| March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Assets | ||||||||
Current assets | ||||||||
| Cash and cash equivalents | 3,121,641 | 5,241,895 | ||||||
| Restricted cash (note 5) | 500,000 | 500,000 | ||||||
| Short term investments (note 4) | 20,777,629 | 30,408,022 | ||||||
| Prepaid expenses and advances | 130,870 | 297,713 | ||||||
| 24,530,140 | 36,447,630 | |||||||
Deposit on water treatment plant(note 5) | 14,934,662 | 14,949,666 | ||||||
Property, plant and equipment- net of accumulated depreciation of $181,979 (December 31, 2006 - $157,375) | 1,016,932 | 955,035 | ||||||
Exploration properties(note 5) | 75,774,775 | 62,973,520 | ||||||
| 116,256,509 | 115,325,851 | |||||||
Liabilities | ||||||||
Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 2,423,552 | 3,617,774 | ||||||
| Due to related parties (note 7) | 186,782 | 155,763 | ||||||
| Current portion of long-term debt (note 6) | 5,000,000 | 10,140,000 | ||||||
| 7,610,334 | 13,913,537 | |||||||
Long-term debt(note 6) | 7,182,791 | — | ||||||
| 14,793,125 | 13,913,537 | |||||||
Shareholders’ Equity | ||||||||
Share capital(note 8) | ||||||||
| Authorized : Unlimited with no par value | ||||||||
| Issued and outstanding 119,337,517 (December 31, 2006 — 119,208,624) common shares | 103,679,681 | 103,422,802 | ||||||
Contributed surplus | 5,898,237 | 5,082,046 | ||||||
Deficit | (8,114,534 | ) | (7,092,534 | ) | ||||
| 101,463,384 | 101,412,314 | |||||||
| 116,256,509 | 115,325,851 | |||||||
Contingencies and commitments(note 5 and note 6) | ||||||||
| (signed) David Lowell | Director | (signed) Gerald Wolfe | Director | |
| Deficit | ||||||||||||||||||||||||
| accumulated | ||||||||||||||||||||||||
| Warrants | during the | |||||||||||||||||||||||
| and | Common | Contributed | exploration | Total | ||||||||||||||||||||
| Common | agent | stock | surplus | stage | equity | |||||||||||||||||||
| stock | options | $ | $ | $ | $ | |||||||||||||||||||
Balance — December 31, 2004 | 94,027,320 | 23,967,882 | 52,834,440 | 1,834,155 | (321,029 | ) | 54,347,566 | |||||||||||||||||
| Shares issued for cash — options exercised | 200,000 | (200,000 | ) | 280,000 | — | — | 280,000 | |||||||||||||||||
| Fair value of options exercised | 117,410 | (117,410 | ) | — | — | |||||||||||||||||||
| Shares issued for cash — Warrants exercised | 3,514,424 | (3,514,424 | ) | 5,974,511 | — | — | 5,974,511 | |||||||||||||||||
| Warrants expired | — | (1,381 | ) | — | — | — | — | |||||||||||||||||
| Fair value of warrants exercised | — | — | 688,506 | (688,506 | ) | — | — | |||||||||||||||||
| Stock-based compensation | — | — | — | 2,295,060 | — | 2,295,060 | ||||||||||||||||||
| Loss for the period | — | — | — | — | (3,421,771 | ) | (3,421,771 | ) | ||||||||||||||||
Balance — December 31, 2005 | 97,741,744 | 20,252,077 | 59,894,867 | 3,323,299 | (3,742,800 | ) | 59,475,366 | |||||||||||||||||
| Shares issued for cash — Options exercised | 1,353,780 | — | 1,947,955 | — | — | 1,947,955 | ||||||||||||||||||
| Shares issued for cash — Warrants exercised | 20,113,100 | (20,113,100 | ) | 40,226,200 | — | — | 40,226,200 | |||||||||||||||||
| Warrants expired | — | (8,084 | ) | — | — | — | — | |||||||||||||||||
| Fair value of options exercised | — | — | 1,353,780 | (1,353,780 | ) | — | — | |||||||||||||||||
| Stock-based compensation | — | — | — | 3,112,527 | — | 3,112,527 | ||||||||||||||||||
| Loss for the period | — | — | — | — | (3,349,734 | ) | (3,349,734 | ) | ||||||||||||||||
Balance — December 31, 2006 | 119,208,624 | 130,893 | 103,422,802 | 5,082,046 | (7,092,534 | ) | 101,412,314 | |||||||||||||||||
| Opening unrealized gains on held-for-trading assets (note 3) | — | — | — | — | 301,403 | 301,403 | ||||||||||||||||||
| Shares issued for cash — Options exercised | 130,893 | (130,893 | ) | 183,250 | — | — | 183,250 | |||||||||||||||||
| Fair value of options exercised | — | — | 73,629 | (73,629 | ) | — | — | |||||||||||||||||
| Stock-based compensation | — | — | — | 889,820 | — | 889,820 | ||||||||||||||||||
| Loss for the period | — | — | — | — | (1,323,403 | ) | (1,323,403 | ) | ||||||||||||||||
Balance — March 31, 2007 | 119,339,517 | — | 103,679,681 | 5,898,237 | (8,114,534 | ) | 101,463,384 | |||||||||||||||||
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| March 31, 2007 | March 31, 2006 | |||||||
Interest income | 396,768 | 286,237 | ||||||
Expenses | ||||||||
| Stock-based compensation | 574,929 | 489,570 | ||||||
| Management fees and salaries | 537,412 | 131,023 | ||||||
