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MANAGEMENT’S DISCUSSION AND ANALYSIS
For the six months ended December 31, 2011
Dated: February 24, 2012
CLIFTON RESOURCES INC.
FORM 51-102F1
MANAGEMENT’S DISCUSSION AND ANALYSIS
SIX MONTH PERIOD ENDED DECEMBER 31, 2011
The following management’s discussion and analysis (“MD&A”), prepared as of February 24, 2012, is intended to help the reader understand Clifton Star Resources Inc. (referred to herein as the “Company” or “Clifton”), its operations and financial performance. This MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements and notes thereto, prepared in accordance with IFRS, for the six months ended December 31, 2011, the three months ended September 30, 2011 and with the audited consolidated financial statements and notes thereto, prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”), for the year ended June 30, 2011.
This MD&A for the six months ended December 31, 2011 reflects the Company’s adoption of International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). All amounts are stated in Canadian dollars unless otherwise indicated.
Additional information related to the Company is available on SEDAR atwww.sedar.com.
Forward Looking Statements
Clifton cautions readers regarding forward looking statements found in this document and in any other statement made by, or on the behalf of the Company. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions, which are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond Clifton’s control and many of which, regarding future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by or on the Company’s behalf. All factors should be considered carefully, and readers should not place undue reliance on Clifton’s forward-looking statements. Forward-looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made. Examples of such forward-looking statements within this document include statements relating to: our objectives, our estimates regarding capital requirements, our financial position, the regulatory framework, market competition, government policy and regulations, our expectations with respect to expenses, and statements with respect to any or all of the Company’s properties.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company and/or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Although Clifton has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained in this Management Discussion and Analysis are made as of the date of this Management Discussion and Analysis based on the opinions and estimates of management.
Forward-looking statements reflect Clifton’s current views with respect to expectations, beliefs, assumptions, estimates and forecasts about our business and the industry and markets in which we operate. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Assumptions underlying our expectations regarding forward-looking statements or information contained in this Management Discussion and Analysis include, among others: our ability to negotiate commercially acceptable financial terms for any potential future financing(s), our ability to comply with applicable governmental regulations and standards, our success in implementing our strategies and achieving our business objectives, our ability to raise sufficient funds from equity financings in future to support our operations, and general business and economic conditions. The foregoing list of assumptions is not exhaustive.
These forward looking statements are made as of the date of this Management Discussion and Analysis or, in the case of documents incorporated by reference herein, as of the date of such documents, and we do not intend, and do not assume any obligation, to update these forward looking statements, except as may be required by applicable law. We cannot assure you that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and, accordingly, investors are cautioned not to put undue reliance on forward-looking statements due to their inherent uncertainty.
Overall Performance
Overview
Clifton is advancing a large gold project (the “Duparquet Project”) that is located in a politically secure area of the world. The location in the province of Quebec is considered to be a major advantage when compared to the locations of other gold projects in many other jurisdictions, since the government of Quebec is mining-friendly, provides tax credits for exploration, has an extensive and experienced mining labour pool, and provides good infrastructure.
The Porcupine Destor Fault, or associated faults, pass through the Duparquet property, but this area has been relatively unexplored in the past. On the Ontario side of the Quebec-Ontario border, over 100 million ounces of gold have been mined along that major structural feature, while only a fraction of this amount has been mined on the Quebec side where Duparquet is located.
Clifton has the right to acquire an additional 90% of the Duparquet Project in addition to the 10% it already owns (subject to a net smelter return royalty of 2% on a major portion of the property for the duration of the option period) by making cash payments to the underlying owners, of which $8.5 million has been paid. Additional payments ($22 million required prior to the end of 2012 and an additional $30 million prior to the end of 2017) must be made in order for Clifton to obtain the 100% interest.
Osisko Mining Corporation (“Osisko”), the Company’s former joint venture partner, was granted the option in late 2009 to earn a 50% interest in the Duparquet Project by spending $70 million on exploration, and by advancing an additional $30 million to the project. During 2010, Osisko spent over $15 million (and drilled approximately 123,000 metres), and thereby met their minimum requirement of $15 million of expenditures in 2010 in order to maintain their right to earn 50%. However, in June of 2011, Osisko decided to exit the Duparquet Project, leaving Clifton with the right to earn 100% (with no interest being earned by Osisko).
Following Osisko’s departure from the joint venture in June of 2011, Clifton initiated a substantial exploration program with a view to increasing resources, as well as upgrading portions of the resources from inferred to indicated. Clifton’s program for 2011 (after Osisko exited the project in June 2011) was approximately $2.0 million, with most of that directed to drilling, while about 10% of the total budget was directed towards metallurgical testing (including obtaining representative samples for additional testing).
During the year ended June 30, 2011, the Company failed to file certain required documents. As a result, the B.C. Securities Commission issued a Cease Trade Order in British Columbia. The Company filed two of the required documents (an NI 43-101 Report on the Beattie Property and an NI 43-101 Report on the Duquesne Property), and in early December, the other required document, which is an NI 43-101 Report on the Donchester Property, was delivered to the B.C. Securities Commission for review. The Company is presently in discussions with the B.C. Securities Commission to have the updated report accepted.
In addition to the foregoing, Clifton engaged InnovExplo, a geological consulting firm to prepare a comprehensive NI 43-101 Report, which will cover all of the contiguous properties which make up the Duparquet Project (including Beattie, Donchester, Central Duparquet, Dumico, and the Beattie Tailings Deposit). The Company expects to have the report delivered to the Company by April of 2012.
History of Operations and Drilling
Historically, there were several operating gold mines on the Duparquet property, as well as a processing facility on the Beattie property. Approximately 1,117,000 ounces of gold (from mill feed of about 10.6 million tons grading 0.126 ounces of gold per ton) were produced from the Beattie Mine, 167,000 ounces from the Donchester Mine, and 67,000 ounces from the Duquesne Mine. These prior underground mines only focused on the high-grade narrower sections, while the current objective is to delineate an open pit (or pits), as well as to re-evaluate underground targets – both of which have become more attractive opportunities at the current gold price.
Over the period 1987 to 2007, 125 drill holes (18,471 metres) were completed. The drill programs for the calendar years 2008, 2009 and 2010 consisted of the following:
·
2008: 212 diamond drill holes, consisting of 72,152 metres
·
2009: 183 diamond drill holes, consisting of 56,774 metres
·
2010: 383 diamond drill holes, consisting of 122,803 metres
The 2010 drilling consisted of 219 holes at Beattie (69,806 metres at an average length per hole of 319 metres), 79 holes at Donchester (27,074 metres at an average length per hole of 343 metres), 16 holes at Central Duparquet (5,648 metres at an average length per hole of 353 metres), and 69 holes at Duquesne (20,275 metres at an average length per hole of 294 metres).
An airborne TDEM and Magnetic survey was completed over the Duparquet property in March of 2011. The gold-bearing zones hosted by the syenite porphyry units coincide with a magnetic high feature, which includes several parallel units that were observed on all of the properties. Several magnetic high anomaly structures trending east-west and northeasterly were observed from the survey. These anomalous areas are being followed up by Clifton.
