UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
Commission File Number 333-129347
WHITE MOUNTAIN TITANIUM CORPORATION
(Name of small business issuer in its charter)
NEVADA | 87-0577390 |
(State of incorporation or organization) | (IRS Identification No.) |
2150 - 1188 West Georgia Street
Vancouver, British Columbia
Canada, V6E 4A2
(Address of principal executive offices)
(604) 408-2333
(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed under Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large Accelerate Filer o | | Accelerated Filer o |
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| Non-Accelerated Filer o (Do not check if a smaller reporting company) | | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
29,189,133 shares of the issuer’s common stock, $.001 par value, were outstanding at May 5, 2008.
Transitional Small Business Disclosure Format (Check One) Yes o No x
EXPLANATION
Item 2 of Part I has been amended to include a discussion under a subsection titled “Liquidity and Cash Flow.” This Amendment No. 1 continues to speak as of the date of the original Form 10-Q for the three months ended March 31, 2008, and we have not updated or amended the disclosures contained herein to reflect events that have occurred since the filing of the original Form 10-Q, or modified or updated those disclosures in any way other than as described above. Accordingly, this Amendment No.1 should be read in conjunction with our filings made with the SEC subsequent to the filing of the original Form 10-Q on May 14, 2008.
PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis
The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes thereto as filed with this report.
Background
We are a mineral exploration company. We hold mining concessions composed of 33 registered mining exploitation concessions, and 5 exploration concessions, over approximately 8,225 hectares located approximately 39 kilometers west of the City of Vallenar in the Atacama, or Region III, geographic region of northern Chile (hereinafter referred to as “Cerro Blanco”). We are in the exploration stage, which means we are engaged in the search for mineral deposits or reserves which could be economically and legally extracted or recovered. Our primary expenditures at this stage consist of acquisition and exploration costs and general and administration expenses. We have produced no revenues, have achieved losses since inception, have no operations, and currently rely upon the sale of our securities to fund our operations.
Plan of Operation
We completed the acquisition of an undivided interest in Cerro Blanco in September 2005. Exploration drilling by us and the previous owner has defined rutile mineralization. Metallurgical test work performed by Lakefield Research has demonstrated that this mineralization can be concentrated to a level meeting buyer specifications and can be produced using a conventional milling and flotation process.
Over the next twelve to twenty-four months we have two principal objectives: to advance the project towards a final engineering feasibility level and to secure off-take contracts for the planned rutile concentrate output. We also continue to investigate the commercial viability of producing a feldspar co-product. The feldspar could find applications in the glass and ceramics industries. On a year over year comparative basis, our activity in 2008 is budgeted to closely track that of 2007, with similar levels of expenditure across all areas except for exploration and engineering where, subject to funds availability as discussed below, expenditures may exceed 2007 levels.
Engineering
During 2006, we undertook two separate drilling campaigns on our initial target, the Las Carolinas prospect. The first was designed to test ore variability, and provided 15 different composites which were subjected to metallurgical testing by Lakefield Research. The second campaign, which commenced in October 2006, centered on an exploration program consisting mainly of infill and step out drilling, grade variability studies and regional reconnaissance in search of possible extensions to the mineralization and geologic modelling. On January 24, 2007 we announced that we had completed a 16-hole diamond drilling campaign, totaling over 2,900 meters at Cerro Blanco. The principal objectives of this campaign were to increase resources in the central portion of the main zone as well as to test new target areas to the south and south-west. Core recoveries in excess of 95% were achieved in the majority of holes drilled. Split core samples were sent to Lakefield Research in Ontario, Canada, for on-going metallurgical testing, and whole-core geotechnical testing in respect of rock mechanics for mine planning purposes. Results from these tests have been received.
Planning and execution of the drilling campaign was closely linked to previous metallurgical test work. The principal focus was to target titanium resources which would yield a high grade TiO2 concentrate from conventional flotation. After an extensive evaluation of historic data, our contract geologists devised and are now utilizing an ore ranking system, MR1 (“Mine Rank 1”) through to MR4, with ranks MR1 and MR2 producing the best, and most commercially acceptable chemical product specifications. Of the 16 drill holes, the table below shows the most significant results available from analysis to date, and highlights the combined MR1 and MR2 intercepts.
