PINE VALLEY MINING CORPORATION
Consolidated Financial Statements
for the Three Months Ended June 30, 2006
(Unaudited)
PINE VALLEY MINING CORPORATION
Consolidated Balance Sheets
(Unaudited)
June 30, | March 31, | ||||||
(in thousands of Canadian dollars) | 2006 | 2006 | |||||
ASSETS | |||||||
CURRENT | |||||||
Cash | $ 5,069 | $ 817 | |||||
Accounts receivable, net of nil allowance | 7,862 | 3,719 | |||||
Goods and Services Tax (GST) and other receivable | 1,257 | 1,356 | |||||
Deferred financing charges | 258 | 279 | |||||
Prepaid expenses | 739 | 643 | |||||
Coal Inventory | 8,495 | 9,528 | |||||
Future income taxes |
|
| 302 |
| 302 | ||
Total Current Assets | 23,982 | 16,644 | |||||
Restricted cash | 429 | 458 | |||||
Other non-current assets | 1,432 | 1,550 | |||||
Mineral property, plant and equipment (Note 3) | 56,778 | 57,560 | |||||
Non-producing mineral properties (Note 4) | 3,027 | 2,877 | |||||
Future income taxes |
|
|
| 3,040 |
| 3,040 | |
Total Assets |
|
|
| $ 88,688 |
| $ 82,129 | |
LIABILITIES | |||||||
CURRENT | |||||||
Operating line (Note 5) | $ 10,457 | $ 5,675 | |||||
Accounts payable | 10,791 | 9,214 | |||||
Accrued liabilities | 2,758 | 2,616 | |||||
Current portion of term debt (Note 6) | 9,878 | 10,337 | |||||
Current portion of capital lease obligation | 41 | 41 | |||||
Due to related party (Note 7) |
| 600 |
| 600 | |||
Total Current Liabilities | 34,525 | 28,483 | |||||
Asset retirement obligation (Note 8) |
| 2,342 | 2,307 | ||||
Capital lease obligation | 106 | 124 | |||||
Future income taxes |
|
| 3,254 | 3,208 | |||
Total Liabilities |
|
|
| 40,227 |
| 34,122 | |
SHAREHOLDERS' EQUITY | |||||||
Share capital (Note 9) | 61,161 | 61,161 | |||||
Contributed surplus and other capital | 6,079 | 5,708 | |||||
Deficit | (18,779) | (18,862) | |||||
Total Shareholders' Equity |
| 48,461 |
| 48,007 | |||
Total Liabilities and Shareholders' Equity |
| $ 88,688 |
| $ 82,129 | |||
Commitments and contingencies (Note 13) | |||||||
Continuing operations (Note 1) | |||||||
Approved by the Board of Directors | |||||||
"Jeffrey Fehn" | Director |
| |||||
"Robert Bell" | Director | ||||||
See accompanying Notes to the Consolidated Financial Statements
PINE VALLEY MINING CORPORATION
Consolidated Statements of Operations
(Unaudited)
(in thousands of Canadian dollars | Three months ended June 30, | ||||||
except share and per share amounts) |
| 2006 |
| 2005 | |||
REVENUE | |||||||
Coal Sales | $ 20,655 | $ 13,474 | |||||
Cost of Operations: | |||||||
Mining and transportation | 16,830 | 11,695 | |||||
Administrative and other | 825 | 577 | |||||
Depreciation and depletion |
|
| 1,536 |
| 752 | ||
19,191 |
| 13,024 | |||||
INCOME BEFORE UNDERNOTED ITEMS |
| 1,464 |
| 450 | |||
EXPENSES | |||||||
Office and general | 242 | 121 | |||||
Professional fees | 75 | 205 | |||||
Promotion and marketing | 56 | 74 | |||||
Salaries and stock-based compensation | 694 | 947 | |||||
|
|
|
|
| 1,067 |
| 1,347 |
INCOME (LOSS) BEFORE OTHER INCOME | |||||||
(EXPENSES) AND INCOME TAXES |
| 397 |
| (897) | |||
OTHER INCOME (EXPENSES) | |||||||
Interest and other income | 35 | 12 | |||||
Interest and financing | (401) | (584) | |||||
Foreign exchange gain (loss) | 129 | (797) | |||||
Other | (8) | 59 | |||||
|
|
|
|
| (245) |
| (1,310) |
INCOME (LOSS) BEFORE INCOME TAXES | 152 | (2,207) | |||||
