![]() | MAG SILVER CORP. (An exploration stage company) Consolidated Financial Statements For the three month period ended Mar. 31, 2008 Dated: May 14, 2008 |
A copy of this report will be provided to any shareholder who requests it
VANCOUVER OFFICE Suite 328 550 Burrard Street Vancouver, BC V6C 2B5 | 604 630 1399 phone 866 630 1399 toll free 604 484 4710 fax | TSX:MAG AMEX:MVG www.magsilver.com info@magsilver.com |
MAG SILVER CORP. | |||||||||
(An exploration stage company) | |||||||||
Consolidated Balance Sheets | |||||||||
(expressed in Canadian dollars) | |||||||||
Mar. 31, 2008 | Dec. 31, 2007 | ||||||||
ASSETS | |||||||||
CURRENT | |||||||||
Cash and cash equivalents | $ | 69,812,325 | $ | 60,147,307 | |||||
Accounts receivable (Note 3) | 1,091,483 | 647,027 | |||||||
Interest receivable | 185,314 | 173,308 | |||||||
Prepaid expenses | 42,453 | 49,668 | |||||||
TOTAL CURRENT ASSETS | 71,131,575 | 61,017,310 | |||||||
EQUIPMENT AND LEASEHOLDS (Note 4) | 74,024 | 22,116 | |||||||
INVESTMENT IN MINERA JUANICIPIO S.A. DE C.V. (Note 5) | 6,807,748 | 5,948,361 | |||||||
MINERAL RIGHTS (Note 6) | 5,057,663 | 5,084,509 | |||||||
DEFERRED EXPLORATION COSTS (Note 6) | 14,533,557 | 12,989,636 | |||||||
TOTAL ASSETS | $ | 97,604,567 | $ | 85,061,932 | |||||
LIABILITIES | |||||||||
CURRENT | |||||||||
Accounts payable and accrued liabilities | $ | 1,783,026 | $ | 637,180 | |||||
SHAREHOLDERS' EQUITY | |||||||||
Share capital (Note 7) | |||||||||
Authorized - unlimited common shares, | |||||||||
without par value | |||||||||
Issued and outstanding at Mar.31, 2008 - 48,545,566 | |||||||||
common shares (Dec.31, 2007 - 46,954,196) | 106,231,641 | 91,105,640 | |||||||
Common share purchase warrants | - | 2,218,444 | |||||||
Contributed surplus | 8,773,584 | 7,879,650 | |||||||
Accumulated other comprehensive income | (332,343 | ) | (716,778 | ) | |||||
Deficit | (18,851,341 | ) | (16,062,204 | ) | |||||
TOTAL SHAREHOLDERS' EQUITY | 95,821,541 | 84,424,752 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 97,604,567 | $ | 85,061,932 | |||||
CONTINUING OPERATIONS (Note 1) | |||||||||
ON BEHALF OF THE BOARD | |||||||||
"Derek White" | |||||||||
Derek White, Director | |||||||||
"Jonathan Rubenstein" | |||||||||
Jonathan Rubenstein, Director |
See accompanying notes to the consolidated financial statements.
MAG SILVER CORP. | ||||||||||||
(An exploration stage company) | ||||||||||||
Consolidated Statements of Loss and Comprehensive Loss | ||||||||||||
(expressed in Canadian dollars) | ||||||||||||
For the | For the | |||||||||||
three month | three month | |||||||||||
period ended | period ended | |||||||||||
March 31, | March 31, | |||||||||||
2008 | 2007 | |||||||||||
EXPENSES | ||||||||||||
Accounting and audit | $ | 44,675 | $ | 17,659 | ||||||||
Amortization | 10,219 | 3,442 | ||||||||||
Bank charges and interest | 829 | 574 | ||||||||||
Filing and transfer agent fees | 126,357 | 54,956 | ||||||||||
Foreign exchange (gain) loss | (63,206 | ) | 5,349 | |||||||||
Legal | 71,100 | 66,094 | ||||||||||
Management and consulting fees | 368,838 | 253,126 | ||||||||||
Mineral property costs written off (Note 6.(g)) | 1,169,411 | - | ||||||||||
Shareholder relations | 79,284 | 97,095 | ||||||||||
Stock compensation expense | 1,446,300 | 1,730,034 | ||||||||||
Telephone and office | 159,722 | 84,122 | ||||||||||
Travel | 34,777 | 56,446 | ||||||||||
3,448,306 | 2,368,897 | |||||||||||
LOSS BEFORE THE FOLLOWING | (3,448,306 | ) | (2,368,897 | ) | ||||||||
INTEREST INCOME | 659,169 | 116,555 | ||||||||||
NET LOSS FOR THE PERIOD | $ | (2,789,137 | ) | $ | (2,252,342 | ) | ||||||
OTHER COMPREHENSIVE INCOME | ||||||||||||
CURRENCY TRANSLATION ADJUSTMENT (Note 5) | 384,435 | - | ||||||||||
COMPREHENSIVE LOSS FOR THE PERIOD | $ | (2,404,702 | ) | $ | (2,252,342 | ) | ||||||
BASIC AND DILUTED | ||||||||||||
LOSS PER SHARE | $ | (0.06 | ) | $ | (0.06 | ) | ||||||
WEIGHTED AVERAGE NUMBER | ||||||||||||
OF SHARES OUTSTANDING | 47,835,959 | 39,500,126 |
See accompanying notes to the consolidated financial statements.
