Exhibit 99.1
Orezone Resources Inc.
(A Development Stage Company)
Unaudited Interim Consolidated Financial Statements
(in U.S. dollars)
For the three and six months ended June 30, 2008
| Page |
Financial Statements |
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Consolidated Balance Sheets | 2 |
Consolidated Statements of Operations and Deficit | 3 |
Consolidated Statements of Deferred Exploration and Development Costs | 4 |
Consolidated Statements of Cash Flows | 5 |
Consolidated Statements of Comprehensive Loss | 6 |
Notes to Consolidated Financial Statements | 7 |
Orezone Resources Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in United States dollars)
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| June 30, |
| December 31, |
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| Notes |
| 2008 |
| 2007 |
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| (unaudited) |
| (audited) |
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| $ |
| $ |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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| 13,167,301 |
| 53,204,946 |
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Sales taxes and other receivables |
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| 234,749 |
| 129,427 |
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Prepaid expenses and other assets |
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| 1,031,496 |
| 466,672 |
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| 14,433,546 |
| 53,801,045 |
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Sales taxes receivable |
| 3 |
| 1,115,569 |
| 791,644 |
|
Deferred financing costs |
| 12 |
| 1,362,158 |
| — |
|
Investments |
| 4 |
| 382,413 |
| 7,065,335 |
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Mining interests |
| 5 |
| 293,966,194 |
| 249,417,089 |
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| 311,259,880 |
| 311,075,113 |
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LIABILITIES |
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Current liabilities |
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Accounts payable and accrued liabilities |
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| 8,962,655 |
| 4,881,220 |
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COMMITMENTS |
| 5 |
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SHAREHOLDERS’ EQUITY |
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Capital Stock |
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Common shares, without par value |
| 6 |
| 319,088,127 |
| 318,618,681 |
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Contributed surplus |
| 6 |
| 3,856,704 |
| 3,429,253 |
|
Accumulated other comprehensive income |
| 8 |
| 435,998 |
| 1,698,061 |
|
Deficit |
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| (21,083,604 | ) | (17,552,102 | ) |
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| 302,297,225 |
| 306,193,893 |
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| 311,259,880 |
| 311,075,113 |
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The accompanying notes are an integral part of the consolidated financial statements. |
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Signed on Behalf of the Board of Directors |
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“Ronald N. Little” |
| “Alain Krushnisky” |
Director | Director |
2
Orezone Resources Inc.
(A Development Stage Company)
Consolidated Statements of Operations and Deficit
(Unaudited, Expressed in United States dollars)
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| Three months ended June 30, |
| Six months ended June 30, |
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| Notes |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
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| $ |
| $ |
| $ |
| $ |
|
Administrative expenses |
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Salaries, benefits and consulting fees |
|
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| 413,168 |
| 106,439 |
| 873,248 |
| 297,860 |
|
Stock-based compensation |
|
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| 273,306 |
| 233,944 |
| 462,399 |
| 467,945 |
|
Public relations and travel |
|
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| 111,897 |
| 99,263 |
| 297,946 |
| 168,743 |
|
Office, general and administrative |
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| 147,206 |
| 57,483 |
| 283,503 |
| 112,272 |
|
Audit, legal and professional fees |
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| 208,981 |
| 53,372 |
| 397,744 |
| 65,586 |
|
Public company costs |
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| 66,696 |
| 51,924 |
| 154,646 |
| 120,552 |
|
Amortization of capital assets |
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| 5,588 |
| 3,356 |
| 8,322 |
| 8,336 |
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| 1,226,842 |
| 605,781 |
| 2,477,808 |
| 1,241,294 |
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Other items |
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Write-off of deferred exploration costs |
| 5 |
| (1,047,708 | ) | (1,373,634 | ) | (2,927,855 | ) | (1,373,634 | ) |
Foreign exchange gain |
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| 3,292 |
| 219,194 |
| 24,832 |
| 231,675 |
|
Other income |
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| 4,600 |
| 100,105 |
| 12,791 |
| 130,392 |
|
Interest income |
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| 99,745 |
| 237,572 |
| 468,720 |
| 479,163 |
|
Gain on sale of available-for-sale investments |
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| 1,680,650 |
| 227,668 |
| 1,680,650 |
| 227,668 |
|
(Loss) gain in fair value of investments held for trading |
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| (36,178 | ) | 58,617 |
| (211,368 | ) | 39,894 |
|
Capital tax expense |
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| (101,464 | ) | — |
| (101,464 | ) | — |
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Net loss |
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| (623,905 | ) | (1,136,259 | ) | (3,531,502 | ) | (1,506,136 | ) |
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Deficit, beginning of period |
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| (20,459,699 | ) | (14,867,867 | ) | (17,552,102 | ) | (14,799,836 | ) |
Adjustments to opening deficit: |
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Unrealized gain in fair value of investments held for trading upon adoption of new accounting standard at January 1, 2007 |
| 8 |
| — |
| — |
| — |
| 301,846 |
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Deficit, end of period |
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| (21,083,604 | ) | (16,004,126 | ) | (21,083,604 | ) | (16,004,126 | ) |
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Net loss per common share, basic and diluted |
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| (0.00 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) |
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Weighted average number of shares outstanding |
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| 356,742,037 |
| 133,587,841 |
| 356,439,592 |
| 133,305,423 |
|
The accompanying notes are an integral part of the consolidated financial statements.
3
Orezone Resources Inc.