Mining taxes expense | (23) | (46) | |||||
Future income taxes (expense) recovery |
| (46) |
| 439 | |||
|
|
|
|
| (69) |
| 393 |
NET INCOME (LOSS) |
|
| $ 83 |
| $ (1,814) | ||
Basic and diluted income (loss) per share |
| $ - |
| $ (0.03) | |||
Weighted average number of common shares - basic | 75,732,878 |
| 69,896,309 | ||||
Weighted average number of common shares - diluted | 75,820,366 |
| 69,896,309 |
See accompanying Notes to the Consolidated Financial Statements
PINE VALLEY MINING CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended June 30, | ||||||
(in thousands of Canadian dollars) |
|
| 2006 |
| 2005 | |
OPERATING ACTIVITIES | ||||||
Net income (loss) for the period | $ 83 | $ (1,814) | ||||
Items not involving cash: | ||||||
Deferred financing charges | (26) | 119 | ||||
Depreciation and depletion | 1,536 | 752 | ||||
Non-cash financing costs | 47 | 386 | ||||
Financing obligations | 254 | 298 | ||||
Stock-based compensation costs | 371 | 720 | ||||
Unrealized foreign exchange and derivatives (gain) loss | 46 | 684 | ||||
Future income taxes | 46 | (439) | ||||
Changes in working capital items | ||||||
other than cash (Note 12) | (980) | 275 | ||||
|
|
|
| 1,377 |
| 981 |
FINANCING ACTIVITIES | ||||||
Capital stock issued | - | 548 | ||||
Loan proceeds | - | 1,238 | ||||
Loan payments | (459) | (1,396) | ||||
Operating line proceeds (net) | 4,782 | - | ||||
Financing fees | - | (266) | ||||
|
|
|
| 4,323 |
| 124 |
INVESTING ACTIVITIES | ||||||
Acquisition of property and equipment, net of | ||||||
accounts payable | (887) | (8,474) | ||||
Goods and services tax and other receivable | 99 | 1,759 | ||||
Property, plant and equipment obligations | (643) | 4,958 | ||||
Restricted cash | 29 | - | ||||
|
|
|
| (1,402) |
| (1,757) |
INCREASE IN CASH | 4,298 | (652) | ||||
Affect of foreign exchange rate | ||||||
on cash | (46) | (68) | ||||
CASH POSITION, BEGINNING OF PERIOD |
| $ 817 |
| $ 2,200 | ||
| ||||||
CASH POSITION, END OF PERIOD |
| $ 5,069 |
| $ 1,480 | ||
Non-cash financing and investing activities | ||||||
Property and equipment acquired under capital lease | $ - | $ 88 | ||||
Supplemental information | ||||||
Interest paid | $ 79 | $ 35 | ||||
Income taxes paid | $ 100 | $ - | ||||
See accompanying Notes to the Consolidated Financial Statements
PINE VALLEY MINING CORPORATION
Consolidated Statements of Shareholders’ Equity
(Unaudited) &nbs p;
(in thousands of Canadian dollars, | Common shares | Commitment to | Share | Contributed | ||||
except for share amounts) | Shares | Amount | issue shares | Subscription | Surplus | Deficit | Total | |
Balance, March 31, 2005 | 68,886,858 | $ 45,353 | $ 184 | $ - | $ 2,210 | $ (19,470) | $ 28,277 | |
Issued for cash | 5,305,000 | 15,138 | - | - | - | - | 15,138 | |
Shares issued for financing charge | 101,020 | 614 | (184) | - | - | - | 430 | |
Exercise of warrants and options | 1,440,000 | 578 | - | - | - | - | 578 | |
Fair value of warrants and options exercised | - | 28 | - | - | (28) | - | - | |
Share issue costs, net of future income taxes | - | (550) | - | - | - | - | (550) | |
Stock-based compensation | - | - | - | - | 3,526 | - | 3,526 | |
Net income for the year | - | - | - | - | - | 608 | 608 | |
Balance, March 31, 2006 | 75,732,878 | 61,161 | - | - | 5,708 | (18,862) | 48,007 | |
