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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/ A1
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number333-78481
GREAT PANTHER RESOURCES LIMITED
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's Name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
2100-1177 West Hastings Street
Vancouver, British Columbia, Canada V6E 2K3
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Not Applicable | Not Applicable |
Title of Class | Name of Each Exchange on Which Registered |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares Without Par Value
(Title of Class)
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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Not Applicable
Title of Class
Indicate the number of outstanding shares of each of the Registrant's classes of capital or common stock as of the
close of the period covered by the annual report.
There were 80,744,352 common shares, without par value, issued and outstanding as of December 31, 2007.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] YES [X] NO
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[X] YES [ ] NO
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 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.
[X] YES [ ] NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark which financial statement item the registrant has elected to follow.
[X] Item 17 [ ] Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
[ ] YES [X] NO
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. [ ] YES [ ] NO
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EXPLANATORY NOTE
This amendment to our annual report on Form 20-F for the fiscal year ended December 31, 2007 filed on April 3, 2008 is being filed for the following purposes:
to restate revenue and cost of sales (excluding amortization and depletion) for the years ended December 31, 2007 and 2006 to reflect the proceeds from the sale of concentrates, net of treatment and refining fees charged by counterparties, as the Company assumes no risk or obligation for treatment and refining services under its sales arrangements in Item 17 – Financial Statements and related disclosures in Item 3 – Key Information, Item 4 – Information on the Company, and Item 5 Operating and Financial Review and Prospects. The Company previously recoded treatment and refining costs in cost of sales. The effect of the restatement is to reduce revenue and cost of sales by $1,963,976 for the year ended December 31, 2007 and $736,408 for the year ended December 31, 2006. This restatement has no impact on the reported loss and loss per share for each of the years in the three years ended December 31, 2007;
to reflect various disclosure revisions regarding the Company’s primary mining properties and exploration projects in Item 4 – Information on the Company;
to amend the disclosure of changes in internal controls over financial reporting to reflect the period covered by the annual report rather than the quarter ended December 31, 2007 in Item 15 - Controls and Procedures;
to further supplement our disclosure in Item 16A – Audit Committee Financial Expert.
to add small-scale maps of the Company’s material properties (Exhibits 8.3 – Map of Topia Property, 8.4 – Map of Guanajuato Property, and 8.5 – Map of Mapimi Property) in Item 19- Exhibits;
to revise the presentation of Selected Financial Data for 2005 in Item 3 – Key Information; and
to provide updated principal executive and financial officer certifications in Exhibits 6.1, 6.2, 7.1, 7.2.
The amendment reflects comments received from the staff of the Securities and Exchange Commission and the Company’s response to such comments. This amendment does not reflect any events that have occurred after the annual report on Form 20-F was filed on April 3, 2008.
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GLOSSARY OF TERMS
The following glossary, which is not exhaustive, should be used only as an adjunct to a thorough reading of the entire document of which it forms a part.
adit: A horizontal or close-to-horizontal tunnel, man-made for mining purposes.
Ag: The chemical symbol for silver on the Periodic Table.
andesite: A fine-grained brown or greyish intermediate volcanic rock.
Au: The chemical symbol for gold on the Periodic Table.
breccia: A course-grained rock, composed of angular, broken rock fragments held together by a mineral cement or a fine-grained matrix.
chloritization: A form of alteration of a rock involving the replacement by, conversion into, or introduction of chloride.
crosscuts: Mine openings or passageways that intersect a vein or ore bearing structure at an angle.
epithermal: Applied to hydrothermal deposits formed at low temperature and pressure.
Feasibility Study: A detailed study of a deposit in which all geological, engineering, operating, economic and other relevant factors are engineered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production.
felsic: Applied to an igneous rock having abundant light-colored materials.
hectare: A metric unit of land measure equal to 10,000 square metres or 2.471 acres.
hydrothermal: Relating to hot fluids circulating in the earth's crust.
Indicated Mineral Resource:As defined by the Canadian Institute of Mining, Metallurgy, and Petroleum, an Indicated Mineral Resource is part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.i
Inferred Mineral Resource:As defined by the Canadian Institute of Mining, Metallurgy, and Petroleum, an Inferred Mineral Resource is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes.ii
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Measured Mineral Resource: As defined by the Canadian Institute of Mining, Metallurgy, and Petroleum Standards on Mineral Resources and Mineral Reserves, a Measured Mineral Resource is part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on a detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes that are spaced closely enough to confirm both geological and grade continuity.
mineral: An inorganic substance having usually a definite chemical composition and, if formed under favourable conditions, having a certain characteristic atomic structure which is expressed in its crystalline form and other physical properties.
Mineral Resource:As defined by the Canadian Institute of Mining, Metallurgy, and Petroleum, a Mineral Resource is a concentration or occurrence of natural, solid, inorganic, or fossilized organic material in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.
Mineral Reserve:As defined by the Canadian Institute of Mining, Metallurgy, and Petroleum, a Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined.
mineral claim: The portion of mining ground held under law by a claimant.
mineralization: Implication that the rocks contain sulphide minerals and that these could be related to ore.
ore: That part of a mineral deposit which could be economically and legally extracted.
Probable Mineral Reserve:As defined by the Canadian Institute of Mining, Metallurgy, and Petroleum, a Probable Mineral Reserve is the economically mineable part of an Indicated, and in some circumstances a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
Proven Mineral Reserve:As defined by the Canadian Institute of Mining, Metallurgy, and Petroleum, a proven mineral reserve, is the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified.
quartz: A common rock forming mineral consisting of silicon and oxygen.
rhyolite: A fine-grained volcanic (intrusive) rock of granitic composition.
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sulfidation: The reaction of a metal or alloy with a sulfur-containing species to produce a sulfur compound that forms on or beneath the surface of the metal or alloy.
stockwork: A metalliferous deposit characterized by the impregnation of the mass of rock with many small veins or nests irregularly grouped.
vein: A zone or belt of mineralized rock lying within boundaries clearly separating it from neighbouring rock. A mineralized zone has, more or less, a regular development in length, width and depth to give it a tabular form and is commonly inclined at a considerable angle to the horizontal. The term "lode" is commonly used synonymously for vein.
CONVERSION TABLE
From | To | Multiply By |
Cubic metres | Cubic feet | 35.494 |
Feet | Metres | 0.305 |
Metres | Feet | 3.281 |
Miles | Kilometres | 1.609 |
Kilometres | Miles | 0.621 |
Acres | Hectares | 0.405 |
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PART I
This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this annual report, the terms "we", "us", "our", and "Great Panther" mean Great Panther Resources Limited, and our subsidiaries, Minera Mexicana el Rosario, S.A. de C.V., Metalicos de Durango, S.A. de C.V., Minera de Villa Seca, S.A. de C.V., Exploraciones Mineras el Rosario S.A. de C.V. and/or New Age Investments Inc., unless otherwise indicated.
Unless otherwise indicated, all dollar amounts referred to herein are in Canadian dollars.
ITEM 1 Identity of Directors, Senior Management and Advisers
A. Directors and Senior Management
Name | Position | Business Address |
Robert A. Archer | President & CEO | Vancouver, BC |
Kaare G. Foy | Executive Chairman | Vancouver, BC |
Malcolm A. Burne | Director | London, UK |
John T. Kopcheff | Director | Perth, Australia |
A. Michael Turko | Director | Vancouver, BC |
Raakel S. Iskanius | Chief Financial Officer | Vancouver, BC |
Charles P. Brown | Chief Operating Officer | Vancouver, BC |
Francisco Ramos Sanchez | VP, Business Development | Queretaro, Mexico |
Robert F. Brown | Vice President, Exploration | Vancouver, BC |
Wendy M. Ratcliffe | Corporate Secretary | Vancouver, BC |
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B. Advisers
Name | Position | Business Address |
Michael Sikula | Legal Adviser | West Vancouver, BC |
Enrique Del Bosque | Legal Adviser | Mexico City, Mexico |
C. Auditors
Name | Position | Business Address |
KPMG LLP | Auditors | Vancouver, BC |
ITEM 2 Offer Statistics and Expected Timetable
Not applicable.
ITEM 3 Key Information
A. Selected Financial Data
The following financial data summarizes selected financial data for our Company prepared in accordance with Canadian generally accepted accounting principles for the five fiscal years ended December 31, 2007. Additional information is presented to show the differences which would result from the application of United States generally accepted accounting principles to our financial information. The information presented below as at December 31, 2007 and 2006, and for each of the years in the three-year period ended December 31, 2007, is derived from our audited financial statements which are included in this Annual Report on Form 20-F. The information set forth below should be read in conjunction with our audited financial statements and related notes included in this annual report and with the information appearing under the heading "Item 5. Operating and Financial Review and Prospects". The data is presented in Canadian dollars, unless otherwise stated.
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Selected Financial Data
(Stated in Canadian Dollars - Calculated in accordance with Canadian GAAP)
Fiscal Year Ended December 31 (Audited)
Canadian GAAP | 2007 (restated)1 | 2006 (restated)1 | 2005 | 2004 | 2003 |
Sales or Operating Revenue | 15,523,094 | 6,333,034 | - | - | - |
Cost of Sales | 14,152,657 | 6,382,639 | - | - | - |
General & administrative, | |||||
mineral property exploration | 12,627,670 | 13,049,488 | 4,836,932 | 2,931,833 | 272,151 |
expenses, accretion, and stock- | |||||
based compensation | |||||
Amortization and depletion of | 3,603,668 | 1,421,769 | 12,579 | 2,719 | 1,970 |
mineral properties, plant and | |||||
equipment | |||||
Income (Loss) From Operations | (14,860,901) | (14,520,862)�� | (4,849,511) | (2,934,522) | (274,121) |
Loss for the year | (19,700,861) | (15,084,437) | (5,231,685) | (2,893,657) | (273,738) |
(Loss) per Common Share – basic and diluted | (0.27) | (0.25) | (0.22) | (0.22) | (0.16) |
Total Assets | 31,053,110 | 32,132,259 | 19,218,970 | 3,788,331 | 1,001,244 |
Net Assets | 21,196,469 | 28,549,831 | 13,382,428 | 3,160,218 | 703,813 |
Capital Stock | 56,988,447 | 46,393,145 | 21,536,440 | 7,068,595 | 2,089,939 |
Number of Common Shares (adjusted to reflect consolidation of common shares) | 80,744,352 | 69,797,348 | 47,349,431 | 15,818,677 | 4,213,132 |
Long-Term Debt | 4,117,236 | 2,450,740 | 5,587,217 | - | - |
Cash Dividends per Common Share | - | - | - | - | - |
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Selected Financial Data
(Stated in Canadian Dollars - Calculated in accordance with US GAAP)
Fiscal Year Ended December 31 (Audited)
United States GAAP | 2007 (restated)1 | 2006 (restated)1 | 2005 | 2004 | 2003 |
Sales or Operating Revenue | 15,523,094 | 6,333,034 | - | - | - |
Cost of Sales | 14,152,657 | 6,382,639 | - | - | - |
General & administrative, mineral property exploration expenses, accretion, and stock- based compensation | 12,627,670 | 13,049,488 | 4,836,932 | 2,931,833 | 272,151 |
Amortization and depletion of mineral property, plant and equipment | 3,603,668 | 1,421,769 | 12,579 | 2,719 | 1,970 |
Write-down of mineral property | - | - | 403,634 | - | - |
Income (Loss) From Operations | (14,860,901) | (14,520,862) | (5,253,145) | (2,934,552) | (274,121) |
Loss for the period | (19,323,049) | (14,934,638) | (5,231,685) | (2,893,657) | (273,738) |
(Loss) per Common Share – | (0.27) | (0.25) | (0.22) | (0.22) | (0.16) |
basic and diluted | |||||
Total Assets | 31,053,110 | 32,132,259 | 19,218,970 | 3,789,696 | 1,014,974 |
Net Assets | 19,155,080 | 27,693,630 | 13,382,428 | 3,161,583 | 717,543 |
Capital Stock | 63,199,652 | 52,604,350 | 27,747,645 | 13,279,800 | 8,301,144 |
Number of Common Shares (adjusted to reflect consolidation of common shares) | 80,744,352 | 69,797,348 | 47,349,431 | 15,818,677 | 4,213,132 |
Long-Term Debt | 6,158,625 | 3,306,941 | 5,587,217 | - | - |
Cash Dividends per Common Share | - | - | - | - | - |
1 Revenue and cost of sales have been restated to include treatment and processing charges as a reduction of revenue instead of an expense included in cost of sales – see “Restatement” in Item 5.
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Disclosure of Exchange Rate History
On March 20, 2008, the exchange rate in effect for Canadian dollars exchanged for United States dollars, expressed in terms of Canadian dollars, and based on the noon buying rates in New York City, for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York was $1.0269.
For the past five fiscal years ended December 31, 2007 and for the period between December 1, 2007 and February 29, 2008, the following exchange rates were in effect for Canadian dollars exchanged for United States dollars, expressed in terms of Canadian dollars and based upon the exchange rate as determined above:
Year/Month End | Average | Low/High |
December 31, 2003 | $1.4015 | not applicable |
December 31, 2004 | $1.3015 | not applicable |
December 31, 2005 | $1.2116 | not applicable |
December 31, 2006 | $1.1341 | not applicable |
December 31, 2007 | $1.0740 | not applicable |
September 30, 2007 | not applicable | $1.0222/$1.0287to |
October 31, 2007 | not applicable | $0.9725/$.09786 |
November 30, 2007 | not applicable | $0.9617/$0.9716 |
December 31, 2007 | not applicable | $0.9990/$1.0076 |
January 31, 2008 | not applicable | $1.0060/$1.0149 |
February 29, 2008 | not applicable | $0.9952/$1.0035 |
B. Capitalization and Indebtedness
Not Applicable
C. Reasons for the Offer and Use of Proceeds
Not applicable
D. Risk Factors
Much of the information included in this annual report includes or is based upon estimates, projections or other "forward looking statements". Such forward looking statements include any projections or estimates made by our Company and our management in connection with our business operations. While
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these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.
Such estimates, projections or other forward looking statements involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward looking statements.
The common shares of our Company are considered speculative. You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our Company and our business before purchasing shares of our Company's common stock. Our business, operating and financial condition could be harmed due to any of the following risks.
Risks Associated with Mining
As our properties are in exploration, development and mining stages there is no assurance as to the full extent that we will be establishing commercial discoveries on our properties.
Despite a 48-year history of continuous production at the Topia Mine, extensive exploration work on our mineral claims and current commercially profitable operations there, the full extent of the ore bodies has yet to be established in accordance with Canadian NI 43-101.
Similarly, at the Guanajuato Mine Complex, with its estimates of historic production ranging from 700 million ounces to 1.5 billion ounces of silver and 4 to 7 million ounces of gold since 1548, with extensive exploration work done to date, with current physical mining and with the production of increasing quantities of silver and gold concentrates, it is nevertheless too early to determine the full extent of the ore bodies in accordance with Canadian NI 43-101.
Mineral operations are subject to government regulations which could have the effect of reducing or preventing us from exploiting any possible mineral reserves on our properties.
Mining and exploration activities are also subject to national and local laws and regulations governing prospects, taxes, labour standards, occupational health, land use, environmental protection, mine safety and others which currently or in the future may have a substantial adverse impact on our Company. In order to comply with applicable laws, we may be required to make capital expenditures until a particular problem is remedied. Existing and possible future environmental legislation, regulation and action could cause additional expense, capital expenditures, restriction and delays in the activities of our Company, the extent of which cannot be reasonably predicted. Violators may be required to compensate those suffering loss or damage by reason of our mining activities and may be fined if convicted of an offence under such legislation.
Mining and mineral exploration has substantial operational risks, which could prevent us from achieving profitable operations.
Mining and mineral exploration involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Operations in which we have an interest will be subject to all of the hazards and risks normally incidental to exploration, development and production of base, precious and other metals, any of which could result in damage to or destruction of mines and other producing facilities, damage to life and property, environmental damage and possible
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legal liability for any or all damage. The nature of these risks is such that liabilities could exceed policy limits of our insurance coverage, in which case we could incur significant costs that could prevent us from becoming profitable. Most exploration projects do not result in the discovery of commercially mineable ore deposits and no assurance can be given that any anticipated level of recovery of ore reserves will be realized or that any identified mineral deposit will ever qualify as a commercially viable ore body which can be legally and economically exploited.
Our projects are located in Mexico where mining and exploration activities may be affected in varying degrees by political and government regulations, which could have a negative impact on our ability to continue our operations.
Mining and exploration activities in Mexico may be affected in varying degrees by political instabilities and government regulations relating to the mining industry. Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business. Our operations may also be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriations of property, environmental legislation and mine safety. The status of Mexico as a developing country may make it more difficult for us to obtain any required financing for our projects. The effect of all these factors cannot be accurately predicted. Notwithstanding the progress achieved in restructuring Mexican political institutions and revitalizing its economy, the present administration, or any successor government, may not be able to sustain the progress achieved. While the Mexican economy has experienced growth in recent years, such growth may not continue in the future at similar rates or at all. If the economy of Mexico fails to continue its growth or suffers a recession, we may not be able to continue our operations in that country. We do not carry political risk insurance.
Our operations may be subject to environmental regulations which may result in the imposition of fines and penalties.
Our operations may be subject to environmental regulations promulgated by government agencies from time-to-time. There is no assurance that environmental regulations will not change in a manner that could have an adverse effect on our Company's financial condition, liquidity or results of operations. Environmental legislation is constantly expanding and evolving in ways that impose stricter standards and more rigorous enforcement, with higher fines and more severe penalties for non-compliance, and increased scrutiny of proposed projects. There is an increased level of responsibility for companies, and trends towards criminal liability for officers and directors for violations of environmental laws, whether inadvertent or not. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of our operations.
While we maintain appropriate insurance for liability and property damage, we may become subject to liability for hazards that cannot be insured against, which if such liabilities arise, could reduce or eliminate profitability for our Company.
Our operations may involve the use of dangerous and hazardous substances. While extensive measures are taken to prevent discharges of pollutants in the ground water and the environment, and it is anticipated that we will maintain appropriate insurance for liability and property damage in connection with our business, we may become subject to liability for hazards that cannot be insured against or which we may elect not to insure ourselves against due to high premium costs or other reasons. Should such liabilities arise, they could reduce or eliminate the profitability of us resulting in a decline in the value of our securities. In the course of mining and exploration of our mineral properties, certain risks and, in particular, unexpected or unusual geological operating conditions including rock bursts, cave-ins, fires,
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flooding and earthquakes may occur. It is not always possible to fully insure against such risks and we may decide not to take out insurance against such risks as a result of high premiums or other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of our securities.
There can be no assurance that title to any property interest acquired by us or our subsidiary is secured.
Although we have taken reasonable precaution to ensure that legal title to our properties is properly documented, there can be no assurance that our Company's, or our subsidiaries’, property interests may not be challenged or impugned. Such property interests may be subject to prior unregistered agreements or transfers or other land claims, and title may be affected by undetected defects and adverse laws and regulations.
We have a limited operating history on which to base an evaluation of our business and prospects.
Since we have only recently begun mining and further development of our mining properties, we only have a limited operating history on which to base an evaluation of our future prospects. Our operating activities from 2004 through 2006, consisted primarily of locating and acquiring the interest in the properties that we currently hold. In the first part of 2006, we commenced production at the Topia Mine and limited production at the Guanajuato Mine Complex, and only increased production at both locations in the second half of 2006. 2007 was the first year in which both mines were in full production. For the year ended 2007, we generated $15,523,094 in revenue, compared to $6,333,034 and $0 for the twelve month periods ending December 31, 2006 and 2005, respectively. Although we have prepared internal mining plans and cash flow analyses for the Topia Mine and Guanajuato Mine Complex, we have no way to evaluate the likelihood that we will be able to operate our business successfully or that our properties contain a sufficient amount of recoverable reserves. We recognize that if we are unable to generate significant revenues from our mining operations and any dispositions of our properties, we will not be able to earn profits or continue operations, potentially resulting in significant losses in the foreseeable future. At this early stage of our operation, we also expect to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the early stage of their business development. We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a materially adverse effect on our financial condition. Aside from the professional track record of our Company’s management team, there is no history upon which to base any assumption as to the likelihood that our Company will prove successful and we can provide investors with no assurance that we will generate any net operating revenues or achieve profitable operations.
The fact that we have generated significant revenues for only two years raises some doubt about our ability to continue as a going concern.
We have generated revenues for two years since beginning our mining and exploration activities in Mexico. We may continue to incur greater operating expenses than revenues until all our mining properties are sufficiently developed to sustain commercial production and as a result, we may need to undertake further financing. There can be no assurance that we will be able to successfully mine, develop and explore our mining properties or that viable reserves exist on our properties for extraction. If we are unable to generate sufficient cash inflow to support our business activities during the fiscal year ending December 31, 2008, we may be forced to delay, scale back, or eliminate our mining and exploration activities.
Because we have only recently begun to earn revenue from our business, we may need to raise additional funds for the further exploration and development of our mining claims and to respond to unanticipated
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requirements or expenses. We do not currently have any arrangements for financing and we can provide no assurance to investors that we will be able to find such financing if it is required. The most likely source of future funds presently available to our Company is through the sale of equity capital. All of these circumstances raise some doubt about its ability to continue as a going concern. The report of the independent registered public accounting firm on our 2007 annual financial statements includes an additional explanatory paragraph that states that conditions or events exist, which raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.
Our properties are in the production, development and exploration stages; however, they have not all been proven commercially viable at this time and there is no assurance that commercially viable quantities of ore will continue to be discovered.
Our mineral properties are in the early production, development, and/or exploration stages and are not all commercially viable at this time. Despite extensive exploration work on our mineral properties and a long history of continuous production at both the Topia and Guanajuato mines, no known bodies of commercial ore or economic deposits have been established to the satisfaction of National Instrument 43-101 on any of the mineral properties. Mineral exploration involves a high degree of risk. There is no assurance that commercially viable quantities of ore will be discovered at our exploration sites, or that our exploration properties will be brought into commercial production. If we are not able to continue to locate sufficient quantities of commercially viable ore and bring our exploration properties into commercial production, we may not be able to continue operations and, as a result, our shareholders may lose any investment in our Company.
There is substantial risk that no commercially exploitable minerals will be found at our exploration properties and our business may fail.
The search for valuable minerals as a business is extremely risky. We can provide investors with no assurance that the mineral claims that we have an option to acquire contain commercially exploitable reserves. Exploration for minerals is a speculative venture necessarily involving substantial risk. The probability of an individual prospect having reserves and being commercially profitable is remote and, if a property does not contain any reserves, the funds we have spent or will spend on exploration of such property will be lost.
We are subject to environmental protection legislation with which we must comply or suffer sanctions from regulatory authorities.
If the results of our geological exploration program indicate commercially exploitable reserves and we decide to pursue commercial production of our mineral claims, we may be subject to an environmental review process under environmental assessment legislation. Compliance with an environmental review process may be costly and may delay commercial production. Furthermore, there is the possibility that we would not be able to proceed with commercial production upon completion of the environmental review process if government authorities do not approve our mine or if the costs of compliance with government regulation adversely affect the commercial viability of the proposed mine.
Mineral prices are subject to dramatic and unpredictable fluctuations.
The market price of precious metals and other minerals is volatile and cannot be controlled. If the price of precious metals and other minerals should drop significantly, the economic prospects of the projects in which we have an interest could be significantly reduced or rendered uneconomic. There is no assurance
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that, even if commercial quantities of ore are discovered, a profitable market may exist for the sale of same. Factors beyond our control may affect the marketability of any minerals discovered. Mineral prices have fluctuated widely, particularly in recent years. The marketability of minerals is also affected by numerous other factors beyond our control, including government regulations relating to royalties, allowable production and importing and exporting of minerals, the effect of which cannot be accurately predicted.
If we cannot locate qualified personnel, we may have to suspend or cease operations which will result in the loss your investment.
Not all of our directors and officers have direct training or experience in metals exploration or mining and as a result, they may not be fully aware of any of the specific requirements related to working within the industry. Their decisions and choices may not take into account standard engineering or managerial approaches that mineral exploration companies commonly use. Consequently, our operations, earnings and ultimate financial success could suffer irreparable harm. As a result, we may have to suspend or cease operations which would result in the loss of your investment.
Risks Associated with our Business
We have limited financial resources and there can be no assurance that we will be able to obtain adequate financing in the future. Failure to obtain such financing may result in a delay or indefinite postponement of further exploration, development and mining of our projects.
We have limited financial resources and we have no assurances that additional funding will be available to be used for working capital, to further develop the Company’s mines and exploration properties, to fulfil certain contractual obligations and to fund corporate overhead costs. Although we have been successful in the past in obtaining financing through the sale of equity securities and, recently, through the sale of minerals, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable, or that our sale of minerals will generate sufficient revenues. Failure to obtain such additional financing could result in a delay or indefinite postponement of mining activities, exploration and development of our projects and the possibility of loss of such properties.
Fluctuation in foreign currency exchange rates may affect our results.
Virtually all of the goods and services required by us in connection with our operations in Mexico and costs for the further acquisition of interests in our properties, will be paid for in Mexican pesos or United States dollars. Prices for goods and services offered to members of the mining industry in Mexico, when quoted in Mexican pesos, are, for the most part, adjusted so as to remain competitive with prices offered in respect of the same goods and services in the United States and Canada. Nonetheless, an increase in the value of the Mexican pesos or of the United States dollar relative to the Canadian dollar, which is not followed by such an adjustment, may affect the ability of our Company to carry out our exploration and development programs and may substantially increase the costs of such programs.
Variations in the market prices of metals may affect our ability to raise funding to continue exploration, development and mining of our properties. In addition, any significant fluctuations in metal prices will impact on our decision to accelerate or reduce our exploration activities.
Factors beyond our control may affect the marketability of any substances discovered. The prices of various metals have experienced significant movement over the last two years, and are affected by
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numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The supply of and demand for metals are affected by various factors, including political events, economic conditions and production costs in major mineral producing regions. Variations in the market prices of metals may affect our ability to raise funding to continue exploration of our properties. In addition, any significant fluctuations in metal prices will impact on our decision to accelerate or reduce our exploration activities.
We are dependant on the services of certain key officers, namely Robert Archer, Kaare Foy and Charles Brown, and the loss of these certain key personnel may have a materially adverse effect on our Company.
While engaged in the business of mining and exploring mineral properties in Mexico, the nature of our business, our ability to continue our exploration of potential projects, and to develop a competitive edge in the marketplace, depends, in large part, on our ability to attract and maintain qualified key management personnel. Competition for such personnel is intense, and we may not be able to attract and retain such personnel. Our growth has depended, and in the future will continue to depend, on the efforts of our key management personnel such as Robert A. Archer, our President, CEO and a director, Kaare G. Foy, Executive Chairman and Charles Brown, our Chief Operating Officer. The loss of any of these people would have a material adverse effect on us. Currently, we have contracts with these key employees. We do not have key-man life insurance.
Conflicts of interest may arise as a result of our directors and officers being directors and officers of other natural resource companies.
Certain of our directors and officers may continue to be involved in a wide range of business activities through their direct and their indirect participation in corporations, partnerships or joint ventures. Situations may arise in connection with potential acquisitions and investments where the other interests of these director and officers may conflict with the interests of our Company. Our directors and officers with conflicts of interest will be subject to and will follow the procedures set out in the applicable corporate legislation.
Risks Relating to an Investment in our Securities
Trading in our common shares on the Toronto Stock Exchange (TSX) is limited and any sporadic trading may make it difficult for our shareholders to sell their shares or liquidate their investments.
The trading price of our shares has been and may continue to be subject to wide fluctuations. Trading prices of our shares may fluctuate in response to a number of factors, many of which are beyond our control. In addition, the stock market in general, and the market for gold and silver exploration companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may adversely affect the market price of our shares, regardless of our operating performance.
In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources.
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Our By-laws indemnify our officers and directors against all costs, charges and expenses incurred by them.
Our By-laws contain provisions limiting the liability of our officers and directors for all acts, receipts, neglects or defaults of themselves and all of our other officers or directors or for any other loss, damage or expense incurred by our Company which shall happen in the execution of the duties of such officers or directors, as do indemnification agreements between us and our directors. Such limitations on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to our Company, though such an action, if successful, might otherwise benefit our Company and our shareholders.
Investors' interests in our Company will be diluted and investors may suffer dilution in their net book value per share if we issue incentive stock options to our employees, directors, officers and consultants.
We have granted, and in the future may grant, to directors, officers, insiders, and key employees options to purchase our common shares as non-cash incentives to those persons. Such options have been and may in future, be granted at exercise prices equal to market prices, or at prices as allowable under the policies of the TSX. The issuance of additional shares will cause our existing shareholders to experience dilution of their ownership interests.
Investors' interests in our Company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.
As our operating expenses currently exceed our revenue from mineral sales, we may be required to issue additional shares to finance our operations and, depending on the outcome of our exploration programs and mining operations, may issue additional shares to finance additional programs and mining operations or to acquire additional properties. In the event that we are required to issue additional shares or decide to enter into joint ventures with other parties in order to raise financing through the sale of equity securities, investors' interests in our Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. As at December 31, 2007, there are also outstanding common share purchase warrants and options exercisable into 10,378,074 common shares which, if exercised, would represent approximately 11.4% of our issued and outstanding shares. If all of these shares are exercised and issued, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the market price of our shares.
We have a history of net losses and there is no assurance that we can reach profitability in the future.
We have a history of losses and there is no assurance that we can reach profitability in the future. We may require significant additional funding to meet our business objectives which include expanding our current mining facilities and operations, further developing our existing exploration properties and acquiring additional mineral properties. We may not be able to obtain additional financing on reasonable terms, or at all, depending on market conditions and the market sentiment towards the Company. If equity financing is required, then such financings could result in significant dilution to existing shareholders. If we are unable to obtain sufficient financing, we might have to dramatically reduce mining and exploration activities, and/or lose control of our projects. We have historically obtained the preponderance of our financing through the issuance of equity as there is no limit to the number of authorized common shares. There are no other plans to obtain financing, if needed, other than through equity financing.
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U.S. investors may not be able to enforce their civil liabilities against us or our directors, controlling persons and officers.
It may be difficult to bring and enforce suits against us. We were incorporated under theCompany Act (British Columbia) and continued in the Yukon Territory under the Business Corporations Act(Yukon), and then continued to British Columbia under theBusiness Corporations Act (British Columbia) on July 9, 2004. All of our directors and officers are residents of countries other than the United States and all of our assets are located outside of the United States. Consequently, it may be difficult for United States investors to affect service of process in the United States upon those directors or officers who are not residents of the United States, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or us predicated solely upon such civil liabilities.
Trading of our stock may be restricted by the SEC's "Penny Stock" regulations which may limit a stockholder's ability to buy and sell our stock.
The U.S. Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
U.S. investors could suffer adverse tax consequences if we are characterized as a passive foreign investment company.
We may be treated as a passive foreign investment company, or PFIC, for United States federal income tax purposes during the 2008 tax year or in subsequent years. We may be deemed a PFIC because previous financings combined with proceeds of future financings may produce, or be deemed to be held to produce, passive income. Additionally, U.S. citizens should review the section entitled "Taxation-U.S. Federal Income Taxation - Passive Foreign Investment Companies" contained in this annual report for a
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more detailed description of the PFIC rules and how those rules may affect their ownership of our capital shares.
If we are or become a PFIC, many of the U.S. shareholders will be subject to the following adverse tax consequences:
- | They will be taxed at the highest ordinary income tax rates in effect during their holding period on certain distributions on our capital shares, and gains from the sale or other disposition of our capital shares; |
- | They will be required to pay interest on taxes allocable to prior periods; and |
- | The tax basis of our capital shares will not be increased to fair market value at the date of their date. |
We do not expect to declare or pay any dividends.
We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.
ITEM 4 Information on the Company
A. History and Development of Great Panther
We were originally incorporated under theCompany Act (British Columbia) in 1965 under the name Lodestar Mines Ltd. Since that time, we have had the following name changes:
- in 1980, to Lodestar Energy Inc.
- in 1985, to Controlled Environmental Farming Int'l Ltd.
- in 1987, to International Controlled Investments Inc.
- in 1991, to New Age Ventures Inc.
- in January 1998, to Great Panther Inc.
- in October 2003, to Great Panther Resources Limited.
On March 22, 1996 we continued under theBusiness Corporation Act (Yukon). On July 9, 2004, we continued to British Columbia under theBusiness Corporation Act (British Columbia).
We have offices located at Suites 350 and 2100, 1177 West Hastings Street, Vancouver, British Columbia, V6E 2K3, Canada. Our telephone number is 604-608-1766, and our facsimile number is 604-608-1744.
Our Company is currently a reporting issuer under the securities laws of British Columbia, Alberta and Ontario.
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On June 18, 1980, our common shares were listed on the TSX Venture Exchange (formerly known as the CDNX, and the Vancouver Stock Exchange). Our trading symbol is "GPR", and until February 27, 2005, we were classified by the TSX Venture Exchange as a Tier 2 company.
On October 2, 2003, we consolidated our common shares whereby every ten common shares before consolidation became one common share after consolidation.
On February 11, 2004, we entered into an option agreement granting our Company the right and option, for a period of three years, to purchase 100% of the ownership rights in and to the Santo Nino Mining Concession located in the Guadalupe y Calvo Mining District, State of Chihuahua, Mexico by making staged cash payments totaling US$165,000 with no underlying NSR and no work commitments. We made cash payments totaling US$20,000 during the year ended December 31, 2004, cash payments totaling US$20,000 during year ended December 31, 2005, cash payments totaling US$30,000 during the year ended December 31, 2006 and cash payments totaling US$95,000 during the year ended December 31, 2007, thus fulfilling all conditions of the option agreement.
On February 28, 2004, we entered into an option agreement granting our Company the right and option, for a period of three years plus 30 days, to purchase 100% of the ownership rights in and to the San Taco Mining Concessions located in the Guadalupe y Calvo Mining District, State of Chihuahua, Mexico by making staged cash payments totalling US$965,000 with no underlying NSR and no work commitments. We made a cash payment of US$50,000 during the year ended December 31, 2004 and a cash payment of US$75,000 during the 2005 fiscal year in accordance with the option agreement. The Company elected not to make the required US$100,000 payment on February 28, 2006 and as a result forfeited all rights and options to the property.
On December 31, 2004, we entered into a letter of intent to acquire up to an 80% interest in certain mineral properties located in the Cerro Colorado Mining District of Pima County in southern Arizona. On February 4, 2005, we elected not to proceed with this proposed acquisition.
On June 13, 2005, we signed an option agreement to purchase 100% of the ownership rights in and to two mining claims designated as the Virimoa Property located in the Topia Mining District, State of Durango, Mexico. Terms of the agreement call for our Company to make four staged cash payments and share issuances totaling US$300,000 and 300,000 shares (100,000 issued), over a period of three years, to the property owner. If the option is exercised, the property owner will retain a 2% NSR, half of which can be purchased for US$1,000,000.
In May 2005, we received title for an additional 2,184 hectares staked by us in the Guadalupe y Calvo Mining District of southwest Chihuahua State, Mexico, increasing the size of our San Antonio Project to 12,274.7 hectares.
On June 30, 2005, we entered into an agreement to purchase 100% of the ownership rights in and to all the fixed assets, machinery, equipment and Topia Silver-Lead-Zinc Mine located in the Municipality of Topia, State of Durango, Mexico. Upon signing the agreement, we paid a total of US$540,165 to the vendor and to two divisions of Peñoles, the latter being part of the assumed debt. The balance of the purchase price, approximately US$1.76 million, is divided between the vendor (US$946,000 owed) and La Cienega, a division of Peñoles. While the debt to the vendor will be paid in stages over the next three years, the debt to La Cienega will be paid effectively from the proceeds of production as a 10% NSR. We have the option of paying out the debt in full at any time. During 2006, a total of US$628,507 was paid in respect of the Topia Mine debt, being US$328,507 to La Cienega subsidiary of Peñoles and US$300,000 to the vendor, Cia Minera de Caneles y Topia S.A. de C.V (“Caneles”). During 2007, a total of
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US$1,135,986 was paid in respect of the Topia Mine debt, being US$486,067 to La Cienega and US$646,919 to Caneles. All debt with respect to the Topia Mine has been repaid at December 31, 2007.
On July 12, 2005 we incorporated Metalicos de Durango, S.A. de C.V. and on October 5, 2005 we incorporated Minera de Villa Seca, S.A. de C.V. These two operational subsidiaries of our Company are responsible for the day-to-day affairs and operations of the Topia Mine and Guanajuato Mine respectively.
On October 25, 2005, we signed a formal purchase agreement to acquire a 100% interest in a group of producing silver-gold mines in Guanajuato, Mexico. The total purchase price is US$7,250,000 which includes 1,107 hectares in two main properties, the 1,200 tonne-per-day plant, workshops and administration facilities, complete mining infrastructure, mining equipment, and certain surface rights (real estate). At December 31, 2005, we had paid US$3,650,000 of the total purchase price to the vendor. At December 31, 2006, we had made the final payment for the Guanajuato Properties.
Subsequent to December 31, 2005, we decided not to actively commit to further exploration of the San Taco property and as a result the value of the property as at December 31, 2005, was determined to be nil. As such, the acquisition costs associated with the property ($403,634) was expensed as part of the write down of property cost.
On February 28, 2006, the TSX Venture Exchange elevated our classification from a Tier 2 company to a Tier 1 company.
On March 8, 2006, we purchased a 100% interest in the Arcoiris concession. The agreement required a cash payment of US$20,000 upon signing of the purchase agreement (paid) and additional staggered payments totalling US$280,000 (US$180,000 paid) over a three year period. The 100 hectare Arcoiris concession contains portions of the strike extension and down-dip projection of the Dos Amigos Vein that the Company has already started developing on its own Topia Mine Property. In addition, the new claim contains much of the Don Antonio vein, from which Peñoles produced silver-lead-zinc in the past.
On May 24, 2006, we announced the purchase of 3.88 hectares of land adjacent to the plant at our Guanajuato Silver-Gold Mine Complex from Sociedad Cooperativa Minero Metalurgica Santa Fe de Guanajuato for a total of US $690,425. A payment of US$201,825 was made at the time of signing of the purchase agreement. The remaining US$488,600 was paid during the 5-month period that followed.
On June 1, 2006 we closed a private placement offering (the "Offering"), with Jennings Capital Inc. (“Jennings”), as underwriter, of 5,000,000 units of the Company ("Units"), on an underwritten basis, at a price of $2.00 per Unit to raise gross proceeds of $10,000,000. Jennings elected to exercise the over-allotment option to sell up to an additional 2,500,000 units at a price of $2.00 per unit for gross aggregate proceeds of $15,000,000.
Each Unit comprises one common share and one-half of one transferable share purchase warrant. Each whole warrant entitles the holder, upon exercise, to acquire one common share of the Company at a price of $2.65 until June 1, 2008. After the expiration of the hold period the Company has the right to accelerate the expiry date of the warrants if the closing price of the Company's common shares on the TSX Venture Exchange exceeds $3.35 for a period of 20 consecutive trading days.
Jennings was paid a commission of $958,750 and received broker warrants equal to 6.5% of the number of units issued under the Offering. Proceeds from the Offering have been and will continue to be used to accelerate the ongoing exploration and development activities on the Guanajuato and Topia Mines, for evaluation of potential acquisitions and for general corporate purposes.
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On June 23, 2006, we paid a cash instalment of US$50,000 and issued a second share allotment of 50,000 to its June 15, 2005 option agreement with Minera Aciero del Fuego S.A. de C.V. to purchase the Virimoa Property. The shares were subject to a holding period, which expired October 21, 2006.
On July 7, 2006, Great Panther appointed Mr. A. Michael Turko to its board of directors.
On September 11, 2006, we signed an option agreement to acquire a 100% interest in the Mapimi Project in eastern Durango State, Mexico. The project consists of 17 concessions comprising 3,508 hectares and hosts significant silver-lead-zinc-gold mineralization with excellent potential for a large bulk tonnage deposit. The property is bisected by paved highway approximately 100 kilometres from Peñoles' smelter at Torreon and as such, the infrastructure is considered excellent. Terms of the agreement call for the Company to make 6 staged cash payments and share issuances totalling US$3,000,000 (US$300,000 paid) and 500,000 shares (400,000 issued), over a period of 4 years. If the option is exercised, the vendors will retain a 3% NSR, each 0.5% of which, up to 2%, can be purchased for US$500,000.
On November 13, 2006, our common shares began trading on the TSX with the trading symbol “GPR”. Subsequently, we were de-listed from theTSX Venture Exchange.
On February 2, 2007, we signed an option agreement with Altair Ventures Inc. (“Altair”) whereby Altair has the option to earn 70% interest in four of our mining claims: San Antonio, Santo Nino, Iran, and Chirpa. The terms of the agreement stipulate that Altair will make three staged payments and share issuances to Great Panther totalling US$200,000 and 200,000 shares over a period of 3 years. Over the same period, Altair must spend a total of US$1,000,000 in exploration on the project. Great Panther will be the operator of the exploration program. The agreement required Altair make a cash payment of US$30,000 upon signing of the agreement (received) and issue 100,000 shares (received).
On May 30, 2007, the Company chose to forfeit all rights and options to the Virimoa Property located in the Topia Mining District, State of Durango. No payments were made in 2007 with respect to the option agreement.
On August 2, 2007, we paid a cash instalment of US$100,000 with respect to its May 8, 2006 option agreement to purchase the Arcoiris Concession.
On August 28, 2007, issued a second share allotment of 200,000 and on September 6, 2007, we paid a cash instalment of US$200,000 with respect to its September 11, 2006 option agreement to purchase the Mapimi Project. The shares were subject to a holding period, which December 29, 2007.
On December 27, 2007, we signed an agreement to purchase of 0.2804 hectares of land adjacent to our Guanajuato Silver-Gold Mine Complex from Sociedad Cooperativa Minero Metalurgica Santa Fe de Guanajuato for a total of US$320,530. Payment will be made in two instalments, US$45,790 and US$274,740, on March 31, 2008 and June 30, 2008, respectively.
B. Business Overview
We are an active mining and exploration company listed on the Toronto Stock Exchange (“TSX”), trading under the symbol “GPR”. Our current activities are focused on the mining of precious and base metals from our two wholly owned mines in Mexico. In addition, we are also involved in the acquisition, exploration and development of other properties in Mexico that have a potential for success, based upon the recommendation of our technical director and professional advisors, and the assessment of our board of directors.
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We have the following property interests:
C. Primary Mining Properties
Topia Mine
The property consists of three groups of exploitation concessions covering a total area of 1,555 hectares and one group of exploration concessions covering a total of 4,844 hectares, for a grand total of 6,399 hectares. The largest group of exploitation concessions, the Topia group, consists of 39 claims covering 1,275 hectares. In addition to the Topia group are two satellite claim groups known as the Las Papas group and the Jarillal group and cover approximately 228 hectares and 52 hectares, respectively. The exploration concessions completely surround the Topia group.
We had conducted extensive work on the Topia property as far back as 2004. The diamond drill program conducted between June 2004 and February 2005 comprised 7,436 metres in 30 surface holes with results evidencing high grade silver-lead-zinc mineralization. Five separate areas were tested with one or two main veins present in each area. The main goal of the program was to test the strike, dip and grade continuity of the veins beyond where they had been mined in the past in order to indicate the exploration potential of the property and to guide the short term underground development work with the goal of successfully re-opening the mine.
In December 2005, we commenced limited production at the Topia Silver-Lead-Zinc Mine in Durango, Mexico.
In March 2006, we reached a significant milestone in becoming a primary silver producer with our first shipment of concentrates from operations. In the second half of 2006, we commissioned our second ball mill increasing the plant’s production from 120 to 170 tonnes per day.
More than a dozen sub-parallel veins are known to exist at Topia and some extend for more than 4 kilometres along strike. During 2007, ongoing exploration development of the mine continued to demonstrate high grades of silver-lead-zinc in relatively narrow veins. In addition, new underground drilling and chip-sampling has demonstrated very good potential on the yet unmined parts of the Don Benito and La Dura veins.
Vein widths are typically narrow, (0.2 to 1.0 metre). The Company is successfully utilizing a resuing method of stope mining whereby the waste material adjacent to the vein is mined first to provide the waste-rock floor onto which the narrow vein is cleanly mined.
Immediately behind the plant, a decline ramp from the main access adit (tunnel), Level 'A', has intersected the Argentina vein both on and above the Level 2. This is the top priority area for development and exploitation due to its proximity to the mill and the presence of wider high grade silver-lead-zinc veins. A sub-level above Level 2 has been driven “on-vein” to explore the immediate area around the intersection of the closest surface drill hole (A04-04 from Great Panther's 2004 program that returned grades of 644 g/t Ag, 11.9% Pb and 3.1% Zn over 0.96 metres and 571 g/t Ag, 8.4% Pb, and 2.6%Zn over 0.40 metres in 2 closely spaced veins). The Level 2 and associated sub-level will provide the base for stope preparation and stoping during 2008.
Deeper drilling from surface of the Argentina Vein was underway at the end of 2007 to outline the deeper potential to support further development of the mine to Levels 3, 4 and 5.
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Production - Topia Mine
The production capacity of the processing plant has been increased to 200 tonnes per day (tpd) with the commissioning of the third and largest mill.
For the year, throughput at the plant was 33,605 tonnes at a head grade of 300 g/t Ag, 0.71 g/t Au, 2.44% Pb and 3.04% Zn, or 21.85 oz Ag Eq per tonne.
Average recoveries of 86.1% for Ag, 84.3% Au, 89.6% Pb and 82.9% Zn were realized which resulted in the production of 279,441 oz Ag, 643 oz Au, 1,619,560 lbs Pb and 1,867,712 lbs Zn for a silver equivalent production of 625,726 ounces.
A summary of production at Topia for 2007 is as follows:
FY07-Q1 | FY07-Q2 | FY07-Q3 | FY07-Q4 | TOTAL | |
Tonnes milled | 8,161 | 7,407 | 9,509 | 8,528 | 33,605 |
Silver ounces | 72,437 | 58,270 | 65,884 | 82,850 | 279,441 |
Gold ounces | 148 | 126 | 128 | 241 | 643 |
Lead tonnes | 204 | 153 | 184 | 194 | 735 |
Zinc tonnes | 252 | 189 | 204 | 202 | 847 |
Silver equivalent ounces (Ag eq oz) (1) | 171,891 | 133,522 | 148,490 | 171,823 | 625,726 |
(1) | Silver equivalent ounces were established using commodity prices of US$600 per oz, US$12 per oz, US$0.60 per lb, and US$1.50 per lb for gold, silver, lead and zinc, respectively, and applied to the recovered metal content of the concentrates that were produced by the Topia Mine. Average recoveries of 86.1% for Ag, 84.3% Au, 89.6% Pb and 82.9% Zn were realized which resulted in the production of 279,441 oz Ag, 643 oz Au, 1,619,560 lbs Pb and 1,867,712 lbs Zn for a silver equivalent production of 625,726 ounces. |
In addition to the material processed for the Company’s account, an additional 11,143 tonnes were processed for various local miners. Custom milling utilizes excess capacity and provides additional income
Cash cost of sales was CDN$5,225,733 for 2007. This includes costs the Company incurred in the direct purchase of minerals from various independent miners.
Guanajuato Mine Complex
The Guanajuato Silver-Gold Mine Complex in Guanajuato, Mexico consists of three principal mines, the Valenciana, Cata and Rayas. These mines occupy the heart of the 25 kilometre long Veta Madre (Mother Lode) structure that controls the majority of the silver-gold mineralization in the Guanajuato Mine District. Silver was discovered in the area in 1548 with estimates of historical production ranging from 700 million to 1.5 billion ounces of silver, and 4 to 7 million ounces of gold.
Mining at Guanajuato has been conducted since the year 1600, initially by the Spaniards but since 1939 by a mining cooperative. Production by the latter, from whom the Company bought the property, had dwindled to about 200 tonnes per day by 2005, despite the plant capacity of 1,200 tonnes per day. It stopped completely in August of that year and Great Panther took possession of the mine in December 2005.
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In May 2006, the Company purchased an additional 3.88 hectares of real estate adjacent to the plant at the Guanajuato Silver-Gold Mine Complex in order to facilitate any future expansion of the plant facilities and to protect the plant site from any possible development nearby. Great Panther already owns the land occupied by the plant and administration facilities and the Company has now received clear title to the new property.
From Q4 2005 to year-end 2007, the surface diamond drilling program at Guanajuato totaled 14,619 metres in 86 holes and was highly successful in identifying and delineating new zones of silver-gold mineralization. These discoveries highlight the lack of previous exploration on the property and the potential for new zones to be found throughout the mine. In addition, the easy access to these zones from existing underground workings and the utilization of existing infrastructure means that these zones can be developed quickly and cost-effectively.
In December 2007, the Company purchased an additional 0.2804 hectares of land immediately adjacent to the plant and below our tailings dam at the Guanajuato Mine Complex in order to protect the area from any possible development. The Company has received clear title to the new property.
In addition to the Rayas and Cata Mines, mining is currently being conducted in the San Vicente North, Promontorio and Guanajuatito areas, which are accessible by ramps. San Vicente North is adjacent to the southeast side of the old Animas Mine, where surface drilling by Great Panther in 2006 intersected zones of previously unknown high grade silver-gold mineralization. Mining at Guanajuatito is pursuing a zone of high grade mineralization intersected by the Company’s surface drilling in late 2005 and 2006. At Promontorio, development is progressing to access an area from where encouraging drill intersections were reported during 2007. Mining at the Cata Mine is focused on an area below the previously worked Cata Clavo where recent drilling results indicate that the high grade mineralization extends at depth.
a. Geological Justification for Each of the Exploration Projects
Geological exploration at the Guanajuato Mine project is justified broadly based on the following. After a complete review of over 65 years of accumulated geological mapping, detailed sampling, and drilling by the former operator, the Company’s geological team outlined numerous areas in late 2005 for further detailed exploration either by surface or underground core drilling, detailed geological mapping and re-sampling. Key areas that were and continue to be explored are listed below. Core drilling related to immediate mine planning / exploitation is not considered in this review.
San Vicente and Animas: The 2005 review of historic data revealed that underground sampling with economically significant results had not been exploited. As this ore was readily accessible from surface, it was the first area to undergo geological mapping and re-sampling during 2005 and 2006. In 2006 a surface core drilling program intersected economically significant results leading to re-commencement of underground exploitation in 2007. Exploitation in the San Vicente and Animas areas is on-going.
Guanajuatito: The 2005 review of historic data revealed that underground sampling and surface core drilling with economically significant results had not been exploited. As such, the underground workings were re-mapped, and sampled to confirm previous results. On surface, a core drilling program was conducted in late 2005 and 2006. Based on the favourable results mining and mine development recommenced in 2007. The geology department at the Guanajuato Mine continues exploration activities with daily sampling, geological mapping and development underground core drilling.
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Promontorio: The 2005 review of historic data revealed that underground sampling with economically significant results had not been exploited. Surface geological map and rock sampling was completed in 2005. Surface core drilling in 2006 intersected economically significant mineralization and was followed up in 2007 with more detailed core drilling. Mine development and exploitation into the Promontorio area commenced in early 2008 from two underground levels accessed from the San Vicente area.
Cata: The 2005 review of historic data revealed that underground sampling and underground core drilling with economically significant results had not been exploited. A deep underground drilling program, below the 1,700 metre elevation (previous lower level of exploitation), to in-fill and expand the previous operator’s drilling at Cata commenced in 2007 and is expected to be completed in October 2008. Economically significant mineralization has been intersected in many of the Cata deep drill holes, as reported in various news releases of 2007 and 2008. Several other areas of economic significance were underground-geologically mapped and re-sampled in 2006. As there has been no exploitation in these areas, the mine geological staff is presently conducting an 11-hole drill program to outline economically significant mineralization. Exploitation in the deepest parts of Cata, and below the previous operator’s work, re-commenced in 2007 and is ongoing with a program a ramping, sub-level development and cut-and-fill exploitation.