MAG SILVER CORP. | ||||||||||||||||||||
(An exploration stage company) | ||||||||||||||||||||
Consolidated Statements of Shareholders' Equity | ||||||||||||||||||||
(expressed in Canadian dollars) | Deficit | |||||||||||||||||||
Accumulated | accumulated | |||||||||||||||||||
Common shares | Common share | other | during the | Total | Total | |||||||||||||||
without par value | purchase warrants | Contributed | comprehensive | exploration | Deficit | shareholders' | ||||||||||||||
Shares | Amount | Number | Amount | Surplus | income("AOCI") | stage | and "AOCI" | equity | ||||||||||||
Balance, December 31, 2006 | 37,928,610 | $23,433,942 | - | $ - | $3,059,194 | $ - | ($7,912,946) | ($7,912,946) | $18,580,190 | |||||||||||
Issued for cash (Note 7 (a)) | 5,760,000 | 59,955,443 | 1,380,000 | 2,692,571 | - | - | - | - | 62,648,014 | |||||||||||
Warrants exercised | 2,883,486 | 6,468,783 | (243,000) | (474,127) | - | - | - | - | 5,994,656 | |||||||||||
Stock options exercised | 382,100 | 1,247,472 | - | - | (436,110) | - | - | - | 811,362 | |||||||||||
Stock options granted | - | - | - | - | 5,256,566 | - | - | - | 5,256,566 | |||||||||||
Translation adjustment | - | - | - | - | - | (716,778) | - | (716,778) | (716,778) | |||||||||||
Net loss | - | - | - | - | - | - | (8,149,258) | (8,149,258) | (8,149,258) | |||||||||||
Balance, December 31, 2007 | 46,954,196 | 91,105,640 | 1,137,000 | 2,218,444 | 7,879,650 | (716,778) | (16,062,204) | (16,778,982) | 84,424,752 | |||||||||||
Issued for cash | - | 11,936 | - | - | - | - | - | - | 11,936 | |||||||||||
Warrants exercised | 1,137,000 | 13,588,444 | (1,137,000) | (2,218,444) | - | - | - | - | 11,370,000 | |||||||||||
Stock options exercised | 454,370 | 1,525,621 | - | - | (552,366) | - | - | - | 973,255 | |||||||||||
Stock options granted | - | - | - | - | 1,446,300 | - | - | - | 1,446,300 | |||||||||||
Translation adjustment | - | - | - | - | - | 384,435 | - | 384,435 | 384,435 | |||||||||||
Net loss | - | - | - | - | - | - | (2,789,137) | (2,789,137) | (2,789,137) | |||||||||||
Balance, March 31, 2008 | 48,545,566 | $106,231,641 | - | $ - | $8,773,584 | $ (332,343) | $(18,851,341) | $(19,183,684) | $95,821,541 |
See accompanying notes to the consolidated financial statements.
MAG SILVER CORP. | ||||||||
(An exploration stage company) | ||||||||
Consolidated Statements of Cash Flows | ||||||||
(expressed in Canadian dollars) | ||||||||
For the | For the | |||||||
three month | three month | |||||||
Period ended | Period ended | |||||||
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
OPERATING ACTIVITIES | ||||||||
Net loss for the period | $ | (2,789,137 | ) | $ | (2,252,342 | ) | ||
Items not involving cash: | ||||||||
Amortization | 10,219 | 3,442 | ||||||
Mineral property costs written off (Note 6.(g)) | 1,169,411 | - | ||||||
Stock compensation expense | 1,446,300 | 1,730,034 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (444,456 | ) | (79,959 | ) | ||||
Interest receivable | (12,006 | ) | 5,727 | |||||
Prepaid expenses | 7,215 | (60,758 | ) | |||||
Accounts payable and accrued liabilities | (15,154 | ) | 201,373 | |||||
(627,608 | ) | (452,483 | ) | |||||
INVESTING ACTIVITIES | ||||||||
Purchase of equipment and leasehold improvements | (62,127 | ) | (1,649 | ) | ||||
Investment in Juanicipio JV | (474,952 | ) | (40,354 | ) | ||||
Mineral rights | (190,721 | ) | (310,599 | ) | ||||
Deferred exploration costs | (1,334,765 | ) | (1,091,994 | ) | ||||
(2,062,565 | ) | (1,444,596 | ) | |||||
FINANCING ACTIVITIES | ||||||||
Issue of share capital | 12,355,191 | 19,214,601 | ||||||
12,355,191 | 19,214,601 | |||||||
INCREASE IN CASH | 9,665,018 | 17,317,522 | ||||||
CASH AND EQUIVALENTS, BEGINNING OF PERIOD | 60,147,307 | 3,506,930 | ||||||
CASH AND EQUIVALENTS, END OF PERIOD | ||||||||
$ | 69,812,325 | $ | 20,824,452 | |||||
CASH AND EQUIVALENTS WERE COMPRISED OF: | ||||||||
Cash | $ | 19,312,325 | $ | 899,202 | ||||
Short-term deposits | 50,500,000 | 19,925,250 | ||||||
$ | 69,812,325 | $ | 20,824,452 | |||||
option rights | $ | 204,431 | $ | 1,337,289 |
See accompanying notes to the consolidated financial statements.
MAG SILVER CORP.
(An exploration stage company)
Notes to the Consolidated Financial Statements
1. CONTINUING OPERATIONS
The Company was incorporated under the Company Act (British Columbia) on April 21, 1999 and its shares were listed on the TSX Venture Exchange on April 21, 2000.