Stock-based compensation | - | - | - | - | 371 | - | 371 | |
Net income for the period | - | - | - | - | - | 83 | 83 | |
| ||||||||
Balance, June 30, 2006 | 75,732,878 | $ 61,161 | $ - | $ - | $ 6,079 | $ (18,779) | $ 48,461 |
See accompanying Notes to the Consolidated Financial Statements
PINE VALLEY MINING CORPORATION
Notes to the Consolidated Financial Statements
For the Three Months ended June 30, 2006
(Unaudited)
(Tabular amounts are in thousands of Canadian dollars, except for shares, price per share and per share amounts)
1.
CONTINUING OPERATIONS
Pine Valley Mining Corporation and its subsidiaries (the “Company”) are engaged in the development, mining and marketing of metallurgical coal from its Willow Creek Coal Mine located near Chetwynd, British Columbia, Canada. The Company was amalgamated under the Company Act (British Columbia) and its shares are listed on the TSX and OTC Bulletin Board.
These financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Company will realize its assets and discharge its liabilities in the normal course of business. The Company has a working capital deficiency at June 30, 2006 of $10.5 million (March 31, 2006 - $11.8 million). The Company’s continuing operations are dependent on management’s ability to obtain additional loan financing, the raising of additional equity capital and the Company’s ability to sustain profitable operations.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) for interim financial information and follow the same accounting policies and methods of application as the audited consolidated financial statements of the Company for the year ended March 31, 2006. These unaudited interim consolidated financial statements do not include all the information and note disclosures required by Canadian GAAP for annual financial statements and therefore should be read in conjunction with the most recent annual audited consolidated financial statements of the Company and the notes thereto. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. Interim results are not necessarily indicative of the results expected for the fiscal year.
Certain comparative figures have been reclassified to conformto the presentation adopted in the current period.
PINE VALLEY MINING CORPORATION
Notes to the Consolidated Financial Statements
For the Three Months ended June 30, 2006
(Unaudited)
(Tabular amounts are in thousands of Canadian dollars, except for shares, price per share and per share amounts)
3.
MINERAL PROPERTY, PLANT AND EQUIPMENT
Mineral property, plant and equipment consist of:
| June 30, 2006 |
| March 31, 2006 | ||||
Accumulated | Net Book | Accumulated | Net Book | ||||
| Cost | Amortization | Value |
| Cost | Amortization | Value |
Assets acquired under capital lease | $ 256 | $ 93 | $ 163 | $ 256 | $ 80 | $ 176 | |
Buildings | 651 | 37 | 614 | 426 | 30 | 396 | |
Land | 214 | - | 214 | 140 | - | 140 | |
Office equipment | 803 | 208 | 595 | 595 | 186 | 409 | |
Plant and equipment | 25,573 | 2,397 | 23,176 | 25,513 | 1,752 | 23,761 | |
Property and development | 34,858 | 2,842 | 32,016 | 34,722 | 2,044 | 32,678 | |
| $ 62,355 | $ 5,577 | $ 56,778 |
| $ 61,652 | $ 4,092 | $ 57,560 |
Included in property, plant and equipment is $1.3 million (March 31, 2006 - $1.3 million) relating to interest capitalized during construction and development.