The 2011 exploration program solely carried out by Clifton, commenced in June, and consisted of a drilling program of approximately 26,754 metres in 85 holes, as well as extensive metallurgical testing. The drilling extended 29 of the 2010 holes (drilled by Osisko) below a vertical depth of 400 metres, and to a maximum vertical depth of about 600 metres. The drilling also consisted of 56 new holes collared from surface. Twelve were drilled to collect material for metallurgical testing at SGS (Lakefield). The total budget for the foregoing program was approximately $2.0 million, and was designed to add to resources at depth for potential underground operations in addition to the open pit potential.
NI 43-101 Resources
The current NI 43-101 mineral resource estimates are as set out below for each of the properties that make up the Duparquet Project.
Beattie Mine Property
In May 2011, SGS Geostat prepared an NI 43-101 compliant resource report on the Beattie property. SGS Geostat performed an open-pit optimization in order to evaluate the potential of the deposit. Based on a gold price of US$1,100 per ounce (and mining costs of $1.50 per tonne, processing costs of $20 per tonne, metallurgical recovery of 85%, rock slope angle of 50 degrees, and overburden angle of 30 degrees), SGS Geostat calculated an in-pit resource of 31.950 million tonnes grading 1.67 gpt gold (1.717 million contained ounces).
It should also be noted that the foregoing Beattie resources do not include the potential for underground resources, which might be delineated with deeper drilling. In fact, a significant portion of the Company’s exploration program for July to December 2011 was for the extension of drill holes from their maximum vertical depth of around 400 metres to depths of about 600 metres.
Donchester Mine Property
An updated NI 43-101 resource has been prepared for the Donchester Mine Property, and was filed with the B.C. Securities Commission in early December 2011. Following additional comments from the B.C. Securities Commission, Clifton and its geological consultant are working, with the B.C. Securities Commission, to make the report NI 43-101 compliant.
Duquesne Mine Property
Genivar completed an updated and revised NI 43-101 Technical Report on the Duquesne property in the summer of 2011. Genivar determined an Inferred resource of 1.563 million tonnes grading 5.58 gpt gold (280,000 contained ounces) and an Indicated resource of 1.859 million tonnes grading 3.33 gpt gold (199,000 contained ounces), with the foregoing based on a cut-off grade of 1.0 gpt gold.
Historical Resources
Central Duparquet Mine Property
The extension of the same geological formations of the Beattie and Donchester properties, located to the west is found on the property.
No NI 43-101 Resource has been determined on the property. A Qualified Person has not done enough work to produce such a report. InnovExplo will cover the property in its upcoming report.
Beattie Tailings
No NI 43-101 Resource has been determined. InnovExplo will cover this subject in its upcoming report.
Exploration Program on the Duparquet Project
Clifton has retained InnovExplo, a geological consulting firm, to prepare a comprehensive NI 43-101 Report, which will cover all of the contiguous properties which make up the Duparquet Project (including Beattie, Donchester, Central Duparquet, Dumico, and the Beattie Tailings Deposit). A complete data bank is being set-up by InnovExplo. A 3D modeling program is ongoing, and will incorporate the results of the drilling by the joint venture with Osisko, previous drilling by Clifton and others, results from the 2011 drilling campaign, as well as information from historical underground maps. Once the 3D modeling and geological interpretation is completed; updated NI 43-101 resource calculations will be prepared.
Clifton’s 2011 exploration program commenced in June of 2011, shortly after Osisko announced that they were not going to exercise their option. This program included 85 drill holes, for a total of 26,754 meters. Of the 85 drill holes, 29 were for extensions of existing holes to greater depths.
Of the 2011 drilling campaign, twelve of the holes were drilled to collect material for metallurgical testing at SGS (Lakefield). The material was sent in December 2011 and the results are expected in March of 2012.
Surface stripping and channel sampling were carried out on the Beattie, Donchester, and Central Duparquet properties in the fall of 2011. Results will be integrated into the data bank.
The foregoing, along with the results of ongoing metallurgical testing, will be utilized as inputs for preliminary internal economic evaluations of potential open-pit and underground mining operations. Upon the receipt of the comprehensive NI 43-101 report referred to earlier, it is expected that a major consulting engineering firm would be engaged to prepare an independent Preliminary Economic Assessment.
Metallurgical Testing
In the later part of 2010, Osisko shipped four bulk samples to SGS Canada Inc. in Lakefield, Ontario, for metallurgical testing. A flotation concentrate was produced, followed by pressure oxidation and cyanidation of this concentrate, with an overall gold recovery of 83%.
Following the end of the joint venture with Osisko, the Company continued metallurgical studies at SGS (Lakefield, Ontario), which are designed to investigate the use of flotation, pre-oxidation, and cyanidation across six different mineralized zones of the Duparquet Project. Preliminary metallurgical tests show overall gold recoveries of greater than 90%. Dr. David Dreisinger is Clifton’s independent metallurgical consultant, who has been working with the Company to determine the optimum process alternative(s) for the Duparquet deposits. He is reviewing and monitoring the SGS program, which is designed to optimize the gold recovery by using flotation, cyanidation and off-the-shelf pressure oxidation processes. As well, additional tests are being carried out using the BIOX and ALBION process technologies for biological and atmospheric oxidation, respectively.
In addition to the foregoing, two samples from the tailings deposit have been taken for metallurgical testing and sent to SGS (Lakefield). This testing is designed to consider the mineralogy of the tailings, the response to flotation and cyanidation, and the possible use of pressure oxidation and cyanidation to treat the tailings flotation concentrate using the same techniques as above.
The Company is precluded from releasing results from the metallurgical tests until the cease trade order is lifted.
Exploration Properties and Commitments
Beattie, Donchester and Dumico properties
The Company signed three mineral property option agreements on May 1, 2008 (amended July 22, 2008, November 24, 2008 and April 8, 2009) with Beattie Gold Mines Ltd. ("Beattie”), 2699681 Canada Ltd. (“2699681”) and 2588111 Manitoba Ltd. (“2588111”) respectively with similar terms.
On October 26, 2009, the Company signed a Letter of Intent with the optionors. The Company renegotiated with the optionors to terminate the aforementioned mineral property option agreements and enter into new agreements. Before the new agreements were entered into, the Company paid $600,000 to Beattie, $300,000 to 2699681 and $600,000 to 2588111 under the old option agreements.
Beattie owns an underground mining concession. 2699681 owns, through its wholly owned subsidiary, Eldorado Gold Mines Inc., certain surface rights. 2588111 owns, through its wholly owned subsidiary, 173714 Canada Inc., certain mineral claims and mining concessions. All the mining rights, claims and concessions are located near the town of Duparquet, Quebec.