| Professional fees | 344,303 | 396,123 | ||||||
| Listing and filing fees | 132,658 | 204,277 | ||||||
| Office | 79,202 | 56,327 | ||||||
| Travel | 52,675 | 23,041 | ||||||
| Unrealized loss on held-for-trading assets (note 4) | 35,408 | — | ||||||
| Shareholder information | 17,354 | 50,163 | ||||||
| Bank charges | 1,493 | 11,905 | ||||||
| Depreciation | 882 | 882 | ||||||
| Foreign exchange loss (gain) | (56,145 | ) | (88,804 | ) | ||||
| 1,720,171 | 1,274,507 | |||||||
Loss and Comprehensive Loss for the period | (1,323,403 | ) | (988,270 | ) | ||||
Loss per share —basic and diluted | (0.01 | ) | (0.01 | ) | ||||
Weighted average number of shares outstanding | 119,242,074 | 102,677,048 | ||||||
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| March 31, | March 31, | |||||||
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Cash flows from (used in) operating activities | ||||||||
| Loss for the period | (1,323,403 | ) | (988,270 | ) | ||||
| Items not affecting cash | ||||||||
| Depreciation | 882 | 882 | ||||||
| Stock-based compensation | 574,929 | 489,570 | ||||||
| Unrealized loss on held-for- trading assets (note 4) | 35,408 | — | ||||||
| Change in non-cash working capital items | ||||||||
| Prepaid expenses and advances | 166,843 | 5,490 | ||||||
| Accounts payable and accrued liabilities | 1,373,790 | (541,454 | ) | |||||
| 828,449 | (1,033,782 | ) | ||||||
Cash flows from (used in) financing activities | ||||||||
| Share capital issued for cash — net | 183,250 | 40,446,211 | ||||||
| Due to related parties | 31,019 | 79,049 | ||||||
| 214,269 | 40,525,260 | |||||||
Cash flows from (used in) investing activities | ||||||||
| Short term investments | 9,896,387 | (40,635,377 | ) | |||||
| Deposit on an option agreement | — | (500,000 | ) | |||||
| Deposit on Water Treatment Plant | 15,004 | — | ||||||
| Loans receivable | — | (1,805,200 | ) | |||||
| Exploration properties | (14,882,925 | ) | (302,405 | ) | ||||
| Purchase of property, plant and equipment | (234,229 | ) | (108,381 | ) | ||||
| Long-term debt | 2,042,791 | — | ||||||
| (3,162,972 | ) | (43,351,363 | ) | |||||
Increase (decrease) in cash and cash equivalents | (2,120,254 | ) | (3,859,885 | ) | ||||
Cash and cash equivalents - Beginning of period | 5,241,895 | 11,490,391 | ||||||
Cash and cash equivalents — End of period | 3,121,641 | 7,630,506 | ||||||
Non-cash investing and financing activities | ||||||||
| Exploration properties — Stock-based compensation | 314,891 | 137,526 | ||||||
| Exploration properties — Depreciation | 171,450 | 17,210 | ||||||
| 1 | Operations | |
| Peru Copper Inc. (the “Company” or “PCI”) was incorporated on February 24, 2004 in Canada under the Canada Business Corporations Act. | ||
| The Company is engaged in the acquisition and exploration of potentially mineable deposits of copper in Peru. The Company through its subsidiary, Minera Peru Copper S.A. has an option to acquire certain mining concessions within the Morococha mining district in Peru. | ||
| As at March 31, 2007, the Company has no properties under development and to date has not generated any operating revenues. Consequently, it is considered to be in the exploration stage. | ||
| 2 | Significant accounting policies | |
| Basis of Presentation | ||
| These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and follow the same accounting policies and methods of their application as the most recent annual financial statements, except as noted below and in note 3. These interim financial statements should be read in conjunction with the audited consolidated financial statements as at December 31, 2006. | ||
| Cash and cash equivalents | ||
| For purposes of reporting cash flows, the Company considers cash and cash equivalents to include amounts held in banks. The Company places its cash and cash investments with institutions of high credit worthiness. At times, such investments may be in excess of federal insurance limits. | ||
| Short Term Investments | ||
| The Company considers short-term investments to include amounts held in highly liquid debt investments with remaining maturities at time of purchase of six months or less. The Company places its short-term investments with institutions of high credit worthiness. At times, such investments may be in excess of federal insurance limits. | ||
| 3 | Change in Accounting Policies | |