4.
NON-PRODUCING MINERAL PROPERTIES
Three months ended | Year ended | ||||
|
|
| June 30, 2006 |
| March 31, 2006 |
Pine Pass | |||||
Consulting | $ 148 | $ 785 | |||
Drilling | - | 2,716 | |||
Environmental | 2 | 17 | |||
Permits | - | 16 | |||
B.C. Mining Exploration Tax Credit | - |
| (717) | ||
|
|
| 150 |
| 2,817 |
Beginning of period | 2,877 | 60 | |||
End of period |
| $ 3,027 |
| $ 2,877 |
The Company has an interest in the Pine Pass property, located adjacent to the Willow Creek mine site and has completed a drill program to further develop reserves at this coal deposit. The purpose of the drill program was to further define Pine Pass reserves for mining and reporting purposes to National Instrument 43-101 standard, provide geological data to develop a mine plan and initiate environmental testing necessary for mine permits.
5.
OPERATING LINE
The Company entered into a working capital credit facility of up to $20 million with Royal Bank Asset Based Finance, a division of Royal Bank of Canada (“Royal Bank” or the “Bank”) on September 16, 2005. The Bank’s facility is secured by all the assets of the Company with first position on inventory and receivables. The facility bears interest at the rate of Royal Bank’s prime plus 1% per annum, calculated monthly.
6.
TERM DEBT
June 30, | March 31, | |||
|
| 2006 |
| 2006 |
Rockside Foundation loan (US$8,850) |
| $ 9,878 |
| $ 10,337 |
9,878 | 10,337 | |||
Less portion due within one year |
| 9,878 |
| 10,337 |
|
| $ - |
| $ - |
The Company entered into a Credit Facility Agreement (the "Agreement") with The Rockside Foundation ("Rockside"), a shareholder of the Company, for an aggregate amount up to US$ 7.0 million, with interest at an annual rate of 10%, further amended on December 30, 2004, to increase the loan to US$8.85 million. Under the terms of the Agreement, the Company issued 104,736 common shares for the loan of the initial US$3.75 million principal amount. A further 101,020 shares had been issued to Rockside as at March 31, 2006, representing the 10% bonus due by the Company upon receipt of the subsequent US$5.1 million.
A second amendment to the Agreement was completed on September 16, 2005. Under the terms of the second amendment the due date for repayment of the loan was extended for 10 weeks from November 29, 2005 to February 6, 2006. For the period from November 29, 2005 to February 6, 2006 interest was payable at the rate of 12% per annum with no bonus shares being issued.
A third amendment to the Agreement was completed on November 23, 2005 whereby the terms of repayment of the loan were further extended from February 6, 2006 to June 30, 2006.
A fourth amendment to the Agreement was completed on June 15, 2006, whereby the terms of repayment of the loan were extended from June 30, 2006 to September 30, 2006. All other terms remain unchanged.
Rockside’s loan is secured by the Company’s assets subject to an inter-creditor agreement with Royal Bank which grants the Bank certain priority rights with regard to inventory and receivables. In addition, a subordination and postponement agreement has been entered into between the Bank and Rockside whereby Rockside has postponed their loans in favour of Royal Bank (see Note 5).
PINE VALLEY MINING CORPORATION
Notes to the Consolidated Financial Statements
For the Three Months ended June 30, 2006
(Unaudited)
(Tabular amounts are in thousands of Canadian dollars, except for shares, price per share and per share amounts)
7.
DUE TO RELATED PARTY
The Company has provided for the payment of $0.6 million to the estate of the former Chairman of the Company (the “Estate”). The Estate is administered on behalf of its beneficiaries by a director of the Company. The Company has agreed, subject to certain conditions being fulfilled, to enter into discussions that could result in a cash payment or shares of the Company being issued in full consideration of an amount of $0.6 million for the Estate upon terms and arrangements that are not yet to be determined. There is no immediate requirement or intention to finalize these discussions.