Terms of the new agreements are as follows:
i)
cash payments of $3,400,000 ($1,600,000 paid in fiscal 2010 and $1,800,000 paid in fiscal 2011) to Beattie, $1,700,000 ($800,000 paid in fiscal 2010 and $900,000 paid in fiscal 2011) to 2699681, and $3,400,000 (($1,600,000 paid in fiscal 2010 and $1,800,000 paid in fiscal 2011) to 2588111 and earned the Company 10% of the issued and outstanding shares of the optionors;
ii)
cash payments of $8,800,000 to Beattie, $4,400,000 to 2699681, and $8,800,000 to 2588111 due on December 1, 2012; and
iii)
cash payments of $12,000,000 to Beattie, $6,000,000 to 2699681, and $12,000,000 to 2588111 before or on December 1, 2017 will earn the Company the remaining 90% of the issued and outstanding shares of the optionors.
In the event of a change of control in the Company or an assignment of the mineral property option agreements prior to the expiry of the aforementioned options, the Company would be obligated to purchase all of the outstanding shares of the optionors as follows:
i)
cash payments of $20,800,000 to Beattie if this event occurred after June 1, 2010 but prior to December 1, 2012, or $12,000,000 if this event occurs after December 1, 2012 but prior to December 1, 2017.
ii)
cash payments of $10,400,000 to 2699681 if this event occurred after June 1, 2010 but prior to December 1, 2012, or $6,000,000 if this event occurs after December 1, 2012 but prior to December 1, 2017.
(iii)
cash payments of $20,800,000 to 2588111 if this event occurred after June 1, 2010 but prior to December 1, 2012, or $12,000,000 if this event occurs after December 1, 2012 but prior to December 1, 2017.
The optionors have retained a 2% Net Smelter Royalty (”NSR”) for the duration of the option period.
On December 10, 2009, the Company entered into a mineral property option and joint venture agreement with Osisko Mining Corporation (“Osisko”) regarding a joint venture on the Duparquet project (the “Project”). The Project is comprised of the Central Duparquet, Duquesne, Beattie, Donchester and Dumico properties. Under the terms of the mineral property option and joint venture agreement, Osisko could earn a 50% interest in the joint venture by contributing, as operator, a total of $70,000,000 ($15,000,000 incurred) to the joint venture over a four year period.
On June 16, 2011, Osisko notified the Company of its decision to terminate its participation in the Project. However, Clifton still has the right to access a loan of $22.5 million from Osisko for the payment to the property vendors that is due on or before December 1, 2012. If Clifton were to access the funds, the Company would have the right to retire the loan (plus interest at a rate of 5%) based on the issuance of shares of Clifton to Osisko at a price of $3.12 per share for the principal and at market price for the interest.
Central Duparquet
On December 15, 2008, the Company signed an option agreement whereby it may acquire a 100% interest in the Central Duparquet property. The property is comprised of 18 mineral claims totalling 293 hectares located in the Duparquet Township, Quebec. To earn its 100% interest, the Company paid $400,000 on January 13, 2009.
During the five year period following the date of execution of the agreement, the Company may sell, transfer or otherwise dispose of all or any portion of its interest in the property. A term of this disposition will be a payment to the optionor of shares of any company acquiring an interest in the property at a deemed value of $1,900,000 or $1,900,000 in cash.
On February 26, 2010, the Company entered into an agreement to acquire the 2% NSR from the optionor. As consideration for the acquisition of the NSR, the Company paid $155,000 and issued 10,000 common shares, valued at $57,400, to the optionor.
Duquesne property
Pursuant to an option agreement dated September 20, 2006 (amended on May 14, 2007 and June 11, 2007), the Company issued 10,000 common shares valued at $18,500 to the optionor, paid $1,800,000 cash, and incurred over $4,000,000 in exploration expenditures to acquire all of the issued shares of Duquesne Gold Mines Ltd. (“Duquesne”). Duquesne is a private Canadian mineral exploration company which owns fifty five mineral claims and one mining concession located in Destor Township, Quebec, which are collectively known as the Duquesne Gold Project.
On June 20, 2010, the Company fulfilled all obligations under the option agreement and acquired a 100% interest in the Duquesne property.
The optionor retains a 3% NSR, while the Company has the option to purchase from the optionor the 3% NSR in consideration for the sum of $1,000,000 for each 0.5% at any time for a total of $6,000,000.
During the year ended June 30, 2009, the Company acquired additional claims totalling 964 hectares, known as the Duquesne Extension, for $35,000. The Duquesne Extension adjoins the Duquesne property to the south and southwest. In addition, the Company paid $250,000 to acquire claims totalling 525 hectares known as the Lepine and Destor properties. These claims are contiguous to the northwest and east respectively of the Duquesne property. The optionor has retained a 2% NSR.
Hunter property
A drilling program, consisting of 10 diamond drill holes, was carried out on the Hunter property in 2011. All of the holes were drilled to intersect the mineralization below the prior underground workings, except for hole #7 which was drilled above the underground workings. The intersections ranged from about one to five meters (not true widths), with most of the assays from 1.5% to 2.5% copper. Silver assays typically ranged from about 10 to 30 grams per tonne. Most of the intersections were at depths of 200 to 300 metres.
Cat Lake property
The Company signed a mineral property option agreement on May 1, 2008 (amended July 22, 2008, November 24, 2008 and April 8, 2009) with 2588111. The Cat Lake property is comprised of nine mining leases totaling 238 hectares in the Lac Dubonnet Mining District, which is approximately 193 kilometres northeast of Winnipeg, Manitoba.
On the Cat Lake property, six holes were drilled into the main copper-nickel zone, which is associated with mineralized gabbros. Significant values of copper-nickel were encountered with the best intersection being 24.5 metres averaging 0.78% copper and 0.37% nickel (from 55.5 metres to 80.0 metres). This is believed to be the same zone encountered by Mustang Minerals on the west and east side of the Cat Lake claims. Mustang Minerals generated an updated 43-101 mineral resource estimate on their property.
Qualified Person
Fred T. Archibald, a member of the Association of Professional Geoscientists of Ontario (APGO) and Quebec (OGQ) and a Qualified Person as defined by National Instrument 43-101Standards of Disclosure for Mineral Projects, is responsible for the preparation of, and has verified, the technical information in this MD&A.
International Financial Reporting Standards (“IFRS”)
Effective for year ends commencing on or after January 1, 2011, Canadian publicly listed entities are required to prepare their financial statements in accordance with IFRS. Due to the requirement to present comparative financial information, the Company’s effective transition date is July 1, 2010. As the Company’s fiscal year ended on June 30, 2011, the three months period ended September 30, 2011 is the Company’s first reporting period under IFRS.
The condensed interim consolidated financial statements of the Company were prepared using accounting policies the Company expects to adopt for its June 30, 2012 annual consolidated financial statements. Because the annual consolidated financial statements will be prepared using accounting standards in effect at June 30, 2012, differences may arise at that date because new standards may be issued subsequent to these condensed interim consolidated financial statements which could be effective June 30, 2012. Any change in accounting standards may result in material changes to the Company’s reported financial position, results of operations and cash flow.
The notes to the unaudited condensed interim consolidated financial statements for the quarter ended September 30, 2011 provides more detail on the Company’s accounting policy decisions under IFRS 1, First-Time Adoption of IFRS, optional exemptions for significant or potentially significant areas that had an impact on its financial statements on transition to IFRS or may have an impact in future periods.