(A Development Stage Company)
Consolidated Statements of Deferred Exploration and Development Costs
(Unaudited, Expressed in United States dollars)
|
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| Three months ended June 30, |
| Six months ended June 30, |
| ||||
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| Notes |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
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| $ |
| $ |
| $ |
| $ |
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Balance, beginning of period |
| 5 |
| 36,208,701 |
| 23,565,188 |
| 32,016,005 |
| 21,080,941 |
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Additions |
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Drilling and assaying |
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| 1,935,832 |
| 1,124,595 |
| 3,937,924 |
| 1,932,947 |
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Engineering and consultants |
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| 2,206,572 |
| 485,551 |
| 3,508,797 |
| 837,827 |
|
Salary and employee costs |
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| 1,279,044 |
| 320,727 |
| 2,102,569 |
| 639,696 |
|
Stock-based compensation |
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| 90,713 |
| 41,907 |
| 231,319 |
| 156,589 |
|
Fuel and oil |
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| 270,897 |
| 114,477 |
| 489,971 |
| 194,466 |
|
Freight |
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| 21,327 |
| 20,493 |
| 23,921 |
| 25,498 |
|
Field supplies and equipment |
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| 620,990 |
| 86,248 |
| 1,018,815 |
| 196,893 |
|
Food and water |
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| 194,348 |
| 48,925 |
| 377,350 |
| 101,381 |
|
Vehicles |
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| 87,726 |
| 46,510 |
| 141,324 |
| 96,661 |
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Facilities |
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| 53,261 |
| 48,473 |
| 182,933 |
| 97,418 |
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Head office support |
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| 442,306 |
| 235,800 |
| 793,670 |
| 325,800 |
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General office and administration |
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| 332,606 |
| 194,128 |
| 798,666 |
| 529,543 |
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Amortization of capital assets |
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| 61,201 |
| 74,652 |
| 117,037 |
| 147,837 |
|
Loss on disposal of fixed assets |
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| 20,871 |
| — |
| 20,871 |
| — |
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Foreign exchange loss |
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| 200,293 |
| 33,395 |
| 145,663 |
| 99,667 |
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Total additions |
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| 7,817,987 |
| 2,875,881 |
| 13,890,830 |
| 5,382,223 |
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Deductions |
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Write-off of deferred exploration costs |
| 5 |
| 1,047,708 |
| 1,373,634 |
| 2,927,855 |
| 1,373,634 |
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Optionee contributions |
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| — |
| 718,507 |
| — |
| 740,602 |
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Total deductions |
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| 1,047,708 |
| 2,092,141 |
| 2,927,855 |
| 2,114,236 |
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Balance, end of period |
| 5 |
| 42,978,980 |
| 24,348,928 |
| 42,978,980 |
| 24,348,928 |
|
The accompanying notes are an integral part of the consolidated financial statements.
4
Orezone Resources Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited, Expressed in United States dollars)
|
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| Three months ended June 30, |
| Six months ended June 30, |
| ||||
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| Notes |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
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| $ |
| $ |
| $ |
| $ |
|
OPERATING ACTIVITIES |
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Net loss |
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| (623,905 | ) | (1,136,259 | ) | (3,531,502 | ) | (1,506,136 | ) |
Non-cash items: |
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Amortization of capital assets |
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| 5,588 |
| 3,356 |
| 8,322 |
| 8,336 |
|
Loss (gain) in fair value of investments held for trading |
|
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| 36,178 |
| (58,617 | ) | 211,368 |
| (39,894 | ) |
Gain on sale of available-for-sale-investments |
|
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| (1,680,650 | ) | (227,668 | ) | (1,680,650 | ) | (227,668 | ) |
Write-off of deferred exploration costs |
|
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| 1,047,708 |
| 1,373,634 |
| 2,927,855 |
| 1,373,634 |
|
Stock-based compensation |
|
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| 273,306 |
| 233,944 |
| 462,399 |
| 467,945 |
|
Changes in non-cash working capital |
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| 23,061 |
| 134,763 |
| (573,387 | ) | 51,978 |
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Cash (used in) provided by operating activities |
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| (918,714 | ) | 323,153 |
| (2,175,595 | ) | 128,195 |
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INVESTING ACTIVITIES |
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Expenditures for construction related activities |
| 5 |
| (26,007,129 | ) | — |
| (27,693,828 | ) | — |
|
Purchases of property, plant and equipment |
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| (790,118 | ) | (4,749 | ) | (1,046,661 | ) | (71,328 | ) |
Expenditures for exploration and development activities |
| 5 |
| (9,064,004 | ) | (2,928,804 | ) | (15,500,632 | ) | (5,369,476 | ) |
Proceeds from sale of investments |
|
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| 6,890,142 |
| 1,128,920 |
| 6,890,142 |
| 1,128,920 |
|
Purchase of investments |
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| — |
| (45,000 | ) | — |
| (45,000 | ) |
Purchase of mineral property |
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| — |
| (1,000,000 | ) | — |
| (1,000,000 | ) |
Optionee contributions |
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| — |
| 700,000 |
| — |
| 700,000 |
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Cash used in investing activities |
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| (28,971,109 | ) | (2,149,633 | ) | (37,350,979 | ) | (4,656,884 | ) |
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FINANCING ACTIVITIES |
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Debt financing arrangement fees |
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| (267,405 | ) | — |
| (760,911 | ) | — |
|
Proceeds from exercise of stock options |
| 6 |
| 88,557 |
| 468,655 |
| 267,233 |
| 478,900 |
|
Share issue costs |
| 6 |
| — |
| — |
| (12,225 | ) | — |
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Cash (used in) provided by financing activities |
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| (178,848 | ) | 468,655 |
| (505,903 | ) | 478,900 |
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Effect of exchange rate changes on cash and cash equivalents |
|
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| (5,168 | ) | — |
| (5,168 | ) | — |
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Decrease in cash and cash equivalents |
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| (30,073,839 | ) | (1,357,825 | ) | (40,037,645 | ) | (4,049,789 | ) |
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Cash and cash equivalents, beginning of period |
|
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| 43,241,140 |
| 19,823,895 |
| 53,204,946 |
| 22,515,859 |
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Cash and cash equivalents, end of period |
|
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| 13,167,301 |
| 18,466,070 |
| 13,167,301 |
| 18,466,070 |
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Cash and cash equivalents consist of: |
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Cash |
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| 13,167,301 |
| 2,277,260 |
| 13,167,301 |
| 2,277,260 |
|
Highly liquid investments with terms to maturity of less than three months |
|
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| — |
| 16,188,810 |
| — |
| 16,188,810 |
|
|
|
|
| 13,167,301 |
| 18,466,070 |
| 13,167,301 |
| 18,466,070 |
|
The accompanying notes are an integral part of the consolidated financial statements.