Valenciana: The 2005 review of historic data revealed that underground sampling and underground core drilling with economically significant results had not been exploited. A small program of underground geological mapping and sampling in 2006 confirmed the 2005 historic review. Of particular note are that multiple veins were mapped and extremely high grade silver-gold values were noted on the margins of old “Spanish” stopes. Due to logistical limitations in re-establishing services into Valenciana, detailed underground geological mapping and sampling was delayed until August 2008. Underground core drilling, below the 1,700 metre level, is expected to commence in March 2009.
Tepeyac: The 2005 review of historic data revealed that underground development above the 2,000 metre elevation was minimal with no evidence of surface drilling. This gap in exploration along the Veta Madre was seen as an excellent opportunity to potentially drill off a shallow section of economically significant mineralization. A core drilling program consisting of eight (8) holes was completed during 2007 with no significant results.
Maravillas: The 2005 review of historic data revealed that underground development above the 2,000 metre elevation was minimal with no evidence of surface drilling. This gap in exploration along the Veta Madre, along the west flank of the old “Spanish” Cata orebody workings, was seen as an excellent opportunity to potentially drill off a shallow section of economically significant mineralization. Six (6) core holes were completed in 2007 with two (2) containing significant silver-gold mineralization in the Veta Madre. A follow up surface core drilling program of four (4) core-holes will be completed in early 2009.
Rayas: The 2005 review of historic data revealed that underground sampling and underground core drilling with economically significant results had not been exploited. Exploitation is on-going with back filling of old stopes and mining of old pillars. Renewed exploration of the deep potential at Rayas, below the 1,650 level of previous exploitation, was delayed due to the need to de-water the deep portions of the Rayas area, and constraints due to equipment priorities. Presently an exploration cross cut is being driven so that deep underground drilling can commence below the area of exploitation. The cross cut will take
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another six (6) months to fully complete but drilling is expected to commence in October 2008 when the first drill station is completed.
b. Exploration Timetable and Budget by Exploration Activity
Area | Total Metres | Time Frame | Cost ($USD)** | |||||||||
Underground Drilling: | ||||||||||||
Valenciana | 8,000 | Oct 09 to Sept 10 | $ | 1,200,000 | ||||||||
Cata | 3,000 | ongoing to Oct 08 | $ | 450,000 | ||||||||
Rayas | 8,000 | Oct 08 to Sept 09 | $ | 1,200,000 | ||||||||
Surface Drilling: | ||||||||||||
Guanajuatito | 2,500 | Jan 09 to Mar 09 | $ | 375,000 | ||||||||
Maravillas | 500 | Apr 09 only | $ | 75,000 | ||||||||
Underground Mapping and Sampling: | ||||||||||||
Valenciana | Aug 08 to Feb 09 | $ | 85,000 | |||||||||
TOTAL | $ | 3,385,000 | USD |
** Cost is all inclusive (drilling, geological personnel, assaying).
c. Planned Phased Program
There is no phased program.
d. Funding for Exploration Program
The exploration program at Guanajuato will be funded through cash flow from operations.
e. Individuals Responsible for Conducting Proposed Exploration Work and Their Qualifications
Robert F. Brown, P. Eng
The exploration program will be guided by Robert F. Brown, P. Eng (Province of British Columbia, Canada) who is both the Company qualified person as defined under NI43-101 and Vice President of Exploration.
Mr. Brown gained insight into exploration geology and on-site mine geology working 15 years with LAC Minerals Ltd, a former Canadian mining company, and then another 14 years with various junior
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exploration companies, in Canada, Mexico, Ecuador, Peru, Argentina and Indonesia before joining the Company in 2004.
William Vanderwall, B.Sc.
The Company’s Exploration Manager, William Vanderwall, B.Sc. Geology will oversee the daily operations.
Mr. Vanderwall was appointed to the position of Exploration Manager, Mexico in November 2006. He is responsible for Great Panther's exploration activities in Mexico as well as the definition of new resources at the producing mines in Guanajuato and Topia, and at the advanced stage Mapimi project.
With 29 years in the gold and silver mining industry, having spent approximately equal time in production and exploration, Mr. Vanderwall is a proven mine-finder and production manager with a strong emphasis on safety, having worked his entire career without a lost time accident. He was most recently Mine Superintendent at the Getchell Mine in Nevada, a 1,000 ton per day high-grade underground gold mine owned by the two largest gold mining companies in the world. He has held the positions of Country Exploration Manager in Guatemala for Glamis Gold; Vice President of Exploration and Environmental Affairs in West Africa for International Tournigan Corporation, and Country Exploration Manager in Argentina for Sunshine Mining.
Mr. Vanderwall graduated from Arizona State University in 1979 magna cum laude with a B.Sc. in Geology with a minor in mathematics. He is a member of the Society for Mining, Metallurgy and Exploration, and the Society of Economic Geologists.
Production - Guanajuato Mine Complex
After a period of preliminary plant and mine rehabilitation, Great Panther commenced production in June of 2006 on easily accessible low grade stockwork zones. The development of high grade zones did not proceed as quickly as originally anticipated however, and only in 2007 did these reach the point where they were contributing to production. As such, the average head grades at Guanajuato remained low for 2006 and only slowly improved through most of 2007. With increasing production from the higher grade areas of the mines and the vigilant implementation of grade control procedures, the average grade for the mine improved significantly such that in December, grades were more than twice what they were at the start of the year.
The plant at Guanajuato contains three ball mills and the Company initiated production with one ball mill, brought a second on stream in November 2006, and commissioned the third ball mill in 2007. A metallurgical testwork program, directed by a senior Canadian metallurgist, was initiated in the fourth quarter of 2007 to assess the plant upgrades necessary to improve plant recovery and concentrate quality. Improvements are already being experienced as a result of this program.
Total throughput for 2007 amounted to 203,968 tonnes at an average grade of 108 g/t Ag and 0.80 g/t Au, or 4.76 oz of silver equivalent (Ag Eq oz) per tonne of ore mined. The recovered Ag Eq oz mill production totaled 710,903 Ag Eq oz.
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A summary of production at Guanajuato for 2007 is as follows:
FY07- | FY07- | FY07- | FY07- | ||||||||||||
Q1 | Q2 | Q3 | Q4 | TOTAL | |||||||||||
Tonnes milled | 49,761 | 48,403 | 60,031 | 45,773 | 203,968 | ||||||||||
Silver ounces | 106,646 | 131,683 | 155,272 | 127,624 | 521,225 | ||||||||||
Gold ounces | 798 | 903 | 1,147 | 946 | 3,794 | ||||||||||
Silver equivalent | |||||||||||||||
ounces (Ag Eq oz) | 146,552 | 176,828 | 212,617 | 174,906 | 710,903 |
At Guanajuato, total production costs for FY07 totalled CDN$8,926,924. The Company anticipates 2007 production costs, on a per silver ounce basis, at Guanajuato to be lower with the achievement of higher grades.
Sampling - Collection, Preparation, Analytical Procedures, and Quality Assurance/Quality Control Protocols
Core and rock samples are brought to surface every day from various underground workings to two central gathering points. Mine channel samples are sorted in a secure building within the Guanajuato complex and hand delivered to an on-site, independently operated laboratory. Core samples are delivered to a large secure warehouse complex within the Guanajuato complex where they undergo detailed logging and are cut in half with a core saw, with half the core bagged for assay and the other half stored securely in a locked building. Exploration geologists add blank and standard samples into the sequence of bagged core, and deliver the samples to the laboratory.
Mine channel samples are collected daily by trained samplers under the supervision of mine geologists. Mine geologists mark up the underground locations where the samples are to be taken by the samplers. The samplers label the sample bags, collect the samples, and seal the bags underground. The samplers then carry the samples to surface and to the secure area. Mine geologists then sort the samples and add blank and standard samples into the sequence of samples, and deliver the samples to the laboratory.
In the core warehouse, geologists log the core. This includes detailed geotechnical measurements, geological logging following a standardized geological legend, and marking the core for core saw splitting. After the core is split the geologists describe in detail each sample to be taken, then label, tag, fill, and seal each sample bag with the appropriate core. Samples are delivered daily to the laboratory.
Rock and core geological and sample details are entered daily into a dedicated geological database located on the Guanajuato Mine computer server.
The Guanajuato assay laboratory was constructed in 2006-07 in an old warehouse within the Guanajuato Mine complex. It was designed by SGS Canada Inc., an internationally recognized analytical company (SGS Group). Laboratory equipment was procured from sources recommended by SGS, and construction
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was overseen by SGS. The Guanajuato Mine laboratory was the 101 st independent laboratory designed and built by SGS. The laboratory is owned by the Company and independently operated by SGS.
All samples collected at the mine are assayed at the on-site laboratory. All samples are assayed for silver and gold using a combination of fire assay and atomic absorption finish. Select samples including mine concentrate samples use a combination of fire assay and gravimetric finish for silver and gold assaying. Certain exploration samples are also analyzed for copper, lead, zinc, arsenic, and antimony using aqua regia digestion and atomic absorption finish. Assay results are stored in an onsite computer server, and e-mailed daily to the Guanajuato Mine computer server. Assays are then merged into the mine database.
Assay quality assurance is guaranteed by the company geologists inserting blank, standard and split samples into the sample sequence. Standard samples are inserted one every twenty samples, while blanks and splits are inserted one every 40 samples. This is apart from internal quality assurance measures taken by SGS.
D. Primary Exploration Properties
Mapimi Project
The Mapimi Project (formerly Km66) is an advanced stage exploration project that hosts significant silver-lead-zinc-gold mineralization with excellent potential for a large bulk tonnage deposit. If continued work proves successful, it could be developed quickly with the goal of defining a new resource amenable to open pit mining, thereby significantly enhancing Great Panther's growing portfolio of silver projects. The property consists of 17 concessions in northeast Durango State and is bisected by a paved highway approximately 100 kilometres from Peñoles' smelter at Torreon, so infrastructure is considered excellent.
On September 11, 2006, the Company signed an Option Agreement for the right to earn a 100% interest in the 3,508 hectare property, subject to a 3% Net Smelter Return (“NSR”). Terms of the agreement call for the Company to make staged cash payments of US$3,000,000 and share issuances totalling 500,000 shares, over a period of 4 years. If the option is exercised, the Company can purchase up to 2% of the NSR, for US$500,000 per 0.5% .
On September 28, 2006, the Company filed a NI 43-101 compliant resource estimate for the property prepared by Wardrop Engineering (“Wardrop”) of Vancouver, B.C., which is available for viewing on the Company’s website at www.greatpanther.com or under the Company’s profile at www.sedar.com. The independently produced report estimated that the Palmitas and Gloria Zones together contain an Inferred Mineral Resource of 4,969,800 tonnes at a grade of 59 g/t Ag, 0.13 g/t Au, 0.81% Pb and 1.31% Zn. Using a 50 g/t AgEq cut-off grade, Wardrop calculated that these grades equate to a silver equivalent grade of 139 g/t using commodity prices (based upon 3 year averages) of US$7.70/oz for silver, US$471/oz for gold, US$0.41/lb for lead and US$0.69/lb for zinc and recoveries of 76%, 70%, 80% and 80%, respectively. This resource equates to a total of 22.3 million ounces of silver equivalent.
The resource estimate was based upon a comprehensive exploration program completed on the property by Coeur d'Alene Mines during 1997 and 1998, wherein they drilled 81 reverse circulation holes (7,515 metres & 3,614 samples) and 22 diamond drill holes (2,983 metres & 900 samples). The geological database also includes 422 surface channel samples. Coeur d'Alene returned the property to the vendor in 1998 due to depressed mineral prices prevailing at that time. The resource includes 2,643,600 tonnes of oxide material at a grade of 51 g/t Ag, 0.11 g/t Au, 0.73% Pb and 0.98% Zn for a silver equivalent grade
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of 113 g/t and 2,326,200 tonnes of sulphide mineralization at a grade of 68 g/t Ag, 0.16 g/t Au, 0.90% Pb and 1.69% Zn for a silver equivalent grade of 169 g/t. As the grade of sulphide mineralization is 50% higher than the 40-60 metre-thick oxide zone, the Company expects the overall grade of the resource to increase over time as the deposit is extended to depth.
A first phase exploration program is underway and consists of detailed geological mapping and re-sampling of outcrops, adits and trenches; an airborne geophysical survey and ground induced polarization geophysical survey; and a 5,000 metre core drilling program, which commenced in December 2006 has increased the confidence level of the resource, resulting in a new Indicated Mineral Resource estimated at 6,585,900 tonnes grading 28g/t silver, 0.09g/t gold, 0.41% lead and 1.14% Zn and an Inferred Mineral Resource at 2,027,900 tonnes grading 34g/t silver, 0.13g/t gold, 0.54% lead and 0.81% zinc.
In March, 2008 Wardrop delivered an updated NI 43-101 compliant mineral resource estimate for the La Gloria / Las Palmitas Zones on the Company’s Mapimi. The new estimate effectively upgraded the previous resource of 22.3 million silver equivalent ounces (Ag Eq Oz) from the Inferred to the Indicated category and added an additional 6.3 million Ag Eq Oz in the Inferred category for a global resource of 28.6 million recoverable Ag Eq oz.
The final report itself will be posted on the Company’s website and on SEDAR once it is received from Wardrop (anticipated by early April 2008).
San Antonio Project
The exploration and exploitation concessions comprising the San Antonio project cover an area of 12,274.7 hectares, and are located in the municipality of Guadalupe y Calvo, State of Chihuahua, Mexico, approximately 162 kilometres south-southwest of the city of Hidalgo de Parral, Chihuahua, and 265 kilometres southwest of the city of Chihuahua.
Multiple targets have been identified by Great Panther at San Antonio within a variety of geological settings, including gold-copper veins, breccias and stockworks, as well as silver-lead-zinc veins. A total of 20 separate mineralized structures have been identified to date. Underground sampling by the Company in 2004 along the Santo Nino Zone returned an average grade of 7.75 g/t gold over an average width of 3.03 metres along a 25 metre strike length. Great Panther previously had an option to acquire a 100% interest in the Santo Niño concession and, subsequent to year-end has exercised that right and is in the process of transferring the title. The Company now owns a 100% undivided interest in the entire San Antonio package. (During the year, the Company elected to discontinue exploration of the San Taco property, which previously formed part of the project).
On February 2, 2007, the Company entered into an agreement with Altair Ventures Incorporated by which Altair was granted an option to earn a 70% interest in the San Antonio property. Altair may exercise the option by making staged cash payments of US$200,000, (of which $30,000 has been received by the Company during 2007), issuing 200,000 Altair common shares (of which 100,000 have been issued) to the Company and incurring a minimum US$1 million of exploration expenditures over a three-year period. Highlights of 2007 fieldwork are discussed in further detail in section G of this document.
Virimoa Project
The two Virimoa concessions are located in the Topia Mining District of Durango, Mexico. The project consists of two mining concessions comprising 148 hectares and hosts a zone of intense alteration,
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exposed for more than 350 metres. The Virimoa property is situated in the heart of the Sierra Madre Mineral Belt and is centrally located between several significant deposits.
In March 2005, fieldwork commenced on the Virimoa Gold Property with initial exploration comprising detailed and extensive channel sampling and mapping focused on an exposure of intense iron oxide alteration. This work attempted to better define the controls on mineralization and to trace its extent. As the property has good road access, specific drill targets were generated for a diamond drilling program, the first ever, which was conducted in April, 2005. The diamond drill program outlined the presence of multiple zones of gold-silver-copper-zinc mineralization across a width of more than 250 metres.
On June 13, 2005, the Company signed an Option Agreement to purchase a 100% interest in the Virimoa Property located in the Topia Mining District, State of Durango, Mexico. Terms of the agreement call for the Company to make four staged cash payments and share issuances totaling US$300,000 and 300,000 shares, over a period of three years. If the option is exercised, the property owner will retain a 2% NSR, half of which can be purchased for US$1 million.
There was no work conducted on the Virimoa Project in 2006 as the Company focused its efforts on getting its two mines into production.
On May 30, 2007, the Company provided notice that it was terminating the option agreement on the Virimoa property. No field work was conducted on the property during 2007.
E. Revenues
The Company recognizes revenue from the sale of concentrates based on the market metal prices and mineral content when title to the concentrates transfers to the customer, which generally occurs on the date of delivery. Revenue is recorded net of treatment and refining costs paid to counter parties under terms of the off take arrangements. Revenue from the sale of the concentrates are subject to adjustment upon final settlement based upon metal prices, weights and assays. Adjustments to revenue for metal prices are recorded monthly and any other adjustments are recorded on final settlement.
For the year ended December 31, 2007, we earned $15,523,094 in revenue from our Topia and Guanajuato mining operations. Revenues for 2006 were $6,333,034.
Market Prices of Gold
The market prices of gold, silver and other precious metals have historically fluctuated widely and are affected by numerous global factors beyond our control. A decline in such market prices may have an adverse effect on revenues we receive from the sale of minerals. A decline in prices will also reduce our exploration efforts and make it more difficult to raise capital.
Seasonality of our Business
Our business is not expected to be seasonal and our mining and milling operations will be carried out year round.
Sources and Availability of Raw Materials
Other than water and power, both of which are readily available and do not experience any material price volatility, we do not require any raw materials with which to carry out our business.
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Patents and Licenses; Industrial Commercial and Financial Contracts; and New Manufacturing Processes
In conducting our business operations, we are not dependent on any patented or licensed processes, technology, industrial, commercial or financial contracts or new manufacturing processes.
Competitive Conditions
We compete with other mining companies, some of which have greater financial resources and technical facilities, for the acquisition of mineral interests, as well as for the recruitment and retention of qualified employees.
Governmental Regulations
The mining industry in Mexico is controlled by the Secretaria de Economia – Dirección General de Minas which is located and administered from Mexico City. Mining concessions in Mexico may only be obtained by Mexican nationals or Mexican companies incorporated under Mexican laws. Mexican law grants concessions under the denominations of exploration or exploitation. The construction of processing plants requires further governmental approval.
The holder of an exploration concession is granted the exclusive right to explore a designated area. Exploration concessions are granted for a period of six years from the date of their recording in the Public Registry of Mining. Exploration concessions are not renewable after the end of the initial term. The holder of an exploration concession must file an application for an exploitation concession before the end of the six year term. If the concessionaire does not comply with this requirement, the concession will be cancelled. Exploitation concessions are granted for 50 years from the date of their registration with the Public Registry of Mining to the exploration concession holder as a matter of law if all regulations have been complied with. During the final five years of exploitation, the concession holder may apply for one additional 50 year period, which is automatically granted provided all other concession terms had been complied with.
In accordance with the Federal Duties Law ("LFD") the holder of an exploration or exploitation concession is obligated to pay biannual duties in January and July of each year based upon the number of hectares covered by the concession area. These fees are determined per hectare as follows:
1. during the first and second year, 4.60 Mexican Pesos (approximately $0.41) per hectare;
2. from the third and fourth year, 6.88 Mexican Pesos (approximately $0.62) per hectare;
3. the fifth and six year, 14.24 Mexican Pesos (approximately $1.28) per hectare;
4. the seventh and eight year, 28.64 Mexican Pesos (approximately $2.58) per hectare;
5. the ninth and tenth year, 57.26 Mexican Pesos (approximately $5.15) per hectare and;
6. the eleventh year and subsequent years, 100.79 Mexican Pesos (approximately $9.07) per hectare.
Concessionaires for both exploration and exploitation must perform work each year that must begin within ninety days of the concession being granted. Concessionaires must file each May, proof of the work performed. Non-compliance with these requirements is cause for cancellation only after the
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Ministry of Mines communicates in writing to the Concessionaire of any such default, granting the Concessionaire a specified time frame in which to remedy the default.
The investment in exploration work must be at least equal to the amount resulting from applying the following table to the number of hectares covered by the exploration concession or by the grouping of mining concessions:
Surface Area (hectares) | Minimum Annual Expenditure (Mexican Pesos) | Additional Minimum Annual Expenditure Per Hectare (Mexican Pesos) | ||
1st Year | 2ndto 4th Year | 5thand 6th Year | ||
From 1 to 30 | -- | 7.93 | 31.72 | 47.57 |
From 31 to 100 | -- | 15.86 | 63.43 | 95.15 |
From 101 to 500 | 792.90 | 31.72 | 95.15 | 190.30 |
From 501 to 1,000 | 2,378.70 | 29.34 | 90.39 | 190.30 |
From 1,001 to 5,000 | 4,757.40 | 26.96 | 87.22 | 190.30 |
From 5,001 to 50,000 | 16,650.90 | 24.58 | 84.05 | 190.30 |
From 50,001 onwards | 158,580.00 | 22.20 | 79.29 | 190.30 |
In the case of groupings of exploration concessions, the additional fee per hectare is applied based on the date of issuance of the oldest concession which is part of the grouping.
The investment in exploitation work must be at least equal to the amount resulting from applying the following table to the number of hectares covered by the exploitation concession or by the grouping of concessions:
Surface Area (hectares) | Minimum Annual Expenditure (Mexican Pesos) | Additional Minimum Annual Expenditure Per Hectare (Mexican Pesos) |
From 1 to 30 | -- | 47.57 |
From 31 to 100 | -- | 95.15 |
From 101 to 500 | 792.90 | 190.30 |
From 501 to 1,000 | 2,378.70 | 380.59 |
From 1,001 to 5,000 | 4,757.40 | 761.18 |
From 5,001 onwards | 16,650.90 | 1,522.37 |
There are no limitations on the total amount of surface covered by exploration or exploitation concessions or on the amount of land held by an individual or company. Excessive accumulation of land is regulated indirectly through the duties levied on the property and the production requirements as outlined above.
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Mexican mining law does not require royalties to the Government, except for the discovery premium related to National Mineral Reserves, Concessions in Marine Zones and Allotments to the Council of Mineral Resources.
F. Organizational Structure
As at the date of this annual report, we have five wholly-owned subsidiaries. They are:
1. | Minera Mexicana el Rosario, S.A. de C.V., a company incorporated in the United States of Mexico. This Mexican subsidiary holds our Mexican property interests. This Mexican subsidiary was acquired by us on February 5, 2004. |
2. | Metalicos de Durango, S.A. de C.V., a company incorporated in the United States of Mexico on July 12, 2005. This operational subsidiary is responsible for the day-to-day affairs and operations of the Topia Mine. |
3. | Minera de Villa Seca, S.A. de C.V., a company incorporated in the United States of Mexico on October 5, 2005. This operational subsidiary is responsible for the day-to-day affairs and operations of the Guanajuato Mine. |
4. | Minera Exploraciones el Rosario, S.A. de C.V., a company incorporated in the United States of Mexico on February 20, 2007 is responsible for the exploration and further development of the Company’s mineral properties. |
5. | New Age Investments Inc., a company incorporated in the Province of Alberta. This company is presently inactive. |
G. Property, Plant and Equipment
We rent executive and administrative office space located at Suite 350 and Suite 2100-1177 West Hastings Street, Vancouver, British Columbia, V6E 2K3, Canada, for the sum of $11,200 per month.
Our Mexican subsidiary, Minera Mexicana el Rosario, S.A. de C.V. (“MMR”), rents office space at Camino del Amanecer 409, Los Remedios, Durango, DGO, Mexico, for the sum of $7,280 Mexican Pesos (approximately $660) per month.
Our Mexican subsidiary Minera de Villa Seca, S.A. de C.V., maintains office space at Hacienda de Bustos, Mineral de Cata, Guanajuato, GTO C.P. 36010. No rent is paid as the premises are owned by MMR.
Our Mexican subsidiary, Metalicos de Durango S.A. de C.V., maintains office space at Boulevard La Sierra No. 1, Topia, Dgo. 34541. No rent is paid as the premises are owned by MMR.
We believe that our current office arrangements provide adequate space for our foreseeable future needs.
We rent land for the tailings dam located in Topia, DGO, Mexico, for the sum of US$1,060 (approximately CAD$1,051) per month.
At present, our activities are focused on the mining, exploration, development and acquisition of precious and base metal properties located in Mexico.
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Our Mineral Properties/Projects
1. Topia Mine
a. Acquisition
Effective February 18, 2004, we entered into the Topia Option Agreement, which granted us the right and option, for a term of one year, to purchase 100% of the ownership rights in and to all the fixed assets, machinery, equipment (includes the mill, buildings, offices, houses and quarters for the workers) and Topia Mining Concessions located in the Municipality of Topia, State of Durango, Mexico from Cia Minera des Canelas y Topia, as optionor, by making cash payments totalling US $1,426,919 as follows:
(a) US $100,000 within 10 days of the date of registration at the Mining registry of the option agreement;
(b) US $150,000 within 5 days of the date the Company notifies the optionor of its decision to exercise the option (notice must be given within 45 days of the one year term);
(c) US $540,165 on the date of signing of the purchase agreement;
(d) Three annual payments of US $300,000, US $300,000 and US $346,919 each of the first, second and third year, respectively, commencing 18 months after the date the Company notifies the optionor of its decision to exercise the option.
All payments due to the optionor have been made as of December 31, 2007.
In addition to the payments to the optionor, we agreed to assume the debt encumbering the property, totalling US $814,594 upon signing of the purchase agreement. The debt owing is secured by the Topia Mine assets. The balance of the debt is repayable out of production from concentrate sales as a 10% Net Smelter Return. After the debt is repaid, there is no further NSR. As of December 31, 2007, the remaining debt balance is fully paid and there are no outstanding conditions to retain title to the property. The Company has surface rights for the land on which the plant sits and mineral rights for the rest of the property.
Other than discussed above, there are no other Net Smelter Return royalties, or other royalties payable, and there are no work commitments.
On March 8, 2006, the Company purchased a 100% interest in the Arcoiris concession. The agreement requires cash payments of US$20,000 (paid) upon signing of the purchase agreement and additional staggered payments totalling US$280,000 (US$180,000 paid). The Arcoiris concession is a strategic claim that is contiguous with the existing Topia Mine Property. The 100 hectare concession contains portions of the strike extension and down-dip projection of the Dos Amigos Vein that the Company has already started developing on its own ground.
b. Location and Accessibility
The property consists of three groups of exploitation concessions covering a total area of 1,555 hectares and one group of exploration concessions covering a total area of 4,844 hectares. The largest group of exploitation concessions, the Topia group, consists of 39 claims covering 1,275 hectares. Two satellite claim groups known as the Las Papas group and the Jarillal group cover approximately 228 hectares and 52 hectares, respectively. In addition to the exploitation concessions, the Topia 2 group consists of 14
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exploration concessions, staked and owned 100% by our Mexican subsidiary, Minera Mexicana el Rosario, S.A. de C.V.
The Topia and the Topia 2 groups are located in the municipality of Topia in the west central part of Durango State, Mexico; the Las Papas group is about 10 kilometres northeast of the town of Topia; and the Jarillal group is near the town of Torance about six kilometres east of Topia. Access is gained by travelling north for roughly 200 km on paved highway #23 from Durango through the city of Santiago Papasquiaro, and then west on paved and gravel roads to the town of Topia, a distance of approximately 150 km. Total driving time from Durango City is about 8 hours. Most of the main roads in Topia are paved with concrete or cobblestones, and the town contains numerous stores, restaurants and hotels. A small airstrip on the east side of the town is serviced daily from Culiacán, Sinaloa by small aircraft. Flight time from Culiacán is less than an hour.
The property is located within the Sierra Madre Occidental Mountain Range. The terrain is quite steep and rugged with elevations ranging from approximately 600m in the river valleys in the western portion of the property rising to nearly 2,000m in the northeastern portion of the property where high level plateaus exist. The area is generally dry except during the rainy season when between 20-50cm of rain may fall. Mining operations and most exploration activities (especially underground exploration and development) can be conducted on a year-round basis. Access to the numerous mine entrances is via gravel roads that are narrow in the steep Sierra.
Refer to Exhibit 8.3 - Map of Topia Property.
c. Mineralization
The veins of the Topia district have formed along the northeast series of faults. Mineralized veins are limited to the lower series of andesitic lavas and interbedded pyroclastics known as the Topia andesites. These veins contain ore grade mineralization over a limited vertical extent of between 100 and 300 metres but this mineralized zone extends laterally along strike in individual veins for as much as four kilometres.
The workings on the site are named according to the vein worked and the name of the portal such as the Madre Vein on the Tres Varones level. Although some of the different veins are connected by crosscuts, in general the individual veins have been developed individually on several levels. This has resulted in numerous adits being used for production purposes.
The Victoria portal is one exception to this, whereby it was designed to be the focal point of the operation for veins east of the Victoria Fault. The Victoria portal is located at the 1,450 metre elevation well below most of the productive stopes. This adit crosses through the Victoria fault within a few hundred metres of its mouth and then extends 1,700 metres to the north intersecting the Oliva, Madre, Cantanranas and Argentina veins, all on the eastern side of the Victoria fault. It is at an elevation well below the mill requiring production ore to be hauled up the steep, narrow dirt roads. The ore dump at the Victoria portal has been washed out and will require some major repairs before it can be used again. This level also drains many of the upper levels with about 10 litres per second of water flowing out the portal. In operating times this water was pumped up to the mill for use as process water. The Victoria adit is currently being rehabilitated in order to facilitate the development of production stopes on the Argentina Vein.
(i) Veta Madre
The principle ore source at Topia has been the Veta Madre (“Mother Vein” or “Mother Lode”). This vein has been mined over a strike length of more than three kilometres. Early work was focused primarily east of the Victoria fault and then later from the Cocinera level west of the Carrizo fault. The most recent
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work on the Veta Madre is in 15-22 mine area which is accessed by the 15-22 (1,522m elev.), the Tres Varones (1,580m elev.) and Don Benito (1,622m elev.) levels. Although longitudinal sections are available for most of the other veins, the long section of the Veta Madre best shows the lateral extent of the mineralization and mine workings at Topia.
One of the prospects for ore is between the Tres Varones and Cocinera levels of the Veta Madre. This area has good vein widths and is relatively accessible. The longitudinal section of the Veta Madre shows many small remnant blocks that may be extracted from the 15-22 level. However, these small blocks will be costly to define and extract. Of greater interest however is the area to the west with one drill intercept. This intercept is west of a major dyke and about 200 metres west of any workings. There is also potential to the east where mineralization is thought to extend. However, there are no drill intercepts in this area. The Veta Madre is also unexplored in the area of the Victoria fault but the vein appears to be faulted into very small pieces in this area that might not permit efficient mining and may make it difficult to follow by drifting. This section of the vein is also directly below the town of Topia.
(ii) Veta Cantanranas
The Veta Cantanranas is the closest vein to the Veta Madre and in fact splays to the north from the Veta Madre looking toward the east. The Cantanranas vein tends to dip steeply to the south, somewhat different than the almost vertical Veta Madre. It has been stoped between sections 200 West and 2600 East and may extend to the Hormiguera mine at 3200 East. The gaps in stope locations on this vein may be due to the overlap of the Madre vein stopes. The combination and then splaying of these two veins makes following them difficult at times and there may be some instances where lost portions of economic veins remain in the walls.
(iii) Mina Argentina
The Argentina vein is located immediately north of the mill and has been exploited between sections 900 East and 1,600 East from six main levels. Vertically the stopes are located between 1,600 and 1,900 metres. Peñoles had postulated potential strike extensions to this vein and some drilling was done to test these theories. Four holes were drilled to the east from surface, in 1986 and in 1987.
The Argentina vein is the northern limit of surface exposure of Topia andesites as rhyolite outcrop is found making exploration of strike extensions difficult. There is potential for the Argentina vein to continue west of the Victoria fault similar to the Madre and Cantanranas veins.
(iv) Animas Vein
The Animas vein is south of the Madre vein and due to the lower surface elevation there seems to be mineralized sections missing due to the level of erosion. Other veins in this area and possible continuations may be the Oliva, La Dura, and Dos Amigos veins. To the north there are other minor veins stoped such as the Santa Cruz and Santa Juliana. Like the major veins all of these veins contain small remnant blocks beside, below and above existing stopes as well as the potential for strike extensions. The numerous faults and splays make following the veins difficult and there is potential for better veins in the wall rock in places where the wrong vein has been followed.
(v) Las Papas
The Las Papas area is located about ten kilometres northeast of Topia. There are 3 known veins with minor underground development and only the Vicente vein has been stoped. At Las Papas the veins occupy both the vein and main fault orientation seen at Topia. Another significant difference in this area
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is that the Ag:Au ratio is much lower being between 10 and 20 to one instead of the 300 to 1 seen typically at Topia.
(vi) Previous Exploration
Most of the historical exploration on the Topia property has been conducted by tunneling on veins found in either crosscuts or on surface. In the Peñoles era, veins were both mapped and sampled, but in the subsequent ten years little geological work seems to have been maintained. In total over 24 kilometres of horizontal tunnels exist on the various veins and connecting them.
d. Mineral Resource Estimation
There are no known reserves on the property and the proposed program is exploratory in nature.
In February 2007, Wardrop Engineering submitted a 43-101 compliant report on Topia. Using a US$60 Gross Metal Value (GMV) cut-off grade, Wardrop estimated:
Measured Mineral Resource of 53,500 tonnes grading 493g/t silver, 0.882g/t gold, 4.89% lead, and 4.44% zinc, with a GMV of US$256 per tonne,
Indicated Resource of 111,500 tonnes grading 473g/t silver, 0.860 g/t gold, 4.86% lead, and 4.53% zinc, with a GMV of US$253 per tonne,
Inferred Mineral Resource of 71,700 tonnes grading 443g/t silver, 0.686 g/t gold, 4.31% lead, and 4.02% zinc, with a GMV of US$229 per tonne.
The US$60 GMV cut-off grade was derived from actual operating cost at Topia, which includes mining and milling costs of US$40/tonne, concentrate handling cost of US$5/tonne, and General and Administrative costs of US$15/tonne. A new 43-101 report containing an increased resource estimate is scheduled for delivery in Q3 2008.
e. Exploration
The Company has conducted extensive work on the Topia property as far back as 2004. The diamond drill program conducted between June 2004 and February 2005 comprised 7,436 metres in 30 surface holes with results evidencing high grade silver-lead-zinc mineralization. Five separate areas were tested with one or two main veins present in each area. The main goal of the program was to test the strike, dip and grade continuity of the veins beyond where they had been mined in the past in order to indicate the exploration potential of the property and to guide the short term underground development work with the goal of successfully re-opening the mine.
As known from previous mining, three of these areas (Las Trancas, Don Benito and Hormiguera) represent portions of the same veins that extend for more than four kilometres across the property, while the two other areas represent parallel vein systems approximately one kilometre to the northwest (Argentina) and two kilometres to the southeast (El Rosario). Several other veins are known and have yet to be drilled.
The intersections obtained are typical of vein deposits in general and the widths and grades are consistent with those mined in the past at Topia. Based upon the success of the drilling in the Argentina area, the
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Company began the rehabilitation of the underground workings here. Other areas such as El Rosario are proving to have similar potential. The drill program provided the Company with sufficient confidence that the veins have excellent continuity and therefore the potential to provide resources for a renewed mining effort.
Along the Animas vein, on Level 1550, underground channel sampling returned 1.62g/t Au, 338g/t Ag, 2.28% Pb, 1.53% Zn over 30 metres strike length, with an average width of 0.31m (average of 16 samples); and 1.4g/t Au, 429g/t Ag, 1.14% Pb, 6.23% Zn over 35 metres strike length, with an average width of 0.55m (average of 11 samples).iii
In 2006, mine development continued along the Dos Amigos Vein system. New sampling of this vein from the east end of the ramp has returned average grades of 924 g/t Ag, 21.78% Pb and 16.16% Zn along a 30 metre strike length. Although the vein has an average width of only 0.21 metres along this length, we are use a mining method called 'resuing' which reduces dilution and maximizes the grade of the material being recovered.
Along strike of this high grade mineralization and to the northeast, lie the old La Dura Mine workings that are part of the Company’s property. Recent sampling from the Dos Amigos Vein at the southwest end of La Dura has returned 475 g/t Ag, 1.01 g/t Au, 3.92% Pb and 5.09% Zn over a strike length of 89 metres and an average width of 0.36 metres. Slightly lower grade mineralization continues for another 108 metres to the northeast, returning average grades of 265 g/t Ag, 1.19 g/t Au, 0.62% Pb and 1.21% Zn over an average width of 0.52 metres.
There has been no underground development for approximately 200 metres between the southwest end of the La Dura Mine and the ramp mentioned above, so the potential to find more high grade mineralization is considered excellent. Collectively, the aforementioned results represent more than 750 metres of strike length along the Dos Amigos Vein and the mineralization is open to depth along this entire distance. Continuing development on this vein system will include stations for an underground drill program, which will enable the Company to more easily and quickly determine the overall potential of the vein and to delineate a new resource that can be added to the mine plan.
The Animas vein has continued to demonstrate good gold grades. For example, hole ST07-36, returned 2.58 g/t Au over 2.50 metres, while individual samples in other holes returned assays up to 12.70 g/t Au.
During 2006, mining on the Animas vein was conducted on three levels, 1420, 1430, and 1550 (note that levels are named according to metres above mean sea level, so level 1550 is 130m higher than level 1420). Underground sampling from levels 1430 down to 1380 showing excellent gold grades was reported on October 12, 2006 and the surface drilling is designed to test the vein along strike and to depth. Drill holes ST06-030, 031, and 032 targeted the Animas vein east of the 1430 workings, and below the 1550 level. All three holes were successful, with the best intersection in ST06-032 of 2.43g/t gold, 315g/t silver, 0.9% lead, and 9.0% zinc over 0.4m (see summary of results in the table below. Drill hole ST06-033 was a test of the Animas vein at depth, and intersected the vein at approximately the 1300 metre level, well below existing workings, with 2.85 g/t gold and 42.9 g/t silver over 0.55m.
Approximately 350 metres along strike to the east of these holes, ST07-034 and 035 intersected the Animas vein at the 1400 level in a previously untested area, returning low grade values in both drill holes. A further 200 metres east, hole ST07-036 intersected a silicified breccia zone returning 2.58g/t gold over 2.50 metres, as mentioned above. This brecciation likely occurs along the Animas vein structure, and will be further drill tested, both for the extent of the brecciation, and veining.
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Hole ST07-037 was drilled east of a major fault and no recognizable structures were identified. ST07-038 did not reach its primary target, the Veta Madre, but did intersect a parallel, although very narrow (0.08m) structure, potentially the Hipolito vein, which returned 0.57g/t gold, 1080g/t silver, 2.8% lead, and 1.1% zinc. Due to the high silver grade of this vein, it will be tested farther along strike to see if it widens out.
In addition to the Animas vein drilling, the eastern and depth extent of the Veta Madre was targeted by two holes. Hole ST07-039 was lost due to bad ground but ST07-040 intersected the Veta Madre, returning 5.08g/t gold, 149g/t silver, 2.6% lead and 0.8% zinc over 0.6m.
Highlights of Surface Drilling:
Core | |||||||||
Drill Hole | From | To | width | True width | ZONE | Au | Ag | Pb | Zn |
(m) | (m) | (m) | (m) | g/t | g/t | % | % | ||
ST06-030 | 62.50 | 62.90 | 0.35 | 0.32 | Animas | 1.89 | 170 | 0.35 | 0.15 |
ST06-032 | 94.40 | 94.80 | 0.40 | 0.20 | Animas | 2.43 | 315 | 0.90 | 9.00 |
ST06-033 | 184.00 | 184.55 | 0.55 | 0.39 | Animas | 2.85 | 43 | 0.33 | 0.24 |
including | 184.45 | 184.55 | 0.10 | 0.07 | 12.70 | 185 | 1.80 | 1.30 | |
ST07-036 | 58.00 | 60.50 | 2.50 | 2.25 | Animas | 2.58 | 6 | <0.01 | 0.07 |
ST07-038 | 150.35 | 150.43 | 0.08 | 0.06 | Hipolito | 0.57 | 1,080 | 2.80 | 1.10 |
ST07-040 | 80.60 | 81.20 | 0.60 | 0.30 | Veta Madre | 5.08 | 149 | 2.60 | 0.80 |
During 2006, ongoing westward development of veins continued to demonstrate high grades of silver-lead-zinc through underground sampling, with deeper portions of the Madre, La Dura, and Animas veins increasingly rich in gold with the westward development of the mine.
Systematic sampling on the deeper portions of the Animas vein demonstrated high grades of silver-lead-zinc and returned the following results (mine levels are named according to their elevation above mean sea level; therefore level 1380 is 50 metres below level 1430):
Level 1430: 1.47g/t Au, 186g/t Ag, 2.02% Pb, 4.43% Zn over 25 metres strike length with an average width of 0.19m (average of 5 channel samples).
Level 1420: 3.03g/t Au, 878g/t Ag, 3.19% Pb, 2.74% Zn over 38 metres strike length with an average width of 0.32m (average of 13 channel samples).
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Level 1400: 5.08g/t Au, 679g/t Ag, 7.07% Pb, 6.32% Zn over 45 metres strike length with an average width of 0.42m (average of 16 channel samples).
Level 1390: 6.84g/t Au, 279g/t Ag, 2.17% Pb, 0.19% Zn over 15 metres strike length with an average width of 0.5m (average of 4 channel samples).
Level 1380: 5.92g/t Au, 304g/t Ag, 4.35% Pb, 12.72% Zn over 10 metres strike length with an average width of 0.45m (average of 3 channel samples).
The increase in gold grades in some of these veins will obviously enhance the economics of their development, particularly as historical gold grades at Topia have averaged less than 1.0g/t.
In addition, many of the sampled sections reported above represent the complete length of the current exposure, so the potential to extend the development of these veins is wide open. The deeper levels of the Animas vein are virtually untouched over a strike length of 1,000m and will be drill tested over the next six months.
Along the Animas vein, on Level 1550, underground channel sampling returned 1.62g/t Au, 338g/t Ag, 2.28% Pb, 1.53% Zn over 30 metres strike length, with an average width of 0.31m (average of 16 samples); and 1.4g/t Au, 429g/t Ag, 1.14% Pb, 6.23% Zn over 35 metres strike length, with an average width of 0.55m (average of 11 samples).
Along the La Dura vein, mine development on Level 1495, returned 4.96g/t Au, 242g/t Ag, 8.32% Pb and 2.42% Zn over 38 metres strike length with an average width of 0.49m (average grade of 16 samples). Exploration potential exists above Level 1495 for approximately 150 metres vertical as this part of the La Dura vein was not previously developed.
The deepest access level on the Madre vein is the 1420 Level where sampling returned average grades of 5.7g/t Au, 49g/t Ag, 0.17% Pb, 0.18% Zn over a horizontal length of 45 metres and an average width of 0.32m (average grade of 12 samples). Further sampling is being completed with the recent cleaning and safety inspection of this level.
Immediately behind the plant, a decline ramp from the main access adit, Level 'A', has intersected the western edge of previous stoping on the Argentina vein. This is the top priority area for development and exploitation due to its proximity to the mill and the presence of multiple parallel, thick and high grade silver-lead-zinc veins. A cross-cut from the ramp intersected the main vein wherein 3 channel samples returned grades of 2,060-2,640 g/t Ag and 29-36% combined Pb-Zn over 1.0 metre. The vein in the end of the westernmost stope is still approximately 1.0 metre wide and consists of quartz-barite with bands of galena and sphalerite. The distance from here to the closest surface drill hole (A04-02 from Great Panther's 2004 program that returned grades of 708g/t Ag, 4.0% Pb and 4.2% Zn over 1.8 metres) is approximately 300 metres, part of which contains former reserve blocks of Peñoles (now classified as Historical Resources). This represents a large block of potential high grade resources and will be targeted by an underground drill program.
An underground diamond drilling program in the deeper portions of the La Dura vein also is continuing to demonstrate high grades of silver, gold, lead and zinc, up to 55.7 oz/t silver equivalent* (Ag Eq). In particular, gold grades up to 7.21g/t in the drilling are significantly higher than the historical average (less than 1.0g/t) for the Topia Mine.
Eleven principal mineralized vein structures have been defined on the Topia Mine property, of which development and exploitation is presently taking place on five, including La Dura. Surface and
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underground drilling over the course of 2007 will target nine of the eleven veins in an effort to expand the Topia Mine mineral resource and the number of veins being developed and exploited. The nine-hole, 637.3 metre underground drilling program at La Dura is part of the plan to test a 165 metre vertical interval (between the 1420 and 1585 levels) along a 600 metre strike length. These holes represent a 200m horizontal by 50m vertical portion of that block. To date, there has been no exploitation below the 1625 level in this part of the La Dura Mine. (Note: Mine levels are named according to their elevation above mean sea level and the town of Topia sits at an elevation of 1650 metres, such that most mine levels are accessed via adits from the sides of the mountains).
Underground drill holes UT06-001 to 005 tested the La Dura vein and a series of splays and parallel veins within a zone complicated by cross faulting. One such vein in the hanging wall, called La Dura Alto, is the most consistent of these in terms of grade and continuity. Significant results from the first five holes include 0.6m @ 5.96g/t gold, 191g/t silver, 4.35% lead and 4.85% zinc (29.9 oz/t Ag Eq) in UT06-001; and 1.3m @ 3.03g/t gold, 194g/t silver, 3.51% lead and 11.4% zinc (41.0 oz/t Ag Eq) in UT06-004, both on the main La Dura vein.
Holes UT06-006 to 008 successfully located the La Dura vein, with continuing high grades, east of a major fault and 85 metres below previous workings. Significant results from these holes include 0.55m @ 2.88g/t gold, 609g/t silver, 5.84% lead and 11.1% zinc (55.7 oz/t Ag Eq) in UT06-006; and 1.05m @ 1.24g/t gold, 539g/t silver, 10.1% lead and 4.21% zinc (39.0 oz/t Ag Eq) in UT06-008 (farthest east). Drill hole UT06-009 was used as an engineering hole and as such was not oriented to intersecting veins.
Highlights of La Dura Underground Drilling:
Drill Hole | From (m) | To (m) | Widt h (m) | True width (m) | Vein | Au (g/t) | Ag (g/t) | Pb (% ) | Zn (%) | Ag Eq. |
UT06-001 | 0.00 | 0.60 | 0.60 | 0.50 | La Dura | 5.96 | 191 | 4.35 | 4.85 | 29.9 |
UT06-002 | 3.25 | 3.45 | 0.20 | 0.20 | La Dura | 5.53 | 422 | 4.25 | 4.30 | 35.3 |
28.50 | 28.85 | 0.35 | 0.35 | La Dura alto | 0.77 | 396 | 10.10 | 0.80 | 25.7 | |
UT06-003 | 36.60 | 37.00 | 0.40 | 0.30 | La Dura alto | 0.80 | 216 | 3.35 | 10.10 | 35.5 |
UT06-004 | 5.60 | 6.90 | 1.30 | 0.90 | La Dura | 3.03 | 194 | 3.51 | 11.40 | 41.0 |
UT06-005 | 3.00 | 3.50 | 0.50 | 0.50 | La Dura | 3.27 | 162 | 0.60 | 1.83 | 14.5 |
26.60 | 26.70 | 0.10 | 0.10 | La Dura alto | 7.21 | 195 | 7.02 | 2.33 | 28.2 | |
UT06-006 | 31.45 | 32.00 | 0.55 | 0.45 | La Dura | 2.88 | 609 | 5.84 | 11.10 | 55.7 |
UT06-007 | 23.00 | 23.65 | 0.65 | 0.65 | La Dura | 2.97 | 201 | 6.71 | 8.83 | 38.1 |
UT06-008 | 104.55 | 105.60 | 1.05 | 0.50 | La Dura | 1.24 | 539 | 10.10 | 4.21 | 39.0 |
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Note: Silver Equivalents (Ag Eq) were calculated using prices of US$575/oz for Au, US$12.00/oz for Ag, US$0.60/lb for Pb and US$1.50/lb for Zn; and recoveries of 85%, 87%, 90% and 87%, respectively.
Production from the Argentina vein has begun on a small scale and will build as the veins are developed on multiple levels, allowing the Company to achieve its production targets.
Ongoing drilling from surface and underground in 2007 continued to extend high grade silver, gold, lead and zinc mineralization along strike and to depth on several of the veins that are currently being mined.
Surface drilling throughout the last two quarters of 2007 tested the down-dip and strike extensions of six veins. Highlights include down dip drilling on the Cantarranas vein, in hole ST07-061, which intersected 1,950g/t silver, 1.7g/t gold, 2.7% lead, and 3.01% zinc over 0.35 metres; and the strike extension of the Madre vein, in hole ST07-044, which intersected 502g/t silver, 3.78g/t gold, 3.91% lead, and 5.47% zinc over 0.40 metres.
Underground drilling in the 4th quarter of 2007 focused on the re-discovered Don Benito vein and was highlighted by an intersection of 749g/t silver, 5.67g/t gold, 3.71% lead and 4.96% zinc over 1.27 metres, in hole UT07-011, including a higher grade portion of 1,400g/t silver, 6.84g/t gold, 4.54% lead and 3.43% zinc over 0.55 metres. Holes UT07-010 to 013 (results compiled in table below) were all drilled from the same site along the Dos Amigos ramp area at approximately the 1500 level in a fan section, and intersected both the La Dura and the Don Benito veins (see maps on the company website atwww.greatpanther.com). (Note: Mine levels are named according to their elevation above mean sea level and the town of Topia sits at an elevation of 1650 metres, such that most mine levels are accessed via adits from the sides of the mountains).
Highlights of recent underground drilling:
Drill Hole | From (m) | To (m) | Width (m) | True Width (m) | Vein | Ag g/t | Au g/t | Pb % | Zn % |
UT07-010 | 9.80 | 9.95 | 0.15 | 0.15 | La Dura | 97 | 2.75 | 1.94 | 8.05 |
13.60 | 13.75 | 0.15 | 0.15 | La Dura | 406 | 2.19 | 11.5 | 28.6 | |
0.83 | Don | ||||||||
67.03 | 67.90 | 0.87 | Benito | 35 | 1.39 | 0.12 | 0.81 | ||
1.04 | Don | ||||||||
UT07-011 | 34.32 | 35.59 | 1.27 | Benito | 749 | 5.67 | 3.71 | 4.96 | |
0.45 | Don | ||||||||
including | 35.04 | 35.59 | 0.55 | Benito | 1,400 | 6.84 | 4.54 | 3.43 |
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Drill Hole | From (m) | To (m) | Width (m) | True Width (m) | Vein | Ag g/t | Au g/t | Pb % | Zn % |
UT07-012 | 6.70 | 7.07 | 0.37 | 0.21 | La Dura | 270 | 1.63 | 6.70 | 7.46 |
0.38 | Don | ||||||||
46.77 | 47.43 | 0.66 | Benito | 222 | 2.80 | 1.14 | 2.04 | ||
UT07-013 | 9.87 | 10.02 | 0.15 | 0.09 | La Dura | 175 | 1.48 | 4.08 | 8.42 |
Don | |||||||||
39.60 | 39.95 | 0.35 | 0.20 | Benito | 769 | 10.10 | 6.65 | 4.25 |
Underground development on the Don Benito vein, accessed from La Dura level 1585, has opened 70 metres of continuous vein. Development to the east along 40 metres of strike returned 276g/t silver, 0.39g/t gold, 4.32% lead, and 2.69% zinc with an average width of 0.61 metres. Development to the west along 28 metres of strike returned 105g/t silver, 0.82g/t gold, 0.84% lead, and 2.48% zinc over an average width of 0.49 metres. Development along the vein is continuing.