| The Company adopted the provisions of CICA Sections 3855, Financial Instruments — Recognition Measurement, 3865, Hedges and 1530, Comprehensive Income, on January 1, 2007 which address the classification, recognition and measurement of financial instruments and hedges in the financial statements and inclusion of other comprehensive income. As a result of adopting these new standards, the Company recorded an unrealized gain of $301,403 for the change in accounting for financial assets classified as held-for-trading |
| and measured at fair value instead of cost. This increase is reported as a one-time cumulative effect of a change in accounting policy in opening deficit on January 1, 2007. | ||
| Financial Instruments | ||
| The Company’s financial assets and liabilities comprise cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable and accrued liabilities, due to related parties and debt. It is management’s opinion that the Company is not exposed to significant interest or credit risks arising from the financial instruments, except as otherwise noted. | ||
| Cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, and due to related parties are reported at their fair values on the balance sheet. The fair values of these financial instruments approximates their carrying values due to their short-term nature or capacity of prompt liquidation. | ||
| The Company determines the classification of its financial assets at initial recognition. When financial assets and liabilities are recognized initially, they are measured at fair value, normally being the transaction price plus, in the case of financial assets and liabilities not at fair value through profit or loss, directly attributable transaction costs. | ||
| Short Term Investments | ||
| All short term investments are classified as held-for-trading because the Company intends to use these investments in its normal course of financing its exploration activities. The held-for-trading method was applied to estimate the fair value of short term investments at balance sheet dates using quoted market prices at close of business on the balance sheet date with changes in fair value recorded in the statement of operations. All short term investments have been reclassified from cash and cash equivalents. | ||
| Debt | ||
| When a debt is recognized initially, the Company measures it at its fair value plus, in the case of a debt not measured at fair value with changes in value through profit or loss, transaction costs that are directly attributable to the issue of the debt. | ||
| Interest rate risk | ||
| The Company holds cash and cash equivalents which earn interest at variable rates as determined by financial institutions. | ||
| Credit risk | ||
| The Company only places its cash with institutions of high credit worthiness. |
| Foreign exchange risk | ||
| The Company holds cash balances and incurs payables that are denominated in multiple foreign currencies, including Peruvian Nuevo Sol and Canadian Dollars. These balances are subject to changes in the exchange rate between these currencies and the U.S. Dollar, which would result in a currency gain or loss to the Company. | ||
| 4 | Short Term Investments |
| March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| $ | $ | |||||||
| Market | 20,777,629 | 30,709,425 | ||||||
| Cost | 20,511,634 | 30,408,022 | ||||||
| Unrealized gain | 265,995 | 301,403 | ||||||
| 5 | Exploration properties — Toromocho Project |
| Three Months | Year Ended | |||||||
| Ended March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Balance — Beginning of period | 62,973,520 | 29,989,772 | ||||||
Costs for the period: | ||||||||
| Water treatment plant project | 221,072 | 198,310 | ||||||
| Supplies and general | 709,419 | 5,599,841 | ||||||
| Salaries and consulting | 2,059,572 | 4,200,312 | ||||||
| Drilling | 460,259 | 1,883,828 | ||||||
| Value added tax | 427,306 | 1,421,321 | ||||||
| Acquisition and lease | 8,148,647 | 17,940,622 | ||||||
| Stock-based compensation | 314,891 | 1,029,983 | ||||||
| Assay sampling and testing | 349,007 | 507,856 | ||||||
| Travel | 87,360 | 128,436 | ||||||
| Depreciation | 23,722 | 73,239 | ||||||
Costs for the period | 12,801,255 | 32,983,748 | ||||||
Balance — End of period | 75,774,775 | 62,973,520 | ||||||
| Deposit on water treatment plant | 14,949,666 | 15,000,000 | ||||||
| Expenditures relating to water treatment plant | (15,004 | ) | (50,334 | ) | ||||
Balance — End of period | 14,934,662 | 14,949,666 | ||||||