5
Orezone Resources Inc.
(A Development Stage Company)
Consolidated Statements of Comprehensive Loss
(Unaudited, Expressed in United States dollars)
|
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|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||
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| 2008 |
| 2007 |
| 2008 |
| 2007 |
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| $ |
| $ |
| $ |
| $ |
|
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Net loss |
|
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| (623,905 | ) | (1,136,259 | ) | (3,531,502 | ) | (1,506,136 | ) |
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Other comprehensive (loss) income, net of tax: |
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Unrealized (loss) gain in fair value of available-for-sale investments |
|
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| (22,438 | ) | 160,406 |
| 418,588 |
| 68,954 |
|
Realized cumulative gain on sale of available-for-sale investments |
|
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| (1,680,650 | ) | (147,000 | ) | (1,680,650 | ) | (147,000 | ) |
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Comprehensive loss |
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| (2,326,993 | ) | (1,122,853 | ) | (4,793,564 | ) | (1,584,182 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
6
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
1 — NATURE OF OPERATIONS
Orezone Resources Inc. (“Orezone” or the “Company”), a development stage company incorporated under the Canada Business Corporations Act, is primarily engaged in the acquisition, exploration and development of precious metal properties in the countries of Burkina Faso and Niger in West Africa. The common shares of the Company are listed for trading on the Toronto Stock Exchange and the American Stock Exchange under the symbol “OZN”.
A National Instrument 43-101 (“NI 43-101”) compliant Definitive Feasibility Study (“DFS”) was completed for the Company’s main project, Essakane, located in Burkina Faso in September 2007 and updated in May 2008. The DFS concluded that the property contains economically recoverable reserves and that development is warranted. In February 2008, the Government of Burkina Faso passed a law granting the Company an industrial mining permit for Essakane. Subsequent to June 30, 2008, the Company and the Government of Burkina Faso finalized the terms of the Essakane Mining Convention. The Company is currently ordering long lead-time equipment, purchasing and taking delivery of critical supplies and equipment, completing detailed engineering, hiring staff and doing site preparation work in anticipation of a formal construction decision which will be made when all project financing is in place. The recovery of these and other costs incurred on the Essakane property and the Company’s ability continue with development are subject to a number of factors including securing additional financing, securing and maintaining all titles, permits and authorizations, and ultimately, establishing a profitable mining operation. Subsequent to June 30, 2008, UniCredit Group and the Standard Bank of South Africa received final credit approvals to fully underwrite and provide US$300M in project debt and a US$30M cost over-run facility for the project. Standard Bank has also agreed to provide the Company with a five month, US$40M bridge loan facility. The availability of the facilities is subject to a number of conditions precedent (see Note 13).
The Company also has several properties in the exploration stage. The Company has not yet determined whether any of these other properties contain economically recoverable mineral reserves in accordance with NI 43-101. The recovery of costs incurred on the Company’s exploration properties is subject to a number of factors including the discovery of economically recoverable reserves, the ability to secure financing sufficient to develop the reserves, the ability to achieve profitable operations, the ability to secure and maintain title, and/or the ability to dispose of the properties on favourable terms.
These Financial Statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has no revenue generating operations and while it has been successful in securing financing to continue operations in the past, there can be no assurance that it will continue to do so in the future. These Financial Statements do not include adjustments to the carrying value of assets and liabilities, reported expenses, and balance sheet classifications that would be required if the going concern assumption was no longer appropriate.
2 — BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements (the “Financial Statements”) have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements, and should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended December 31, 2007.
The accounting policies used in preparing the Financial Statements are consistent with those used in preparing the annual financial statements, except for the adoption on January 1, 2008 of amendments to handbook section 1400 and new accounting handbook sections 1535, 3031, 3862 and 3863 issued by the Canadian Institute of Chartered Accountants (CICA).
7
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
2 — BASIS OF PRESENTATION (continued)
General Standards of Financial Statement Presentation (Section 1400)
The amendment to Section 1400 relates to management’s required assessment of an entity’s ability to continue as a going concern. Except for additional disclosures, the adoption of this standard did not have any effect on the financial statements for the current or prior periods.
Capital Disclosures (Section 1535)
Section 1535 requires the disclosure of information about an entity’s objectives, policies and process for managing capital, as well as quantitative data about capital and whether the entity has complied with any capital requirements. Except for additional disclosures, the adoption of this standard did not have any effect on the financial statements for the current or prior periods. Note 10 contains the required capital disclosures.
Inventories (Section 3031)
Section 3031 replaced Section 3030, Inventories. Section 3031 provides more guidance on the determination of the cost, measurement and disclosure of inventory. The adoption of this standard did not have any effect on the financial statements for the current or prior periods.
Financial Instruments – Disclosures (Section 3862) and Financial Instruments – Presentation (Section 3863)
Sections 3862 and 3863 replaced Section 3861, Financial Instruments – Disclosure and Presentation. The presentation requirements of Section 3861 have carried forward to Section 3863 unchanged. The disclosure requirements of Section 3862 establish standards for enhanced disclosures about financial instruments. The standard requires the disclosure of qualitative and quantitative information about the exposure to risks associated with both recognized and unrecognized financial instruments and how these risks are managed. Except for additional disclosures, the adoption of these standards did not have any effect on the financial statements for the current or prior periods. Notes 4 and 9 contain the financial instruments disclosures required by Sections 3862 and 3863.