From a review of historic maps, and re-mapping of old workings, the Don Benito vein is open from the 1585 level upward to at least the 1700 level and, considering the recent underground drilling along Don Benito from the 1500 level, it is open downwards to at least the 1450 level. This implies a vertical extent of at least 250 metres. The known strike extent of Don Benito is approximately 300-350 metres. Underground drilling is continuing on the 1500 level, and this month several surface drill holes will test the Don Benito vein between the 1585 and 1700 levels.
Underground development and exploitation is presently taking place on eight mineralized vein structures on the Topia Mine property. This includes initial development along the Don Benito vein, continued development along the Recompensa, Argentina, Madre, Cantarranas, La Dura, and Animas veins and commencement of development along the San Gregorio vein.
Surface drilling during the second half of 2007 tested the dip and strike extent of the Madre, La Dura, Animas, Cantarranas, and Oliva veins. During 2007 a total of 33 surface holes were completed totaling 7,422 metres. All of the surface and underground holes presented herein will be included in the new resource report being prepared by Wardrop Engineering and expected in April, 2008.
In the eastern portion of the Perla area, on the Madre vein, five surface holes were completed to test the dip and strike extension of mineralization towards the Carrizo fault. Drill hole ST07-044 intersected 502g/t silver, 3.78g/t gold, 3.91% lead, and 5.47% zinc over 0.40 metres, while ST07-040 intersected 149g/t silver, 5.08g/t gold, 2.6% lead and 0.8% zinc over 0.6 metres. The deeper holes, ST07-045 to 047, intersected the Madre vein but with modest gold and lower silver, lead and zinc values.
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The down dip extension of the Cantarranas vein was tested in the Jicara area. Two holes were drilled with ST07-061 intersecting 1,950g/t silver, 1.7g/t gold, 2.7% lead, and 3.01% zinc over 0.35 metres, while the more easterly ST07-062 intersected an old stope. Further drilling is planned for 2008 as access is facilitated by the use of a short ramp from existing infrastructure.
Three holes were drilled to test the down dip extension of the La Dura vein below the 1585 level. The drill holes reflect the grade of the underground development in this area, with the best results from ST07-042, which returned 307g/t silver, 1.88g/t gold, 0.13% lead, and 0.48% zinc over 0.3 metres.
Further west along the La Dura vein, in the Dos Amigos area, holes ST07-056 & 057 intersected the La Dura vein at about the 1400 level, and also discovered a new vein named the La Dura Alta. The best results are from ST07-057 where the La Dura Alta vein returned 1,040g/t silver, 2.27g/t gold, 0.3% lead, and 0.5% zinc over 0.2 metres, and the La Dura vein returned 39g/t silver, 5.25g/t gold, 0.3% lead, and 0.35% zinc over 0.35 metres. Underground development and exploitation in this area is ongoing from the 1420 level and 1500 level ramp.
Both the surface and underground drilling in the western part of the Topia District continue to demonstrate higher gold grades in addition to silver, lead and zinc. Given the typically narrow veins at Topia, the higher gold content makes a significant contribution to the value of the mineralization.
Highlights of the recent surface drilling are summarized in the table below and a plan map of veins and mine areas can be found on the Company website. Presently the surface drilling is testing both the Santa Cruz and Argentina veins in the northern part of the district and underground development is also continuing in this area. Following this, the surface drill will test the Cantarranas vein in the Jicara area, following up on ST07-061, and will further test the Don Benito vein. Results of this drilling will be reported when assay data is compiled.
Highlights of recent surface drilling:
Drill Hole | From (m) | To (m) | Width (m) | True Width (m) | Vein | Ag g/t | Au g/t | Pb % | Zn % |
ST07- | |||||||||
040 | 80.60 | 81.20 | 0.60 | 0.20 | Madre | 149 | 5.08 | 2.60 | 0.80 |
ST07- | |||||||||
042 | 154.50 | 154.80 | 0.30 | 0.17 | La Dura | 307 | 1.88 | 0.13 | 0.48 |
ST07- | |||||||||
043 | 166.50 | 168.12 | 1.62 | 0.92 | La Dura | 179 | 1.12 | 0.13 | 0.12 |
including | 167.68 | 168.12 | 0.44 | 0.25 | La Dura | 371 | 0.55 | 0.06 | 0.02 |
ST07- | �� | ||||||||
044 | 182.45 | 182.85 | 0.40 | 0.26 | Madre | 502 | 3.78 | 3.91 | 5.47 |
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Drill Hole | From (m) | To (m) | Width (m) | True Width (m) | Vein | Ag g/t | Au g/t | Pb % | Zn % |
ST07- | |||||||||
047 | 182.50 | 183.51 | 1.01 | 0.20 | Madre | 22 | 3.93 | 0.14 | 1.10 |
ST07- | |||||||||
050 | 67.68 | 68.03 | 0.35 | 0.20 | Animas | 114 | 2.58 | 0.40 | 0.74 |
ST07- | La Dura | ||||||||
056 | 82.00 | 82.20 | 0.20 | 0.16 | Alta | 111 | 2.79 | 0.30 | 0.50 |
ST07- | La Dura | ||||||||
057 | 105.10 | 105.30 | 0.20 | 0.14 | Alta | 1,040 | 2.27 | 0.30 | 0.50 |
204.85 | 205.20 | 0.35 | 0.25 | La Dura | 39 | 5.25 | 0.30 | 0.35 | |
ST07- | |||||||||
059 | 366.07 | 367.10 | 1.03 | 0.84 | Cantarranas | 118 | 1.14 | 0.07 | 0.23 |
ST07- | |||||||||
061 | 202.45 | 202.80 | 0.35 | 0.18 | Catarranas | 1,950 | 1.70 | 2.70 | 3.01 |
f. Total Costs Incurred to Date and All Planned Future Costs
As at December 31, 2007, total costs incurred on mineral properties, plant and equipment were $8,221,000. Total costs incurred on exploration were $5,985,000.
Planned costs for 2008 are approximately $6.4 million for capital investment and exploration.
g. Source of Power and Water that can be Utilized at the Property
Topia is connected to the national power grid. Artesian springs located above Topia provide water year-round by gravity to the town. Most of the lower mine portals discharge water and the Victoria adit has provided enough water to supply milling activities in the past.
2. Guanajuato Mine Complex
a. Acquisition
On October 25, 2005 we signed a formal purchase with the Sociedad Cooperativa Minero Metalúrgica Santa Fe de Guanajuato to purchase 100% of the ownership rights in a group of producing silver-gold mines in the Guanajuato Mining District. The total purchase price is US$7,250,000, which includes 1,107 hectares in two main properties, the 1,200 tonne-per-day plant, workshops and administration
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facilities, complete mining infrastructure, mining equipment, and certain surface rights. In 2006, we paid the remaining balance of US$3,625,000.
On May 15, 2006, we announced the purchase of 3.88 hectares of real estate adjacent to the plant at our Guanajuato Silver-Gold Mine Complex. The land was purchased from the Sociedad Cooperativa Minero Metalúrgica Santa Fe de Guanajuato, the same Cooperative from which the mines were purchased in 2006, for a total of US$690,425. A payment of US$201,825 was made at the time of the signing of the purchase agreement and the remaining balance of US$488,600 was paid in the second half of 2006. The Company has received clear title to the property. The decision to buy the extra land was taken in order to facilitate any future expansion of the plant facilities and to protect the plant site from any possible development nearby.
In December 2007, the Company purchased an additional 0.2804 hectares of land immediately adjacent to the plant and below our tailings dam at the Guanajuato Mine Complex. The land was purchased from the Sociedad Cooperativa Minero Metalúrgica Santa Fe de Guanajuato, the same Cooperative from which the mines were purchased in 2006. The land was primarily purchased in order to protect the area from any possible development. The Company has received clear title to the new property.
As at December 31, 2007, there are no outstanding conditions to retain title to the property. The Company has mineral and some surface rights.
b. Location and Accessibility
The Guanajuato Mine Complex is located alongside the city of Guanajuato, 380 km northwest of Mexico City in central Mexico. Guanajuato is situated in the Central Plateau of Mexico in the mountains of Sierra de Guanajuato at elevations ranging from 1,600 to 2,200 metres. The principle claim group is centred at approximately 21o03’N latitude and 101o15’W longitude (NAD 27, UTM coordinates 2327500N, 265500E). The Guanajuato Mine Complex consists of 1,107.28Ha, made up of 28 non-contiguous concessions.
Excellent access is availed to Guanajuato with an international airport 30 minutes to the west near Silao/Leon. Toll free-ways skirt the city linking it with Leon, Guadalajara, and Mexico City. All of the facilities of the Guanajuato Mine are accessed from city streets.
The Guanajuatito ramp provides easy access to the mineralization throughout the Guanajuatito-Encarnación area where only a minor amount of mining has taken place in the past.
Refer to Exhibit 8.4 – Map of Guanajuato Property.
c.History
The Guanajuato Mining District was founded in 1548.
1548: The first silver vein at San Bernabé (La Luz) was discovered by a local mule driver. Silver ore was hand mined and transported by mule to Zacatecas to be milled.
1550: Juan de Rayas discovered the Veta Madre system at the site where the present day Rayas shaft is located. This triggered an exploration rush which saw the discovery of the La Valenciana, Tepeyec, Mellado, Cata and Sirena silver occurrences.
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1726: Production was very limited in early years as the method of extracting ores was the fire method where the rock face was heated with a fire and then quickly quenched with water, the rapid cooling resulting in the shattering of the rocks. It was not until gun powder was introduced by Don Jose de Sardeneta y Legaspi in 1726 that production became significant. Construction began on the Rayas shaft.
1760-1770: Antonio Obregón y Alcocer, who later became Count Valenciana, completed numerous exploration ventures, culminating with the discovery of the Valenciana ore-shoot and the development of the Valenciana mine.
1771: The dream of the Guanajuato miners became a reality with the discovery of immense masses of silver sulphides, mixed with ruby silver and native silver. After various fortunate discoveries, Antonio Obregón y Alcocer became famous, and was considered to be one of the richest men in the world. He was honoured with the title of Count Valenciana because, at the time, the Valenciana mine was estimated to be producing one-third of the world’s silver. Production was increased under the Count’s direction, and the Santo Cristo de Burgos shaft was sunk to a depth of 150 metres.
1775: The San Antonio shaft on the Valenciana vein was sunk to a depth of 227m.
1810-1868: Production stopped as the result of the War of Independence
1821: Revolutionaries burned all the mining installations, including the headworks of the newly-built Valenciana shaft.
1868: The Valenciana mine was reopened by British investment capital.
1936: Peñoles S.A. tested the Veta Madre with four diamond drill holes.
1939: The Sociedad Cooperativa Minero Metalúrgica Santa Fe de Guanajuato became the legal owner of the properties of the Guanajuato Reduction and Mines Company. Starting with no mineral reserves and no working capital, the new Cooperative had a difficult time carrying out exploration and mining with outdated equipment.
1947-1949: The Fresnillo Company completed a diamond drilling program consisting of nine holes, which intersected the Veta Madre 80m to 150m below the lowest existing workings.
1968: The Fresnillo Company acquired the adjacent claims and incorporated Cebada a Negociación Minera Santa Lucía and the Peregrina Mine; in the same year, Fresnillo discovered the Torres-Cedros orebody during an exploration and drilling program.
1973: The contracting company Tormex, S.A. completed a photogeological study in the area of the Cebada mine holdings (Figure 3). The SCMMSFG discovered the Clavo de Rayas “bonanza” oreshoot.
1976: The Cebada mine began production. Between 1976 and 1995, the Cebada mine produced 1,277,216 tonnes at an average grade of 4.04 g/t gold and 372 g/t silver. The Cebada mine is not a part of the Sociedad Cooperativa Minero Metalúrgica Santa Fe de Guanajuato holdings.
2003: The Grupo Guanajuato closed the Torres, Sirena, Peregrina and Apolo mines. The Bolañitos, Golondrinas, Asunción and Cebada mines stayed in production on a break-even basis.
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- 2004: A Canadian company MexGold Resources (Gammon Lake Resources) purchased the near-by El Cubo mine.
Since discovery to 1990, total production from the Guanajuato Mining District has been estimated to be approximately 35,000 tonnes silver (1.12 billion oz Ag) and 175 tonnes gold (5.63 million oz Au).
Sociedad Cooperativa Minero-Metalurgica Santa Fe de Guanajuato has completed various small drill programs since 1939. Most of the historic drill log and drill assay data exists at the mine but not in a readily accessible form. The last phase of drilling completed in 1992, was utilized for the estimation of the Cata mine resources in the 1992 Sociedad Cooperativa Minero-Metalurgica Santa Fe de Guanajuato report.
d. Mineralization
Three major fault systems with associated mineralization occur in the Guanajuato Mining District; La Luz, Sierra, and the Veta Madre systems, the largest being the 25 km long Veta Madre. The principal mineralizing event is thought to be late Oligocene in age +27 Ma, which has created three identifiable stages of mineralization according to Clark (2005); “1) pre-ore, 2) ore, 3) post-ore and the ore can be divided into three zones; upper ore, lower ore, and deep ore.” The upper ore is defined as being >2,100m a.s.l., lower ore is found between 2,100m and 1,700m a.s.l. and deep ore as being <1,700m a.s.l.
All historic descriptions of the mineralization contain the term “ore”. In most cases, the terminology applies to previously mined mineralization. Historic authors have generally agreed that there are three separate zones of mineralization; upper ore, lower ore and deep ore. Normally this categorization refers to areas now mined out but in other cases, it refers to horizons of un-mined material that may contain mineralization that would not be considered as “ore” as defined by NI 43- 101Standards of Disclosure for Mineral Projects adopted by the securities regulators in Canada. The authors have chosen to use the same language to be consistent with the historic documentation and are not implying that the mineralization will ever become ore that can be mined at a profit.
The Veta Madre systems strike northwesterly and dip 450 to 650SW. The bulk of the mining production has come from a five-kilometre section of the Veta Madre stretching between the Valenciana shaft of our Company’s ground in the northwest to the Sirena shaft on Peñoles ground in the southeast. In this five kilometre area, the vein stockwork averages approximately 20m in width but can be as wide as 90m. Most of the historic production has come from the economically important lower ore level (2,100m to 1,700m a.s.l.) and is typically associated with faults and both footwall and hanging wall stockwork vein systems.
The argentiferous mineralization is hosted in quartz veins with gangue mineralogy of quartz, calcite, pyrite, adularia, and sericite. The principal silver bearing mineralization is acanthite (argentite), aguilarite and naumannite while gold occurs as free gold and as electrum. The gold to silver ratios vary from approximately 1:70 to 1:200. Base metal mineralization is not common; when it occurs it is observed as chalcopyrite, sphalerite and galena. The exception is the “deep ore” in the Rayas mine which is associated with chalcopyrite and galena.
The economic mineralization is hosted in quartz-carbonate-adularia veins and stockwork systems with identifiable “ore-shoots” that carry the bulk of the economic mineralization. The ore shoots are discontinuous, 10-40m wide and typically equal in vertical dimensions to strike length. The discontinuous nature of the ore-shoots has made ongoing underground and surface exploration challenging and not necessarily well understood. On average, approximately 20% of the volume of the
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individual veins becomes ore. The higher grade portions of the veins range in width from less than a metre up to 90m in width, historic average grade in the Veta Madre are 450g/t Ag and 2.5g/t Au.
e. Mineral Resource and Mineral Reserve Estimates
There are currently no reserve or resource estimates conforming to NI 43-101Standards of Disclosure for Mineral Projects adopted by the securities regulators in Canada. The most recent, noncompliant, resource estimate was made in 2000 by Sociedad Cooperativa Minero-Metalurgica Santa Fe de Guanajuato with most of the resource located in the lower levels of the mine.
f. Exploration
The Company commenced a surface diamond drilling program in 2005. The drilling program intersected bonanza grade silver and above average gold within the Veta Madre vein structure. Highlights of the program include 692 g/t silver and 5.17 g/t gold over 5.8 metres and 1,096 g/t silver and 4.15 g/t gold over 2.5 metres.
The drilling, comprising 1,163.3 metres in six holes, was designed to duplicate and surround a lone 1989 drill hole (#317) that intersected a 5.35 metre wide zone grading 3.34 g/t Au and 81.5 g/t Ag, including 10.65 g/t gold and 165 g/t silver over 1.55 metres. The drilling was completed under and northwest of the Guanajuatito ramp along the trend of the Veta Madre, approximately one kilometre northwest of the famous Valenciana Mine (now owned by Great Panther).
The holes were drilled on four section lines at 50 metre intervals, covering a strike length of 150 metres. Two styles of mineralization were noted in the drill holes: silver-gold mineralization in the Veta Madre itself and a previously unrecognized zone of gold-arsenic-antimony mineralization in the hanging wall. Both zones are epithermal in nature, and likely represent separate pulses of mineralization.
In this part of the mine complex, the Veta Madre is manifested as a silica breccia at the contact between the hanging wall diorite and the footwall sediments. Hole GTTO-05-004 was drilled to test the zone of mineralization in hole 317, mentioned above. Hole 004 intersected a 7.3 metre wide vein breccia, interpreted as the Veta Madre, of which 5.8 metres (4.1 metre true width) assayed 692 g/t silver and 5.17 g/t gold. Fifty metres along strike to the southeast, hole GTTO-05-005 intersected a 3.4 metre thick section of the same Veta Madre breccia, with a 2.5 metre (1.77 metre true width) portion assaying 1,096 g/t silver and 4.15 g/t gold. A further 50 metres along strike to the southeast, hole GTTO-05-006 intersected 7.5 metres of the Veta Madre breccia with a 1.5 metre (1.06 metre true width) portion assaying 209 g/t silver and 1.55 g/t gold. The most northwesterly holes, GTTO-05-001 & 002, as well as GTTO-05-003, drilled 50 metres updip from hole 004, did not intersect the Veta Madre breccia. Details of significant intersections are listed below.
The gold-arsenic-antimony mineralization consists of a 10-30 metre thick (estimated true width) zone of quartz-pyrite veinlets within an extensive stockwork/breccia in the hanging wall diorite and was intersected in all six holes. Although gold values in this zone were mostly below 1 g/t in the drilling, the holes may be too high in the epithermal system, with the possibility of better mineralization at depth. As such, the hanging wall diorite breccia is a significant, previously un-assayed, gold target which will be followed up by surface and underground mapping, rock geochemistry and further drilling. Elsewhere in the mine, stockwork/breccia zones can achieve thicknesses of 30 metres or more and have historically provided substantial tonnages of silver-gold mineralization amenable to bulk underground mining methods.
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The Company concluded that the Veta Madre breccia forms the more appealing target as the drill holes show that it continues with excellent widths and grades below previous workings at the Guanajuatito ramp. The aforementioned intersections occurred at a vertical depth of 100 -120 metres below surface. The Veta Madre is known to extend more than 700 metres vertically (approximately 1,000 metres down dip) from surface. Mineralized “shoots” within the structure are often continuous to depth, which bodes well for these new intersections, as there has been no drilling or underground development below them. The Guanajuatito ramp provides easy access to this high grade mineralization and only a minor amount of mining has taken place in the past. The underground workings here will be re-sampled and surveyed as part of the Company's ongoing silver-gold resource evaluation.
An extensive underground sampling program continued through 2006 at Guanajuato. Preliminary sampling in the first quarter of 2006 has returned spectacular bonanza grades from the Valenciana Mine. Silver grades ranged from 1,100 g/t (32 oz/t) to 30,468 g/t (889 oz/t) and gold grades ranged from 19 g/t (0.6 oz/t) to 177 g/t (5.2 oz/t) in 27 selective grab samples taken by the mine staff. These results yield an arithmetic average of 11,036 g/t (322 oz/t) Ag and 62 g/t Au (1.8 oz/t). Using a silver-to-gold ratio of 60:1, this equates to a silver equivalent grade of 430 oz/t or a gold equivalent grade of 7.2 oz/t. The samples also contained, on average, 0.34% Cu, 0.24% Pb and 0.87% Zn.
The samples were taken from the walls of old stopes in a part of the mine that has historically been mined by hand, dating back to the early 19th century. As such, there has been very little, if any, mechanized mining here, and stopes are typically small and erratic in shape. The sampling was carried out as a first-pass assessment of the tenor and distribution of mineralization that has been left behind by these historic mining campaigns. Consequently, it is presently unknown just how representative these grades may be from a mining standpoint.
Significantly, the sampling came from 6 different stopes above and below the 285 metre level over a total strike length of about 500 metres. Grades from the various stopes were comparable. Five of these stopes lie within 200 metres of the Valenciana shaft and there has only been limited development below this level, approximately 150 metres, to the bottom of the shaft. The sixth stope, number 1414, lies 400 metres southeast of the shaft and has been partially developed between the 285 and 320 metre levels. There has been no development above this for at least 100 metres and there does not appear to have been any work done below it at all, suggesting that the mineralization is totally open to depth.
In addition, initial surface rock sampling on the Promontorio claim, southeast of the Rayas Shaft, has identified a gold-rich zone of mineralization along more than 100 metres of the Veta Madre structure. Two channel samples across this zone returned 5.2 g/t Au over 3.2m and 7.6 g/t Au across 3.0m. A further 100 metres along strike to the southeast of the above, an exposure of silica breccia and a footwall shear were sampled over a 25 by 45 metre area, yielding anomalous to "ore-grade" (as defined by the current operators) gold and silver values. In the Promontorio area the Veta Madre and associated stockwork and shear zones form topographic dip slopes making for easy drill targets and are readily accessible for potential surface exploitation. Elsewhere in the mine complex, these mineralized stockworks can reach widths of 30 metres or more and locally exceed 100 metres in strike length and down-dip extent allowing for bulk tonnage underground mining methods to be used.
Initial evaluations of underground workings near the Promontorio Shaft, and approximately 150 metres vertically below these surface outcrops, indicated the presence of similar gold-dominated mineralization. Compilation of the underground data is ongoing, as will be the evaluation of the extent of former mining, and re-sampling of stopes and levels. There is more than 300 metres of strike length to the southeast of Promontorio that has apparently seen only limited exploration and underground development, such that the potential for previously unrecognized mineralization in this area is excellent. Overall, the property
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encompasses more than four kilometres of strike length on the Veta Madre structure, much of which has seen little to no exploration.
In June 2006, we commenced the first phase of our underground diamond drilling program, which is to comprise of a minimum of 3,000 metres in approximately 45 holes. The purpose of the drilling was to better define zones of silver-gold mineralization for production purposes and for the preparation of a NI43-101 compliant resource. The drilling focused mainly on San Vicente North.
In October 2006, we commenced a second phase of our diamond drilling program and completed extensive underground sampling at the limits of the silver-gold mineralization in the Guanajuatito Mine. The work to date in this northwest area of the Guanajuato Mine Complex has included the collection of more than 1,000 underground channel samples and is leading to a better understanding of the distribution of silver-gold mineralization. It has been observed that, while the Veta Madre quartz breccia is fairly consistent and is present in almost every hole, silver and gold grades vary somewhat, with higher grades tending to cluster in pockets with lower grade material in between, a typical feature of precious metal vein deposits. As such, even low grade intersections of vein material in drill holes spaced 50 metres apart are important as they indicate the continuity of the zone. Continued detailed sampling underground and/or follow-up drilling on a closer spacing will be needed to better define the actual grade of the zone.
Further underground development is already underway and this part of the mine is providing about 150 tonnes per day to the mill. Underground mapping and sampling is continuing in this area and the surface drilling is continuing in the Animas and Promontorio area in the Cata and Rayas shaft areas to the southeast. Results for these areas will be released in due course.
While all eight holes in the Animas drilling intersected silver-gold mineralization, the most significant results include 1.5 metres averaging 505g/t silver and 1.98g/t gold within 4.5 metres averaging 219g/t silver and 0.86g/t gold in GTT-06-020, and 2.1 metres of 658 g/t silver and 1.7 g/t gold in hole GTT-06-023. Mineralization in these holes, as well as that of hole GTT-06-21, is hosted within a portion of the Veta Madre structure that extends into the footwall shale. Approximately 125 metres further south from GTT-06-20 and 21, GTT-06-022 intersected 230g/t silver and 1.28g/t gold over 3.0 metres in a hanging wall stockwork. Fifty and seventy metres, respectively, deeper than hole 22, GTT-06-026 intersected 121g/t silver and 1.05g/t gold over 7.8 metres, and GTT-06-024 intersected 89g/t silver and 0.33 g/t gold over 9.0 metres. Both the intersections in GTT-06-024 and 026 as well as the narrower intersections in GTT-06-025 and 027 are within stockwork zones in hangingwall rocks.
In early 2006, we commenced a Phase II surface diamond drilling program designed to test three separate areas along a 4 kilometres of strike length along of the Veta Madre. The drill program was to follow-up on the successful drilling at Guanajuatito, in the northwest part of the property, as well as to test the Animas, and Garrapata areas which are farther along strike to the southeast. The 6,753 metres drilled in 34 holes was highly successful in identifying and delineating three new zones of silver-gold mineralization in the northwest, central and southeast parts of the mine property. These discoveries accentuate the previous lack of exploration on the property and the potential for new zones to be found throughout the mine. In addition, the easy access to these zones from existing underground workings means that they can be developed and mined quickly and cost-effectively.
In the Guanajuatito-Encarnación area, results of the diamond drilling program provided further definition of a new zone of silver-gold mineralization. Extensive underground sampling also confirmed the extension of the silver-gold mineralization. Both the drilling and sampling were part of a comprehensive, ongoing exploration program at Guanajuato to help better understand and delineate the silver-gold mineralization in area. A total of 3,205 metres was completed under and northwest of the Guanajuatito
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ramp, and in the adjacent Encarnación area along the trend of the Veta Madre, approximately one kilometre northwest of the famous Valenciana Mine (now owned by Great Panther). The program was initially designed to surround the 2005 drilling that intersected 692 g/t silver and 5.17 g/t gold over 5.8 metres and 1,096 g/t silver and 4.15 g/t gold over 2.5 metres. A total of nineteen holes have now been drilled in this area at approximately 50 metre intervals, covering a strike length of 400 metres and a vertical extent of 100 to 150 metres.
The work in the northwest area of the Guanajuato Mine Complex has included the collection of more than 1,000 underground channel samples and is leading to a better understanding of the distribution of silver-gold mineralization. It has been observed that, while the Veta Madre quartz breccia is fairly consistent and is present in almost every hole, silver and gold grades vary somewhat, with higher grades tending to cluster in pockets with lower grade material in between, a typical feature of precious metal vein deposits. This is illustrated on the level plan maps on the Company’s website. As such, even low grade intersections of vein material in drill holes spaced 50 metres apart are important as they indicate the continuity of the zone. Continued detailed sampling underground and/or follow-up drilling on a closer spacing will be needed to better define the actual grade of the zone.
Significant results from the 2006 drilling include 2.87 metres of 651g/t silver and 3.16g/t gold in hole GTT-06-015, located approximately 50m vertically below GTT-05-005 (1,096 g/t silver and 4.15 g/t gold over 2.5 metres). Drill hole GTT-06-015 helps define a high grade zone of silver-gold mineralization below the Guanajuatito ramp in the section 2800N area. Drill hole GTT-06-014 intersected 9.5m of anomalous Veta Madre mineralization including 6.0 metres of 111g/t silver and 1.55g/t gold under the Guanajuatito level +45 (mining formerly took place above level +45). Drill hole GTT-06-010 intersected 6.0m of anomalous Veta Madre with 1.0 metre of 82g/t silver and 0.35g/t gold. GTT-06-010 is 40 metres vertically below the high grade GTT-05-004 (692 g/t silver and 5.17 g/t gold over 5.8 metres). Drill hole GTT-06-013 intersected 8.2m of anomalous Veta Madre, while GTT-06-019 intersected a broad zone of silica breccia with 1.0 metre of 77g/t silver and 0.59g/t gold. This hole is 60m northwest of former mining on the Encarnación sublevel 45.
As in the 2005 drilling, two styles of mineralization were noted in the 2006 holes: silver-gold mineralization in the Veta Madre itself and a zone of gold-arsenic-antimony stockwork mineralization in the hanging wall. Although only the Veta Madre style has returned grades of an economic level so far, the stockwork style often contains anomalous levels of gold and will be evaluated underground to better understand the distribution of the mineralization.
Highlights of Diamond Drilling:
Hole No. | From (m) | To (m) | Width (m) | True Width (m) | Ag (g/t) | Au (g/t) |
GTTO-05-004* | 131.7 | 137.5 | 5.8 | 4.1 | 692 | 5.17 |
GTTO-05-005* | 110.5 | 113.0 | 2.5 | 1.77 | 1,096 | 4.15 |
GTTO-05-006* | 113.5 | 115.0 | 1.5 | 1.06 | 209 | 1.55 |
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GTT-06-010 | 160.0 | 161.0 | 1.0 | 0.9 | 82 | 0.35 |
GTT-06-013 | 156.7 | 158.5 | 1.8 | 1.5 | 22 | 0.55 |
GTT-06-004 | 167.0 | 176.5 | 9.5 | 8.1 | 90 | 1.13 |
Includes | 169.0 | 176.0 | 6.0 | 5.1 | 111 | 1.55 |
GTT-06-015 | 168.83 | 171.7 | 2.87 | 2.4 | 651 | 3.16 |
GTT-06-016 | 218.5 | 220.4 | 1.9 | 1.6 | 127 | 0.91 |
GTT-06-019 | 220.5 | 221.5 | 1.0 | 0.9 | 77 | 0.59 |
* designates results released Dec 1, 2005.
The continued drilling and sampling have helped us better define a zone of silver-gold mineralization (the Guanajuatito Zone) that appears to plunge off to the southwest. This zone is approximately 200 metres along strike and could extend for at least 400 metres down-plunge as it appears to join up with mineralization intersected in deep drilling from the 1980's. Structurally, this appears to be a new trend to mineralization in the mine complex and may be related to the contact between a dioritic intrusive that forms the hanging wall in the Guanajuatito area and the "Guanajuato Conglomerate" which is the hanging wall unit along strike to the southeast.
Plan maps for the Guanajuatito +45 level and Encarnación +15 level (all mine levels are referenced to the '0 metre' elevation at the access to the Rayas shaft) have been included on the Company’s website. Re-sampling of these levels (2450N - 2750N sections) returned some excellent values associated with the Veta Madre silica breccia. Mineralized intersections in GTT-06-013, 014 and 019 imply further potential in this area and have helped to define the western limits to the Encarnación Zone, which appears to follow the more common southeast plunge and is open to depth. Continued evaluation of this part of the mine will be conducted from underground as is will be more cost-efective than drilling from surface.
On the Guanajuatito +45 level, 31.6% of the samples assayed greater than 55 g/t silver equivalent (AgE) using US$525/oz gold and US$10.50/oz silver. These samples averaged 178 g/t AgE (143 g/t AgE using an 80% historic mill recovery rate). On the Encarnación +15 level, 57.1% of the samples assayed greater than 55 g/t silver equivalent (AgE) using the same prices. These samples averaged 231 g/t AgE (185 g/t AgE using an 80% historic mill recovery rate). On both levels, the higher grade values cluster into distinct zones as seen on the level plans.
The second portion of the 2006 drill program focused on testing a gap in historical production, known as the Animas area, between the Cata Mine and San Vicente North Ramp. It represents a section of the Veta Madre vein structure approximately 175 metres in strike length by 150 metres vertical, immediately below surface and accessible by ramp. As such, the newly defined mineralization presents an immediate target for stope development and mining.
While all eight holes in the Animas drilling intersected silver-gold mineralization, the most significant results include 1.5 metres averaging 505g/t silver and 1.98g/t gold within 4.5 metres averaging 219g/t silver and 0.86g/t gold in GTT-06-020, and 2.1 metres of 658 g/t silver and 1.7 g/t gold in hole GTT-06-023. Mineralization in these holes, as well as that of hole GTT-06-21, is hosted within a portion of the Veta Madre structure that extends into the footwall shale. Approximately 125 metres further south from
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GTT-06-20 and 21, GTT-06-022 intersected 230g/t silver and 1.28g/t gold over 3.0 metres in a hanging wall stockwork. Fifty and seventy metres, respectively, deeper than hole 22, GTT-06-026 intersected 121g/t silver and 1.05g/t gold over 7.8 metres, and GTT-06-024 intersected 89g/t silver and 0.33 g/t gold over 9.0 metres. Both intersections in GTT-06-024 and 026 as well as the narrower intersections in GTT-06-025 and 027 are within stockwork zones in hangingwall rocks. The latter two were the deepest of the eight holes and may represent a pinching of the zone at this point.
Highlights of Diamond Drilling:
Hole No. | From (m) | To (m) | Width (m) | True Width (m) | Ag (g/t) | Au (g/t) |
GTT-06-020 | 33.0 | 37.5 | 4.5 | 4.5 | 219 | 0.86 |
Including | 36.0 | 37.5 | 1.5 | 1.5 | 505 | 1.98 |
GTT-06-021 | 37.1 | 44.5 | 7.4 | 5.2 | 37 | 0.18 |
GTT-06-022 | 56.5 | 59.5 | 3.0 | 3.0 | 230 | 1.28 |
GTT-06-023 | 102.9 | 105.0 | 2.1 | 2.1 | 658 | 1.7 |
GTT-06-024 | 124.35 | 143.5 | 9.15 | 9.0 | 89 | 0.33 |
GTT-06-025 | 197.0 | 198.0 | 1.0 | 0.7 | 163 | 0.3 |
GTT-06-026 | 115.3 | 124.0 | 8.7 | 7.8 | 121 | 1.05 |
GTT-06-027 | 172.5 | 173.5 | 1.0 | 0.7 | 19 | 0.98 |
As there still remains a portion of the Animas area that is inaccessible for surface drilling, additional holes to test this gap are being completed in an underground drill program.
The styles of mineralization at Animas are somewhat different from the quartz breccia at Guanajuatito in the northwest end of the property. At Animas, gold-silver mineralization is hosted in quartz-carbonate stockwork zones in hanging wall conglomerate; in the Veta Madre silica breccia located along the contact between the hanging wall conglomerate and footwall shales; and in silica flooded (stockwork and breccia) footwall shale. These styles of mineralization are well displayed in the surface drilling and in underground workings in the various shallow levels of San Vicente North. The fact that the Animas mineralization is located virtually from surface down to about the 170 metre level underscores the fact that the upper levels of the Guanajuato Mine Complex have not been mined out.
The third portion of the 2006 drill program focused on an unexplored area along strike from the mine workings at the Promontorio shafts. The area represents a section of the Veta Madre vein structure approximately 150 metres in strike length by 150 metres vertical, immediately below surface and accessible by the San Vicente South Ramp.
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While all seven holes in the Promontorio drilling intersected silver-gold mineralization, the most significant results include 149g/t silver and 2.2g/t gold across 5.4 metres of the Veta Madre in hole GTT-06-031; and 141g/t Ag and 0.54g/t Au across 2.24 metres of the Veta Madre in GTT-06-034, located 40 metres northwest of hole 31. Another 120m northwest of GTT-06-034, near the Promontorio shaft, GTT-06-028 intersected 92g/t Ag and1.08g/t Au across 3.65 metres.
Parallel zones to the Veta Madre are also well developed, including a hanging wall silica stockwork developed in conglomerate. Apparently, this zone was partially exploited in the past as holes GTT-06-030 and 032 were unexpectedly lost in unrecorded stopes. However, the remaining hangingwall stockwork in GTT-06-032 assayed 43g/t Ag and 0.95g/t Au across 4.9 metres.
Of particular note is that a footwall stockwork is locally developed in the porphyritic diorite. This new zone has been traced for approximately 150m of strike length with notable intersections of 92g/t Ag and 0.53g/t Au across 4.3 metres in GTT06-028 and 197g/t Ag and 0.57g/t Au across 1.52 metres in GTT-06-034.
Hole No. | From (m) | To (m) | Width (m) | True Width (m) | Ag (g/t) | Au (g/t) | Zone/Comments |
GTT-06-028 | 69.75 | 73.4 | 3.65 | 3.65 | 31 | 1.08 | Vetra Madre |
76.2 | 80.5 | 4.3 | 4.3 | 92 | 0.53 | FW stkwk | |
GTT-06-029 | 64.7 | 71.5 | 6.8 | 4.8 | 44 | 0.78 | HW stkwk |
Includes | 66.15 | 67.2 | 1.05 | 0.7 | 185 | 2.31 | |
GTT-06-031 | 134.5 | 139.9 | 5.4 | 5.4 | 149 | 2.02 | Vetra Madre |
GTT-06-032 | 115.05 | 128.7 | 13.6 | 9.5 | 45 | 0.35 | Upper HW stkwk |
155.95 | 162.05 | 6.1 | 4.9 | 43 | 0.95 | HW stkwk | |
GTT-06-033 | 122.5 | 129.5 | 7.0 | 4.9 | 59 | 0.21 | HW stkwk |
131.5 | 137.5 | 6.0 | 4.2 | 80 | 1.85 | Vetra Madre | |
146.5 | 148.5 | 2.0 | 1.4 | 123 | 0.44 | FW stkwk | |
GTT-06-034 | 125.7 | 128.5 | 2.8 | 2.24 | 141 | 0.54 | Vetra Madre |
140.3 | 142.2 | 1.9 | 1.52 | 197 | 0.57 | FW stkwk |
Additional holes in the Promontorio area will be completed by the underground drill commencing in early 2007.
The styles of mineralization at Promontorio, as seen in the surface drilling and surface outcroppings, include silver-gold mineralization hosted in several quartz-carbonate stockwork zones in the hanging wall
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conglomerate; silica breccia in the Veta Madre located along the contact between the conglomerate and footwall diorite porphyry; and in silica flooded (stockwork and breccia) footwall diorite. Detailed geological mapping and rock sampling of underground workings in this part of the mine are ongoing.
In early 2006, preliminary sampling returned spectacular bonanza grades from the Valenciana Mine. Silver grades ranged from 1,100 g/t (32 oz/t) to 30,468 g/t (889 oz/t) and gold grades ranged from 19 g/t (0.6 oz/t) to 177 g/t (5.2 oz/t) in 27 selective grab samples taken by the mine staff. These results yield an arithmetic average of 11,036 g/t (322 oz/t) Ag and 62 g/t Au (1.8 oz/t). Using a silver to gold ratio of 60:1, this equates to a silver equivalent grade of 430 oz/t or a gold equivalent grade of 7.2 oz/t. The samples also contained, on average, 0.34% Cu, 0.24% Pb and 0.87% Zn.
The samples were taken from the walls of old stopes in a part of the mine that has historically been mined by hand, dating back to the early 19th century. As such, there has been very little, if any, mechanized mining here and stopes are typically small and erratic in shape. The sampling was carried out as a first-pass assessment of the tenor and distribution of mineralization that has been left behind by these historic mining campaigns. Consequently, it is presently unknown just how representative these grades may be from a mining standpoint.
Significantly, the sampling came from 6 different stopes above and below the 285 metre level over a total strike length of about 500 metres. Grades from the various stopes were comparable. Five of these stopes lie within 200 metres of the Valenciana shaft and there has been only limited development below this level to the bottom of the shaft, approximately 150 metres below. The sixth stope, number 1414, lies 400 metres southeast of the shaft and has been partially developed between the 285 and 320 metre levels. There has been no development above this for at least 100 metres and there does not appear to have been any work done below it at all, suggesting that the mineralization is totally open to depth. Longitudinal sections of the mine are available for viewing on the Company's website atwww.greatpanther.com.
The Company is continuing to better determine the extent of this mineralization or to quantify any potential volumes. The most important issue in doing this is in evaluating the safety level of any procedure that could be implemented to extract this material from the historic workings. Any mining below these levels, however, would be in virgin rock and could be developed using modern techniques and safety standards.
With these grades, this material would not need to be processed at the on-site plant, but would be shipped directly to the smelter for processing, thereby decreasing the production costs and increasing the net value.
The Valenciana Mine has always been known for its high grades. Mineralization was first discovered here by the Spanish in 1768, and the ore was so rich that Valenciana quickly became the most productive silver mine in the world in the second half of the 18th century (Elizabeth Emma Ferry, Cultural Anthropology, 2002). Of the 3 operating shafts on Great Panther's property, Valenciana is the deepest, at 500 metres, and limited diamond drilling in the 1980's suggest that the mineralization continues below this for at least another 200 metres.
The Company continued surface diamond drilling in 2007 and intersected four new silver-gold zones and provided further definition on the three previously known zones of silver-gold mineralization in the Promontorio area. All zones are sub-parallel and occur within 70 metres of the main Veta Madre. Having several zones within close proximity like this will significantly lower their development costs and plans are already in preparation for the exploitation of this area. The new mineralization lies between 70 and 150 metres below surface and is accessible by ramp.
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This portion of the 2007 drill program comprised 2,135.8 metres in eleven holes (SG07-035 to SG07-045) and was focused on defining mineralization in the Promontorio / Garrapata area - the southern most area of exploitation in the Guanajuato Mine Complex. Previous results from this part of the mine were announced on Dec. 12, 2006. Mineralization in this area is now known to comprise at least seven parallel zones: the main Veta Madre, a hangingwall zone (‘HW’ – above the Veta Madre) and five footwall zones (‘FW’ – below the Veta Madre). The Veta Madre quartz breccia occurs at the fault contact between hangingwall conglomerates and a footwall mix of metasediments, metavolcanics, and intrusions. The hangingwall zones occur as quartz stockworks in the conglomerates. The footwall zones have been divided into the FW #1a, #1b, #1c, #2, and #3 zones and are associated with quartz stockworks and breccias. The FW #1 and #2 zones are hosted within diorite and quartz-feldspar porphyry intrusions, while the #3 zone occurs at the lower contact between the intrusions and footwall metasediments.
The HW zone was cut by drill holes SG07-035 to 037, and 040 to 045 and displays a higher gold:silver ratio than other zones. Examples of this include 21.2g/t gold and 52g/t silver over 0.88 metres in SG07-035; 11.1g/t gold and 13g/t silver over 1.15 metres in SG07-036; 9.95g/t gold and 477g/t silver over 1.05 metres in SG07-037; and 23.45g/t gold and 45g/t silver over 2.45 metres in SG07-043. The HW zone has been traced for more than 150 metres along strike and up to 100 metres down dip.
The Veta Madre itself was intersected in all holes except SG07-041, which was lost in an old stope. Signs of former mining along the Veta Madre were noted in seven of the eleven holes in this program, however no signs of previous mining were observed in the FW zones. Parts of the Veta Madre have been left in place as evidenced by several mineralized intersections, including 1.98g/t gold and 77g/t silver over 2.59 metres in SG07-038 and 2.39g/t gold and 202g/t silver over 3.55 metres in SG07-043. As such, an in situ and well mineralized portion of the the Veta Madre zone has been traced for more than 150 metres along strike and up to 150 metres down dip.
The FW #1a zone was described in the last Promontorio news release (Dec 12, 2006) as the footwall #1 zone in drill holes SG06-033 and 034. The 2007 drilling has added to this with intersections in holes SG07-036 through 040, 042, 044, and 045. FW #1a is located 5-10 metres below the Veta Madre. Noteable intersections include 18.28g/t gold and 104g/t silver over 2.16 metres in SG07-036; 4.58g/t gold and 312g/t silver over 3.09 metres in SG07-037; and 2.02g/t gold and 265g/t silver over 3.60 metres in SG07-040. The FW #1a zone has been traced for more than 100 metres along strike and up to 100 metre down dip.
The FW #1b zone is located only 5 metres below the FW #1a zone, and was intersected in holes SG07-035, 036, 039, 040, and 042 to 045. Highlights from this zone include 0.93g/t gold and 181g/t silver over 2.47 metres in SG07-039 and 2.35g/t gold and 430g/t silver over 2.42 metres in SG07-040. To date, the FW #1b zone has been traced for more than 50 metres along strike and up to 75 metres down dip.
The FW #1c zone is located 5-10 metres below the FW #1b zone, and was intersected in SG07-036, 039, 040, and 045. Noteable intersections include 0.78g/t gold and 266g/t silver over 5.61 metres in SG07-036 and 1.26g/t gold and 292g/t silver over 3.10 metres in SG07-040. This zone has been traced for 50 metres along strike and up to 75 metres down dip.
A new footwall zone (designated FW zone #2) has been discovered approximately 50 metres below the Veta Madre and was intersected in holes SG07-035, 038, 039, 040, 042, and 045. This zone appears to be significantly thicker than some of the others with intercepts such as 6.15 metres of 1.20g/t gold and 206g/t silver in hole SG07-042 and 5.60 metres of 0.71g/t gold and 115g/t silver in SG07-045. The FW zone #2 has been outlined for more than 50 metres along strike and up to 50 metres down dip.
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A second new discovery (designated FW zone #3) lies approximately 70 metres below the Veta Madre and was intersected by holes SG07-042 and 043a, approximately 25 metres apart. These holes returned 2.97g/t gold and 175g/t silver over 1.10 metres and 1.55g/t gold and 194g/t silver over 2.31 metres, respectively.
There is no indication from drilling or a review of underground survey maps that the footwall zones have been previously mined. Drill hole spacing in this program was approximately 30 metres on average. At this spacing, the mineralized zones are observed to vary in thickness, and grades are also quite variable. Detailed drilling to further delineate and extend the zones will be required and will be carried out from existing underground workings that are now being re-habilitated.
The discovery of these new zones at Promontorio is significant, not only because of the near term potential for development but also because they imply that much of the footwall and hangingwall to the Veta Madre has been largely unexplored and, therefore, undeveloped. With more than 4 kilometres of strike length existing on the mine property, the potential for additional zones to be found is excellent.
Highlights of Diamond Drilling:
DDH # | From (m) | To (m) | Length (m) | True Width (m) | Au g/t | Ag g/t | Zone |
SG07-035 | 77.17 | 79.50 | 2.33 | 1.49 | 1.44 | 27 | HW |
83.30 | 84.18 | 0.88 | 0.56 | 21.20 | 52 | HW | |
152.20 | 156.20 | 4.00 | 2.56 | 1.40 | 83 | FW #2 | |
SG07-036 | 102.25 | 103.40 | 1.15 | 0.58 | 11.10 | 13 | HW |
118.08 | 120.24 | 2.16 | 1.08 | 18.28 | 104 | FW #1a | |
124.57 | 126.37 | 1.80 | 0.90 | 0.58 | 161 | FW #1b | |
134.40 | 140.01 | 5.61 | 2.81 | 0.78 | 266 | FW #1c | |
SG07-037 | 58.85 | 59.90 | 1.05 | 0.96 | 9.95 | 477 | HW |
65.10 | 69.90 | 4.80 | 4.37 | 0.56 | 114 | Veta Madre | |
76.86 | 79.95 | 3.09 | 2.81 | 4.58 | 312 | FW #1a | |
SG07-038 | 68.11 | 70.70 | 2.59 | 2.51 | 1.98 | 77 | Veta Madre |
71.75 | 72.91 | 1.16 | 1.13 | 1.91 | 16 | FW #1a | |
SG07-039 | 91.80 | 93.48 | 1.68 | 0.96 | 0.55 | 197 | FW #1a |
97.20 | 99.67 | 2.47 | 1.41 | 0.93 | 181 | FW #1b |
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DDH # | From (m) | To (m) | Length (m) | True Width (m) | Au g/t | Ag g/t | Zone |
110.00 | 111.10 | 1.10 | 0.63 | 1.04 | 112 | FW #1c | |
139.75 | 144.91 | 5.16 | 2.94 | 1.84 | 62 | FW #2 | |
SG07-040 | 55.15 | 57.20 | 6.33 | 3.61 | 1.61 | 57 | HW |
76.95 | 77.90 | 0.95 | 0.78 | 3.29 | 37 | Veta Madre | |
83.40 | 87.00 | 3.60 | 2.95 | 2.02 | 265 | FW #1a | |
89.03 | 91.45 | 2.42 | 1.98 | 2.35 | 430 | FW #1b | |
93.75 | 96.85 | 3.10 | 2.54 | 1.26 | 292 | FW #1c | |
SG07-042 | 112.40 | 114.65 | 2.25 | 0.95 | 0.74 | 162 | Veta Madre |
122.72 | 125.10 | 2.38 | 1.00 | 0.41 | 157 | FW #1a | |
130.50 | 133.00 | 2.50 | 1.05 | 0.33 | 154 | FW #1b | |
158.80 | 164.95 | 6.15 | 2.58 | 1.20 | 206 | FW #2 | |
182.60 | 183.70 | 1.10 | 0.46 | 2.97 | 175 | FW #3 | |
SG07-043 | 86.55 | 89.00 | 2.45 | 1.23 | 23.45 | 45 | HW |
93.60 | 95.85 | 2.25 | 1.13 | 2.02 | 21 | HW | |
107.30 | 108.23 | 0.93 | 0.47 | 3.50 | 60 | Veta Madre | |
112.55 | 116.10 | 3.55 | 1.78 | 2.39 | 202 | Veta Madre | |
136.80 | 139.00 | 2.20 | 1.10 | 1.40 | 14 | FW #1b | |
SG07-043a | 189.30 | 191.61 | 2.31 | 1.16 | 1.55 | 194 | FW #3 |
SG07-044 | 126.00 | 127.60 | 1.60 | 1.13 | 0.64 | 189 | FW #1a |
131.73 | 134.56 | 2.83 | 2.00 | 1.21 | 235 | FW #1b | |
SG07-045 | 106.61 | 108.96 | 2.35 | 2.26 | 0.87 | 193 | FW #1b |
132.15 | 137.75 | 5.60 | 5.38 | 0.71 | 115 | FW #2 |
In September 2007 a deep underground drilling program commenced in the Guanajuato Mine. The program is designed to twin, then fill in between, diamond drill holes completed in the 1980’s and 1990’s
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by the previous owners that indicated the continuation of silver-gold mineralization for approximately 200 metres below the existing mine workings.
Intercepts reported from this historic drilling included 863 g/t Ag and 4.33 g/t Au over 3.30 metres, 347 g/t Ag and 1.69 g/t Au over 3.05 metres, 377 g/t Ag and 20.0 g/t Au over 0.40 metres and 141 g/t Ag and 7.4 g/t Au over 0.60 metres. As both the drill core and drill logs for these holes are incomplete and assay certificates were not kept at the time, the results cannot be used for NI 43-101 purposes and cannot be relied upon. This has been one of the major limiting factors in why the Company has not been able to produce a new NI 43-101 compliant resource for the Guanajuato Mine. Similarly, most of Great Panther’s surface drilling cannot be used for this purpose due to the inability of an independent engineer to validate the location of the boundaries of old mine workings around the holes. This limits the ability to calculate volumes, and therefore tonnages, of mineralized rock. New, deep holes will have no such limitations and can then be used to calculate a new NI 43-101 compliant resource.
Six drill stations have been prepared on the 345 level (345 metres below surface) just southeast of the Cata shaft. As several holes can be drilled from each station, 30 core holes are currently planned, representing 7,000 metres. The full 4.2 kilometre strike length of the Guanajuato orebody is open to depth and previous drilling indicates significant potential to expand the mine below the existing workings. As additional drill stations have yet to be prepared elsewhere in the mine, it is anticipated that this will be an ongoing program and the Company hopes to add a second drill once the underground infrastructure is in place to support it.
In addition, the final holes of the 2007 surface program expanded the previously discovered mineralization in the Promontorio area with intercepts such as 12.5 metres of 3.79 g/t gold and 71 g/t silver plus 4.41 metres of 6.26 g/t gold and 256 g/t silver in SG07-065, as well as intersecting new extensions of historic zones near the Cata plant such as 7.10 metres of 1.10 g/t gold and 155 g/t silver in hole SG07-54.