The Company’s IFRS conversion process identified four phases: scoping and planning, detailed assessment, implementation and post-implementation. The Company has now completed its IFRS conversion project through implementation. Post-implementation will continue in future periods, as outlined below.
The following outlines the Company’s transition project, IFRS transitional impact and the on-going impact of IFRS on its financial results.
Impact of adoption of IFRS on financial reporting
The following table outlines the adjustments to the Company’s equity and to total comprehensive income as a result of the adoption of IFRS. Descriptions of each of the adjustments are outlined in note 4 of the unaudited condensed interim consolidated financial statements for the six months ended December 31, 2011.
| | | | |
| | As at June 30, 2011 | As at December 31, 2010 | As at July 1, 2010 |
| | | | |
| Equity under Canadian GAAP | $ 46,503,471 | $ 44,537,366 | $ 30,307,412 |
| Share capital | 4,449,184 | 4,198,934 | 4,280,834 |
| Share-based payments reserve | (306,346) | 611,762 | (73,223) |
| Deficit | (4,112,652) | (4,892,596) | (4,207,611) |
| Equity under IFRS | $ 46,533,657 | $ 44,455,466 | $ 30,307,412 |
| | | | |
| |
Year ended June 30, 2011 |
Three months ended December 31, 2010 |
Six months ended December 31, 2010 |
| | | | |
| Total Comprehensive Loss under Canadian GAAP | $ (4,860,796) | $ (1,532,372) | $ (2,754,600) |
| Share-based payments | 263,309 | (491,171) | (684,985) |
| Deferred income tax | (168,350) | - | - |
| Total Comprehensive Loss under IFRS | $ (4,765,837) | $ (2,023,543) | $ (3,439,585) |
Cash Flow Impact
There was no significant impact to the Company’s cash flows as a result of its transition from Canadian GAAP to IFRS.
Financial Statement Presentation Changes
The transition to IFRS has resulted in some financial statement presentation changes in the Company’s financial statements. The following is a summary of the most significant change to the Company’s statement of financial position.
·
Under Canadian GAAP, the Company’s capitalized property acquisition and exploration costs were presented as “Mineral Properties and Deferred Exploration Costs” whereas under IFRS, these costs are presented as “Exploration and Evaluation Assets.”
·
The Company now presents the fair value attributable to stock options granted and vested under the account “Share-based Payments Reserve” whereas previously under Canadian GAAP, these were presented under the account “Contributed Surplus.”
The statement of loss and comprehensive loss did not have any significant changes.
Control Activities
For all changes to policies and procedures that have been identified, the effectiveness of internal controls over financial reporting and disclosure controls and procedures has been assessed and any changes have been implemented. In addition, controls over the IFRS changeover process have been implemented, as necessary. The Company has identified and implemented the required accounting process changes that resulted from the application of IFRS accounting policies and these changes were not significant. All accounting policy changes and transitional financial position impacts were subject to review and approval by senior management and the Audit Committee of the Board of Directors.
Business Activities and Key Performance Measures
The Company has assessed the impact of the IFRS transition project on its key ratios. The transition did not significantly impact its key ratios.
Information Technology and Systems
The IFRS transition project did not have a significant impact on its information systems for the convergence periods. The Company also does not expect significant changes in the post-convergence periods.
Post-Implementation
The post-implementation phase will involve continuous monitoring of changes in IFRS in future periods. The Company has noted that the standard-setting bodies that determine IFRS have significant ongoing projects that could impact the IFRS accounting policies that the Company has selected. In particular, the Company expects that there may be additional, new or revised IFRSs or IFRICs in relation to consolidation, joint ventures, financial instruments, hedge accounting, discontinued operations, leases, employee benefits, revenue recognition and stripping costs in the production phase of a surface mine. The Company has also noted that the IASB is currently working on an extractive industries project, which could significantly impact the Company’s financial statements primarily in the areas of capitalization or expensing of exploration and evaluation costs and disclosures. The Company has processes in place to ensure that the potential changes are monitored and evaluated. The impact of any new IFRSs and IFRIC Interpretations will be evaluated as they are drafted and published.
Significant Accounting Policies
A detailed summary of all of the Company’s significant accounting policies is included in Note 2 of the condensed interim consolidated financial statements for the period ended September 30, 2011.
Critical Accounting Estimates
Exploration and Evaluation Assets
Costs related to mineral property acquisition and exploration and evaluation costs are capitalized until the viability of the mineral interest is determined. When it has been established that a mineral deposit is commercially mineable and an economic analysis has been completed, the costs subsequently incurred to develop a mine on the property prior to the start of mining operations are capitalized and will be amortized against production following commencement of commercial production, or written off if the property is sold, allowed to lapse or abandoned.
Recorded costs of exploration and evaluation assets are not intended to reflect present or future values of the properties. The recorded costs are subject to measurement uncertainty and it is reasonably possible, based on existing knowledge, that the changes in future conditions could require a material change in the recognized amounts. Although the Company has taken steps that it considers adequate to verify title to mineral interests in which it has an interest, these procedures do not guarantee the Company’s title. Title to mineral interests is subject to uncertainty and consequently, such assets may be subject to prior undetected agreements or transfers and title may be affected by such defects.
Impairment of Non-Current Assets
Non-current assets are evaluated at least annually by management for indicators that the carrying value is impaired and may not be recoverable. When indicators of impairment are present, the recoverable amount of an asset is evaluated at the level of a cash generating unit (CGU), the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets, where the recoverable amount of a CGU is the greater of the CGU’s fair value less costs to sell and its value in use. An impairment loss is recognized in the statement of earnings to the extent that the carrying amount exceeds the recoverable amount.
In calculating the recoverable amount, the Company uses discounted cash flow techniques to determine fair value when it is not possible to determine fair value either by quotes from an active market or a binding sales agreement. The determination of discounted cash flows is dependent on a number of factors, including future metal prices, the amount of reserves and resources, the cost of bringing the project into production, production schedules, production costs, sustaining capital expenditures, and site closure, restoration and environmental rehabilitation costs. Additionally, the reviews take into account factors such as political, social and legal and environmental regulations. These factors may change due to changing economic conditions or the accuracy of certain assumptions and, hence, affect the recoverable amount. The Company uses its best efforts to fully understand all of the aforementioned to make an informed decision based upon historical and current facts surrounding the projects. Discounted cash flow techniques often require management to make estimates and assumptions concerning reserves and resources and expected future production revenues and expenses.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognized immediately in the statement of loss and comprehensive loss.
Management estimates of mineral prices, recoverable reserves, and operating, capital and restoration costs are subject to certain risks and uncertainties that may affect the recoverability of exploration and evaluation assets. Although management has made its best estimate of these factors, it is possible that changes could occur in the near term that could adversely affect management’s estimate of the net cash flow to be generated from its projects.
Share-based Payments
The Company grants stock options to buy common shares of the Company to directors, officers, employees and consultants. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The offset to the recorded cost is to share-based payments reserve. Consideration received on the exercise of stock options is recorded as share capital and the related share-based payments reserve is transferred to share capital. When stock options are forfeited prior to becoming fully vested, any expense previously recorded is reversed.