The Company is an exploration company working on mineral properties it has staked or acquired by way of option agreement principally in Mexico. The Company has not yet determined whether these mineral properties contain any economically recoverable ore reserves. The Company defers all acquisition, exploration and development costs related to the properties on which it is conducting exploration. The recoverability of these amounts is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development of the interests, and future profitable production, or alternatively, upon the Company’s ability to dispose of its interests on a profitable basis.
These interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assume that the Company will realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses from inception and does not currently have any revenue generating operations. The Company’s ability to continue as a going concern is dependent upon its ability in the future to achieve profitable operations and, in the meantime, to obtain the necessary financing to meet its obligations and repay its liabilities when they become due. External financing, predominantly by the issuance of equity to the public, will be sought to finance the operations of the Company.
These interim consolidated financial statements do not include all the information and disclosures required by Canadian GAAP for annual consolidated financial statements. They have been prepared using the same accounting policies and methods of applications as the latest annual consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been made. The results for interim periods are not necessarily indicative of results for the entire year. The information contained in the interim financial statements should be read in conjunction with the Company’s latest audited consolidated financial statements for the year ended December 31, 2007.
Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements.
2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and include the following significant policies outlined below.
On January 1, 2008, the Company adopted four new presentation and disclosure standards that were issued by the Canadian Institute of Chartered Accountants: Handbook Section 1535, Capital Disclosures ("Section 1535"), Handbook Section 3031, Inventories – (“Section 3031”), Handbook Section 3862, Financial Instruments - Disclosures ("Section 3862") and Handbook Section 3863, Financial Instruments - Presentation ("Section 3863"). These standards were adopted on a prospective basis without restatement of prior periods.
(i) Accounting Changes – Section 1506
Section 1506, Accounting Changes, prescribes the criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. This Section allows for voluntary changes in accounting policies only if they result in the financial statements providing reliable and more relevant information. In addition, this Section requires entities to disclose the fact that they did not apply a primary source of GAAP that have been issued but not yet effective. The adoption of this Section had no impact on the consolidated financial position or results of operations for the three months ended March 31, 2008.
(ii) Capital disclosures – Section 1535
Section 1535, Capital Disclosures, establishes disclosure requirements regarding an entity’s capital, including (i) an entity’s objectives, policies, and processes of managing capital; (ii) quantitative date about what the entity regards as capital; (iii) whether the entity has complied with any externally imposed capital requirements; and (iv) if it has not complied, the consequences of such non-compliance. The new standard has had no impact on the consolidated financial position or results of operations for the three months ended March 31, 2008.
(iii) Financial instrument – Sections 3862 and 3863
Section 3862, Financial Instruments – Disclosures and Section 3863 Financial Instruments – Presentation replace Section 3861 Financial Instruments – Disclosure and Presentation. These new sections revise and enhance disclosure requirements while leaving presentation requirements unchanged. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The new standards have had no impact on the consolidated financial position or results of operations for the three months ended March 31, 2008. Refer to the additional sensitivity disclosure in Note 9.
(iv) Inventories – Section 3031
Section 3031, Inventories, provides more guidance on the measurement and disclosure requirements for inventories. Specifically the new pronouncement requires inventories to be measure at the lower of cost or net realizable value, and provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. The new standard has had no impact on the consolidated financial position or results of operations for the three months ended March 31, 2008.
Recent Accounting Pronouncements |
Goodwill and Intangible Assets
In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets and Section 3450, Research and Development Costs. The new pronouncement establishes standards for the recognition, measurement, presentation, and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. This Section is effective in the first quarter of 2009, and the Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.
3. ACCOUNTS RECEIVABLE
Mar. 31, 2008 | Dec. 31, 2007 | |||||||
Goods and services tax recoverable | $ | 58,147 | $ | 50,314 | ||||
Mexican value added tax ("IVA") recoverable | 1,028,125 | 596,713 | ||||||
Other | 5,211 | - | ||||||
$ | 1,091,483 | $ | 647,027 |
4. EQUIPMENT AND LEASEHOLDS
March 31, | December 31, | |||||||||||||||
2008 | 2007 | |||||||||||||||
Accumulated | Net book | Net book | ||||||||||||||
Cost | depreciation | value | value | |||||||||||||
Computer equipment | ||||||||||||||||
and software | $ | 38,467 | $ | 22,450 | $ | 16,017 | $ | 12,603 | ||||||||
Field equipment | 67,201 | 28,757 | 38,444 | 9,513 | ||||||||||||
Leasehold improvements | 26,084 | 6,521 | 19,563 | - | ||||||||||||
$ | 131,752 | $ | 57,728 | $ | 74,024 | $ | 22,116 |
5. INVESTMENT IN MINERA JUANICIPIO S.A. DE C.V.
Pursuant to an original option agreement dated July 18, 2002 and subsequent corporate acquisitions the Company acquired a 100% interest in the Juanicipio Property in exchange for total consideration of $919,458. Of this amount, $656,125 was paid in cash and 366,667 common shares of the Company were issued at a value of $263,333.
Pursuant to a letter of intent dated March 17, 2005 and a formal agreement effective July 1, 2005 (the “Agreement”) with Industrias Peñoles, S.A. DE C.V. (“Peñoles”), the Company granted to Peñoles or any of its subsidiaries an option to earn a 56% interest in the Juanicipio Property in Mexico in consideration for Peñoles conducting US $5,000,000 of exploration on the property over four years and Peñoles purchasing US $1,000,000 of Common Shares of the Company in two tranches for US$500,000 each.