This portion of the 2007 drill program comprised 5,274 metres in twenty-three holes (SG07-046 to SG07-068) and tested the near surface parts of the Veta Madre system near the Tepeyac Shaft (south of the historic Valenciana workings), the Maravillas Shaft (north of the historic Cata workings) and additional drilling in the Promontorio Shaft area following up on the recent discovery of new mineralized zones in that area. A final tally of 7,408 metres of surface drilling has been completed in 2007 at Guanajuato in 34 holes.
While previous drilling in the Promontorio area showed that mineralization here comprises at least seven parallel zones - the main Veta Madre, a hangingwall zone (‘HW’ – above the Veta Madre) and five footwall zones (‘FW’ – below the Veta Madre) – the follow up drilling has indicated that some of these zones locally appear to coalesce into one large zone, or “clavo”. This is best displayed in the aforementioned hole SG07-65 where sampling above and below an old stope on the Veta Madre returned 3.79 g/t gold and 71 g/t silver over 12.5 metres plus 6.26 g/t gold and 256 g/t silver over 4.41 metres, respectively immediately adjacent to the stope. As this hole was drilled somewhat obliquely to the orientation of the vein, the true width of the zone, including the mined out portion appears to be 9.79 metres. Other significant parts of the Veta Madre have been left in place as evidenced by the intersection of 2.25 g/t gold and 96 g/t silver over 5.75 metres in SG07-064.
Also following up on the last round of Promontorio drilling, additional assays were received from several of the previously drilled holes in this area and some of the mineralized zones were widened in the process. The best example of this is hole SG07-43 where 11.20 metres grading 2.83 g/t gold and 47 g/t silver was sampled adjacent to an old stope on the Veta Madre. The footwall side of the same stope
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assayed 2.39 g/t gold and 202 g/t silver over 3.55 metres (previously reported). As such, thetrue width of this zone, including the mined out portion, appears to be 9.54 metres, consistent with the 9.79 metre width observed in hole 65.
The HW zone at Promontorio was expanded southward in this program, and highlighted with intersections of 0.77 g/t gold and 216 g/t silver over 2.2 metres in SG07-059 and 2.14 g/t gold and 152 g/t silver over 8.34 metres in SG07-063. The FW zones were not significantly expanded in this program, however, and may be a local feature, possibly related to a dilational part of the Veta Madre structure. Additional intersections can be found in the table below.
Drill holes SG07-053 to 058, inclusive, tested the area close to the old Maravillas Shaft, just north of the plant at Cata. Results here were highlighted by the aforementioned 7.10 metres of 1.10 g/t gold and 155 g/t silver in hole SG07-54, while holes 53 and 55 returned similar grades over narrower intervals. The Tepeyac area did not return any significant results.
Highlights of Diamond Drilling:
DDH # | From (m) | To (m) | Length (m) | True Width (m) | Au (g/t) | Ag (g/t) | Zone | |
PROMONTORIO ADDITIONAL ASSAYS | ||||||||
SG07-039 | 78.90 | 81.30 | 2.40 | 1.37 | 2.55 | 17 | HW | |
SG07-042 | 135.15 | 144.00 | 8.85 | 3.72 | 1.10 | 144 | FW #1c | |
and | 150.25 | 154.35 | 4.10 | 1.72 | 1.09 | 159 | FW #1d? | |
SG07-043 | 97.03 | 108.23 | 11.20 | 5.60 | 2.83 | 47 | Veta Madre (HW part of old stope) | |
and | 108.23 | 112.55 | 4.32 | 2.16 | OLD STOPE | |||
and | 112.55 | 116.10 | 3.55 | 1.78 | 2.39 | 202 | Veta Madre (FW part of old stope); previously reported | |
SG07-043a | 190.05 | 192.30 | 2.25 | 1.12 | 1.56 | 195 | F.W. #3 | |
SG07-045 | 98.59 | 99.79 | 1.20 | 1.15 | 0.57 | 174 | FW #1b (reinterpreted) |
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DDH # | From (m) | To (m) | Length (m) | True Width (m) | Au (g/t) | Ag (g/t) | Zone | |
PROMONTORIO NEW | ||||||||
DRILLING | ||||||||
SG07-059 | 83.91 | 85.00 | 1.09 | 0.93 | 1.72 | 28 | HW | |
and | 111.50 | 113.72 | 2.22 | 1.89 | 0.77 | 216 | HW | |
and | 181.70 | 182.78 | 1.08 | 0.92 | 2.53 | 37 | FW 2 | |
SG07-060 | 194.05 | 196.28 | 2.23 | 1.11 | 2.18 | 91 | HW | |
and | 206.05 | 207.50 | 1.45 | 0.72 | 3.25 | 33 | HW | |
and | 210.83 | 212.00 | 1.17 | 0.58 | 2.41 | 118 | Veta Madre | |
SG07-061 | 133.50 | 134.65 | 1.15 | 1.09 | 0.99 | 162 | HW | |
SG07-062 | 155.25 | 156.80 | 1.55 | 1.47 | 3.34 | 72 | Veta Madre | |
SG07-063 | 118.25 | 122.80 | 4.55 | 3.19 | 1.92 | 69 | HW | |
and | 132.10 | 140.44 | 8.34 | 5.84 | 2.14 | 152 | HW | |
SG07-064 | 46.15 | 46.72 | 0.57 | 0.29 | 2.14 | 341 | HW | |
and | 164.40 | 170.15 | 5.75 | 2.88 | 2.25 | 96 | Veta Madre | |
including | 165.55 | 168.80 | 3.25 | 1.63 | 3.58 | 156 | Veta Madre | |
SG07-065 | 187.20 | 199.70 | 12.50 | 6.25 | 3.79 | 71 | Veta Madre | |
and | 199.70 | 202.35 | 2.65 | 1.33 | OLD STOPE |
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DDH # | From (m) | To (m) | Length (m) | True Width (m) | Au (g/t) | Ag (g/t) | Zone | |
and | 202.35 | 206.76 | 4.41 | 2.21 | 6.26 | 256 | Veta Madre | |
SG07-066 | 239.35 | 240.55 | 1.20 | 0.60 | 4.54 | 16 | Veta Madre | |
GARRAPATA SHAFT AREA (PROMONTORIO | ||||||||
NORTH) | ||||||||
SG07-067 | 328.70 | 331.64 | 2.94 | 2.06 | 1.89 | 561 | Veta Madre | |
MARAVILLAS SHAFT AREA | ||||||||
SG07-053 | 94.07 | 94.70 | 0.63 | 0.63 | 1.26 | 115 | Veta Madre | |
SG07-054 | 96.45 | 103.55 | 7.10 | 6.74 | 1.10 | 155 | Veta Madre | |
including | 96.45 | 99.90 | 3.45 | 3.28 | 2.03 | 261 | ||
SG07-055 | 94.80 | 97.40 | 2.60 | 2.21 | 1.47 | 155 | Veta Madre |
All of the mineralization intersected in the 2007 surface program lies between 70 and 160 metres vertically below surface. The Promontorio Zones represent approximately 150 metres of strike length and 200 metres of down-dip extension. They are accessible by ramp and existing underground workings are currently being re-habilitated. As soon as possible, detailed drilling to define and further extend the Promontorio area mineralization will be carried out from underground. Mineralization in the Maravillas area will be assessed by the mine staff to determine how best to develop this area.
In November, 2007 the new underground development and deep diamond drilling at the Company's wholly-owned Guanajuato Mine in Guanajuato, Mexico confirmed the depth extension of high grade gold and silver mineralization. New underground development on the 430 metre level, 13 metres below the old workings just southeast of the Cata Shaft, has cut the extension of a zone known as the Cata ‘Clavo’, while the first hole of the deep underground drilling program has intersected two silica breccia zones, approximately 13 metres apart, beginning at the 460 metre level.
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The Cata ramp, which starts on the 345 level, has been extended from the 417 level (deepest previous workings) down to the 430 level to investigate the down-dip continuity of the Cata Clavo, and drifts and cross-cuts have been started on that level to sample the mineralization. Channel sampling (16 samples) of the advancing face of a central drift (#430-690 drift), driven parallel to the strike of the lower zone returned 0.63 g/t gold and 202 g/t silver over an average width of 3.63 metres and strike length of 38.3 metres. At the same time, a small cross-cut, driven perpendicular to the strike of the lower zone in the footwall direction, encountered continuous and higher grade mineralization that has been sampled on both walls (15 samples) over a length of 10.30 metres and averaged 8.16 g/t gold and 2,017 g/t silver. (Gold and silver assays are uncut and, due to the high values, some samples have been sent for re-assay, the results of which are pending). Adding this to the mineralization in the drift gives a minimum horizontal width of approximately 14 metres to the zone, which is still open in all directions. A plan map of the sampling can be found on the Company website atwww.greatpanther.com.
The first hole of the deep underground program, EUG07-001, was drilled to test an area below the 417 level in the Cata Clavo, with the upper zone being 40 metres, and the lower zone 65 metres vertically below the 417 level, respectively. The upper zone is developed along the lower contact of a diorite intrusion and host sediments, while the lower zone is hosted entirely within the sediments. The zones consist of silicification, brecciation, and quartz vein flooding approximately 10-20 metres in thickness with bands of pyrite and argentite.
The Upper Zone returned 3.63 metres of 1.01 g/t gold and 279 g/t silver, including a core of 0.55 metres assaying 4.47 g/t gold and 1,250 g/t silver, while the Lower Zone returned 3.24 metres of 1.91 g/t gold and 609 g/t silver, including 1.25 metres of 2.97 g/t gold and 1,010 g/t silver. This compares favourably with historic hole 291, drilled in the late 1980’s by the previous owner of the mine, which reported only the lower zone of 3.65 metres of 3.92 g/t gold and 781 g/t silver. A drill section and longitudinal map are also posted on the Company web-site.
As the data from the historic drilling cannot be verified for NI 43-101 purposes, the Company can only use it as a guide in re-drilling this highly prospective area. As such, it is significant that there appears to be such a good correlation between the old intersection and the new drilling. Historic drill data indicates that the silver-gold mineralization in this area extends for at least 150 metres below the existing workings and over a strike length of approximately 300 metres.
The deep drilling at the Guanajuato Mine is testing the area between the 400 and 650 metre levels (dip length of 350 metres) along a strike length of 1,000 metres between and below the Cata and Rayas shafts. This drilling will be conducted under the historically high grade Cata and Rayas “Clavos”, which contained strong gold-silver mineralization down to the 417 metre and 450 metre levels, respectively. This ongoing program, now budgeted at 16,000 metres in 68 holes, is expected to be completed in the 3rd quarter 2008. Mining development on the 430 metre level of the Cata Clavo is continuing and the ramp will be extended to lower levels of the Cata Mine area.
Details of drill hole intersections:
Hole # | From metres | To metres | Width metres | True Width metres | Gold g/t | Silver g/t | Zone |
EUG07-001 | 132.83 | 136.46 | 3.63 | 3.29 | 1.01 | 279 | Upper |
including | 135.15 | 135.70 | 0.55 | 0.50 | 4.47 | 1,250 |
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Hole # | From metres | To metres | Width metres | True Width metres | Gold g/t | Silver g/t | Zone |
156.16 | 159.40 | 3.24 | 2.94 | 1.91 | 609 | Lower | |
including | 158.15 | 159.40 | 1.25 | 1.13 | 2.97 | 1,010 |
Further deep diamond drilling results from core drill-holes EUG07-002 to 007 confirmed the extension of high grade gold and silver mineralization to a depth of approximately 600 metres. This is 170 metres below the current lowest workings and highlights the potential for a major continuation of this world class orebody. Given the historical production of approximately one billion ounces of silver from the upper 400 metres of this deposit, the possibility of extending it by at least another 50% has major implications.
These six holes, plus the first hole reported in November 2007, were all drilled from the same underground drill site on the 345 level. They tested the down dip continuity, as well as the northwestern limit of the steeply southeast plunging Cata Clavo high grade ore shoot. Seven sub parallel zones of economic grade have been intersected in the drilling, and are named the Hanging Wall 1 (HW 1), Contact, Madre 1 through 4, and Footwall 1 (FW 1). The hanging wall rocks are intrusive diorite in contact with footwall argillites. The contact zone is located close to the diorite-argillite contact while the Madre 1-4 and FW-1 zones are within the argillite. All zones contain pyrite and argentite (silver sulphide), and are hosted within a package of intense silicification, brecciation, and quartz vein flooding up to 60 metres in thickness. The zones vary in thickness and grade from hole to hole but most are present in every hole.
The shallowest holes (EUG07-004 and 005) intersected the mineralized zones immediately under the 417 level, while EUG07-001, 006 and 007 tested the zones 60-70 metres down dip of the 417 level, and EUG07-002 tested the zones 200 metres down dip (~600 level). Hole EU07-003 was stopped prior to reaching the mineralized zones due to a temporary change in priorities but will be completed at a later date. The 417 level was the deepest level of previous mine workings, while current mining on the 430 level is the deepest exploitation in this part of the Guanajuato Mine Complex.
Hole EUG07-004 intersected 683g/t silver and 3.12g/t gold over 1.96 metres in the Contact zone, 1,033g/t silver and 2.88g/t gold over 1.47 metres in the Madre 1 zone and 329g/t silver and 0.92g/t gold over 8.38 metres in a composite of the Madre 2, 3, and 4 zones. At the same elevation, but further northwest, EUG07-005 intersected 1,810g/t silver and 20.6g/t gold over 0.26 metres in the Contact zone, and 203g/t silver and 0.82g/t gold over 5.05 metres in the Madre 2 zone.
The intermediate depth holes include EUG07-001 which was previously reported (November 29, 2007) as containing an Upper Zone (now interpreted as the Contact Zone) of 279 g/t silver and 1.01 g/t gold over 3.63 metres, including a core of 0.55 metres assaying 1,250 g/t silver and 4.47 g/t gold, and a Lower (Madre 2) Zone that returned 609 g/t silver and 1.91 g/t gold over 3.24 metres, including 1.25 metres of 1,010 g/t silver and 2.97 g/t gold. EUG07-001 was drilled to test an area below the 417 level in the Cata Clavo, with the upper zone being 40 metres, and the lower zone 65 metres vertically below the 417 level, respectively. EUG07-007 was drilled to the northwest and intersected 1.56 metres grading 324g/t silver and 1.2g/t gold in the Madre 1 zone and 1.74 metres grading 165g/t silver and 0.5g/t gold in the Madre 2 zone. EUG07-006 drilled farther to the northwest intersected the various zones but with low grades, and likely reflects the northwest limits of the Cata Clavo ore shoot. Drilling is continuing to the southeast.
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The deepest hole in this series is EUG07-002, which intersected all seven zones near the interpreted northwestern edge of the Cata Clavo oreshoot, and was highlighted by a one metre intersection grading 5,773g/t silver and 15.45g/t gold in the HW 1 zone. This intersection lies at an approximate depth of 600 metres, 170 metres vertically below the current mine workings and 240 metres down-dip. This opens up a very large area at depth for resource development and exploitation.
The validation of the widely spaced and poorly sampled historical drill holes is important in that 1) those holes indicated a strike length of approximately 300 metres for the Cata mineralization, 2) similar results were obtained below the Rayas and Valenciana Mine and 3) most of the 4.2 kilometre strike length of the Great Panther property has not been explored to depth.
Highlights of drill hole intersections:
Hole # | From (m) | To (m) | Width (m) | True Width (m) | Silver g/t | Gold g/t | Zone |
EUG07- | Contact | ||||||
001* | 132.83 | 136.46 | 3.63 | 3.29 | 279 | 1.01 | |
including* | 135.15 | 135.70 | 0.55 | 0.50 | 1,250 | 4.47 | |
156.16 | 159.40 | 3.24 | 2.94 | 609 | 1.91 | Madre 2 | |
including* | 158.15 | 159.40 | 1.25 | 1.13 | 1,010 | 2.97 | |
EUG07-002 | 190.77 | 191.77 | 1.00 | 0.57 | 5,773 | 15.45 | HW 1 |
EUG07-003 | incomplete | ||||||
EUG07-004 | 106.86 | 108.82 | 1.96 | 1.96 | 683 | 3.12 | Contact |
121.96 | 122.66 | 0.70 | 0.70 | 1,168 | 5.12 | Madre 1 | |
135.28 | 143.66 | 8.38 | 8.38 | 329 | 0.92 | Composite | |
including | 135.28 | 136.75 | 1.47 | 1.47 | 1,033 | 2.88 | Madre 2 |
and | 138.46 | 140.17 | 1.71 | 1.71 | 179 | 0.51 | Madre 3 |
and | 142.46 | 143.66 | 1.20 | 1.20 | 622 | 1.52 | Madre 4 |
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Hole # | From (m) | To (m) | Width (m) | True Width (m) | Silver g/t | Gold g/t | Zone |
EUG07-005 | 102.32 | 102.58 | 0.26 | 0.24 | 145 | 0.37 | HW 1 |
109.00 | 109.26 | 0.26 | 0.24 | 1,810 | 20.60 | Contact | |
117.75 | 118.23 | 0.48 | 0.45 | 485 | 1.93 | Madre 1 | |
126.03 | 131.10 | 5.07 | 4.77 | 203 | 0.82 | Madre 2 | |
including | 126.03 | 127.75 | 1.72 | 1.62 | 324 | 1.16 | Madre 2 |
EUG07-006 | 188.78 | 189.13 | 0.35 | 0.27 | 421 | 0.18 | FW 1 |
EUG07-007 | 105.72 | 105.92 | 0.20 | 0.17 | 210 | 1.17 | HW 1 |
EUG07-007 | 141.24 | 142.80 | 1.56 | 1.36 | 324 | 1.20 | Madre 1 |
EUG07-007 | 148.76 | 150.50 | 1.74 | 1.51 | 165 | 0.50 | Madre 2 |
EUG07-007 | 191.01 | 191.60 | 0.59 | 0.51 | 134 | 0.46 | FW 1 |
*previously reported.
Drill-holes EUG07-008 to 012 were all collared 50 metres southeast of holes EUG07-001 to 007 on the 345 level cross cut to test the down dip and strike continuity of the Cata Clavo. All drill holes intersected significant mineralization in multiple zones with some demonstrating excellent widths and others, excellent grades.
Hole EUG07-008 intersected 1.7 metres grading 395g/t silver and 2.13g/t gold in the HW1 zone but had to be abandoned prematurely due to technical reasons. Significant widths of mineralization were intersected in the Veta Madre zone in holes EUG07-009 and EUG07-010, while in EUG08-011 the Veta Madre consisted of several mineralized splays. EUG07-009 intersected 7.36 metres grading 135g/t silver and 0.47g/t gold, while EUG07-010 intersected 10.82 metres grading 174g/t silver and 0.75g/t gold (including 3.52 metres grading 362g/t silver and 1.58g/t gold) in the Veta Madre zone. Holes EUG07-008 to 010 were drilled to intersect the mineralized zones just below the existing workings on the 430 metre level in order to guide mine development in this area. EUG08-011, drilled below the previous three, intersected 0.33 metres grading 4,280g/t silver and 13.1g/t gold and 1.03 metres grading 176g/t silver and 6.01g/t gold in Veta Madre 1 and 2, respectively.
The HW1 zone was further tested to a vertical depth of 500 metres, in EUG08-012, with three intersections, the best of which returned 1.42 metres grading 1,482g/t silver and 5.14g/t gold. This interval matches well with the high grade intersection located 50 metres to the northwest and down dip in
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previously reported (Feb. 26, 2008) EUG07-002 which intersected 1.0 metre grading 5,773g/t silver and 15.45g/t gold in the HW1 zone. Highlights are detailed in the table below and maps and sections can be viewed on the Company’s website atwww.greatpanther.com.
Holes EUG08-013 to 016 were also drilled from this second station and assays are being compiled. Drilling is now continuing from the third of six underground stations, located another 50 metres to the southeast of the second site. To date, every hole in the deep drilling at Cata has intersected good mineralization and the program is confirming wide spaced historic drill data that indicated the extension of silver-gold mineralization in this area for at least 150 metres below the existing workings and over a strike length of approximately 300 metres. Seven sub-parallel zones of economic note have now been identified within a system of intense silicification, brecciation, and quartz vein flooding up to 60 metres in thickness.
Highlights of drill hole intersections:
Hole # | From (m) | To (m) | Width (m) | True Width (m) | Silver (g/t) | Gold (g/t) | Zone |
EUG07- | 90.05 | 91.75 | 1.70 | 1.70 | 395 | 2.13 | HW 1 |
008 | |||||||
EUG07- | 145.47 | 152.83 | 7.36 | 7.36 | 135 | 0.47 | V. Madre |
009 | |||||||
EUG07- | 88.98 | 89.58 | 0.60 | 0.60 | 300 | 0.95 | HW 1 |
010 | |||||||
144.80 | 155.62 | 10.82 | 10.82 | 174 | 0.75 | V. Madre | |
including | 144.80 | 148.32 | 3.52 | 3.52 | 362 | 1.58 | V. Madre |
EUG08- | 134.96 | 143.50 | 8.54 | 7.69 | 89 | 1.43 | Contact |
011 | |||||||
145.38 | 145.71 | 0.33 | 0.30 | 4,280 | 13.10 | V. Madre 1 | |
148.29 | 149.32 | 1.03 | 0.93 | 176 | 6.01 | V. Madre 2 | |
EUG08- | 140.22 | 141.64 | 1.42 | 0.99 | 1,482 | 5.14 | HW 1 |
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Hole # | From (m) | To (m) | Width (m) | True Width (m) | Silver (g/t) | Gold (g/t) | Zone |
012 | |||||||
145.38 | 147.13 | 1.75 | 1.23 | 315 | 1.44 | HW 1 | |
156.96 | 162.54 | 5.58 | 3.91 | 213 | 0.63 | HW 1 |
g. Total Costs Incurred to Date and All Planned Future Costs
As at December 31, 2007 total costs incurred on mineral properties, plant and equipment at the Guanajuato mines were $13,403,000. Total exploration costs were $4,258,000.
Planned costs for 2008 are approximately $4.1 million for capital investment and exploration.
h. Source of Power and Water that can be Utilized at the Property
The electricity supply to the operations in our Guanajuato unit is provided through the national power grid administered by CFE. The water supply is carried out through groundwater of our mines and rainwater filtrations.
3. Mapimi Project
a. Acquisition
On September 11, 2006, the Company signed an option agreement to purchase 100% of the ownership rights to seventeen mining concessions collectively known as the Mapimi Project (formerly “Km 66”) in eastern Durango State, Mexico. In consideration for the right and purchase option the Company must make staged payments totaling US$3,000,000 (US$100,000 paid) and issue 500,000 common shares (200,000 shares issued) over a four year period. The vendors retain a 3% NSR of which, each 0.5% up to a maximum of 2% can be purchased by the Company for US$500,000.
The Concessions are valid for 50 years from the time of grant and most are valid until 2053.
b. Location and Accessibility
The Property is situated in the northern plateau region of Durango State. It is located approximately 66 kilometres west of the town of Bermejillo and 100 kilometres north-west from the city of Torreon and San Pedro de las Colonias, in Coahuila State. The property is easily accessible and the infrastructure is considered excellent, since the property is bisected by paved highway approximately 100 kilometres from Peñoles’ smelter at Torreon.
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Airports are situated in the city of Torreon as well as the city of Durango. Both airports have scheduled daily flights to and from Mexico City, Mazatlan, Monterrey and Houston, Texas.
The municipality of Mapimi is on an electrical power grid and has telephone services provided by TelMex. Water and drainage systems are also present.
Refer to Exhibit 8.5 – Map of Mapimi Property.
c. History
In 1995, Minera Apolo, S.A. de C.V. (“Apolo”) acquired the property and optioned the property to Coeur d’Alene Mines Inc. in late 1996. Between 1997 and 1998, Coeur D’Alene carried out regional and geological mapping in some areas of the property. They completed a total of 397 metres of trenching, a gravity survey, 81 reverse circulation drill holes, 22 diamond drill holes and 422 surface channel samples.
d. Mineralization
Mineralization at Mapimi includes lead, zinc, and silver minerals with lesser amounts of gold and copper minerals. The mineralization at Mapimi is associated with hydrothermal breccias and stockworks related to a cluster of rhyolite domes, and shows a strong similarity to the historic Real de Angeles District in Zacatecas State, Mexico. An upper, oxidized portion (~40-60m) of the mineralization at Mapimi consists of jarosite and hematite; with sulphides consisting of pyrite, silver sulfosalts, sphalerite and galena at depth.
The breccias have a general orientation of N40E, and a steep northwest dip. The largest breccia to date has known dimensions of 250 by 45 metres but is open in all directions. More than 20 breccia bodies have been identified in 5 main sectors. The focus during the late 1990's was on the Carmen, La Gloria, and Palmitas sector breccias, with no drilling done on the others. As the topography of the area is very subdued, other breccias may well have been overlooked and the extensive property contains excellent potential for additional mineralization.
e. Mineral Resource and Reserve Estimate
There are no known reserves on the property and the proposed program is exploratory in nature. The Company does have a resource estimate as described below.
During 2006, the Company commissioned Wardrop Engineering (“Wardrop”) of Vancouver, B.C. to prepare a NI 43-101 compliant resource estimate for the property. The independently produced report estimated that the Palmitas and Gloria Zones together contain an Inferred Mineral Resource of 4,969,800 tonnes at a grade of 59 g/t Ag, 0.13 g/t Au, 0.81% Pb and 1.31% Zn. Wardrop calculated that these grades equate to a silver equivalent grade of 139 g/t using commodity prices (based upon 3 year averages) of US$7.70/oz for silver, US$471/oz for gold, US$0.41/lb for lead and US$0.69/lb for zinc and recoveries of 76%, 70%, 80% and 80%, respectively. This resource equates to a total of 22.3 million ounces of silver equivalent.
The resource estimate was based upon a comprehensive exploration program completed on the property by Coeur d'Alene Mines during 1997 and 1998, wherein they drilled 81 reverse circulation holes (7,515 metres & 3,614 samples) and 22 diamond drill holes (2,983 metres & 900 samples). The geological database also includes 422 surface channel samples. Coeur d'Alene dropped the property in 1998. The
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resource includes 2,643,600 tonnes of oxide material at a grade of 51 g/t Ag, 0.11 g/t Au, 0.73% Pb and 0.98% Zn for a silver equivalent grade of 113 g/t and 2,326,200 tonnes of sulphide mineralization at a grade of 68 g/t Ag, 0.16 g/t Au, 0.90% Pb and 1.69% Zn for a silver equivalent grade of 169 g/t. As the grade of sulphide mineralization is 50% higher than the 40-60 metre-thick oxide zone, the Company expects the overall grade of the resource to increase over time as the deposit is extended to depth.
In March, 2008 Wardrop delivered an updated NI 43-101 compliant mineral resource estimate for the La Gloria / Las Palmitas Zones on the Company’s Mapimi Project in northeastern Durango State, Mexico. The new estimate effectively upgraded the previous resource of 22.3 million silver equivalent ounces (Ag Eq Oz) from the Inferred to the Indicated category and added an additional 6.3 million Ag Eq Oz in the Inferred category for a global resource of 28.6 million recoverable Ag Eq Oz.
The new estimate includes the twenty-nine core holes, representing 6,298 metres, completed during Great Panther’s Phase I drilling program in the first half of 2007(see below in Exploration). This program consisted mostly of fill-in holes focused on the La Gloria Zone and adjacent Las Palmitas Zone in an effort to confirm, expand, and better delineate the previous Inferred Mineral Resource of 4,969,800 tonnes at a grade of 59g/t Ag, 0.13g/t Au, 0.81% Pb and 1.31% Zn estimated in 2006 by Wardrop from reverse circulation and core drilling of Coeur d’Alene Mines Corp., completed in 1997-98 (GPR news release, September 18, 2006).
The 2007 Phase I drilling at Mapimi has increased the confidence level of the resource, resulting in a new Indicated Mineral Resource estimated at 6,585,900 tonnes grading 28g/t silver, 0.09g/t gold, 0.41% lead and 1.14% Zn and an Inferred Mineral Resource at 2,027,900 tonnes grading 34g/t silver, 0.13g/t gold, 0.54% lead and 0.81% zinc. A breakdown of the resources by zone, type (oxide or sulphide) and category can be found in the tables below. The final report itself will be posted on the Company’s website and on SEDAR once it is received from Wardrop (anticipated by early April).
In the new resource estimate, Wardrop has used different parameters than in 2006, such that the new estimate is considered to be more robust. In keeping with the previously reported resource estimate, Wardrop has applied a cut-off grade of 50g/t silver equivalent (Ag Eq). Metal prices and recoveries used were US$9.55/oz and 76%, respectively, for silver, US$530/oz and 70% for gold, US$0.63/lb and 80% for lead and US$1.00/lb and 80% for zinc. Statistically higher grade samples were also removed by capping the assay data at 150g/t for silver, 3.0g/t for gold, and 4.5% for each of lead and zinc. Wardrop used Ordinary Kriging and Inverse Distance Squared to estimate the resource, with blocks of 5m X 5m X 5m being used for the three-dimensional model. Metallurgical recoveries used are the same as for the 2006 resource estimate, which were based upon tests conducted by Silver Standard Resources Inc. in 1999 as part of a property review.
The new resource represents a total of 22,297,800 Ag Eq Oz in the Indicated category and 6,305,000 in the Inferred category. The uncapped resource would represent a total of 23,661,200 Ag Eq Oz in the Indicated category and 6,714,200 in the Inferred category. With the benefit of the added drill holes, Wardrop has reinterpreted the geological model of the mineralized zones and, while this has increased the confidence level, it has placed greater physical constraints on the model and, in particular, reduced the interpreted size of the Las Palmitas Zone.
The delay in releasing the updated resource estimate was due to the fact that, as part of the review process, it was found that while Great Panther’s Phase I drilling compared favourably with the reverse circulation (RC) drilling completed by Coeur d’Alene, the latter’s diamond drilling returned significantly higher silver and lead grades. This apparent inconsistency necessitated the re-assaying of some of the Coeur d’Alene drill core and a thorough check of all databases, statistics, calculations and interpretations.
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The Company is now satisfied that all assays are valid and that the difference in assay levels between drilling programs is due to the fact that the Coeur d’Alene diamond drill holes were mostly drilled into what is now interpreted as a higher grade core of the mineralized zone, while their RC holes and Great Panther’s diamond drill holes were mostly drilled outside of this core, on a more systematic basis.
The effect of the higher commodity prices used in the current resource estimate compared to those used in 2006 is that lower grade material now becomes potentially economic, which thereby lowers the average grade of the resource while increasing the tonnage. Thus, the new resource represents an increase in tonnage of approximately 73% while the average grade of the Indicated and Inferred Resources is now 105g/t Ag Eq and 97g/t Ag Eq, respectively, compared to 139g/t Ag Eq in the 2006 resource. As such, the estimated recoverable ounces of silver equivalent have increased by approximately 28%.
Table 1: Resource Grades (Capped)
ROCK GROUP | GRADE GROUP | Density tonnes/m3 | Tonnage | Au g/t | Ag g/t | Pb % | Zn % | Ag Eq g/t |
OXIDE | INDICATED | 2.48 | 4,272,400 | 0.09 | 32 | 0.46 | 0.95 | 99 |
INFERRED | 2.48 | 927,000 | 0.08 | 32 | 0.50 | 0.80 | 91 | |
SULFIDE | INDICATED | 2.66 | 2,313,400 | 0.11 | 22 | 0.30 | 1.50 | 118 |
INFERRED | 2.66 | 1,100,900 | 0.16 | 36 | 0.57 | 0.83 | 101 | |
TOTAL INDICATED | 6,585,900 | 0.09 | 28 | 0.41 | 1.14 | 105 | ||
TOTAL INFERRED | 2,027,900 | 0.13 | 34 | 0.54 | 0.81 | 97 |
Table 2: Contained Metal and Recoverable Ag Eq
ROCK GROUP | GRADE GROUP | Tonnage | Au | Ag | Pb | Zn | Ag Eq | Ag Eq |
oz | oz | Lbs | lbs | grams | ounces | |||
OXIDE | INDICATED | 4,272,400 | 12,036 | 4,349,036 | 43,260,764 | 89,815,540 | 420,944,817 | 13,535,203 |
INFERRED | 927,000 | 2,440 | 967,315 | 10,269,078 | 16,257,856 | 84,707,530 | 2,723,715 | |
SULFIDE | INDICATED | 2,313,400 | 7,794 | 1,652,527 | 15,542,659 | 76,382,524 | 272,518,009 | 8,762,637 |
INFERRED | 1,100,900 | 5,690 | 1,266,355 | 13,839,819 | 20,063,455 | 111,378,052 | 3,581,288 | |
TOTAL INDICATED | 6,585,900 | 19,831 | 6,001,563 | 58,803,423 | 166,198,064 | 693,462,827 | 22,297,840 | |
TOTAL INFERRED | 2,027,900 | 8,130 | 2,233,670 | 24,108,898 | 36,321,311 | 196,085,582 | 6,305,003 |
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Great Panther’s 2007 Phase I drilling determined that the La Gloria and Las Palmitas Zones are structurally complex and fault-bounded on all sides, including to depth where a shallow dipping fault system appears to cut off the mineralization at depths of 100-200 metres. The La Gloria resource represents approximately 360 metres of strike length with widths of up to 150 metres and may still be open to the southwest. Las Palmitas extends for approximately 200 metres of strike length and is up to 50 metres wide. The width of both zones is greater near surface and appears to pinch at depth, a shape that lends itself well to open pit mining. The level of oxidation lies at 60 to 80 metres below surface.
The work to date on La Gloria and Las Palmitas has resulted in a well-defined resource that can now be modeled for extraction by open pit mining methods. An in-house scoping study has been initiated that will examine basic issues such as permitting, metallurgy, transportation, mining, milling and construction costs, etc. While this will lay the groundwork for later feasibility studies, it is still the Company’s objective to increase the size of the overall project resource by drilling targets outside of La Gloria/Las Palmitas. The Mapimi Project comprises approximately 15,000 hectares, much of which is still unexplored.
We advise U.S. investors that while these terms “Resource Estimate” and “Inferred Mineral Resource” are recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part of all of the mineral deposits in this category will ever be converted into reserves.
f. Exploration
Mapimi is viewed as an advanced stage exploration project that could be developed quickly with the goal of defining a new resource amenable to open pit mining, thereby significantly enhancing Great Panther's growing portfolio of silver projects. A first phase exploration program was implemented in late 2006 and consisted of an airborne geophysical survey and ground induced polarization geophysical survey follow-up; detailed geological mapping and re-sampling of outcrops, adits and trenches; followed by a 6,000 metre core drilling program focused on confirming previous Coeur d’Alene drilling results in the Palmitas and La Gloria zones.
Highlights of the first 11 core holes (2,395 metres) Great Panther’s 2007 drilling program include 155 g/t Ag Eq over 46.75 metres (including 262 g/t Ag Eq over 16.00 metres and 208 g/t Ag Eq over 3.30 metres) in hole SK07-04 in the La Gloria Zone and 173 g/t Ag Eq over 62.40 metres in hole SK07-09, also in La Gloria. Drilling on the Las Palmitas Zone was highlighted by 147 g/t Ag Eq over 16.95 metres in hole SK07-01. Additional details of the intersections, including individual assays for silver, gold, lead and zinc are presented in the table of results below. A plan map of the Las Palmitas and La Gloria Zones with drill hole locations is posted on the Great Panther website atwww.greatpanther.com.
Multiple mineralized intervals have been detected within each of La Gloria and Las Palmitas. They appear to be steeply dipping and elongated northeast-southwest so holes are typically drilled at angles of 45-60 degrees. While the mineralization starts at surface, it has been intersected to vertical depths approaching 200 metres. To date, the holes have been drilled between grid sections 350N and 550N at a horizontal spacing of approximately 50 metres with respect to other Great Panther and Coeur d’Alene drill holes. They are also designed to intersect the mineralized zones at a similar vertical spacing. and are confirming previous results of Coeur d’Alene
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The mineralization at Mapimi is associated with hydrothermal breccias and stockworks related to a cluster of rhyolite domes intruding sandstones, calcareous siltstones, and limestones of the Cretaceous Caracol Formation. While the upper 40-60 metres is typically oxidized, deeper sulphide mineralization consists of pyrite, silver sulfosalts, sphalerite and galena. An alteration halo exhibiting strong silicification and disseminated pyrite extends outward for hundreds of metres around the silver-lead-zinc zones, providing a larger target that should be detectable by induced polarization (I.P.) geophysics.
As the topography of the area is very subdued and 95% of the property is overburden covered, there is a strong possibility that similar mineralized breccias may lie under cover and have been overlooked in the past. The current geophysical program is designed to detect such buried zones and provide additional targets for drill testing.
Highlights of recent drilling include:
CORE HOLE | ZONE | FROM (m) | TO (m) | LENGTH (m) | Au (g/t) | Ag (g/t) | Pb (%) | Zn (%) | Ag Eq (g/t) |
SK07-001 | Palmitas | 55.05 | 72.00 | 16.95 | 0.17 | 119.30 | 1.59 | 0.10 | 147 |
and | 139.50 | 157.50 | 18.00 | 0.14 | 42.27 | 0.43 | 0.24 | 65 | |
SK07-002 | Palmitas | 220.98 | 247.67 | 26.69 | 0.15 | 21.01 | 0.37 | 0.23 | 47 |
La | 155 | ||||||||
SK07-004 | Gloria | 77.65 | 124.40 | 46.75 | 0.08 | 27.07 | 0.41 | 1.75 | |
including | 95.00 | 111.00 | 16.00 | 0.13 | 59.38 | 0.94 | 2.72 | 262 | |
and | 121.10 | 124.40 | 3.30 | 0.37 | 76.12 | 1.16 | 1.54 | 208 | |
La | 114 | ||||||||
SK07-005 | Gloria | 55.95 | 102.00 | 46.05 | 0.15 | 14.67 | 0.16 | 1.35 | |
La | 126 | ||||||||
SK07-006 | Gloria | 109.50 | 154.30 | 44.80 | 0.12 | 25.48 | 0.29 | 1.38 | |
SK07-008 | La | 127.26 | 148.80 | 21.54 | 0.06 | 16.71 | 0.32 | 0.37 | 49 |
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CORE HOLE | ZONE | FROM (m) | TO (m) | LENGTH (m) | Au (g/t) | Ag (g/t) | Pb (%) | Zn (%) | Ag Eq (g/t) |
Gloria | |||||||||
La | 70 | ||||||||
SK07-009 | Gloria | 69.60 | 74.75 | 5.15 | 0.06 | 28.29 | 0.35 | 0.53 | |
and | 82.60 | 145.00 | 62.40 | 0.12 | 32.51 | 0.33 | 1.96 | 173 | |
and | 195.20 | 211.12 | 15.92 | 0.25 | 29.30 | 0.17 | 1.15 | 115 | |
La | 79 | ||||||||
SK07-010 | Gloria | 150.20 | 159.15 | 8.95 | 0.13 | 23.41 | 0.29 | 0.71 | |
and | 191.90 | 200.80 | 8.90 | 0.36 | 50.70 | 0.61 | 0.82 | 124 | |
La | 45 | ||||||||
SK07-011 | Gloria | 20.95 | 33.25 | 12.30 | 0.02 | 9.67 | 0.12 | 0.49 |
*Silver equivalent ounces (Ag Eq Oz) for the intercepts above were calculated using prices of US$600/oz for gold, US$12.00/oz for silver, US$0.60/lb for lead, and US$1.50/lb for zinc and recoveries of 70%, 76%, 80% and 80%, respectively. Wardrop Engineering used the same recoveries but different pricing in their 2006 resource estimation.
During February 2007, Great Panther contracted Aeroquest Limited to fly a 550 line kilometre airborne electromagnetic (EM) and magnetic geophysical survey over the Mapimi project. Numerous EM and magnetic targets were detected and field work to validate the various features is on-going. The interpretation of this survey, in conjunction with surface mapping, provided a geological framework for a detailed I.P. survey.
While some of the geophysical anomalies outlined by the airborne survey are directly related to regional geological features, others appear to be related to known mineralization or are spatially associated with zones of strong alteration. The cluster of rhyolite domes associated with the silver-lead-zinc mineralization in the La Gloria-Las Palmitas area has a magnetic response that is replicated in at least two other areas on the extensive 3,508-hectare property. Each of these anomalies is approximately one kilometre in diameter.
Highlights of the second batch of drill holes (SK07-012 to 019, representing 1,454 metres) include 168 g/t silver equivalent (Ag Eq) over 78.65 metres in hole SK07-012; 212 g/t Ag Eq over 21.95 metres in hole SK07-015; and 372 g/t Ag Eq over 32.93 metres in hole SK07-018. All eight holes were drilled in the La Gloria Zone.
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Additional details of intersections from these eight holes, including individual assays for silver, gold, lead and zinc are presented in the table of results below. A plan map showing the new La Gloria drill-hole locations is posted on the Great Panther website atwww.greatpanther.com.
Twenty three core holes, representing 4,745 metres, have been completed to date with assays pending on the last four holes. Results for holes SK07-001 to 011 were announced on April 16, 2007. Aside from the first three holes of the program, which were drilled into the smaller Las Palmitas Zone, drilling by Great Panther has focused on the La Gloria Zone in an effort to expand and better delineate mineralization intersected by Coeur d’Alene Mines Corp., in 1997-98. Data from Coeur’s drilling was used by Wardrop Engineering to calculate the current NI 43-101 Inferred Mineral Resource on these two zones (Great Panther news release September 11, 2006), of 22.3 million oz Ag Eq, contained in 4,969,800 tonnes at a grade of 59 g/t Ag, 0.13 g/t Au, 0.81% Pb and 1.31% Zn (139 g/t Ag Eq).
Consistent with previous drilling, multiple mineralized intervals have been intersected within the latest holes at La Gloria. The mineralization consists of sphalerite, galena, pyrite and minor pyrrhotite in the matrix of hydrothermal breccias and as fracture fillings and disseminations in porphyritic rhyolite. Silver grades show an excellent correlation with lead, while zinc and gold do not correlate with any of the other metals. As relative grades of the four metals can be quite variable, silver equivalents are calculated primarily for comparative purposes.
The structural fabric of the Mapimi Project appears to be complex. The rhyolite intrudes sandstones, calcareous siltstones, and limestones of the Cretaceous Caracol Formation, a common host to many of the world class silver-lead-zinc deposits throughout the Mexican Silver Belt. Pre-mineral faulting and fracturing is intense within and adjacent to the mineralized zones, providing excellent porosity for mineralizing fluids. Post-mineral faulting is also common and offsets mineralized zones in places. While the La Gloria Zone appears to be fault-bounded to the northeast, it is still open to the southwest and Great Panther is currently testing the strike extent of the zone in that direction.
Highlights of recent drilling include:
HOLE NUMBER | FROM (m) | TO (m) | LENGTH (m) | Au (g/t) | Ag (g/t) | Pb (%) | Zn (%) | Ag Eq* (g/t) |
SK07-012 | 42.50 | 121.15 | 78.65 | 0.21 | 20.3 | 0.20 | 2.04 | 168 |
SK07-013 | 90.30 | 96.80 | 6.50 | 0.39 | 40.3 | 0.25 | 0.53 | 88 |
and | 115.20 | 141.40 | 26.20 | 0.04 | 9.9 | 0.13 | 0.54 | 50 |
SK07-014 | 30.15 | 52.65 | 22.50 | 0.03 | 6.4 | 0.04 | 1.85 | 134 |
and | 90.30 | 96.80 | 6.50 | 0.34 | 44.4 | 0.43 | 1.01 | 127 |
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HOLE NUMBER | FROM (m) | TO (m) | LENGTH (m) | Au (g/t) | Ag (g/t) | Pb (%) | Zn (%) | Ag Eq* (g/t) |
and | 115.20 | 141.40 | 26.20 | 0.07 | 16.2 | 0.14 | 1.70 | 135 |
SK07-015 | 53.00 | 58.50 | 5.50 | 0.02 | 114.0 | 1.18 | 0.71 | 169 |
and | 87.65 | 92.40 | 4.75 | 0.04 | 24.8 | 0.42 | 1.17 | 111 |
and | 117.70 | 139.65 | 21.95 | 0.05 | 10.5 | 0.14 | 2.89 | 212 |
SK07-016 | 79.15 | 84.06 | 4.91 | 0.21 | 51.0 | 0.68 | 2.15 | 212 |
and | 132.00 | 135.68 | 3.68 | 0.12 | 61.1 | 0.92 | 1.13 | 154 |
and | 149.10 | 156.90 | 7.80 | 0.22 | 42.0 | 0.21 | 0.90 | 107 |
SK07-017 | 8.98 | 58.20 | 49.22 | 0.18 | 69.1 | 0.74 | 0.07 | 84 |
and | 92.60 | 121.96 | 29.36 | 0.17 | 14.7 | 0.26 | 1.76 | 145 |
SK07-018 | 18.30 | 36.54 | 18.24 | 0.07 | 19.9 | 0.31 | 1.41 | 123 |
and | 83.30 | 107.23 | 23.93 | 0.06 | 17.5 | 0.21 | 5.12 | 372 |
SK07-019 | 17.88 | 57.58 | 39.70 | 0.10 | 62.7 | 1.00 | 0.31 | 100 |
and | 105.75 | 108.60 | 2.85 | 0.27 | 25.6 | 0.30 | 1.95 | 171 |
*Silver equivalent grades (Ag Eq) for the intercepts above were calculated using prices of US$600/oz for gold, US$12.00/oz for silver, US$0.60/lb for lead, and US$1.50/lb for zinc and recoveries of 70%, 76%, 80% and 80%, respectively. Wardrop Engineering used the same recoveries but different pricing in their 2006 resource estimation.
The third batch of ten core holes (2,449 metres) drilled by the Company on the Mapimi Project (formerly Km 66) in eastern Durango State, Mexico. Twenty nine core holes, representing 4,745 metres, have been completed to date ending the Phase 1 drilling program. Following up on the airborne geophysical program, 103 kilometres of grid were cut and 103 kilometres of induced polarization (I.P.) geophysical survey completed. The La Gloria zone is part of the southern tip of a 2400 metre long, by up to 1,200 metre wide northeast - southwest oriented I.P. anomaly. A second more northern I.P. anomaly with a
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length of 1,300 metres, by up to 700 metres wide and oriented northwest – southeast was also delineated (see web-site drawings).
Highlights of the third batch of drill holes in Great Panther’s 2007 drilling program include 166 g/t Ag Eq over 19.46 metres in hole SK07-020; 107 g/t Ag Eq over 36.6 metres, followed by 256 g/t Ag Eq over 55.6 metres in hole SK07-028; and 110 g/t Ag Eq over 47.52 metres in hole SK07-029, all in La Gloria zone. A new mineralized zone, named La Gloria East zone was partially delineated (open to the north), displayed erratic mineralization, but is associated with intense silicification, brecciation and rhyolite intrusions into the Caracol Formation sediments. Additional details of the intersections, including individual assays for silver, gold, lead and zinc are presented in the table of results below. A plan map showing the new La Gloria drill-hole locations is posted on the Great Panther website.
Multiple mineralized intervals have been detected within the La Gloria zone drill holes. They appear to be steeply dipping and elongated northeast-southwest so holes are typically drilled at angles of 45-60 degrees. While the mineralization starts at surface, it has been intersected to vertical depths approaching 200 metres. To date, the holes have been drilled between grid sections 10000N and 10300N at a horizontal spacing of approximately 50 metres with respect to other Great Panther and Coeur d’Alene drill holes. They are also designed to intersect the mineralized zones at a similar vertical spacing. The 2007 Great Panther results are confirming previous results of Coeur d’Alene and will be used in the upgrading of the NI 43-101 resource.
Highlights of recent drilling include:
Core Hole # | Zone | From | To | Core Width | Au | Ag | Pb | Zn | Ag Eq |
(m) | (m) | (m) | (g/t) | (g/t) | % | % | (g/t) | ||
SK07- 020 | La Gloria | 3.02 | 22.48 | 19.46 | 0.11 | 36 | 0.53 | 1.75 | 166 |
SK07- 020 | La Gloria East | 151.95 | 160.04 | 8.09 | 0.04 | 35 | 0.41 | 0.41 | 68 |
SK07- 021 | La Gloria East | 18.20 | 25.65 | 7.45 | 0.34 | 65 | 0.47 | 0.44 | 104 |
SK07- 021 | La Gloria East | 151.80 | 161.60 | 9.80 | 0.07 | 3 | 0.05 | 0.79 | 60 |
SK07- 022 | La Gloria East | 192.5 | 198.73 | 6.23 | 0.05 | 39 | 0.07 | 0.97 | 100 |
La Gloria | 207 | 209.45 | 2.45 | 0.07 | 32 | 0.06 | 2.45 | 197 |
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Core Hole # | Zone | From | To | Core Width | Au | Ag | Pb | Zn | Ag Eq |
(m) | (m) | (m) | (g/t) | (g/t) | % | % | (g/t) | ||
East | |||||||||
SK07- 023 | La Gloria | 96.50 | 101.55 | 5.05 | 0.03 | 15 | 0.18 | 0.55 | 55 |
SK07- 023 | La Gloria | 106.00 | 121.15 | 15.15 | 0.01 | 2 | 0.03 | 0.75 | 54 |
SK07- 024 | La Gloria | 52.70 | 60.25 | 7.55 | 0.06 | 36 | 0.93 | 0.49 | 89 |
SK07- 025 | La Gloria | 150.68 | 156.46 | 5.78 | 0.01 | 1 | 0.00 | 1.63 | 113 |
SK07- 025 | La Gloria | 175.00 | 179.94 | 4.94 | 0.27 | 20 | 0.80 | 0.60 | 88 |
SK07- 025 | La Gloria | 188.00 | 191.80 | 3.80 | 0.44 | 28 | 0.86 | 0.84 | 118 |
SK07- 026 | La Gloria East | 60.35 | 69.61 | 9.26 | 0.05 | 23 | 0.50 | 0.81 | 88 |
SK07- 027 | La Gloria East | N.S.R. | |||||||
SK07- 028 | La Gloria | 0.00 | 36.60 | 36.60 | 0.21 | 65 | 0.87 | 0.39 | 107 |
La Gloria | 36.60 | 92.20 | 55.60 | 0.06 | 4 | 0.09 | 3.63 | 256 | |
La Gloria | 135.00 | 148.18 | 13.18 | 0.13 | 14 | 0.50 | 1.13 | 106 |
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Core Hole # | Zone | From | To | Core Width | Au | Ag | Pb | Zn | Ag Eq |
(m) | (m) | (m) | (g/t) | (g/t) | % | % | (g/t) | ||
SK07- 029 | La Gloria | 3.00 | 50.52 | 47.52 | 0.12 | 98 | 1.11 | 0.02 | 110 |
SK07- 029 | La Gloria | 55.20 | 68.20 | 13.00 | 0.04 | 7 | 0.09 | 2.01 | 147 |
SK07- 029 | La Gloria East | 184.40 | 189.25 | 4.85 | 0.19 | 23 | 0.12 | 1.22 | 111 |
SK07- 029 | La Gloria East | 254.50 | 262.54 | 8.04 | 0.10 | 17 | 0.18 | 0.58 | 62 |
*Silver equivalent ounces (Ag Eq Oz) were calculated using prices of US$600/oz for gold, US$12.00/oz for silver, US$0.60/lb for lead, and US$1.50/lb for zinc and recoveries of 70%, 76%, 80% and 80%, respectively.
The Phase II diamond drilling program, which commenced in October 2007, is testing two large coincident geological, geochemical, and geophysical anomalies, namely the Central (Bulls Eye) and North Zones. The mineralization at La Gloria/Las Palmitas consists of disseminated pyrite, galena and sphalerite hosted within hydrothermal breccias and stockworks, brecciated sediments and rhyolite associated with a cluster of rhyolite domes. Similar host rocks and mineralization are now known to be areally extensive on the property and the widely spaced Phase II drilling has also intersected skarn alteration and mineralization to the north of La Gloria, suggesting that the latter zone may be only a peripheral portion of a much larger intrusive-related system.