8.
ASSET RETIREMENT OBLIGATION
Although the ultimate amount of the asset retirement obligation and reclamation is uncertain, the fair value of these obligations is based on information currently available, including closure plans and applicable regulations.
The total undiscounted amount of the estimated cash flows required to settle the Company’s asset retirement obligation is $3.2 million (March 31, 2006 - $3.2 million) which has been discounted using a discount rate of 7.5% to total $2.3 million (March 31, 2006 - $2.3 million). Reclamation obligations at the Willow Creek Mine are expected to be paid annually up to 2013. These obligations will be funded from operating cash flows, reclamation deposits and cash on hand. Future changes to these estimates, due to changes in closure plans or applicable regulations, will be made prospectively with a corresponding charge to the asset’s carrying value.
9.
SHARE CAPITAL
(a)
Authorized
Unlimited common shares of no par value.
(b)
Issued and outstanding
No shares were issued during the three months ended June 30, 2006.
PINE VALLEY MINING CORPORATION
Notes to the Consolidated Financial Statements
For the Three Months ended June 30, 2006
(Unaudited)
(Tabular amounts are in thousands of Canadian dollars, except for shares, price per share and per share amounts)
10.
STOCK OPTIONS AND WARRANTS
(a)
Stock options
The Company has established a stock option plan for directors, officers, consultants and employees. At June 30, 2006, the Company was allowed to grant up to 7,162,767 stock options. Stock options are exercisable once they have vested under the terms of the grant. A summary of the Company's options at June 30, 2006 and the changes for the period then ended is presented below:
Three months ended June 30, | |||||||
2006 | 2005 | ||||||
Weighted | Weighted | ||||||
Average | Average | ||||||
Number | Exercise | Number | Exercise | ||||
of Options | Price | of Options | Price | ||||
Outstanding, beginning of period | 3,100,000 | $ 2.36 | 3,070,000 | $ 3.47 | |||
Exercised | - |
| - | (310,000) |
| 0.88 | |
Outstanding, end of period | 3,100,000 |
| $ 2.36 | 2,760,000 |
| $ 3.76 |
As at June 30, 2006, the Company has outstanding stock options to purchase an aggregate 3,100,000 common shares as follows:
Options Outstanding | Options Exercisable | ||||||
Weighted | Weighted | ||||||
Average | Average | ||||||
Exercise | Exercise | ||||||
Number | Expiry Date |
| Price | Number |
| Price | |
250,000 | April 28, 2007 | $ 0.90 | 250,000 | $ 0.90 | |||
5,000 | April 23, 2009 | 1.01 | 5,000 | 1.01 | |||
75,000 | July 8, 2009 | 1.56 | 25,000 | 1.56 | |||
500,000 | March 9, 2010 | 5.30 | 312,500 | 5.30 | |||
100,000 | March 17, 2010 | 5.31 | 100,000 | 5.31 | |||
2,170,000 | March 21, 2011 |
| 1.74 | 1,050,500 |
| 1.74 | |
3,100,000 |
|
| $ 2.36 | 1,743,000 |
| $ 2.46 |
PINE VALLEY MINING CORPORATION
Notes to the Consolidated Financial Statements
For the Three Months ended June 30, 2006
(Unaudited)
(Tabular amounts are in thousands of Canadian dollars, except for shares, price per share and per share amounts)
Using the fair value method for stock-based compensation, the Company recorded a charge to operations of $371,000 during the three month period ended June 30, 2006 (three months to June 30, 2005 - $720,000). These amounts were determined using the Black-Scholes option pricing model, based upon the following terms and assumptions:
Years ended March 31, | |||
2006 | 2005 | ||
Dividend yield | 0% | 0% | |
Risk free interest rate | 3.2 - 3.99% | 3.08 - 3.79% | |
Expected life | 3 years | 3 - 5 years | |
Expected volatility | 75% | 86 - 117% |
(b)
Warrants
A summary of the Company's warrants at June 30, 2006 and the changes for the period then ended is presented below:
Three months ended June 30, | |||||||
2006 | 2005 | ||||||
Weighted | Weighted | ||||||
Average | Average | ||||||
Number | Exercise | Number | Exercise | ||||
of Warrants | Price | of Warrants | Price | ||||
Outstanding, beginning of period | 2,777,500 | $ 4.24 | 1,850,000 | $ 2.68 | |||
Exercised | - |
| - | (1,100,000) |
| 0.25 | |
Outstanding, end of period | 2,777,500 |
| $ 4.24 | 750,000 |
| $ 6.25 |
As at June 30, 2006, the Company has outstanding share purchase warrants to purchase an aggregate 2,777,500 common shares as follows:
Warrants Outstanding | |||
Weighted | |||
Average | |||
Exercise | |||
Number | Expiry Date |
| Price |
750,000 | September 22, 2006 | $ 6.25 | |
2,027,500 | June 12, 2007 |
| 3.50 |
2,777,500 |
|
| $ 4.24 |
11.