In mid 2007 Peñoles met all of the earn-in requirements of the Agreement. In December 2007 the Company and Peñoles created an operating company named Minera Juanicipio, S.A. DE C.V. (“Minera Juanicipio”) for the purpose of holding and operating the Juanicipio Property. In 2008 Peñoles restructured and transferred its 56% interest of Minera Juanicipio into a new company called Compania Fresnillo S.A. DE C.V. (“Fresnillo”). Minera Juanicipio is held as to 56% by Fresnillo and 44% by the Company. In December 2007 all mineral rights and surface rights relating to the Juanicipio project held by the Company and Peñoles respectively were ceded into Minera Juanicipio. Minera Juanicipio is currently operated according to the terms and conditions of a shareholders agreement. All costs relating to the project and Minera Juanicipio will be shared by the Company and Fresnillo pro-rata based on their ownership interests in Minera Juanicipio.
To capitalize Minera Juanicipio the Company invested 63.40 million pesos ($6.025 million) into Minera Juanicipio while Peñoles invested 80.69 million pesos ($7.668 million). MAG then received a payout from Minera Juanicipio of 26.41 million pesos ($2.510 million) against its contribution of the Juanicipio mineral rights while Peñoles received 70.28 million pesos against its contribution of surface rights and the Company’s 44% share of exploration costs incurred by Peñoles subsequent to the completion of their earn-in and up to December 31, 2007.
The Company has recorded its investment in the Minera Juanicipio using the equity basis of accounting. The cost of the investment includes the carrying value of the deferred exploration and mineral and surface rights costs incurred by the Company on the Juanicipio Property and contributed to Minera Juanicipio plus the required net cash investment to establish its 44% interest.
Effective December 31, 2007 the Company concluded that the functional currency of Minera Juanicipio was the Mexican peso as expenditures in Minera Juanicipio were principally being incurred in pesos and funded by advances from the venturers which were denominated in pesos. The Company translates its net investment in Minera Juanicipio using the current rate method with translation gains and losses recorded in other comprehensive loss which is a component of shareholders’ equity, until there is a realized reduction in the net investment.
The Company’s 44% interest in Minera Juanicipio is detailed as follows:
Mar. 31, 2008 | Dec. 31,2007 | |||||||
Camp costs | $ | 3,772 | $ | 13,108 | ||||
Geochemical | - | - | ||||||
Geological | 11,861 | 66,190 | ||||||
Geophysical | 3,613 | 10,905 | ||||||
Gov't fees and licenses | 4,910 | 8,764 | ||||||
Travel | 362 | 3,906 | ||||||
Site administration | 604 | 2,292 | ||||||
Cash contributions to the JJV | 449,830 | 6,025,018 | ||||||
474,952 | 6,130,183 | |||||||
Balance, beginning of year | 5,948,361 | 3,044,509 | ||||||
$ | 6,423,313 | $ | 9,174,692 | |||||
Recoveries | - | (2,509,553 | ) | |||||
Translation adjustment | 384,435 | (716,778 | ) | |||||
Balance, end of period | $ | 6,807,748 | $ | 5,948,361 |
At March 31, 2008 the assets of Minera Juanicipio consisted of cash and short term investments in the amount of 9.26 million pesos ($895,000), IVA receivables in the amount of 19.00 million pesos ($1.84 million) and mineral, surface rights and exploration expenditures in the amount of 129.63 million pesos ($12.54 million). Payables to Peñoles and other vendors for exploration work amounted to 2.80 million pesos ($271,000) while shareholders equity was 155.10 million pesos ($15.00 million).
6. MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS
Period ended March 31, 2008 | ||||||||||||||||||
(Batopilas) | Sierra de | Cinco de | ||||||||||||||||
Don Fippi | Guigui | Lagartos NW | Lagartos SE | Ramirez | Mayo | Sello | Other | Total | ||||||||||
Acquisition costs of | ||||||||||||||||||
mineral rights | ||||||||||||||||||
Bal., beginning of year | $1,422,672 | $1,571,172 | $ 50,032 | $ - | $800,736 | $ 610,448 | $ 105,852 | $523,597 | $ 5,084,509 | |||||||||
Incurred during year | - | - | - | - | 79,006 | - | 12,715 | - | 91,721 | |||||||||
Less amounts written off | - | - | - | - | - | - | (118,567) | - | (118,567) | |||||||||
Balance, end of period | $1,422,672 | $1,571,172 | $ 50,032 | $ - | $879,742 | $ 610,448 | $ - | $523,597 | $ 5,057,663 | |||||||||
Deferred exploration costs | ||||||||||||||||||
Camp costs | $ 24,129 | $ - | $ 4,840 | $ 9,796 | $ 8,413 | $ 47,336 | $ 12,559 | $ 2,953 | $ 110,026 | |||||||||
Drilling | 409,540 | - | 116,550 | 4,738 | - | 687,837 | 475,304 | - | 1,693,969 | |||||||||