Results of Operations
As the Company is in the exploration phase and its properties are in the early stages of exploration, none of the Company’s properties are in production. Therefore, mineral exploration and evaluation expenditures are being capitalized as incurred and administrative expenses are being expensed as incurred. Consequently, the Company’s net loss is not a meaningful indicator of its performance or potential.
The key performance driver for the Company is the acquisition and development of prospective mineral properties. By acquiring and exploring projects of superior technical merit, the Company increases its chances of finding and developing an economic deposit.
At this time, the Company is not anticipating profit from operations. Until such time as the Company is able to realize profits from the production and marketing of commodities from its mineral interests, the Company will report an annual deficit and will rely on its ability to obtain equity or debt financing to fund on-going operations.
Additional financing is required for additional exploration and administration costs. Due to the inherent nature of the junior mineral exploration industry, the Company will have a continuous need to secure additional funds through the issuance of equity or debt in order to support its corporate and exploration activities, as well as its share of obligations relating to mineral properties.
For the six months ended December 31, 2011 and December 31, 2010
The net loss for the six months ended December 31, 2011 was $1,057,522 or $(0.03) per share compared to the net loss for the six months ended December 31, 2010 of $3,439,585 or $(0.11) per share, representing a decrease of $2,382,063 on a period over period comparison.
Operating expenses for the six months ended December 31, 2011 decreased from $3,482,391 for the same period in 2010 to $1,169,995, a reduction of $2,312,396. The period over period decrease was primarily due to a significant decrease in share-based payments of $2,304,774 to $363,209 as of December 31, 2011 from $2,667,983 in the same period in 2010 mainly because there were no options granted during the six months ended December 31, 2011 compared to 1,800,000 stock options granted in the same period in 2010.
In addition to the significant decrease in share-based payments, the Company also realized decreases in the following operating expenditures:
·
Professional fees of $326,226 (2010 - $403,108) decreased by $76,882 primarily because the Company did not avail of the services of a an environmental company in the current period when compared to the same period in 2010.
·
Filing and transfer agent fees of $3,410 (2010 - $25,100) decreased by $21,690 mainly because the company did not have any share issuances during the current period whereas in the same period in 2010, the Company completed a flow-through private placement and had several option and warrant exercises.
·
Investor relations of $14,400 (2010 - $34,563) decreased by $20,163. The decrease was a direct result of Mr. Miller performing majority of the Company’s investor relations activities in the current period, as part of his amended management agreement described below.
·
Management fees of $125,080 (2010 - $137,500) decreased by $12,420. The decrease was a net effect of the increase in Mr. Miller’s annual fee, pursuant to an amended management agreement dated February 10, 2011, in the current period, and a lump sum payment of $30,000 for exceptional service which was paid in the same period in 2010.
The overall decrease in operating expenses was offset by the following increases in operating expenditures:
·
Consulting and directors’ fees of $160,486 (2010 - $52,593) increased by $107,893 compared to the same period in 2010 primarily as a result of the payment of annual retainers in quarterly installments and additional board meeting fees to the Company’s directors. The foregoing director fees became effective on December 15, 2010. Please refer to the Related Part Transactions of this MD&A for additional details.
·
Travel and telephone expenses of $104,409 (2010 - $84,142) increased by $20,267 compared to the six months ended December 31, 2010 mainly due to increased travel by the Company’s directors, management and consultants to attend board meetings and other meetings relating to the Company’s efforts to uplift the cease trade order.
Other operating costs during the six month period ended December 31, 2011 totaled $72,775 (2010 - $77,402), which represent 6% (2010 – 2%) of total operating expenses and include the following: amortization, insurance, office and miscellaneous expense and shareholder costs.
The Company recorded interest income of $112,473 for the period ended December 31, 2011, compared to $42,806 in the comparative period resulting in a period over period increase of $69,667. The increase was a direct result of increased cash balance and short-term investments during the period ended December 31, 2011 compared to the same period in 2010.
For the three months ended December 31, 2011 and December 31, 2010
The net loss for the three months ended December 31, 2011 was $603,621 or $(0.02) per share compared to the net loss for the three months ended December 31, 2010 of $2,023,543 or $(0.06) per share, representing a decrease of $1,419,922 on a quarter over quarter comparison.
Operating expenses for the three months ended December 31, 2011 decreased by $1,406,297 (to $651,835) from $2,058,132 for the same period in 2010. The quarter over quarter decrease was primarily due to a significant decrease in share-based payments of $1,350,243 to $112,837 as of December 31, 2011 from $1,463,080 in the same period in 2010 mainly because there were no options granted during the three months ended December 31, 2011 compared to 50,000 stock options granted in the same period in 2010 plus the vesting of options granted in previous periods.
In addition to the significant decrease in share-based payments, the Company also realized decreases in the following operating expenditures:
·
Professional fees of $271,753 (2010 - $357,498) decreased by $85,745 primarily because the Company did not avail of the services of an environmental company in the current period when compared to the same period in 2010.
·
Filing and transfer agent fees of $867 (2010 - $18,284) decreased by $17,417 mainly because the company did not have any share issuances during the current period whereas in the same period in 2010, the Company completed a flow-through private placement and had several option and warrant exercises.
·
Management fees of $62,530 (2010 - $92,500) decreased by $29,970. The decrease was a net effect of the increase in Mr. Miller’s annual fee in the current period and a lump sum payment of $30,000 for exceptional service which was paid in the same period in 2010.
The overall decrease in operating expenses was largely offset by an increase in consulting and directors’ fees of $82,365 (2010 - $23,343) which increased by $59,022 compared to the same period in 2010. The increase was primarily a result of the payment of annual retainers in quarterly installments and additional board meeting fees to the Company’s directors. The foregoing director fees became effective on December 15, 2010.
Other operating costs during the three months period ended December 31, 2011 totaled $121,483 and represent an overall increase of $18,056 when compared to $103,427 in the same period in 2010. Other operating costs stayed relatively consistent on a quarter over quarter basis and include the following: amortization, insurance, investor relations, office and miscellaneous expense, shareholder costs and travel and telephone.
The Company recorded interest income of $48,214 for the three months period ended December 31, 2011 compared to $34,589 in the comparative period resulting in a quarter over quarter increase of $13,625. The increase was a direct result of increased cash balance and short-term investments during the current period ended compared to the same period in 2010.
The Company has not paid any dividends on its common shares. The Company has no present intention of paying dividends on its common shares, as it anticipates that all available funds will be invested to finance the growth of its business.