The strong chargeability responses within the Bulls Eye anomaly are interpreted to represent alteration halos of widespread disseminated pyrite, containing more discrete zones of silver-gold-lead-zinc mineralization. The La Gloria zone is part of the southern tip of the 2,000 metre long, by up to 800 metre wide Bulls Eye anomaly. In addition, the 1,000 metre by 700 metre North Zone displays skarn alteration and lead-zinc-copper sulphides on surface and at depth at the contact between rhyolite and limestone, suggesting the potential for higher grade, skarn and/or carbonate replacement style mineralization. Eighteen holes (numbers 30-47) have now been completed in the Phase II program and assay results are being compiled as they come in.
f. Total Costs Incurred to Date and All Planned Future Costs
As at December 31, 2007, total exploration costs incurred were $3,083,000. Planned costs for 2008 are approximately $2.3 million for exploration
g. Source of Power and Water that can be Utilized at the Property
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The municipality of Mapimi is on an electrical power grid and has telephone services provided by TelMex. Water and drainage systems are also present.
4. San Antonio Project
The San Antonio Project, a gold-copper project, located in the Guadalupe y Calvo Mining District, State of Chihuahua, Mexico, consists of three contiguous mining concessions covering in the aggregate 11,711 hectares. These concessions were staked and are owned 100% by MMR.
The San Antonio property is 50 kilometres NNW of the Guadalupe y Calvo Mining District in southwest Chihuahua State, which has historically produced over 2 million ounces of gold; and 80 kilometres SSE of the Batopillas area (El Sauzal Mine of Kinross Gold, 2005 probable reserve of 1.7 million ounces gold). Geologically the Company is exploring in a 3 by 17 kilometre area “window” of Tertiary lower sequence andesite and felsic volcanics flanked by barren Tertiary upper sequence ignimbrites and conglomerates.
a. Acquisition - Santo Nino Concessions
Effective February 11, 2004, we entered into the Santo Nino Option Agreement, which granted us the right and option, for a period of three years, to purchase 100% of the ownership rights in and to the Santo Nino Mining Concession located in the Guadalupe y Calvo Mining District, State of Chihuahua, Mexico from Mr. Alfredo Rodriguez Chávez, as optionor, by making staged cash payments totalling US $165,000 as follows:
(a) US $20,000 within 10 days of the date of registration at the Mining registry of the option agreement;
(b) US $50,000 in five payments of US $10,000 each to be made by the conclusion of each semester following the date of registration of the option agreement;
(c) US $95,000 within 45 days of the third anniversary of the date of registration of the option agreement.
The Company made cash payments totaling US$30,000 during the year ended December 31, 2006. Subsequent to December 31, 2006, the Company paid an additional US$95,000 thus fulfilling all conditions of the option agreement.
There is no underlying Net Smelter Return royalty or other royalties and no work commitments on the concession.
On February 2, 2007, we signed an option agreement with Altair Ventures Inc. (“Altair”) whereby Altair may exercise its right to earn a 70% interest in the property by making staggered cash payments of US$200,000 (US$30,000 paid to date), issuing 200,000 Altair common shares (100,000 issued to date) to Great Panther and incurring a minimum of US$1,000,000 of exploration expenditures over a three-year period.
b. Acquisition - San Taco Concessions
Effective February 28, 2004, we entered into the San Taco Option Agreement, which granted us the right and option, for a period of three years plus 30 days, to purchase 100% of the ownership rights in and to the San Taco Mining Concessions located in the Guadalupe y Calvo Mining District, State of Chihuahua,
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Mexico from Carlos Teodoro Ortiz Rodriquez, Abelardo Garza Hernanadez and Minera San Miguel de los Tarros, S.A. de C.V., as optionors, by making staged cash payments totalling US $965,000 as follows:
(a) US $50,000 within 30 days of the signing of the option agreement;
(b) US $75,000 by the first anniversary of the date of signing the option agreement;
(c) US $100,000 by the second anniversary of the date of signing the option agreement;
(d) US $740,000 by the third anniversary of the date of signing the option agreement.
As of December 31, 2005 we had made the US $50,000 payment in accordance with (a) above and, the US $75,000 payment in accordance with (b) above.
Subsequent to December 31, 2005, we decided not to actively commit to further exploration of the San Taco property, and as a result the value of the property as at December 31, 2005, was determined to be nil. As such, the acquisition costs associated with the property ($403,634) was expensed as part of the write down of property cost and the expense was recognized in the year ended December 31, 2005.
During 2006, we elected to discontinue exploration of the San Taco property and abandoned the project.
c. Location and Accessibility
The San Antonio project is located in the municipality of Guadalupe y Calvo, State of Chihuahua, Mexico, approximately 162km S-SW of the city of Hidalgo de Parral, Chihuahua, and 265km SW of the city of Chihuahua, and consists of the following active concessions:
Concession | Size (hectares) | Expiry Date |
Santo Niño | 80 | 21/04/2036 |
San Antonio | 9,447 | 15/04/2010 |
Iran | 2,184 | 09/05/2011 |
Road access to the San Antonio project is via paved highway from Hidalgo de Parral to the town of Guadalupe y Calvo, a distance of 255km, and then to Baborigame via a maintained unsurfaced road, a distance of 90km, and then via 33km of logging and ranch roads to a small ranch in the Arroyo San Antonio near the center of the project area. Straight line distance from Baborigame to the project area is 9km.
d. History
The San Antonio prospect lies within the Guadalupe y Calvo mining region. Earliest recorded mining activity in the region is the discovery in 1835 of the veins in the San Juan Nepocemo area west of Baborigame. Various Au-Ag vein deposits were subsequently discovered and commercial mining continued without interruption until 1940. Since then, only small scale artesenal mining has been conducted in the region. The San Antonio project lies outside of the areas of significant mine development, and little is known of the exploration history of the project. The numerous workings in the Arroyo San Antonio attest to minor production from the project area.
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Neither significant nor modern exploration programs are known to have been conducted at the property. Anaconda, Barrick Gold and Hemlo Gold made reconnaissance visits to the property in the 1990's. In the 1980's the Consejo de Recursos Minerales conducted site specific visits to the Sary, Piedra Verde, and Santo Niño claims. The property was visited by Robert Archer, President of our subsidiary, in May of 2003. Mr. Archer collected ten reconnaissance rock chip samples from mine workings and altered outcrops in the Arroyo San Antonio.
The property had not been subjected to exploration drilling prior to our acquisition of the claims.
e. Mineralization
Numerous epithermal veins and mineralized structural zones are exposed in the Arroyo San Antonio. It is not clear if these structures are faults that juxtaposed rock types, or alternatively the structures formed along pre-existing lithologic contacts. Mineralized structures vary from 1 to 200 cm wide. All of these mineralized structures lie within a much broader zone of pervasive chloritization that is continuously exposed along the Arroyo San Antonio.
Geologic and mineral occurrence maps indicate that within the project area at least 12 mineralized structures or veins have been explored or exploited, and numerous others of unknown extent and importance are present.
(i) Sary Zone
The Sary showing comprises a mineralized fault zone that dips vertically or steeply to the S-SW. The Sary structure is exposed in a small mine working on the hillside east of the Arroyo San Antonio. The workings comprise a short adit perpendicular to the structure, and development/exploration drifts to the east and west along the structure. The workings were entered and sampled.
(ii) Arroyo Zone
A prominent zone of mineralization is exposed in the Arroyo San Antonio where the projection of the Hortencia vein intersects the arroyo, where two faults come in contact.
(iii) Piedra Verde
The Piedra Verde mine is developed on a fault bounded clast-supported breccia zone. The mineralized structure is exposed on surface and in small workings on the hillside immediately south of the Arroyo San Antonio.
The workings comprise a short adit perpendicular to the structure, and development/exploration drifts to the northwest and southeast along the structure. The workings were entered and sampled.
(iv) Santo Niño Vein
The Santo Niño mine is developed on a brecciated and quartz veined fault zone. It is exposed at surface on both sides of the Arroyo San Antonio and in the mine workings developed on the northwest side of the arroyo. The workings were entered and sampled.
(v) Santo Niño Stockwork
A zone of stockwork quartz-calcite-pyrite-chalcopyrite microveinlets cutting chloritic fine grained andesite breccia is exposed along the Arroyo San Antonio upstream (S-SW) of the Santo Niño mine. The
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zone is exposed in outcrops along the arroyo over a length in excess of 30m. Some of the veinlets contain bladed calcite, a textural feature common at high levels of epithermal systems.
(vi) El Cordon
The El Cordon showing comprises a shallow prospect at arroyo level and a 20m adit and open stope developed 30m above arroyo level. The working is developed along a fault breccia that is localized along the contact of an andesite dike that crosscuts a quartz eye rich felsic volcanic. The fault breccia is cut by white sugary quartz veinlets.
f. Exploration
Our 2005 exploration program at San Antonio continued with the geological mapping and sampling, prospecting and soil sampling from the prior year. The objective of the program was to identify zones of continuous and potentially economic gold and copper grades within the mineralized structures (veins) or stockwork zones. Drill targets meritorious of evaluation had already been identified, but additional geologic and geochemical surveys will be useful for prioritizing drill targets. The first phase of a detailed mapping and rock chip geochemical sampling, both on surface and underground, began, with emphasis on delineating the veins along strike and determining the extent of the stockwork zone. The first assay results from the sampling program of the Santo Nino vein were received in June, 2004 and indicated the presence of strong gold mineralization. The Santo Nino structure is the first and northernmost of three small underground workings in the San Antonio project to be sampled. More sampling results in July, 2004 identified a new area just 75 metres east-northeast of the Santo Nino vein. Historical mining on these veins was limited and their vertical and lateral extent is unknown as they have never been drilled. Ongoing exploration work sampled the other historic workings in detail, along with numerous other structures that have been found in the area. In addition, the large zone of stockwork and disseminated mineralization that lies between the veins was systematically sampled in order to determine the grade and distribution of gold and copper values as field crews continued to work their way from north to south across the core claims. Work to date has improved the Company's understanding of the geology of the project area. Phase One of the exploration program, completed in December, 2004, provided numerous diamond drill targets on the high grade vein system. A diamond drill program which commenced in February, 2005 comprised 1,936 metres in 16 holes, and focused on the high grade gold-copper vein system in the central part of the property.
In addition to the sampling described above, alteration studies are being conducted in order to help direct us towards areas of greatest potential within this extensive system and help to define targets for future diamond drilling.
No field work was done on the property in 2006.
In 2007, Altair Ventures, under the terms of the aforementioned option agreement, conducted an exploration program with Great Panther as operator. The focus of the exploration effort was to fully evaluate the numerous gossans and alteration zones on the project using a combination of geological mapping, rock sampling, and PIMA surveys. All three techniques, plus satellite image analysis, will aid the Company in defining priority targets for more detailed sampling and appraisal as drill targets. Previous exploration, 2004 to 2006, included the collection of 1014 rock samples and 139 PIMA samples, plus core drilling of the Santo Nino zone.
Highlights from the initial 2007 sampling include 1.5 metres @ 7.5g/t gold, 11g/t silver; 0.3 metres @ 300g/t silver, 0.47% lead and 3.62% zinc; and 1.2 metres @ 268g/t silver, 0.29% lead, and 1.22% zinc. All three samples are from a newly discovered northeast oriented steeply southeast dipping vein system
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located ~800 metres south east of San Cayetano. The new discovery has been traced on surface for ~400 metres.
Seven (7) key areas of alteration / mineralization have been identified on the San Antonio project, including the Santo Nino zone (structurally controlled quartz vein / breccia with gold and copper mineralization), Gossan zone (silicified, iron oxides (after pyrite) and brecciated “domes”), Terras Amarillas zone (extensive argillic alteration, iron oxides, and silica veins), San Cayatano zone (argillic alteration with quartz-barite-galena-sphalerite-pyrite veins), La Gringa zone (argillic alteration with quartz-barite-galena-sphalerite-pyrite veins), La Chiripa zone (argillic alteration, iron oxides, and silica veins), and the El Rancho Blanco zone (located between La Chiripa and Terras Amarillas zones and presently being explored).
PIMA analysis of altered samples from the above areas shows two distinct populations, a high sulfidation epithermal system in the Gossan zone with alunite, dickite, prophylite and tourmaline; and the rest of the alteration zones being low sulfidation in nature with illite, smectite, sericite, chlorite minerals. In case studies, the hydroxyl low in the analysis of illite varies with mineralizing fluid temperature, and as the lower temperature mineralizing fluids are associated with precious metal deposition the Company has been reviewing illite analysis as a tool for targeting and discerning precious metal rich epithermal events.
Diamond drilling commenced on the San Antonio project in November, 2007. The program comprised approximately 1,500 metres in 9 holes and tested a district scale epithermal system that has been identified on the property.
Previous exploration project led to the recognition of a vertically-zoned, 12-kilometre long system of mineralization and alteration that appears to be gold-copper rich near the base, grading to silver-gold-lead-zinc in the upper portions.
Mapping and sampling in 2007 further defined five primary areas of alteration / mineralization: 1) the Breccia Gossan Zone (bulk tonnage, high sulphidation epithermal gold-copper system), 2) the San Cayetano Zone (low sulphidation quartz-barite-galena-sphalerite-pyrite, silver-gold vein), 3) the San Cayetano South Zone (low sulphidation quartz-galena-sphalerite-pyrite, silver-gold vein), 4) the La Gringa Zone (low sulphidation quartz-galena-sphalerite-pyrite, silver-gold vein) and 5) the La Gringa North Zone (low sulphidation quartz-galena-sphalerite-pyrite, gold-silver vein).
The Breccia Gossan Zone is a 2,000 by 800 metre area of intense silica and clay alteration interpreted to represent the middle to lower level of the mineralizing system at San Antonio, while the vein style mineralization in the other zones is thought to reflect the upper portions of the system. The focus of the 2007 diamond drilling program is to evaluate these five key areas on the project and determine how they are related.
A review of surface chip channel sampling in these areas from 2004/5 and 2007 includes 1.5 metres @ 7.5g/t gold, 11g/t silver; 0.3 metres @ 300g/t silver, 0.47% lead and 3.62% zinc; and 1.2 metres @ 268g/t silver, 0.29% lead, and 1.22% zinc, all from the San Cayetano South Zone. From the La Gringa North Zone, results from surface include 1.5 metres @ 0.19g/t gold, 289g/t silver, 0.51% lead, and 0.76% zinc; and 3.0 metres @ 0.99g/t gold, 23g/t silver, 0.26% lead, and 0.18% zinc. The San Cayetano Zone returned values of 1.0 metre @ 538g/t silver and 0.24% lead; and 1.2 metres @ 109g/t silver, 0.99% lead, and 0.35% zinc. Further details and a map of the project can be found on the Great Panther website atwww.greatpanther.com.
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At the time of this document, results of the diamond drilling program were not yet available. Field work on the project is being conducted by Resource Geosciences de Mexico, S.A. de C.V. of Hermosillo, Sonora under contract to our Mexican subsidiary, Minera Mexicana el Rosario, S.A. de C.V.
5. Virimoa Project
a. Acquisition
On June 13, 2005, we entered into an option agreement to purchase 100% of the ownership rights in and to two mining claims designated as the Virimoa Property, also located in the Topia Mining District, State of Durango, Mexico from Minera Acero del Fuego, S.A. de C.V., as optionor. Under the terms of the option agreement, we must compensate the optionor of the Virimoa Property by making four cash payments totalling US$300,000 (US$50,000 paid) over a period of three years. In a concurrent agreement, we are required to issue a total of 300,000 common shares (100,000 issued) to the optionor. If we exercise this option, the optionor will retain a 2% NSR, half of which can be purchased by us for US$1 million.
On June 23, 2006, we paid a second cash instalment of US$30,000 and issued a share allotment of 50,000 pursuant to our June 13, 2005, option agreement with Minera Aciero del Fuego, S.A. de C.V.
On May 30, 2007, the Company provided notice that it was terminating the option agreement on the Virimoa property in Durango State. No field work was conducted on the property during 2007.
b. Location and Accessibility
The property consists of two exploitation concessions covering a total area of 148 hectares in the municipality of Canelas in the west central part of Durango State, Mexico. The Virimoa Property is about 17 kilometres south of the town of Topia and is accessible from there by gravel road. Otherwise, access is gained by travelling north for roughly 200 km on paved highway #23 from Durango through the city of Santiago Papasquiaro, and then west on paved and gravel roads to the town of Canelas, a distance of approximately 150 km. Total driving time from Durango is 8 hours. Canelas contains numerous stores, restaurants and small hotels. A small airstrip on the north side of the town is serviced daily from Culiacán, Sinaloa by small aircraft. Flight time from Culiacán is less than an hour. In addition, Virimoa is approximately 30 kilometres west of La Ciénega, Mexico’s largest gold mine, currently in production and owned by Compaña Minera Peñoles.
c. Exploration
In March, 2005, fieldwork commenced on the Virimoa Gold Property with initial exploration comprising detailed and extensive channel sampling and mapping focused on an exposure of intense iron oxide alteration. This work attempted to better define the controls on mineralization and to trace its extent. As the property has good road access, specific drill targets were generated for a diamond drilling program, the first ever, which was conducted in April, 2005.
Surface sampling at the Virimoa Property returned 1.11 g/t gold, 23 g/t silver and 1.32% zinc across 250 metres. The zone includes two higher grade intervals averaging 4.71 g/t gold, 41 g/t silver and 5.78% zinc across 25 metres near the southeast end of the cross-section and a gold-silver zone returning 3.13 g/t gold and 46 g/t silver across 20 metres near the northwest end. This work has not only confirmed previous sampling results of 1.08 g/t gold, 20.5 g/t silver and 1.66% zinc obtained by the vendor across the same exposure but the consistency of the results is quite remarkable. Great Panther's sampling
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however, extended and improved upon the higher grade zone at the southeast end, which was previously reported as returning 3.38 g/t Au, 26.2 g/t Ag and 4.93% Zn over 16 metres.
Mineralization consists of a closely spaced stockwork of massive quartz-pyrite+/-sphalerite+/-arsenopyrite veinlets and veins that can locally exceed several tens of centimetres in width. Disseminated pyrite is common between the veinlets. Intense iron oxide and argillic alteration of the host andesitic volcanics is exposed for more than 350 metres across the major structural trend, including the zone reported above. Along strike, however, the zone disappears under cover, such that its length is not yet known.
Great Panther's sampling was conducted along an irregular but continuous traverse line along the bank of a creek and the mineralization reported above actually comprised 57 continuous five-metre chip samples representing a tot al length of 285 metres. It is believed to represent a horizontal straight line distance of 250 metres, estimated to be close to the true width of the zone. Samples were assayed at ALS Chemex Labs in Vancouver by fire assay and either atomic absorption (in the case of the Au and Zn) or gravimetric (for Ag) finish.
A short diamond drilling program, completed in 2005, has outlined the presence of multiple zones of gold-silver-copper-zinc mineralization across a width of more than 250 metres. The drilling, comprising 856 metres in four holes, was designed to complete a cross section under a zone of mineralization exposed on surface that returned 1.11 g/t gold, 23 g/t silver and 1.32% zinc across 250 metres from continuous channel sampling. As reported on April 26, 2005 this zone included two higher grade intervals averaging 4.71 g/t gold, 41 g/t silver and 5.78% zinc across 25 metres near the southeast end of the cross-section and a gold-silver zone returning 3.13 g/t gold and 46 g/t silver across 20 metres near the northwest end.
Holes 05-VIR01 and 02 were drilled from the same location under the “southeast zone”, with holes 05-VIR03 and 04 being drilled behind them in order to complete a line across the entire mineralized area. Hole 05-VIR04 was drilled under the “northwest zone”. The distribution of grade and extent of the mineralization along strike has not yet been tested. More than a dozen discrete zones have been outlined, many of which contain copper mineralization not observed on surface. Although gold and zinc grades were lower in the drilling than on surface, the drilling displayed a marked zonation to the mineralization from higher copper in the northwest to higher gold and zinc in the southeast and this zonation likely also holds true in a vertical sense. Silver values are more consistent throughout but the best correlation is seen with copper, whereas the weakest correlation is observed between copper and zinc, as seen in the table below. As such, copper-silver mineralization may be stronger at depth whereas gold and zinc appear to be enriched at higher levels. As the surface mineralization was sampled in a creek exposure in a valley, the mineralization strikes into the hill on both sides, thereby preserving the upper levels of the system and, hopefully the gold-zinc enriched portion.
Mineralization consists of a closely spaced stockwork of massive quartz-pyrite+/-sphalerite+/-arsenopyrite and chalcopyrite+/-tetrahedrite veinlets and veins with disseminated pyrite in between. These veins carry higher grades, such as 11.1 g/t Au, 458 g/t Ag, 9.47% Cu and 0.45 % Zn over 0.3m in Hole 05-VIR01 and 8.71 g/t Au, 544 g/t Ag, 6.95 % Cu and 3.28 % Zn over 0.3m in Hole 05-VIR02, but elsewhere mineralization is much more consistent, giving wide zones of lower grade material that may be amenable to bulk tonnage mining methods. Intense iron oxide and sericite alteration of the host dacite volcanics is exposed for more than 350 metres on surface before the zone disappears under cover.
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No field work was done on the property in 2006 or 2007.
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ITEM 4A Unresolved Staff Comments
None
ITEM 5 Operating and Financial Review and Prospects
The information in this section is presented in accordance with Canadian generally accepted accounting principles, and has been reconciled to United States generally accepted accounting principles. The following discussion of our financial condition and results of operations for the fiscal years ended December 31, 2007, December 31, 2006 and December 31, 2005 and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this registration statement in accordance with Item 8 – "Financial Information".
Critical Accounting Estimates
The accounting estimates believed to require the most difficult, subjective or complex judgements, and which are the most critical to our reporting of results of operations and financial position, are as follows:
Amortization
The Company’s mineral properties and related plant and equipment are amortized based upon estimates of useful lives not to exceed the life of the mine (5 years) to which the assets relate. These estimates may change in circumstances where the assets’ useful life may change based upon new information.
Site Restoration Costs
Upon the completion of any mining activities, the Company will customarily be required to undertake environmental reclamation activities in accordance with local and/or industry standards. The estimated costs of these reclamation activities are dependent on labour costs, the environmental impacts of the Company’s operations, the effectiveness of the chosen reclamation techniques, and on applicable government environmental standards. Changes in these factors could cause a significant change in the reclamation obligation.
Stock-based Compensation Expense
From time to time, the Company may grant share purchase options to directors, employees and service providers. The Company uses the Black-Scholes option pricing model to estimate a value for these options. This model, and other models which are used to value options, require inputs such as expected volatility, expected life to exercise and interest rates. Changes to any of these inputs could cause a significant change in the stock-based compensation expense charged in a period.
Income Taxes
The Company uses the liability method which takes into account the differences between financial statement treatment and tax treatment of certain transactions, assets and liabilities. Future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are established to reduce future tax assets when there is potential that some or all of the assets
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will not be realized. Estimates of future taxable income and the continuation of ongoing prudent tax planning arrangements have been considered in assessing the utilization of available tax losses. Changes in circumstances and assumptions and clarifications of uncertain tax regimes may require changes to the valuation allowances associated with the Company’s future tax liabilities.
A. Operating Results
Restatement
These consolidated financial statements have been restated to reduce revenue to reflect the proceeds from the sale of concentrates, net of treatment and refining fees charged by counter parties, as the Company assumes no risk or obligation for treatment and refining services under its sales arrangements. The Company previously recorded treatment and refining fees as a cost of sales.
The effect of the restatement is a decrease in cost of sales (excluding amortization and depletion) and revenue for the year ended December 31, 2007 by $1,963,976 (2006 - $736,408). This restatement has no impact on the reported loss and loss per share for each of the years in the three years ended December 31, 2007.
2007 | 2006 | |||
As originally reported | As restated | As originally reported | As restated | |
Mineral sales | $17,487,070 | $15,523,094 | $7,069,442 | $6,333,034 |
Cost of sales (excluding amortization and depletion) | $16,116,633 | $14,152,657 | $7,119,047 | $6,382,639 |
Operating Results
The Company, in its transformation from a company concentrating on exploration to a company now focused on the mining of precious and base metals, generated net sales of $15,523,094 in 2007 compared to $6,333,034 in 2006, an increase of 145%. This revenue from mining operations resulted from the sale of metal concentrates derived from the mining and subsequent processing of mineralization from its Topia and Guanajuato operations. Revenue for the year has grown on a quarter-by-quarter basis as production levels have steadily increased at both operations. Revenue from operations grew from $3.9 million in the first quarter to approximately $4.7 million by the fourth quarter. This increase can be attributed to increased production levels at the two mining operations. Combined output at Topia and Guanajuato was 1,336,629 silver equivalent ounces (Ag Eq oz) in 2007, compared with 638,860 Ag Eq oz in 2006. This increase in output along with increased metal prices during 2007 were partially offset by increases in smelting and refining rates to contribute to the year over year increase in the Company’s revenue. Silver, gold and lead prices increased over 16%, 15% and 100%, respectively, year over year.
Overall cost of sales for the 2007 fiscal year was $14,152,657 compared with $6,382,639 in 2006. Cost of sales increased primarily due to increased output. Cash costs per silver ounce remained relatively unchanged from 2006 levels (improvements in Guanajuato’s cost per ounce were offset by an increase in
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Topia’s cost per ounce). The Company anticipated improved efficiencies during 2007, however, higher smelting and refining rates compounded by increased production mining costs and lower ore grades from the Topia operations increased Topia’s cost per ounce. As efficiencies are created in the Company’s operations, and with start-up costs associated with bringing both operations back into production now behind us, management anticipates improved margins in the 2008 fiscal year.
The production guidance for 2008 of 1.75 million Ag Eq oz, (1.10 million from Guanajuato and 0.65 million from Topia), represents an improvement over 2007 in excess of 30%. This projected increase is mainly the result of higher ore grades, with the mining being subject to strict grade control procedures and focused in drill delineated areas, and improved processing performance. Total costs are projected to be similar to 2007 levels and unit costs will be reduced accordingly.
Amortization and depletion of mineral properties, plant and equipment increased by $2,181,899 in 2007 to $3,603,668 compared with $1,421,769 in 2006. The increase is largely due to the fact that the Guanajuato plant facilities, building and plant rehabilitation were not in service during the first half of 2006 and as such, no amortization expense was recognized during that period. Capital additions during 2006 and 2007 have also resulted in increased amortization in 2007.
Mineral property exploration costs in 2007 were $6,803,104 compared to $3,968,083 and $2,340,398 in 2006 and 2005, respectively. The increased costs are largely attributed to the Company’s ongoing development of its mineral properties to better define its resources. The Company signed an option agreement for the Mapimi property in September 2006 and spent significant funds developing these resources in 2007. With the high demand for qualified drillers, geologists and other mining related personnel, many companies like Great Panther are incurring higher than normal costs for these services because of the general shortage of qualified individuals. The Company anticipates spending approximately $8.6 million on its 2008 exploration program which includes deep drilling at Guanajuato and continued work at Mapimi and Topia.
Overall, general & administrative expenses (“G&A”) (incurred) was $4,672,362 for 2007 compared to $4,408,631 in 2006 and $2,139,236 in 2005. This small increase is not reflective of the growth of the Company in the past twelve months. During the year, the Company added two new senior management positions and significantly increased the depth of the accounting and financial reporting department. The Vancouver office has experienced substantial growth in personnel necessitating the move to additional larger premises. The Company anticipates incurring approximately $5.2 million in general and administrative expenses in 2008. The increase over 2007 is largely due to a full year’s impact of the changes made in 2007 related to the Company’s growth, as described above.
Accounting, compliance and audit related costs in 2007 were significantly higher than in 2006. This increased cost is largely attributed to the complexity of the Company’s accounting and audit processes with full operating subsidiaries in Mexico. The Company added personnel in both Mexico and Canada as the growth of the Company’s accounting functions necessitated the increase in staffing levels. Additional costs were also incurred as a result of documenting and testing the Company’s internal controls related to the Sarbanes-Oxley Act (“Sox”), a regulatory requirement of the United States Securities and Exchange Commission. External audit costs increased in 2007 as an integrated audit, which includes an attestation of the effectiveness of internal controls, was required in 2007 pursuant to Sox.
Insurance costs increased during 2007 primarily due to the increased cost of insuring Mexican property, plant and equipment. The increase was a result of higher insurance rates in Mexico, in general, as well as capital additions made there.
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The above increases were partially offset by lower investor relations costs in 2007 compared with 2006. During 2006, the Company graduated from the TSX Venture Exchange to the more senior TSX. The Company implemented an aggressive marketing strategy to promote the Company in the United States and Europe and, in so doing, incurred significant incremental costs in 2006 which were not incurred in 2007. Expenditures in investor relations are necessary to attract new investors and to inform current shareholders of the Company’s progress.
The Company also incurred non-cash stock-based compensation expense of $1,129,500 in 2007 compared with $4,672,774 and $357,298 in 2006 and 2005, respectively. The Company grew exponentially in 2006 which resulted in the larger than usual expense in that year. Some stock-based compensation expense was incurred in 2007 as the Company continues to need to attract and retain quality individuals.
Interest expense was $1,035,577 in 2007, compared to $830,236 in 2006 and $357,011 in 2005. The increase over 2006 is due to the issuance of two 8% per annum convertible notes totaling $4.05 million in July 2007. Interest expense paid increased by $209,317 in 2007 compared with 2006. This was partially offset by a decrease in interest accretion.
The Company incurred a foreign exchange loss of $1,440,802 in 2007, compared to a gain of $10,358 in 2006 and a loss of $19,294 in 2005. The Canadian dollar strengthened relative to the Mexican peso during 2007. As such, a foreign exchange loss was incurred on the revaluation of the Mexican subsidiaries’ monetary assets and liabilities at the current exchange rate at year end.
The provision for income taxes was $2,571,473 in 2007, compared to $110,016 in 2006 and incomes taxes recoverable of $370,514 in 2005. The large increase is due to a future income tax liability of $2,421,504 being recorded in the fourth quarter of 2007. A new tax in Mexico, referred to as a “Flat Tax”, was enacted in 2007 and came into effect on January 1, 2008. Flat tax works as an alternative minimum tax. Taxpayers are required to pay the higher of the amount due under either income tax or flat tax. The Company’s subsidiary MMR is forecast to pay flat tax. As the tax basis of fixed assets is significantly reduced and tax losses originating from prior years are not deductible under flat tax, this has given rise to an excess of book value over tax value which results in a future income tax liability. The Company is pursuing tax planning opportunities in Mexico to minimize taxes paid in the future.
Overall, the loss for the twelve months ended December 31, 2007 (“FY07”) was $19,700,861 compared to $15,084,437 and $5,231,685 for the twelve month periods ending December 31, 2006 and December 31, 2005, respectively, for the above-noted reasons.
B. Liquidity and Capital Resources
The Company currently has mining operations that are generating cash flow, and towards the end of 2007, the economic viability of the operations began to be realized. The financial success of the Company relies on management’s ability to continue the successful exploration, development and operation of its mines, to develop its exploration properties and achieve profitable operations.
In order to finance its operations, exploration activities and corporate overhead, the Company is dependent on investor sentiment remaining positive towards the gold and silver exploration business generally, and specifically towards Great Panther. Many factors have an influence on investor sentiment, including a positive climate for mineral exploration, a company’s track record and the experience and calibre of a company’s management. There is no certainty that equity funding, if required, would be available to finance the Company’s future activities.
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Cash and Financial Conditions
The Company had a cash (and cash equivalents) balance of $5,357,977 as at December 31, 2007 as compared to $9,208,048 as at December 31, 2006. This decrease is largely attributed to expenses incurred in exploration and the purchase of capital assets and the rehabilitation of the mines. The decrease is partially offset by the proceeds of the exercise of warrants and options, a convertible note financing, and positive operational cash flow now being generated by the two mines.
The Company had working capital of $10,659,942 as at December 31, 2007 compared with working capital of $12,533,156 as at December 31, 2006. There is no assurance that working capital and the anticipated exercise of outstanding warrants, together with net revenues from increasing production, will be adequate to fund the Company’s activities and to cover corporate overhead for the next twelve months, especially if the Company proceeds with significant exploration activities.
Great Panther does not have access to any lines of credit, nor other arrangements in place, to borrow funds. The Company also does not have any off-balance sheet financing arrangements. At this time, Great Panther does not use hedges or other financial derivatives.
Operating Activities
Cash flow used in operating activities, after working capital adjustments, was $12,483,969 in 2007 compared to $11,433,341 in 2006 and $5,378,857 in 2005. The increase in 2007 over 2006 of $1,050,628 was primarily due to a year over year increase in mineral property exploration expenditures. This was partially offset by increased revenue net of cost of sales (excluding amortization and depletion), as well as the timing of amounts receivable and payable.
Investing Activities
For the twelve months ended December 31, 2007, the Company had a net cash outflow from investing activities, primarily for the purchase of mineral properties and capital assets, of $3,362,263 compared with $5,736,570 in 2006. A significant investment was made in 2006 in the rehabilitation and modernization of the Company’s two mines sites.
Financing Activities
For the twelve months ended December 31, 2007, the Company raised proceeds of $8,725,054 through the exercise of warrants, and $678,000 through the exercise of options.
On July 13, 2007, the Company completed financing agreements for cash proceeds of $4,050,000. The financing consists of 8% per annum unsecured convertible notes maturing July 14, 2011 that are convertible into common shares of the Company at the holder’s option at a price of $2.25.
The Company made repayments of long-term debt during the twelve months ended December 31, 2007 of $1,456,893.
Subsequent to December 31, 2007, the Company entered into an agreement to purchase two scoop trams for a total purchase price of US$866,923, to be financed over 24 months at an interest rate of 9.93 % . The Company also received proceeds of $360,000 on the further exercise of options.
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Reconciliation between Canadian and United States Generally Accepted Accounting Principles and United States Accounting Pronouncements
The effect of the measurement differences between Canadian GAAP and US GAAP on the consolidated balances sheets and statements of operations and cash flows is summarized as follows:
December 31, 2007 | December 31, 2006 | |||||||||||
Canadian | US | Canadian | US | |||||||||
GAAP | GAAP | GAAP | GAAP | |||||||||
Convertible note payable | ||||||||||||
(note (a)(iv)) | 4,028,611 | 6,070,000 | 1,163,799 | 2,020,000 | ||||||||
Share capital | 56,988,447 | 63,199,652 | 46,393,145 | 52,604,350 | ||||||||
Contributed surplus | 6,261,116 | 6,276,116 | 6,077,864 | 6,092,864 | ||||||||
Equity component of convertible | ||||||||||||
note (note (a)(iv)) | 2,569,000 | - | 1,006,000 | - | ||||||||
Deficit | (44,628,039 | ) | (50,326,633 | ) | (24,927,178 | ) | (31,003,584 | ) |
Share capital and contributed surplus:
2007 | 2006 | |||||
Share capital and contributed surplus, under | ||||||
Canadian GAAP | $ | 63,249,563 | $ | 52,471,009 | ||
Adjustment for stock-based compensation for | ||||||
employees (note (a)(ii)) | 15,000 | 15,000 | ||||
Reversal of recapitalization of deficit (note (a)(iii)) | 6,211,205 | 6,211,205 | ||||
Share capital and contributed surplus, under | ||||||
US GAAP | $ | 69,475,768 | $ | 58,697,214 |
Deficit:
2007 | 2006 | |||||
Deficit, under Canadian GAAP | $ | (44,628,039 | ) | $ | (24,927,178 | ) |
Adjustment for stock-based compensation for | ||||||
employees (note (a)(ii)) | (15,000 | ) | (15,000 | ) | ||
Reversal of recapitalization of deficit (note (a)(iii)) | (6,211,205 | ) | (6,211,205 | ) | ||
Interest accreted on convertible loan note (note (a)(iv)) | 527,611 | 149,799 | ||||
Deficit, under US GAAP | $ | (50,326,633 | ) | $ | (31,003,584 | ) |
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Loss and loss per share:
2007 | 2006 | 2005 | |||||||
Loss for the year, under Canadian GAAP | $ | (19,700,861 | ) | $ | (15,084,437 | ) | $ | (5,231,685 | ) |
Interest accreted on convertible | |||||||||
loan note (note (a)(iv)) | 377,812 | 149,799 | - | ||||||
Loss for the year, under US GAAP | $ | (19,323,049 | ) | $ | (14,934,638 | ) | $ | (5,231,685 | ) |
Basic and diluted loss per share, under | |||||||||
US GAAP | $ | (0.27 | ) | $ | (0.25 | ) | $ | (0.22 | ) |
Weighted average number of common | |||||||||
shares, basic and diluted | 72,227,455 | 59,720,424 | 23,986,543 |
(a) | These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). A description of US GAAP and practices prescribed by the US Securities and Exchange Commission (collectively US GAAP) that result in measurement differences from Canadian GAAP are as follows: | |
(i) | Income taxes: | |
As described in note 2(m), the Company follows the asset and liability method of accounting for income taxes which is also in accordance with Statement of Financial Accounting Standards Board No. 109 Accounting for Income Taxes (SFAS 109). Under Canadian GAAP, future tax assets and liabilities are recorded at substantially enacted tax rates. Under US GAAP, deferred tax assets and liabilities are recorded at enacted tax rates. In 2007, there were no differences between enacted and substantially enacted rates. For each of the years ended December 31, 2006 and 2005, net future tax assets are fully offset by a valuation allowance as it is not more likely than not that the future tax assets would be realized. As a result, the application of US GAAP in accounting for income taxes does not result in any material measurement differences from Canadian GAAP for future tax assets or liabilities. | ||
(ii) | Stock-based compensation: | |
The Company adopted the new recommendations of the Canadian Institute of Chartered Accountants with respect to the accounting for stock-based compensation on January 1, 2002 as described in note 2 (i) . Statement of Financial Accounting Standards Board No. 123, Accounting for Stock-Based Compensation (SFAS 123) became effective for US GAAP purposes for fiscal years beginning after December 15, 1995. | ||
For fiscal years ending prior to December 31, 2003, as allowed by SFAS 123, the Company followed the intrinsic value principles of APB Opinion 25, Accounting for Stock Issued to Employees and related interpretations, in measuring compensation expense for employee options. Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market value of the stock at the measurement date, which is generally the grant date, over the amount an employee must pay to acquire the stock. The application of APB 25 resulted in compensation |
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expense of $15,000 being recognized for employees in the year ended December 31, 2001 under US GAAP and no similar expense was required under Canadian GAAP. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS 123 whereby the fair value of the stock options granted to employees was expensed. Under the modified prospective method of adoption selected by the Company under the provisions of Statement of Financial Accounting Standards Board No. 148 Accounting for Stock-Based Compensation-Transition and Disclosure (SFAS 148), employee compensation cost recognized in 2003 is the same as that which would have been recognized had the provisions of SFAS 123 been applied from its original effective date. Results of prior years have not been restated. | ||
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard (SFAS 123R) Share Based Payment using the modified prospective method for all employee awards granted, modified or settled after the effective date using the fair value measurement method of this standard. For unvested employee equity awards as of the effective date, compensation is to be recognized based upon the grant date fair value determined under SFAS 123, adjusted to reflect the estimated impact of forfeitures. Upon adoption of SFAS 123R, there was no cumulative effect adjustment required. Non-employee awards are accounted for under the fair value method under both Canadian and US GAAP. | ||
There were no significant differences in accounting for stock-based compensation between Canadian GAAP and US GAAP during the three years ended December 31, 2007. | ||
(iii) | Elimination of deficit: | |
During the year ended December 31, 1999, the Company reduced its paid-up capital by $6,211,205 to eliminate the deficit at March 31, 1999. In order to effect these reductions, it was not necessary to revalue the assets of the Company. As a consequence, all conditions under the US GAAP quasi-reorganization rules were not met and the recapitalization of the deficit would not be recorded. | ||
(iv) | Convertible note payable: | |
Under Canadian GAAP, the proceeds of the financing allocated to the estimated fair value of the conversion feature of the debt is recorded as an equity component of the debt (note 10 (b)). Under US GAAP, a value is assigned to the conversion feature only if the effective conversion rate is less than the market price of the common stock at the date of issuance. Accordingly, no value would be assigned under US GAAP to the conversion feature on the convertible notes issued in 2006 and 2007. | ||
Applying US GAAP, the convertible notes at December 31, 2007 would be recorded at face value for a total of $6,070,000 and no value would be assigned to equity components of the convertible notes. In addition, accretion on the calculated debt discounts on the convertible notes under Canadian GAAP aggregating $377,812 (2006 - $149,799, 2005 - nil) for the year ended December 31, 2007 would not have been recorded, reducing interest expense by an equivalent amount. | ||
(v) | Statement of operations presentation: | |
The consolidated statement of operations includes a write-down of the San Taco mineral property in other expenses. Under US GAAP, this amount would be disclosed as an operating expense . |
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(vi) | Mineral properties, plant, and equipment | |
Production facilities and mineral property costs are currently amortized over the estimated life of mine of 5 years. Management’s estimate of expected mine life is based upon available internal and external estimated resource information, historical production and recovery levels, planned future production and recovery levels, and other factors. Changes in mine life are recognized prospectively. The Company expects to use the units-of-production method once estimates of reserves are available. | ||
Under Canadian GAAP, periodic option payments related to mineral properties are expensed prior to commercial feasibility of mining operations being established. Under US GAAP, periodic option payments are capitalized when such payments are associated with the acquisition of mineral rights and amortized over their respective option term. This measurement difference is not material for all reporting periods. |
(b) | Recently adopted United States accounting pronouncements: | |
In June 2006, FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS Statement No. 109. This interpretation provides guidance on recognition and measurement of uncertainties in income taxes and is effective for the Company’s 2007 fiscal year end. The adoption of this interpretation did not result in any adjustment being recognized in the consolidated financial statements. | ||
(c) | Recently issued United States accounting pronouncements: | |
(i) | In September 2006, FASB issued SFAS No. 157, Fair Value Measurement to define fair value, establish a framework for measuring fair value and to expand disclosures about fair value measurements. The statement only applies to fair value measurements that are already required and is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of this Interpretation to have a significant effect on the Company’s results of operations or financial position. | |
(ii) | In February 2007, FASB issued SFAS No. 159, Fair Value Option for Financial Assets and Liabilities which permits entities to choose to measure various financial instruments and certain other items at fair value. The statement is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of this Interpretation to have a significant effect on the Company’s results of operations or financial position. | |
(iii) | In December 2007, the FASB issued SFAS 160, a standard on accounting for non-controlling interests and transactions with non-controlling interest holders in consolidated financial statements. This statement specifies that non-controlling interests are to be treated as a separate component of equity, with increases and decreases in the parent’s ownership interest as capital transactions. This standard requires net income and comprehensive income to be displayed for both the controlling and the non-controlling interests. Additional required disclosures and reconciliations include a separate schedule that shows the effects of any transactions with the non- controlling interests on the equity attributable to the controlling interest. | |
The statement is effective for periods beginning on or after December 15, 2008 and is to be applied prospectively to all non-controlling interests, including any that arose before the effective |
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date. The Company does not expect the adoption of this Interpretation to have a significant effect on the Company’s results of operations or financial position. | |||
(iv) | In December 2007, the FASB issued a revised standard on accounting for business combinations SFAS 141(R). | ||
The major changes to accounting for business combinations are summarized as follows: | |||
• | all business acquisitions would be measured at fair value | ||
• | most acquisition-related costs would be recognized as expenses as incurred (they would no longer be part of the purchase consideration) | ||
• | non-controlling interests would be measured at fair value at the date of acquisition (i.e., 100% of the assets and liabilities would be measured at fair value even when an acquisition is less than 100%) | ||
• | goodwill, if any, arising on a business combination reflects the excess of the fair value of the acquiree, as a whole, over the net amount of the recognized identifiable assets acquired and liabilities assumed. Goodwill is allocated to the acquirer and the non-controlling interest | ||
The statement is effective for periods beginning on or after December 15, 2008. The Company does not expect the adoption of this Interpretation to have a significant effect on the Company’s results of operations or financial position. |
C. Research and Development
We do not currently, and did not previously, have research and development policies in place. Over the past three fiscal years, we spent approximately $719,406 on due diligence for various other mining properties.
D. Trend Information
Our business is mining of precious metals deposits, principally gold and silver, so the price of these commodities has a direct impact on our prospects for success and our ability to raise capital. The recent trend for the price of gold and silver has been positive and has remained steady at relatively high historical prices. Management believes that the current trend will continue for the foreseeable future. History has shown, however, that there can be no such assurances.
E. Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
The following table outlines the contractual obligations of our Company:
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Payments by Period | |||||
Contractual Obligations | Total | Less than 1 year | 1 – 3 Years | 4 – 5 Years | After 5 Years |
Long-Term Debt | $6,158,625 | $88,625 | $2,020,000 | $4,050,000 | - |
Operating Leases | $178,000 | $112,000 | $66,000 | - | - |
Purchase Obligations | $3,600,000 | $1,146,000 | $1,636,000 | $818,000 | |
Total Long-Term Debt | $9,936,625 | $1,346,625 | $3,722,000 | $4,868,000 | - |
G. Safe Harbor
Not applicable.
ITEM 6 Directors, Senior Management and Employees
A. Directors Officers and Senior Management
The information below sets forth the names and business experience of each of our directors, officers and senior management, as of the date hereof:
Name | Present Position Great Panther | Present Position Minera Mexican el Rosario | Present Position Alberta Subsidiary | Present Position Metalicos de Durango | Present Position Minera de Villa Seca | Present Position Exploraciones Minera el Rosairo |
Kaare G. Foy | Executive Chairman, Director | Director | Director | Director | Director | Director |
Robert A. Archer | President, CEO, Director | President | n/a | Director | Director | Director |
Malcolm A. Burne | Director | n/a | Director | n/a | n/a | n/a |
John T. Kopcheff | Director | n/a | n/a | n/a | n/a | n/a |
A. Michael Turko | Director | n/a | n/a | n/a | n/a | n/a |
Wendy M. Ratcliffe | Corporate Secretary | Director | n/a | n/a | n/a | n/a |
F. Ramos Sanchez | Vice President - Business Development | Director | n/a | Director | Director | Director |
Robert Brown | Vice President - Exploration | n/a | n/a | n/a | n/a | Director |
Charles Brown | Chief Operating Officer | Chief Operating Officer | n/a | Chief Operating Officer | Chief Operating Officer | n/a |
Raakel Iskanius | Chief Financial Officer | Chief Financial Officer | Chief Financial Officer | Chief Financial Officer | Chief Financial Officer | Chief Financial Officer |
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Business Experience, Function and Area of Experience
Kaare G. Foy
As our Executive Chairman and a director, Mr. Foy is responsible for the financial and corporate management and supervision of the affairs and business of our Company and our subsidiaries.
Following graduation from Monash University in Australia, Mr. Foy became an Associate of the Australian Society of Accountants and a Member of the Australian Institute of Directors. In 1995, he emigrated to reside permanently in Canada. For most of his career, he has specialized in company "turnarounds," and has more than 30-years experience serving on the boards of publicly listed companies in Australia, Canada and the United Kingdom, including Loscam Materials Handling Limited in Australia, and Greenchip Investments PLC in the United Kingdom.
Mr. Foy is also Executive Chairman and a director of Cangold Limited, Executive Chairman, Chief Financial Officer and a director of Monarch Energy Limited, the President of Oceanic Management Limited, and a director of Golden Prospect Precious Metals Limited, an AIM-listed company.
Robert A. Archer
As our President, Chief Executive Officer and a director, Mr. Archer is responsible for the day-to-day operations of our Company and for the development of our strategic direction. Also, as the President of our Mexican subsidiary, he is responsible for the management and supervision of its affairs and business in Mexico.
Mr. Archer has more than 27-years experience working for mining companies throughout North America, namely Newmont Exploration of Canada Ltd., Rio Algom Exploration Inc., Placer Dome Canada Ltd. and Noranda Exploration Inc. He also served as President of Consolidated Magna Ventures Ltd.
Mr. Archer is the President of R. A. Archer & Associates and Platoro Resource Corp. He also serves as President and Chief Executive Officer and is a director of Cangold Limited, a company publicly listed on the TSX Venture Exchange. He is also a non-executive director of Altair Ventures Incorporated, a company also publicly listed on the TSX Venture Exchange.
Malcolm A. Burne
Mr. Burne was our Chairman, President and Chief Executive Officer from June 3, 1987 until April 27, 2004. Mr. Burne has been a director since June 3, 1987. As a non-executive director, he is also a member of our Audit Committee.
He has been a self-employed business banker since 1962. Malcolm Burne is a director and Executive Chairman of Ambrian Capital PLC, Samson Exploration NL and Jubilee Platinum PLC. He also holds Board positions with publicly listed companies in Australia, Canada and Europe, including Mano River Resources Inc. and Golden Prospect Precious Metals Limited, a mineral investments and gold fund company listed on the AIM Exchange in London, United Kingdom.
Mr. Burne is an independent director.
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John T. Kopcheff
Mr. Kopcheff has been a director of our Company since August 2001. As a non-executive director, Mr. Kopcheff is responsible for the corporate governance of our Company, and is Chairman of our Audit Committee.
He is Managing Director of Victoria Petroleum NL, an oil and gas company publicly listed on the main board of the Australian Stock Exchange.
Mr. Kopcheff is an independent director.
A. Michael Turko
Mr. Turko was appointed to the Board of Directors of the Company on July 7, 2006 and is a member of the Company’s Audit Committee.
Mr. Turko obtained his Bachelor of Science (Geology) degree at the University of British Columbia in 1981. In 1993 he became President and CEO of Gulf Shores Resources Ltd., a company listed on the TSX Venture Exchange, with interests in petroleum properties in the North Sea, Texas, Alberta, Manitoba and Newfoundland, a position he currently holds. Mr. Turko also controls several successful private oil and gas companies, and was recently appointed President and Chief Executive Officer of Monarch Energy Limited, a company listed on the TSX Venture Exchange.
Mr. Turko is an independent director.
Wendy Ratcliffe
Ms. Ratcliffe has been our Corporate Secretary since August 2001. She is responsible for making all necessary regulatory filings for our Company and our subsidiaries. Ms. Ratcliffe is also Corporate Secretary of Cangold Limited and Monarch Energy Limited, companies listed on the TSX Venture Exchange.
Ing. Francisco Ramos Sanchez
Ing. Francisco Ramos Sanchez was appointed as Vice President of Business Development in November 2007. He is responsible for seeking out new business opportunities for Great Panther and initiating planning and permitting issues for the advancement of the Mapimi Project in Durango. He was formerly Vice President of Operations from April 2004 through November 2007.
Prior to that, Ing. Ramos was the Vice President, Operations of our subsidiary MMR, since June 1998. With more than 30-years of experience in the mining industry, Ing. Ramos is a Mexican mining engineer and metallurgist based in Queretaro, Mexico. He obtained a Master's Degree in Mining Engineering from the University of Guanajuato and has worked with senior mining companies such as Peñoles, IMMSA and Minera Autlan. He has consulted for a number of junior to mid-size companies from Canada , Mexico and the United States. He is also the general director of Minco Ingenieria y Construcciones de Queretaro, S. de R.L. de C.V.
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Robert Brown
Mr. Brown has been our Vice President, Exploration since April 30, 2004. He is responsible for overseeing all exploration activities undertaken by our Company, and has particular experience in the immediate area of our Company's projects in the Sierra Madre Region of Mexico.
Mr. Brown is a Professional Engineer with a degree in Engineering Geology from Queen's University. His 28-years of experience in the mining industry includes 15-years with Lac Minerals in Canada, culminating in the position of Exploration Manager. For more than 13 years, he held senior management positions in the junior sector, working on projects throughout the Americas, Eastern Europe and Indonesia, primarily in gold and silver exploration.