Recently issued accounting pronouncements
In February 2008, the CICA issued CICA Handbook Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The Company will adopt this standard in its financial statements for the year ended December 31, 2009. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The Company expects this new Section to have no effect on its consolidated financial statements.
8
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
3 — SALES TAXES RECEIVABLE
The Company pays value added taxes (“VAT”) on purchases in the countries in which it operates. In some of these jurisdictions these amounts are reimbursable to the Company. As at June 30, 2008, the Company had $1,115,569 in VAT receivable from the Government of Burkina Faso ($791,644 as at December 31, 2007). The VAT receivable from the Government of Burkina Faso will only become reimbursable once the operating subsidiary which incurred the VAT is wound up. This process is underway. The Company expects to collect the full amount of VAT receivable at that time and accordingly, it has been classified as a long-term asset.
4 — INVESTMENTS
Investments were comprised of:
|
| June 30, |
| December 31, |
|
|
| 2008 |
| 2007 |
|
|
| $ |
| $ |
|
Available-for-sale investments |
| 382,413 |
| 6,853,967 |
|
Investments held for trading |
| — |
| 211,368 |
|
|
| 382,413 |
| 7,065,335 |
|
As at June 30, 2008, the Company’s available-for-sale investments consisted of common shares of publicly traded mining companies (see Note 11).
5 — MINING INTERESTS
|
| June 30, 2008 |
| December 31, 2007 |
| ||||||||
|
|
|
| Other |
|
|
|
|
| Other |
|
|
|
|
| Essakane |
| properties |
| Total |
| Essakane |
| properties |
| Total |
|
|
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
|
Assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property acquisition costs |
| 214,867,862 |
| 214,916 |
| 215,082,778 |
| 214,867,862 |
| 214,916 |
| 215,082,778 |
|
Deferred exploration and development costs |
| 33,015,453 |
| 31,412,047 |
| 64,427,500 |
| 24,404,926 |
| 29,059,599 |
| 53,464,525 |
|
Optionees’ contributions |
| (21,448,520 | ) | — |
| (21,448,520 | ) | (21,448,520 | ) | — |
| (21,448,520 | ) |
|
| 11,566,933 |
| 31,412,047 |
| 42,978,980 |
| 2,956,406 |
| 29,059,599 |
| 32,016,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction-in-progress |
| 33,699,405 |
| 407,123 |
| 34,106,528 |
| 1,409,646 |
| 84,199 |
| 1,493,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings, cost |
| — |
| 514,197 |
| 514,197 |
| — |
| 392,482 |
| 392,482 |
|
Accumulated amortization |
| — |
| (25,250 | ) | (25,250 | ) | — |
| (20,303 | ) | (20,303 | ) |
Office and field equipment, cost |
| 848,520 |
| 606,832 |
| 1,455,352 |
| 256,266 |
| 398,055 |
| 654,321 |
|
Accumulated amortization |
| (128,615 | ) | (390,996 | ) | (519,611 | ) | (5,659 | ) | (364,563 | ) | (370,222 | ) |
Moveable equipment, cost |
| 371,587 |
| 669,137 |
| 1,040,724 |
| 121,939 |
| 635,813 |
| 757,752 |
|
Accumulated amortization |
| (49,546 | ) | (617,958 | ) | (667,504 | ) | (2,810 | ) | (586,759 | ) | (589,569 | ) |
|
| 1,041,946 |
| 755,962 |
| 1,797,908 |
| 369,736 |
| 454,725 |
| 824,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 261,176,146 |
| 32,790,048 |
| 293,966,194 |
| 219,603,650 |
| 29,813,439 |
| 249,417,089 |
|
Essakane
As at June 30, 2008, the Essakane property consisted of one mining permit (100.2 km2) and six exploration permits (1,069 km2). The mining permit is valid for an initial period of twenty years and is renewable for five-year periods on an exclusive basis until the deposit is exhausted. Five of the exploration permits expire in July 2009 and one expires in November 2009 (the permit expiring November 2009 may be renewed for up to two additional periods of three years).
9
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
5 — MINING INTERESTS (continued)
Essakane (continued)
Included within deferred exploration and development costs for the Essakane project are costs related to exploration activity conducted outside of the mining permit, and development and engineering, design and project management costs related to pre-construction activities.
Construction-in-progress for Essakane includes deposits and progress payments of $32,723,460 ($1,409,646 as at December 31, 2007) on plant and equipment and engineering, design and project management costs related to mine construction. The Company commenced capitalizing engineering, design and project management costs as construction-in-progress upon completing the updated DFS in May 2008; prior to that time the Company considered such costs to be development costs and, accordingly, classified them as deferred exploration and development costs.
Commitments, Essakane
As at June 30, 2008 the Company had capital expenditure commitments of $65,531,340 relating to construction of the Essakane mine. Subsequent to June 30, 2008, the Company entered into additional capital expenditure commitments of $11,967,629. Total commitments, including those entered into subsequent to June 30, 2008 are due, based on expected deliveries of equipment and services, as follows:
|
| $ |
|
2008 |
| 19,602,565 |
|
2009 |
| 57,240,554 |
|
2010 |
| 207,113 |
|
2011 |
| 207,113 |
|
2012 |
| 207,113 |
|
Thereafter |
| 34,511 |
|
|
| 77,498,969 |
|
Other properties
The Company held the following exploration permits for mineral properties in the exploration stage:
|
| June 30, 2008 |
| ||||
|
| Number of |
| Area (km2) |
| Expiry dates (1) |
|
|
|
|
|
|
|
|
|
Ségu��nega (“Séga”) |
| 2 |
| 313 |
| June 2009 and March 2010 |
|
Bomboré (2) |
| 1 |
| 250 |
| February 2010 |
|
Bondigui (“Bondi”) |
| 2 |
| 448 |
| August 2009 and November 2009 |
|
Niger and other |
| 3 |
| 1,981 |
| November 2010 - April 2027 |
|
|
| 8 |
| 2,992 |
|
|
|
(1) - in Burkina Faso and Niger, exploration permits are valid for a period of three years from the date of issue and may be renewed for two more consecutive terms of three years each (permit size reductions accompany permit renewals in Niger).
