period ended March 31, 2007, 7,100,000 options were granted and were valued at $2,174,500 using the Black-Scholes model with the assumptions of risk-free interest rate of 3.89% and expected volatility of 83.20%. The exercise prices were determined based on the Volume Weighted Average Price (VWAP) which is the listing of the stock activities for 5 business days from the grant date. The vesting periods of these options: 1/3 of the shares were vested on the date of the grant; 1/3 is vesting on July 16, 2008 and another 1/3 on July 16, 2009.
The total stock-based compensation expense recognized during the period for stock options granted in the current and prior years and that vested during the current period was $821,685 [2006 — $176,440] using the fair value method and was credited to contributed surplus.
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Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
c) Warrants
The following is a summary of the 7,266,092 warrants outstanding as at March 31, 2007
[2006 — 7,266,092]. On January 12, 2006, 1,270,000 warrants were exercised at $0.40 per share.
| | | | | | | | | |
| Total Outstanding | | | Exercise Price | | | Expiry Date |
| | | | | $ | 0.43 | | | | June 30, 2007 |
| 5,376,092 | | | | | 0.45 | | | | June 30, 2008 |
| 1,890,000 | | | | $ | 0.58 | | | | March 31, 2008 |
According to the Facility with Macquarie Bank entered into on February 8, 2006, the Company granted 5,376,092 purchase warrants (see note 5) of which 2,688,046 of the warrants became issuable upon receipt of the TSXV approval of the warrants, and 2,688,046 of the warrants were issuable on or before the first advance under the facility which occurred on February 14, 2006. The fair value of the warrants was estimated to be $973,073 using the Black-Scholes model with the assumptions of a risk-free interest rate of 3.8%, expected volatility of 74% and 79%, expected time until exercise of 1.25 years and 1 year respectively. The amount was recorded as contributed surplus and as a deferred financing cost to be amortized over the term of the facility.
On March 31, 2006, 1,890,000 warrants were issued to Paradigm Capital Inc., M Partners Inc. and CIBC World Markets Inc. in conjunction with the private placement that closed on that day. The fair value of the warrants was estimated to be $472,500 using the Black-Scholes model with the assumptions of a risk-free interest rate of 3.8%, expected volatility of 68% and expected time until exercise of 2 years. The amount was included as part of issue costs and contributed surplus.
d) Bonus Share Program
During the year ended December 31, 2006, employees who opted for their bonus to be paid in common shares will receive 191,330 common shares in 2007 of which 117,060 common shares were issued to employees in Q1 2007. On the grant date, the fair value of the incremental share award including the cash bonus was $113,224. The total compensation expense recognized for the bonus share program for the three-month period ended March 31, 2007 was $9,007.
8. Related Party Transactions
During the period ended March 31, 2007, the Company entered into the following transactions with related parties:
a) Paid or accrued $21,230 in legal fees to a company controlled by a director of the Company as compared to $67,424 in 2006. Services are not under contract and are engaged as required.
b) Paid or accrued $130,188 in management fees and $25,778 in reimbursement of expenses incurred on behalf of the Company to companies controlled by officers of the Company. In 2006, the Company paid or accrued $127,063 in management fees and $40,285 in reimbursement of expenses incurred on behalf of the Company to companies controlled by officers of the Company. These fees and expenses have been incurred as part of ongoing contracts with the related parties.
c) Paid or accrued $21,331 in royalties as compared to nil in 2006. Royalties incurred are a result of an ongoing contract with the related party.
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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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
9. Commitments and Contractual Obligations
As at March 31, 2007
| | | | | | | | | | | | | | | | | | |
| Payments Due by Period | | | Total | | | Less than One
Year | | | 2 - 10 Years |
| Debt facility | | | | $ | 2,309,200 | | | | | $ | 2,309,200 | | | | | $ | — | |
| Capital lease obligation | | | | | 330,786 | | | | | | 330,786 | | | | | | — | |
| Operating lease | | | | | 44,445 | | | | | | 40,808 | | | | | | 3,637 | |
| Purchase Obligations – supplies and services | | | | | 1,154,263 | | | | | | 1,139,888 | | | | | | 14,375 | |
| Purchase obligations – capital | | | | | 1,042,583 | | | | | | 1,030,833 | | | | | | 11,750 | |
| Purchase obligations – power supply | | | | | 181,850 | | | | | | 181,850 | | | | | | — | |
| Asset retirement obligations | | | | | 1,262,314 | | | | | | 59,173 | | | | | | 1,203,141 | |
| Total | | | | $ | 6,325,441 | | | | | $ | 5,092,538 | | | | | $ | 1,232,903 | |
10. Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, receivables, accounts payable and accrued liabilities, capital lease obligations and loan facility. The carrying amount of cash and cash equivalents, receivables and capital leases, payables and accruals is a reasonable approximation of fair value due to their short-term maturities. The carrying value of short term debt approximates fair value primarily due to the floating nature of the interest rate on the loan facility.
Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest rate or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted.
Currency risk
The Company is exposed to financial risk arising from fluctuations in foreign exchange rates and the degree of volatility of these rates. These potential currency fluctuations could have an impact on expenditures, production costs and Company profitability. At present, the Company does not use derivative instruments to reduce its exposure to foreign currency risk, primarily with respect to the US dollar. The Company has a number of investments in foreign subsidiaries and joint ventures, whose net assets are exposed to currency translation risk.
A certain amount of the transactions with respect to the Bong Mieu and Phuoc Son projects are denominated in the Vietnamese Dong, which is not freely convertible into foreign currency, and there are restrictions on the removal of capital from the country. These restrictions may have an adverse impact on the Company’s ability to repatriate funds from Vietnam.
Interest rate risk
The Company is exposed to interest rate risk as interest on our variable interest rate U.S.$2.0 million loan facility fluctuates due to changes in the LIBOR market interest rates. There were no derivative instruments related to interest rates outstanding as at March 31, 2007 and December 31, 2006.
Market risk
The profitability of the operating mine of the Company is related to the market price of gold and silver. The Company does not engage in derivative instruments at present.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
11. Capital Lease Obligation
The Company has capital leases at its Bong Mieu Central mine.
| | | | | | | | | | | | |
| | | | March 31, 2007 | | | December 31, 2006 |
| Total minimum lease payment | | | | $ | 330,786 | | | | | $ | 412,894 | |
| Less: current portion | | | | | 330,786 | | | | | | 412,894 | |
| | | | | $ | — | | | | | $ | — | |
12. Inventory
| | | | | | | | | | | | |
| | | | March 31, 2007 | | | December 31, 2006 |
| Dore Bars | | | | $ | 84,172 | | | | | $ | 73,047 | |
| Ore in stockpiles | | | | | 105,138 | | | | | | 76,337 | |
| Gold in circuit | | | | | 56,266 | | | | | | 18,800 | |
| Mine operating supplies | | | | | 582,010 | | | | | | 448,859 | |
| Total | | | | $ | 827,586 | | | | | $ | 617,043 | |
13. Memorandum of Agreement
On November 23, 2006, a Memorandum of Agreement and Supplement to Memorandum of Agreement (collectively, the ‘‘MOA’’) was entered into by Abra Mining and Industrial Corporation (‘‘AMIC’’), the Company and Jabel Corporation (‘‘Jabel’’) that allows the Grantee (defined as the Company and ‘‘a Philippine national’’) to acquire an option to earn a 60% interest in AMIC’s Capcapo mining tenement (the ‘‘property’’) located in the Province of Abra in the Philippines upon incurring a specified level of expenditures on the property.
The MOA is a binding agreement that is conditional on the completion of due diligence program in second quarter 2007 to validate historical drilling information. Once the due diligence procedures are complete and the drilling information is validated, a formal agreement will be signed and a cash payment of U.S. $200,000 will be made by the Grantee to AMIC. Under Philippine law, foreign-owned entities can only hold up to 40% of a Mineral Production Sharing Agreement (‘‘MPSA’’). Consequently, the Company can only directly hold 40% in the MPSA and will have to identify a Philippine national corporation to hold the additional 20%. The Phillipine national corporation has not yet been identified. A Philippine national corporation is one which is not more than 40% foreign-owned. Six months after the signing of the formal agreement, the Grantee will issue common shares of the Company to AMIC with a total value of U.S. $350,000 based on the averag e of the trading price of the Company’s common shares for the five trading days preceding the date of the signing of the formal agreement. Once the Grantee has spent U.S. $3 million on exploration and development work on the property, the Grantee will issue to AMIC further common shares of the Company with a total value of U.S. $450,000 based on the average of the trading price of the Company’s common shares for the five trading days preceding their date of issuance. To earn the 60% interest, a cumulative spending of U.S. $6 million by the Grantee on exploration and development must occur by the end of the 5th year after the signing of the formal agreement. The Grantee earns a 20% interest after the first U.S. $1 million is spent, an additional 20% interest after an additional U.S. $2 million has been spent and an additional 20% int erest after an additional U.S. $3 million has been spent. Once the 60% interest has been earned, a new joint venture company (‘‘NEWCO’’) would be formed of which the Grantee would hold a 60%. If the Grantee obtains less than the 60% interest, the Grantee would share in less than 60% of the results of the joint venture. One year after full commercial production is achieved on the property, a royalty would be paid to Jabel, the underlying title holder of the property, equal to either 3% of gross value of production or 6% of annual Profit of NEWCO, as defined in the agreement, whichever is higher.
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Table of ContentsOLYMPUS PACIFIC MINERALS INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
All dollar amounts are in Canadian Dollars unless otherwise stated
14. Comparative Consolidated Financial Statements
The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 2006 consolidated financial statements.
END OF NOTES TO FINANCIAL STATEMENTS
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