Summary of Quarterly Results
The following table summarizes selected financial data reported by the Company for the quarter ended December 31, 2011 and the previous seven quarters in Canadian dollars. The fiscal quarters prior to the quarter ended September 30, 2010 are presented in accordance with Canadian GAAP prior to transition to IFRS and were not required to be restated.
| | | | | | | | | |
| | IFRS | Canadian GAAP |
| |
December 31, 2011 |
September 30, 2011 |
June 30, 2011 |
March 31, 2011 |
December 31, 2010 |
September 30, 2010 |
June 30, 2010 |
March 31, 2010 |
| | | | | | | | | |
| Total assets | $ 48,295,742 | $ 48,605,979 | $ 48,873,570 | $ 47,171,426 | $ 47,343,027 | $ 43,848,210 | $ 32,694,961 | $ 26,937,526 |
| Exploration and Evaluation Assets | $ 33,616,066 | $ 32,519,065 | $ 31,620,626 | $ 31,615,407 | $ 31,073,440 | $ 30,872,955 | $ 26,372,955 | $ 22,551,029 |
| Shareholders’ equity | $ 45,850,223 | $ 46,341,007 | $ 46,533,657 | $ 44,504,500 | $ 44,455,466 | $ 41,445,617 | $ 30,347,412 | $ 24,789,363 |
| Revenue | - | - | - | - | - | - | - | - |
| Net Loss and Comprehensive Loss | $ (603,621) | $ (453,901) | $ (528,364) | $ (797,888) | $(2,023,543) | $(1,416,042) | $ (145,615) | $(7,108,205) |
| Basic and Diluted Loss per Share | $ (0.02) | $ (0.01) | $ (0.01) | $ (0.02) | $ (0.06) | $ (0.05) | $ (0.01) | $ (0.28) |
| | | | | | | | | |
The Company’s net loss for the quarter ended March 31, 2010 of $7,108,205 decreased significantly by $6,962,590 compared to the net loss of $145,615 for the quarter ended June 30, 2010 because of the share based payment expense of $6,522,783 relating to the 1,900,000 stock options granted in the quarter ended March 31, 2010 and $294,328 from the vesting of options granted in previous quarters compared to no options granted in the quarter ended June 30, 2010. The Company’s total assets also for the quarter ended March 31, 2010 significantly increased by $5,757,435 to $32,694,961 as at June 30, 2011 primarily due to the option payments of $4,507,400 for the Company’s exploration and evaluation assets in the fourth quarter ended June 30, 2011.
The Company’s total assets as at September 30, 2010 significantly increased from June 30, 2010 mainly because of a further $4,500,000 of option payments for the company’s exploration and evaluation assets coupled with cash inflow of $11,349,344 from the exercise of options, agent’s options and warrants during the three months ended September 30, 2010. The Company’s total assets continued to increase from September 30, 2010 to December 31, 2010 due to the completion of a $1,001,000 flow-through private placement and continued cash inflow from the exercise of options, agent’s options, agent’s warrants and warrants.
The Company’s net loss for the quarter ended December 31, 2010 of $2,023,543 decreased significantly by $1,222,655 primarily due to the 1,7500,000 stock options granted during the three months ended December 31, 2010 compared to none in the subsequent quarter ended March 31, 2011. The share-based payment expense for the quarter ended December 31, 2010 was $1,463,080 compared to only $654,653 for the three months ended March 31, 2011. In addition, professional fees for the quarter ended December 31, 2010 were $252,310 higher than in the quarter ended March 31, 2011 which contributed to the significant decrease quarter over quarter.
The Company’s total assets and net loss for the quarters ended June 30, 2011, September 30, 2011 and December 31, 2011 stayed relatively consistent as there have been no significant transactions such as options payments, share issuances and stock option grants during these quarters.
Liquidity and Capital Resources
As of December 31, 2011, the Company had $9,899,029 in cash and $4,350,000 in short-term investments. The Company does not have any cash flow from operations due to the fact that it is an exploration stage company; therefore, financings and joint ventures / alliance partnerships have been the sole source of funds in the past few years.
Short term investments are invested in highly liquid, low risk, interest bearing instruments with maturities extending anywhere from three to thirteen months. The surplus funds are invested only with approved commercial banks.
At December 31, 2011, the Company had working capital of $14,126,882. In the opinion of management, this working capital is sufficient to support the Company’s general administrative and corporate operating requirements on an ongoing basis for the next twelve months and beyond.
Given the volatility in equity markets, global uncertainty in economic conditions, cost pressures and results of exploration activities, management constantly reviews expenditures and exploration programs and equity markets such that the Company has sufficient liquidity to support its growth strategy.
During the six month period ended December 31, 2011, the Company’s significant expenditures included administrative costs of $804,147 (excluding non-cash expenses such as amortization and share-based payments) and exploration and evaluation expenditures of $1,995,440 (net of recoveries of $533,137).
Liquidity Outlook
The Company’s cash position is highly dependent on the ability to raise cash through financings and the expenditures on its exploration programs. Capital expenditures are not expected to have any material impact on liquidity.
Management believes that even with its current cash balance and short-term investments of $9,899,029 and $4,350,000, respectively, the Company will still be dependent on external financings to fund its exploration programs beyond the next year or two. As results of exploration programs are determined and other opportunities become available to the Company, management may complete an external financing as required.
The outlook is based on the Company’s current financial position and is subject to change if opportunities become available based on current exploration program results and/or external opportunities.
At present, the Company’s operations do not generate cash inflows, and its financial success is dependent on management’s ability to discover economically viable mineral deposits. The mineral exploration process can take many years, and is subject to factors that are beyond the Company’s control.
In order to finance the Company’s future exploration programs and to cover administrative and overhead expenses, the Company raises money through equity sales, from the exercise of convertible securities and from optioning its resource properties. Many factors influence the Company’s ability to raise funds, including the health of the resource market, the climate for mineral exploration investment, the Company’s track record, and the experience and calibre of its management. Actual funding requirements may vary from those planned due to a number of factors, including the progress of exploration activities. Management believes it will be able to raise equity capital as required in the long term, but recognizes that there will be risks involved which may be beyond its control.
Strategy and Risk Management
The Company has sufficient funds to continue the planned exploration program for 2012. The Company also has the ability to access a loan of $22.5 million from Osisko for the required payment to the vendors of the Duparquet Project on December 31, 2012. However, Clifton may also consider joint venture or merger proposals if they appear attractive to the Company.
Exploration Stage Company
The Company is engaged in the business of acquisition and exploration of mineral properties. All of the properties are without proven ore deposits, and there is no assurance that the Company’s exploration programs will result in same, nor can there be any assurance that such deposits can be commercially mined. As a consequence, the risks and uncertainties and forward looking information is subject to known and unknown risks and uncertainties, which are as follows, but not limited thereto:
·
uncertainty in the Company’s ability to fund the option payments, the development of its mineral properties or the completion of further exploration programs;
·
uncertainty as to actual capital costs, operating costs, production and economic returns, and uncertainty that the Company’s exploration and development activities will result in profitable mining operations;
·
risks related to environmental regulation and liability;
·
political and regulatory risks associated with mining and exploration;
·
changes in the market price of metals and/or minerals, which in the past fluctuated widely and which could affect the Company’s operations and financial condition and its ability to raise additional financing;
·
assumptions related to the future prices of metals;
·
risks related to project cost overruns or unanticipated costs and expenses;
·
mining and development risks, including risks related to accidents, equipment breakdowns, labour disputes or other unanticipated difficulties with or interruptions in production;
·
the potential for delays in carrying out and completing exploration or development activities;
·
uncertainty in the Company’s ability to obtain and maintain certain permits necessary to its current and anticipated operations;
·
uncertainty relating to the Company’s ability to attract and retain qualified management to meet the needs of its anticipated growth, and risks relating to its ability to manage growth effectively;
·
risks related to the Company’s mineral properties being subject to prior unregistered agreements, transfers or claims and other defects in title;
·
risks related to the Company’s history of financial losses, which may continue in the future;
·
risks related to increased competition that could adversely affect the Company’s ability to attract necessary capital funding or acquire suitable properties for mineral exploration in the future;
·
risks related to Company’s officers and directors becoming associated with other natural resource companies, which may give rise to conflicts of interest;
·
dependence on general economic, market or business conditions;
·
uncertainty related to additional financing requirements and access to capital;
·
changes in business strategies; and
·
changes in laws and regulations.