(2) - the Company has a 50% interest in the Bomboré permit and may increase its interest to 70% by completing a bankable feasibility study. Thereafter, the Company will have 90 days to make a cash payment of $1.0 million to increase its interest to 100%, subject to a 1% net smelter return royalty. See Note 13.
10
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
5 — MINING INTERESTS (continued)
Other properties (continued)
Mineral property acquisition costs and deferred exploration costs for properties in the exploration stage were as follows:
|
| June 30, 2008 |
| December 31, 2007 |
| ||||
|
| Acquisition |
| Deferred |
| Acquisition |
| Deferred |
|
|
| $ |
| $ |
| $ |
| $ |
|
Séguénega (“Séga”) |
| 11,410 |
| 12,289,080 |
| 11,410 |
| 12,032,956 |
|
Bomboré |
| 57,321 |
| 5,671,042 |
| 57,321 |
| 3,023,829 |
|
Bondigui (“Bondi”) |
| 146,185 |
| 7,663,488 |
| 146,185 |
| 7,926,781 |
|
Niger and other |
| — |
| 5,788,437 |
| — |
| 6,076,033 |
|
|
| 214,916 |
| 31,412,047 |
| 214,916 |
| 29,059,599 |
|
Séga, Burkina Faso
The Company also has a series of option agreements with five separate owners holding exploration permits around the Company’s Sega permits. The permits under option cover an aggregate area of 854 km2. The Company can earn an interest of up to 100% in each of the permits by making certain annual payments to the owners and by funding and executing exploration programs during the option periods, which expire between March 2009 and November 2010. As at June 30, 2008, the Company had made sufficient exploration expenditures to earn 51% interests in four of the five option agreements, but had not made the payments required to exercise any of the options.
In the three months ended June 30, 2008, the Company wrote off $966,659 in deferred exploration costs due to negative exploration results relating to two permits under option.
Bondi, Burkina Faso
In the three months ended March 31, 2008 deferred exploration costs of $332,704, representing all deferred exploration costs relating to the Poyo permit, were written off due to negative exploration results.
Niger and other
Two permits (982 km2) in Niger are uranium exploration permits which have terms of 20 years and will be transferred to a joint venture between the Company and North Atlantic Resources Inc.
The Company also has an option agreement whereby it can earn an interest of up to 100% in a 522 km2 exploration permit in Niger. The Company can earn a 50% interest by spending $1.0 million on the property over three years and can increase its interest to 75% by completing a bankable feasibility study. If the optionor elects not to participate should a production decision be made, the Company will be required to buy the remaining 25% interest for $2.0 million.
In the three months ended March 31, 2008 deferred exploration costs of $1,193,221, representing all deferred exploration costs relating to the Nabéré, Tankiédougou and Komkara permits (all located in Burkina Faso) were written off due to negative exploration results.
11
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
6 — CAPITAL STOCK
(a) Capital stock
Authorized:
An unlimited number of common shares, without par value.
Issued:
Issued and outstanding and amounts recorded as capital stock and contributed surplus were as follows:
|
| Capital stock |
| Contributed |
| ||
|
| Shares |
| $ |
| $ |
|
Balance, December 31, 2007 |
| 355,955,938 |
| 318,618,681 |
| 3,429,253 |
|
Stock-based compensation |
|
|
|
|
| 266,700 |
|
Stock options exercised |
| 585,000 |
| 333,023 |
| (154,347 | ) |
Issue costs |
| — |
| (12,225 | ) | — |
|
Balance, March 31, 2008 |
| 356,540,938 |
| 318,939,479 |
| 3,541,606 |
|
Stock-based compensation |
|
|
|
|
| 375,189 |
|
Stock options exercised |
| 300,000 |
| 148,648 |
| (60,091 | ) |
Balance, June 30, 2008 |
| 356,840,938 |
| 319,088,127 |
| 3,856,704 |
|
(b) Stock option plan
On May 29, 2008, the Company’s shareholders approved the 2008 Stock Option Plan (the “2008 Plan”). Under the 2008 Plan, the Company may issue stock options to eligible participants pursuant to resolutions of the Company’s Board of Directors (the “Board”). The exercise price of options issued under the 2008 Plan shall be fixed by the Board, but shall not be less than the market price of the Company’s common shares for the five trading days immediately preceding issuance of the option. The maximum contractual term of options issued under the 2008 Plan is 10 years. Vesting and exercisability are set by the Board for each individual award under the 2008 Plan. The Company may issue options to purchase up to a maximum of 5% of the common shares outstanding, less the aggregate number of shares reserved for issuance or issuable under any other security based compensation arrangement of the Company.
As at June 30, 2008, the Company was authorized to issue an additional 11,696,346 options to purchase common shares, representing 5% of the common shares outstanding (17,842,046) less options outstanding of 6,145,700.