Geochemical | 13,708 | - | 442 | 13,238 | - | 31,469 | 4,765 | 2,037 | 65,659 | |||||||||
Geological | 78,195 | - | 18,580 | 36,374 | 22,235 | 94,344 | 43,246 | 5,231 | 298,205 | |||||||||
Geophysical | 22,141 | - | 3,613 | - | - | 42,455 | - | - | 68,209 | |||||||||
Gov't fees and licenses | 3,142 | 6,072 | 73,620 | 102,271 | 18,299 | 34,636 | 1,445 | 54,812 | 294,297 | |||||||||
Site administration | 3,905 | - | 1,043 | 2,705 | 407 | 7,259 | 2,423 | 310 | 18,052 | |||||||||
Travel | 13,675 | - | 2,112 | 3,066 | 216 | 14,241 | 6,579 | - | 39,889 | |||||||||
Transport and shipping | 1,573 | - | 780 | 610 | - | 3,301 | 49 | 146 | 6,459 | |||||||||
570,008 | 6,072 | 221,580 | 172,798 | 49,570 | 962,878 | 546,370 | 65,489 | 2,594,765 | ||||||||||
Bal., beginning of year | 3,344,413 | 1,450,400 | 120,853 | 4,220,148 | 434,628 | 2,775,679 | 504,474 | 139,041 | 12,989,636 | |||||||||
Less amounts written off | - | - | - | - | - | - | (1,050,844) | - | (1,050,844) | |||||||||
Balance, end of period | $3,914,421 | $1,456,472 | $ 342,433 | $4,392,946 | $484,198 | $3,738,557 | $ - | $204,530 | $14,533,557 |
Year ended December 31, 2007 | |||||||||||||||||||
(Batopilas) | Sierra de | Cinco de | |||||||||||||||||
Don Fippi | Guigui | Lagartos NW | Lagartos SE | Ramirez | Adargas | Mayo | Sello | Other | Total | ||||||||||
Acquisition costs of | |||||||||||||||||||
mineral rights | |||||||||||||||||||
Bal., beginning of year | $1,422,672 | $1,571,172 | $ 50,032 | $ - | $527,645 | $432,061 | $ 428,610 | $ 28,143 | $124,344 | $ 4,584,679 | |||||||||
Incurred during year | - | - | - | - | 273,091 | - | 181,838 | 77,709 | 399,253 | 931,891 | |||||||||
Less amounts written off | - | - | - | - | - | (432,061) | - | - | - | (432,061) | |||||||||
Balance, end of year | $1,422,672 | $1,571,172 | $ 50,032 | $ - | $800,736 | $ - | $ 610,448 | $105,852 | $523,597 | $ 5,084,509 | |||||||||
Deferred exploration costs | |||||||||||||||||||
Camp costs | $ 126,424 | $ 439 | $ 1,596 | $ 65,246 | $ 2,814 | $ - | $ 76,692 | $ 14,942 | $ 9,112 | $ 297,265 | |||||||||
Drilling | 477,758 | - | - | 1,367,777 | - | - | 1,048,855 | 385,505 | - | 3,279,895 | |||||||||
Geochemical | 54,735 | - | 299 | 51,220 | - | - | 54,195 | 8,316 | - | 168,765 | |||||||||
Geological | 398,558 | 8,469 | 7,517 | 169,436 | 31,323 | - | 229,781 | 47,994 | 43,852 | 936,930 | |||||||||
Geophysical | 117,382 | 50,890 | 36,666 | 206,199 | 205,468 | 875 | 56,175 | 36,606 | - | 710,261 | |||||||||
Gov't fees and licenses | 6,495 | 12,320 | 73,381 | 128,604 | 35,500 | 882 | 58,327 | 3,105 | 96,767 | 415,381 | |||||||||
Site administration | 27,449 | 1,136 | 831 | 18,085 | 658 | - | 14,897 | 2,842 | 1,061 | 66,959 | |||||||||
Travel | 51,445 | 226 | 563 | 13,110 | 9,735 | - | 23,283 | 5,164 | 1,406 | 104,932 | |||||||||
Transport and shipping | 1,322 | 627 | - | 3,110 | - | 1,681 | - | - | - | 6,740 | |||||||||
1,261,568 | 74,107 | 120,853 | 2,022,787 | 285,498 | 3,438 | 1,562,205 | 504,474 | 152,198 | 5,987,128 | ||||||||||
Bal., beginning of year | 2,082,845 | 1,376,293 | - | 2,197,361 | 149,130 | 314,778 | 1,213,474 | - | - | 7,333,881 | |||||||||
Less amounts written off | - | - | - | - | - | (318,216) | - | - | (13,157) | (331,373) | |||||||||
Balance, end of year | $3,344,413 | $1,450,400 | $ 120,853 | $4,220,148 | $434,628 | $ - | $2,775,679 | $504,474 | $139,041 | $12,989,636 |
(a) Don Fippi Property
The Company has a 100% interest in the Don Fippi mining concessions located in the Batopilas, Chihuahua district of Mexico, subject to a royalty of 4.5% of the Net Smelter returns obtained from the property. To March 31, 2008 the Company has incurred $3,914,421 in exploration costs on the property.
(b) Guigui Property
The Company has a 100% interest in mining concessions located in the Santa Eulalia (Guigui), Chihuahua district of Mexico, subject to a royalty of 2.5% of the Net Smelter returns obtained from the property. To March 31, 2008 the Company has incurred $1,456,472 in exploration costs on the property.
(c) Lagartos Properties
The Company has acquired 100% interest in exploration concession on mining claims (Lagartos) on the Fresnillo trend to the northwest and southeast of the Juanicipio property. This exploration concession enables the Company to explore the mining claim covered by the concession to December 2009, subject to the Company paying any applicable annual tax or other regulatory charges. To March 31, 2008 the Company has incurred $342,433 in exploration costs on the Lagartos NW property and $4,392,946 in exploration costs on the Lagartos SE property.