SEGMENTED INFORMATION AND ECONOMIC DEPENDENCE
The Company operates in one industry and as at June 30, 2006 substantially all of the Company's assets were located in Canada.
Revenues from customers can be attributed to the following countries:
Three months ended June 30, | |||||
2006 | 2005 | ||||
Asia | $ 14,821 | 72% | $ 13,474 | 100% | |
Europe | 5,834 | 28% | - | 0% | |
| $ 20,655 | 100% |
| $ 13,474 | 100% |
For the three months ended June 30, 2006, 99% of sales are to six customers and 96% of accounts receivable are from two customers (June 30, 2005 – 100% of sales to four customers and 100% of accounts receivable from two customers).
12.
CHANGES IN OPERATING ASSETS AND LIABILITIES OTHER THAN CASH
Three months ended June 30 | |||
2006 |
| 2005 | |
Increase in accounts receivable | $ (4,306) | $ (2,209) | |
Decrease (increase) in prepaid expenses | 22 | (443) | |
Decrease (increase) in inventory | 1,033 | (1,216) | |
Increase in accounts payable | |||
and accrued liabilities | 2,087 | 4,142 | |
Effect of foreign exchange on non-cash items | 184 | 1 | |
| $ (980) |
| $ 275 |
PINE VALLEY MINING CORPORATION
Notes to the Consolidated Financial Statements
For the Three Months ended June 30, 2006
(Unaudited)
(Tabular amounts are in thousands of Canadian dollars, except for shares, price per share and per share amounts)
13.
COMMITMENTS AND CONTINGENCIES
(a)
The Company has letters of credit of $50,000 and $373,000 outstanding at June 30, 2006 (March 31, 2006 - $508,000).
(b)
The Company has entered into operating lease agreements for coal loading services, office space and equipment and vehicles at the mine site. These agreements require the Company to make the following lease payments:
Office | Office | Coal | |||||||
|
|
|
| equipment | lease/trailer | Vehicles | Equipment | loading | Total |
Nine months ending March 31, 2007 | $ 7 | $ 58 | $ 63 | $ 28 | $ 716 | $ 872 | |||
Year ending March 31, 2008 | 9 | 85 | 65 | 37 | 980 | 1,176 | |||
Year ending March 31, 2009 | 7 | 70 | 11 | 12 | 919 | 1,019 | |||
Year ending March 31, 2010 | - | 65 | - | - | - | 65 | |||
Year ending March 31, 2011 | - | 65 | - | - | - | 65 | |||
Year ending March 31, 2012 | - | 65 | - | - | - | 65 | |||
Year ending March 31, 2013 | - | 54 | - | - | - | 54 | |||
|
|
|
| $ 23 | $ 462 | $ 139 | $ 77 | $ 2,615 | $ 3,316 |