Stock options were granted, exercised, forfeited and outstanding as follows:
|
| Three months ended |
| Six months ended |
| ||||
|
| June 30, 2008 |
| June 30, 2008 |
| ||||
|
|
|
| Weighted |
|
|
| Weighted |
|
|
| Number of |
| average |
| Number of |
| average |
|
|
| options |
| exercise price |
| options |
| exercise price |
|
|
|
|
| CAD$ |
|
|
| CAD$ |
|
Outstanding, beginning of period |
| 6,695,700 |
| 1.10 |
| 7,280,700 |
| 1.03 |
|
Granted |
| — |
| — |
| — |
| — |
|
Exercised |
| (300,000 | ) | 0.30 |
| (885,000 | ) | 0.31 |
|
Forfeited |
| (250,000 | ) | 1.82 |
| (250,000 | ) | 1.82 |
|
Outstanding, end of period |
| 6,145,700 |
| 1.11 |
| 6,145,700 |
| 1.11 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, June 30, 2008 |
|
|
|
|
|
|
| 4,680,700 |
|
12
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
6 — CAPITAL STOCK (continued)
(b) Stock option plan (continued)
The Company received $88,557 and $267,233 in cash from the exercise of stock options during the three and six months ended June 30, 2008, respectively. The Company’s policy is to issue new shares to satisfy share option exercises. The total intrinsic value of options outstanding at June 30, 2008 was $724,088 ($1,260,394 as at December 31, 2007). The total intrinsic value of options exercised during the three and six months ended June 30, 2008 was $297,265 and $998,453, respectively.
Stock options outstanding as at June 30, 2008 had the following characteristics:
|
| Outstanding |
| Exerciseable |
| ||||||||
Range of |
| Outstanding |
| Weighted average |
| Weighted |
| Vested |
| Weighted |
| ||
(CAD$ ) |
|
|
| (in years) |
| (CAD$ ) |
|
|
| (CAD$ ) |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
$0.00 to $0.49 |
| 1,600,000 |
| 4.00 |
| $ | 0.30 |
| 1,600,000 |
| $ | 0.30 |
|
$0.50 to $0.99 |
| 780,000 |
| 3.50 |
| $ | 0.50 |
| 780,000 |
| $ | 0.50 |
|
$1.00 to $1.49 |
| 1,582,500 |
| 6.55 |
| $ | 1.29 |
| 1,452,500 |
| $ | 1.30 |
|
$1.50 to $1.99 |
| 1,675,000 |
| 8.61 |
| $ | 1.70 |
| 637,500 |
| $ | 1.61 |
|
$2.00 to $2.50 |
| 508,200 |
| 8.13 |
| $ | 2.03 |
| 210,700 |
| $ | 2.01 |
|
$0.00 to $2.50 |
| 6,145,700 |
| 6.19 |
| $ | 1.11 |
| 4,680,700 |
| $ | 0.90 |
|
The fair value of options granted for the six months ended June 30 were as follows:
|
| Number of |
| Weighted |
| Weighted |
|
|
|
|
| CAD$ |
| CAD$ |
|
|
|
|
|
|
|
|
|
2008 |
| — |
| — |
| — |
|
2007 |
| 1,060,000 |
| 1.68 |
| 1.58 |
|
The fair value of each option award for the six months ended June 30, 2007 was estimated on the grant date using the Black-Scholes option valuation model, using the following weighted average assumptions:
Expected option life |
| 7.5 years |
|
Expected volatility |
| 125 | % |
Risk-free interest rate |
| 4.01 | % |
Expected dividend yield |
| 0.00 | % |
13
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
6 — CAPITAL STOCK (continued)
(b) Stock option plan (continued)
Stock-based compensation is reflected in the Financial Statements as follows:
|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
|
|
| $ |
| $ |
| $ |
| $ |
|
Statements of Operations |
| 273,306 |
| 233,944 |
| 462,399 |
| 467,945 |
|
Statements of Deferred Exploration and Development Costs |
| 167,820 |
| 41,907 |
| 361,455 |
| 156,589 |
|
Balance Sheets - additions to contruction-in-progress |
| 26,865 |
| — |
| 26,865 |
| — |
|
|
| 467,991 |
| 275,851 |
| 850,719 |
| 624,534 |
|
Stock-based compensation of $77,107 and $nil was allocated to head office support in the Statements of Deferred Exploration and Development Costs in the three months ended June 30, 2008 and 2007, respectively. Stock-based compensation of $130,136 and $nil was allocated to head office support in the Statements of Deferred Exploration and Development Costs in the six months ended June 30, 2008 and 2007, respectively.
As at June 30, 2008, there were $1,610,539 of total unrecognized compensation costs related to unvested share-based compensation awards granted under the stock option plan which are expected to be recognized over a weighted average period of 9 months. A portion of the total will be allocated to deferred exploration and development expenses based on the percentage of time spent by the optionee on related activities.