(d) Sierra Ramirez Property
On December 14, 2003 the Company entered into an option agreement to acquire a 100% interest in certain mining concessions located in the Sierra Ramirez district in Durango, Mexico. Under the terms of the option agreement, the Company was obligated to make scheduled payments totalling US$1,505,000 plus applicable value added tax by December 14, 2008; incur exploration expenditures totalling US$250,000 by July 26, 2009; and issue a finder’s fee of 25,000 common shares of the Company (all are issued).
During the year ended December 31, 2006, the Company and Minera Rio Tinto, S.A. DE C.V. amended terms of the above referenced option agreement. Under the amended terms, the Company will issue Minera Rio Tinto, S.A. DE C.V. 20,000 common shares of the Company (issued) and make scheduled cash payments totalling US$1,300,000 (of which US$200,000 has been paid or accrued) to December 14, 2010, with a final payment of US$650,000 of which up to US$500,000 may be paid in the common shares of the Company. Under the amended terms all exploration work commitments were also eliminated. To March 31, 2008 the Company has incurred $484,198 in exploration costs on the property.
During the year ended December 31, 2007, the Company entered into four separate option agreements to acquire 100% interest in certain mining concessions all of which are internal to the Sierra Ramirez property. The Company is obligated to make scheduled cash payments totalling US$4,938,125 (of which US$228,125 has been paid) to January 21, 2012.
(e) Adargas Property
On February 14, 2004 the Company entered into an option agreement to acquire a 100% interest in the Adargas property. During the period ended June 30, 2007 the Company terminated its option agreement, and consequently, total deferred acquisition and exploration costs of $750,277 were written-off.
(f) Cinco de Mayo Property
On February 26, 2004 the Company entered into an option agreement to acquire a 100% interest in the Cinco de Mayo property (the “Cinco de Mayo Property”), subject to a 2.5% net smelter returns royalty. Under the terms of the agreement, as later amended, the Company was obligated to make scheduled cash and share payments together worth US$1,000,000 (US$400,000 in cash and share payments made) and incur certain exploration expenditures totalling US$1,000,000 by July 26, 2009 (incurred). To March 31, 2008 the Company paid US$300,000 in cash, issued 165,670 common shares at a value of $266,630 and completed approximately $3,738,557 in exploration costs.
(g) | Sello Property |
On December 8, 2006 the Company entered into a letter of intent agreement to acquire a 100% interest in the Sello and Sello Uno claims located in Zacatecas State, by making scheduled option payments totalling US$1,000,000 plus applicable value added tax over a three year period (of which US$50,000 has been paid to March 31, 2008). During the current year the Company entered into a letter of intent agreement to acquire a 100% interest in the El Oro claims located in Zacatecas State, by making scheduled option payments totalling US$125,000 plus applicable value added tax over one year (of which US$62,500 has been paid to March 31, 2008). It was decided subsequent to the period ended March 31, 2008 that the Company would terminate its option agreement, and consequently, total deferred acquisition and exploration costs of $1,169,411 were written-off as of March 31, 2008.
(h) Other Properties
During the years ending December 31, 2007 and December 31, 2006 the Company optioned other exploration concessions on several mining claims. To March 31, 2008 the Company has paid $523,597 in acquisition costs. The Company has a US$100,000 option payment remaining on December 8, 2008.
7. SHARE CAPITAL
(a) Issued and outstanding
During the period ended March 31, 2008 1,137,000 share purchase warrants were exercised for proceeds of $11,370,000 and 454,370 stock options were exercised for cash proceeds of $973,255.
During the year ended December 31, 2007 2,883,486 share purchase warrants were exercised for proceeds of $5,994,656 and 382,100 stock options were exercised for cash proceeds of $811,362.
On November 27, 2007 the Company closed a brokered private placement for 3,000,000 common shares of the Company at a price of $15.50 per share for gross proceeds of $46,500,000. The Company paid a 5.0% commission to the underwriters on this placement. Legal, syndicate, and filing costs totaled an additional $208,484.
On February 14, 2007 the Company closed a brokered private placement for 2,550,000 units at $7.25 a unit for gross proceeds of $18,487,500. Each unit was comprised of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable for one common share at a price of $10.00 until February 14, 2008. $15,999,799 of the gross proceeds was assigned to the common shares included in the units and $2,487,701 to the warrants. The Company paid 6.0% cash commission to the underwriters on this placement. Legal, syndicate, and filing costs totaled an additional $127,902.
On February 14, 2007 the Company closed a non-brokered private placement for 195,000 units, while a further 15,000 units were closed February 15, 2007 for a total of 210,000 at $7.25 a unit for gross proceeds of $1,522,500. Each unit is comprised of one common share and one-half of one common share purchase warrant, with each whole warrant exercisable for one common share at a price of $10.00 until February 14, and 15, 2008. $1,317,630 of the gross proceeds was assigned to the common shares included in the units and $204,870 to the warrants. The Company paid a 6.0% finder’s fee on this placement comprised of $91,350 in cash.
