SUTCLIFFE RESOURCES LTD.
Management’s Discussion & Analysis
For the quarter ended March 31, 2006
Form 51-102F1 as at May 30, 2006
DESCRIPTION OF BUSINESS
The Company is in the business of acquiring and developing mineral exploration projects. The Company has interests in the Harrison Lake nickel-copper and precious metal project in southwestern British Columbia and in the Beale Lake gold property located in northern British Columbia.
The Harrison Lake Project is a belt of ultramafic and metavolcanics and metasediments which extend from the site of the former B.C. Nickel Mine, 7 kilometres north of Hope, B.C., over 60 kilometres along the east side of Harrison Lake. The Company had previously identified 15 high priority sulphide related Airborne ElectroMagnetic (AEM) targets. Field crews were on the property preparing grids for detailed ground geophysical surveying to assist in selecting drill hole locations. Two grids were prepared at the north end of a 4.3 kilometre long AEM target and another highly prospective AEM target to the northeast. A recent property investigation revealed a wide zone of gossanous sulphide material associated with the long AEM target and sulphide bearing boulders on the target immediately to the northeast.
The Beale Lake Project, 75 kilometers northeast of Dease Lake, B.C., is a sheeted stockwork quartz-sulphide-scheelite vein and siliceous replacement mineralization system that has characteristics of both the Alaska Fort Knox and Pogo intrusion related gold deposits. Field crews have prepared the Beale project grounds for an Induced Polarization (IP) survey which is designed to follow up on high grade gold samples as reported on by G.E. Nicholson, P.Geo. in his November 2004 report. The data from the IP 3D array survey and subsequent detailed geological mapping and geochemical sampling will be used to define drill target locations.
OPERATIONS AND EXPENDITURES
During the first quarter of 2006 a drilling program for the Beale Lake property was started. The target is a bulk tonnage, intrusive-related mesothermal quartz-carbonate-stockwork gold-silver deposition. Six diamond drillholes of a planned 24 hole drilling program has been completed to date. Two drillholes completed on the East Zone went to depths of 236 and 157 metres. Mineralization is predominantly pyrite and pyrrhotite with traces of sphalerite and chalcopyrite and locally mineralization is up to 15% as stringers and blebs. At the West Zone, the four holes completed went to depths of 105, 174, 154 and 186 metres and all encountered significantly more sulphide mineralization than the East Zone. The sulphides occur as pyrite, pyrrhotite and chalcopyrite and, where quartz-carbonate alteration occurs, as blebs and in stringers. Drill pad construction is ongoing with another 16 drillsites being prepared.
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PROPOSED AND ACTUAL EXPENDITURES
The proposed initial phase work program and associated costs as set out in the Company’s prospectus dated May 27, 2005 and the actual expenditures incurred to March 31, 2006 are as follows:
Work Program | Projected Cost | Actual Expenditure | ||||||||||
Beale L. | Harrison L. | Beale L. | Harrison L. | |||||||||
Assays and Reports | $ 10,000 | $ 12,000 | $ 9,908 | $ 1,249 | ||||||||
Consulting and Engineering | 20,000 | 26,500 | 67,862 | 21,223 | ||||||||
Diamond Drilling | 150,000 | 180,000 | 188,471 | - | ||||||||
Equipment Rental and Supplies | 45,000 | 22,500 | 532,031 | 102,564 | ||||||||
Field Personnel | 30,000 | 30,000 | 213,118 | 79,576 | ||||||||
Filing Fees | - | - | 2,364 | 7,498 | ||||||||
Geophysical Surveying | 30,000 | 32,500 | 30,150 | 30,938 | ||||||||
Travel | - | - | 2,668 | - | ||||||||
Mobilization and Demobilization | 15,000 | 26,500 | 54,963 | 10,463 | ||||||||
Total cost for initial stage (Actual | ||||||||||||
expenditures incurred to March 31, 2006) | $ 300,000 | $ 330,000 | $ 1,101,535 | $ 253,511 |
The actual expenditures have exceeded the projected cost in almost all categories except for some of the Harrison expenditure which have been delayed due to a late start and inclement weather conditions.