7 — SEGMENTED INFORMATION
The Company operates in one business segment being the acquisition, exploration and potential development of precious metals properties. Operations are carried out through a wholly owned subsidiary, Orezone Inc., incorporated in the British Virgin Islands. Total assets segmented by geographic area were as follows:
|
| June 30, |
| December 31, |
|
|
| $ |
| $ |
|
Canada |
| 5,039,833 |
| 48,714,558 |
|
British Virgin Islands |
| 19,116,333 |
| 23,686,896 |
|
Burkina Faso |
| 281,756,023 |
| 234,302,284 |
|
Niger |
| 5,347,691 |
| 4,371,375 |
|
|
| 311,259,880 |
| 311,075,113 |
|
14
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
8 — ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in accumulated other comprehensive income were as follows:
|
| Three months |
| Six months |
| Year ended |
|
|
| ended June 30, |
| ended June 30, |
| December 31, |
|
|
| 2008 |
| 2008 |
| 2007 |
|
|
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income, beginning of period |
| 2,139,087 |
| 1,698,061 |
| 483,211 |
|
Adjustment to accumulated other comprehensive income, beginning of period: |
|
|
|
|
|
|
|
Cumulative unrealized gain in fair value of available-for-sale investments upon adoption of new accounting standard at January 1, 2007 (a) |
| — |
| — |
| 606,634 |
|
Accumulated other comprehensive income, beginning of period (restated) |
| 2,139,087 |
| 1,698,061 |
| 1,089,845 |
|
Unrealized (loss) gain in fair value of available-for-sale investments, net of tax |
| (22,438 | ) | 418,588 |
| 1,431,103 |
|
Realized cumulative gain on sale of available-for-sale investments, net of tax |
| (1,680,650 | ) | (1,680,650 | ) | (822,887 | ) |
Accumulated other comprehensive income, end of period |
| 435,999 |
| 435,999 |
| 1,698,061 |
|
Deficit, end of period |
| (21,083,604 | ) | (21,083,604 | ) | (17,552,102 | ) |
Accumulated other comprehensive income and deficit, end of period |
| (20,647,605 | ) | (20,647,605 | ) | (15,854,041 | ) |
(a) The cumulative unrealized gain in fair value of available-for-sale investments upon adoption of new accounting standard at January 1, 2007 was reported as $216,768 in the interim consolidated financial statements for the three and six month periods ended June 30, 2007. In the three months ended September 30, 2007, the Company determined that it had misallocated the book values of its available-for-sale investments and investments held for trading in adjusting for the adoption of CICA 3855 on January 1, 2007. Accordingly, an adjustment was made in the three months ended September 30, 2007 to increase the cumulative unrealized gain in fair value of available-for-sale investments at January 1, 2007 by $389,866; a corresponding adjustment was made to decrease the unrealized gain in fair value of investments held for trading upon adoption of new accounting standard at January 1, 2007, previously reported as $691,712, in the statement of deficit.
These interim statements report the adjusted amounts for the cumulative unrealized gain in fair value of available-for-sale investments at January 1, 2007 in accumulated other comprehensive income and the unrealized gain in fair value of investments held for trading at January 1, 2007 in the statements of deficit.
15
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
8 — ACCUMULATED OTHER COMPREHENSIVE INCOME (continued)
The balance of accumulated other comprehensive income was comprised of the following components:
|
| June 30, |
| December 31, |
|
|
| 2008 |
| 2007 |
|
|
| $ |
| $ |
|
|
|
|
|
|
|
Cumulative currency translation adjustments |
| 483,211 |
| 483,211 |
|
Cumulative unrealized gains in fair value of available-for-sale investments |
| (47,213 | ) | 1,214,850 |
|
Accumulated other comprehensive income |
| 435,998 |
| 1,698,061 |
|
9 — FINANCIAL INSTRUMENTS AND RISKS
The Company’s financial instruments consist of cash and cash equivalents, other receivables ($41,939 and $28,529 as at June 30, 2008 and December 31, 2007, respectively), accounts payable and accrued liabilities other than VAT payable ($8,738,085 and $4,643,294 as at June 30, 2008 and December 31, 2007, respectively), and investments in common shares of publicly traded companies. The fair value of other receivables, and accounts payable and accrued liabilities are equivalent to their carrying amounts given their short maturity period.
As described in Note 4, the Company holds common shares in publicly traded companies. These investments are recorded on the Balance Sheet at fair value, which was determined directly by reference to the published share prices in the active markets in which they trade.
Financial instruments risks
(a) Currency risk
In the normal course of operations, the Company is exposed to currency risk because of business transactions in foreign countries. The Company mainly transacts in United States dollars (USD), Canadian dollars (CAD), Euros (EUR), Communauté Financière Africaine francs (XOF) and South Africa rand (ZAR). Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s financial instruments by currency of denomination were as follows:
|
| June 30, 2008 |
| ||||||||||||
|
| USD |
| CAD |
| EUR |
| XOF |
| ZAR |
| Other |
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| 11,432,260 |
| 905,038 |
| 12,558 |
| 817,445 |
| — |
| — |
| 13,167,301 |
|
Other receivables |
| 23,386 |
| — |
| — |
| 18,553 |
| — |
| — |
| 41,939 |
|
Investments |
| — |
| 382,413 |
| — |
| — |
| — |
| — |
| 382,413 |
|
|
| 11,455,646 |
| 1,287,451 |
| 12,558 |
| 835,998 |
| — |
| — |
| 13,591,653 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| 42,687 |
| 1,366,448 |
| 849,017 |
| 2,310,513 |
| 3,612,570 |
| 556,850 |
| 8,738,085 |
|
Net financial assets (liabilities) |
| 11,412,959 |
| (78,997 | ) | (836,459 | ) | (1,474,515 | ) | (3,612,570 | ) | (556,850 | ) | 4,853,568 |
|
16
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
9 — FINANCIAL INSTRUMENTS AND RISKS (continued)
Financial instruments risks (continued)
(a) Currency risk (continued)
A 5% weakening against the U.S. dollar of the currencies to which the Company had significant exposure at June 30, 2008 would have had the following effects in the three and six months ended June 30, 2008 (a 5% strengthening against the U.S. dollar would have had the opposite effect):
|
| Foreign |
| Increase in |
|
|
|
|
|
|
|
CAD |
| 23,071 |
| 19,120 |
|
EUR |
| 41,822 |
| — |
|
XOF |
| 73,726 |
| — |
|
ZAR |
| 180,628 |
| — |
|
Other |
| 27,842 |
| — |
|
|
| 347,089 |
| 19,120 |
|
(b) Other price risk
The Company’s available-for-sale investments (investments in common shares of publicly traded mining companies) are exposed to other price risk. The Company has not hedged or mitigated its exposure to other price risks.
(c) Credit risk
The Company’s other receivables are exposed to credit risk, which is the risk that the counterparties to the Company’s receivables will fail to discharge their obligations to the Company. The amount of credit risk to which the Company is exposed is insignificant due to the limited amount of other receivables.