(b) Shareholder rights plan
On August 3, 2007, the Company adopted a Shareholder Rights Plan designed to protect the interests of common shareholders from an inadequate or unfair takeover, but not affect a takeover proposal which the Board of Directors believes is fair to all shareholders. Under the Shareholder Rights Plan all shareholders of record on August 3, 2007 received one Right for each share of common stock they owned. These Rights trade in tandem with the common stock until and unless they are triggered. Should a person or group acquire more than 20% of the common stock the Rights would become exercisable for every shareholder except the acquirer that triggered the exercise. The Rights, if triggered, would give the other shareholders the ability to purchase additional stock at a substantial discount. The shareholder rights plan will continue in force up to the end of the Company’s third annual meeting of shareholders, and can be redeemed by the Company for $0.0001 per Right.
(c) Stock options
The Company has entered into Incentive Stock Option Agreements (“Agreements”) with directors, officers and employees. The maximum number of stock options which may be granted is limited to 10% of the issued and outstanding shares.
The following table summarizes options outstanding at March 31, 2008:
Number | Weighted average | Weighted | ||||||||||||
outstanding at | remaining | average | ||||||||||||
Exercise | Mar. 31, | contractual life | exercise | |||||||||||
price | 2008 | (years) | price | |||||||||||
$ | 0.50 | 298,500 | 0.04 | $ | 0.50 | |||||||||
0.70 | 150,000 | 0.11 | 0.70 | |||||||||||
1.00 | 60,000 | 2.67 | 1.00 | |||||||||||
1.06 | 645,000 | 1.80 | 1.06 | |||||||||||
1.14 | 27,500 | 2.51 | 1.14 | |||||||||||
3.00 | 508,000 | 2.85 | 3.00 | |||||||||||
3.56 | 15,000 | 2.97 | 3.56 | |||||||||||
4.04 | 164,830 | 3.00 | 4.04 | |||||||||||
2.00 | 50,000 | 3.21 | 2.00 | |||||||||||
2.46 | 145,000 | 3.31 | 2.46 | |||||||||||
3.12 | 25,000 | 3.42 | 3.12 | |||||||||||
5.36 | 482,500 | 3.70 | 5.36 | |||||||||||
7.56 | 35,000 | 3.82 | 7.56 | |||||||||||
8.80 | 200,000 | 3.90 | 8.80 | |||||||||||
9.40 | 45,000 | 4.00 | 9.40 | |||||||||||
14.70 | 50,000 | 4.34 | 14.70 | |||||||||||
13.75 | 25,000 | 4.52 | 13.75 | |||||||||||
14.15 | 425,000 | 4.54 | 14.15 | |||||||||||
12.91 | 284,500 | 4.87 | 12.91 | |||||||||||
3,635,830 | 2.93 | $ | 5.39 |
At March 31, 2008 a total of 3,573,330 of the outstanding share options were exercisable, having a weighted average remaining contractual life of 2.91 years and a weighted average exercise price of $5.25.
At the date the Agreements are entered into, the exercise price of each option is set no lower than the fair value of the common shares at the date of grant.
The following table summarizes the Company’s options:
Period ended | Weighted | Period ended | Weighted | ||||||||||
Mar. 31, | average | Mar. 31, | average | ||||||||||
2008 | exercise | 2007 | exercise | ||||||||||
price | price | ||||||||||||
Balance outstanding, | |||||||||||||
beginning of year | 3,805,700 | $ | 4.44 | 3,352,800 | $ | 2.31 | |||||||
Activity during the period | |||||||||||||
Options granted | 284,500 | 12.91 | 335,000 | 8.57 | |||||||||
Options exercised | (454,370 | ) | 2.14 | (151,800 | ) | 0.90 | |||||||
Balance outstanding, | |||||||||||||
end of period | 3,635,830 | $ | 5.39 | 3,536,000 | $ | 2.96 |
During the period ended March 31, 2008 the Company granted 284,500 stock options, (March 31, 2007 – 335,000). The Company has recorded $1,446,300 (March 31, 2007 - - $1,730,034) of compensation expense relating to stock options vested to employees and consultants in the period ended March 31, 2008.
For the period ended March 31, 2008, stock-based compensation expense was determined using an option pricing model assuming no dividends are to be paid, a weighted average volatility of the Company’s share price of 49%, an annual risk free interest rate of 3.37% and expected lives of three years. (March 31, 2007 – assuming: no dividends are to be paid, a weighted average volatility of the Company’s share price of 85%, an annual risk free interest rate of 4.05% and expected lives of three years.)
(d) Share purchase warrants
Weighted | ||||||||
average | ||||||||
Number | exercise | |||||||
of warrants | price | |||||||
Balance at December 31, 2006 | 2,640,486 | 1.35 | ||||||
Issued in connection with issuance of common shares | 1,380,000 | 10.00 | ||||||
Exercised and converted into common shares | (2,883,486 | ) | 2.08 | |||||
Balance at December 31, 2007 | 1,137,000 | $ | 10.00 | |||||
Exercised and converted into common shares | (1,137,000 | ) | 10.00 | |||||
Balance at March 31, 2008 | - | $ | - |
8. CAPITAL RISK MANAGEMENT
The Company’s objectives in managing its liquidity and capital are to safeguard the Company’s ability to continue as a going concern and provide financial capacity to meets its strategic objectives. The capital structure of the Company consists of equity attributable to common shareholders, comprising of issued share capital, common share purchase warrants, contributed surplus, accumulated other comprehensive income and accumulated deficit.
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the
capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors. The Company does not pay out dividends.
As at March 31, 2008, the Company does not have any long-term debt and is not subject to any externally imposed capital requirements.
The Company expects its current capital resources will be sufficient to carry its exploration and development plans and operations through its current operating period.