Charles Brown
Mr. Brown has been our Chief Operating Officer since August 2007. He is a seasoned professional with more than 30 years experience successfully operating and developing mines both in Canada and internationally, from operating small gold mines in Ontario and Venezuela to being Managing Director of Tara Mines Ltd in Ireland, where he was responsible for one of the world's largest underground zinc mines.
Most recently he was the Project Manager for Newgold Inc. during its underground exploration and development program, leading to the completion of a positive feasibility study.
Mr. Brown graduated from Nottingham University, U.K. with an honours degree in Mining Engineering.
Raakel Iskanius
Ms. Iskanius has been our Chief Financial Officer since May 2007. As our CFO, Ms. Iskanius is responsible for all aspects of the Company's financial management, including financial reporting, analysis of operations and regulatory compliance.
Ms. Iskanius has more than 17 years of experience as a finance professional with the vast majority of her career spent in natural gas utility and multi-branch sectors. A Chartered Accountant, Ms. Iskanius has worked for companies across North America including Terasen Gas Inc., KPMG and The Loewen Group Inc.
Ms. Iskanius qualified as a Certified General Accountant in 1995 and received her Chartered Accountant designation in 1999.
Ms. Iskanius is also the Chief Financial Officer of Cangold Limited, a company publicly listed on the TSX Venture Exchange.
Family Relationships
There are no family relationships between any of the persons named above.
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Other Relationships
There are no arrangements or understandings between any major shareholder, customer, supplier or others, pursuant to which any of the above-named persons were selected as directors or members of senior management.
B. Compensation
Other than as set forth in the table below, none of our executive officers was paid or earned compensation for performing his duties during the fiscal year ended December 31, 2007. The value of perquisites and other personal benefits, securities and property for the executive officers that do not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus are not reported herein.
During our last three financial years ended, the following persons were or are our executive officers:
Name | Principal Position | From | To |
Malcolm A. Burne | President and Chief Executive Officer | n/a | April 27, 2005 |
Robert A. Archer | President and Chief Executive Officer | April 27, 2005 | Present |
Kaare G. Foy | Executive Chairman Chief Financial Officer | April 27, 2005 June 10, 1996 | Present May 22, 2007 |
Ing. Francisco Ramos Sánchez | Vice President, Business Development | April 30, 2004 | Present |
Robert F. Brown | Vice President, Exploration | April 30, 2004 | Present |
Charles Brown | Chief Operating Officer | August 15, 2007 | Present |
Raakel Iskanius | Chief Financial Officer | May 22, 2007 | Present |
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Summary Compensation Table
Annual Compensation | Long Term Compensation | |||||||
Awards | Payouts | |||||||
Name | Year | Salary ($) | Bonus ($) | Other Annual Compen- sation ($) | Securities Under Options Granted (#) | Restricted Shares or Restricted Share Units ($) | LTIP Payouts ($) | All Other Compen- sation ($) |
Malcolm A. Burne | 2007 2006 2005 | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A | N/A N/A N/A |
Robert A. Archer | 2007 2006 2005 | 30,000 (1) 30,000 (1) 15,000 (1) | nil nil nil | nil nil nil | nil 275,000 (6) 125,000 (2) (12) | nil nil nil | N/A N/A N/A | 291,886 (4) 197,750 (4) 170,880 (4) |
Kaare G. Foy | 2007 2006 2005 | 30,000(1) 30,000(1) 15,000 (1) | nil nil nil | nil nil nil | nil 355,000 (9) 125,000 (2) (13) | nil nil nil | N/A N/A nil | 301,420 (15) 291,560 (3) 190,468 (5) |
Ing. Francisco Ramos Sánchez | 2007 2006 2005 | nil nil nil | nil nil nil | nil nil nil | nil 225,000 (10) 100,000 (2) | nil nil nil | N/A N/A nil | 264,783(7) 162,628 (7) 102,076 (7) |
Robert F. Brown | 2007 2006 2005 | 149,400 nil nil | nil nil nil | nil nil nil | nil 175,000 (11) 75,000 (2) (14) | nil nil nil | nil nil nil | 113,095 (8) 109,950 (8) 84,407 (8) |
Charles Brown | 2007 2006 2005 | 180,000 N/A N/A | nil N/A N/A | nil N/A N/A | 250,000 (18) N/A N/A | nil N/A N/A | nil nil nil | 2,803 N/A N/A |
Raakel Iskanius | 2007 2006 2005 | 132,000 N/A N/A | nil N/A N/A | nil N/A N/A | 250,000 (17) N/A N/A | nil N/A N/A | nil nil nil | 30,869 (16) N/A N/A |
(1) | Directors' fees. |
(2) | Exercisable at $0.45 per share until 2010. |
(3) | Of this amount, $190,500 was paid as a management fee and $ 101,060 was paid for rent and other services to Oceanic Management, a company controlled by Kaare G. Foy. |
(4) | Consulting fees and other benefits paid to Platoro Resource Corp., a company controlled by Robert A. Archer. |
(5) | Of this amount, $112,080 was paid as a management fee; $78,388 was paid for consulting accounting, rent, secretarial and other services to Oceanic Management Limited, a company controlled by Kaare G. Foy. |
(6) | Of this amount, 125,000 are exercisable at $0.90 until January 5, 2011 and 150,000 are exercisable at $2.65 until December 6, 2011. |
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(7) | Consulting fees paid to Francisco Ramos Sánchez. |
(8) | Consulting fees and other benefits paid to R.F.B. Geological, a company wholly-owned by Robert F. Brown. |
(9) | Of this amount, 205,000 are exercisable at $0.90 until January 5, 2011 and 150,000 are exercisable at $2.65 until December 6, 2011. |
(10) | Of this amount, 125,000 are exercisable at $0.90 until January 5, 2011 and 100,000 are exercisable at $2.65 until December 6, 2011. |
(11) | Of this amount, 100,000 are exercisable at $0.90 until January 5, 2011 and 75,000 are exercisable at $2.65 until December 6, 2011. |
(12) | Exercised as to 25,000 common shares on December 19, 2006. |
(13) | Exercised as to 100,000 common shares on April 28, 2006. |
(14) | Exercised as to 20,000 common shares on September 12, 2006, 20,000 common shares on January 17, 2007, and 10,000 common shares on June 1, 2007. |
(15) | Of this amount, $261,541 was paid for consulting fees and other benefits and $ 39,879 was paid for rent and other services to Oceanic Management, a company controlled by Kaare G. Foy. |
(16) | Consulting fees paid to Raakel Iskanius. |
(17) | Exercisable at $2,00; 150,000 until June 5, 2012 and 100,000 until September 10, 2012. |
(18) | Exercisable at $2.00 until September 10, 2012. |
Compensation of Directors
During the financial year ended December 31, 2007, the remuneration paid to directors in their capacity as directors of our Company was as follows:
Kaare G. Foy | $30,000 |
Robert A. Archer | $30,000 |
Malcolm A. Burne | $30,000 |
John T. Kopcheff | $30,000 |
A. Michael Turko | $30,000 |
We have an incentive stock option plan in which directors are eligible to participate. No stock options were granted to directors during the year ended December 31, 2007.
C. Board Practices
The election and retirement of our directors are provided for in our by-laws. An election of directors takes place at each annual meeting of shareholders and all the directors then in office retire but, if qualified, are eligible for re-election. A director retains office only until the election of his successor. The number of directors to be elected at such meeting is the number of directors then in office, unless the directors or the shareholders otherwise determine. The election is by ordinary resolution of shareholders. If an election of directors is not held at the proper time, the incumbent directors continue in office until their successors are elected. Our last annual general meeting was held on June 28, 2007.
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Our by-laws also permit the directors to add additional directors to the board between annual general meetings as long as the number appointed does not exceed one-third of the number directors elected at the last annual general meeting. Individuals appointed as directors to fill casual vacancies created on the board or added as additional directors hold office like any other director until the next annual general meeting at which time they may be re-elected or replaced.
Our officers are re-elected at a directors' meeting following each annual general meeting.
The members of our audit committee include John T. Kopcheff, Malcolm A. Burne and A. Michael Turko. The audit committee reviews and approves the scope of the audit procedures employed by our independent auditors, reviews the results of the auditor's examination, the scope of audits, the auditor's opinion on the adequacy of internal controls and quality of financial reporting and our accounting and reporting principles, policies and practices, as well as our accounting, financial and operating controls. The audit committee also reports to the board of directors with respect to such matters and recommends the selection of independent auditors. Before financial statements that are to be submitted to the shareholders at an annual general meeting are considered by the board of directors, such financial statements are submitted to the audit committee for review with the independent auditors, following which the report of the audit committee on the financial statements is submitted to the board of directors.
The members of the nominating and corporate governance committee are A. Michael Turko, Malcolm A. Burne and John T. Kopcheff. The mandate of the nominating and corporate governance committee is to identify individuals qualified to be nominated for election as directors of the Company or any of the Board's committees, evaluate the qualifications and independence of each member of the Board and its committees and recommend to the Board any appropriate changes in the composition of the Board and any of its committees, evaluate the performance of the Board and its committees; and develop and recommend to the Board corporate governance principles.
The members of the compensation committee are Malcolm A. Burne, John T. Kopcheff and A. Michael Turko. The compensation committee reviews and approves the total compensation package for the Corporation’s senior executives including, without limitation, their base salaries, annual incentives, deferred compensation, stock options and other equity-based compensation, incentive compensation, special benefits, perquisites, and incidental benefits.
In 2006, we entered into the following consulting services contracts with certain of our directors, or companies controlled by them:
On March 22, 2006, we entered into an Executive Consulting Services Agreement, effective January 1, 2006, with Platoro Resource Corp., a company controlled by Robert A. Archer, the President, Chief Executive Officer and a director of our Company. Under the agreement, Platoro Resource Corp. agreed to provide to our Company the continued services of Robert A. Archer as President and Chief Executive Officer to devote so much of his time and attention and abilities as is reasonably necessary for the proper performance of his duties, which shall not be less than 180 days per year. The agreement has a term of 5 years. As compensation for the services provided, we agreed to pay Platoro Resource Corp. a fee, payable monthly, of $700 (the “daily fee”) for each day devoted by Mr. Archer exclusively to the interests of our Company. On January 8, 2007, a resolution was passed by the board of directors, increasing Mr. Archer’s daily fee to $1,000 for each day of service. The amount of the daily fee is to be reviewed by our Company not later than December 31 in each year and any increase shall be not less than 5% of the fee paid in the previous year. Platoro Resource Corp. is entitled to a bonus based on the performance of Mr. Archer. The criteria for and the awarding of a performance bonus is exclusively within the discretion of our compensation committee or our independent directors, if there is no compensation committee. The
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amount of a performance bonus in any year will be up to a maximum of 100% of the total daily fees paid to Platoro Resource Corp. in that year. In the event of a change of control of our Company, or the involuntary termination of the agreement without cause, or a constructive dismissal, or other fundamental change resulting in Mr. Archer ceasing to be the President and Chief Executive Officer of our Company, then Platoro Resource Corp. is entitled to receive from our Company a payment equal to 360 times the daily fee at the then-current rate, 2 times the average of any performance bonus awarded in the previous 2 years and the equivalent of 2 years of benefits and other compensation, if any.
On March 22, 2006, we entered into an Executive Consulting Services Agreement, effective January 1, 2006, with Oceanic Management Limited, a company controlled by Kaare G. Foy, the Executive Chairman and a director of our Company. Under the agreement Oceanic Management Limited has agreed to provide to our Company the continued services of Kaare G. Foy as Executive Chairman to devote so much of his time and attention and abilities as is reasonably necessary for the proper performance of his duties, which shall not be less than 180 days per year. The agreement has a term of 5 years. As compensation for the services provided, we agreed to pay Oceanic Management Limited a fee, payable monthly, of $700 (the “daily fee”) for each day devoted by Mr. Foy exclusively to the interests of our Company. On January 8, 2007, a resolution was passed by the board of directors, increasing Mr. Foy’s daily fee to $1,000 per day of services. The amount of the daily fee will be reviewed by our Company not later than December 31 in each year and any increase shall be not less than 5% of the fee paid in the previous year. Oceanic Management Limited is entitled to a bonus based on the performance of Mr. Foy. The criteria for and the awarding of a performance bonus is exclusively within the discretion of our compensation committee or our independent directors, if there is no compensation committee. The amount of a performance bonus in any year will be up to a maximum of 100% of the total daily fees paid to Oceanic Management Limited in that year. In the event of a change of control of our Company, or the involuntary termination of the agreement without cause, or a constructive dismissal, or other fundamental change resulting in Mr. Foy ceasing to be the Executive Chairman of our Company, then Oceanic Management Limited is entitled to receive from our Company a payment equal to 360 times the daily fee at the then-current rate, 2 times the average of any performance bonus awarded in the previous 2 years and the equivalent of 2 years of benefits and other compensation, if any.
On March 22, 2006, we entered into an Executive Consulting Services Agreement, effective January 1, 2006, with Francisco Ramos Sànchez, the Vice President, Operations of our Company. Under the agreement our Company continues the engagement of Mr. Ramos as Vice President, Operations to devote so much of his time and attention and abilities as is reasonably necessary for the proper performance of his duties, which shall not be less than 180 days per year. The agreement has a term of 5 years. As compensation for the services provided, our Company has agreed to pay Mr. Ramos a fee, payable monthly, of $550 (the “daily fee”) for each day devoted by Mr. Ramos exclusively to the interests of our Company. Mr. Ramos’ agreement was amended on January 8, 2007 to increase his daily fee to $800 per day. The amount of the daily fee will be reviewed by our Company not later than December 31 in each year and any increase shall be not less than 5% of the fee paid in the previous year. Mr. Ramos is entitled to a bonus based on his performance. The criteria for and the awarding of a performance bonus is exclusively within the discretion of our compensation committee or our independent directors, if there is no compensation committee. The amount of a performance bonus in any year will be up to a maximum of 100% of the total daily fees paid to Mr. Ramos in that year. In the event of a change of control of our Company, or the involuntary termination of the agreement without cause, or a constructive dismissal, or other fundamental change resulting in Mr. Ramos ceasing to be the Vice President, Operations of our Company, then Mr. Ramos is entitled to receive from our Company a payment equal to 360 times the daily fee at the then-current rate, 2 times the average of any performance bonus awarded in the previous 2 years and the equivalent of 2 years of benefits and other compensation, if any.
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D. Employees
During the fiscal year ended December 31, 2007, we had 134 (2006 – 63) direct employees as outlined below. Prior to 2007, the majority of the Company’s workforce was independent contractors rendering services to the different subsidiaries.
Company | 2007 | 2006 |
Great Panther Resources Ltd. | 15 | Nil |
Minera Mexicana el Rosario, S.A. de C.V. | Nil | Nil |
Metalicos de Durango, S.A. de C.V. | 46 | 35 |
Minera de Villa Seca, S.A. de C.V. | 56 | 28 |
Exploraciones Mineras El Rosario, S.A. | 17 | N/A |
de C.V. | ||
TOTAL | 134 | 63 |
We do not currently have a collective bargaining arrangement with any labour union or association.
E. Share Ownership
Our authorized share capital consists of an unlimited number of common shares without par value, an unlimited number of Class A preferred shares without par value issuable in series, and an unlimited number of Class B preferred shares without par value issuable in series.
As of March 20, 2008, we had the following securities issued and outstanding:
- 81,144,352 common shares;
- Incentive stock options for the purchase of up to 5,280,000 of our common shares; and
- warrants for the purchase of up to 4,101,374 of our common shares.
Of the above securities, our directors and officers owned the following common shares as of March 20, 2008:
Name Office Held | Number of Common Shares Beneficially Owned | Percentage(1) |
Robert A. Archer, Director, President & CEO | 1,790,100(2) | 1.98% |
Charles P. Brown. COO | 250,000(3) | 0.28% |
Robert F. Brown, VP Exploration | 260,000(4) | 0.29% |
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Name Office Held | Number of Common Shares Beneficially Owned | Percentage(1) |
Malcolm A. Burne, Director | 790,033(5) | 0.87% |
Kaare G. Foy, Director & Executive Chairman | 668,600(6) | 0.74% |
Raakel Iskanius, CFO | 260,000(7) | 0.29% |
John T. Kopcheff, Director | 530,000(8) | 0.59% |
Wendy M. Ratcliffe, Corporate Secretary | 225,000(9) | 0.25% |
Francisco Ramos Sanchez, VP Operations | 1,500,000(10) | 1.66% |
A. Michael Turko, Director | 50,000(11) | 0.06% |
(1) Based on 81,144,352 common shares issued and outstanding, and 9,381,374 shares issuable upon the exercise of issued and outstanding incentive stock options and warrants which are exercisable within 60 days of March 20, 2008.
(2) Includes 1,355,100 of our common shares owned by Robert A. Archer, 60,000 of our common shares owned by Platoro Resource Corp., a company controlled by Robert A. Archer, incentive stock options to purchase up to 100,000 of our common shares at an exercise price of $0.45 per share expiring July 26, 2010, incentive stock options to purchase up to 125,000 of our common shares at an exercise price of $0.90 per share expiring January 5, 2011; and incentive stock options to purchase up to 150,000 of our common shares at an exercise price of $2.65 per share expiring December 6, 2011.
(3) Includes incentive stock options to purchase up to 250,000 of our common shares at an exercise price of $2.00 per share expiring September 10, 2012.
(4) Includes incentive stock options to purchase up to 85,000 of our common shares at an exercise price of $0.45 per share expiring May 25, 2009 as to 60,000 and February 27, 2010 as to 25,000, incentive stock options to purchase up to 100,000 of our common shares at an exercise price of $0.90 per share expiring January 5, 2011, and incentive stock options to purchase up to 75,000 of our common shares at an exercise price of $2.65 per share expiring December 6, 2011.
(5) Includes 284,133 of our common shares owned by Malcolm A. Burne, 55,900 of our common shares owned by First Investors Guarantee Ltd, a company controlled by Malcolm A. Burne, incentive stock options to purchase up to 275,000 of our common shares at an exercise price of $0.45 per share expiring February 8, 2009 as to 150,000, February 27, 2010 as to 25,000 and July 26, 2010 as to 100,000, incentive stock options to purchase up to 125,000 of our common shares at an exercise price of $0.90 per share expiring January 5, 2011, and incentive stock options to purchase up to 50,000 of our common shares at an exercise price of $2.65 per share expiring December 6, 2011.
(6) Includes 42,400 of our common shares owned by Kaare G. Foy, 246,200 of our common shares owned by Oceanic Management Limited, a company controlled by Kaare G. Foy, incentive stock options to purchase up to 25,000 of our common shares at an exercise price of $0.45 per share expiring February 8, 2009, incentive stock options to purchase up to 205,000 of our common shares at an exercise price of $0.90 per share expiring January 5, 2011, and incentive stock options to purchase up to 150,000 of our common shares at an exercise price of $2.65 per share expiring December 6, 2011.
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(7) Includes 10,000 of our common shares, incentive stock options to purchase up to 250,000 of our common shares at an exercise price of $2.00 per share expiring June 5, 2012 as to 150,000 and September 10, 2012 as to 100,000.
(8) Includes 80,000 of our common shares, incentive stock options to purchase up to 275,000 of our common shares at an exercise price of $0.45 per share expiring February 8, 2009 as to 150,000, February 27, 2010 as to 25,000 and July 26, 2010 as to 100,000, incentive stock options to purchase up to 125,000 of our common shares at an exercise price of $0.90 per share expiring January 5, 2011, and incentive stock options to purchase up to 50,000 of our common shares at an exercise price of $2.65 per share expiring December 6, 2011.
(9) Includes incentive stock options to purchase up to 120,000 of our common shares at an exercise price of $0.45 per share expiring February 8, 2009 as to 70,000, February 27, 2010 as to 25,000 and July 26, 2010 as to 25,000, incentive stock options to purchase up to 30,000 of our common shares at an exercise price of $0.52 per share expiring April 5, 2009, incentive stock options to purchase up to 25,000 of our common shares at an exercise price of $0.90 per share expiring January 5, 2011, and incentive stock options to purchase up to 50,000 of our common shares at an exercise price of $2.65 per share expiring December 6, 2011.
(10) Includes 1,075,000 of our common shares, incentive stock options to purchase up to 200,000 of our common shares at an exercise price of $0.45 per share expiring February 8, 2009 as to 100,000, February 27, 2010 as to 25,000 and July 26, 2010 as to 75,000, incentive stock options to purchase up to 125,000 of our common shares at an exercise price of $0.90 per share expiring January 5, 2011, and incentive stock options to purchase up to 100,000 of our common shares at an exercise price of $2.65 per share expiring December 6, 2011.
(11) Includes incentive stock options to purchase up to 50,000 of our common shares at an exercise price of $2.65 per share expiring December 6, 2011.
The voting rights attached to the common shares owned by our officers and directors do not differ from those voting rights attached to shares owned by people who are not officers or directors of our Company.
Stock Option Plan
We have an incentive stock option plan that provides for the grant of incentive stock options to purchase our common shares to our directors, officers and key employees and other persons providing ongoing services to us. Our stock option plan is administered by our board of directors. The maximum number of our common shares which may be reserved and set aside for issuance under our stock option plan is equal to 10% of the number of common shares outstanding from time to time on a non-diluted basis. Each option upon its exercise entitles the grantee to one common share. The exercise price of common shares subject to an option will be determined by the board of directors at the time of grant and will be not less than the discounted market price of the common shares at the date of grant, as determined under the policies of the Toronto Stock Exchange. Options may be granted under our stock option plan for an exercise period of up to five years from the date of grant of the option or such lesser periods as may be determined by our board of directors.
On March 7, 2008, the Board of Directors approved the adoption of a Shareholder Rights Plan (the "Plan") as part of its procedures for dealing with any parties who may seek to acquire control of the Company through a take-over bid or other transaction. To implement the Plan, the Board of Directors of the Company authorized the issue of one Right in respect of each common share of the Company outstanding to holders of record on March 7, 2008. Until the occurrence of certain specific events, the Rights will trade with the common shares of the Company.
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The Rights become exercisable only when a person, including any party related to it or acting jointly with it, acquires or announces its intention to acquire 20% or more of the outstanding common shares of the Company without complying with the "Permitted Bid" provisions of the Plan. Under the Plan, a Permitted Bid is a bid made to all shareholders on identical terms and conditions that is open for at least 60 days. If at the end of 60 days more than 50% of the outstanding shares, other than those owned by the offeror and certain persons related to the offeror or acting jointly with it, have been tendered, the offeror may take up and pay for the shares but must extend the bid for a further 10 business days to allow all other shareholders to tender. Should a non-permitted acquisition occur, each Right would entitle each holder of common shares (other than the offeror and certain parties related to the offeror or acting jointly with it) to purchase additional common shares of the Company at a 50% discount to the market price at the time.
Although the Plan has become effective upon its adoption by the Board of Directors, in accordance with stock exchange requirements it will be submitted to shareholders of the Company for ratification at the next annual shareholders meeting. If ratified, the Plan will continue until the annual general meeting of shareholders in 2012. The Plan is subject to acceptance by the Toronto Stock Exchange.
During the year ended December 31, 2007, and subsequently, we granted the following stock options:
Name | Number of Options | Exercise Price | Expiry Date |
Octavio Francisco Mendez Arellano | 100,000 (1) | $2.00 | June 5, 2012 |
Charles P. Brown | 250,000 | $2.00 | September 10, 2012 |
Arturo Loya Cano | 75,000 | $2.65 | March 11, 2012 |
Carlos Contreras | 15,000 | $2.65 | March 11, 2012 |
Luis Ponce Fernandez | 100,000 | $2.00 | June 5, 2012 |
Paula Mariana Fregonese | 25,000 | $2.65 | March 11, 2012 |
Alyssa Gardner | 50,000 (1) | $2.00 | June 5, 2012 |
Pablo Gomez | 50,000 | $2.00 | September 10, 2012 |
David Hladky | 75,000 | $2.00 | June 5, 2012 |
Raakel Iskanius | 150,000 100,000 | $2.00 $2.00 | June 5, 2012 September 10, 2012 |
Betty Joy Leblanc | 50,000 (1) | $2.65 | March 11, 2012 |
Gustavo Alonso Almodovar Soriano | 50,000 | $2.00 | September 10, 2012 |
William M. Vanderwall | 50,000 | $2.00 | June 5, 2012 |
Deborah Young | 100,000 | $2.00 | September 10, 2012 |
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(1) During the year ended December 31, 2007, the incentive stock options were cancelled 30 days after resignation.
ITEM 7 Major Shareholders and Related Party Transactions
A. Major Shareholders
As of March 20, 2008, Computershare Trust Company of Canada, our registrar and transfer agent, reported that we had 81,144,352 common shares issued and outstanding. Of those common shares, 75,449,084 common shares were registered to Canadian residents (97 shareholders); 4,643,432 common shares were registered to residents of the United States (230 shareholders); and 1,051,836 common shares were registered to residents of other foreign countries (67 shareholders). There are no persons known to us to be the beneficial owners of more than five (5%) of those common shares.
To the best of our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person.
There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our Company.
B. Related Party Transactions
Other than as disclosed below or elsewhere in this annual report, to the best of our knowledge, there have been no material transactions or loans from the commencement of our 2007 fiscal year to the date of this annual report between our Company and: (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, our Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our Company that gives them significant influence over our Company, and close members of any such individual's family; (d) key management personnel of our Company, including directors and senior management of our Company and close members of such individuals' families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.
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During the year ended December 31, 2007, we entered into the following transactions with related parties:
2007 | 2006 | 2005 | ||||||||
Consulting fees paid or accrued to companies | ||||||||||
controlled by directors of the Company | $ | 539,000 | $ | 388,250 | $ | 295,760 | ||||
Consulting fees paid or accrued to companies | ||||||||||
controlled by officers of the Company | 395,943 | 272,578 | 186,483 | |||||||
Cost recoveries received or accrued from a | ||||||||||
company with a common director of | ||||||||||
the Company | 631,117 | - | - | |||||||
Office and administration fees paid or accrued | ||||||||||
to a company controlled by a director of | ||||||||||
the Company | 39,879 | 101,060 | 78,388 | |||||||
As at December 31, 2007, $74,401 (2006 – nil; 2005 - $14,080) was due to companies controlled by officers and directors of the Company. Amounts due from a company with a common director were $400,742 (2006 – nil, 2005 - nil).
ITEM 8 Financial Information
Our financial statements are stated in Canadian dollars and are prepared in accordance with Canadian generally accepted accounting principles with a reconciliation to United States generally accepted accounting principles. In this annual report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars.
Financial Statements filed as part of this Annual Report
- | Report of Independent Registered Public Accounting Firm dated March 20, 2008, except as to note 2(a), which is as of February 3, 2009. |
- | Consolidated balance sheets for the fiscal years ended December 31, 2007, and 2006. |
- | Consolidated statements of operations and comprehensive loss and deficit for the fiscal years ended December 31, 2007, 2006, and 2005. |
- | Consolidated statements of cash flows for the fiscal years ended December 31, 2007, 2006, and 2005. |
- | Notes to consolidated financial statements |
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The audited financial statements as at December 31, 2007 and 2006, and for each of the years ended December 31, 2007, 2006, and 2005 can be found under Item 17 "Financial Statements".
Legal Proceedings
A legal proceeding was launched in 2006 by five dissident members of the Sociedad Cooperativa Minero Metalurgica Sante Fe (the "Cooperativa") against the administration of the Cooperativa. Minera Mexicana el Rosario, S.A. de C.V. ("MMR") and one of MMR’s officers were named in the lawsuit. The lawsuit alleged that the sale of the Guanajuato mine assets should be nullified on the basis that the proceedings leading to the approval of the sale did not meet specific requirements as set out in the bylaws of the Cooperativa. The lawsuit was abandoned late in the second quarter of 2007 and was officially confirmed by the Court, after which the lawsuit cannot be re-initiated by the five dissidents.
On August 16, 2007, Minera de Villa Seca, S.A. de C.V. received a notice of assessment from the Instituto Mexicano Del Seguro Social (the Mexican Social Security Institute (“IMSS”)) for approximately $347,000 of additional social security contributions due and penalties thereon. On November 9, 2007, the Company appealed this assessment and pledged a small piece of unused property at the Guanajuato mine as a guarantee. The guarantee will be removed upon successful appeal of the claim or by payment of the amount owing to the IMSS.
Unpaid IMSS amounts are required to be adjusted for the National Consumer Price Index and penalties increase over the passage of time. The value of the claim at December 31, 2007 is $516,000. This has not been provided for since management believes that this assessment is without merit and will not have a material adverse impact on our financial position, results of operations or cash flows.
Dividend Distributions
Holders of our common shares are entitled to receive such dividends as may be declared from time to time by our board, in its discretion, out of funds legally available for that purpose. We intend to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to pay any cash dividends in the foreseeable future.
Significant Changes
Other than as disclosed in this annual report, no significant change has occurred in our Company's financial statements since the financial year ended December 31, 2007.
ITEM 9 The Offer and Listing
A. Offer and Listing Details
Price History
On June 18, 1980, our common shares were listed on the TSX Venture Exchange (formerly known as the CDNX, and the Vancouver Stock Exchange). Our common shares traded on the TSX Venture Exchange under the symbol "GPR", and we were classified by the TSX Venture Exchange as a Tier 2 company.
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On October 2, 2003, our common share capital was consolidated on the basis of one new common share for each ten old common shares.
On February 28, 2006, we were elevated to Tier 1 of the TSX Venture Exchange.
On November 3, 2006, we received conditional approval for our TSX listing.
On November 14, 2006, our common shares became listed on the TSX.
The annual high and low market prices for our common shares for the five most recent full fiscal years were as follows:
Year Ended | High | Low |
December 31, 2003* | $0.60 | $0.01 |
December 31, 2004 | $0.77 | $0.33 |
December 31, 2005 | $1.17 | $0.36 |
December 31, 2006 | $2.79 | $0.90 |
December 31, 2007 | $2.53 | $1.07 |
*Our common shares were consolidated on October 2, 2003 on the basis of one new common share for each ten old common shares. Figures for previous periods have not been restated.
The high and low market prices for our common shares for each full financial quarter for the three most recent full fiscal years were as follows:
Quarter Ended | High | Low |
March 31, 2005 | $0.55 | $0.36 |
June 30, 2005 | $0.53 | $0.41 |
September 30, 2005 | $0.65 | $0.46 |
December 31, 2005 | $1.17 | $0.53 |
March 31, 2006 | $1.90 | $0.80 |
June 30, 2006 | $2.55 | $1.40 |
September 30, 2006 | $2.22 | $1.48 |
December 31, 2006 | $2.79 | $1.52 |
March 31, 2007 | $2.36 | $1.77 |
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Quarter Ended | High | Low |
June 30, 2007 | $2.20 | $1.60 |
September 30, 2007 | $2.15 | $1.07 |
December 31, 2007 | $1.75 | $1.09 |
The high and low market prices for our common shares for each of the most recent six months, from October, 2007 through February, 2008 were as follows:
Month Ended | High | Low |
September 30, 2007 | $1.62 | $1.30 |
October 31, 2007 | $1.65 | $1.16 |
November 30, 2007 | $1.75 | $1.09 |
December 31, 2007 | $1.35 | $1.10 |
January 31, 2008 | $1.43 | 0.87 |
February 28, 2008 | $1.68 | $0.85 |
The transfer of our common shares is managed by our transfer agent, Computershare Trust Company of Canada.
B. Plan of Distribution
Not applicable.
C. Markets
Our common shares trade on the Toronto Stock Exchange (TSX) under the symbol "GPR" effective November 14, 2006. Our CUSIP number is 39115T 106.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable
F. Expenses of the Issue
Not applicable.
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ITEM 10 Additional Information
A. Share Capital
Not applicable
B. Memorandum and Articles of Association
The information required by this section is incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004.
C. Material Contracts
Our material contracts entered into up to the date of filing our Registration Statement on Form 20-F are incorporated by reference from our Registration Statement on Form 20-F, which was filed on August 10, 2004.
Since the date of filing our Registration Statement on Form 20-F, we have entered into the following additional material contracts:
On January 4, 2005, we signed a letter of intent with Minera Acero del Fuego, S.A. de C.V. for an option to purchase 100% of the ownership rights in and to two mining claims designated as the Virimoa Property located in the Topia Mining District, State of Durango, Mexico. The project consists of two concessions comprising 148 hectares and hosts a zone of intense alteration, exposed for more than 350 metres. Terms of the agreement call for our Company to make four staged cash payments and share issuances totaling US$300,000 ($50,000 paid) and 300,000 shares (150,000 issued), over a period of three years, to the property owner. If the option is exercised, the property owner will retain a 2% NSR, half of which can be purchased for US$1,000,000. The Option Agreement was signed on June 13, 2005. In May 2007, the Company chose to forfeit all rights and options to the property. No payments were made in 2007.
On June 30, 2005, we entered into an agreement with Compañia Minera de Canelas y Topia S.A. de C.V(the “vendor”) to purchase 100% of the ownership rights in and to all the fixed assets, machinery, equipment and Topia Silver-Lead-Zinc Mine located in the Municipality of Topia, State of Durango, Mexico. We exercised our option to acquire the mine, which includes a 200 tonne per day mill and complete mining infrastructure, after a 7,436 metre surface diamond drilling program completed by our Company in 2004-05 indicated that the property had significant potential to host additional resources.
Upon signing the agreement for the Topia Silver-Lead-Zinc Mine, we paid a total of US$540,165 to the vendor and to two divisions of Peñoles, the latter being part of the assumed debt. The balance of the purchase price, approximately US$1.76 million, is divided between the vendor (US$946,000 paid) and La Cienega, a division of Peñoles. While the debt to the vendor will be paid in stages over the next three years, the debt to La Cienega will be paid effectively from the proceeds of production as a 10% Net Smelter Return (“NSR”) royalty, until the debt is fully repaid, at which time the NSR ceases. We have the option of paying out the debt in full at any time. As at December 31, 2007, no obligations remained.
On October 25, 2005, we signed a formal purchase agreement with the Sociedad Cooperativa Minero Metalúrgica Santa Fe de Guanajuato to acquire a 100% interest in a group of producing silver-gold mines in Guanajuato, Mexico. The three principal mines in the Company’s acquisition, the Valenciana, Cata and Rayas, occupy the heart of the 25 kilometre long Veta Madre (Mother Lode) structure that controls the majority of the silver-gold mineralization in the Guanajuato District. The total purchase price was US$7,250,000 which included 1,107 hectares in two main properties, the 1,200 tonne-per-day plant,
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workshops and administration facilities, complete mining infrastructure, mining equipment, and certain surface rights (real estate). At December 31, 2006, all payments and other contractual obligations have been met.
On September 11, 2006, we signed a letter of intent to acquire 100% in the Mapimi Project (formerly “Km66”). The agreement is subject to a 3% NSR to the present property owners. Each 0.5% of the NSR, up to a maximum of 2%, can be purchased for US$500,000. As part of the agreement, Great Panther is required to make 6 staged cash payments and share issuances totaling US$3,000,000 (US$300,000 paid) and 500,000 shares (400,000 issued) over the subsequent 4 years.
On February 2, 2007, the Company entered into an option agreement with Altair Ventures Incorporated (“Altair”). Terms of the agreement allow Altair to acquire a 70% interest in the four mining claims named “San Antonio”, “Iran”, “Chiripa”, and “Santo Nino” by making scheduled cash payments totaling US$200,000 (US$30,000 received), issuing a total of 200,000 shares of Altair (100,000 received) and fulfilling certain work commitments on the property over a three year period.
D. Exchange Controls
There are no government laws, decrees or regulations in Canada which restrict the export or import of capital or which affect the remittance of dividends, interest or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents and to other non-residents are, however, subject to withholding tax. See "Taxation" below.
E. Taxation
Canadian Federal Income Taxation
We consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who at all material times deals at arm's length with our Company, who holds all common shares as capital property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our Company in connection with carrying on a business in Canada (a "non-resident holder"). It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for purposes of theIncome Tax Act (Canada) (the "ITA") and regulations thereunder. Investors should be aware that the Canadian federal income tax consequences applicable to holders of our common shares will change if, for any reason, we cease to be listed on a prescribed stock exchange. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences of them purchasing, owing and disposing of our common shares should we cease to be listed on a prescribed stock exchange.
This summary is based upon the current provisions of the ITA, the regulations thereunder, the Canada-United States Tax Convention as amended by the Protocols thereto (the "Treaty") as at the date of the registration statement and the currently publicly announced administrative and assessing policies of the Canada Revenue Agency (the "CRA"). This summary does not take into account Canadian provincial income tax consequences. This description is not exhaustive of all possible Canadian federal income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action. This summary does, however, take into account all specific proposals to amend the ITA and regulations thereunder, publicly announced by the Government of Canada to the date hereof.
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This summary does not address potential tax effects relevant to our Company or those tax considerations that depend upon circumstances specific to each investor. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences to them of purchasing, owning and disposing of common shares in our Company.
Dividends
The ITA provides that dividends and other distributions deemed to be dividends paid or deemed to be paid by a Canadian resident corporation (such as our Company) to a non-resident of Canada shall be subject to a non-resident withholding tax equal to 25% of the gross amount of the dividend or deemed dividend. Provisions in the ITA relating to dividend and deemed dividend payments to and gains realized by non-residents of Canada, who are residents of the United States, are subject to the Treaty. The Treaty may reduce the withholding tax rate on dividends as discussed below.
Article X of the Treaty as amended by the US-Canada Protocol ratified on November 9, 1995 provides a 5% withholding tax on gross dividends or deemed dividends paid to a United States corporation which beneficially owns at least 10% of the voting stock of the company paying the dividend. In cases where dividends or deemed dividends are paid to a United States resident (other than a corporation) or a United States corporation which beneficially owns less than 10% of the voting stock of a company, a withholding tax of 15% is imposed on the gross amount of the dividend or deemed dividend paid. We would be required to withhold any such tax from the dividend and remit the tax directly to CRA for the account of the investor.
The reduction in withholding tax from 25%, pursuant to the Treaty, will not be available:
(a) if the shares in respect of which the dividends are paid formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or had in Canada within the 12 months preceding the disposition, or
(b) the holder is a U.S. LLC which is not subject to tax in the U.S.
The Treaty generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization exclusively administering a pension, retirement or employee benefit fund or plan, if the organization is resident in the U.S. and is exempt from income tax under the laws of the U.S.
Capital Gains
A non-resident holder is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of one of our shares unless the share represents "taxable Canadian property" to the holder thereof. Our common shares will be considered taxable Canadian property to a non-resident holder only if:
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at arm's length; or
(c) the non-resident holder and persons with whom he did not deal at arm's length,
owned not less than 25% of the issued shares of any class or series of our Company at any time during the five year period preceding the disposition. In the case of a non-resident holder to whom shares of our
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Company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless:
(a) the value of such shares is derived principally from real property (including resource property) situated in Canada,
(b) the holder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be a resident of Canada,
(c) they formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or bad in Canada within the 12 months preceding the disposition, or
(d) the holder is a U.S. LLC which is not subject to tax in the U.S.
If subject to Canadian tax on such a disposition, the taxpayer's capital gain (or capital loss) from a disposition is the amount by which the taxpayer's proceeds of disposition exceed (or are exceeded by) the aggregate of the taxpayer's adjusted cost base of the shares and reasonable expenses of disposition. For Canadian income tax purposes, the "taxable capital gain" is equal to one-half of the capital gain.
United States Federal Income Taxation
The following is a discussion of the material United States Federal income tax consequences, under current law, applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all potentially relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local, or foreign tax consequences. (See "Canadian Federal Income Tax Consequences" above).
The following discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, published Internal Revenue Service ("IRS") rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
The discussion below does not address potential tax effects relevant to our cCompany or those tax considerations that depend upon circumstances specific to each investor. In addition, this discussion does not address the tax consequences that may be relevant to particular investors subject to special treatment under certain U.S. Federal income tax laws, such as, dealers in securities, tax-exempt entities, banks, insurance companies and non-U.S. Holders. Purchasers of the common stock should therefore satisfy themselves as to the overall tax consequences of their ownership of the common stock, including the State, local and foreign tax consequences thereof (which are not reviewed herein), and should consult their own tax advisors with respect to their particular circumstances.
U.S. Holders
As used herein, a "U.S. Holder" includes a beneficial holder of common shares of our Ccompany who is a citizen or resident of the United States, a corporation or partnership created or organized in or under the
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laws of the United States or of any political subdivision thereof, any trust if a US court is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, any entity created or organized in the United States which is taxable as a corporation for U.S. tax purposes and any other person or entity whose ownership of common shares of our Company is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.
Dividend Distribution on Shares of our Company
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to the common shares of our Company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that we have current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be deducted or may be credited against actual tax payable, subject to certain limitations and other complex rules, against the U.S. Holder's United States Federal taxable income. See "Foreign Tax Credit" below. To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as a return of capital to the extent of the shareholder's basis in the common shares of our Ccompany and thereafter as gain from the sale or exchange of the common shares of our Ccompany. Preferential tax rates for net long term capital gains may be applicable to a U.S. Holder which is an individual, estate or trust.
In general, dividends paid on our common shares will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.
Foreign Tax Credit
A U.S. Holder who pays (or who has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the election of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder's United States income tax liability that the U.S. Holder's foreign source income bears to his or its world-wide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern income such as "passive income", "high withholding tax interest", "financial services income", "shipping income" and certain other classifications of income. A U.S. Holder who is treated as a domestic U.S. corporation owning 10% or more of our voting stock is also entitled to a deemed paid foreign tax credit in certain circumstances for the underlying foreign tax of our Company related to dividends received or Subpart F income received from us. (See the discussion below of Controlled Foreign Corporations). The availability of the foreign tax credit and the application of the limitations on the foreign tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.
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Disposition of Common Shares
If a "U.S. Holder" is holding shares as a capital asset, a gain or loss realized on a sale of our common shares will generally be a capital gain or loss, and will be long-term if the shareholder has a holding period of more than one year. However, gains realized upon sale of our common shares may, under certain circumstances, be treated as ordinary income, if we were determined to be a "collapsible corporation" within the meaning of Code Section 341 based on the facts in existence on the date of the sale (See below for definition of "collapsible corporation"). The amount of gain or loss recognized by a selling U.S. Holder will be measured by the difference between (i) the amount realized on the sale and (ii) his tax basis in our common shares. Capital losses are deductible only to the extent of capital gains. However, in the case of taxpayers other than corporations (U.S.)$3,000 ($1,500 for married individuals filing separately) of capital losses are deductible against ordinary income annually. In the case of individuals and other non-corporate taxpayers, capital losses that are not currently deductible may be carried forward to other years. In the case of corporations, capital losses that are not currently deductible are carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss year.
A "collapsible corporation" is a corporation that is formed or availed principally to manufacture, construct, produce, or purchase prescribed types or property that the corporation holds for less than three years and that generally would produce ordinary income on its disposition, with a view to the stockholders selling or exchanging their stock and thus realizing gain before the corporation realizes two thirds of the taxable income to be derived from prescribed property. Prescribed property includes: stock in trade and inventory; property held primarily for sale to customers in the ordinary course of business; unrealized receivables or fees, consisting of rights to payment for non-capital assets delivered or to be delivered, or services rendered or to be rendered to the extent not previously included in income, but excluding receivables from selling property that is not prescribed; and property gain on the sale of which is subject to the capital gain/ordinary loss rule. Generally, a shareholder who owns directly or indirectly 5 percent or less of the outstanding stock of the corporation may treat gain on the sale of his shares as capital gain.
Other Considerations for U.S. Holders
In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Registrantour company. Our management is of the opinion that there is little, if not, any likelihood that we will be deemed a "Foreign Personal Holding Company", a "Foreign Investment Company" or a "Controlled Foreign Corporation" (each as defined below) under current and anticipated conditions.
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting power or the total value of our outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% or more of our gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), we would be treated as a "foreign personal holding company". In that event, U.S. Holders that hold common shares in our capital would be required to include in income for such year their allocable portion of our passive income which would have been treated as a dividend had that passive income actually been distributed.
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Foreign Investment Company
If 50% or more of the combined voting power or total value of our outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and we are found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that we might be treated as a "foreign investment company" as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging our common shares to be treated as ordinary income rather than capital gains.
Passive Foreign Investment Company
A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a passive foreign investment company ("PFIC") is subject to U.S. federal income taxation of that foreign corporation under one of two alternative tax methods at the election of each such U.S. Holder.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is "passive income," which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by value (or, if the company is a controlled foreign corporation or makes an election, adjusted tax basis), of its assets that produce or are held for the production of "passive income" is 50% or more. For taxable years of U.S. persons beginning after December 31, 1997, and for tax years of foreign corporations ending with or within such tax years, the Taxpayer Relief Act of 1997 provides that publicly traded corporations must apply this test on a fair market value basis only. The Registrant believes that it is a PFIC.
As a PFIC, each U.S. Holder must determine under which of the alternative tax methods it wishes to be taxed. Under one method, a U.S. Holder who elects in a timely manner to treat the Registrant our company as a Qualified Electing Fund ("QEF"), as defined in the Code, (an "Electing U.S. Holder") will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which we our company qualifies as a PFIC on his pro-rata share of our company’s (i) "net capital gain" (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) "ordinary earnings" (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the U.S. Holder's taxable year in which (or with which) our taxable year ends, regardless of whether such amounts are actually distributed. Such an election, once made shall apply to all subsequent years unless revoked with the consent of the IRS.
A QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares (or deemed to be realized on the pledge of his common shares) as capital gain; (ii) treat his share of our net capital gain, if any, as long-term capital gain instead of ordinary income, and (iii) either avoid interest charges resulting from PFIC status altogether (see discussion of interest charge below), or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of our annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing U.S. Holder is an individual, such an interest charge would be not deductible.
The procedure a U.S. Holder must comply with in making an timely QEF election will depend on whether the year of the election is the first year in the U.S. Holder's holding period in which we are our company is a PFIC. If the U.S. Holder makes a QEF election in such first year, (sometimes referred to as a
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"Pedigreed QEF Election"), then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files its tax return for such first year. If, however, we our company qualified as a PFIC in a prior year, then the U.S. Holder may make an "Unpedigreed QEF Election" by recognizing as an "excess distribution" (i) under the rules of Section 1291 (discussed below), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date (Deemed Sale Election) or (ii) if we are a controlled foreign corporation ("CFC"), the Holder's pro rata share of the corporation's earnings and profits (Deemed Dividend Election) (But see "Elimination of Overlap Between Subpart F Rules and PFIC Provisions"). The effect of either the deemed sale election or the deemed dividend election is to pay all prior deferred tax, to pay interest on the tax deferral and to be treated thereafter as a Pedigreed QEF as discussed in the prior paragraph. With respect to a situation in which a Pedigreed QEF election is made, if we our company no longer qualifies as a PFIC in a subsequent year, normal Code rules and not the PFIC rules will apply.
If a U.S. Holder has not made a QEF Election at any time (a "Non-electing U.S. Holder"), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reason of a pledge) of his common shares and (ii) certain "excess distributions", as specially defined, by our Company. An "excess distribution" is any current-year distribution in respect of PFIC stock that represents a rateable portion of the total distributions in respect of the stock during the year that exceed 125 percent of the average amount of distributions in respect of the stock during the three preceding years.
A Non-electing U.S. Holder generally would be required to pro-rate all gains realized on the disposition of his common shares and all excess distributions over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to our first taxable year during such U.S. Holder's holding period and beginning after January, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-electing U.S. Holder also would be liable for interest on the deferred tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-electing U.S. Holder that is an individual is not allowed a deduction for interest on the deferred tax liability. The portions of gains and distributions that are not characterized as "excess distributions" are subject to tax in the current year under the normal tax rules of the Internal Revenue Code.
If we are, our company is a PFIC for any taxable year during which a Non-electing U.S. Holder holds common shares, then we will continue to be treated as a PFIC with respect to such common Shares, even if it is no longer by definition a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such common shares had been sold on the last day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued proposed regulations that would treat as taxable certain transfers of PFIC stock by Non-electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it is made after the first year during which we are our company is a PFIC and the U.S. Holder holds our shares) (a "Unpedigreed Election"), the QEF rules apply prospectively but do not apply to years prior to the year in which the QEF first becomes effective. U.S. Holders should consult their tax advisors regarding the specific consequences of making a Non-Pedigreed QEF Election.
Certain special, generally adverse, rules will apply with respect to the common shares while our company is we are a PFIC whether or not it is treated as a QEF. For example under Section 1297(b)(6) of the Code
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(as in effect prior to the Taxpayer Relief Act of 1997), a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such stock.
The foregoing discussion is based on currently effective provisions of the Code, existing and proposed regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change. Any such change could affect the validity of this discussion. In addition, the implementation of certain aspects of the PFIC rules requires the issuance of regulations which in many instances have not been promulgated and which may have retroactive effect. There can be no assurance that any of these proposals will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion. Accordingly, and due to the complexity of the PFIC rules, U.S. Holders of the Registrant our common shares are strongly urged to consult their own tax advisors concerning the impact of these rules on their investment in our Ccompany. For a discussion of the impact of the Taxpayer Relief Act of 1997 on a U.S. Holder of a PFIC, see "Mark-to-Market Election For PFIC Stock Under the Taxpayer Relief Act of 1997" and "Elimination of Overlap Between Subpart F Rules and PFIC Provisions" below.
Mark-to-Market Election for PFIC Stock Under the Taxpayer Relief Act of 1997
The Taxpayer Relief Act of 1997 provides that a U.S. Holder of a PFIC may make a mark-to-market election with respect to the stock of the PFIC if such stock is marketable as defined below. This provision is designed to provide a current inclusion provision for persons that are Non-Electing Holders. Under the election, any excess of the fair market value of the PFIC stock at the close of the tax year over the Holder's adjusted basis in the stock is included in the Holder's income. The Holder may deduct any excess of the adjusted basis of the PFIC stock over its fair market value at the close of the tax year. However, deductions are limited to the net mark-to-market gains on the stock that the Holder included in income in prior tax years, or so called "unreversed inclusions". For purposes of the election, PFIC stock is marketable if it is regularly traded on (1) a national securities exchange that is registered with the SEC, (2) the national market system established under Section II A of the Securities Exchange Act of 1934, or (3) an exchange or market that the IRS determines has rules sufficient to ensure that the market price represents legitimate and sound fair market value.
A Holder's adjusted basis of PFIC stock is increased by the income recognized under the mark-to-market election and decreased by the deductions allowed under the election. If a U.S. Holder owns PFIC stock indirectly through a foreign entity, the basis adjustments apply to the basis of the PFIC stock in the hands of the foreign entity for the purpose of applying the PFIC rules to the tax treatment of the U.S. owner. Similar basis adjustments are made to the basis of the property through which the U.S. persons hold the PFIC stock.
Income recognized under the mark-to-market election and gain on the sale of PFIC stock with respect to which an election is made is treated as ordinary income. Deductions allowed under the election and loss on the sale of PFIC with respect to which an election is made, to the extent that the amount of loss does not exceed the net mark-to-market gains previously included, are treated as ordinary losses. The U.S. or foreign source of any income or losses is determined as if the amount were a gain or loss from the sale of stock in the PFIC.
If PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S. person that may make the mark-to-market election. Amounts includible in the CFC's income under the election are treated as foreign personal holding company income, and deductions are allocable to foreign personal holding company income.
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The above provisions apply to tax years of U.S. persons beginning after December 31, 1997, and to tax years of foreign corporations ending with or within such tax years of U.S. persons.