(d) Liquidity risk
As at June 30, 2008, the Company was not exposed to significant liquidity risk, which is the risk that the Company will have difficulty in meeting its financial obligations as they become due. As at June 30, 2008, the Company had $4,471,155 in net current financial assets and no long-term debt. While the Company has purchase commitments of $77,498,969 as described in Note 5, the majority of these commitments are cancelable. The Company will require additional financing to complete these commitments and take delivery of the equipment. (See Note 13)
17
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
10 — CAPITAL MANAGEMENT
As at June 30, 2008, the Company’s capital consisted of shareholders’ equity. The Company did not have any debt and was not subject to any externally imposed capital requirements as at June 30, 2008.
The Company’s primary objectives of managing its capital are to maintain sufficient levels of capital to continue its current exploration, development and other operating activities, and to maintain sufficient financial strength and flexibility to support additional investments in the future development of the Company’s mining properties. The Company achieves its objectives by rationally allocating capital in accordance with management’s strategies and periodically raising capital from investors.
To initiate construction at the Essakane property, the Company will need to raise significant amounts of additional capital, including debt (see Note 1 – Nature of Operations).
11 — RELATED PARTY TRANSACTIONS
One of the Company’s available-for-sale investments is in common shares of a publicly traded company of which the Company’s CEO is a director. The carrying and fair values of this investment were $350,791 and $481,227 as at June 30, 2008 and December 31, 2007, respectively.
In the three months ended March 31, 2008 the Company charged $11,003 in administrative fees to San Anton Resource Corporation (“San Anton”) for rent and other administrative services that were provided by the Company ($19,574 and $43,061 in fees were charged in the three and six months ended June 30, 2007, respectively). During these periods, the Company’s CEO was a director of San Anton and San Anton’s President and Chief Executive Officer (“CEO”) was a director of the Company. On April 1, 2008, San Anton ceased to be a related party to the Company.
12 — DEFERRED FINANCING COSTS
In the three and six months ended June 30, 2008, the Company incurred costs in connection with proposed issuances of debt. The Company’s policy is to expense costs incurred in connection with proposed issuances of share capital or debt unless the costs incurred are direct and incremental with respect to a proposed transaction, the proposed transaction is specifically identified such that the form of debt or share capital is known, and completion of the proposed transaction is considered to be more likely than not. Where all of these conditions are satisfied, the Company defers the costs of proposed issuances of share capital or debt as deferred financing costs. When the proposed transactions are completed, the Company adjusts the carrying amount of the debt or share capital issued by any related deferred financing costs. The Company expenses all deferred financing costs related to a proposed issuance of share capital or debt if the proposed transaction is abandoned, or if completion of the proposed transaction is no longer considered to be more likely than not.
13 — SUBSEQUENT EVENTS
On July 1, 2008, the Company closed a CAD $10 million convertible debenture with Minquest Fund I, L.P. (“Minquest”), a related party. The debt has a term of three years, a coupon interest rate of 6%, and is convertible at the option of Minquest. The initial common share conversion price of $1.30 is adjusted for the dilutive effects of equity securities issued by the Company prior to conversion, other than those that may be issued under the Company’s stock option plans or the terms of this debenture. Interest and principal are repayable in common shares at the option of the Company. The Company can impose conversion of the debt if its common shares close at a price greater than $2.25 per share for five consecutive days. If the Company issues additional equity securities at a price lower than the conversion price, Minquest has the right to redeem the debenture and would be required to re-invest in equity securities at a price not lower than the terms of the new equity issuance. Minquest will be subordinate to any
18
Orezone Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
senior bank debt. The debenture must be repaid if there is a change in control. A 4% commission was paid to Minquest upon issuance of the debt.
On August 14, 2008, the UniCredit Group (“HVB”) and the Standard Bank of South Africa (“Standard Bank”) approved a project loan of US$300M and a US$30M cost over-run facility for the Essakane project. HVB will provide a loan of US$175M (“Project Loan”) with a term of up to 7 years. Standard Bank will provide a US$125M loan supported by the Export Credit Insurance Corporation of South Africa (“ECIC Loan”) with a term of up to 8 years. The Project Loan has an interest rate of USD LIBOR plus a margin of between 2.75% and 3.25%. The ECIC Loan has an interest rate equal to the Commercial Interest Reference Rate (currently 5.71%) which may be converted, at the Company’s option, to a floating rate of LIBOR plus .25%. Payments under both loans will be made semi-annually and will commence the earlier of six months after completion of the construction of the mine at Essakane or December 31, 2010. The loan agreements provide first ranking security over all current and future assets related to the Essakane project. There are also commitment and arrangement fees associated with the loans. The availability of both the Project Loan and the ECIC Loan is subject to a number of conditions precedent including the requirement to raise additional equity capital, completion of due diligence, and compliance with a number of financial covenants.
On August 14, 2008, Standard Bank also approved a US$40M bridge loan facility (“Bridge”) for the Essakane project. The Bridge has a term of five months and an interest rate of USD LIBOR plus 4%. Interest is payable in arrears on the earlier of the date of repayment or the maturity date. There are also commitment and arrangement fees associated with the Bridge. As part of the Bridge agreement, the Company will also grant to Standard Bank, subject to regulatory approval, 2,000,000 warrants to purchase common shares of the Company at a price equal to the higher of US$1.30 per share and the five day volume weighted average price on the business day immediately prior to the closing date. The Bridge agreement provides security to Standard Bank over the common shares of the Essakane project operating company and has been guaranteed by the Company. The Company expects to close the Bridge by August 31, 2008.
On August 14, 2008, the Board approved an agreement to acquire the Interests of Channel Resources Ltd. and Solomon Resources Limited in the Company’s Bomboré permit through the issuance, subject to regulatory approval, of one million common shares of the Company. On closing, the Company will have a 100% interest in the Bomboré property subject to a 3% royalty held by the government of Burkina Faso and the state’s right to a 10% carried interest in any mining operation established on the permit.
19