| On June 10, 2003, the Company signed the Toromocho Option Agreement with Empresa Minera del Centro- del Peru S.A. (“Centromin”). Centromin transferred its interest in the Toromocho Option to Activos Mineros |
| S.A.C. (“Activos”), a Peruvian government entity. Under this agreement, the Company has an option to acquire the mining concessions referred to as the Toromocho Project. This option has a duration of one year, with four renewable annual periods. | ||
| In 2006, the Toromocho Option was renewed for a fourth year, and can be renewed for one additional annual period. | ||
| Under the terms of the contract, the Company was required to invest in the project a cumulative amount of no less than $3 million (completed) in the first two contract years. In addition, the Company’s commitments under the option agreement were to expend a further $3 million in each of the third, fourth and fifth year (completed). | ||
| Through June 10, 2005 the Company completed $14.3 million of qualified expenditures under the option agreement, meeting its total expenditure obligation of $12 million. | ||
| Upon exercise of the Toromocho Option, the Company must enter into a Transfer Agreement with Activos to transfer Activos’ interests in the mining concessions and related assets to the Company. The Transfer Agreement requires that Peru Copper deliver a performance bond or letter of credit in the amount of $30 million towards required development obligations. | ||
| The Company has deposited $15 million in a restricted, non-refundable account for the construction of a water treatment plant to treat water coming from the Morococha mining district. The Company will be responsible for the construction of the water treatment plant and administration of funds used for studies and construction. Once constructed, the Company and other mining companies in the Morococha mining district will pay their pro-rata share of the operating costs of the plant and, eventually, the closure costs of the plant. The Company will have no responsibility or liability for the operation of the plant once it is constructed. The Company will be responsible for construction costs over and above the initial estimate of $15 million. Of the $15 million, $65,338 has been spent on expenses related to the water treatment plant. | ||
| Restricted cash of $500,000 has been provided as security for possible environmental liabilities resulting from exploration drilling. Under an addendum to the Toromocho Option Agreement, the Company contributed $1 million to a fund to improve the economic and social conditions in the area influenced by the Toromocho Project. The Company made a second payment of $1 million in September 2005, which is an advance against future royalties. | ||
| In 2004, the Company acquired partial interests in ten concessions located near the Toromocho concessions. The Company has had legal challenges to four of these concessions. The Company believes that the concessions were validly purchased in accordance with applicable Peruvian law and is defending its position. The legal process is underway and may be expected to continue for several months. The four concessions that are subject to the lawsuit are not, in the opinion of the Company, material to its development of the Toromocho Project. | ||
| On October 10, 2006, the Company resolved a land dispute between the community of Pucara and Centromin. The resolution relates to land located within the boundaries of the Toromocho Option. In exchange for the community abandoning a legal action against Centromin, the Company contributed land, equipment and |
| facilities valued at $1.95 million, to the Pucara community. In addition, the Company made a cash payment in the amount of $1.86 million to the community in January 2007. In addition, the Company has an obligation to pay for the settlement of any outstanding legal fees of Pucara in relation to its land dispute with Centromin to a maximum of $1 million. | ||
| On October 3, 2006, the Company entered into an option to purchase 1,350 hectares from the Yauli community for future use as a tailings deposit. The terms of the agreement provide that the Company will contribute $0.7 million toward community projects before October 4, 2009. | ||
| Acquisition of mining concessions | ||
| On May 9, 2005, the Company entered into purchase agreements whereby it acquired $7.7 million of loans receivable by various lender institutions in Peru for payments totalling $2.9 million. Sociedad Minera Austria Duvaz S.A.C. (“Austria Duvaz”), the borrower of the purchased loans, owns mining concessions and surface rights adjacent to the Toromocho Project. | ||