If one or more of these risks or uncertainties materializes, or if assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this Management Discussion and Analysis.
Other Corporate and Financing Matters
Annual and Special Meeting
On December 5, 2011, the Company held its annual and special meeting. At such meeting, the shareholders of the Company approved the following:
·
the election of four directors, those being Michel Bouchard, Ross Glanville, Peter Gundy and Philip Nolan
·
the appointment of Davidson and Company, Chartered Accountants, to the office of Auditor of the Company
·
an amendment to the articles of the Company to change the province or territory in Canada where the registered office is to be situated from British Columbia to Quebec (it should be noted that practically all of Clifton’s mineral exploration properties are located in Quebec, its executive office is in Quebec, and the CEO of the Company lives in Quebec)
Related Party Transactions
Details of transactions between the Company and its related parties are disclosed below.
A.
Trading Transactions
As at December 31, 2011, the Company’s related parties consist of the following.
| | |
| | Nature of Transaction |
| F.T. Archibald Consulting Ltd. | Management/Consulting |
| Lavery, de Billy LLP | Legal |
| President and Chief Executive Officer (“CEO”) | Management |
| Chief Financial Officer (“CFO”) | Management |
| Corporate Secretary | Management |
| Ross Glanville | Directorship |
| Philip Nolan | Directorship |
| Peter Gundy | Directorship |
| Fred Archibald | Directorship |
| Nick Segounis | Directorship |
The Company incurred fees and expenses in the normal course of operations and the amounts outstanding are unsecured, non-interest bearing and due on demand.
| | | | |
| | Note(s) | For the six months ended December 31, 2011 | For the six months ended December 31, 2010 |
| Geological Consulting and Field Expenditures included in Exploration and Evaluation Assets | (i), (ii) | $ 131,433 | $ 25,851 |
| Consulting and directors fees | (iii),(ivi) | 160,273 | 66,024 |
| Management fees | (v) | 125,080 | 137,500 |
| Professional fees – legal | (vi) | 204,523 | 154,212 |
| | | $ 621,309 | $ 383,587 |
(i)
Paid or accrued $96,818 (2010 - $25,851) to F.T. Archibald Consulting Ltd., a company controlled by the Company’s former Vice-President of Exploration and director.
(ii)
Paid or accrued $34,615 (2010 - $Nil) to Michel Bouchard, the Company’s President and CEO, which were recorded in exploration and evaluation assets.
(iii)
Paid or accrued $103,500 (2010 - $10,500) in director’s fees to various directors as follows:
Ross Glanville
$32,500 (2010 - $3,000)
Philip Nolan
$22,500 (2010 - $3,000)
Peter Gundy
$23,000 (2010 - $1,500)
Fred Archibald
$10,000 (2010 - $1,500)
Nick Segounis
$15,500 (2010 - $1,500)
(iv)
Paid or accrued $56,773 (2010 - $55,524) in consulting fees to the Company’s Chief Financial Officer (“CFO”).
(v)
Paid or accrued $125,080 (2010 - $137,500) in management fees to Harry Miller, the Company’s current Corporate Secretary and former President, CEO and director. Included in prepaid expense at December 31, 2011 is $Nil (June 30, 2011 - $62,550) towards future management fees to Mr. Miller.
(vi)
Paid or accrued $204,523 (2010 - $154,212) to Lavery, de Billy L.L.P., a partner of the firm is a director of the Company.
Included in accounts payable and accrued liabilities as at December 31, 2011 is $323,279 (June 30, 2011 - $70,538) for legal fees accrued to Lavery, de Billy L.L.P. and $Nil (June 30, 2011 - $9,090) for consulting fees accrued to the Company’s CFO.
B.
Compensation of Key Management Personnel
The remuneration of the Company’s key management personnel for the six month period ended December 31, 2011 and 2010 are as follows:
| | | | |
| | Note | December 31, 2011 | December 31, 2010 |
| Management, consulting and directors’ fees | (i) | $ 416,786 | $ 229,375 |
| Share-based payments | (ii) | 347,824 | 2,350,544 |
| | | $ 764,610 | $ 2,579,919 |
(i)
Management, consulting and directors’ fees include the fees disclosed above and exclude legal fees.
(ii)
Share-based payments are the fair value of options granted and vested to key management.
(iii)
Key management personnel were not paid post-employment, termination or other long-term benefits during the six months ended December 31, 2011 and 2010.
Proposed Transactions
At the present time, there are no proposed transactions that are required to be disclosed.
Additional Disclosure for Venture Issuers Without Significant Revenue
Additional disclosure concerning Clifton’s general and administrative expenses and exploration and evaluation assets is provided in the Company’sBalance Sheet and Statement of Operations and Deficit contained in its Audited Consolidated Financial Statements for the year ended June 30, 2011, available on SEDAR - site page accessed throughwww.sedar.com.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as at December 31, 2011 or as at the date hereof.
Outstanding Share Data
Clifton Resources Inc.’s authorized capital is unlimited common shares without par value. As at February 24, 2012, the following common shares and stock options were outstanding:
| | | | |
| | # of Shares | Exercise Price | Expiry Date |
| Issued and Outstanding Common Shares at February 24, 2012 | 35,654,390 | | |
| Stock Options | 300,000(1) 1,750,000 1,450,000 400,000 35,000 50,000 300,000 | $2.30 $4.15 $5.35 $5.80 $4.15 $5.00 $2.50 | September 8, 2011 September 13, 2012 January 22, 2013 January 27, 2013 May 6, 2013 December 22, 2013 June 20, 2016 |
| Fully Diluted at February 24, 2012 | 39,939,390 | | |
(i)
In accordance with the terms of the Stock Option Plan, the expiry date for these options has been extended until the 10th business day after lifting of the Company’s cease trade order.
Recent Canadian Accounting Pronouncements
Financial Instruments
In November 2009, the International Accounting Standards Board (“IASB”) issued IFRS 9, Financial Instruments, which addresses the classification and measurement of financial assets as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. Requirements for financial liabilities were added in October 2010. IFRS 9 must be applied for accounting periods commencing on or after January 1, 2013, with early adoption permitted. The Company has not yet assessed the impact of this standard or determined if it will adopt the standard early.