Hole # | From (m) | To (m) | Width (m) | % TiO2 |
| | | | | |
| CB-26 | Total MR1 + MR2 | | 267 | 2.24 |
| Including | 36 | 78 | 42 | 3.48 |
| | 81 | 123 | 42 | 3.10 |
| | | | | |
| CB-14 | Total MR1 + MR2 | | 168 | 2.52 |
| Including | 3 | 54 | 51 | 2.50 |
| | 60 | 138 | 78 | 2.77 |
| | | | | |
| CB-27 | Total MR1 + MR2 | | 156 | 2.47 |
| Including | 96 | 144 | 48 | 3.74 |
| | 144 | 222 | 78 | 2.03 |
| | | | | |
| CB-17 | Total MR1 + MR2 | | 143 | 2.24 |
| Including | 33 | 123 | 90 | 2.30 |
| | 147 | 200 | 53 | 2.14 |
Data from the latest drilling campaign has been input into a geological model and this model, together with ongoing technical work, has been integrated into a resource model.
Titanium mineralization starts at surface and extends over long intercepts with both attributes offering the potential for low mining costs. We believe we have good results in the central portion of the main zone of Cerro Blanco, as well as significant potential for further resource development to the south and south-west areas of the property.
During 2007, the Company’s geological team undertook an extensive geochemical sampling program at the Eli prospect. Working on a 25 by 25 meter grid, the team took nearly 700 samples of outcrop material over an area of 1100 meters by 900 meters. These were sent for chemical assay, and good surface expression was noted throughout. Samples showed good mineralization with TiO2 grades in the range 1.0% to 3.0%; two samples from high grade vein material reported results in excess of 21% TiO2 and 25% TiO2 respectively. As a result, in early 2008, the Company has built a 12 kilometer, 5 meter wide access road to and around the Eli prospect. Subject to the availability of funds, a diamond drill program is planned at Eli to gain more information about the mineralization, and assess the resource potential for future geological and metallurgical test work.
We are currently in discussions with our internationally recognized engineering contractor with respect to the results of our preliminary engineering assessment. We expect to receive the final, English language report shortly. Based on these discussions, we expect the results of the assessment to support our internal assessments of the project.
A considerable body of engineering design and process engineering work has already been completed, both by us and previous owners, for the development of a large open pit mine and milling operation. The extent to which this engineering work could be incorporated into a feasibility study will depend on factors such as optimal plant sizing and configuration based on product volumes and specifications set out in off-take contracts and process design, the latter to be determined by refinements coming out of this year’s planned metallurgical test work and pilot scale testing. With off-take contracts in hand, we would undertake a program of drilling to provide data for mine planning and design. for an environmental impact assessment and permitting program, and to commission a feasibility study. As some of these activities would be undertaken in tandem, we believe a feasibility study could be completed within twelve to fourteen months of us receiving off-take contracts, subject to the availability of funds, personnel and equipment. We estimate the cost to take the project to the point of commissioning a final engineering feasibility study at approximately $3,408,000. This figure includes a 20 per cent contingency but excludes general and administrative expenses. As of March 31, 2008, our cash position was approximately $2,045,061. We currently do not have sufficient capital to complete this plan and estimate that we will require additional financing to do so, as discussed in Liquidity below
Marketing
With respect to the second objective, we commenced a marketing program directed at potential buyers of rutile, and have engaged a consultant with extensive experience in the international pigments business, to conduct a preliminary evaluation of the market. The marketing program includes provision for testing of samples of Cerro Blanco rutile concentrates at the buyers’ operations and, subject to technical acceptability, will end with the negotiation of off-take contracts.
In February 2007 executive management and our marketing team attended the Intertech Titanium Conference in Fort Lauderdale, Florida. At this event we met with buyers of high grade rutile concentrate to gauge the potential demand for Cerro Blanco product and held discussions with TiO2 specialists.
In April 2008 executive management and our marketing team attended the Industrial Minerals Conference, in Athens Greece. At this event we also met with buyers of high grade rutile concentrate. We believe that market conditions are moving favorably towards the producers of concentrate as supply is tightening on a worldwide basis and prices are tending upwards. We received considerable interest in our projects, with questions concentrating on tonnage as opposed to pricing, a major change in perspective from past conferences.
Based on these discussions and preliminary marketing results, we believe that demand for our products will meet or exceed the planned capacity of the currently anticipated proposed physical plant. The market for TiO2 feedstock, particularly high grade rutile, appears to be entering a growth period, with increased demand coming not only from the paint and pigment industries, but also from welding rod manufacturers and metal producers. Our ability to enter this market, however, is subject to significant risk factors, including our ability to raise sufficient funds to meet the engineering plans noted above, as well as the successful completion of pilot plant operations which produce product that meets purchaser’s specifications.
Results of Operations
We recorded a loss for the three months ended March 31, 2008 of $638,103 ($(0.02 per weighted average common share outstanding) compared to a loss of $427,173 ($(0.03 per share) for the comparable interim period in the preceding year. This 50% increase in loss in the current quarter is attributable to an increase in exploration expenditures to $301,761 in the quarter from $158,531 in the comparable quarter of the previous year, and an increase in licenses and taxes to $56,899 from $4,859.