The rules of Code Section 1291 applicable to non-qualified funds as discussed above generally do not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. If Code Section 1291 is applied and a mark-to-market election was in effect for any prior tax year, the U.S. Holder's holding period for the PFIC stock is treated as beginning immediately after the last tax year of the election. However, if a taxpayer makes a mark-to-market election for PFIC stock that is a non-qualified fund after the beginning of a taxpayer's holding period for such stock, a co-ordination rule applies to ensure that the taxpayer does not avoid the interest charge with respect to amounts attributable to periods before the election.
Controlled Foreign Corporation Status
If more than 50% of the voting power of all classes of stock or the total value of the stock of our Ccompany is owned, directly or indirectly, by U.S. Holders, each of whom own after applying rules of attribution 10% or more of the total combined voting power of all classes of stock of our Ccompany, we would be treated as a "controlled foreign corporation" or "CFC" under Subpart F of the Code. This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of "Subpart F income" (as defined by the Code) of our Ccompany and our earnings invested in "U.S. property" (as defined by Section 956 of the Code). In addition, under Section 1248 of the Code if we are considered a CFC at any time during the five year period ending with the sale or exchange of its stockshares, gain from the sale or exchange of common shares of our Ccompany by such a 10% U.S. Holder of our common stock at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of our earnings and profits attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because we may never be a CFC, a more detailed review of these rules is beyond of the scope of this discussion.
Elimination of Overlap Between Subpart F Rules and PFIC Provisions
Under the Taxpayer Relief Act of 1997, a PFIC that is also a CFC will not be treated as a PFIC with respect to certain 10% U.S. Holders. For the exception to apply, (i) the corporation must be a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder must be subject to the current inclusion rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a "United States Shareholder," see "Controlled Foreign Corporation," above). The exception only applies to that portion of a U.S. Holder's holding period beginning after December 31, 1997. For that portion of a United States Holder before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.
As a result of this new provision, if we were ever to become a CFC, U.S. Holders who are currently taxed on their pro rata shares of Subpart F income of a PFIC which is also a CFC will not be subject to the PFIC provisions with respect to the same stock if they have previously made a Pedigreed QEF Election. The PFIC provisions will however continue to apply to U.S Holders for any periods in which Subpart F does not apply (for example he is no longer a 10% Holder or we are no longer a CFC) and to U.S. Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects to recognize gain on the PFIC shares held in our Ccompany as if those shares had been sold.
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON SHARES OF OUR COMPANY.
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F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
Documents concerning our Company referred to in this annual report may be viewed during normal business hours at our office at 2100, 1177 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2K3 by making an appointment.
I. Subsidiary Information
As at the date of this annual report, we have five wholly-owned subsidiaries: (i) Minera Mexicana el Rosario, S.A. de C.V.; (ii) New Age Investments Inc.; (iii) Metalicos de Durango, S.A. de C.V.; (iv) Minera de Villa Seca, S.A. de C.V.; and (v) Exploraciones Minera El Rosario, S.A. de C.V.
ITEM 11 Quantitative and Qualitative Disclosures About Market Risk
The Company has foreign operations which gives rise to foreign currency risk. Revenues are received in United States currency and expenditures are either due in United States currency or Mexican currency. As a Canadian company, however, the reporting and functional currency of our Company and our subsidiaries is the Canadian dollar. Therefore, are exposed to some exchange rate risk. At December 31, 2007, the Company has not entered into any derivatives or other financial instruments to mitigate the risk of foreign currency fluctuations.
ITEM 12 Description of Securities Other Than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
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PART II
ITEM 13 Defaults, Dividend Arrearages and Delinquencies
Not applicable.
ITEM 14 Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
ITEM 15 Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under Canadian and U.S. securities regulations is recorded, processed, summarized and reported within the time periods specified and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
An evaluation was carried out under the supervision of, and with the participation of, our management, including our Chief Executive officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in the Exchange Act, as amended, Rules 13a-15(e) and 15d-15(e)) as of December 31, 2007. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2007.
Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (the “Exchange Act”).
Under the supervision and with the participation of our Company's Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of December 31, 2007, based on the framework set forth inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2007.
KPMG LLP (“KPMG”), an independent registered public accounting firm, who audited and reported on our consolidated financial statements, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2007. The attestation report is included with the consolidated financial statements in this Annual Report on Form 20-F.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the period covered by the annual report, being the fiscal year ended December 31, 2007, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. The Company advises
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that it has taken steps to increase the efficiency of its internal controls to ensure continued accuracy and timeliness of the Company’s financial reporting.
ITEM 16 Reserved
ITEM 16A Audit Committee Financial Expert
Our board of directors has determined that the Chair of the Company's audit committee, Mr. John T. Kopcheff BSc (Hons), SPE, AAPG, qualifies as an "audit committee financial expert" as that term is defined in Item 16A(b) of Form 20-F.
As the managing director of Victoria Petroleum N.L., since 1984, Mr. Kopcheff is responsible for the preparation of annual budgets, the review, approval and sign-off of quarterly and annual financial statements filed on the Australian Stock Exchange and Australian Securities Investment Commission, and the review of the financial statements with the auditors. Prior to joining Victoria Petroleum N.L., Mr. Kopcheff fulfilled various management roles at Earth Energy Resources Consultants and Exploration Logging International (a subsidiary of Baker Hughes Inc.) for which an integral part of his responsibilities included formulation of fiscal policy, preparation of budgets, forecasting, financial performance reporting and management of accounts.
Mr. Kopcheff qualifies as "independent" as the term is used in Section 803 of the AMEX Company Guide.
ITEM 16B Code of Ethics
Code of Ethics
Effective June 30, 2005 (amended August 2007), our Company's Board of Directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our Company’s Chief Executive Officer, President, Chief Financial Officer, Chief Operating Officer and Controller. Our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
(1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(2) full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;
(3) compliance with applicable governmental laws, rules and regulations;
(4) the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and
(5) accountability for adherence to the Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics requires, among other things, that all of our Company's personnel shall be accorded full access to our president, the Board of Directors, or the Audit Committee with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further,
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all of our Company's personnel are to be accorded full access to our Company's board of directors and our audit committee if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our president or secretary.
In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our Company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our Company's President or Secretary. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the President or Secretary, the incident must be reported to any member of our Board of Directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our Company policy to retaliate against any individual who reports in good faith the violation or potential violation of our Company's Code of Business Conduct and Ethics by another.
ITEM 16C Principal Accountant Fees and Services
Audit Fees
Our board of directors appointed KPMG LLP, Chartered Accountants, as independent auditors to audit our financial statements for the fiscal year ended December 31, 2007. The aggregate fees billed by KPMG LLP, Chartered Accountants, for professional services rendered for the audit of our 2007 annual financial statements included in this annual report for the year ended December 31, 2007 were $327,180 compared to $243,149 for the year ended December 31, 2006 (of which $93,149 was expensed in 2007), and $80,000 for the year ended December 31, 2005.
Audit Related Fees
The aggregate fees billed for professional services by KPMG LLP, Chartered Accountants, that are reasonably related to the performance of the audit or review of our financial statements and which are not reported under the caption "Audit Fees" above, were $nil for the year ended December 31, 2007, compared to $27,500 for the year ended December 31, 2006 and $nil for the year ended December 31, 2005.
Tax Fees
The aggregate fees billed for tax compliance, tax advice and tax planning by KPMG LLP, Chartered Accountants, were $3,300 for the year ended December 31, 2007, compared to $3,400 for the year ended December 31, 2006, and compared to $3,175 for the year ended December 31, 2005.
All Other Fees
The aggregate fees billed by KPMG LLP, Chartered Accountants, for other non-audit professional services, other than those services listed above, were $4,600 for the year ended December 31, 2007 compared to $nil for the year ended December 31, 2006, and $18,200for the year ended December 31, 2005.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before KPMG LLP, Chartered Accountants, is engaged by us or our subsidiaries to render any auditing or permitted non-audit related service, the engagement be:
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- | Approved by our audit committee; or |
- | Entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management. |
The audit committee pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and pre-approved by the audit committee.
The audit committee has considered the nature and amount of the fees billed by KPMG LLP, Chartered Accountants, and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining KPMG LLP, Chartered Accountants, independence.
ITEM 16D. Exemption from the Listing Standards for Audit Committees
Not Applicable.
ITEM 16E Purchases of Equity Securities of the Company and Affiliated Purchasers
Not Applicable.
PART III
ITEM 17 Financial Statements
Financial Statements Filed as Part of the Annual Report:
- | Report of Independent Registered Public Accounting Firm dated March 20, 2008, except as to note 2(a), which is as of February 3, 2009. |
| |
- | Consolidated balance sheets for the fiscal years ended December 31, 2007 and 2006. |
| |
- | Consolidated statements of operations and comprehensive loss and deficit for the fiscal years ended December 31, 2007, 2006, and 2005. |
| |
- | Consolidated statements of cash flows for the fiscal years ended December 31, 2007, 2006, and 2005. |
| |
- | Notes to consolidated financial statements |
ITEM 18 Financial Statements
Refer to Item 17 - Financial Statements.
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ITEM 19 Exhibits
The following exhibits are being filed as part of this annual report, or are incorporated by reference where indicated:
1. | Articles of Incorporation and By-laws: |
1.1 | Continuation Application under the Business Corporation Act (British Columbia) (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
1.2 | Certificate of Continuation dated July 9, 2004 (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
1.3 | Notice of Articles (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
1.4 | Bylaws (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
2. | Instruments Defining Rights of Security Holders |
2.1 | Form of Series A Warrant (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
2.2 | Form of Series B Warrant (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
2.3 | Form of Series C Warrant (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
2.4 | Form of Series D Warrant (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
2.5 | Form of Series E Warrant (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004) |
2.6 | Shareholder Rights Plan (incorporated by reference from our Registration Statement on Form 20- F, filed on August 10, 2004, amended March 7, 2008). |
3. | Material Contracts |
3.1 | Share Purchase Agreement dated December 9, 2003 with Robert A. Archer and Ing. Francisco Ramos Sánchez (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
3.2 | Option Agreement dated February 11, 2004 between our subsidiary, Minera Mexicana el Rosario, S.A. de C.V. and Eduardo Rodriguez Chávez, acting in representation of Alfredo Rodriguez Chávez (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
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3.3 | Agreement dated February 18, 2004 between our subsidiary, Minera Mexicana el Rosario, S.A. de C.V. and Cia. Minera des Canelas y Topia, S.A. de C.V., MET-MEX Peñoles, S.A. de C.V. and Minera Mexicana la Ciénega, S.A. de C.V. (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
3.4 | Agreement dated February 28, 2004 between our subsidiary, Minera Mexicana el Rosario, S.A. de C.V. and Carolos Teodoro Ortiz Rodriquez, Abelardo Garza Hernanadez and Minera San Miguel de los Tarros, S.A. de C.V. (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
3.5 | Letter of Intent dated January 19, 2005 with Minera Acero del Fuego, S.A. de C.V. (Virimoa Project) (incorporated by reference from our Registration Statement on Form 20-F, filed on July 15, 2005). |
3.6 | Letter of Intent dated January 4, 2005 between our Company and Compania Minera de Canelas y Topia, S.A. de C.V. |
3.7 | Purchase Agreement dated June 30, 2005 between our Company and Compania Minera de Canelas y Topia, S.A. de C.V. |
3.8 | Purchase Agreement dated October 25, 2005 between our Company and the Sociedad Coopertiva Minero Metalúrgics Santa Fe de Guanajuato. |
3.9 | Letter of Intent dated April 26, 2006 between our Company and Minera Apollo S.A. de C.V. |
3.10 | Letter of Intent dated December 7, 2006 between our Company and Altair Ventures Incorporated |
3.11 | Option Agreement dated February 2, 2007 between our Company and Altair Ventures Incorporated (incorporated by reference from our Annual Report on Form 20-F, filed on April 3, 2008) |
4. | Subsidiaries |
4.1 | Minera Mexicana el Rosario, S.A. de C.V. (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
4.2 | New Age Investments Inc. (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
4.3 | Metalicos de Durango, S.A. de C.V. |
4.4 | Minera de Villa Seca, S.A. de C.V. |
4.5 | Exploraciones Minera el Rosario, S.A. de C.V. |
5. | Code of Ethics |
5.1 | Code of Ethics (incorporated by reference from our Registration Statement on Form 20-F, filed on July 15, 2005, updated August 2007). |
- 137 -
8. | Additional Exhibits |
8.1 | Summary Report on the San Antonio Gold Prospect dated November 2003 (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
8.2 | Summary Report on the Topia Project dated November 20, 2003 (incorporated by reference from our Registration Statement on Form 20-F, filed on August 10, 2004). |
8.3* | Map of Topia Property |
8.4* | Map of Guanajuato Property |
8.5* | Map of Mapimi Property |
12. | 302 Certification |
12.1* | Section 302 Certification under Sarbanes-Oxley Act of 2002 for Robert A. Archer. |
12.2* | Section 302 Certification under Sarbanes-Oxley Act of 2002 for Raakel S. Iskanius. |
13. | 906 Certification |
13.1* | Section 906 Certification under Sarbanes-Oxley Act of 2002 for Robert A. Archer. |
13.2* | Section 906 Certification under Sarbanes-Oxley Act of 2002 for Raakel S. Iskanius. |
* | Filed herewith. |
i This definition was obtained from the Canadian Institute of Mining, Metallurgy, and Petroleum, and was adopted August 20, 2000.
ii This definition was obtained from the Canadian Institute of Mining, Metallurgy, and Petroleum, and was adopted August 20, 2000.
iii October 12, 2006 press release.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Great Panther Resources Limited
(Registrant)
/s/ Robert A. Archer
Robert A. Archer
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Raakel S. Iskanius
Raakel S. Iskanius
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Date: February 3, 2009
GREAT PANTHER RESOURCES LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2007 and 2006
Expressed in Canadian Dollars
Restated (Note 2(a))
GREAT PANTHER RESOURCES LIMITED
MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR
FINANCIAL REPORTING
The management of Great Panther Resources Limited is responsible for the presentation and preparation of the accompanying consolidated financial statements of Great Panther Resources Limited and all related financial information contained in this Annual Report, including Management’s Discussion and Analysis.
The consolidated financial statements (as restated) have been prepared in accordance with Canadian generally accepted accounting principles. They include certain amounts that are based on estimates and judgments of management. Financial information presented elsewhere in the Annual Report is consistent with that contained in the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management has a process in place to evaluate internal control over financial reporting based on the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework. We, as Chief Executive Officer and Chief Financial Officer, will certify our annual filings with the CSA and SEC as required in Canada by Multilateral Instrument 52-109 and in the United States as required by the Securities Exchange Act of 1934.
The Company’s Audit Committee is appointed by the Board of Directors annually and is comprised of three independent directors. The Audit Committee meets quarterly to review the Company’s consolidated financial statements and Management’s Discussion and Analysis, and on an annual basis, the independent auditors’ report. The Audit Committee recommends to the Board of Directors the external auditors to be appointed by the shareholders at each annual meeting and reviews the independence and effectiveness of their work. The independent auditors have unrestricted access to the Company, the Audit Committee, and the Board of Directors.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (the “Exchange Act”).
Under the supervision and with the participation of our Company's Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of December 31, 2007, based on the framework set forth inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2007.
KPMG LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2007, as stated in their report which appears herein.
“Robert A. Archer” | “Raakel S. Iskanius” |
Chief Executive Officer | Chief Financial Officer |
February 3, 2009 | February 3, 2009 |
KPMG LLP | Telephone | (604) 691-3000 | |
Chartered Accountants | Fax | (604) 691-3031 | |
PO Box 10426 777 Dunsmuir Street | Internet | www.kpmg.ca | |
Vancouver BC V7Y 1K3 | |||
Canada |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors of Great Panther Resources Limited
We have audited the accompanying consolidated balance sheets of Great Panther Resources Limited (the “Company”) as of December 31, 2007 and 2006 and the related consolidated statements of operations and comprehensive loss, deficit and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with Canadian generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the consolidated financial statements, the Company has suffered recurring losses and operating cash flow deficiencies that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Canadian generally accepted accounting principles vary in certain significant respects from US generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 18 to the consolidated financial statements.
As discussed in note 2(a), the consolidated income statements for the years ended December 31, 2007 and 2006 have been restated.
KPMG LLP, a Canadian limited liability partnership is the Canadian member firm of KPMG International, a Swiss cooperative.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 20, 2008, except as to note 2(a), which is as of February 3, 2009, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Chartered Accountants
Vancouver, Canada
March 20, 2008, except as to note 2(a),
which is as of February 3, 2009
KPMG LLP, a Canadian limited liability partnership is the Canadian member firm of KPMG International, a Swiss cooperative.
KPMG LLP | Telephone | (604) 691-3000 | |
Chartered Accountants | Fax | (604) 691-3031 | |
PO Box 10426 777 Dunsmuir Street | Internet | www.kpmg.ca | |
Vancouver BC V7Y 1K3 | |||
Canada |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Shareholders and Board of Directors of Great Panther Resources Limited
We have audited Great Panther Resources Limited’s (the "Company") internal control over financial reporting as of December 31, 2007, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG LLP, a Canadian limited liability partnership is the Canadian member firm of KPMG International, a Swiss cooperative.
In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2007 and 2006, and the related consolidated statements of operations and comprehensive loss, deficit and cash flows for each of the years in the three-year period ended December 31, 2007 and our report dated March 20, 2008, except as to note 2(a) which is as of February 3, 2009, expressed an unqualified opinion on those consolidated financial statements.
Chartered Accountants
Vancouver, Canada
March 20, 2008, except as to note 2(a),
which is as of February 3, 2009
KPMG LLP, a Canadian limited liability partnership is the Canadian member firm of KPMG International, a Swiss cooperative.
GREAT PANTHER RESOURCES LIMITED
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian Dollars)
December 31, 2007 and 2006
2007 | 2006 | |
Assets | ||
Current assets: | ||
Cash and cash equivalents | $ 5,357,977 | $ 9,208,048 |
Marketable securities | 39,795 | - |
Amounts receivable, (note 5) | 5,879,243 | 4,120,584 |
Income taxes recoverable | 363,220 | - |
Inventories (note 6) | 748,473 | 605,127 |
Prepaid expenses, deposits and advances | 576,589 | 821,614 |
12,965,297 | 14,755,373 | |
Mineral properties, plant and equipment (note 8) | 18,087,813 | 17,376,886 |
$ 31,053,110 | $ 32,132,259 | |
Liabilities and Shareholders’ Equity | ||
Current liabilities: | ||
Accounts payable and accrued liabilities | $ 2,216,730 | $ 911,928 |
Income taxes payable | - | 127,475 |
Current portion of long-term debt (note 10(a)) | 88,625 | 1,182,814 |
2,305,355 | 2,222,217 | |
Long-term liabilities: | ||
Long-term debt (note 10(a)) | - | 104,127 |
Convertible loan notes (note 10(b)) | 4,028,611 | 1,163,799 |
Asset retirement obligations (note 11) | 1,101,171 | 92,285 |
Future income tax liability (note 14) | 2,421,504 | - |
9,856,641 | 3,582,428 | |
Shareholders’ equity: | ||
Capital stock (note 12) | 56,988,447 | 46,393,145 |
Contributed surplus (note 12(c)) | 6,261,116 | 6,077,864 |
Equity component of convertible note (note 10(b)) | 2,569,000 | 1,006,000 |
Accumulated other comprehensive income | 5,945 | - |
Deficit | (44,628,039) | (24,927,178) |
21,196,469 | 28,549,831 | |
Continuing operations (note 1) | ||
Commitments and contingencies (notes 7, 9, 10, 11 and 16) | ||
Subsequent events (note 17) | ||
$ 31,053,110 | $ 32,132,259 |
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
“Robert A. Archer” | Director | “Kaare G. Foy” | Director |
1
GREAT PANTHER RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in Canadian Dollars)
Years ended December 31, 2007, 2006 and 2005
2007 | 2006 | 2005 | |||||||
Restated | Restated | ||||||||
Note 2(a) | Note 2(a) | ||||||||
Revenues: | |||||||||
Mineral sales | $ | 15,523,094 | $ | 6,333,034 | $ | - | |||
Cost of sales (excluding amortization | |||||||||
and depletion) | 14,152,657 | 6,382,639 | - | ||||||
1,370,437 | (49,605 | ) | - | ||||||
Expenses: | |||||||||
Amortization and depletion of mineral | |||||||||
properties, plant and equipment | 3,603,668 | 1,421,769 | 12,579 | ||||||
Accretion on asset retirement obligation | 22,704 | - | - | ||||||
Mineral property exploration expenditures (note 9) | 6,803,104 | 3,968,083 | 2,340,398 | ||||||
General and administrative | 4,672,362 | 4,408,631 | 2,139,236 | ||||||
Stock-based compensation | 1,129,500 | 4,672,774 | 357,298 | ||||||
16,231,338 | 14,471,257 | 4,849,511 | |||||||
(14,860,901 | ) | (14,520,862 | ) | (4,849,511 | ) | ||||
Other income (expenses): | |||||||||
Interest income | 207,892 | 366,319 | 27,251 | ||||||
Interest expense | (1,035,577 | ) | (830,236 | ) | (357,011 | ) | |||
Write-down of mineral property acquisition | |||||||||
costs | - | - | (403,634 | ) | |||||
Foreign exchange gain (loss) | (1,440,802 | ) | 10,358 | (19,294 | ) | ||||
(2,268,487 | ) | (453,559 | ) | (752,688 | ) | ||||
Loss before provision for income taxes | (17,129,388 | ) | (14,974,421 | ) | (5,602,199 | ) | |||
Provision for income taxes (note 14) | (2,571,473 | ) | (110,016 | ) | 370,514 | ||||
Loss for the year | (19,700,861 | ) | (15,084,437 | ) | (5,231,685 | ) | |||
Other comprehensive income, net of tax: | |||||||||
Unrealized gain on marketable securities | 5,945 | - | - | ||||||
Comprehensive loss for the year | $ | (19,694,916 | ) | $ | (15,084,437 | ) | $ | (5,231,685 | ) |
Diluted and basic loss per share (note 2(n)) | $ | (0.27 | ) | $ | (0.25 | ) | $ | (0.22 | ) |
Weighted average number of common | |||||||||
shares outstanding | 72,227,455 | 59,720,424 | 23,986,543 |
See accompanying notes to consolidated financial statements.
2
GREAT PANTHER RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF DEFICIT
(Expressed in Canadian Dollars)
Years ended December 31, 2007, 2006 and 2005
2007 | 2006 | 2005 | |||||||
Deficit, beginning of year | (24,927,178 | ) | (9,842,741 | ) | (4,611,056 | ) | |||
Loss for the year | (19,700,861 | ) | (15,084,437 | ) | (5,231,685 | ) | |||
Deficit, end of year | $ | (44,628,039 | ) | $ | (24,927,178 | ) | $ | (9,842,741 | ) |
See accompanying notes to consolidated financial statements.
3
GREAT PANTHER RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
Years ended December 31, 2007, 2006 and 2005
2007 | 2006 | 2005 | |||||||
Cash flows used in operating activities: | |||||||||
Loss for the year | $ | (19,700,861 | ) | $ | (15,084,437 | ) | $ | (5,231,685 | ) |
Items not involving cash: | |||||||||
Amortization and depletion of mineral | |||||||||
properties, plant and equipment | 3,603,668 | 1,421,769 | 12,579 | ||||||
Foreign exchange gain on debt | (778 | ) | (12,395 | ) | (119,478 | ) | |||
Stock-based compensation | 1,129,500 | 4,672,774 | 357,298 | ||||||
Shares issued for mineral exploration | |||||||||
expenditures | 246,000 | 613,000 | 50,000 | ||||||
Future income tax | 2,421,504 | (17,459 | ) | (370,514 | ) | ||||
Write-down of mineral property acquisition costs | - | - | 403,634 | ||||||
Interest accretion on debt discount | 259,355 | 378,363 | 357,011 | ||||||
Interest accretion on convertible note payable | 377,812 | 149,799 | - | ||||||
Accretion on asset retirement obligations | 22,704 | - | - | ||||||
Changes in non-cash operating working capital: | |||||||||
Amounts receivable | (1,758,659 | ) | (3,119,463 | ) | (733,324 | ) | |||
Inventories | (143,346 | ) | (605,127 | ) | - | ||||
Prepaid expenses and deposits | 245,025 | (637,702 | ) | (133,758 | ) | ||||
Accounts payable and accrued liabilities | 1,304,802 | 680,062 | 29,380 | ||||||
Income taxes | (490,695 | ) | 127,475 | - | |||||
Net cash used in operating activities | (12,483,969 | ) | (11,433,341 | ) | (5,378,857 | ) | |||
Cash flows used in investing activities: | |||||||||
Marketable securities | (33,850 | ) | - | - | |||||
Mineral properties and capital expenditures | (3,328,413 | ) | (5,736,570 | ) | (941,840 | ) | |||
Purchase of net assets of Topia mine | - | - | (888,405 | ) | |||||
Purchase of net assets of Guanajuato mines | - | - | (4,428,416 | ) | |||||
Net cash used in investing activities | (3,362,263 | ) | (5,736,570 | ) | (6,258,661 | ) | |||
Cash flows from financing activities: | |||||||||
Due to directors and related parties | - | - | (37,654 | ) | |||||
Issuance of shares for cash, net of issue costs | - | 13,866,639 | 13,874,042 | ||||||
Proceeds on issuance of convertible note | 4,050,000 | 2,020,000 | - | ||||||
Repayment of long-term debt | (1,456,893 | ) | (4,897,504 | ) | - | ||||
Proceeds received on exercise of warrants | 8,725,054 | 9,224,170 | 1,136,555 | ||||||
Proceeds on exercise of options | 678,000 | 869,257 | 36,000 | ||||||
Net cash from financing activities | 11,996,161 | 21,082,562 | 15,008,943 | ||||||
Increase (decrease) in cash and cash equivalents | (3,850,071 | ) | 3,912,651 | 3,371,425 | |||||
Cash and cash equivalents, beginning of year | 9,208,048 | 5,295,397 | 1,923,972 | ||||||
Cash and cash equivalents, end of year | $ | 5,357,977 | $ | 9,208,048 | $ | 5,295,397 |
4
GREAT PANTHER RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
Years ended December 31, 2007, 2006 and 2005
2007 | 2006 | 2005 | |||||||
Supplementary cash flow information: | |||||||||
Income taxes paid | $ | 640,664 | $ | - | $ | - | |||
Interest expense paid | 330,517 | 121,200 | - | ||||||
Interest income received | 198,504 | 302,074 | 27,251 | ||||||
Non-cash financing and investing transactions: | |||||||||
Mineral property addition upon recognition | |||||||||
of asset retirement obligation | 986,182 | 92,285 | - | ||||||
Warrants and options issued for financing fee | - | 251,500 | 606,183 | ||||||
Assumption of debt on purchase of | |||||||||
net assets of Topia mine | - | - | 1,430,937 | ||||||
Assumption of debt on purchase of | |||||||||
net assets of Guanajuato mines | - | - | 3,918,747 | ||||||
Assumption of debt on purchase of mining | - | 231,260 | - | ||||||
concession | |||||||||
Shares issued and funds received in prior years | - | 49,910 | - |
See accompanying notes to consolidated financial statements.
5
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
1. | Nature of continuing operations: | |
Great Panther Resources Limited (“the Company”) was continued under the Business Corporations Act (Yukon) on March 22, 1996 and continued under the Business Corporations Act (British Columbia) on July 9, 2004. On October 2, 2003, the Company changed its name from Great Panther Inc. to Great Panther Resources Limited and the common shares were consolidated whereby ten common shares were exchanged for one new common share. | ||
The Company is in the business of acquisition, development and exploration, and operation of mineral properties and mines in Mexico. Of the properties in which the Company has an interest, the Topia and Guanajuato mines were in production at the balance sheet dates. The Company’s other mineral property interests are in the exploration stage and it has not yet been determined as to whether these properties contain ore reserves that are economically viable. Costs associated with these exploration stage properties have been expensed. | ||
These financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. During the years ended December 31, 2007 and 2006, the Company recorded losses of approximately $19,701,000 and $15,084,000 respectively, and used cash in operations of approximately $12,484,000 and $11,433,000, respectively. As at December 31, 2007, the Company had an accumulated deficit of approximately $44,628,000 and a working capital balance of $10,660,000. | ||
The Company’s ability to continue on as a going concern is dependent on the achievement of profitable operations, the existence of economically recoverable mineral reserves and the ability to raise adequate financing from lenders, shareholders and other investors to support its business activities. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. | ||
2. | Significant accounting policies: | |
(a) | Restatement: | |
These consolidated financial statements have been restated to reduce revenue to reflect the proceeds from the sale of concentrates, net of treatment and refining fees charged by counter parties, as the Company assumes no risk or obligation for treatment and refining services under its sales arrangements. The Company previously recorded treatment and refining fees as a cost of sales. | ||
The effect of the restatement is a decrease in cost of sales (excluding amortization and depletion) and a decrease in revenues for the year ended December 31, 2007 by $1,963,976 (2006 - $736,408). This restatement has no impact on the reported loss and loss per share for each of the years in the three years ended December 31, 2007. |
2007 | 2006 | ||||||||||||
As originally | As originally | ||||||||||||
reported | As restated | reported | As restated | ||||||||||
Mineral sales | $ | 17,487,070 | $ | 15,523,094 | $ | 7,069,442 | $ | 6,333,034 | |||||
Cost of sales (excluding amortization and depletion) | $ | 16,116,633 | $ | 14,152,657 | $ | 7,119,047 | $ | 6,382,639 |
6
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(b) | Basis of presentation: | |
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, New Age Investments Inc., Minera Mexicana el Rosario, S.A. de C.V., Metalicos de Durango, S.A. de C.V., Minera de Villa Seca, S.A. de C.V., and Exploraciones Mineras el Rosario S.A. de C.V. Significant inter-company balances and transactions are eliminated on consolidation. | ||
These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. The significant measurement differences between those principles and requirements promulgated by the Financial Accounting Standards Board and the Securities and Exchange Commission (collectively US GAAP), as they affect the Company, are disclosed in note 18. | ||
(c) | Use of estimates: | |
The preparation of the consolidated financial statements requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the assessment for impairment and useful life of mineral properties, plant and equipment, site restoration costs, valuation of amounts receivable and future income tax assets, assumptions used in determining the fair value of non-cash stock-based compensation, the fair value of the equity component of convertible note debentures and the fair value assigned to the net assets acquired and liabilities assumed on acquisition. Due to the inherent uncertainty involved with making such estimates, actual results reported in future years could differ from these estimates. | ||
(d) | Cash and cash equivalents: | |
Cash and cash equivalents consist of highly liquid investments that are readily convertible to known amounts of cash. Short term investments have maturity dates of three months or less from the date of purchase, or they are redeemable prior to maturity. | ||
(e) | Marketable securities: | |
Marketable securities are recorded at fair market value based on quoted market prices. | ||
(f) | Inventories: | |
Inventory consists of ore stockpiles and concentrate inventories which are valued at the lower of average cost and net realizable value. Costs include all direct costs incurred in production, including mining, crushing, processing and overhead. Supplies inventory, which includes the cost of consumables used in operations, such as fuel, grinding media, chemicals and spare parts, are stated at the lower of average cost and replacement cost. | ||
(g) | Mineral properties, plant and equipment: | |
The Company’s policy is to expense, as incurred, exploration expenditures, periodic option payments related to mineral properties and administrative and land use costs incurred prior to commercial feasibility of mining operations being established. Mineral property acquisition expenditures are capitalized. | ||
Mineral property sales proceeds or option payments received for exploration rights are treated as cost recoveries. Mineral property acquisition costs include the cash consideration and the fair value of common shares issued for mineral property interests, pursuant to the terms of the relevant agreement. |
7
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
Costs related to the acquisition of property and mineral rights, equipment, construction of production facilities and the development and betterment of mine infrastructure and equipment are capitalized. Costs of permitting, evaluation and feasibility are capitalized upon completion of an analysis which demonstrates the economic viability of the mineral deposit.
Once commercial production has commenced, production facilities and equipment, stated at cost, are depreciated using the straight-line method or units-of-production method, if sufficient reserve information is available, over their estimated useful lives, not to exceed the life of the mine (5 years) to which the assets relate. As at December 31, 2007, the Company did not have a reliable estimate of reserves and therefore did not use the units-of-production method. Management’s estimate of expected mine life is based upon available internal and external estimated resource information, historical production and recovery levels, planned future production and recovery levels, and other factors. Changes in mine life are recognized prospectively.
Maintenance and repairs are charged to operations as incurred. When assets are retired or sold, the costs and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in operations.
Capital assets held at the parent company are recorded at cost less accumulated depreciation, calculated using the following basis:
Computer equipment | 30% declining balance | |
Furniture and fixtures | 20% declining balance | |
Office equipment | 20% declining balance | |
Leasehold improvements | straight-line over the term of the lease |
(h) | Impairment of long-lived assets: | |
The Company reviews and evaluates its long-lived assets, including mineral properties, plant and equipment, for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to its estimated undiscounted future cash flows expected to be generated by the asset. Measurement of an impairment loss is based on the excess of carrying value over the estimated fair value of the asset. | ||
At each reporting period and whenever events or circumstances indicate that an asset's fair value may not be at least equal to its carrying value, management of the Company reviews the net carrying value. These reviews involve consideration of the fair value of each property to determine whether a permanent impairment in value has occurred and whether any asset write-down is necessary. The Company considers metals prices, cost of production, proven and probable reserves and salvage value of the property and equipment in its valuation. | ||
Management's estimates are subject to risks and uncertainties of changes affecting the recoverability of the Company's investment in its mineral property, plant, equipment and mine development. Management's estimates of these factors are based on current conditions. Nonetheless, it is reasonably possible that in the near term, changes that could adversely affect management's estimate of net cash flows expected to be generated from its properties could occur which may necessitate a write-down for asset impairment. |
8
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(i) | Stock-based compensation: | |
The Company accounts for stock-based payments granted to non-employees after January 1, 2002 and employees after January 1, 2003 using the fair value based method. Under the fair value based method, compensation cost is measured at the fair value as the awards are earned and services performed and charged to operations over the service period which normally is the period during which the options vest. | ||
(j) | Revenue recognition: | |
The Company recognizes revenue from the sale of concentrates based on market metal prices and mineral content when title to the concentrates transfers to the customer, which generally occurs on the date the shipment is received. Revenue is recorded in the consolidated statement of operations net of treatment and refining costs paid to counter parties under terms of the off take arrangements. Revenue from the sale of the concentrates is subject to adjustment upon final settlement based upon metal prices, weights and assays. For each reporting period until final settlement, estimates of metal prices are used to record sales using forward metal prices based upon the expected final settlement date. Variations between the sales price recorded at the shipment date and the actual final sales price at the settlement date caused by changes in market metal prices results in an embedded derivative in the sale related accounts receivable balance. The embedded derivative is recorded at fair value each period until final settlement occurs with changes in fair value classified as a component of revenue. | ||
(k) | Asset retirement obligations: | |
The Company's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The Company recognizes the fair value of future reclamation and remediation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction, development, and/or normal use of the asset, if a reasonable estimate of fair value can be made. The liability is measured initially at fair value and the resulting cost capitalized to the carrying value of the related assets. In subsequent periods, the liability is adjusted for accretion of the discount and any change in the amount or timing of the underlying cash flows. The asset retirement cost is depreciated over the remaining life of the assets. | ||
It is reasonably possible that the ultimate cost of remediation and reclamation could change in the future due to uncertainties associated with defining the nature and extent of environmental contamination, the application of laws and regulations by regulatory authorities and changes in remediation technology. The Company continually reviews its accrued liabilities, if any, as evidence becomes available indicating that its remediation and reclamation liabilities may have changed. Any such increases in costs could materially impact the future amounts charged to operations for reclamation and remediation obligations. | ||
(l) | Foreign currency translation: | |
The functional currency of the Company and its subsidiaries is the Canadian dollar. | ||
Monetary items denominated in a foreign currency are translated to Canadian dollars at exchange rates in effect at the balance sheet date and non-monetary items are translated at rates of exchange in effect when the assets were acquired or obligations incurred. Revenues and expenses are translated at rates in effect at the time of the transactions. Foreign exchange gains and losses are included in income. |
9
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(m) | Income taxes: | |
The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences), and tax loss carry forwards. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to be in effect when the temporary differences are likely to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax rates is included in operations in the period in which the change is substantively enacted. The amount of future income tax assets recognized is limited to the amount that is, in management’s estimation, more likely than not to be realized. | ||
(n) | Loss per share: | |
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per share is computed similar to basic loss per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options or warrants were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the reporting period. Diluted loss per share is the same as basic loss per share because the effect on the basic loss per share of outstanding options and warrants is anti-dilutive. | ||
(o) | Comparative figures: | |
Certain comparative figures have been reclassified to conform with current year presentation. |
3. | Adoption of new accounting standards: | |
(a) | Accounting Changes: | |
Effective January 1, 2007, the Company has adopted CICA Handbook Section 1506,Accounting Changes, which requires that: (a) a voluntary change in accounting principles can be made if, and only if, the changes result in more reliable and relevant information, (b) changes in accounting policies are accompanied with disclosures of prior period amounts and justification for the change, and (c) for changes in estimates, the nature and amount of the change should be disclosed. The Company has not made any voluntary change in accounting principles since the adoption of the revised standard. | ||
(b) | Financial Instruments: | |
Effective January 1, 2007, the Company has adopted CICA Handbook Section 3855Financial Instruments – Recognition and Measurement, Section 3861Financial Instruments – Disclosure and Presentation, Section 3865Hedges, Section 1530Comprehensive Incomeand Section 3251Equity. | ||
In accordance with these new standards, all financial assets, except those classified as held-to-maturity and loans and receivables, are measured at fair value. All financial liabilities are measured at fair value when they are classified as held-for-trading; otherwise, they are measured at amortized cost. Investments classified as available-for-sale are reported at fair value (or marked to market) based on quoted market prices with unrealized gains or losses recognized as other comprehensive income. These amounts will be reclassified from shareholders’ equity to net income when realized. Those instruments classified as held- for-trading, have gains or losses included in earnings in the period in which they arise. The Company has |
10
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
classified its cash and cash equivalents as held-for-trading and therefore measures them at fair value, with unrealized gains and losses recorded in income. This change in accounting policy had no effect on the Company’s previous financial statements.
The Company has classified its marketable securities as available-for-sale securities. This change in accounting policy had no effect as at January 1, 2007. Categories of regular way purchases and sales of financial assets are accounted for at the settlement date.
Section 1530 introduces comprehensive income, which consists of net income and other comprehensive income. Other comprehensive income represents changes in shareholders’ equity during a period from transactions and other events arising from non-owner sources and includes unrealized gains and losses on financial assets classified as available-for-sale.
Section 3865,Hedges, establishes standards for when and how hedge accounting may be applied. The Company has not designated any agreements as hedges.
Section 3251,Equity, establishes standards for the presentation of equity and changes in equity.
4. | Recent accounting pronouncements: | |
(a) | Capital Disclosures: | |
CICA Handbook Section 1535,Capital Disclosures, requires additional disclosures about how a company manages its capital. Such information includes quantitative and qualitative disclosure about the Company’s objectives, policies and processes for managing capital, as well as summary quantitative data about what it manages as capital. The Company will be also be required to disclose whether during the period it complied with externally imposed capital requirements and the consequences of non-compliance, if applicable. Such disclosures will be based on information provided internally by the Company’s key management personnel. The standard is effective for interim and annual periods beginning on or after October 1, 2007. The Company is evaluating the impact of the adoption of this Section on the disclosure in the financial statements. | ||
(b) | Financial Instruments – Presentation: | |
Section 3863,Financial Instruments – Presentation, establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in which financial assets and financial liabilities are offset. The standard is effective for interim and annual periods beginning on or after October 1, 2007. The Company does not expect adoption of this section to have a significant effect on the presentation in the financial statements. | ||
(c) | Financial Instruments – Disclosures: | |
Section 3862,Financial Instruments – Disclosures, requires additional quantitative and qualitative disclosures about an entity’s financial assets and liabilities, and their associated risks. Such disclosures include the significance of financial instruments for an entity’s financial position and performance and the nature and extent of risks arising from financial instruments. Specific disclosures include the criteria for designating the classification of different types of financial instruments and determining when impairment is recorded against the related financial asset or when an allowance is used. The standard is effective for interim and annual periods beginning on or after October 1, 2007. The Company is evaluating the impact of the adoption of this Section on the disclosure in the financial statements. |
11
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(d) | Inventories: | |
Section 3031,Inventories, establishes standards for the measurement and disclosure of inventory. It provides guidance on the determination of costs and its subsequent recognition as an expense, including any write-down to net realizable value. The Section also provides guidance on the cost formulas that are used to assign costs to inventories. This standard is effective for interim and annual financial statements beginning on January 1, 2008. The Company is evaluating the impact of the adoption of this Section on the financial statements. | ||
(e) | International Financial Reporting Standards (“IFRS”): | |
In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing Canada's own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ended December 31, 2010. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time. |
5. | Amounts receivable: |
2007 | 2006 | ||||||
Value added tax recoverable | $ | 3,037,482 | $ | 3,002,521 | |||
Trade accounts receivable | 2,515,477 | 866,826 | |||||
Other | 436,284 | 401,237 | |||||
5,989,243 | 4,270,584 | ||||||
Allowance for doubtful amounts | (110,000 | ) | (150,000 | ) | |||
$ | 5,879,243 | $ | 4,120,584 |
The Company, through its Mexican subsidiaries, pays value added tax on the purchase and sale of goods and services at a rate of 15%. The net amount paid or payable is recoverable, but such recovery is subject to review and assessment by local tax authorities. | |
6. | Inventories: |
2007 | 2006 | ||||||
Finished product | $ | 311,357 | $ | 368,462 | |||
Ore stockpile | 29,319 | - | |||||
Materials and supplies | 407,797 | 236,665 | |||||
$ | 748,473 | $ | 605,127 |
12
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
7. | Acquisitions: | ||
(a) | Topia Mine: | ||
On June 30, 2005, the Company purchased 100% of the ownership rights in and to all the fixed assets, machinery, equipment and Topia Mining Concessions pursuant to the Topia Purchase Agreement located in the Municipality of Topia, State of Durango, Mexico. | |||
In consideration for the rights outlined in the Topia Purchase Agreement, the Company initiated payments totaling US$2,551,678 as follows: | |||
(i) | US$100,000 upon registration of the option agreement and expensed as mineral exploration costs (paid); | ||
(ii) | US$150,000 upon notification to option or of the Company’s decision to exercise the option to purchase the rights and the assets of the mine, and US$540,165 on the date of the formal signing of the purchase agreement totaling CAD$851,721 (paid); | ||
(iii) | three annual payments of US$300,000, US$300,000 and US$346,919 each on the first, second and third year, respectively, commencing 18 months after the date of the agreement (paid); and | ||
(iv) | the Company also agreed to assume the debt encumbering the property, totaling US$814,594 (US$325,527 paid upon signing of the purchase agreement). The debt was repayable out of production from concentrate sales as a 10% Net Smelter Return. As at December 31, 2007, the remaining debt balance is fully repaid. |
The net present value of the Company’s post acquisition payment requirements pursuant to the Topia Purchase Agreement and assumed debt was determined by discounting the face value of the US$1,761,493 (CAD$2,158,534) at the Company’s estimated current borrowing cost to the date of acquisition, to equal $1,430,937. As at December 31, 2007, no remaining obligations remained.
The acquisition was accounted for as an asset acquisition. The following table summarizes the fair value of consideration given and the estimate fair value of assets acquired as at the acquisition date:
Assets acquired: | ||||
Plant | $ | 1,730,573 | ||
Mineral properties | 269,516 | |||
Offices and mobile equipment | 319,253 | |||
$ | 2,319,342 | |||
Consideration given: | ||||
Cash and direct costs of acquisition | $ | 888,405 | ||
Debt | 1,430,937 | |||
$ | 2,319,342 |
The Company incurred mineral exploration expenditures on mineral property included in the Topia Mine Project both prior and subsequent to the acquisition transaction (note 9).
13
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(b) | Guanajuato Mine: | |
On October 25, 2005, the Company purchased a 100% ownership interest in a group of producing silver- gold mines in Guanajuato, Mexico which includes 2 main properties, a plant, workshops and administration facilities, mining infrastructure, equipment, and certain surface rights (real estate). The total purchase price of US$7,250,000 (paid) consisted of staged cash payments to the end of 2006. The cash paid and direct acquisition costs incurred at the acquisition date totaled $4,428,416. The remaining staged payments were discounted at the Company’s estimated current borrowing rate to the date of acquisition, to equal $3,918,747. As at December 31, 2006, no remaining obligations remained. | ||
The acquisition was accounted for as an asset purchase. The following table summarizes the fair value of consideration given and the estimated fair value of assets acquired at the acquisition date: |
Assets acquired: | ||||
Plant | $ | 2,049,063 | ||
Mineral properties | 3,750,000 | |||
Offices and mobile equipment | 811,722 | |||
Land | 1,736,378 | |||
$ | 8,347,163 | |||
Consideration given: | ||||
Cash and direct costs of acquisition | $ | 4,428,416 | ||
Debt | 3,918,747 | |||
$ | 8,347,163 |
The Company incurred mineral exploration expenditures on mineral properties included in the Guanajuato Mine Project both prior and subsequent to the acquisition transaction (note 9). | ||
A legal proceeding was launched in 2006 by five dissident members of the Sociedad Cooperativa Minero Metalurgica Sante Fe (the "Cooperativa") against the administration of the Cooperativa. Minera Mexicana el Rosario, S.A. de C.V. ("MMR") and one of MMR’s officers were named in the lawsuit. The lawsuit alleged that the sale of the Guanajuato mine assets should be nullified on the basis that the proceedings leading to the approval of the sale did not meet specific requirements as set out in the bylaws of the Cooperativa. The lawsuit was abandoned late in the second quarter of 2007 and was officially confirmed by the Court, after which the lawsuit cannot be re-initiated by the five dissidents. | ||
(c) | Arcoiris Concession: | |
On March 8, 2006, the Company purchased a 100% interest in the Arcoiris concession. The total purchase price of US$300,000 consists of staged cash payments of US$20,000 (paid) upon signing of the purchase agreement, US$80,000 (paid) upon registration of the agreement and US$100,000 each on the first (paid) and second anniversary date. The Arcoiris concession is a strategic claim that is contiguous with the existing Topia Mine Property. The 100 hectare concession contains portions of the strike extension and down-dip projection of the Dos Amigos Vein that the Company has already started developing on its Topia Mine Property. | ||
(d) | Fundiciones Property: |
14
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
On May 15, 2006, the Company purchased a 100% interest in the Fundiciones property. The agreement required cash payments of Pesos2,250,000 (CAD$222,300) (paid) upon signing of the purchase agreement and an additional payment of Pesos5,447,029 (CAD$538,166) (paid). The additional 3.88 hectares of real estate is adjacent to the existing plant at Guanajuato and the purchase will facilitate any future expansion of the plant facilities.