Fair Value Measurement
In May 2011, the IASB issued IFRS 13, Fair Value Measurement. This standard defines fair value, sets out a single IFRS framework for measuring fair value and outlines disclosure requirements about fair value measurements. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement, so assumptions that market participants would use should be applied in measuring fair value. IFRS 13 must be applied for accounting periods commencing on or after January 1, 2013, with early adoption permitted. The Company has not yet assessed the impact of this standard or determined if it will adopt the standard early.
Other Pronouncements
Recent IFRS pronouncements which will be effective for years beginning on or after January 1, 2013 include: IFRS 10 – Consolidated Financial Statements; IFRS 11 – Joint Arrangements; and IFRS 12 – Disclosure of Interests in Other.
The Company does not expect the introduction of IFRS 10, 11 and 12 will have a material impact on its financial statements.
Financial Instruments
Fair Value
The Company classified its cash, short-term investments and receivable as loans and receivables. Accounts payable and accrued liabilities are classified as borrowings and other financial liabilities. As of December 31, 2011, the statement of financial position carrying amounts of these financial instruments closely approximate their fair values and the Company held no derivative financial instruments.
The following provides the classification of financial instruments as at December 31, 2011 and June 30, 2011:
| | | |
| | As at December 31, 2011 | As at June 30, 2011 |
| | | |
| Loans and receivables | $ 14,605,547 | $ 17,130,547 |
| Other financial liabilities | $ 499,519 | $ 393,913 |
Financial Risk Management
The Company’s activities expose it to a variety of financial risks including credit risk, liquidity risk and market risk.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash, short-term investments and receivables. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the maximum exposure to credit risk.
The Company deposits its cash and short-term investments with a high credit quality major Canadian financial institution as determined by ratings agencies. Receivables are mainly interest receivable from the bank, sales tax receivable, and an amount due from a vendor for an overpayment.
To reduce credit risk, the Company regularly reviews the collectability of its receivables and establishes an allowance based on its best estimate of potentially uncollectible amounts. The Company historically has not had difficulty collecting its receivables.
Liquidity Risk
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. The Company attempts to manage liquidity risk by maintaining sufficient cash balances. Liquidity requirements are managed based on expected cash flows to ensure that there is sufficient capital in order to meet short-term obligations. As of December 31, 2011, the Company had a cash balance of $9,899,029 to settle current liabilities of $499,519.
Market Risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates and commodity and equity prices.
(a)
Interest Rate Risk
The Company has invested $4,350,000 in short-term investments earning interest at 0.85% to 1.60% per annum. The Company does not have any interest bearing debt.
(b)
Foreign currency risk
The Company has no foreign assets and liabilities and accordingly is not exposed to significant foreign currency risk.
(c)
Price risk
The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices of gold and other precious metals, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
Capital Management
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support exploration and development of mineral properties. The Board of Directors has not established quantitative capital structure criteria management, but will review on a regular basis the capital structure of the Company to ensure its appropriateness to the stage of development of the business. The Company considers the components of shareholders’ equity as capital.
The Company’s objectives when managing capital are:
·
To maintain and safeguard its accumulated capital in order to provide an adequate return to shareholders by maintaining a sufficient level of funds, to support continued evaluation and maintenance at the Company’s existing properties, and to acquire, explore, and develop other precious and base metal deposits.
·
To invest cash on hand in highly liquid and highly rated financial instruments with high credit quality issuers, thereby minimizing the risk and loss of principal.
·
To obtain the necessary financing to complete exploration and development of its properties, if and when it is required.
The properties in which the Company currently holds an interest in are in the exploration stage, and the Company is dependent on external financing to fund its activities. In order to carry out planned exploration and development and pay for administrative costs, the Company will utilize its existing working capital and raise additional amounts as needed.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.
In order to facilitate the management of capital and development of its mineral properties, the Company prepares annual expenditure budgets, which are updated as necessary and are reviewed and approved by the Company’s Board of Directors. In addition, the Company may issue new equity, incur additional debt, option its mineral properties for cash and/or expenditure commitments from optionees, enter into joint venture arrangements, or dispose of certain assets. When applicable, the Company’s investment policy is to hold cash in interest bearing accounts at high credit quality financial institutions to maximize liquidity. In order to maximize ongoing development efforts, the Company does not pay dividends. The Company expects to continue to raise funds, from time to time, to continue meeting its capital management objectives.
There were no changes in the Company’s approach to capital management during six months ended December 31, 2011 compared to the year ended June 30, 2011. The Company is not subject to externally imposed capital requirements.
Contingency
On September 19, 2007, the Company received a statement of claim. The compensation sought in the claim is as follows:
i)
An order requiring a director and a former director of the Company to sell 2,000,000 shares of the Company at $0.38 per share and an additional 1,000,000 shares at $0.65 per share to one of the plaintiffs for their claim that the Company breached a contract related to the Duquesne Gold Project which is not contiguous to the Company’s main Duparquet project;
ii)
In the alternative, damages for breach of contract in the sum of $5,520,000 being the amount that the plaintiffs would have realized had he been allowed to exercise this option to purchase 2,000,000 shares at $0.38 and 1,000,000 shares at $0.65 and he disposed of his shares at the current market price of $2.31;
iii)
In the alternative, damages in the sum of $5,520,000 for the tort of conversion;
iv)
An order requiring the delivery of 436,500 options exercisable at $0.20 per share to be granted to one of the plaintiffs;
v)
In the alternative, damages for purported wrongful dismissal in the sum of $1,008,315 being the current market value of 436,500 shares of the Company;
vi)
One of the plaintiffs is also seeking damages of $20,000 claiming purported wrongful dismissal by the Company; and
vii)
Pre-judgment and post-judgment interest and the plaintiffs’ costs of this action.
Some of the discovery sessions have completed and it remains premature to evaluate the likelihood of the outcome of the claim. The Company doesn’t believe the claims are valid, and currently is defending its position.
Recent Developments and Outlook
The Company expects to obtain financing in the future primarily through further equity financing, as well as through joint venturing and/or optioning out its properties to qualified mineral exploration companies. There can be no assurance that the Company will succeed in obtaining additional financing, now or in the future. Failure to raise additional financing on a timely basis could cause the Company to suspend its operations and eventually to forfeit or sell its interest in its resource properties.
Corporate Governance
The Board of Directors of Clifton Resources Inc. comprises four directors, three of whom are considered to be independent.
Subsequent Event
Subsequent to December 31, 2011, the Company received from Revenue Quebec an amount of $1,070,993 related to exploration credit claimed for fiscal year ended June 30, 2010.
Approval
The Board of Directors of Clifton Star Resources Inc. has approved the disclosure contained in this MD&A. A copy of this MD&A will be provided to anyone who requests it.
Additional Information
Additional Information relating to Clifton Star Resources Inc. is on SEDAR atwww.sedar.com or by contacting:
Clifton Star Resources Inc.
Suite 217 - 1040 Belvedere Ave
Quebec, QC Canada
G1S 3G3
Tel : (418) 914-9922
www.cliftonstarresources.com
Email: info@cfo-star.com
Attention: Michel Bouchard, President and Chief Executive Officer
/s/ “Michel Bouchard”
/s/ “Louis Dufour”
Michel Bouchard
Louis Dufour, CA
President and Chief Executive Officer
Chief Financial Officer