Generally expenses are comparable this quarter to the corresponding quarter last year. Consulting fees for the quarter were $66,590 (2007 - $55,303) as we continue to retain consultants in such areas as marketing and financing. Professional fees were $37,350 (2007 - $35,791) reflecting continued increases in accounting expenses. Insurance expense is at $15,640 compared to $3,113 as we are recognizing the expense on a monthly basis as opposed to when invoiced.
Director and officer consulting fees for the quarter were $75,700 (2007 - $59,440) as the consulting fees of the CFO are now included in this category. Management fees of $34,800 (2007 - $24,000) reflect a modest increase in current payments. Rent also reflects an increase from $22,987 in 2007 to $30,196 in 2008 as office lease rates increased over the year.
Foreign exchange, both realized and unrealized, fluctuated significantly during the comparable periods from a loss of $3,472 in 2007 to a gain of $33,445 in 2008 as the Chilean Peso has appreciated significantly against the US Dollar. As we have considerable assets, and occasionally cash balances, in Chile, any such fluctuation will cause foreign exchange gains or losses upon consolidation of the Company’s subsidiaries.
Liquidity and Cash Flow
As of March 31, 2008 we had working capital of $2,040,849 (2007 - $1,597,211) including $2,045,061 (2007 -$1,539,173) of cash and cash equivalents. As of May 15, 2008 our cash position is approximately $1.665,750.
We have prepared a 2008 combined operating budget which incorporates general corporate and administrative expenses as well as a base case of Chilean operations plus road construction, engineering studies, and drilling. We anticipate that expenditures, net of interest income will be such that we have sufficient funds for up to two years of operations, excluding 2008 drilling expenditures. The diversion of funds from general purposes to engineering and marketing will, however, reduce the period during which we can cover expenditures.
We anticipate 2008 expenditures on the engineering and marketing plans to be as follows:
| | Minimum | Maximum |
| Pre-feasibility study | $120,000 | $120,000 |
| Pilot plant program | 500,000 | 600,000 |
| Marketing | 50,000 | 60,000 |
| Drilling of additional targets including the Eli claims and roadwork | 1,120,000 | 1,120,000 |
| Additional claim holding costs | 40,000 | 60,000 |
| Environmental compliance | 100,000 | 200,000 |
| Final feasibility study | 400,000 | 400,000 |
| Contingency | 160,000 | 210,000 |
| Total | $2,490,000 | $2,770,000 |
We have been actively sourcing additional funds to meet or exceed the anticipated expenditures above. We believe that the prospects are such that we will be able to raise sufficient funds; however there are a number of risk factors which will influence our ability to do so, including the state of the capital markets generally, and the market price of our common stock. With the exception of funds on deposit, we have no other sources of committed funds, except for outstanding warrants for which there are no commitment to exercise. The most likely source of new funds would be an equity placement of common shares.
We believe that a failure to raise funds in a timely manner would likely delay the achievement of some of the milestones in the engineering and marketing plans, and would delay any decision regarding the viability of operations while likely increasing future costs.
The July 2005 funding agreement with Rubicon contained certain anti-dilution provisions, such that any subsequent funds raised below $1.25 per share may trigger provisions which require the issuance of additional shares or re-pricing of warrants held by Rubicon. This may influence our decision as to the suitability of any future financing.
Off-Balance Sheet Arrangements
As of March 31, 2008, the Company did not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS 141(R)), which replaces SFAS 141. SFAF 141(R) requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingencies to be measured at their fair values as of the date of acquisition. SFAS 141(R) also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008 and will be effective for business combinations entered into after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (SFAS 160). SFAS 160 clarifies the accounting for non-controlling interests and establishes accounting and reporting standards for the non-controlling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not currently have any minority interests.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity's liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS 161 will be effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, will be adopted by the Company beginning in the first quarter of 2009. The Company does not expect there to be any significant impact of adopting SFAS 161 on its financial position, cash flows and results of operations.
Forward Looking Statements
The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “will,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this report. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the cyclicality of the titanium dioxide industry, global economic and political conditions, global productive capacity, customer inventory levels, changes in product pricing, changes in product costing, changes in foreign currency exchange rates, competitive technology positions and operating interruptions (including, but not limited to, labor disputes, leaks, fires, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities). Mining operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise. There may also be other risks and uncertainties that we are unable to predict at this time or that we do not now expect to have a material adverse impact on our business.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| Date: May 23, 2008 | By: | /s/ Michael P. Kurtanjek |
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Michael P. Kurtanjek, President (Principal Executive Officer) |
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| Date: May 23, 2008 | By: | /s/ Charles E. Jenkins |
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Charles E. Jenkins, Chief Financial Officer (Principal Financial Officer) |
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