9. FINANCIAL RISK MANAGEMENT
The Company’s operations consist of the acquisition, exploration and development of district scale projects in the Mexican silver belt. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of occurence. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and other price risks. Where material, these risks are reviewed and monitored by the Board of Directors.
(a) Credit risk
Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on its obligations under the contract. This includes any cash amounts owed to the Company by those counterparties, less any amounts owed to the counterparty by the Company where a legal right of set-off exists and also includes the fair values of contracts with individual counterparties which are recorded in the financial statements.
(i) Trade credit risk
The Company is in the exploration stage and has not yet commenced commerical production or sales. Therefore, the Company is not exposed to significant credit risk and overall the Company’s credit risk has not changed significantly from the prior year.
(ii) Cash and cash equivalents
In order to manage credit and liquidity risk we invest only in highly rated investment grade instruments that have maturities of three months or less. Limits are also established based on the type of investment, the counterparty and the credit rating.
(iii) Derivative financial instruments
As at March 31, 2008, the Company has no derivative financial instruments. We may in the future enter into derivative financial instruments and in order to manage credit risk, we will only enter into derivative financial instruments with highly rated investment grade counterparties.
(b) Liquidity risk
The Company has in place a planning and budgeting process to help determine the funds required to support the Company's normal operating requirements and its exploration and development plans. The annual budget is approved by the Board of Directors. The Company ensures that there are sufficient cash balances to meet its short-term business requirements.
The Company's overall liquidity risk has not changed significantly from the prior year.
(c) Currency risk
The Company’s functional currency is the Canadian dollar and therefore the Company's net earnings and other comprehensive earnings are impacted by fluctuations in the value of foreign currencies in relation to the Canadian dollar. The Company's foreign currency exposures comprise cash and cash equivalents and accounts payable and accrued liabilities denominated in Mexican pesos and United States dollars. Several of the Company’s options to acquire properties in Mexico may result in option payments by the Company denominated in Mexican Pesos or in United States dollars. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign exchange rates.
Appreciation in Mexican peso against the Canadian dollar will increase our costs of operations in Mexico. A decrease in the United States dollar against the Canadian dollar will result in a loss on our books to the extent we hold funds in United States dollars. The Company is also exposed to inflation risk in Mexico.
The sensitivity of the Company's net loss and other comprehensive loss for the three months ended March 31, 2008 due to changes in the exchange rate for the Mexican peso in relation to the Canadian dollar is summarized in the following table expressed as the increase in the net loss and comprehensive loss for each 10% appreciation in the Canadian dollar:
Net Loss | $ | 220,000 | ||
Other comprehensive loss | 570,000 | |||
Comprehensive loss | $ | 790,000 |
(d) Interest rate risk
The Company’s interest revenue earned on cash and cash equivalents and on short term investments is exposed to interest rate risk.
10. FAIR VALUE DISCLOSURES
The carrying values of cash and cash equivalents and accounts payable reported in the consolidated balance sheet approximate their respective fair values.
11. SEGMENTED INFORMATION
The Company operates in one segment being the exploration of mineral properties in Mexico. Substantially all of the Company’s long term assets are located in Mexico and the Company’s executive and head office is located in Canada.
12. RELATED PARTY TRANSACTIONS
For the period ended March 31, 2008 the Company’s president received $155,215 in compensation for management services (2007 - $88,532) including an annual performance bonus of $80,000 (2007 - $50,000)
For the period ended March 31, 2008 a private company controlled by an officer of the Company received $90,960 in compensation for consulting services (2007 - $70,960) including an annual performance bonus of $60,000 (2007 - $40,000)
For the period ended March 31, 2008 the Company’s CFO received $50,000 in compensation as a bonus for management services (2007 - $Nil).
The Company paid or accrued non-executive directors fees of $20,500 during the period ended March 31, 2008 (2007 - $Nil).
The Company is party to a Field Services Agreement, whereby it has contracted exploration services in Mexico with MINERA CASCABEL S.A. DE C.V. (“Cascabel”) and IMDEX Inc. (“Imdex”). As of January 2006, these companies have a common director with the Company. During the period ended March 31, 2008 the Company accrued or paid Cascabel and IMDEX consulting, administration and travel fees totaling $24,432 (2007 - $40,105) and exploration costs totaling $413,832 (2007 - $225,796) under the Field Services Agreement.
During the year ended December 31, 2003, the Company entered into an office services agreement with Platinum Group Metals Ltd., a company with a common director and common officer. During the period ended March 31, 2008 the Company accrued or paid Platinum Group Metals Ltd. $33,670 under the office service agreement (2007 - $33,969).
During the year ended December 31, 2007, the Company entered into a new two year office lease agreement with Anthem Works Ltd. (“Anthem”), a company with a common director. During the period ended March 31, 2008 the Company accrued or paid Anthem $20,272 under the office lease agreement (2007 - $15,583).
These transactions were incurred in the normal course of business and are measured at the exchange amount which was the consideration established and agreed to by the noted parties.
13. CONTINGENCIES AND COMMITMENTS
The Company’s minimum payments under its office lease agreement which was entered into during the year ended December 31, 2007, are as follows:
2008 | 58,520 | |||
2009 | 58,519 | |||
$ | 117,039 |
14. SUBSEQUENT EVENTS
Subsequent to March 31, 2008:
(a) | The Company issued 599,900 common shares between $0.50 and $4.04 on the exercise of stock options for proceeds of $462,016. |