SUMMARY OF QUARTERLY RESULTS
2006 | 2005 | 2004 | ||||||||||||||||||||||
Mar 31 $ | Dec 31 $ | Sep 30 $ | Jun 30 $ | Mar 31 $ | Dec 31 $ | Sep 30 $ | Jun 30 $ | |||||||||||||||||
Total revenue | nil | nil | nil | nil | nil | nil | nil | nil | ||||||||||||||||
Gen & Admin. | 492,552 | 232,876 | 149,259 | 177,188 | 46,452 | 16,806 | 27,610 | 10,688 | ||||||||||||||||
Expenses | ||||||||||||||||||||||||
Stock-based | 131,801 | nil | 320,881 | nil | nil | nil | nil | nil | ||||||||||||||||
Compensation | ||||||||||||||||||||||||
Loss | (624,353 | ) | (232,876 | ) | (470,140 | ) | (177,188 | ) | (46,452 | ) | (16,806 | ) | (27,610 | ) | (10,688 | ) | ||||||||
Net Loss | (622,425 | ) | (232,876 | ) | (470,140 | ) | (177,188 | ) | (46,452 | ) | (49,018 | ) | (30,610 | ) | (10,688 | ) | ||||||||
Loss/share | (0.02 | ) | (0.01 | ) | (0.02 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Def. Min. Prop. | 786,627 | 1,635,309 | 499,810 | 72,588 | 43,511 | 140,051 | 32,496 | 37,098 | ||||||||||||||||
Costs | ||||||||||||||||||||||||
Total Assets | 8,389,551 | 3,884,169 | 1,812,746 | 2,302,417 | 490,281 | 472,366 | 316,812 | 337,192 |
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GENERAL AND ADMINISTRATIVE EXPENSES
Quarter ended | Quarter ended | |||||
Mar 31, 2006 | Mar 31, 2005 | |||||
Professional fees | $ | 15,851 | $ | 9,750 | ||
Consulting | 186,170 | - | ||||
Management and administration fees | 89,091 | 7,500 | ||||
Office, rent & supplies | 11,524 | 3,000 | ||||
Investor relations and communications | 21,332 | - | ||||
Regulatory and transfer agent fees | 30,379 | 6,833 | ||||
Resource property investigation expenditures | 262,740 | - | ||||
Automotive and travel | 7,031 | 463 | ||||
Interest on demand loans | 18,125 | |||||
Bank charges and interest | 235 | 781 | ||||
Total general and administrative expenses | ||||||
for the quarter | $ | 624,353 | $ | 46,452 |
The administrative expenditures made during the first quarter were indicative of the Company’s increased corporate activities due to the private placement financing programs and as the exploration program on the Beale Lake project advanced. Almost all categories are much higher compared to the previous fiscal period due to the increased ancillary costs associated with the additional financing and the costs involved in investor relations and communications.
Another major expenditure continues to involve the resource property investigation in Russia. The Company is still seeking to undertake an exclusive arrangement with a Russian corporation to acquire their rights in respect to tenders for four mineral properties in the Chukotka Autonomous Region of northeastern Russia.
The administrative expenditures as noted above for the quarter ended March 31, 2006 include the related stock compensation cost of $131,801 (2005 - $nil) recognized in the Statements of Operations and Deficit under the relevant administrative expense category as follows:
March 31, 2006 $ | March 31, 2005 $ | |
Income statement items | ||
Consulting fees | 52,720 | - |
Investor relations and communications | 5,272 | - |
Management fees | 65,591 | - |
Professional fees | 4,218 | - |
131,801 | - |
RELATED PARTY TRANSACTIONS
For the quarter ending March 31, 2006, management fees charged by a director totaled $19,500 (2005 - $7,500).
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LIQUIDITY AND SOLVENCY
The Company had working capital for the quarter ending March 31, 2006 of $4,275,617 compared to a working capital of $978,540 for the year ended December 31, 2005. The continued operations of the Company are dependent upon its ability to raise adequate financing. To this end the Company will be seeking future funding through private placement offerings as well as the exercise of outstanding share purchase warrants to maintain adequate working capital and to raise funds for exploration expenditures.
Mar 31, 2006 | Mar 31, 2005 | |||||
Working Capital (Deficiency) | $ | 4,275,617 | $ | (347,215 | ) | |
Deficit | $ | (7,404,863 | ) | $ | (5,902,234 | ) |
There have been no changes in accounting policies and the Company has made no off-balance sheet arrangements and none are contemplated in the future. The Company does not utilize financial or other instruments in its operations.
CAPITALIZED EXPLORATION AND DEVELOPMENT COSTS
Beale Lake $ | Harrison $ | Total $ | ||||||||
Balance, December 31, 2005 | 1,781,604 | 827,294 | 2,608,898 | |||||||
Consulting and Engineering | 46,574 | - | 46,574 | |||||||
Diamond Drilling | 188,471 | - | 188,471 | |||||||
Equipment Rental and Supplies | 389,796 | - | 389,796 | |||||||
Field Personnel | 134,842 | - | 134,842 | |||||||
Travel | 1,500 | - | 1,500 | |||||||
Mobilization/Demobilization | 25,444 | - | 25,444 | |||||||
Mineral Interest Costs for the Year | 786,627 | - | 786,627 | |||||||
Balance, December 31, 2005 | 2,568,231 | 827,294 | 3,395,525 |
DISCLOSURE OF OUTSTANDING SHARE DATA as of May 30, 2006
Share Capital Authorized – unlimited common shares
Share Capital Issued – 41,328,077
Shares held in escrow
- 2,754,000
Options Outstanding
- 4,300,000 exercisable for 4,300,000 common shares at $0.25 per share
- 1,250,000 exercisable for 1,250,000 common shares at $0.60 per share
Warrants Outstanding
- 3,623,673 warrants exercisable for 3,623,673 common shares at $0.35 per share
- 607,550 agent’s warrants exercisable for 607,550 common shares at $0.25 per share
- 437,500 warrants exercisable for 437,500 common shares at $0.60 per share
- 4,768,500 warrants exercisable for 4,768,500 common shares at $0.75 per share