| On March 16, 2006 the Company entered into a general framework agreement with Austria Duvaz, a privately held Peruvian mining company, whereby the Company acquired an exclusive option to purchase certain mining concessions and surface areas held by Austria Duvaz located in the Morococha mining district. These concessions are of interest to the Company because they are directly adjacent to the concessions that comprise the Toromocho pit. | ||
| In October 2006, the Company finished its due diligence of the Austria Duvaz mining concessions and executed two agreements with Austria Duvaz, a transfer option agreement on mining concessions and a share purchase agreement for an additional group of mining concessions. | ||
| The transfer option agreement, which has a term of 5 years, applies to 27 wholly owned mining concessions and to the interests of Austria Duvaz in 3 additional mining concessions. Under the terms of the option agreement, the Company will assume and settle $13.1 million in outstanding debts associated with these mining concessions. In 2006, the Company agreed to pay $2.0 million in settlement of $2.9 million of these outstanding debts, which will be paid over a 5 years period beginning in the first quarter of 2007. By the end of the first quarter of 2007 the Company had paid a total of $4.1 million to settle debts amounting to $4.9 million. | ||
| Pursuant to the share purchase agreement with Austria Duvaz, the Company acquired Minera Centenario S.A.C. (“Centenario”), a Peruvian company holding title to a group of 30 mining concessions subject to the agreement with Austria Duvaz. The Company has agreed to pay an additional sum of $8.0 million to the shareholders of Centenario. In 2006, $2.0 million was paid to the Centenario shareholders and $6 million has been included in the liabilities of the Company as at December 31, 2006. During the first quarter of 2007, the Company paid $1.0 million to the Centenario shareholders. The remaining $5.0 million has been included in the liabilities of the Company as at March 31, 2007. | ||
| As a condition of the agreements, Austria Duvaz has the right to use these concessions until October 2011, however, the Company has the right to these concessions before October 2011 by paying a business |
| interruption fee between $3.0 million and $13.3 million dependant on the date the eviction notice would be served. The Company does not intend to use its right to evict Austria Duvaz before October 2011. | ||
| In addition, the Company has the right to renegotiate the long-term debt and as a result some of the debt owing may be reduced in the future. The long-term debt recorded of $12,182,791 is the Company’s estimate of what it expects to pay in settling these debts. | ||
| In addition to the $13.1 million in debts assumed pursuant to the transfer option agreement, the Company assumed $7.7 million of Austria Duvaz debt held by various banking institutions. The Company renegotiated this debt and was able to reduce the total financial debt obligation to $2.9 million, of which $1.4 million was repaid in 2005 and the remaining $1.5 million repaid in 2006. | ||
| 6 | Long-term Debt |
| March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| $ | $ | |||||||
| Debt owing to Austria Duvaz Creditors — Minera Centanario | — | 4,140,000 | ||||||
| Debt owing to Austria Duvaz Creditors — Austria Duvaz | 8,199,551 | — | ||||||
| Debt owing to Austria Duvaz Shareholders | 5,000,000 | 6,000,000 | ||||||
| Less: adjustment to fair value | (1,016,760 | ) | — | |||||
| 12,182,791 | 10,140,000 | |||||||
| Less: current portion of long-term debt | (5,000,000 | ) | (10,140,000 | ) | ||||
| 7,182,791 | — | |||||||
| All debt relating to the acquisition of mineral concessions have now been recognized as at March 31, 2007. | ||
| Principal minimum repayment terms will be approximately: |
| $ | ||||
| 2007 | 5,000,000 | |||
| 2008 | 3,255,136 | |||
| 2009 | 2,352,515 | |||
| 2010 | 1,159,910 | |||
| 2011 | 1,431,990 | |||
| In addition, the Company has the right to renegotiate the long-term debt and as a result some of the debt owing may be reduced in the future. The long-term debt recorded of $12,182,791 is the Company’s estimate of what it expects to pay in settling these debts. | ||
| 7 | Related party transactions |
| a) | During the three months ended March 31, 2007, the Company received consulting and management services from certain principal directors or companies controlled by directors in the amount of $107,729 (March 31, 2006 — $59,940). |