8. | Mineral properties, plant and equipment: |
The major components of the Company's mineral properties, plant and equipment are as follows: |
December 31, | December 31, | ||||||
2007 | 2006 | ||||||
Topia Mine (note 7(a)): | |||||||
Mineral properties | $ | 2,167,106 | $ | 1,577,851 | |||
Plant and equipment | 5,660,608 | 5,002,155 | |||||
Buildings and mobile equipment | 393,346 | 383,086 | |||||
Asset retirement obligations (note 11) | 546,254 | 52,734 | |||||
8,767,314 | 7,015,826 | ||||||
Accumulated depreciation and depletion | (2,177,831 | ) | (615,898 | ) | |||
6,589,483 | 6,399,928 | ||||||
Guanajuato Mines (note 7(b)): | |||||||
Mineral properties | 3,978,063 | 3,750,000 | |||||
Plant and equipment | 4,828,025 | 4,248,128 | |||||
Buildings and mobile equipment | 1,752,370 | 1,075,714 | |||||
Land | 2,844,889 | 2,480,539 | |||||
Asset retirement obligations (note 11) | 532,213 | 39,551 | |||||
13,935,560 | 11,593,932 | ||||||
Accumulated depreciation and depletion | (2,753,990 | ) | (799,333 | ) | |||
11,181,570 | 10,794,599 | ||||||
Santo Nino | 68,542 | 68,542 | |||||
Leasehold improvements and other equipment, net of | |||||||
accumulated depreciation of $123,957 (2006 - | |||||||
$36,879) | 248,218 | 113,817 | |||||
$ | 18,087,813 | $ | 17,376,886 |
15
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
9. | Mineral property exploration expenditures: |
The continuity of expenditures on mineral properties for the year ended December 31, 2007 is as follows: |
San | Santo | San | Topia | Topia | |||||||||||||||||||||||||
Antonio | Nino | Taco | Main Block | II to IV | Guanajuato | Virimoa | Mapimi | ||||||||||||||||||||||
(a) | (a) | (b) | note 7(a) | note 7(a) | note 7(b) | (c) | (d) | 2007 | |||||||||||||||||||||
Option | $ | ||||||||||||||||||||||||||||
payments: | Cash | $ | 49,119 | $ | 102,721 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 216,623 | 368,463 | |||||||||||
Shares | - | - | - | - | - | - | - | 246,000 | 246,000 | ||||||||||||||||||||
Analysis | 19,588 | - | - | 51,098 | - | 293,759 | - | 160,448 | 524,893 | ||||||||||||||||||||
Drilling | 161,212 | - | - | 766,273 | - | 816,417 | - | 928,912 | 2,672,814 | ||||||||||||||||||||
Field costs | 315,688 | - | - | 111,448 | - | 3,007 | - | 171,758 | 601,901 | ||||||||||||||||||||
Geology | 31,582 | - | - | 323,649 | - | 750,145 | - | 459,351 | 1,564,727 | ||||||||||||||||||||
Project | |||||||||||||||||||||||||||||
administration | 30,132 | - | - | 16,490 | - | 52,024 | - | 133,577 | 232,223 | ||||||||||||||||||||
Mine | |||||||||||||||||||||||||||||
exploration | |||||||||||||||||||||||||||||
costs | - | - | - | 1,223,200 | - | - | - | - | 1,223,200 | ||||||||||||||||||||
607,321 | 102,721 | - | 2,492,158 | - | 1,915,352 | - | 2,316,669 | 7,434,221 | |||||||||||||||||||||
Cost | |||||||||||||||||||||||||||||
Recoveries | (631,117 | ) | - | - | - | - | - | - | (631,117 | ) | |||||||||||||||||||
(23,796 | ) | 102,721 | - | 2,492,158 | - | 1,915,352 | - | 2,316,669 | 6,803,104 | ||||||||||||||||||||
Cumulative | |||||||||||||||||||||||||||||
expenses, | |||||||||||||||||||||||||||||
beginning of | |||||||||||||||||||||||||||||
year | 233,870 | 386,933 | 425,465 | 3,325,140 | 168,144 | 2,342,567 | 369,788 | 766,817 | 8,018,724 | ||||||||||||||||||||
Cumulative | |||||||||||||||||||||||||||||
expenses, | |||||||||||||||||||||||||||||
end of year | $ | 210,074 | $ | 489,654 | $ | 425,465 | $ | 5,817,298 | $ | 168,144 | $ | 4,257,919 | $ | 369,788 | $ | 3,083,486 | $ | 14,821,828 |
The continuity of expenditures on mineral properties for the year ended December 31, 2006 is as follows:
San | Santo | San | Topia | Topia | ||||||||||||||||||||||||
Antonio | Nino | Taco | Main Block | II to IV | Guanajuato | Virimoa | Mapimi | |||||||||||||||||||||
(a) | (a) | (b) | note 7(a) | note 7(a) | note 7(b) | (c) | (d) | 2006 | ||||||||||||||||||||
Option | ||||||||||||||||||||||||||||
payments | $ | - | $ | 11,495 | $ | - | $ | - | $ | - | $ | - | $ | 192,337 | $ | 625,639 | $ | 829,471 | ||||||||||
Analysis | 1,288 | - | - | 64,493 | - | 286,744 | - | - | 352,525 | |||||||||||||||||||
Drilling | - | - | - | 206,977 | - | 620,092 | - | 24,951 | 852,020 | |||||||||||||||||||
Field costs | 768 | - | - | 228,253 | - | 43,061 | - | - | 272,082 | |||||||||||||||||||
Geology | 16,782 | 11,307 | - | 352,364 | 44,188 | 848,183 | - | 107,207 | 1,380,031 | |||||||||||||||||||
Project | ||||||||||||||||||||||||||||
administration | 16,006 | - | - | 127,244 | - | 129,684 | - | 9,020 | 281,954 | |||||||||||||||||||
34,844 | 22,802 | - | 979,331 | 44,188 | 1,927,764 | 192,337 | 766,817 | 3,968,083 | ||||||||||||||||||||
Cumulative | ||||||||||||||||||||||||||||
expenses, | ||||||||||||||||||||||||||||
beginning of | ||||||||||||||||||||||||||||
period | 199,026 | 364,131 | 425,465 | 2,345,809 | 123,956 | 414,803 | 177,451 | - | 4,050,641 | |||||||||||||||||||
Cumulative | ||||||||||||||||||||||||||||
expenses, end | ||||||||||||||||||||||||||||
of period | $ | 233,870 | $ | 386,933 | $ | 425,465 | $ | 3,325,140 | $ | 168,144 | $ | 2,342,567 | $ | 369,788 | $ | 766,817 | $ | 8,018,724 |
16
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
The continuity of expenditures on mineral properties for the year ended December 31, 2005 is as follows:
San | Santo | San | Topia | Topia | |||||||||||||||||||||
Antonio | Nino | Taco | Main Block | II to IV | Guanajuato | Virimoa | |||||||||||||||||||
(a) | (a) | (b) | note 7(a) | note 7(a) | note 7(b) | (c) | 2005 | ||||||||||||||||||
Option payments | $ | 4,099 | $ | 24,492 | $ | 93,516 | $ | - | $ | - | $ | - | $ | - | $ | 122,107 | |||||||||
Analysis | 18,553 | 9,414 | 2,814 | 78,142 | 14,909 | 7,571 | 14,952 | 146,355 | |||||||||||||||||
Drilling | 13,986 | 160,900 | 85,176 | 423,324 | - | 353,057 | 80,209 | 1,116,652 | |||||||||||||||||
Field costs | 906 | 1,851 | 1,058 | 31,928 | 556 | 776 | 850 | 37,925 | |||||||||||||||||
Geology | 86,907 | 62,971 | 62,298 | 288,302 | 75,529 | 47,059 | 77,834 | 700,900 | |||||||||||||||||
Land taxes | 11,277 | 1,640 | 1,886 | 44,171 | 6,813 | - | - | 65,787 | |||||||||||||||||
Project | |||||||||||||||||||||||||
administration | 29,998 | 1,237 | 2,267 | 106,942 | 282 | 6,340 | 3,606 | 150,672 | |||||||||||||||||
165,726 | 262,505 | 249,015 | 972,809 | 98,089 | 414,803 | 177,451 | 2,340,398 | ||||||||||||||||||
Cumulative | |||||||||||||||||||||||||
expenses, beginning | |||||||||||||||||||||||||
of period | 33,300 | 101,626 | 176,450 | 1,373,000 | 25,867 | - | - | 1,710,243 | |||||||||||||||||
Cumulative | |||||||||||||||||||||||||
expenses, end of | |||||||||||||||||||||||||
period | $ | 199,026 | $ | 364,131 | $ | 425,465 | $ | 2,345,809 | $ | 123,956 | $ | 414,803 | $ | 177,451 | $ | 4,050,641 |
(a) | Santo Nino Project: | |
On March 13, 2007, the Company satisfied all conditions of the option agreement by paying the seventh and final installment payment. By making cumulative payments of US$165,000 over a three year period, the Company is granted ownership to the Santo Nino Mining Concession located in the Guadalupe y Calvo Mining District, State of Chihuahua, Mexico. | ||
On February 2, 2007, the Company entered into an option agreement with Altair Ventures Incorporated (“Altair”). Terms of the agreement allow Altair to acquire a 70% interest in the four mining claims named “San Antonio”, “Iran”, “Chiripa”, and “Santo Nino” by making scheduled cash payments totaling US$200,000, issuing a total of 200,000 shares of Altair and fulfilling certain work commitments on the property over a three year period. US$30,000 was received upon signing of the agreement. | ||
There is no underlying Net Smelter Return royalty or other royalties and Great Panther owns 100% of all four concessions as at December 31, 2007. | ||
(b) | San Taco Project: | |
On February 28, 2004, the Company entered into an option agreement (the San Taco Option Agreement) which grants the Company the right and option, for a period of three years plus 30 days, to purchase 100% of the ownership rights in and to the San Taco Mining Concessions located in the Guadalupe y Calvo Mining District, State of Chihuahua, Mexico. | ||
The Company did not make the required US$100,000 payment on February 28, 2006 and as a result forfeited all rights and options to the property. |
17
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(c) | Virimoa Project: | ||
On June 13, 2005, the Company signed an Option Agreement to earn a 100% interest of the ownership rights in two mining claims designated as the Virimoa Property located in the Topia Mining District, State of Durango, Mexico. | |||
In May 2007, the Company chose to forfeit all rights and options to the property. Of the total consideration of US$300,000 and 300,000 common shares of the Company payable over three years, $50,000 was paid and 150,000 shares issued. No payments were made in 2007. | |||
(d) | Mapimi Project: | ||
On September 11, 2006, the Company signed an Option Agreement to earn a 100% interest of the ownership rights to seventeen mining concessions collectively known as the Mapimi Project (formerly known as Km 66) in eastern Durango State, Mexico. In consideration for the right and purchase, the Company must make payments totalling US$3,000,000 and issue 500,000 common shares as follows: | |||
(i) | US$20,000 (paid) within 30 days of the signing of the option agreement; | ||
(ii) | US$80,000 (paid) and issuance of 200,000 common shares (issued) upon registration of the option agreement; | ||
(iii) | US$200,000 (paid) and issuance of 200,000 common shares (issued) by the first anniversary of the date of signing the option agreement; | ||
(iv) | US$500,000 and issuance of 100,000 common shares by the second anniversary of the date of signing the option agreement; | ||
(v) | US$700,000 by the third anniversary of the date of signing the option agreement; and | ||
(vi) | US$1,500,000 by the fourth anniversary of the date of signing the option agreement. | ||
If the option is exercised, the vendors will retain a 3% Net Smelter Return, each 0.5% (to a maximum of 2%) of which can be purchased for US$500,000. |
18
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
10. | Long-term debt: |
(a) | Long-term debt: |
December 31, | December 31, | ||||||
2007 | 2006 | ||||||
Topia mine acquisition (note 7(a)) (“Cienega debt”), discounted at | |||||||
an effective interest rate of 26.8% per annum, repayable in the | |||||||
form of a 10% Net Smelter Royalty or US$25,000 per | |||||||
shipment, whichever is higher and is secured by a general | |||||||
security agreement over the assets of the Topia operations. | |||||||
The debt was fully repaid as at December 31, 2007. | $ | - | $ | 569,886 | |||
Topia mine acquisition (note 7(a)) (“Caneles debt”), without | |||||||
interest and discounted at an effective interest rate of 26.8% | |||||||
per annum. Terms of the agreement required retirement of the | |||||||
Caneles debt upon full payment of the Cienega debt. The debt | |||||||
was fully repaid as at December 31, 2007. | - | 753,855 | |||||
Arcoiris concession acquisition, carrying value of US$100,000 | |||||||
(note 7(c)), without interest and discounted at an effective | |||||||
interest rate of 26.8% per annum, payable in four staged | |||||||
payments over three years | 99,130 | 233,060 | |||||
99,130 | 1,556,801 | ||||||
Less: unamortized discount | (10,505 | ) | (269,860 | ) | |||
88,625 | 1,286,941 | ||||||
Current portion | (88,625 | ) | (1,182,814 | ) | |||
$ | - | $ | 104,127 |
Interest accreted on long-term debt totaled $259,355 in 2007 (2006 – $378,363). | ||
(b) | Convertible loan notes: |
December 31, | December 31, | ||||||
2007 | 2006 | ||||||
$2,020,000 note due March 9, 2010, interest rate of 8% per | |||||||
annum payable quarterly. Discounted at an effective interest | |||||||
rate of 26.8%. | $ | 1,398,507 | $ | 1,163,799 | |||
$4,050,000 million notes due July 14, 2011, interest rate of 8% | |||||||
per annum payable quarterly. Discounted at an effective | |||||||
interest rate of 25.1%. | 2,630,104 | - | |||||
$ | 4,028,611 | $ | 1,163,799 |
(i) | On March 8, 2006, the Company completed a financing agreement for cash proceeds of $2,020,000. The financing consisted of 8% per annum unsecured convertible note maturing March 9, 2010 and is convertible into common shares of the Company at a price of $1.32 per share at the holders’ option at any time. The conversion feature of the note has a fair value of $1,006,000 using a Black-Scholes |
19
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
valuation model upon issue of the note. Interest accreted on the note payable during 2007 was $234,708 (2006 - $149,799). | ||
(ii) | On July 13, 2007, the Company completed financing agreements for cash proceeds of $4,050,000. The financing consisted of two 8% per annum unsecured convertible notes maturing July 14, 2011 and is convertible into common shares of the Company at a price of $2.25 per share at the holders’ option at any time. The conversion feature of the note has a fair value of $1,563,000 using a Black- Scholes valuation model upon issue of the note. Interest accreted on the notes payable during 2007 was $143,104. |
The fair value of the conversion feature of the notes has been recorded as an equity component of the note financing, reducing the amount assigned to the debt component. The debt component is accreted to its fair value over the term to maturity as a non-cash interest expense charge.
11. | Asset retirement obligations: |
The Company’s asset retirement obligations relate to site restoration, clean-up and ongoing treatment and monitoring of the Topia and Guanajuato mines. A reconciliation of the provision for asset retirement obligations is as follows: |
2007 | 2006 | ||||||
Balance, beginning of year | $ | 92,285 | $ | - | |||
Changes in cash flow estimates | 986,182 | 92,285 | |||||
Accretion expense | 22,704 | - | |||||
Balance, end of year | $ | 1,101,171 | $ | 92,285 |
The provision for asset retirement obligations is based on the following assumptions:
The total undiscounted estimated cash flows required to settle the Company’s estimated obligations is US$2,289,000 (2006 - US$175,000). | ||
| ||
The expected timing of payments is estimated as follows: US$1,698,000 in 2011, US$290,000 in 2012, and US$301,000 in 2013. This timing matches our remaining life estimate of the mines, which is estimated at 3 years in the absence of a reliable estimate of reserves. | ||
| ||
A credit-adjusted risk-free rate of 25.1% (2006 – 26.8%) has been used to discount cash flows. |
20
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
12. | Capital stock: |
(a) | Authorized: |
Unlimited number of common shares without par value
Unlimited number of Class A preferred shares without par value, issuable in series
Unlimited number of Class B preferred shares without par value, issuable in series
(b) | Issued: |
Number of | Stated | ||||||
common shares | value | ||||||
Balance carried forward, December 31, 2004 | 15,818,677 | $ | 7,068,595 | ||||
Private placement at $0.45 per unit, net of costs (i) | 4,358,944 | 1,882,301 | |||||
Private placement at $0.45 per unit, net of costs (ii) | 12,363,000 | 5,008,713 | |||||
Private placement at $0.62 per unit, net of costs (iii) | 12,250,310 | 6,983,028 | |||||
Exercise of "B" warrants at $0.45 per share | 1,140,000 | 513,000 | |||||
Exercise of "C" warrants at $0.45 per share | 1,142,500 | 514,125 | |||||
Exercise of "D" warrants at $0.45 per share | 96,000 | 59,520 | |||||
Exercise of options | 80,000 | 36,000 | |||||
Issue of options and warrants for financing services | - | (606,083 | ) | ||||
Issue of shares for property | 100,000 | 50,000 | |||||
Reclass from contributed surplus on exercise of options | - | 27,241 | |||||
Balance, December 31, 2005 | 47,349,431 | 21,536,440 | |||||
Exercise of "F" warrants at $0.62 per share | 2,179,472 | 1,351,273 | |||||
Exercise of "G" warrants at $0.62 per share | 4,034,000 | 2,501,080 | |||||
Exercise of “H” warrants at $0.62 per share | 2,147,500 | 1,331,450 | |||||
Exercise of “I” warrants at $0.90 per share | 197,000 | 177,300 | |||||
Exercise of “J” warrants at $0.90 per share | 3,062,500 | 2,756,250 | |||||
Exercise of “K” warrants at $2.65 per share | 127,999 | 339,197 | |||||
Exercise of agent warrants | 1,149,886 | 817,530 | |||||
Exercise of options | 1,799,560 | 869,257 | |||||
Private placement at $2.00 per unit, net of costs (iv) | 7,500,000 | 13,866,639 | |||||
Issue of warrants for financing services | (251,500 | ) | |||||
Issue of shares pursuant to mineral property option agreements | |||||||
- Virimoa and Mapimi | 250,000 | 613,000 | |||||
Reclass from contributed surplus on exercise of options | - | 485,229 | |||||
Balance, December 31, 2006 | 69,797,348 | 46,393,145 | |||||
Exercise of “I” warrants at $0.90 per share | 3,906,200 | 3,515,580 | |||||
Exercise of agents warrants | 200,920 | 180,828 | |||||
Exercise of “J” warrants at $0.90 per share | 5,034,300 | 4,530,870 | |||||
Exercise of agent warrants | 553,084 | 497,776 | |||||
Exercise of options | 1,017,500 | 678,000 | |||||
Issue of shares pursuant to mineral property agreement | 200,000 | 246,000 | |||||
Reclassification from contributed surplus on exercise of options | - | 819,356 | |||||
Reclassification to common shares on cashless exercise of options | 35,000 | 126,892 | |||||
Balance, December 31, 2007 | 80,744,352 | $ | 56,988,447 |
No preferred shares have been issued.
21
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(i) | On July 19, 2005, the Company issued by private placement 4,358,944 units at a price of $0.45 per unit for gross proceeds of $1,961,525 and paid issue costs of $79,224. Each unit consists of one common share of the Company and one-half of one non-transferable series “F” share purchase warrant. Each whole warrant entitles the holder to acquire one common share of the Company at $0.62 for a period of twelve months. The Company also issued 175,700 finder’s warrants entitling the holder to acquire one common share of the Company at $0.62 for a period of twelve months. The fair value of agent’s warrants of $19,583 is recorded as a cost of financing and is included in contributed surplus. | |
(ii) | On October 5, 2005, the Company issued by private placement 12,363,000 units at a price of $0.45 per unit for gross proceeds of $5,563,350 and paid issue costs of $554,638. Each unit consists of one common share of the Company and one-half of one non-transferable series “G” or “H” share purchase warrant. Each whole warrant entitles the holder to acquire one common share of the Company at $0.62 for a period of twelve months. The Company also issued 1,163,760 agent options entitling the holder to purchase for a twelve month period at $0.45, one unit comprising one common share and one-half of one non-transferable agent’s warrant. Each full agent’s warrant entitles the holder to acquire, upon exercise, one further common share of the Company at a price of $0.62 for a period of twelve months. The fair value of agent’s options of $147,000 is recorded as a cost of financing and is included in contributed surplus. An officer of the Company participated by acquiring 120,000 units. | |
(iii) | On December 20, 2005, the Company issued by private placement 12,200,000 units at a price of $0.62 per unit for gross proceeds of $7,564,000 and paid issue costs of $626,250. Each unit consists of one common share of the Company and one non-transferable series “I” or “J” share purchase warrant. Each whole warrant entitles the holder to acquire one common share of the Company at $0.90 for a period of two years. The Company also issued 50,310 agent units entitling the holder to purchase one unit comprising one common share and one whole non-transferable agent’s warrant, at $0.62 per unit. Each full agent’s warrant entitles the holder to acquire, upon exercise, one further common share of the Company at $0.90 for a period of twenty-four months. The fair value of agent’s options of $13,000 is recorded as a cost of financing and is included in contributed surplus. The Company also issued 1,096,000 agent’s warrants entitling the holder to acquire one common share of the Company at $0.90 for a period of twenty-four months. The fair value of agent’s options and the agent’s warrants of $426,500 are recorded as a cost of financing and is included in contributed surplus. An officer and two companies controlled by Directors, participated by acquiring an aggregate of 259,000 units. | |
(iv) | On June 1, 2006, the Company issued 7,500,000 units by private placement at a price of $2.00 per unit (Unit) for gross proceeds of $15,000,000 and paid cash issuance costs of $1,133,361. Each Unit comprises one common share and one-half of one transferable share purchase warrant. Each whole warrant entitles the holder, upon exercise, to acquire one common share of the Company at a price of $2.65 until June 1, 2008. After the expiration of the hold period the Company has the right to accelerate the expiry date of the warrants if the closing price of the Company's common shares on the TSX Exchange exceeds $3.35 for a period of 20 consecutive trading days. The Company also issued 479,375 broker warrants entitling the holder to acquire one common share of the Company at $2.00 for a period of twenty-four months. The fair value of broker warrants of $251,500 is recorded as a cost of financing and is included in contributed surplus. |
22
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
Included in issued capital stock as at December 31, 2007 are nil common shares (2006 – nil; 2005 - 1,012,500) held in escrow. During the year ended December 31, 2007, nil (2006 – 1,012,500; 2005 - 675,000) shares were released pursuant to time-based provisions of the escrow agreement.
(c) | Contributed surplus: |
Stated value | ||||
Balance, December 31, 2004 | $ | 702,679 | ||
Issue of options and warrants for financing activities | 606,083 | |||
Reclassification to common shares on exercise of options | (27,241 | ) | ||
Stock-based compensation | 357,298 | |||
Balance, December 31, 2005 | 1,638,819 | |||
Issue of warrants for financing activities | 251,500 | |||
Reclassification to common shares on exercise of options | (485,229 | ) | ||
Stock-based compensation | 4,672,774 | |||
Balance, December 31, 2006 | 6,077,864 | |||
Reclassification to common shares on exercise of options | (819,356 | ) | ||
Reclassification to common shares on cashless exercise of options | (126,892 | ) | ||
Stock-based compensation | 1,129,500 | |||
Balance December 31, 2007 | $ | 6,261,116 |
(d) | Stock options and warrants: | |
The Company, in accordance with the policies of the Toronto Stock Exchange (the “Exchange”), is authorized to grant incentive stock options (“options”) to officers, directors, employees and consultants. The Exchange policies permit the Company’s directors to grant options for the purchase of shares of the Company to qualified persons as incentive for their services. Pursuant to the Company’s 2003 Incentive Stock Option Plan (the “Plan”), options must be non-transferable and may not exceed 10% of the issued and outstanding common shares of the Company at the time of granting and may not exceed 5% of the outstanding to any individual (maximum of 2% to any consultant) in any 12-month period. The exercise price of options is determined by the board of directors by reference to the market value of the shares at the date of grant. Options have expiry dates of no longer than five years from the date of grant and terminate 30 days following the termination of the participant’s employment. Vesting of options is generally at the time of grant. | ||
On December 3, 2007, the Company amended the Plan to allow a participant the right, when entitled to exercise an option, to terminate the option and in lieu of receiving common shares pursuant to the exercise of the option, receive at no cost to the participant, that number of common shares which when multiplied by the closing price of the common shares on the day immediately prior to the exercise, have a total value equal to the product of that number of common shares subject to the option multiplied by the difference between the closing price on the day immediately prior to the exercise of the right and the option exercise price. The right to this cashless exercise feature is subject to approval by the board of directors. In the year ended December 31, 2007, 35,000 common shares were issued upon cashless exercises. |
23
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
The continuity of common stock options for 2007 is as follows:
Balance | Balance | |||||||||||||||||||||
Exercise | December 31, | Cancelled/ | Cashless | December 31, | ||||||||||||||||||
price | Expiry date | 2006 | Granted | expired | Exercise | Exercised | 2007 | |||||||||||||||
0.45 | February 8, 2009 | 490,000 | - | - | - | - | 490,000 | |||||||||||||||
0.52 | April 5, 2009 | 30,000 | - | - | - | - | 30,000 | |||||||||||||||
0.45 | May 25, 2009 | 100,000 | - | - | - | (40,000 | ) | 60,000 | ||||||||||||||
0.45 | February 27, 2010 | 200,000 | - | - | - | (50,000 | ) | 150,000 | ||||||||||||||
0.45 | July 11, 2010 | 100,000 | - | - | - | (100,000 | ) | - | ||||||||||||||
0.45 | August 30, 2010 | 75,000 | - | - | - | (75,000 | ) | - | ||||||||||||||
0.45 | July 26, 2010 | 580,000 | - | - | - | (180,000 | ) | 400,000 | ||||||||||||||
0.60 | September 29, 2007 | 125,000 | - | - | - | (125,000 | ) | - | ||||||||||||||
0.90 | January 5, 2011 | 1,551,700 | - | - | - | (350,000 | ) | 1,201,700 | ||||||||||||||
0.90 | December 31, 2007 | 237,500 | - | - | (140,000 | ) | (97,500 | ) | - | |||||||||||||
0.90 | January 14, 2008 | 400,000 | - | - | - | - | 400,000 | |||||||||||||||
2.65 | January 14, 2008 | 400,000 | - | - | - | - | 400,000 | |||||||||||||||
2.65 | December 06, 2011 | 2,295,000 | - | (190,000 | ) | - | - | 2,105,000 | ||||||||||||||
2.65 | March 11, 2012 | - | 165,000 | (50,000 | ) | - | - | 115,000 | ||||||||||||||
2.00 | June 05, 2012 | - | 525,000 | (150,000 | ) | - | - | 375,000 | ||||||||||||||
2.00 | September 10, 2012 | - | 550,000 | - | - | - | 550,000 | |||||||||||||||
6,584,200 | 1,240,000 | (390,000 | ) | (140,000 | ) | (1,017,500 | ) | 6,276,700 | ||||||||||||||
Weighted average exercise price | $ | 1.50 | $ | 2.09 | $ | 2.40 | $ | 0.90 | $ | 0.67 | $ | 1.71 |
As at December 31, 2007, all share options are fully vested. The weighted average remaining contractual life of the options is 3.0 years.
The continuity of common stock options for 2006 is as follows:
Balance | Balance | ||||||||||||||||||
Exercise | December 31, | Cancelled/ | December 31, | ||||||||||||||||
price | Expiry date | 2005 | Granted | expired | Exercised | 2006 | |||||||||||||
0.45 | February 8, 2009 | 710,000 | - | - | (220,000 | ) | 490,000 | ||||||||||||
0.52 | April 5, 2009 | 60,000 | - | - | (30,000 | ) | 30,000 | ||||||||||||
0.45 | May 25, 2009 | 100,000 | - | - | - | 100,000 | |||||||||||||
0.45 | February 27, 2010 | 250,000 | - | - | (50,000 | ) | 200,000 | ||||||||||||
0.45 | May 2, 2006 | 100,000 | - | - | (100,000 | ) | - | ||||||||||||
0.45 | July 11, 2010 | 100,000 | - | - | - | 100,000 | |||||||||||||
0.45 | August 30, 2010 | 125,000 | - | (50,000 | ) | - | 75,000 | ||||||||||||
0.45 | July 26, 2010 | 700,000 | - | - | (120,000 | ) | 580,000 | ||||||||||||
0.60 | September 13, 2006 | 747,260 | - | - | (747,260 | ) | - | ||||||||||||
0.60 | September 29, 2007 | 125,000 | - | - | - | 125,000 | |||||||||||||
0.45 | October 4, 2006 | 416,500 | - | - | (416,500 | ) | - | ||||||||||||
0.90 | January 5, 2011 | - | 1,605,000 | (50,000 | ) | (3,300 | ) | 1,551,700 | |||||||||||
0.90 | December 31, 2007 | - | 350,000 | - | (112,500 | ) | 237,500 | ||||||||||||
0.90 | January 14, 2008 | - | 400,000 | - | - | 400,000 | |||||||||||||
2.65 | January 14, 2008 | - | 400,000 | - | - | 400,000 | |||||||||||||
2.65 | December 6, 2011 | - | 2,295,000 | - | - | 2,295,000 | |||||||||||||
3,433,760 | 5,050,000 | (100,000 | ) | (1,799,560 | ) | 6,584,200 | |||||||||||||
Weighted average exercise price | $ | 0.46 | $ | 1.83 | $ | 0.68 | $ | 0.48 | $ | 1.50 |
24
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
The continuity of common stock options for 2005 is as follows:
Balance | Balance | ||||||||||||||||||
Exercise | December 31, | Cancelled/ | December 31, | ||||||||||||||||
price | Expiry date | 2004 | Granted | expired | Exercised | 2005 | |||||||||||||
0.45 | February 8, 2009 | 790,000 | - | - | (80,000 | ) | 710,000 | ||||||||||||
0.52 | April 5, 2009 | 60,000 | - | - | - | 60,000 | |||||||||||||
0.52 | April 30, 2009 | 400,000 | - | (400,000 | ) | - | - | ||||||||||||
0.45 | May 25, 2009 | 100,000 | - | - | - | 100,000 | |||||||||||||
0.45 | February 27, 2010 | - | 250,000 | - | - | 250,000 | |||||||||||||
0.45 | May 2, 2006 | - | 100,000 | - | - | 100,000 | |||||||||||||
0.45 | July 11, 2010 | - | 100,000 | - | - | 100,000 | |||||||||||||
0.45 | August 30, 2010 | - | 125,000 | - | - | 125,000 | |||||||||||||
0.45 | July 26, 2010 | - | 700,000 | - | - | 700,000 | |||||||||||||
0.60 | September 13, 2006 | - | 747,260 | - | - | 747,260 | |||||||||||||
0.60 | September 29, 2007 | - | 125,000 | - | - | 125,000 | |||||||||||||
0.45 | October 4, 2006 | - | 416,500 | - | - | 416,500 | |||||||||||||
1,350,000 | 2,563,760 | (400,000 | ) | (80,000 | ) | 3,433,760 | |||||||||||||
Weighted average exercise price | $ | 0.47 | $ | 0.50 | $ | 0.52 | $ | 0.45 | $ | 0.46 |
The Company applies the fair value based method of accounting for employee stock options granted after January 1, 2003. During the year ended December 31, 2007, the Company recorded compensation expense for the fair value of stock options of $1,129,500 (2006 - $4,672,774, 2005 - $357,298) for stock options that were granted during the year. The weighted average fair value of options granted during 2007 was $2.09 (2006 - $1.83, 2005 - $0.46) . The fair value per option was determined using the following weighted average assumptions:
2007 | 2006 | 2005 | ||||||||
Risk-free interest rate | 4.4% | 3.8% | 3.2% | |||||||
Dividend paid | 0.0% | 0.0% | 0.0% | |||||||
Expected life | 5.0 years | 4.2 years | 3.4 years | |||||||
Volatility | 64.0% | 65.2% | 78.0% |
(e) | Warrants: | |
The continuity of warrants for 2007 is as follows: |
Balance | Balance | ||||||||||||||||||||
Exercise | December 31, | December 31, | |||||||||||||||||||
Series | price | Expiry date | 2006 | Issued | Exercised | Expired | 2007 | ||||||||||||||
Series "I" Warrants | 0.90 | Nov. 30, 2007 | 3,906,200 | - | (3,906,200 | ) | - | - | |||||||||||||
Agents' Warrants | 0.90 | Nov. 30, 2007 | 200,920 | - | (200,920 | ) | - | - | |||||||||||||
Series "J" Warrants | 0.90 | Dec. 20, 2007 | 5,034,300 | - | (5,034,300 | ) | - | - | |||||||||||||
Agents’ Warrants | 0.90 | Dec. 20, 2007 | 553,084 | - | (553,084 | ) | - | - | |||||||||||||
Series “K” Warrants | 2.65 | June 1, 2008 | 3,621,999 | - | - | - | 3,621,999 | ||||||||||||||
Broker Warrants | 2.00 | June 1, 2008 | 479,375 | - | - | - | 479,375 | ||||||||||||||
13,795,878 | - | (9,694,504 | ) | - | 4,101,374 |
25
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
The continuity of warrants for 2006 is as follows:
Balance | Balance | |||||||||||||||||||||
Exercise | December 31, | December 31, | ||||||||||||||||||||
Series | price | Expiry date | 2005 | Issued | Exercised | Expired | 2006 | |||||||||||||||
Series "F" Warrants | 0.62 | June 28, 2006 | 1,039,861 | - | (1,039,861 | ) | - | - | ||||||||||||||
Agents' Warrants | 0.62 | June 28, 2006 | 127,500 | - | (127,500 | ) | - | - | ||||||||||||||
Series "F" Warrants | 0.62 | July 18, 2006 | 1,139,611 | - | (1,139,611 | ) | - | - | ||||||||||||||
Finders' Warrants | 0.62 | July 18, 2006 | 48,200 | - | (48,200 | ) | - | - | ||||||||||||||
Series "G" Warrants | 0.62 | Sept. 13, 2006 | 4,034,000 | - | (4,034,000 | ) | - | - | ||||||||||||||
Series "H" Warrants | 0.62 | Oct. 4, 2006 | 2,147,500 | - | (2,147,500 | ) | - | - | ||||||||||||||
Series "I" Warrants | 0.90 | Nov. 30, 2007 | 4,103,200 | - | (197,000 | ) | - | 3,906,200 | ||||||||||||||
Agents' Warrants | 0.90 | Nov. 30, 2007 | 410,320 | - | (209,400 | ) | - | 200,920 | ||||||||||||||
Series "J" Warrants | 0.90 | Dec. 20, 2007 | 8,096,800 | - | (3,062,500 | ) | - | 5,034,300 | ||||||||||||||
Agent’s Warrants | 0.90 | Dec. 20, 2007 | 735,990 | - | (182,906 | ) | - | 553,084 | ||||||||||||||
Series "K" Warrants | 2.65 | June 1, 2008 | - | 3,749,998 | (127,999 | ) | - | 3,621,999 | ||||||||||||||
Broker Warrants | 2.00 | June 1, 2008 | - | 479,375 | - | - | 479,375 | |||||||||||||||
Agent Warrants | 0.62 | Sept. 13, 2006 | - | 373,630 | (373,630 | ) | - | - | ||||||||||||||
Agent Warrants | 0.62 | Oct. 4, 2006 | - | 208,250 | (208,250 | ) | - | - | ||||||||||||||
21,882,982 | 4,811,253 | (12,898,357 | ) | - | 13,795,878 |
The continuity of warrants for 2005 is as follows:
Balance | Balance | |||||||||||||||||||||
Exercise | December 31, | December 31, | ||||||||||||||||||||
Series | price | Expiry date | 2004 | Issued | Exercised | Expired | 2005 | |||||||||||||||
Series "B" Warrants | 0.45 | Mar. 22, 2005 | 1,715,000 | - | (1,140,000 | ) | (575,000 | ) | - | |||||||||||||
Series "C" Warrants | 0.45 | Jan. 13, 2005 | 2,280,500 | - | (1,142,500 | ) | (1,138,000 | ) | - | |||||||||||||
Series "D" Warrants | 0.62 | Mar. 28, 2005 | 1,785,714 | - | (96,000 | ) | (1,689,714 | ) | - | |||||||||||||
Agents' Warrants | 0.62 | Mar. 28, 2005 | 591,543 | - | - | (591,543 | ) | - | ||||||||||||||
Series "E" Warrants | 0.62 | May 27, 2005 | 1,500,000 | - | - | (1,500,000 | ) | - | ||||||||||||||
Agents' Warrants | 0.62 | Apr. 22, 2005 | 450,000 | - | - | (450,000 | ) | - | ||||||||||||||
Series "F" Warrants | 0.62 | June 28, 2006 | - | 1,039,861 | - | - | 1,039,861 | |||||||||||||||
Agents' Warrants | 0.62 | June 28, 2006 | - | 127,500 | - | - | 127,500 | |||||||||||||||
Series "F" Warrants | 0.62 | July 18, 2006 | - | 1,139,611 | - | - | 1,139,611 | |||||||||||||||
Finders' Warrants | 0.62 | July 18, 2006 | - | 48,200 | - | - | 48,200 | |||||||||||||||
Series "G" Warrants | 0.62 | Sept. 13, 2006 | - | 4,034,000 | - | - | 4,034,000 | |||||||||||||||
Series "H" Warrants | 0.62 | Oct. 4, 2006 | - | 2,147,500 | - | - | 2,147,500 | |||||||||||||||
Series "I" Warrants | 0.90 | Nov. 30, 2007 | - | 4,103,200 | - | - | 4,103,200 | |||||||||||||||
Agents' Warrants | 0.90 | Nov. 30, 2007 | - | 410,320 | - | - | 410,320 | |||||||||||||||
Series "J" Warrants | 0.90 | Dec. 20, 2007 | - | 8,096,800 | - | - | 8,096,800 | |||||||||||||||
Agent’s Warrants | 0.90 | Dec. 20, 2007 | - | 735,990 | - | - | 735,990 | |||||||||||||||
8,322,757 | 21,882,982 | (2,378,500 | ) | (5,944,257 | ) | 21,882,982 |
26
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
13. | Related party transactions: |
The Company entered into the following transactions with related parties: |
2007 | 2006 | 2005 | ||||||||
Consulting fees paid or accrued to companies | ||||||||||
controlled by directors of the Company | $ | 539,000 | $ | 388,250 | $ | 295,760 | ||||
Consulting fees paid or accrued to companies | ||||||||||
controlled by officers of the Company | 395,943 | 272,578 | 186,483 | |||||||
Cost recoveries received or accrued from a | ||||||||||
company with a common director of the Company | 631,117 | - | - | |||||||
Office and administration fees paid or accrued to | ||||||||||
a company controlled by a director of the Company | 39,879 | 101,060 | 78,388 | |||||||
As at December 31, 2007, $74,401 (2006 – nil; 2005 – $14,080) was due to companies controlled by officers and directors of the Company and was included in accounts payable. Amounts due from a company with a common director were $400,742 (2006 – nil, 2005 - nil) and were included in amounts receivable. | |
14. | Income taxes: |
Provision for income taxes: |
2007 | 2006 | 2005 | ||||||||
Current income taxes | $ | 149,969 | $ | 127,475 | $ | - | ||||
Future income taxes | 2,421,504 | (17,459 | ) | (370,514 | ) | |||||
$ | 2,571,473 | $ | 110,016 | $ | (370,514 | ) |
Income tax expense differs from the amount which would result from applying the statutory Canadian tax rates for the following reasons:
2007 | 2006 | 2005 | ||||||||
Net income (loss) before tax | $ | (17,129,388 | ) | $ | (14,974,421 | ) | $ | (5,602,199 | ) | |
Canadian income tax rate | 34.12% | 34.12% | 34.12% | |||||||
Income tax recovery expected | (5,844,547 | ) | (5,109,272 | ) | (1,911,470 | ) | ||||
Permanent differences | (81,800 | ) | 1,766,992 | 121,910 | ||||||
Difference in tax rates | 561,686 | 809,932 | 252,662 | |||||||
Benefit of tax attributes not recognized and | ||||||||||
other items | 7,936,134 | 2,642,364 | 1,166,384 | |||||||
$ | 2,571,473 | $ | 110,016 | $ | (370,514 | ) |
27
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
The significant components of the Company’s future income tax assets are as follows:
2007 | 2006 | ||||||
Future income tax assets: | |||||||
Mineral property, plant and equipment and related debt | $ | 1,022,274 | $ | 1,033,103 | |||
Office equipment financing and other | 430,454 | 442,343 | |||||
Capital losses | 261,141 | 300,285 | |||||
Non-capital losses | 3,717,141 | 6,095,103 | |||||
Total future income tax assets | 5,431,010 | 7,870,834 | |||||
Valuation allowance | (5,431,010 | ) | (7,585,674 | ) | |||
Future income tax assets, net of allowance | - | 285,160 | |||||
Future income tax liabilities: | |||||||
Mineral properties | (2,421,504 | ) | (285,160 | ) | |||
Future income tax liability | $ | (2,421,504 | ) | $ | - |
At December 31, 2007, the Company had operating losses of $13,170,509 (2006 - $20,988,000; 2005 - $8,795,000) and capital losses of $1,934,816 (2006 - $1,934,816; 2005 - $1,989,000). The operating losses at December 31, 2007 includes $12,365,275 (2006 - $7,285,000; 2005 - $3,881,000) in Canada and $805,233 (2006 - $13,703,000; 2005 - $4,914,000) in Mexico. The capital losses are without expiry, and the operating losses expire at various dates to 2027. | |
A new tax in Mexico, referred to as a “Flat Tax”, was enacted in 2007 and came into effect on January 1, 2008. The Flat Tax is an alternative minimum tax. Taxpayers are required to pay the higher of the amount due under income tax or flat tax. The tax basis of fixed assets is significantly reduced and tax losses originating from prior years are not deductible under Flat Tax. | |
15. | Financial instruments: |
(a) | Fair value: | |
The carrying values of cash and cash equivalents, amounts receivable, and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of the items. Marketable securities are recorded at fair value. The fair value of long-term debt payable to third parties approximates its carrying value as their interest rates reflect estimated market rates at December 31, 2007. | ||
In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange. | ||
For the year ended December 31, 2007, an unrealized gain of $5,945 for marketable securities designated as available-for-sale has been recognized in other comprehensive income. |
28
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(b) | Foreign currency and interest rate risk: | |
The Company currently has foreign operations, which gives rise to a risk that earnings and cash flows may be negatively impacted by fluctuations in interest and foreign exchange rates. To the date of these financial statements, the Company has not entered into foreign currency hedging arrangements or instruments to fix interest rates. | ||
(c) | Credit risk: | |
The Company earns substantially all of its revenue from one customer. To reduce credit risk, management performs ongoing evaluations and maintains reserves for potential credit losses. |
16. | Commitments and contingencies: | |
(a) | On August 16, 2007, Minera de Villa Seca, S.A. de C.V. received a notice of assessment from the Instituto Mexicano Del Seguro Social (the Mexican Social Security Institute (“IMSS”)) for approximately $347,000 of additional social security contributions due and penalties thereon. On November 9, 2007, the Company appealed this assessment and pledged a small piece of unused property at the Guanajuato mine as a guarantee. The guarantee will be removed upon successful appeal of the claim or by payment of the amount owing to the IMSS. | |
Unpaid IMSS amounts are required to be adjusted for the National Consumer Price Index and penalties increase over the passage of time. The value of the claim at December 31, 2007 is $516,000. This has not been provided for since management believes that this assessment is without merit and will not have a material impact on our financial position, results of operations or cash flows. | ||
(b) | The Company is committed to making severance payments amounting to approximately $1,645,000 to certain Officers and management in the event that there is a change of control of the Company. | |
(c) | Commitments outstanding relating to laboratory and drilling services amount to $1,146,000 in 2008, $818,000 in 2009, $818,000 in 2010, and $818,000 in 2011. | |
(d) | The Company is committed to operating lease payments of $112,000 in 2008 and $66,000 in 2009. | |
17. | Subsequent events: | |
(a) | Revision to Shareholder Rights Plan | |
On March 7, 2008, the Board of Directors approved the adoption of a Shareholder Rights Plan (the "Plan") as part of its procedures for dealing with any parties who may seek to acquire control of the Company through a take-over bid or other transaction. To implement the Plan, the Board of Directors of the Company authorized the issue of one Right in respect of each common share of the Company outstanding to holders of record on March 7, 2008. Until the occurrence of certain specific events, the Rights will trade with the common shares of the Company. | ||
The Rights become exercisable only when a person, including any party related to it or acting jointly with it, acquires or announces its intention to acquire 20% or more of the outstanding common shares of the Company without complying with the "Permitted Bid" provisions of the Plan. Under the Plan, a Permitted Bid is a bid made to all shareholders on identical terms and conditions that is open for at least 60 days. If at the end of 60 days more than 50% of the outstanding shares, other than those owned by the offeror and certain persons related to the offeror or acting jointly with it, have been tendered, the offeror may take up and pay for the shares but must extend the bid for a further 10 business days to allow all other shareholders to tender. Should a non-permitted acquisition occur, each Right would entitle each holder of |
29
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
common shares (other than the offeror and certain parties related to the offeror or acting jointly with it) to purchase additional common shares of the Company at a 50% discount to the market price at the time. Although the Plan has become effective upon its adoption by the Board of Directors, in accordance with stock exchange requirements it will be submitted to shareholders of the Company for ratification at the next annual shareholders’ meeting. If ratified, the Plan will continue until the annual general meeting of shareholders in 2012. The Plan is subject to acceptance by the Toronto Stock Exchange. | ||
(b) | Subsequent to December 31, 2007, the Company entered into an agreement to purchase two scoop trams for a total purchase price of US$866,923, to be financed over 24 months at an interest rate of 9.93%. | |
(c) | Subsequent to December 31, 2007, the Company received proceeds of $360,000 from the exercise of 400,000 options. |
18. | Reconciliation between Canadian and United States generally accepted accounting principles and United States accounting pronouncements: |
The effect of the measurement differences between Canadian GAAP and US GAAP on the consolidated balances sheets and statements of operations and cash flows is summarized as follows: |
December 31, 2007 | December 31, 2006 | ||||||||||||
Canadian | US | Canadian | US | ||||||||||
GAAP | GAAP | GAAP | GAAP | ||||||||||
Convertible note payable | |||||||||||||
(note 18(a)(iv)) | 4,028,611 | 6,070,000 | 1,163,799 | 2,020,000 | |||||||||
Share capital | 56,988,447 | 63,199,652 | 46,393,145 | 52,604,350 | |||||||||
Contributed surplus | 6,261,116 | 6,276,116 | 6,077,864 | 6,092,864 | |||||||||
Equity component of convertible | |||||||||||||
note (note 18(a)(iv)) | 2,569,000 | - | 1,006,000 | - | |||||||||
Deficit | (44,628,039 | ) | (50,326,633 | ) | (24,927,178 | ) | (31,003,584 | ) |
Share capital and contributed surplus:
2007 | 2006 | ||||||
Share capital and contributed surplus, under | |||||||
Canadian GAAP | $ | 63,249,563 | $ | 52,471,009 | |||
Adjustment for stock-based compensation for | |||||||
employees (note 18(a)(ii)) | 15,000 | 15,000 | |||||
Reversal of recapitalization of deficit (note 18(a)(iii)) | 6,211,205 | 6,211,205 | |||||
Share capital and contributed surplus, under | |||||||
US GAAP | $ | 69,475,768 | $ | 58,697,214 |
30
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
Deficit:
2007 | 2006 | ||||||
Deficit, under Canadian GAAP | $ | (44,628,039 | ) | $ | (24,927,178 | ) | |
Adjustment for stock-based compensation for | |||||||
employees (note 18(a)(ii)) | (15,000 | ) | (15,000 | ) | |||
Reversal of recapitalization of deficit (note 18(a)(iii)) | (6,211,205 | ) | (6,211,205 | ) | |||
Interest accreted on convertible loan note (note 18(a)(iv)) | 527,611 | 149,799 | |||||
Deficit, under US GAAP | $ | (50,326,633 | ) | $ | (31,003,584 | ) |
Loss and loss per share:
2007 | 2006 | 2005 | ||||||||
Loss for the year, under Canadian GAAP | $ | (19,700,861 | ) | $ | (15,084,437 | ) | $ | (5,231,685 | ) | |
Interest accreted on convertible | ||||||||||
loan note (note 18(a)(iv)) | 377,812 | 149,799 | - | |||||||
Loss for the year, under US GAAP | $ | (19,323,049 | ) | $ | (14,934,638 | ) | $ | (5,231,685 | ) | |
Basic and diluted loss per share, under | ||||||||||
US GAAP | $ | (0.27 | ) | $ | (0.25 | ) | $ | (0.22 | ) | |
Weighted average number of common | ||||||||||
shares, basic and diluted | 72,227,455 | 59,720,424 | 23,986,543 |
(a) | These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). A description of US GAAP and practices prescribed by the US Securities and Exchange Commission (collectively US GAAP) that result in measurement differences from Canadian GAAP are as follows: | ||
(i) | Income taxes: | ||
As described in note 2(m), the Company follows the asset and liability method of accounting for income taxes which is also in accordance with Statement of Financial Accounting Standards Board No. 109 Accounting for Income Taxes (SFAS 109). Under Canadian GAAP, future tax assets and liabilities are recorded at substantially enacted tax rates. Under US GAAP, deferred tax assets and liabilities are recorded at enacted tax rates. In 2007, there were no differences between enacted and substantially enacted rates. For each of the years ended December 31, 2006 and 2005, net future tax assets are fully offset by a valuation allowance as it is not more likely than not that the future tax assets would be realized. As a result, the application of US GAAP in accounting for income taxes does not result in any material measurement differences from Canadian GAAP for future tax assets or liabilities. | |||
(ii) | Stock-based compensation: | ||
The Company adopted the new recommendations of the Canadian Institute of Chartered Accountants with respect to the accounting for stock-based compensation on January 1, 2002 as described in note 2(i). Statement of Financial Accounting Standards Board No. 123,Accounting for Stock-Based Compensation(SFAS 123) became effective for US GAAP purposes for fiscal years beginning after December 15, 1995. |
31
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
For fiscal years ending prior to December 31, 2003, as allowed by SFAS 123, the Company followed the intrinsic value principles of APB Opinion 25,Accounting for Stock Issued to Employeesand related interpretations, in measuring compensation expense for employee options. Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market value of the stock at the measurement date, which is generally the grant date, over the amount an employee must pay to acquire the stock. The application of APB 25 resulted in compensation expense of $15,000 being recognized for employees in the year ended December 31, 2001 under US GAAP and no similar expense was required under Canadian GAAP. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS 123 whereby the fair value of the stock options granted to employees was expensed. Under the modified prospective method of adoption selected by the Company under the provisions of Statement of Financial Accounting Standards Board No. 148Accounting for Stock-Based Compensation-Transition and Disclosure(SFAS 148), employee compensation cost recognized in 2003 is the same as that which would have been recognized had the provisions of SFAS 123 been applied from its original effective date. Results of prior years have not been restated. | ||
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard (SFAS 123R) Share Based Payment using the modified prospective method for all employee awards granted, modified or settled after the effective date using the fair value measurement method of this standard. For unvested employee equity awards as of the effective date, compensation is to be recognized based upon the grant date fair value determined under SFAS 123, adjusted to reflect the estimated impact of forfeitures. Upon adoption of SFAS 123R, there was no cumulative effect adjustment required. Non-employee awards are accounted for under the fair value method under both Canadian and US GAAP. | ||
There were no significant differences in accounting for stock-based compensation between Canadian GAAP and US GAAP during the three years ended December 31, 2007. | ||
(iii) | Elimination of deficit: | |
During the year ended December 31, 1999, the Company reduced its paid-up capital by $6,211,205 to eliminate the deficit at March 31, 1999. In order to effect these reductions, it was not necessary to revalue the assets of the Company. As a consequence, all conditions under the US GAAP quasi- reorganization rules were not met and the recapitalization of the deficit would not be recorded. | ||
(iv) | Convertible note payable: | |
Under Canadian GAAP, the proceeds of the financing allocated to the estimated fair value of the conversion feature of the debt is recorded as an equity component of the debt (note 10(b)). Under US GAAP, a value is assigned to the conversion feature only if the effective conversion rate is less than the market price of the common stock at the date of issuance. Accordingly, no value would be assigned under US GAAP to the conversion feature on the convertible notes issued in 2006 and 2007. | ||
Applying US GAAP, the convertible notes at December 31, 2007 would be recorded at face value for a total of $6,070,000 and no value would be assigned to equity components of the convertible notes. In addition, accretion on the calculated debt discounts on the convertible notes under Canadian GAAP aggregating $377,812 (2006 - $149,799, 2005 - nil) for the year ended December 31, 2007 would not have been recorded, reducing interest expense by an equivalent amount. |
32
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
(v) | Statement of operations presentation: | |
The consolidated statement of operations includes a write-down of the San Taco mineral property in other expenses. Under US GAAP, this amount would be disclosed as an operating expense. | ||
(vi) | Mineral properties, plant, and equipment | |
Production facilities and mineral property costs are currently amortized over the estimated life of mine of 5 years. Under US GAAP, the Company expects to use the units-of-production method based on reserves as defined under SEC Industry Guide 7 once such reserve amounts are determinable. Under Canadian GAAP, periodic option payments related to mineral properties are expensed prior to commercial feasibility of mining operations being established. Under US GAAP, periodic option payments are capitalized when such payments are associated with the acquisition of mineral rights and amortized over their respective option term. This measurement difference is not material for all reporting periods. |
(b) | Recently adopted United States accounting pronouncements: | ||
In June 2006, FASB issued Financial Interpretation No. 48,Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS Statement No. 109. This interpretation provides guidance on recognition and measurement of uncertainties in income taxes and is effective for the Company’s 2007 fiscal year end. The adoption of this interpretation did not result in any adjustment being recognized in the consolidated financial statements. | |||
(c) | Recently issued United States accounting pronouncements: | ||
(i) | In September 2006, FASB issued SFAS No. 157,Fair Value Measurementto define fair value, establish a framework for measuring fair value and to expand disclosures about fair value measurements. The statement only applies to fair value measurements that are already required and is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of this Interpretation to have a significant effect on the Company’s results of operations or financial position. | ||
(ii) | In February 2007, FASB issued SFAS No. 159,Fair Value Option for Financial Assets and Liabilitieswhich permits entities to choose to measure various financial instruments and certain other items at fair value. The statement is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of this Interpretation to have a significant effect on the Company’s results of operations or financial position. | ||
(iii) | In December 2007, the FASB issued SFAS 160, a standard on accounting for non-controlling interests and transactions with non-controlling interest holders in consolidated financial statements. This statement specifies that non-controlling interests are to be treated as a separate component of equity, with increases and decreases in the parent’s ownership interest as capital transactions. This standard requires net income and comprehensive income to be displayed for both the controlling and the non-controlling interests. Additional required disclosures and reconciliations include a separate schedule that shows the effects of any transactions with the non-controlling interests on the equity attributable to the controlling interest. | ||
The statement is effective for periods beginning on or after December 15, 2008 and is to be applied prospectively to all non-controlling interests, including any that arose before the effective date. The |
33
GREAT PANTHER RESOURCES LIMITED |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in Canadian Dollars) |
Years ended December 31, 2007, 2006 and 2005 |
Company does not expect the adoption of this Interpretation to have a significant effect on the Company’s results of operations or financial position. | |||
(iv) | In December 2007, the FASB issued a revised standard on accounting for business combinations SFAS 141(R). | ||
The major changes to accounting for business combinations are summarized as follows: | |||
all business acquisitions would be measured at fair value | |||
most acquisition-related costs would be recognized as expenses as incurred (they would no longer be part of the purchase consideration) | |||
non-controlling interests would be measured at fair value at the date of acquisition (i.e., 100% of the assets and liabilities would be measured at fair value even when an acquisition is less than 100%) | |||
goodwill, if any, arising on a business combination reflects the excess of the fair value of the acquiree, as a whole, over the net amount of the recognized identifiable assets acquired and liabilities assumed. Goodwill is allocated to the acquirer and the non-controlling interest | |||
The statement is effective for periods beginning on or after December 15, 2008. The Company does not expect the adoption of this Interpretation to have a significant effect on the Company’s results of operations or financial position. |
34