| b) | During the three months ended March 31, 2007, the Company received legal services from a law firm, in which an officer of the Company is a partner in the law firm, in the amount of $84,924. (March 31, 2006 — $90,913). | |||
| c) | The amounts payable to related parties are non-interest bearing, due on demand and unsecured. |
| 8 | Share capital | |
| The share capital of the Company is composed of an unlimited number of common and preferred shares. As at March 31, 2007, no preferred shares are issued and outstanding. | ||
| Share purchase options | ||
| The Company has established a share purchase option plan whereby the board of directors may, from time to time, grant options to directors, officers, employees or consultants. Options granted must be exercised no later than ten years from the date of grant or such lesser period as determined by the Company’s board of directors. The exercise price of an option must be determined in accordance with the share purchase option plan. The board of directors must determine the vesting period in accordance with the share purchase option plan. Details of the plan are as follows: |
| Weighted | ||||||||||||
| Number of | average | |||||||||||
| options | exercise price | Expiry | ||||||||||
| (in C$) | ||||||||||||
| Options outstanding at December 31, 2005 | 7,513,000 | 1.65 | ||||||||||
| Granted | 1,721,500 | 5.06 | 2011 | |||||||||
| Exercised | (1,353,780 | ) | 1.71 | 2009 | ||||||||
| Cancelled | (840,460 | ) | 2.63 | 2009 | ||||||||
| Options outstanding at December 31, 2006 | 7,040,260 | 2.36 | ||||||||||
| Granted | 500,000 | 3.93 | 2012 | |||||||||
| Options outstanding as at March 31, 2007 | 7,540,260 | 2.46 | ||||||||||
| The following table summarizes information about stock options outstanding to directors, officers, employees and consultants at March 31, 2007: |
| Exercise price | Number | Number | ||||||||||
| Expiry date | $ | outstanding | exercisable | |||||||||
| June 30, 2008 | US$1.40 | 720,000 | 720,000 | |||||||||
| June 29, 2009 | US$1.40 | 204,800 | 204,800 | |||||||||
| June 30, 2008 | C$1.65 | 1,080,000 | 1,080,000 | |||||||||
| October 6, 2009 | C$1.65 | 1,678,960 | 1,311,980 | |||||||||
| November 24, 2009 | C$1.56 | 576,000 | 456,000 | |||||||||
| February 8, 2010 | C$1.26 | 300,000 | 240,000 | |||||||||
| June 30, 2008 | C$1.58 | 100,000 | 100,000 | |||||||||
| May 5, 2010 | C$1.58 | 884,000 | 509,200 | |||||||||
| February 6, 2011 | C$4.25 | 300,000 | 120,000 | |||||||||
| May 10, 2011 | C$5.40 | 546,500 | 109,300 | |||||||||
| August 10, 2011 | C$4.97 | 550,000 | 110,000 | |||||||||
| August 28, 2011 | C$5.41 | 100,000 | 20,000 | |||||||||
| January 15, 2012 | C$4.60 | 500,000 | — | |||||||||
| 7,540,260 | 4,981,280 | |||||||||||
| On January 15, 2007, the Company issued 500,000 share purchase options to the president of the Company with an exercise price of C$4.60. These share purchase options vest in tranches of 20% every six months with the first tranche vesting on July 15, 2007. All of these options will expire on January 15, 2012. The Company estimated the fair value of these options to be $773,724. | ||
| The fair values of the options granted during the three months ended March 31, 2007 were estimated using the Black-Scholes options pricing method with the following assumptions: |
| Three Months | ||||
| Ended | ||||
| March 31, | ||||
| 2007 | ||||
| Risk-free interest rate | 3.53% - 4.26% | |||
| Expected dividend yield | — | |||
| Expected stock price volatility | 46% | |||
| Expected option life in years | 3.75 | |||
| Stock-based compensation expense is being recorded over the vesting period of the share purchase options granted. During the three months ended March 31, 2007, compensation expense of $889,820 was recorded. Of this amount $574,929 was an operating expense in the period and $314,891 was capitalized to exploration properties. |
| 9 | Segmented information | |
| The Company has one operating segment, which is mineral exploration. Total assets by geographic segment are as follows: |
| March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| $ | $ | |||||||
| Canada | 22,461,228 | 34,224,529 | ||||||
| Peru | 94,812,041 | 81,101,322 | ||||||
| 117,273,269 | 115,325,581 | |||||||
| All of the Company’s interest income is earned in Canada and all of its administrative expenses are incurred on behalf of its operations in Canada. |
